By Mary Umberger
Tribune staff reporter
October 5, 2007
Mary Richardson hands three rapt students their "textbook," a 35-page printout, and starts the day's lecture on how to make money out of the labyrinthine process of real estate foreclosure.
It's a hands-on tutorial that costs $249 and opens the door on a hunch many people harbor: Is there a whiff of opportunity to be found amid the gloomy news about America's rising tide of home foreclosures?
Bargain-hunting investors and real estate agents looking to turn a six-year high of mortgage delinquencies into profits are spurring demand for "foreclosure schools," which are designed to shed light on the jargon-filled and sometimes bewildering world of preforeclosures, REOs and auctions.
These are not the get-rich-quick, sales rally-type gatherings hosted by the likes of Donald Trump. They are small seminars that focus on the gritty process of combing public records and running the numbers.
As the daylong seminar progresses, Richardson's three students will attend two auctions and be assigned the task of untangling title and tax encumbrances for a given property at the Cook County Circuit Court's Chancery Division. It's a taste of the laborious homework that almost invariably goes with the process.
Richardson, an investor based in Park Ridge, is hardly the only foreclosures professor in town. A handful of investor veterans are her competitors, each catering to the growing demand from aspiring entrepreneurs and real estate agents.
"My classes have been full; I'm getting calls all the time," said Marki Lemons, a Chicago real estate agent who for several years has conducted periodic, daylong classroom sessions on foreclosures at her Keller-Williams Realty office on the South Side and for members of the Chicago Association of Realtors.
Lately, she said, demand is so strong for the two dozen or so seats at each association seminar that the trade group has decided to open the classes, at $135 each, to the public.
Depending on who's doing the teaching, the format at Foreclosure U can vary. There are full-day, sit-down lecture sessions such as the one Lemons conducts, and then there are hands-on, walk-through, sort-out-the-paperwork tutorials, the bread and butter of Richardson and others.
Those tend to be small, kept to one to four students, to navigate the crowded public areas of government offices where real estate records are kept, the teachers say.
T.J. McKinney owns Illinois Foreclosure Listing Service, which sells lists of such properties to subscribers. He began teaching occasional classes about a year ago and has had about 70 students. He said that as the rate of filings goes up, so do the inquiries.
"There's more interest, absolutely," McKinney said. "Everybody is talking about foreclosures."
The topic is hard to miss. As the real estate market sags and the mortgage industry reels from weeks of revelations about slapdash lending practices, headlines are filled with mounting foreclosure stats.
"There were 28,000 foreclosure filings in all of last year, and now we've already had 28,000 in Cook County through the third quarter of this year," Richardson said.
It's a call to action for bargain hunters, though a taste of reality can be sobering, the teachers say.
"I give them a realistic picture, that they're not going to get a house for 40 cents on the dollar," said McKinney. "If you can get a house in the preforeclosure process [before the home is auctioned], the reality is maybe you're looking at a 15 percent discount" from retail.
Foreclosure filings are up about 30 percent in Cook County, he said. "While there's more quantity now, there's less quality."
He and other instructors say many of these foreclosed homes are born of mortgages based on shaky appraisals or may not be worth the face value of their loans. Unraveling the property taxes that may be owed and getting a clear title, a firm grasp on who owns a property, can be difficult, they warn.
"There's a big 'buyer beware' sign on the foreclosures market," said Richardson, whose Park Ridge firm, Personal Investment Corp., also sells foreclosure data. "There are so many misconceptions with beginners coming into this, it's frightening."
Doug Crowe, whose Lombard firm, Springboard Group, teaches multiweek classes on real estate investing, said the days of "flipping" -- buying a home, fixing it up and reselling quickly for profit -- are mostly gone because the overall market is so soft.
"I talk to students and say, 'OK, if you can get a good deal at a foreclosure, who are you going to sell it to?'" said Crowe, whose classes tend to focus, instead, on finding homeowners in preforeclosure who want to sell, then finding tenants for the properties.
He discourages neophytes from foreclosure auctions, a process he said can be full of land mines for the uninitiated.
Joe Varan is a Woodridge broker and investor who says he has bought more than 1,400 homes at auction since 2002. The bargains are no longer plentiful but still can be found, he said.
"Let's say you bought a property for about $100,000, and you might sell it for $150,000. With transaction costs, the costs to fix it up, broker commissions, etc., you might net about $10,000," Varan said.
"Every once in a while, you make a killing, buying for $100,000 and selling for $200,000. But then every once in a while you get a property that you lose your shirt on."
He agreed that foreclosure auctions can be fraught with legal complexities, and each sale requires significant research.
"I learn, every day, some new twist or angle," Varan said.
Another alternative, Crowe said, is to cultivate relationships with lenders who have foreclosed on properties, known in the industry as real estate owned, or REO. However, he said, the competition is stiff, and lenders generally aren't unloading the homes at a significant discount.
The teachers say that as the flippers wane, their places in class are increasingly being filled by real estate agents.
"They don't know the back end of the market," said Doris Villegas, whose company, ForeclosureOp.com, teaches half-day seminars on title searches.
Ruthie McPhee-Gribb, a Century 21 agent, took Richardson's class Monday. She said she is hearing from homeowners who are behind in their mortgages and looking to sell before they are buried any deeper.
"The more I know about the process, the more I can help them," she said.