WELCOME TO THE FORECLOSURE JUNGLE

Janet buys homes for up to 75 percent off—critters and all

THE REAL ESTATE COLLAPSE that began in 2007 led to misery for many Americans, who either lost their homes to foreclosure or saw the values of their homes plunge, erasing tens of thousands of dollars in home equity, and in many cases trapping people in houses that were worth less than what they owed on them.

But for some people, the drop in property values and wave of foreclosures created opportunities. One of those people is Janet Boyd of Berwick, Maine, a town of about 7,200 residents that sits beside the Salmon Falls River, about six miles from the New Hampshire state line.

Janet’s son Dan, twenty-eight, was living at home and working at a bank, and fifty-four-year-old Janet was thinking a foreclosure might be just the right thing for him.

“I was watching [HLN’s] The Clark Howard Show on Fannie Mae foreclosures on September 25, 2010,” Janet recalls. “Right after the show aired, I searched online and found a property for $40,000.”

Janet immediately made an appointment to look at it two days later. It was a small three-bedroom home in nearby Sanford, Maine, with about 1,020 square feet of space on a good-sized lot. Fannie Mae listed it as built in 1950, but Janet said the house, a former post office for Sanford, is older than that.

It had previously sold for $165,000 in 2007.

Janet and Dan offered $35,000 in cash, got a $38,000 counteroffer, and settled at $36,000.

They closed on December 8, 2010.

Dan was prequalified for a mortgage up to $40,000.

“This sale had to be a cash-only sale so I decided to help him out,” said Janet. “We purchased this house together, and Dan will eventually get a mortgage to buy me out. I would say it is his house done by my deal.”

As with most foreclosures, Dan’s house needed some work, as a home inspection determined. Oddly, it had no insulation, despite its location in wintry Maine.

“Dan spent that first winter living with us until we got all of the cosmetic repairs and insulating done,” Janet said. “We painted all the ceilings and walls, replaced all the carpeting, put in a new kitchen floor, reinforced the sagging floors up from the basement, and installed a new hot water heater. It cost about $5,000.”

So all told, they spent $41,000 for the house, 75 percent less than it had sold for three years earlier at the height of the housing boom.

Dan got married on December 30, 2011. He and his new bride love the house. It still needs a new furnace, but it is a work in progress.

Actually, this house wasn’t Janet’s first foreclosure, and that one too was a product of the housing bust.

“I had helped my oldest son, Dennis, buy a foreclosed house in 2008,” she said. “We paid $72,000 for a house valued at $140,000.”

That house, about a mile away from brother Dan’s house, needed $20,000 in repairs, and just taking possession of it was a bit of a challenge.

Janet first saw the property in April and didn’t get a good look at it except for noticing a lot of boxes that looked to her like “an organized mess.” When they bought the house in September, she learned that the previous owner had a boa constrictor for a pet and raised rats to feed the snake.

Dennis gave the guy a few extra weekends after the closing to get his stuff out of the house, but Janet was in there trying to fix things up, and she could see and hear the caged rats. It reminded her of the 1971 movie about a social misfit who leads a rampage using an army of rats.

“I was in there painting and it was like Willard,” she said.

The boxes the previous owner had were way more abundant than she thought, Janet recalled.

“The upstairs and downstairs looked like an episode of Hoarders.”

Dennis actually bought an old refrigerator from the previous owner and found a dead boa constrictor inside it, wrapped in a plastic bag.

“In a million years, who would have thought there’d be a dead thirteen-foot boa constrictor inside?” she said.

Janet learned from Dennis’s purchase that you have to see the inside of a foreclosure before buying because you never know what surprises await. Dennis, thirty, still owns the house.

Janet says she’d definitely buy a foreclosure again. In fact, she was looking at another property the weekend before we did this interview, a $65,000 house in her own town of Berwick.

She missed the open house, and when she went back to see it with the Realtor, she noticed water. Since there hadn’t been a lot of rain in the area, that probably meant mold and the possibility that the house would need to be torn down. And $65,000 would be a lot in that area for two acres of land. So this house was a no-go.

Her daughter Jennifer, twenty-three, who works at a local hospital, might be in the market soon for a house.

“I’m thinking if I can buy them all a house, they won’t land back here.” Janet laughed.

Janet, who’s originally from Rhode Island, came by her frugality from her parents, who grew up during the Great Depression.

“I learned at a young age the value of saving up my money,” she said. “We never went without, but we never took things for granted. I had a paper route for ten years as a kid. Towards the end of it I drove because I had saved enough money to buy an old clunker!”

Janet’s husband, Dennis Sr., fifty-five, recently hit a deer on a rural road near her house, and the accident damaged the hood of his Chevy Prizm. Did Janet and Dennis go to a body shop and pay hundreds of dollars for the repair? Heck, no. They found a similar hood, the same dark green color, at a junkyard, and asked the junkyard owner who might be able to install it.

That led them to Little Freddy’s Auto Repair in nearby Barrington, New Hampshire, and to Janet’s delight, Little Freddy had the Prizm up and running for less than $200.

If you want to buy a foreclosure, what can you learn from Janet’s story?

Search for foreclosures the Clark Smart way.

• When Janet tuned in to my TV show a few years ago, she heard me talking about HomePath.com and quickly logged on to find the foreclosure she would buy for Dan. HomePath.com is a site designed to unload the foreclosure inventory of Fannie Mae, a large government-chartered organization that helps underwrite mortgages behind the scenes. There’s a similar organization called Freddie Mac and they operate a similar website called HomeSteps.com to get their foreclosures off their books. Both are free to use. But don’t just rely on Internet listings; you need to get out there and see the houses you’re interested in!

Hire a home inspector.

• As Janet found out, homes can have a lot of hidden problems. That’s why I’ve always recommended that you hire a home inspector anytime you buy a used home. Make sure the inspector you hire has experience inspecting foreclosures. I prefer inspectors that are certified by the American Society of Home Inspectors (ASHI.org). And let’s not even mention the snakes and hoarders and rats that your home inspector can’t exactly do anything about!

Buy owner’s title insurance.

• Most foreclosures are bought outright with cash. It’s very important to protect yourself from the possibility that someone might come along and contest your ownership of a foreclosure. How do you do that? By purchasing a little-known policy called “owner’s title insurance” (aka simultaneous title insurance).
• There’s a big misconception that when you buy a home, you’re paying a premium for title insurance and that protects you. No! That insurance just protects the bank. Don’t rely on the title insurance the lender buys; you need to buy your own. EntitleDirect.com sells title insurance directly and can save you up to 35 percent, though that figure varies widely by state.

Cash is king.

• Cash is king right now in the real estate market. As Janet’s story shows, the scenario of paying cash for real estate isn’t entirely unrealistic. According to research firm Crane Data LLC, Americans had $2.6 trillion in money just sitting on the sidelines in money-market funds earning almost nothing at the end of 2012. So if you’re among the millions of Americans who have money—but are clueless about what to do with it—let Janet’s story be food for thought.
• One additional word of caution: You need to have the right personality to buy distressed property. You need to be willing to put up with the grime and the gross and see the potential in a house if, as they say in the real estate industry, the bones are good.