On this episode, Scott discusses the foreclosure numbers from the top 10 states for foreclosures filings in July 2017.
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Top 10 Foreclosure Markets
This topic of today I think is going to lead to a lot of questions and actually give a lot of note investors out there some insight into potential markets and states they want to be looking at. One of the things that we always talk about when we’re out talking with investors or speaking is the United States is a large market. That’s a lot of places trying to figure out when you’re brand new. One of the things I am known for telling people is unless you have a tremendous amount of foreclosures in your backyard that makes sense for you as an investor, you probably need to be looking at focusing on five specific markets, five states to buy assets in or to buy the debt in. One of the things that I think that the note business bucks the traditional system is many times you have companies that like to talk about the foreclosure filings, “The foreclosure filings’ here. Foreclosures are up here.”
One other thing they have to look at is checking the state and identifying and understanding the foreclosure timeframe in each state. Some states are longer than us. Sometimes they’re shorter than each other. That’s always the weird correlation that we have to draw from, “It’s great that foreclosure’s up across the market.” I’ll give you an example. Florida is about a 12-month foreclosure timeframe. Foreclosure filings are up in Florida, defaults really started happening beforehand. They started happening a year before. That’s when the domino started to fall. That’s when us, as note investors have the opportunity to get involved before it goes to foreclosure, which we often see a lot of stuff six to twelve months before it ever hits the foreclosure auction. That’s the beauty of it. We have to opportunity to come and buy the debt and then workout hopefully a true win-win scenario with the borrower to make things happen.
Let’s dive into these markets. What we’ve also done is the staff’s been good about pulling median home prices in specific states. I think the best thing to do is let’s go through the markets, one through ten real fast. As always, if you’d like more note information, feel free to text “Notes” to the phone number 72-000 and we’ll be glad to send you some great information to help you on your note journey. Let’s dive into the numbers here.
The article comes from Bankrate, which they’re really good about posting stuff out on basically about a monthly quota basis. According to ATTOM Data Solutions, year-over-year foreclosures are down basically 10.5% from June to July. They’re down 10%. They plummeted 23.3% year-over-year. We are down a fourth from what they were last year. What does that tell you? The inventory is getting a little tighter as far as foreclosures but we still see a lot of stuff in these top ten markets. There are a lot of places, a lot of markets out there that homeowners are having a hard time making their mortgage payments on time through a variety of things.
Honestly, most of these markets are stuff that we buy in on a regular basis except one or two of them. We think these are some great opportunities as note investors because you’re going to see deals six to twelve months ahead of time. Number ten is Utah. Utah is up 59% than it was compared to last quarter. It’s basically one in every 2,000 homes in America; one out of every 2,017 homes in America is in foreclosure. In Utah, it’s one out of 1,731 housing homes. 251,000 is the median home price.
Why do we think foreclosure’s up? Utah is a relatively faster foreclosure market. The thing we don’t see a lot of most of the time, we don’t see a lot of debt there that we can buy for the most part. There is defaulted debt, it’s just that since it’s a faster foreclosure state, oftentimes that stuff gets gobbled up relatively quickly. You have the areas of Salt Lake City, great market to be invested in, it’s got a big upswing in foreclosures over the last year.
Going back five years ago is when we started seeing most of the Home Affordable Modification Programs kicking in, especially five plus years ago. Those are starting to definitely be default. 85% of those low mods are defaulting across the United States, and Salt Lake City had a large chunk of those and not just Salt Lake City but Utah had a large chunk of those. A great state, love that area, I’ve been going there for years, definitely a very positive place to buy. You can make some money out of this stuff. It has rebounded strongly since 2007.
