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Would you buy a foreclosure now?

Posted by Scott Van Voorhis October 20, 2010 07:08 AM

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The fallout from the robo-signing scandal grows by the day.

The Feds have launched a criminal investigation into charges that bank employees blindly signed off on mountains of foreclosure paperwork, never bothering to check the accuracy of the documents. The investigation centers on whether the nation's biggest financial institutions misled federal housing agencies that now insure a huge swath of the mortgage market.

The numbers are staggering, as I and many others have noted, with a few mid-level employees at major banks signing off on thousands of new foreclosures a month.

There will be more out on that front tomorrow, with Secretary of Housing and Urban Development Shaun Donovan, the HUD secretary, slated to hold a press conference on the issue.

The bigger question is what all this turmoil does to the foreclosure "brand," such as it is.

Just a few years ago, many buyers would have instinctively shied away from the idea of buying a foreclosed home.

However, that clearly has changed as the numbers of distressed properties hitting the market has reached epidemic numbers. Familiarity has bred a certain comfort while a whole cottage industry has sprung up around the sale of foreclosed homes and condos.

In fact, in stubbornly high cost markets like Boston, buying a foreclosure remains one of the few ways to get a home at a significantly below market value.

Yet suddenly, buying a foreclosed home once again seems like risky business. In addition to buying what can be damaged goods, buyers now have no real way of being 100 percent sure that the foreclosure special they are putting cash down on the barrel for was legitimately seized by the bank.

At the least, it threatens to damage the quasi respectability that foreclosure sales have won over the past few years. The sales numbers over the next few months will be interesting to watch.

One possible outcome is this becomes more of a game for the speculators than it already is, pushing out the average home buyer.

Stay tuned.


This blog is not written or edited by Boston.com or the Boston Globe.
The author is solely responsible for the content.

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About boston real estate now
Scott Van Voorhis is a freelance writer who specializes in real estate and business issues.

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