Wednesday, July 18, 2007

Luxury Home Short Sales In Missouri

The Suburban Journals reports from Missouri. "Increasingly, doors are being slammed shut on homeowners across the county as they face foreclosure. St. Charles County in March posted the state's highest rate of foreclosures. One household out of every 26 in the county faced a foreclosure that month, a number 37 times the state average and almost 30 times the national average."

"The failure to meet mortgage payments is a problem affecting all segments of the market, from those buying their first home to the luxury-home buyer."

"'It's primarily people getting into a house that they could have waited a year or so to get into,' said Don Rogers, president of the St. Charles County Association of Realtors. 'Others get into a house, have a good job and get blindsided. I had two incidences last year, roughly half a month apart, one person lost their job and they no longer had the income (to meet mortgage payments).'"

"In the luxury market, some lenders are settling for a less orthodox resolution to unpaid mortgages. 'We've seen more short sales,' says Cort Schneider of Schneider Real Estate. Schneider says such sales have not been widely used in St. Charles County before."

"What makes the upswing of foreclosures so excruciating is its damage across a wide swath of home prices. 'The upper-end price range homes are the first ones to take a hit,' Schneider says, though foreclosures hit homeowners 'across the board.'"

"Pat Sivels, St. Louis office director of Acorn Housing, says the organization has seen considerably more people facing foreclosures in the last three to four months."
Homebuyers' reasons for foreclosure vary

"Why are so many county residents finding themselves in jeopardy with their mortgage lender? 'I think it's really education (that is necessary),' Rogers says. 'In the case of first-time homebuyers or those moving to their next level, maybe they can wait a year.'"

"Rogers says that while area real estate agents work to get buyers pre-approved for loans, for some buyers, patience is the best policy. 'Sometimes I see a pretty flower and I want to buy that pretty flower, and next thing I know I need to pay for the thing,' he says of some buyers' anxiety to get into a home fast. 'Impulse buying is really a monster.'"

"On June 29, regulators with the Federal Reserve Bank issued a policy statement saying that lenders shouldn't dole out adjustable-rate mortgages at deep discounts, but rather at the full index rate, which is determined by the average yield of U.S. Treasury securities. Adjustable mortgage rates reset every 12 months to adjust to the average yield of the treasury securities."

"Even when adjustable-rate mortgages may not be involved, Sivels sees more than lost jobs or prolonged illness as culprits in foreclosures. 'My only concern is that most mortgage companies want to wait until a person is three months behind before working with them," Sivels said. 'We have made calls to mortgage companies and they tell us that (the client) is only one month or two months behind.'"

"Sivels says such policies lead to unnecessary foreclosures. 'By three months, clients owe more money, they then need to come up with more money,' she says. 'They may get a workout plan, but why not start when they (already) know there is going to be a problem?'"

"In the Dardenne Landing subdivision in Dardenne Prairie, there were three active foreclosure properties and two more pending foreclosures the week of July 1. Subdivision residents have varying views on the prevalence of foreclosures in the neighborhood."

"'I think two years ago when it was a seller's market, people who were upgrading bit off more than they could handle,' says Ignacio Gomez, who lives in the subdivision. 'I think some of it is jealousy and an attitude of 'I can do it if you can.'"

"Some sellers in the subdivision were not aware of the number of properties up for foreclosure. 'There was only one home on the opposite side of the subdivision that I know of,' says Adam Mills, who is selling his house because of a job relocation. 'There was one other house that I thought possibly was a foreclosure because of the price it was selling for.'"

"Mills says he was largely unaware of the foreclosure rate and that the topic was never breached in discussions with his real estate agent."

Sunday, July 15, 2007

700 Short Sales Under Way In Phoenix Area

A report from the Arizona Republic. "Deals that help struggling homeowners avoid foreclosures are on the rise in metro Phoenix. 'Short sales' are similar to regular home sales except a deal is worked out in which the lender accepts what the house is appraised for or what it will currently sell for instead of what is owed on it."

"The deals are recorded as a regular sale and can be tough to track. But Travis Olsen, president of the National Short Sale Center, is tracking the market and said there are more than 700 short sales under way in the Phoenix area."

"Real estate agents say that two years ago, there were almost no short-sale properties on the market or deals closing."

Friday, July 06, 2007

Tips From An Expert

A report from the Washington Post. "The Post's Mary Ellen Slayter recently spoke with Ralph R. Roberts, co-author of 'Foreclosure Investing for Dummies' and a longtime real estate agent and investor in Michigan. An edited transcript of the conversation follows."

