Foreclosures a bargain for homebuyers, on track to decline in Cape County this year

Kristal and Chad Flentge had big plans. They were moving to Cape Girardeau from St. Louis and looking for a house that could hold the three, or maybe even four, children they hoped to have.

They weren't specifically looking for a foreclosure, but then they found their dream house -- a two-story, four bedroom, three-bathroom house built in the 1950s with hardwood floors and built-in shelves. It was owned by Federal Home Loan Mortgage Corp., more commonly known as Freddie Mac, one of the nation's biggest buyers of home mortgages.

"This foreclosure came up and it was the perfect size and a lot less than what we were looking at paying. We really lucked into it," Kristal Flentge said.

She'd heard horror stories about foreclosed homes, where the doors were missing and the copper pipes had been pulled out. While the home the Flentges bought needed updates, it wasn't in disrepair.

"We see it as a house we will raise our kids in, from beginning to end," she said. "We plan on being here for a long time."

To their surprise, the home is appraised for twice what the couple paid for it.

The average sale price for a foreclosed home today, $91,700, in Cape Girardeau County is substantially less than the average sale price of all homes, $150,700, according to local Multiple Listing Service statistics.

"I think it's fair to say that most of these homes sell at prices below market value. Just how much below varies widely," said Bill Cole, president of the Cape Girardeau County MLS and owner of Realty Executives.

So far in 2011, 43 homes listed as foreclosures, bank-owned properties or short sales have sold in Cape Girardeau County, amounting to 13.9 percent of sales, Cole said. Right now, 36 homes are for sale in those categories, making up 6.7 percent of all listings in Cape Girardeau County.

Many buyers of foreclosed properties wanted to become homeowners and would have bought a home anyway, but there are some who decided to buy now because of a foreclosure opportunity, Cole said. Some foreclosed homes are being purchased by investors who renovate and resell the homes for a profit.

"I consider these people to be doing a great service for the neighborhoods where they refurbish a home," Cole said. "It helps the home values of all the surrounding homes."

After increasing steadily for the past few years, foreclosures in Cape Girardeau County are on track to decline this year.

From January to May, 69 foreclosure documents were filed, 30 fewer than during the same time last year, according to Cape Girardeau County Recorder Scott R. Clark.

In 2010 there were 206 filed, up from 186 in 2009 and 176 in 2008.

Nationwide, foreclosures are also decreasing. In May, the number of American homeowners who were put on notice for being behind on their mortgage payments fell to its lowest level since 2006, according to national foreclosure listing firm RealtyTrac Inc.'s monthly market report. Foreclosure filings are down 30 percent this May compared to May 2010, the company reported. This May, one in every 605 U.S. housing units received a foreclosure filing, the report said. Foreclosure rates were lower on the state and local levels with one in every 1,037 housing units in Missouri and one for every 2,100 units in Cape Girardeau County receiving a foreclosure filing in May, according to RealtyTrac.

Banks want to avoid the costly foreclosure process, said Danny Essner, executive vice president at Capaha Bank.

"I can't remember the last time we foreclosed on a house when we didn't lose money," Essner said. "Most of the time, when we get a house back, it's not in pristine condition. We almost always have to invest in the house to get it sold."

From cleanup and repairs to marketing expenses and sales commissions, banks incur a lot of expenses when initiating foreclosure proceedings, Essner said.

Essner said foreclosures are occurring on both fixed-rate and adjustable mortgages. He couldn't say if they're happening more on one type of loan or the other both locally and nationally.

There's a misperception that banks are being unfair to homeowners, but that's typically not the case, he said.

"People who have legitimate problems, banks are going to try to work with them, but there's only so much you can do if they absolutely can't make their payments anymore," Essner said.

Job loss and insufficient cash reserves can lead to foreclosures, but often foreclosures happen because people bought homes they really couldn't afford in the first place, Essner said.

Stricter underwriting standards are holding mortgage originators more accountable now than in the past, he said.

New regulations require bankers to put more focus on payment to loan applicant income ratios. They also require more documentation of applicants' income and on adjustable-rate mortgages require loan officers to take additional steps to ensure the applicant can afford the payment, even at the highest possible rate, Essner said.

mmiller@semissourian.com

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