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Over half of 2016 Bell County new foreclosures tied to VA loans

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Foreclosure Auction

Bell County Sheriff Eddy Lange auctions off a property at the Bell County Justice Complex on Tuesday, June 6, 2017.

Gabe Wolf | Herald

Every three months, Bell County Sheriff Eddy Lange gets to try out a second career: auctioneer.

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Foreclosure Auction

Potential investors make notes on their inventory list during an auction at the Bell County Justice Complex on Tuesday, June 6, 2017.

On June 6, Lange was in charge of auctioning foreclosed property as part of the county’s quarterly sheriff’s sales, where properties with delinquent property taxes are sold sight unseen to the highest bidder at rock-bottom prices.

The same morning — just feet away from the sheriff’s sale outside the Bell County Justice Complex in Belton — was another group of potential investors at a monthly trustee’s sale, where properties with delinquent mortgages are sold for a higher price related to the unpaid mortgage.

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Foreclosure Auction

The facial expression of realtor Luis Montemayor signifies that he is done with that round of bidding on Tuesday, June 6, 2017, during an auction conducted by the Bell County Sheriff's Department.

Underpinning both auctions is a Bell County foreclosure market that is primarily filled by properties in one city — Killeen — and primarily owned by one class of homeowner — active-duty and former military with federally backed home loans.

Almost 67 percent of all new foreclosures in Bell County in 2016 were tied to the Veterans Affairs home loan, a federally guaranteed, zero percent down mortgage for qualified veterans and active-duty soldiers.

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Foreclosure Auction

Potential investors make notes on their inventory list during an auction at the Bell County Justice Complex on Tuesday, June 6, 2017.

Due to the favorable terms of the loans — more than 57 percent of new purchasers in the Fort Hood area market used one in 2016 — service members, often unknowingly, take on a Catch-22 loan in looking for a way to grow their wealth.

Digging further into the available figures reveals uncertainty in exactly where the foreclosure market stands, who it hurts and, ultimately, who benefits from it.

RATES HIGHER

According to RealtyTrac.com, Killeen foreclosure numbers more than double the national average of .04 percent of all available housing units. Killeen’s rate is .09 percent of all available units.

The highest rates of foreclosure are in the 76542 area code, where 1 in 685 housing units are listed in some stage of foreclosure. As of March 2017, there were 291 foreclosed homes on the market in Killeen, according to RealtyTrac.

The stages of foreclosure include:

Advanced delinquency or “pre-foreclosure,” when property owners are behind on paying mortgage payments or property taxes

Sale at auction, when foreclosed properties are taken to a sheriff’s or trustee’s sale

“Real-estate owned,” when a property has cleared auction and is in the effective ownership of a bank or taxing entity.

Brian Adams, a real-estate agent with StarPointe Realty in Killeen and author of the Hood Homes Blog, said the Fort Hood area market is unique due to a high number of foreclosures on Veterans Affairs home loans.

Adams said 1,783 homebuyers in Killeen, Harker Heights, Copperas Cove and Nolanville purchased a home with the aid of a VA mortgage in 2016 — or around 57 percent of all purchases in that area.

The VA loan is a 100 percent financing mechanism for veterans or active-duty soldiers with routinely low interest rates and a 25 percent guarantee from the Department of Veterans Affairs.

Because lenders are guaranteed to receive a quarter of the loan back from the federal government in the event of a default, homebuyers are allowed to put no money down and not pay mortgage insurance, which is common for non-guaranteed loans where less than 20 percent of the home purchase is put down.

‘UNDERWATER FROM DAY 1’

But what is beneficial to buyers who qualify for the VA loan can also be a trap, Adams said.

Homebuyers with a VA loan often put no money down, do not cover the closing costs of the purchase and have to add a “funding fee” for the VA guarantee, Adams said.

If a service member turned around and tried to sell the home three years later, the cost to cover the remaining mortgage could be higher than the actual market value of the home — making it difficult to sell.

