Kansas Mortgage Foreclosures Spark Interest From Flippers

In Wichita, a small group of scavengers has been able to use knowledge of the law and housing to scratch out a living from housing foreclosures.

It’s a small and peculiar slice of the house-flipping market, participants and lawyers tell the Wichita Eagle.

Yet it may be one that grows as more people become distressed. Across the U.S., nearly $1.3 trillion in adjustable rate mortgages will reset in the next few years to higher interest rates, according to home mortgage agency Freddie Mac. A higher rate can add hundred to a monthly payment.

A lot of people think they can get into house flipping, but there’s no easy money, said attorney Frank Ojile.

“It’s fairly easy to get in,” he said. “It’s how long you survive.”

The process starts when a house goes into foreclosure. About 90 percent of the time, the homeowners have so little equity in the house that they just let it go back to the mortgage lender without a fuss, lawyers say. But sometimes the owner has significant equity - and that’s when these flippers go to town.

Foreclosed houses go to a sheriff’s auction every Wednesday in the basement of the County Courthouse. Ten to 15 regular house flippers show up every week, and last week, they gathered in the room with lists. They already knew the legal status, condition and appraiser’s value of each house.

Attorneys representing the banks announced how much the banks wanted to end the Kansas mortgage foreclosure. Nobody bid on the homes in question, and meeting was over in 10 minutes.

Then the flippers dashed out the door and raced to the few homes considered to be good deals. There are between 40-60 houses at each auction, but only two or four are considered good deals, attorneys say.

These are good deals because the homeowners have paid down the home loan. That means the bank wants far less money than the house is worth in resale - and that gap is where the flippers make their money.

They go so hard because they want be the first to the house in order to buy the homeowners’ redemption rights. The law gives homeowners at least three months to come up with a payment to the bank. In that time, the homeowner can still sell the house or can live in the house rent-free.

But if a flipper buys their redemption rights - an offer of a few thousand dollars is typical - the homeowner forfeits the right to sell the house. They also lose the home equity they built up.

Then the flippers fix up the house and put it on the market. If they sell it fast enough, they don’t even have to put down much cash.

Too many people think it’s easy, said flipper Mark Funk, but the process is complicated and the competition intense in the Wichita housing market.

Funk also objects to the practice of some people in this lucrative business of flipping houses who don’t tell owners they may be able to recoup some of their equity.

Some homeowners don’t care, he said, but some are just ignorant of their rights. He and his wife, Robyn Soerries-Funk of Realty One Corp., try to get people in foreclosure to put their houses on the market.

“In this business you have a lot of people who are good,” he said, “and some who are unscrupulous and less than honest.”