Let’s move on to number nine foreclosure market is North Carolina. North Carolina is also a surprise because it is a faster foreclosure state, roughly about 90 days. They’re down about 5%, down 4.9% in total foreclosures. The national foreclosure rate of every 2017 homes, this had one in every 1,726 housing units received a foreclosure filing in July. The median home price of this one of North Carolina is 162,000. It’s one of the lower priced states compared to some of the others on this list but still a really positive place to live. You’ve got Charlotte that’s blowing up like crazy. You’ve got Raleigh-Durham, you’ve got Greensboro. You’ve got some really great markets in North Carolina. North Carolina has been a great market for note investors for years. We have seen the prices escalate some in North Carolina because it has a shorter foreclosure time period, which has led to a lot of investors buying there because they can flip it relatively quick if they do end up foreclosing.
Moving on is Connecticut. Connecticut, you come as number eight foreclosure market. For such a small little state, it’s in the top ten. This one is surprising because it’s one out of every 1,600 housing units. 1,686 in specific received a foreclosure filing in July. That’s down to 33.9% from June. That is still disturbing. Median home price in Connecticut is 246,000. We don’t see a lot of stuff in Connecticut, occasionally some stuff. There’s a lot of local banks there that if you’re targeting Connecticut as one of your markets, I would be calling the local regional banks certainly and be in there trying to track down stuff. Oftentimes, Connecticut is not the shortest of foreclosure timeframes. You get a lot of people that live in New York that make the commute back and forth especially in the weekends and things like that. Connecticut, you’ve got some exciting stuff there. It’s grown back strong as well. What’s disturbing is it’s still on the top ten and it’s still down at 33.9%.
Foreclosure market number seven is one of our top states that we really enjoy, South Carolina. South Carolina has gone through a tremendous growth over the last five to ten years. It has become a very popular state for note investors who have moved from Florida because Florida was getting pricier and recovered stronger but South Carolina is slowing down a little bit. There was a slower growth period than how Miami, Tampa and the rest of Florida recovered. One out of every 1,450 houses received a foreclosure file in July. That’s down 12.9% from June. Median home price in South Carolina is 146,000. There’s a lot more affordability. What’s disconcerting is that foreclosure’s up. We have a lot of homes being bought in South Carolina; people are moving there from other areas. It is about a twelve-month timeframe to foreclose in South Carolina but usually what is happening is somebody’s bought a note there and had to go in through the twelve-month time to foreclosure, the property value has come up quite a bit so you’ve built some equity with your foreclosure sale. We still have plenty of deals that get modified and reinstated in South Carolina as well.
Foreclosure market number six is Ohio. Ohio is no surprise to be on this top ten list. It’s been on it basically for the last few years. It is down a solid 7%, not 33% or 59% compared to the others. It’s down a solid of 7%. It still has one in every 1,370 homes received a foreclosure filing in June. Median home price is 128,000. It’s the cheapest market out of the top ten but it does have some great, very attractive markets if you’re a note investor. Ohio definitely has got Columbus, Cleveland, Cincinnati has done really, really well, Dayton, Akron, Canton are some outlier markets as well. They’ve done really well for investors when you’re buying cheap enough and get them reinstated. Once again, it’s about a nine to twelve-month process to foreclose in Ohio.
While they’re down a little bit, stuff has been defaulted in Ohio for quite a bit. Honestly, I’m a big believer that Ohio has been cheap for years for over almost a dozen years. You could pick up stuff very, very inexpensive in Ohio from banks and hedge funds and it’s still one of the cheaper markets compared to the rest. Appreciation has kicked in as things are starting to increase and values are starting to go up in Ohio, which is making it attractive and it still leaves you with a lot of opportunities there as a note investor. Definitely a great place to be buying notes at and trying to avoid this foreclosure market and foreclosure timeframe.
Let’s go into foreclosure market number five. It’s Illinois. I am not a fan of Cook County. I would love to see the actual numbers between Cook County and the rest of the state, we don’t have those. Illinois is down 10.3% compared to the last month. You still have one in every 1,355 homes received a foreclosure file. Median home price is 221,000 in Illinois. I think Chicago brings that price point up where the rest of the state is a little bit more moderately priced. I do not like foreclosing in Cook County. We do avoid them at all cost. They are not a fun city to work with. One of the things I tell note investors is, “If you’re going to buy in Illinois, make sure it’s not Crook County.” Other areas, other cities, other counties are much easier to deal with. Crook County is just not fun.
