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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2014

Rising Above the Distressed Challenge

Investors may be the answer for selling troubled properties

As the residential real estate market continues its slow recovery, the challenges for mortgage bankers and lenders remain acute. The fallout from the economic crash is still visible in many states and suburbs throughout the nation: Half-finished homes, abandoned properties, dilapidated multifamily complexes and foreclosure signs blight the horizon. In this situation, there is no easy recovery. It can and should happen with the aid of the right experts, but recovery remains elusive to many — and the numbers back this up.

According to RealtyTrac, foreclosure filings this past October were reported on more than 133,000 U.S. properties, a 2 percent increase from this past September. The study indicates that one in every 978 U.S. housing units underwent a foreclosure filing during the month. The five states with the highest October foreclosure rates were Florida, Nevada, Maryland, Ohio and Illinois. Bank repossessions also increased year over year in 15 states, including Oklahoma, Virginia and Washington.

In devising a solution that satisfies mortgage bankers, homeowners and prospective buyers alike, there must be greater outreach toward experienced investors. These investors should include those who specialize in the purchase of distressed properties either as a means of rental income upon refurbishing a home or as a source of profit following the renovation and sale of a home, which often has the added benefit of stabilizing the prices of nearby properties.

Those rewards aside, one point is indisputable: If mortgage bankers don’t reach out to veteran investors — not speculators who may in the end only make matters worse — the real estate market will not recover as rapidly and healthily as it should. In turn, the broader economy will stay stagnant, unemployment will endure at an unacceptably high level and related industries will languish or dissolve. Even worse, owners of distressed properties will continue to suffer.


There are answers to this predicament, however. The parties involved can fix the situation, regionally and nationally, provided that they recognize and reconcile their respective needs.

For lenders, that means offering an alternative to foreclosure, as many banks don’t want and can’t afford to take possession of tens of thousands of homes across the country. For homeowners, particularly those underwater and unable or unwilling to make payments on a property where they may never recoup their original purchase prices, there’s a way to be free and move on without the stress of impending foreclosure or financial ruin. Namely, investors have an opportunity to buy distressed properties that meet certain criteria based on cost, estimated appreciation, required repairs, upkeep expenses, conversion into rental income or short-term profit. In doing so, these investors offer opportunity, not a financial albatross or reminder of a massive boom gone bust.

The key variable in this equation — the one thing that all parties can control — is a duty to initiate contact with seasoned investors in a given city. They, too, read the headlines and see the physical consequences of the recession. With collaboration and dedication, investors and mortgage banks can help solve a high portion of the nation’s economic problems.

Across the nation, neighborhood-by-neighborhood acumen enables investors to find properties that traditional Realtors can’t sell, homeowners can’t unload and banks can’t afford to keep on their balance sheets. The latter could prove particularly costly over time, as large distressed-property inventories can shock shareholders and reveal — to the surprise of many — the full direness of the situation. This is exactly why it’s so crucial for mortgage professionals to begin taking steps to alleviate this problem.


The skills of traditional Realtors are beyond dispute. Many are part of an elite group of professionals, working as independent contractors for national or global brands with an extensive list of accomplishments.

Although their talents are ideal for the traditional sale of a home, they offer limited hope to an owner of a distressed property. Many Realtors accept this point themselves, telling owners of distressed properties to wait it out or look for an alternative.

Unfortunately, owners of distressed properties rarely have the luxury of time — bills and bankers typically don’t have a wait-it-out business philosophy — nor the false hope of a huge rebound in prices. Even so, these distressed homeowners must act. Enter the seasoned investor, many of whom enthusiastically welcome the chance to review, scrutinize and potentially purchase properties that they now have a chance to inspect with greater detail.

•  •  •

Back to the original point, the solution to the economic setback isn’t one of numbers, transactions, commissions or fees. At its core, the answer is about communication between mortgage banks and investors — perhaps the only group truly motivated, mobilized and ready to reduce the inventory of distressed properties in this country. Conservatively applied, this effort can help rescue homeowners who are in a state of financial and emotional distress, strengthening the real estate market as a whole.  


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