Margaret Jackson, The Denver Post

Over the past four months, Jesse and Nanette Horn have been trying to buy their first home. They've made offers on five houses — some in foreclosure — but they're still looking. "We can't even get bids put on them before they're gone," Jesse Horn said. "Anything that's priced $100,000 or less is going within a week."

The couple started out looking in Lakewood, Arvada and Wheat Ridge, but found those homes to be out of their price range — and selling just as fast as those that were less expensive. They broadened their circle to include Aurora, Commerce City and Montbello. "We were going to put a bid in for $106,000 for a house that was listed at $99,000, but it already had a contract," said Jesse Horn, a supervisor in the Stapleton Home Depot's garden department. "We found one in Aurora that was priced at $69,000, but the Realtor told us we would have to go way above asking price to get our bid selected."

The foreclosure market may be equally frustrating for investors. Jan Pollard and his family set a goal to buy 10 houses out of foreclosure by the end of 2008. At the time, that was the most Fannie Mae would allow one entity to have a mortgage on. "Our plan was to buy distressed properties, rehab them for rent and then refinance them," Pollard said. "That would give us enough money to go buy the next house."

But Pollard was only able to buy four houses this year, with the last deal closing in July. He was getting outbid on nearly every home he tried for. "One house had been on the market for over six months and didn't have any bids on it," he said. "We put a bid in on it and all of a sudden it's got six bids on the same day. I'm thinking that's not possible."

In another instance, Pollard's investment group bid $60,000 for a property, but another buyer bid $60,050. "This happened not once, but I would say 10 times," Pollard said. "I know that these Realtors were sitting back waiting for someone to put in a legitimate bid then tell one of their buddies or investors or mother they had a legitimate bid."

Then, in August, Fannie Mae implemented new rules reducing the number of mortgages one person can have to four, including a personal mortgage. "We were dead in the water after that," Pollard said.

Part of the issue for both short sales and foreclosures is that lenders are overwhelmed by thousands of offers every day, said Mike Welk, a Your Castle broker who works with distressed properties. Many potential buyers think they can pay 50 cents on the dollar. "They're getting ridiculous offers, but they still have to process them," he said. "In that sense, I can understand why the process takes so long, but lenders should be hiring more people to cover that workload."

by Brad Carlson

Legitimate “foreclosure rescue” companies don’t attempt to get a distressed home’s deed, said Meridian-based attorney Lance Churchill, who teaches real estate investment and asset protection through his Frontline Seminars entity.

Idaho does not regulate foreclosure consultants specifically, he said. Foreclosure rescue is subject to Idaho’s consumer protection laws, and to some extent its credit repair laws depending on how a company advertises, he said. “If they are truly a foreclosure rescue company, the deed is never going to change,”

Churchill said. The rescue company will help the homeowners “solve the problem” through approaches such as modifying the loan, setting up a payment plan, or arranging “short” sale wherein the lender agrees to accept less than the amount owed. “They should merely act as negotiator for the homeowner, with the lender.”

One increasingly common approach – which sometimes is called “foreclosure rescue” but technically is not – involves investors, he said. The investor seeks out a homeowner who is in default or some stage of foreclosure. The homeowner transfers the deed to the investor, who tries to sell the home before the foreclosure is completed.

If the home sells, the investor takes any profit, the borrower gets whatever compensation agreed to at the outset, and the default or foreclosure process is stopped, Churchill said. But if the home does not sell, the foreclosure is completed in the name of the original owner, he said.

The party that holds the deed has the right to sell, but “transferring ownership does not eliminate liability for the loan,” he said. “All of it is pretty much legal, as long as it is disclosed and there has not been any misrepresentation,” Churchill said.

Idaho Attorney General Lawrence Wasden and state Department of Finance Director Gavin Gee in mid-2007 jointly issued a warning about foreclosure-rescue schemes. Absent fraud or deceptive practices, Idaho law will not protect people from pitfalls such as giving up equity or overpaying to rent or repurchase the home, Wasden said in the release.

Gee recommended borrowers contact the lender as soon as they encounter trouble making their mortgage payment. While that process is underway, they should seek input from established organizations such as certain government agencies, legal assistance groups, and licensed credit counselors.

More investors now seek to acquire houses through a short sale for less than the amount owed, Churchill said. This gets the borrower out of the foreclosure process and the loan. The borrower may have tax liability on the forgiven debt, but a December 2007 federal law forgives that debt in most cases, if the home is the borrower’s personal residence, he said.

About half of home sales in California are short sales now, because of price declines and buyers’ heavy usage of 100 percent financing, Churchill said. In southwest Idaho, about 6 percent of total listings in Ada and Canyon counties are short – a percentage that will rise as long as prices are flat, he said - compared to less than 1 percent a year ago.

Real Estate Marketing owner-broker Patty Haney, based in Boise, a decade ago started specializing in marketing distressed properties. She sees an increase in the number of people offering courses on marketing, and investing in, distressed properties. She also sees an increase in the amount of misinformation disseminated on short sales.

“They think that all they have to do is get a party in default and ask the lender to take less,” Haney said. “So they submit low-ball offers to the lender.”

Now, lenders have so many short-sale proposals under consideration that it can take two to four months to analyze and process one, she said. “Most of the time the low-ball offers get kicked out. As a result, (borrowers) are out of time, and then the property goes through the foreclosure.” Some houses that could have been sold with appropriately priced short offers now instead

go through foreclosure, because of ramped-up investor activity over the last 18 months that inundated lenders, Haney said.