There’s still a lot of opportunity out there; a lot of great places outside of Chicago in Illinois for you to basically take advantage of and to come and pick up something that makes sense for you as a note investment. This one does not surprise me. Illinois, what they did a couple years ago, they tried to enact the expedited foreclosure process if it was a non-contested foreclosure and trying to get it done in 100 days. That’s not always worked out well. It’s not been 100 days for a lot of the non-contested foreclosures. It just drags on because of the court proceedings but really still a lot of opportunity. We just bought some stuff in Illinois outside of Chicago and it’s worked out pretty well for us.
Number four foreclosure market is a state that has continuously been in the top five for the most part, Florida. Florida’s been led by Tampa and Miami, really bringing the state back as a whole. We still saw 1,248 foreclosure filings in the state in the month of July. That is down 7.6% month over month from June of last month. There is still a lot of opportunity in Florida, especially that many foreclosures taking place. Lots of money has been made in Florida over the last couple of years. You’ve seen foreclosure timeframes taking twelve months or greater, sometimes less. Florida is almost completely the opposite of what Illinois has done. Florida has done a really good job trying to get through the foreclosure process. A little bit tricky stuff, I’ve had to fly in Florida a couple of times to actually show up as a witness of my own foreclosure trial when we we’re foreclosing which always makes for an interesting timeframe.
Miami, Tampa have rebounded strong. Southwest Florida, we just had our Mastermind group in Cape Coral, one of the most attractive places in the country, one of the top three or four markets that people are moving to from across the United States. With a median home price of 209,000 it’s a little bit cheaper than Illinois. I wouldn’t throw that in there because there are a lot of places that are less expensive than Miami, Tampa or even Southwest Florida, which is one of the most expensive areas of the state. There’s still plenty of opportunity to have something that will cashflow for you decently if you’ve got to turn your rental or something that will cashflow for you quite nicely if you get it reinstated.
KC asked, “Is that because you’re reinstating so many?”
We see a lot of good stuff because we’re getting stuff reinstated for the most part. I think it’s what he’s asking about his question. We do like states where we can reinstate. It doesn’t really come down to the state. It comes down more so to the borrowers and what we have done in the frontend in tracking down the borrowers and seeing are they working and if they have a working number in the collateral file that we can call to check to see if it’s active before we actually purchase on it. Getting stuff reinstated is always a great thing and it’s also our number one exit strategies or one of our workout strategies so that we can exit the asset in six to twelve months. We’re re-performing note sale or just keep it for long-term cashflow.
I think foreclosure market number three, two and one need drum rolls because there is a lot of stuff going on there. We’ll start with number three. Number three is a state that’s not really surprising to some people, it’s Maryland. Maryland ranks number three. Median home price is just under $300,000 but they are below a thousand foreclosure filings in July. 868 were filed last month. This is down 3.1% compared to last month, the month before last. There are still some opportunities there. I love Baltimore. This is not DC. This is the Maryland state itself. I love Baltimore. I made a lot of great money in Baltimore. We have some great students that are in Baltimore: Garrison Gilbert, Stacy and Karen Wall from back home.
There have been some rough areas in Baltimore, don’t get me wrong. Ten years ago, I would be scared walking around some areas in Baltimore. In the last couple of years, not so scared. They’ve taken a really good job the city has done working with local investors to really help re-gentrify the markets and re-gentrify the neighborhoods. I love that little Italy area, the downtown Inner Harbor area there around Baltimore, a great area to invest in but there are other areas outside. Hagerstown is a great little market as well. I’ve got to give my buddy, Mike Fitzgerald, a shout out there. He is quite the politician investor. Maryland is number three. Median home price just started at $300,000. You definitely have a lot of lower valued homes below that $300,000 price range that make for great opportunities for you guys to buy the notes and look to reinstate and have a good ROI.
