What would you do if the vacant foreclosure next door was falling into disrepair and threatening your own home's value? If you're like Homosassa, Fla., resident Lisa Cocuzza, you'd try to buy it and fix it up.
That was Cocuzza's plan five years ago when a for-sale sign went up at a vacant foreclosure across the street. Worried that the property would continue to deteriorate and soon blight her neighborhood, she offered to pay its full asking price of $69,000. But three days before the deal was to close, she said, it fell through because of problem involving the lenders who owned the home.
This seems to be a typical story line for homeowners across the country -- many of whom are growing so desperate to preserve their neighborhoods that they're willing to buy the foreclosure next door -- only to fail. The foreclosures then tend to continue to sit empty and chip away at the surrounding homes' values.
An estimated 1.5 million homes in the U.S. are bank-owned or in some stage of foreclosure, according to online foreclosure marketplace RealtyTrac. But the complications of buying one can make them difficult, even impossible, for an average homebuyer to purchase.
In Cocuzza's case, there was more than one mortgage on the foreclosed home that she was trying to buy. A second financial institution had a $14,000 lien, or claim, on the home, which meant that this unpaid debt would have to be tacked onto the $69,000 asking price. This didn't come to light until Cocuzza was about to close on her purchase. That's when she found out she'd have to pay $83,000 for the home -- an amount she couldn't afford, she said.
Ever since that deal fell through five years ago, Cocuzza said, the home has remained vacant and hasn't been re-listed for sale. She's continued to do what she can to keep the property from total disarray, she said. She clips bushes, pulls weeds and has hung a bird feeder and wind chimes.
"I kind of go over there if I see any trash that might have blown into the yard," said Cocuzza. "I put out little decorations and keep it up as best I can."
Other homeowners who have tried to buy foreclosures in their neighborhoods have faced other costly surprises.
A homebuyer in Taylorsville, Utah, lost the chance to buy a dilapidated foreclosure in his neighborhood because the bank wouldn't negotiate on needed repairs, said Darnell DeBrule, an employee at Deseret First Credit Union of Salt Lake City. The buyer was DeBrule's client.
DeBrule said the buyer "feared an investor would purchase the property as-is and have little-to-no concern regarding its effect on the neighborhood as a whole," so the buyer offered to pay the full asking price for the foreclosure, as well as an inspection. That's when things went south.
The inspection found the home to be badly contaminated with hazardous chemicals used to make the street drug, methamphetamine. When the buyer suggested splitting the cost of rehabilitating the home, the bank shut down the deal, DeBrule said.
Related: Vacant Homes Plague Neighbors as Lenders Drag Feet
The bank said it was "not putting in a dime" and now would only accept a cash offer, DeBrule recalled. That meant the buyer, who was planning on taking out a mortgage to buy the home, could no longer afford it. And it left the door open for a cash-rich investor to swoop in and snap it up.
Banks mostly prefer offers from investors anyway, said Marty Boardman, chief financial officer of Rising Sun Capital Group, a home investor based in Nevada. That's because they have deeper pockets and are more capable of paying in cash -- and cash deals, which carry fewer contingencies, are more likely to close, he said.
Their competitive advantage can be frustrating to homeowners like DeBrule's client, since "investors don't necessarily care about neighborhood vitality," said Douglas Robinson, a spokesman for NeighborWorks America, which rehabs foreclosures and sells or rents them to low-income Americans.
Along with stiff competition from investors, those who want to buy foreclosures in their neighborhoods sometimes encounter another -- surprising -- hurdle: just finding a home's true owner.
Mark Hankins, of Land O' Lakes, Fla., wanted to create a neighborhood trust to buy a nearby home that's languished in foreclosure purgatory for two years, but public records on it proved a dead end, he said. Six financial institutions have been involved in foreclosure proceedings on the property since JPMorgan Chase initiated foreclosure on it in 2009, the records show, and the law firm that manages the trust in possession of the home no longer exists.
"If somebody diligent wanted to make an offer to the current beneficial owner," Hankins said, "nobody has any idea how to contact them to make the offer."
And you'd think that if anybody could find the owner, Hankins could. He's a foreclosure attorney who wrote a book about how to cope with debt.
In the success story of Lori Hiscock, though, it's easy to see why some homeowners like Hankins would like to take foreclosures under their wings. Hiscock bought a foreclosure around the corner from her home in Granger, Ind.
The home had begun to show signs of decay more than a year ago, and someone had "put a black Christmas tree on the front porch and wrote 'bah humbug,' " Hiscock said.
Though Hiscock doesn't consider herself an investor, she bought the home in cash in June and spent $15,000 to rehab it. Neighbors were worried about the home being rented out after it sold, Hiscock said. But they warmed to the idea once they realized the owner lived nearby.
"We love the neighborhood, and we love the home, and we got to pick our new neighbors," Hiscock said.
The entire neighborhood may benefit from Hiscock's move. In one broad stroke, she removed an eyesore, fought off blight that threatened the home and propped up home values.
It also didn't hurt that Hiscock was a savvy and desirable buyer: She works as a loan officer, and she had the money to buy the home without a mortgage.
"I wouldn't have realized that making a cash offer, using a Realtor experienced in foreclosure sales, and making the offer without it being subject to any inspections would have made a difference," she said, "if I didn't know this process so well."
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