"Q: Who is a good candidate for investing in foreclosures? A: It's right for someone with a secure job, solid cash flow and lots of cash on hand, someone who wants to make some money on the side. If you're married, your spouse needs to be on board, too. I like for people to use their own money. But if you don't have enough cash but you're willing to do the work, find a partner. My first 'bank' was my grandmother. I didn't pay her interest, but every time I made a deal, I took her out to lunch. If you really want to do it, you can always find sources of investment capital."

"And who's not a good candidate? A: Anyone who thinks this is easy money. It's a myth, perpetuated by all these late-night TV gurus, that you can get rich quick doing this."

"Q:How does it work in declining markets, which are the ones that are most likely to have lots of foreclosures?"

"A: You account for this in the price you pay for the property. You make your profit when you buy, after all; you realize it when you sell. There's a formula in the book that helps you adjust for a soft or flat market. My wife once pointed out to me that no matter what the economy looks like, people are still going to buy and sell houses. They're still going to get married and start families. Even if 10 percent of workers are laid off, the other 90 percent are still working. They will still need housing."

"Q: Describe the perfect property for the foreclosure investor. A: It should be in a good neighborhood. And you should be able to see clearly what you need to do to fix it up and sell it."

"Q: What types of properties should investors avoid? A: Don't buy if there are a lot of distressed properties on a block. Don't invest in foreclosures long distance. You need to be able to see what you're buying. And don't touch pre-construction projects. Also, avoid any deal in which somebody promises you cash back at closing. This is never legal. Stay away from that."

"Q: What are some other things that potential investors should keep in mind? A: Always have a Plan B. Not every house on the market sells right away. You may need to rent the place out for a year or two after you fix it up. This isn't necessarily a bad thing. It can lower the tax rate on your capital gains. And be prepared to lose money sometimes. Even I don't hit home runs every time."

Monday, July 02, 2007

Massachusetts Foreclosures Up 74%

A press release from Massachusetts. " released its June 2007 Massachusetts Market Analysis Report today, with data revealing that foreclosure filings continued in record numbers with May being the eighth consecutive month posting over 2,000 foreclosures. The report shows that 2,136 foreclosures were initiated statewide during the month of May 2007, 32.34% higher than the number recorded in May 2006."

"Over the past 12 months, lenders initiated foreclosure proceedings against 23,638 homeowners, representing a 74.14% increase over the same period a year earlier. 'May continues to be a record month for foreclosures affecting Massachusetts homeowners and the trends suggest that we may continue experiencing these historical numbers throughout 2007,' said company president Jeremy Shapiro. 'The fact that the housing market has remained relatively flat means it’s still difficult for homeowners to refinance or sell their property contributing to the high number of foreclosures.'"

"Highlights of the June 2007 Market Analysis Report include:
2,136 foreclosures were initiated in Massachusetts in May 2007: Foreclosures increased statewide by 32.34% in May 2007 compared to May 2006 (2,136 vs. 1,614). On average, there were 107 foreclosure filings every business day in May. The jump in foreclosures from April to May was the biggest month-to-month increase this year."

"23,638 new foreclosures were initiated in the past 12 months (June 1, 2006 through May 31, 2007): Foreclosures increased statewide by 74.14% over 2006 levels (13,574 v. 23,638. Filings during Q1 of 2007 were 73% above Q1 of 2006 (2,755)."

"Other 2007 statistics of note include: Suffolk, Worcester and Barnstable experienced the largest increases. Suffolk County saw an 83% increase (1,435 vs. 2,628), Worcester County levels were 80% higher (2,028 vs. 3,646) and Barnstable County had a 79% increase (647 vs. 1,158)."

"In communities with 10 to 49 foreclosures over the past 12 months, the biggest increases were in Adams (517%, 6 v. 37), Boxborough (500%, 2 v. 12), Hardwick (467%, 3 v. 17) Sutton (210%, 10 v. 31), and Millville (200%, 6 v. 18)."

"In communities with 50 or more foreclosures over the past 12 months, the biggest increases were in East Bridgewater (233%, 15 v. 50), Everett (184%, 67 v 190), Walpole (152%, 21 v. 53), Lawrence (152%, 232 v. 585), and Clinton (146%, 24 v. 59)."

Sunday, July 01, 2007

Tough Times Mean Booming Business

The Orange County Register reports from California. "Tough times in the real estate industry mean booming business for Michael S. Buescher, a Trabuco construction contractor who specializes in cleaning and fixing up repossessed homes. As more property owners fail to refinance or repay their subprime loans, Buescher's pay days are getting bigger and bigger."