Foreclosure market number two, our buddy, Dan Zitofsky’s home state of Delaware. Also Peggy Sue, Mitchel and Mitch Mitchell call Delaware home. This is a surprising aspect to it because I don’t usually see it in the top ten for us, especially top three. This has just one out of every 808 homes receiving a foreclosure file in July. They’re down 4.8% from June and the median home price of Delaware is 215,000 across the board. It’s a smaller state.
You’ve got some decent markets there. You’ve got to be careful. I know we’ve got several investors that live in Delaware but there are specific areas that you want to avoid because it’s a rougher timeframe. Delaware still has a good chunk of foreclosures that are being filed, which means plenty of opportunity for note investors locally and you want to stay local.
That leads us to the foreclosure market number one, New Jersey. New Jersey had one out of every 633,000 received a foreclosure filing. That’s the highest rate in the nation as of June. It’s down 8.2% compared to June of this year. Median home price in New Jersey is $305,000. Basically, it was the second highest compared to Massachusetts that we found numbers-wise here. Big population, lots of foreclosures still happening, long timeframe. I believe New Jersey’s going to lead this list still for quite a while yet to come. I don’t like the foreclosure timeframe there when you’re seeing 12 to 24 months in New Jersey. I don’t buy a lot of stuff in New Jersey. With the median price range being at that 305, 300-plus range, your best bet to make money if you’re a note investor is to buy stuff that’s vacant and non-contested.
They do have a pretty good handle on their expedited foreclosure for non-contested foreclosures. We know that there’s quite a few investors that we know that are taking advantage of that but they’re not looking to modify and they’re not going to reinstate. They’re looking to foreclosure and then sell some REO. The biggest thing in New Jersey is making sure if you do buy some stuff that it is vacant so you don’t have a big fight from the borrowers. If you do have a fight from the borrower, it can drag on. A couple of things that I’ll be willing to bet that are leading the area there in New Jersey continuously besides just like the Newark area, Atlantic City has been hit very hard over the last couple of years. I don’t think New Jersey has yet recovered from the hurricane for the most part there that hit Katrina and Rita and stuff like that. There are still a lot of areas there that are rough and they’re still trying to dig themselves out of a hole for the most part.
If I had to pick my top five, if I was a new investor and just going off this list, I would have Ohio in there, I’d have South Carolina, I would have Nevada, Maryland and I think Illinois would bring up my number five outside of Crook County. Those would be the five that I would pick. I actually love Florida. Florida has been a lot of money there. I would probably avoid Miami and Tampa for the most part because those are very, very hot markets. Anytime you see something in those neck of the woods, it’s going to be expensive for the most part.
I’m just not a bigger, higher price kind of guy when it comes to my assets. When I look at, “Am I going to buy one asset in Massachusetts or can I buy eight in Ohio?” I know some people don’t like the lower valued assets and that’s completely fine. You don’t have a team in areas or if you’re going to buy lower valued assets, especially if it’s something you end up having to foreclose on, you’ve got to make sure you’ve got a great team to help you out with some stuff. Otherwise, they will eat you alive with expenses and repair costs and things like that.
The top ten markets like this, these adjust. We always see it shuffle from month to month. It’s what goofed us up originally. We were looking at one from a year ago and had something with 899 on the states. This is actually the most recent article that Bankrate put out a while back. Doug Whiteman put this post together, Top 10 Worst States For Foreclosures at Bankrate. You’d find Doug at @dougwhiteman on Twitter. One of the great things about this list is if you take it correctly, take this list and identify these states as potential opportunities for yourself, especially for the top five that you like, you can really hone in on your marketing. You can hone in on the asset managers. You can hone in on the banks, the regional banks specifically that have these five or ten states in their lending portfolio.
Nevada, I’m surprised about that, why it has had a lot of foreclosures over the years. I think you’re going to see Nevada bouncing up a little bit. Nevada is also one of the hotter markets growth-wise as far as people moving to the state. There are a lot of people from the Bay Area moving to Nevada because a lot of the middle class is getting squeezed out in the San Francisco Bay Area because prices are going up. People are moving to Nevada, specifically in the North Las Vegas area because there’s more affordable homes. They’re a lot more affordable at 240,000 on average across the state versus a $500,000 to a $1 million median price in the Bay Area. You also have a lot of people that have been renting in San Francisco, moving to Las Vegas getting homes that are also defaulting, a newer default. Specifically seeing a lot of that with our conversations we’re having with the banks and asset managers.
