Foreclosures in Romania. 6 + 6 tips to get started

Part 1

(to read part 2, click here)

During the summer I had repeatedly stated that soon we enter in a new period, the one of foreclosures. Either starting with this winter or for sure during 2011 the problems of Romanian economy and Real Estate market will be transformed into something more painful: An endless list of foreclosures, for thousands of properties around the country.

"What is foreclosure?"
For the ones who are not experts, I call foreclosure the procedure during which a bank sells a property through auction. This property was obtained by a loan which was not paid. Usually the investors' interest is concentrated in the second and the third auction, which have lower prices, under the price of mortgage that the bank had placed on the property. So, e.g. the bank placed a mortgage of 100.000 Euro. If it will accept the property to enter into second or third auction with a lower price, then this is "foreclosure" (there are many more details about it, but this is the main idea).

1. Moral issues. If you don't like to buy the property someone is losing, just stay away
Every person has a different opinion. You don't need to be a saint or a devil, but once you get involved in this business, you should definitely have a minimum of "guts". Some people don't get involved in cases when they see owners with serious personal problems. Others are able to kick the previous owner out of his previous home, literally. You will hear and experience plenty of stories; this is why you should be ready for the best and the worst.

2. Decide which kind of ex owners are "suitable" for you
Don't you ever forget to find out who is the previous owner of the property. Knowing his / her status, you will be able to decide if you want to proceed or not. Then you have to decide in advance which categories of people can be of your interest. Some people target properties recuperated by businessmen who disappeared. Others search for apartments from Real Estate Funds, or developers who bankrupted. Some avoid buying properties which once belonged to poor people. Others buy everything, as long as the price is good. It is a matter of personal principles.

3. Prices always start from high levels, because…
Most of these foreclosures come from loans borrowed during 2007 – 2008. At that time the prices were high, so were the valuations. So, most of the times the banks have recuperated a property for which they paid a lot. Example: A property had the price of 100 Euro and the bank lent 80 Euro. The borrower paid some interest rate for 1 – 1,5 year and then he could not pay anymore, thus the bank took back the property. Today the real value is 40 – 50 Euro. But the bank has the property registered in its books for 80 Euro and it will try its best to sell it with this price or with the closest possible one. Wouldn't you do the same?

4. 95% of the bank announcements are expensive
"Where should I find information for foreclosures and auctions? At the websites of the banks. No?" Correct, this is the first source of information, but usually there you will only find expensive properties and the first auctions with high prices. It is a good idea to start with, but you will just find out the main "rules of the game".

5. Liquidators and court executioners will not really help you
Except if you gain their trust, which is quite rare. Most of them have their own "circle of people" and when a new person contacts them, they just tell him that "everything is announced on the bank's website" (= "I will not tell you something). If you find a way to collaborate with them though, you will be surprised by the information that some of them have.

6. Usually banks don't know / share vital information for the property you wish to obtain
A medium sized bank in Romania probably has some hundreds or thousands of properties for auction. They are spread all around the country. If you ask for the "recovery department", you will probably find just a small number of people, being responsible for all of them. How easy is it for them to have available for you updated information, photos and sketches for every property? Almost impossible…

Tomorrow:

• Ok, sometimes you cannot visit the property, but still you should be able to see photos etc
• Even if you buy cheap, the basic rules of Real Estate are always valid
• Which kind of properties are the easiest ones to obtain with foreclosures (or through banks in general)?
• Do I need to have all the money cash or can I hope for financing too?
• What is the maximum deduction in price I can target?
• What is the best way to access good properties sold at foreclosures?