Beware Websites Promoting Foreclosures
publication date: Jan 3, 2009
With the significant increase in foreclosures and the declining real estate market in the late 2000s, foreclosure themed websites are springing up like weeds during the summer heat and thunderstorm season. Often, these sites hype the big money you can supposedly make buying foreclosures and downplay or ignore the major risks with buying and investing in foreclosed properties.
Among the various foreclosure websites, the biggest and most widely publicized through the mass media has been RealtyTrac, which is widely cited as the source for national and state foreclosure statistics. When you read and hear news reports about foreclosures increasing a certain percentage in the latest month, RealtyTrac is typically the source for the news media of such data.
When I frequently saw RealtyTrac data, I wondered who they were and why they were collecting and publishing foreclosure data. After spending time on their website and doing some research, it became clear that RealtyTrac's primary business is actually in selling access, through a $49.95 monthly subscription fee, to their foreclosure listings.
Unfortunately, RealtyTrac seems to have plenty of disgruntled former customers with common complaints. The Better Business Bureau of the Southland in the Los Angeles, CA area has logged 199 complaints against RealtyTrac over the past 36 months. The firm's current rating is a 'B' which is the in the sixth tier of ratings - 'AAA' is the highest, followed by 'AA', 'A', 'BBB', and the 'BB'. However, on RealtyTrac's "Member Benefits" page, in the "Company Accolades" section of their website, they erroneously claim an 'A' rating with the Better Business Bureau. (RealtyTrac has also had plenty of complaints on the Ripoff Report website for a variety of concerning issues.)
The case of dissatisfied customer John Gassett, who signed up for RealtyTrac's "free trial" in 2006 to access their foreclosure listings is typical among the firm's complaints. Gassett told me that he was extremely disappointed with the prevalent inaccuracies he found in RealtyTrac's local area listings he searched through looking for potential foreclosure properties to purchase. "The information was very dated and very inaccurate. I was finding properties that had already sold six months ago. The address for one property was for a church," he told me in a recent interview.
Gassett's experience with RealtyTrac, he says, went from bad to worse when he attempted to cancel his subscription before racking up $49.95 monthly fees. "Trying to even reach them was horrific...they did everything that they could to avoid interactions with customers," says Gassett. He says that he contacted them by phone, sent numerous emails all without success. After two months of credit card charges, he had to step up his efforts by disputing the charges through his credit card company. RealtyTrac failed to back down so Gassett finally got his attorney (a relative willing to work pro bono) involved to finally get the monthly charges dropped and his account canceled.
Rick Sharga, Senior Vice President with RealtyTrac told me that he isn't familiar with the specifics with why Gassett complained about their service. "We believe that we have the best foreclosure data on the web. We do what we can to update our database. Our users need to be educated to understand what they're looking at. Churches do go into foreclosure."
Sharga is correct about prospective real estate investors needing to be educated before investing in foreclosures and about even churches ending up on the auction block. Investors should get educated first about the realities and challenges to researching and buying foreclosures. Yes, some folks may get a good buy on a property but too often people end up buying a property with all sorts of hidden trouble. That's why a foreclosure purchase should likely not be your first ever real estate purchase. Foreclosure purchases are more complicated and risky transactions and should be at least your third or fourth real estate transaction. You may not be able to have the property professionally inspected prior to making an offer. This is especially dangerous because foreclosed homes often have damage or physical defects which may not be obvious. You run financial risks as well - closing on a foreclosed home can take many months and the property may have unrecorded mortgages, court judgments or outstanding tax bills.
Finding Foreclosure Information
Gassett says that he ended up finding current and accurate foreclosure listings in local newspapers and through Vestlet's website, which specializes in foreclosure listings in the metropolitan Atlanta area. While using Vestlet's service in 2007, Gassett signed up again for RealtyTrac's free trial service so that he could compare the quality of the foreclosure listings. "Vestlet was far more accurate," he says. Building from a single REO property he bought back in 2005, over the past 18 months, Gassett says that he has bought eight REO properties in Georgia primarily using Vestlet.
Besides using local newspapers and websites specializing in foreclosure data for a specific metropolitan area or state, another way to find compilations of foreclosures is to do a web search using the name of a major city nearby and the word foreclosure. For example, if you're interested in looking for foreclosed properties near Pittsburgh, PA, you could search "Pittsburgh PA foreclosures." You will find plenty of sites with listings in the search results as well as RealtyTrac and sites like Yahoo Real Estate which also uses and promotes RealtyTrac. If you find widespread inaccuracies or a critical mass of listing for the specific geographic area or type of property you're interested in, then move on to other sites.
Regarding foreclosures, get educated first about the realities and challenges to researching and buying foreclosures. A foreclosure purchase should likely not be your first ever real estate purchase. They are more complicated and risky transactions and should be at least your third or fourth real estate transaction. For more information, see the latest edition of Real Estate Investing for Dummies.