"In Orange County, the number of foreclosures through May hit 1,031 – seven-fold the number a year ago. Default notices soared 121 percent, to 4,520 homes, during the first five months of the year. 'We get more every day,' Buescher said. 'We've been waiting eight years for this to start happening again.'"

"So far this year, business has taken Buescher to dozens of trash-outs and fix-ups in Orange, Riverside and San Bernardino counties, to gated communities and rat-infested crack dens, all united under the title 'real estate owned' or 'bank repo.'"

"'This is more fun than building houses,' he said as he admired his crew's handiwork at a foreclosed four-bedroom, three-bath split-level home in an unincorporated area near Tustin. 'I can make more doing this than on homebuilding. This is quick turnover. You don't have to wait eight months to get a permit. The cash flow keeps coming.'"

"Buescher is far from the only person profiting from a real estate market troubled by slack sales, sagging prices and soaring defaults. The Tri-Star Group, a Fullerton development company, hired Joseph Baleto as a 'foreclosure adviser' in January. It was a new line of work for Baleto, a Realtor since 2004, a period when the market has known only good times. His assignment: Buy properties at auction to renovate, 'bring out the original luster' and resell."

"'Inventory is up, which is great on the one hand because there's a lot of property to pick from,' Baleto said. 'On the other really have to have a product that stands out, and you have to have it priced correctly in order for it to sell.'"

"Mike Roberts, a real estate agent and radio host, has revived his Laguna Niguel company Trust Solutions Inc., which offers homeowners who are upside-down on their loans a legal method for selling their property without having to go through lender approval. The process, Roberts said, has the advantage of getting the seller out of an unaffordable loan without the penalties of a foreclosure or short sale. For buyers, it can mean acquiring homes at a lower property tax rate."

'So far this year, Roberts said Trust Solutions has negotiated one or two deals a month. But he expects business to pick up as more homeowners find themselves underwater."

"'I suspect by late summer we'll be doing one a day,' he said. 'That's what we were doing the last time the market was in trouble in '94, '95, '96 and early '97.'"

"Patti Donovan, president of Stearns Asset Services, a Santa Ana firm that manages and markets real-estate owned properties, said she got back in the business last year after a four-year hiatus when the market was hot. Donovan, who started in the foreclosure business in 1984, said she expects the down market to last three to five years."

"'The difference this cycle is it's not the economy that's causing this to go upside down,' she said. 'It's more the types of loans – 100 percent financing, adjustable rate mortgages. Before, it was people losing jobs. Now it's just people borrowing too much.'"

"As banks accumulate more property, they hire managers to coordinate contractors, maintenance crews and payment schemes for insurers and tax bills. They also seek out home sellers who specialize in distressed property, like Staci Treloggen, who heads the real-estate owned group at Prudential California Realty in Laguna Niguel."

"'Banks outsource to people like me,' Treloggen said. 'I need people like Mike (Buescher) to staff up.'"

"Treloggen assigned Buescher and his five-man crew to an abandoned home at 17571 Rainier Drive in an unincorporated triangle between Orange, Tustin and Santa Ana. Public records show Wachovia Bank foreclosed on the property in May. The asking price is $762,500."

"When Buescher and his crew arrived, the swimming pool was a mosquito breeding ground; bird cages and bales of hay littered the yard; the garage closeted a mountain of papers, clothing, toys and other trash. After two days' work, the four-bedroom, three-bath 1959 split-level home looked neatly trimmed and vacuumed."

"Buescher typically proposes a cleanup plan in several stages. He charges $500 for a barebones job to rekey locks, install smoke detectors and secure a house from intruders. He can tell if a house has been broken into if there's a rush of air when he opens the front door, because it means there's an opening somewhere else."

"After securing a property, his job escalates to the 'trash out,' filling dumpsters with yard waste, clothing, toys, appliances and furniture abandoned by tenants. Items worth more than $300 must be stored for 19 days for the owners to claim. Few people come back, Buescher said."

"For some reason, he said, tenants almost always walk off with shower heads. Many rip out counters, air compressors and other fixtures that belong to the bank. Sometimes neighbors join the looting. 'If the air compressor is gone, the first place I look is over the fence,' he said."

"It's not Buescher's business to understand why people lost their home. To encourage renters to leave, he'll offer a few hundred dollars. If he finds a squatter, he'll ask the cops to arrest them for trespassing. If the bank agrees to pay for it, Buescher will repaint the walls and replace the carpets. He recommends neutral, vanilla colors to avoid turning off potential buyers."

"As the repairs get more complex, Buescher's fees escalate. Granite counters, a reshingled roof, new wiring, they all make his cash register ring. 'My job is to convince the client to spend more money to sell the house,' he said. 'But at this point, the banks aren't willing, because the market hasn't hit bottom.'"