“Because of the 100 percent financing and the fact that most buyers finance the VA funding fee into the loan, it literally means that buyers with the VA loan are underwater from Day 1, usually by a few thousand dollars,” Adams said in a 2015 post on HoodHomesBlog.com..

Because those buyers have to wait years to build equity in the home, buyers can struggle to get out from under their investment in the short term, particularly when home appreciation has shown little growth in Killeen for years and military lives change quickly.

“Many soldiers’ financial situations change, they find that they bought more house than they could keep up with, and find that they can’t sell it without bringing a lot of money to the table,” Adams said in an email Wednesday. “That is why there will always be plenty of VA foreclosures in military towns like Killeen. I would recommend buyers plan on a 5- (plus) year timeline before they can break even on 100 percent financing.”

LISTING CONCERNS

The only information available on foreclosure trends in the Killeen area is through the Fort Hood area multiple listings service, a for-profit market database owned and operated by the Fort Hood Association of Realtors.

Real estate agents use the service to advertise property listings to others, and use the database to get accurate sales figures on properties.

However, due to the proprietary nature of the database and voluntary participation in populating it, the services are incomplete and not publicly accessible.

Around 90 percent of transactions in the Fort Hood area are shown on the multiple listings service, Adams said.

Texas is one of a handful of states that has no mandatory sales information disclosure laws on the books.

The incomplete sales information has wide-ranging fallout for agencies relying on up-to-date real estate market information — including county appraisal districts that assign value to land each year.

The Bell County Appraisal District subscribes to two multiple listings service providers — Fort Hood and the Temple/Belton area multiple listings service — to get close-to-exact market value on land appraisals, but the system does not always ensure accuracy.

In late May, commercial property owners in Harker Heights and Killeen complained of annual property appraisal figures that reached as high as 5,050 percent year over year. Advocates took the issue to the offices of Gov. Greg Abbott and other state leaders, hoping to add commercial appraisal caps on the docket of the special session that begins Monday.

Marvin Hahn, the district’s chief appraiser, said the district’s 13 field appraisers largely rely on multiple listings service figures but are handcuffed in gathering precise sales information.

“It’s sometimes like being in a boxing match with one hand tied behind your back,” Hahn said.

Hahn said, because of that pitfall in accurately assessing value each year, the appraisal district undertook across-the-board reviews of certain commercial corridors in 2017, which have led to massive increases in land value for properties, which have been chronically undervalued for years.

More than 5,300 property owners protested their preliminary appraisals by the May 31 deadline.

Hearings before the county Appraisal Review Board, an independent arbitrating body appointed by 169th District Judge Gordon Adams, will begin June 26.

BACK ON THE MARKET

Where do homes go when they’re foreclosed?

Many properties that are foreclosed go to a trustee’s sale the first Tuesday of each month at the Bell County Justice Complex.

On June 6, nine properties were sold at trustee’s sale. The opening bids were listed anywhere in the range of $50,000 to $190,000.

Adams said in his experience only about 25 percent of homes sold at auction are purchased by cash-in-hand investors. The remaining 75 percent are reverted back to the banks or lenders executing the foreclosure, which can then put the properties back on the market when and how they see fit.

“Most evict the owner/tenant, and within three to six months have it listed with a local Realtor on the MLS (multiple listings service) where that data is captured,” Adams said.

In the case of VA loans, Adams said, 365 of the 546 foreclosed properties sold in the Fort Hood area in 2016 were sold by the VA, which takes possession of the properties when they aren’t sold at auction.

Cities can also end up owning foreclosed properties.

In Killeen, 27 properties that hadn’t sold at auction sit “in trust” with the city, representing more than $300,000 in delinquent property taxes. Properties held in trust do not collect taxes for the city or county holding them.

Properties that have delinquent property taxes can be foreclosed after the Bell County Appraisal District, which is in charge of gathering yearly property taxes, sues the landowner in district court. The foreclosed properties can then be auctioned at the quarterly sheriff’s sales.

