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Foreclosure Investing 101

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Joe Garcia navigates his SUV down a shady street in a southern suburb, looking at houses. It’s his pastime, and his profession.

GARCIA: A lot of people ask me what I do, I don’t go into details what I do, but I tell everybody I go fishing, because to me it’s similar to fishing – you go to the bank, to the shore, throw your line out and see what you get.

He pulls up in front of a two-story brick house and glances at the clock on his dash. He has 10 minutes to decide whether he wants this place. The house is about to go on the block at an auction downtown. Garcia calls his buddy at the sale.

GARCIA: Basil, what’s going on man? Listen this one in Matteson, on 217th street? It’s a Cape Cod, it’s a pretty nice, clean one. I’m guesstimating it’s worth about $160,000.

That’s how much he figures he could sell it for. He’d need to fix it up and repaint it, so he tells Basil not to bid more than 100-thousand dollars. But Garcia says he has a hunch about this one – the grass is a little too freshly trimmed. He says he thinks the owner will find a way to avert a sale. So he keeps driving.

Garcia works off a long list of foreclosures he’s printed out from an online service he subscribes to. Next stop: Riverside Drive in Richton Park.

Garcia has a trained eye for sizing up properties. Here, he says newspapers piled on the stoop and the curtainless windows are telltale signs the house is vacant. So he takes a walk out back to peer inside.

But Garcia says even looking in the windows is no guarantee. Some owners trash their homes. And that’s not the only risk. There are also angry owners. Back in the car, Garcia remembers one time 10 years ago when he negotiated to buy a house from a family in pre-foreclosure.

GARCIA: So I came back over there, kind of just finalize everything and the guy just flipped a script on me, he just totally went berserk on us. He actually pulled a gun. And boy, I just took off running, I said, okay, so that was one experience where I said, I don’t want to do that too often. I don’t want to do that ever again really.

Garcia says that experience made him more cautious, but didn’t scare him off. He’s 43 years old and got his start in construction. Growing up, Garcia says he read that most millionaires made their wealth in real estate. So with some money from his dad and a couple of credit cards, he started buying houses to rehab and then sell. In time, he became a millionaire himself. He buys about 10 houses a month, including an occasional foreclosure, and sets a minimum profit of 30-thousand dollars per house. Garcia says he feels bad for people in foreclosure, but sees nothing wrong with buying the properties.

GARCIA: Do you prey on other people’s misfortunes? No I don’t think so. I look at it as if I’m just a step ahead of everybody else.

GARCIA: Hello? Hey. 110, wow. You let it go?

Not just anyone can jump into this market. You have to have a lot of cash because auction houses require full payment in 24 hours. But one thing is sure – there’s no shortage of supply. Realty Trac says foreclosures in Cook County in the first quarter doubled from a year earlier. Geoff Smith is research director of the Woodstock Institute, a Chicago thinktank that studies the housing industry. He says that kind of increase should open people’s eyes.

SMITH: There’s not a wave of divorces, or a wave of a plague of illness descending on cities in the last six months. But yet foreclosures are skyrocketing. I think that’s really a sign that there’s a big problem in the mortgage lending industry and less so with individual people getting in over their heads.

Smith researched the impact of foreclosures and found that each one on a block causes neighboring home values to fall by almost one percent. But behind those numbers are personal stories.

Up in Evanston, Rita Askew says she’s lucky to still be in the house she bought 24 years ago. She and her husband Roosevelt came all too close to foreclosure last year.

ASKEW: It was just the strain, the pressure, like an umbrella just full of rocks over my head and I’m just like, waiting any minute for them to fall. I know they’re going to fall, and when they fall, guess who’s underneath of it? I am.

Rita’s refinanced her townhome a few times. Last year her interest rate was 10-point-6 percent. Roosevelt injured his leg at his job as a school maintenance man. The workman’s comp checks didn’t go far enough, and they began to be late with their payments. Then the calls started to come. And the letters. By October, the bank said the Askews had to pay 5000 dollars or face foreclosure.

ASKEW: I said, you know, I’m not going to argue with you guys, I’m a Christian woman, I’m just going to have the faith. And they said, religion doesn’t have anything to do with it, we’re going to foreclose and I need a payment in here by 5:00 today.

The Askews got help at the last minute from a non-profit organization called National Training and Information Center. The group negotiates with several banks on behalf of people at risk of foreclosure. NTIC got a lower interest rate for the Askews and reduced their monthly mortgage by 500 dollars. But many people aren’t so lucky. Michele Rodriguez Taylor with NTIC says some fall victim to mortgage rescue fraud. She says scams often involve investors duping homeowners into signing over the house title. The homeowner then pays rent to the investor with the hope of buying back the home later. But Taylor says these arrangements are often doomed to fail.

TAYLOR: You know, homeowners who are in foreclosure are desperate. When these people approach them, it’s a deal that sounds too good to pass up.

A new state law aims to crack down on mortgage rescue fraud. In Cook County, a foreclosure auction sale wipes out the homeowner’s mortgage. Investors who buy at auctions – like Joe Garcia – say they’re doing a service by finding new owners for vacant houses. Still, the regulars at auctions are quick to joke about how society perceives them.

UNIDENTIFIED GUY: No press (laughter). We take people’s houses. Don’t you know? There’s nothing good in there.

But once the auction starts, the group of about 40 buyers gets serious.

FRED LAPPE: 06EH6461, a property at 105 W. 158th Place in Harvey, the plaintiff is bidding for this parcel $80,750 exactly. Are there any other bids? Sold then to the plaintiff.

The plaintiff is the bank. Ten minutes later, the auction is over and no one has bid on anything. The investors say the banks want too much money and that it’s harder to sell properties now in a soft housing market. The two houses Garcia wanted to bid on today were canceled. But he’s not discouraged. Part of the fun for him is the chase.

GARCIA: The thrill of bidding on something sometimes is very exciting, and if you get it, it’s great, and it’s about making the money too.

Which is what he aims to continue doing. So he heads back out to his car, ready to start fishing all over again. For Eight Forty-Eight on Chicago Public Radio, I’m Ashley Gross.

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