Some may see lender-owned properties as threats

June 06, 1993|By James M. Woodard | James M. Woodard,Copley News Service

Properties that are taken over by mortgage lenders as a result of foreclosures offer an opportunity for homebuyers and investors, as well as potential problems for other property owners.

Such lender-owned properties, called REOs by real estate people (real estate owned), sometimes provide an opportunity for first-time buyers to purchase a fixer-upper at an exceptionally low price and favorable financing terms.

Investors looking for rental property also take note of these offerings.

On the other hand, property owners in the same neighborhood of these REO homes often see the offerings as a threat to their own property values.

The REOs are often neglected properties that tend to detract from the attractiveness and appeal of the surrounding area, and the lenders usually try to sell them "as is" at below-market prices without spending time or money on improvements.

However, that's not always the case. For example, one mortgage lender has just spent $35,000 on a carefully planned improvement program for a modest single-family home, built in the early 1930s, in a low-income neighborhood.

The two-bedroom home became a property owned by the lender when the previous owner could not continue making monthly payments, causing a foreclosure action.

At that time, the property was in terrible shape.

"Years of neglected maintenance had taken its toll," said Mike Wolpin, vice president of the lender firm.

When the firm took title to the property, it was faced with a decision. The lender could sell the property "as is" or give it away. But that would probably depress its condition further and would have a negative impact on the immediate neighborhood -- including many properties that are currently showing increasing signs of "pride of ownership and residency."

Instead, the lender decided to improve the property substantially. New paint and carpeting were the first elements in the improvement project. New wiring, plumbing, showers and landscaping also are among improvement elements.

"After inspecting this and other nearby neighborhoods and seeing how owners and renters were taking care of them, we were encouraged to improve this house and help enhance the neighborhood," Mr. Wolpin said.

"Surprisingly, we discovered that only about 36 percent of residents on the street owned their homes, which means many tenants are taking exceptionally good care of their residences -- a positive sign for any neighborhood."

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