Thursday, May 10, 2012

Can't Always Get What You Want: 332 Macdonough Street

Everybody and their mom wants a foreclosure in this market because they think it's some magical trick to avoiding the skyrocketing costs of legitimate listings. Well, the truth is, foreclosures come with their own can of worms. First of all, in most cases, you need all-cash. That alone knocks many out of the running, except only those with deep pockets and plenty of experience. Foreclosure auctions themselves can be terrifying because you have little-to-no information on the property, its tenants, and no due diligence period to try and get clarity on those issues. With so many buyers lurking, few worthwhile properties even make it to foreclosure auction in the first place, and most of the best properties sell in pre-foreclosure.

Even pre-foreclosure can be another red herring. Many owners in pre-foreclosure still aren't motivated to sell, and why should they be? As Bloomberg reports here, Brooklyn is the slowest county nation-wide to actually bring a delinquent home to foreclosure, with an average over 3 years. You repeatedly see liens from the bank placed on the same property in continuous & consecutive years, without anything really happening to it. For example, one property with a lien from 2008, 2009, and 2011. All for the same amount (usually with accruing interest) that the homeowner wasn't able to pay many years ago. After all that, even if you do manage to find yourself a homeowner in pre-foreclosure who's motivated to sell, that doesn't necessarily mean they want to sell to you and only you, or to sell for any kind of bargain.

Last January 2011, Wells Fargo slapped a lien on this property at 332 Macdonough Street in Bed-Stuy for the mortgage amount of $490K (from 2007). As the owners were at threat of losing the home (which doesn't actually involve much of a hurry), months later Platinum Members had a chance to take a stab at the property. Lots of interest could be generated for a healthy 19' x 45' double-duplex brownstone right by the church like this. We were told they wanted $850K, but we all know how that goes. The price piqued no one's interest and was essentially a non-starter, amidst a climate of non-distressed double-duplexes going in contract for much less than that.

In a pattern that's all too familiar, an LLC swooped up and bought it last month for $350K all-cash. So much for the $850K they wanted, or the $200K+ more they could've net if they'd just shown it to Platinum Members and told them to bid, instead of starting with an inflated price that the house wasn't ever going to get. It's a shame that a deal beneficial to both parties was squandered for ships passing in the night.

Pro's: curb appeal, healthy double-duplex, right next to the church on a great block, not far from the train as Bed-Stuy goes

Con's: mishandled pre-foreclosure, no interior pics, non-starter price prevented a much better price from happening

Ideally: low-balling doesn't work in the prime areas in this market, but cash offers at any price are definitely worth putting in to any distressed sellers

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