The thing to keep in mind as well is you’re going to need attorneys in these states. One of the big things I would focus on is reaching out and making some phone calls to foreclosure attorneys in these states. A great resource for finding foreclosure attorneys in any state is using a very simple website put up by DSNews.com, LegalLeague100.com. It will give you an amazing list of attorneys and what they specialize in and the states that they work in. A great place to find attorneys to add to your vendor, your team because you need a good team to make things happen, especially if you’re going to be buying in New Jersey.
If you have a high foreclosure rate, 1,500 or 1,700, you have to keep in mind too the size of the state. Connecticut is ranked in the top ten here but we don’t necessarily see a lot of stuff that neck of the woods. I don’t see that much stuff in Massachusetts so I was surprised about that one. Occasionally, I see some stuff but most of the time we don’t. The eastern, especially the northeast part of the country, you usually have a lot more financially educated communities: Massachusetts, Connecticut, Delaware those up in that neck of the woods. I was surprised that we didn’t see New York on this list anymore. New York has always been a longer foreclosure timeframe and they didn’t even make to top ten. That is very interesting. It could be that it’s still waiting for things and getting ready to file foreclosure here for another year because it is a longer foreclosure process.
We talked a couple episodes about business models, and this ties into episode 151 or 152. The thing to keep in mind in here is obviously you want to try and reinstate. Your biggest number to look at when looking to reinstate is really your purchase price. If you’re just buying assets that are in the 65,000 range or greater and you’re buying on an individual basis, you’re probably going to be paying in the mid-50% of fair market value, not UPB, not unpaid balance. That’s one thing to keep in mind. If there’s a shorter foreclosure timeframe, on this list we had North Carolina was on the list with a fast foreclosure state and Nevada, relatively fast. Those states have a faster foreclosure timeframe. You’re going to have a little bump up that too because it is faster foreclosure. Instead of paying in the 50’s, you’re probably paying in the low 60’s.
Those purchase price, when you compare with the mortgage payment is and market rent, specific markets, that can also affect your return on investment. There was a great article out a week ago on the top 25 rental markets that talked about the price point and the average ROI when you see compared to what the market rate is versus purchase price and the returns that happen for people. You can take this as your first layer. If you’re looking for defaulted notes, this is the place to look for and go from there.
There was another article out that gave a much larger list, ranked everything out. Here’s an article that listed everything, actually it gave us the list of the full running list of the states. I’ll give you a breakdown. We covered the top ten here. New York came in number eleven. That’s not a surprise. I knew it would be there pretty close. North Carolina, and this as of April, was number twelve. New Mexico was at thirteen. Alabama, fourteen. Maine was fifteen. Oklahoma was sixteen. Indiana was seventeen, that’s fallen quite a bit down 39%. Pennsylvania was eighteen. Georgia was nineteen. California was number twenty.
Brady Dirk, “Do you see note buyers leaving or rewarding Georgia with a change in licensing requiring for one asset?”
Yeah. I’m going to give you a little background. The State of Georgia requires you to have a licensed mortgage broker’s license if you’re going to be buying debt there in Georgia. Basically, if you bought less than four assets in a year, they let you slide. They’ve gotten more aggressive on that to the point now that if you’re buying at least one asset per year, they want you to have a mortgage broker’s license. Two things: One, it could be either the state’s looking for more licensing fees, which is always what I believe, and second, they’re looking to crack down those people who are doing some stuff.