The district is represented by Round Rock-based McCreary, Veselka, Bragg & Allen Attorney at Law.

If those properties are not sold during the auction process, they are put into trust with the cities or counties in which they reside.

CODE VIOLATIONS

On top of this, the city of Killeen places liens on properties that don’t abate code violations, adding to the city’s financial obligations on derelict properties with back taxes and years of city maintenance on the books.

Having liens on properties that go to auction also make the properties harder to sell, because the liens are included in the minimum offer for the home and turn off investors looking for a deal, City Attorney Kathy Davis said Tuesday.

At its Tuesday meeting, the Killeen City Council approved two measures to streamline the sale of properties in the city’s trust.

The first measure will allow the city to waive its outstanding liens on auction properties, lowering the minimum offer and increasing the chance of a sale.

The second measure will allow the city to join foreclosure lawsuits filed by the appraisal district’s lawyers, slightly improving their chance of recouping some of the lien costs and back property taxes in case of a successful sale.

All of the 27 properties are now vacant lots and have been accumulating on the city’s rolls since 1999.

At the bottom line of the city’s measures are two goals: Taking property maintenance out of the hands of the city and putting delinquent properties back on the tax roll.

Mayor Jose Segarra called the two measures “win-win” proposals when the items first came before the council June 6.


Sheriff’s sale

What: Auction of properties foreclosed on by the Bell County Appraisal District for unpaid property taxes

When: Roughly quarterly, operated by Bell County Sheriff’s Department and Sheriff Eddy Lange at the Bell County Justice Complex in Belton

The rundown: When a property owner does not pay property tax, the Bell County Appraisal District can seek to foreclose on that property and take it to a public auction. At auction, the properties are sold sight unseen at often rock-bottom prices, sometimes in the $2,000 to $3,000 range

Result: If a property in city limits doesn’t sell at a sheriff’s sale, that property is reverted “in trust” to the city in which it resides; If a city has code abatement liens on that property, it can be difficult to sell that property and remove it from the city’s possession


Trustee’s sale

What: Auction for properties foreclosed on by banks or lenders for unpaid mortgage payments

When: The first Tuesday of every month at the Bell County Justice Complex in Belton, operated by online real estate auctioneers Auction.com

The rundown: When a property owner does not pay back a mortgage loan, mortgage lenders have the right to sue for foreclosure on that property with a bank or lender named as “trustee” of that mortgage. Like sheriff’s sales, trustee’s sales are public, but are often far higher priced; According to some Realtors, most trustee’s sales buyers are the banks that own the property; Banks then often evict the property owners and put the house back on the market for sale

Result: Even relatively “safe” mortgages, like the Veterans Affairs home loan, can leave property owners out on the street if not properly managed. More than 67 percent of all new foreclosures in 2016 were tied to the VA home loan, according to the Fort Hood area multiple listings service. That number is primarily due to the large number of veteran and active-duty homebuyers in the area, but also poor foresight in new home purchases


These 27 properties are held “in trust” by the city of Killeen, with the date the city took effective ownership:

2016 S. Eighth St. — Dec. 16, 2009

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Vacant Lot

A vacant lot, owned by the city of Killeen, sits Tuesday in Killeen.

