Beware foreclosure vultures

KANSAS CITY, Mo. - J.D. Asbell buys houses cheap, but sellers are calling him anyway these days.

He's a professional homebuyer in Kansas City, an investor who hopes to resell properties for a profit. Increasingly, the callers are troubled homeowners.

"We get a ton of calls on foreclosures," said Asbell, who owns Cityscape Properties L.L.C. "We've always gotten calls. It's just increased in the last six to 12 months."

A rising tide of mortgage delinquencies and foreclosures nationwide, caused in part by quick jumps in interest rates on subprime mortgages to owners with poor credit records, has drawn attention to active housing investors.

Theirs is not a beloved industry. Some call them vultures. And members readily acknowledge seedy parts of the business. Prosecutors have busted scams.

"When people have issues and problems," said Kansas City housing counselor Pam Hider Johnson, "there are those who are there to capitalize on others' misfortune."

But legitimate investors are like vultures in a good way. They peck at houses others have left for dead. And each house they turn around helps reduce the number of unsold homes for the overall market.

They can be the last resort for owners facing foreclosure. Stressed-out sellers, however, should expect heavily discounted bids, perhaps 60 percent to 70 percent of the home's value. Also, if the loan balance is high, an owner faces potentially long waits as the investor and mortgage company negotiate a deal.

Pending foreclosures actually aren't Asbell's biggest business.

His company is a franchise of HomeVestors of America Inc., a Texas company known by its familiar billboard pitch, "We Buy Ugly Houses."

Ugly sometimes means ugly. Investors often buy houses needing extensive repairs.

Ugly also can mean the situation is bad. Perhaps the house was inherited by the owner's children, who don't have the time or the resources to handle repairs.

In any case, ugly means the seller is motivated and attracted by Web sites of firms such as Asbell's.

These buyers promise quick cash deals. Their main function is to attract leads and sell or deliver them to affiliated local investors who make contact.

But house investors aren't regulated, and the business is easy to enter, so sellers need to be cautious.

Prosecutors have acted against foreclosure-rescue scams that have robbed owners of their homes and left them owing mortgages.

"There is definitely an underbelly of these foreclosure-rescue-scam guys out there," said Jeremy Brandt, a Texas investor who owns two online homebuyer sites.

Asbell said HomeVestors regularly audits franchisees' dealings by calling homeowners, including those who don't sell their houses.

An example of a scam is one in which an investor buys the house, leases it back to the seller, and promises that the seller can buy it back when he gets on his feet financially.

Often, the seller can't even make the rent and is evicted.

The bottom line: Investors can't help a troubled homeowner save his home. Their business is buying properties and selling them for a profit.

Housing advocate Mike Clarke said that he was OK with an investor sale as long as the homeowner knew about other options and understood the situation with the investor.

"Recognize they have a motivation to offer as little as possible to acquire the property in order to make a profit," said Clarke, a former banker. "They're not a friend in the transaction."

Some suggestions for people with mortgage problems who are considering selling their home to an investor:

Seek free help from the lender and housing counseling agencies.

Don't pay for assistance with mortgage problems.

Ask the home investor for bank references.

Contact a state or local consumer affairs agency and the Better Business Bureau for any complaints against the investor.

Don't sign documents immediately. Take some time to study them and perhaps get advice.

Be wary if the home investor contacted you first.

SOURCE: McClatchy Newspapers

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