Few people have been as fortunate as Stephen Wills this year – at least in the business of buying and flipping foreclosed homes.
Last spring, the Virginia Beach real estate agent entered the winning bid on seven foreclosed homes owned by U.S. Department of Housing and Urban Development. Asking prices for the properties in Norfolk, Chesapeake and Hampton ranged from $75,000 to $126,000.
But Wills got each of them for less than the price of a decent late-model used car – about $10,000 each.
“Maybe I was the luckiest investor ever, or I was in the right place at the right time,” Wills said. “To be honest, I have no idea.”
Other investors also have snagged bargains on government-owned foreclosures recently. A home in Chesapeake on Blackwater Road sold in April for $60,000. It was listed for $192,000. A Suffolk home on Kilby Shore Drive sold the same month for $38,000. It was listed at the time for $185,000.
While the volume of new foreclosures in Hampton Roads has been easing during the past year, the inventory of homes owned by HUD has been growing. By March, the number of homes owned by the government housing agency nationwide had climbed to 68,997, up 51 percent from the previous year, HUD reported.
The government ends up owning a home after a lender forecloses on a property that was financed with a mortgage backed by the Federal Housing Administration. HUD is then tasked with selling the property to try to recoup the cost.
In response to its growing inventory, HUD has ramped up its sales efforts in the past year, in part by trying to increase competition among and creating more incentives for the companies it hired to sell the homes.
“I think that they are trying to push the pig out of the python any way they can,” said Chuck Halman, who markets HUD-owned homes as an agent with Rose Womble Realty.
That has translated to some pretty eye-catching deals for real estate investors such as Wills.
He bought three of the seven homes on which he entered winning bids. Kathleen Lewis, his mother-in-law, bought the other four. Together they paid a little less than $70,000 for the homes.
“I was pretty nervous they would call me and say there was no way they’d sell me a house for $10,000,” Wills said. “For some reason, the way the system was set up, it got to a point where they would accept anything that came in.”
Lemar Wooley, a HUD spokesman, said in an email that part of the reason the government decided to accept bids so far below the asking price was that Wills was the only person to bid on the properties, several of which had been HUD-owned for nearly a year.
“The longer a property is on the market, the more it costs the department in holding costs,” Wooley said. “As we already experienced a loss in paying the claim, we need to re-sell the property at the best price we can in the quickest manner.”
These days, it’s not uncommon to see a foreclosure sold at a huge discount to what other properties in a neighborhood are selling for, said Ron Foresta, president of Rose Womble Realty Co.’s resale division.
“I envision that the person who is handling these has a desk full of paperwork that they can’t see over, and they make a decision that doesn’t seem to be in concert with other decisions they’ve made,” Foresta said.
Last December, the department listed a home at 243 W. 27th St. in Norfolk for $155,000. It dropped the price to $139,500 in February and to $122,760 in March.
Wills bid $11,022 and closed on the property in April. He found a buyer just a few weeks later and sold the property in June for $95,000. The agent estimated he spent $12,000 to $17,000 on renovations.
The agent also found a buyer almost immediately for a home in Hampton at 64 Lucinda Court. Lewis paid HUD $8,000 for that property in May and sold it to another investor for $50,000. The property is back on the market for $119,900.
Together, Wills and his mother-in-law sold those two homes for about $126,000 more than what they paid HUD. The rest remain unsold.
HUD has “some of the best deals that I’ve seen since I’ve been in real estate,” Wills said.
Knowing how the government foreclosure sales process works doesn’t hurt either. Wills is affiliated with Virginia Beach-based real estate company William E. Wood At The Mall, which is one of the firms hired to market HUD properties in Hampton Roads.
Chantel Ray, who leads a team of real estate agents including Wills, said her company handles the sale of scores of HUD homes in the area. She echoed the idea that the longer a property stays on the market, the more willing the housing agency is to accept a low offer.
“We know when HUD’s ready to move at that price,” she said.
Three of the seven homes Wills won were listed by members of Ray’s team.
Unlike other foreclosures, sales of HUD homes are handled through a single website where buyers must use a real estate agent to bid. After making an offer, the government typically emails a response within a day. Sometimes the agency makes a counteroffer.
Wills said he’s seen HUD routinely list homes for unrealistically high prices, and they sit on the market for months.
“Had HUD listed it lower, it probably would have sold for much more, much sooner,” he said in an email.
Wills said part of his strategy is to look for homes that have problems that prevent a buyer from using a typical mortgage and ones that have been on the market for a long time.
The rest, he said, was trial and error.
“I’ve put in a few hundred bids on properties,” he said.
Shauna Lane, an agent with Affinity Realty, has used a similar strategy to bid on government-owned homes for investors she works with.
“If the property has been on the budget for six months, those are the ones to target,” Lane said. “Basically it’s been on the market for a while, and in their mind, they’re fed up. They just want to be done with it. It’s like stale cookies.”
An investor represented by Lane bought a HUD home at 5848 Chesapeake Blvd. in Norfolk for $67,425 in April. The property had been on the market since November and was listed at $216,000.
Lane put the property back on the market for $179,900.
“The whole point is bid on all you can, because you might only get a couple,” she said. “And you can always back out.”
Pilot writer Dave Forster contributed to this report.
Josh Brown, (757) 446-2318, josh.brown@pilotonline.com