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Closing price of LI foreclosures rises

Investors drove the home sales market up 3.7

Investors drove the home sales market up 3.7 percent in March, swooping in to buy homes at prices that have been battered by the banking meltdown, foreclosures and short sales. Photo Credit: AP, 2008

Last year's average discount for a Long Island foreclosure was 36.5 percent off the average home price here, RealtyTrac reported.

That's only slightly up from the 35.7 percent discount in 2009, data show.

The average closing price of a foreclosure was $296,285 on the Island last year, up from $294,679 the preceding year, the report said. Average prices can be skewed by very low-priced sales and very high-priced sales.

But it's not clear how long buyers might see these big discounts.

John Fitzgerald, a broker-owner of Realty Connect USA in Hauppauge, said mortgage giant Fannie Mae, big banks and other lenders have recently begun repairing more foreclosures in their inventories. This comes as they prepare to release a lot more foreclosed properties on the market, and that can have an effect on home values and sale prices, he said.

"Fannie Mae is fixing more properties now," Fitzgerald said. "That's a clear indicator that they're worried about depleting values on their own inventory. If they have a house in Holtsville, Brentwood or wherever it might be and it sells for a very low price, they know they're going to get another one, two, three, four, five of them (foreclosures) in there in the near future. So they'd rather fix the property and keep it up to a better average for the area price so their next property doesn't go lower and lower."

Often, he and other agents said, foreclosures have been vandalized, with windows smashed and copper pipes ripped out to be sold. Such vandalism and the weather have led to flooded basements, mold and and other problems.

That's why many foreclosures are cheaper than the traditional listing. They're inhabitable and they're not eligible for regular mortgages. In those cases, buyers must often get what's known as rehab mortgages, a long process that usually requires documented details on what must be done and then inspections afterward to ensure the work has been done.

When foreclosures sell low, that drives down home sale prices in the community.

But by repairing damages, agents said, the lenders and investor owners can demand higher prices and also expand the pool of buyers to people who might have been turned away due to the problems and the long rehab mortgage process.

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