513 N. 16th St. — Nov. 28, 2011

905 Adams Ave. — April 4, 2006

907 Adams Ave. — April 4, 2006

604 Attas Ave. — Sept. 1, 2009

209 E. Avenue C — Feb. 28, 2002

607 W. Avenue I — Sept. 6, 2016

609 W. Avenue I — Sept. 6, 2016

503 W. Avenue J — Feb. 28, 2002

507 W. Avenue K — March 24, 2016

715 W. Avenue K — Oct. 20, 2014

719 W. Avenue K — June 19, 2015

1410 Bundrant Drive — Aug. 27, 2001

504 Dimple St. — June 19, 2015

907 Evergreen Drive — March 11, 2010

1101 Glen Drive — Oct. 23, 2015

509 S. Gray St. — Sept. 30, 1999

2400 Grasslands Drive — March 31, 2011

711 Henderson St. — Oct. 23, 2015

2704 Hillside Drive — Oct. 20,2014

403 Patton Drive — March 24, 2016

909 Southside Drive — March 7, 2017

1203 Wales Drive — Aug. 13, 2015

505 Wisconsin St. — Oct. 20, 2014

2009 Wood St. — Oct. 23, 2015

1002 York Ave. — Aug. 7, 2014

1004 York Ave. — Aug. 7, 2014

kyleb@kdhnews.com | 254-501-7567

(8) comments

Idontdoresearchformyarticles

http://www.killeentexas.gov/files/Force-Reduction-Assessment-Report--14June2016.pdf

Do you really not even look at your own articles that you post? A big troop reduction might have an impact on the loans that those troops who no longer have jobs took out.

Btw, great job spending 6 figures on "hiring" a retired general for that study.

eyewatchingu

http://www.zerohedge.com/news/2014-11-01/hard-understand-1000s-veterans-busted-massive-benefits-fraud
That is just the start, I will post more truth about the Food stamp scam!

eyewatchingu

Back in the old Army, when my father and grandfather were in. Not Only did they tell the men about stds, they also taught the soldiers how to handle money. Sadly it has become a feeding frenzy for realtor companies and car sells men to sell, sell sell to these young men and woman. It also has become a big scam in the Army of having many kids so you can also collect welfare. KDH news, investigate how many officers and enlisted personal with ranks E5 and above collecting welfare. It will amaze you, it will make you sick to your stomach.

tlh

Builders need to be stopped from building new residences so homeowners can sell their properties instead of going into foreclosure.

Terryr

Scot is correct. The Army and the real estate community SHOULD be working with members of the military explaining the consequences of purchasing a home while in the military. We, of course, cannot discriminate and withhold home purchase because someone is in the military, but we can do a better job of letting the military member understand that if they should transfer then selling the property "could" be a risk in the Fort Hood area. We need people with financial experience to talk to ALL the military members to let them understand ALL of the options and then let the member make the decision.
Scot, great message.

Scot

Our junior military members should not be buying homes when their tours are just 2-3 years at Fort Hood. Specialists and Lieutenants are putting themselves in financial holes. Should they know better??? Their leaders should and should (and likely are) providing counsel. Rent your home!! But how have we allowed such a culture across the local real estate industry to see the hundreds of spec homes going up. It's a horrible cycle that has developed...retired military (often with DV tags and 100% property tax exemptions) become agents and sell to junior members that they should know are in no position to buy. Not exclusive to the retired realtor class - I listened to one well known realtor comments on how the junior military ought to be renting. It used to be the best deal in the world to get on-post military housing. Now we are offering it to those with ZERO military affiliation. This is surely a sign of a image/branding problem that "only suckers live on post, own your own house." The billboards that say "own your your house for BAH" are leveraging this to their (short term) benefit. Our whole community has a role to fix it - better code of conduct and ethics in the local realtor community (perhaps a code that recognizes that junior military should get additional counseling before purchase); city council sponsoring a study to determine which realtors have the most foreclosures (because those realtors cost the community aplenty over time), military leadership (CSMs!) who personally talk to their junior SPCs and SGTs) that living on post assures them financial security. I look forward to next year's article; if we do not take positive steps, the rate will only increase.

Bubba1

Let's not fling personal invective on Veterans, Disabled Veterans, Veterans with DV plates, or Realtors.
All of those involved here made their decisions and qualified for VA loans, the financial standards for which are fairly stringent. Further, Realtors already have a code of conduct as do Texas real estate licensees. Maybe you should go get your license before commenting further.

roodawgs98

Just because they have a code of ethics doesn't mean they apply it

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