I’m not a big proponent of buying stuff in areas that you need a license and doing it without a license. I am a licensed debt collector in Illinois. For licenses that required there, I paid for that. I haven’t bought anything in Georgia in a while. Most states consider contract for deeds to fall into that mortgage clause. They want you to have that aspect as well to keep that in mind. Brady, I do see a reduction in note buyers in Georgia. What does that mean? If you go out and do get a mortgage broker’s license or do get that licensing, it leads to an opportunity for you. It leads to an opportunity for you to be able to buy stuff that not everybody else can buy legally.
About a month and a half ago, we broke down a list of a chunk of Georgia assets on one of our note funding new drafts. A few people purchased some assets there as well. The biggest thing to keep in mind is you’ve got to have that mortgage broker’s license. There’s nothing against you partnering with somebody, another investor who has that mortgage license. That’s an opportunity for you to do to be able to legally talk out to these buyers, “I’m licensed in this state.” One of the great things you can do though if you’re looking to buy notes, we do regular note drafts, you can go to WeCloseNotes.com. One of the three buttons that pops up as you scroll down a little bit, you’ll see the first one says, Buy Notes. If you click on that link that will allow for you to register to be alerted of our next round of note draft and assets we have available.
This time around, we’re going to be breaking down about 50 performing contract for deeds, 40 of them have at least a year or more in seasoning. 30 of them I think are over two years in seasoning. They’re being serviced by Evergreen Servicing. It’s a private seller who has these who’s looking to move a large chunk. This is just a small chunk of his overall portfolio but he’s looking to move as well.
Back to the list. Our home state of Texas ranked low on here; came in at 39th as far as the number of homes. It’s one out of every 3,200 borrowers who’s facing foreclosure. It’s down 18%. Surprisingly Alaska was number 40, a lot of igloos are being foreclosed on or mobile homes in Alaska. The slowest state was South Dakota. South Dakota, one out of every 24,000. The District of Columbia came in at one out of every 2,000. If District of Columbia was a state, they’re down 43% month over month compared to June. If we see here 2,300 would put them somewhere around number 22, 23, right between Rhode Island and Oregon.
One thing to always look and keep in mind as well is everybody has a different business model. There are a lot of similarities in business models but keep in mind, you’ve got to identify your opportunities. We just posted the state by state breakdown from the April quarterly where it came on the top 50 states, all 50 states ranked so people can see how their state ranked. The thing to keep in mind, if you’re reinstating and stuff, you always got to look at what’s the existing payment versus rent. One of the great things to do if you identify a state, go out and find what the market rent rate is in your bigger cities because that’s where you’re going to see a lot of stuff.
Try to avoid the rural areas for the most part, everybody. Pick the major markets. Pick the major cities. I always like if it’s got a pro sports team, either NBA, NFL, Major League Baseball, NHL, even MLS now, I guess you could throw that in there, along with a major university, top big five programs: Southeastern Conference, Big Ten, Big 12, SCC, ACC. I’m not saying that you can’t find, there’s a pretty good sized universities that fall outside of that, I totally agree with that but that gives you an opportunity. Worst case if you’ve got to turn your rental to have a true rental market of either students, student housing that you can get a little bit more per bedroom basis versus house basis. There’s a lot of opportunity out there. You’ve just got to know where to go.
A lot of investors get stuck dealing with just low-hanging fruit of just buying from the one to two sources and relying on those sources to feed them. If you really want to be a true note investor and really capitalize on what’s going on, you’ve got to use this information like the top ten or the 50 foreclosure states’ numbers to identify the areas that maybe will show up in six to twelve months as a foreclosure on the MLS or on a foreclosure list. You can take advantage of that and get on those deals ahead of the time. It’s much faster than sitting around waiting to react. You can be offensive versus defensive in your investing.
As always, you can catch past episodes on iTunes or checking us out on the WeCloseNotes.com website under the podcast tab. We love hearing from you. We thank you for all the great feedback, all the great questions and for joining us daily on the Note Closer Show Podcast. Once again, if you’d like to get more information on any upcoming events or things like that, just text the word “Notes” to the phone number, 72-000 and we’ll make sure and add you to our database to alert you on upcoming events. Have a great day. Go make something happen and we’ll see you all at the top, everybody.