Friday, June 29, 2007

A Distressed Property Update: Las Vegas

A report from NARREIA. "Since the implosion of the sub-prime mortgage market at the beginning of 2007, the distressed property market has really gained momentum. This is especially true of markets like Las Vegas, where the extreme appreciation of 2003-2005 has been met with a year long cool down and the start of a slide in property value."

"When looking to invest in a market like Las Vegas, you need to consider which investment vehicles or strategies might actually be profitable. Rent is definitely too low for properties to cash flow positively with a down payment of 20% or less. This leads most local investors to the distressed property vehicles, but not all of these vehicles work well in down and depreciating market."

"Therefore, before you invest too much time in learning about a specific vehicle you need to determine if it will actually result in a profit. The most well known distressed property investment vehicles are the Notice of Default List, Short Sales, Foreclosures ('on the court house steps'), and Bank Owned REOs (Real Estate Owned)."

"There are a total of 25,659 available properties on the Las Vegas MLS with only 2,995 additional properties under contract. Of the available properties, 2,048 (7.9%) are flagged as short sales."

"Working short sales is very different than working the other pre-foreclosure investment strategy, the Notice of Default (NOD) list. When working with the NOD list, you are dealing with the owner and you are looking for properties that have a high equity, low Loan-to-Value (LTV) ratio. You need the low LTV because your profit is the difference between what the value of the home is and the amount the banks need to pay off the loan."

"While negotiating with the owners over the equity in their house might sound challenging, it is usually cut and dried. They either understand the situation they are in and are willing to negotiate or they don’t fully comprehend that they are about to lose their house and will shut you out entirely, and this can be determined quite quickly. If they stonewall you, you move on to the next property. If they are willing to negotiate, the process is relatively simple."

"In a short sale, however, you will be dealing directly with the bank and you’ll be looking at properties where the LTV will likely exceed 100%. The problem for the investor is two fold. First, where is the profit in this deal with the bank? Logically, the bank will want to get the most they can for the property, minimizing their losses. Seldom are banks willing to let a property go for anything considerably below today’s current market value, so this makes it very hard for the investor to work in their profit."

"The other hurdle that you will face is that the banks are notoriously slow in dealing with short sales. Banks regularly take 4-8 weeks just to respond to an offer, and if a property is already in the foreclosure process, that time could easily extend past the Notice of Foreclosure Sale date. Additionally, the owner will have to be very cooperative in coming up with the required financial statements and writing the hardship letter, and owners who are in these situations are not typically quick to respond."

"True foreclosures, what people sometimes refer to as 'buying on the court house steps,' is a cash-intensive process that is very competitive in the Las Vegas market. This makes this vehicle very challenging for most individual investors. Clark County requires you to pay the full amount of the offer immediately before the next property is auctioned, which means you need to have cash for the entire purchase price with you right there."

"While there are a few bargains to be had, it is not the fire sale that you might think as the banks would still rather hold on to the property than give them away."

"The banks’ current stance on valuing the properties on the high side leads to a growing REO market. REO stands for Real Estate Owned, and it is the term for a property the bank has foreclosed upon and did not sell at the county auction. What is amazing is that the banks will deny a short sale on a property only to drag it several months through the entire foreclosure process and then list it for less than the denied short sale price. While it is not yet a 'fish in a barrel market,' some banks are starting to deal on a few of their properties."

"Where is this all going? Either the banks will start dealing with the current owners utilizing workouts and short sales, or the REO market will explode."

"At the beginning of June, 2007, the banks were still playing hard ball, unwilling to negotiate in most short sale situations even in very reasonable scenarios. The only positive sign that we’ve seen recently is their willingness to arrange for workout programs for the current owners. These programs allow the owners to miss a few payments to try to get back on their feet, but this is truly a band-aid approach."

"Owners that are not able to make their payments today will more than likely not be able to make their payments at the end of summer, and we will still see the need for either a short sale or foreclosure."

"Until the banks face the situation squarely and start accepting more short sales, the properties will flow to the REO market and that is a good place to be looking for some bargains."

"As the supply in that market swells, look for even further discounts to come. The local market tends to slow down in the fall and stagnate in the winter, so the distressed property market should be in its prime at that time."

Sean Brown
Las Vegas, NV

Thursday, June 21, 2007

A Lot Worse Before It Gets Better

A press release from Bruce Norris. "California's real estate downturn will be deep and long lasting, with home prices falling 15 to 30% during the next 36 to 42 months, according to a real estate expert. Bruce Norris, who correctly forecast both the real estate boom that began in 1997 and the subsequent doubling of home prices, said the downturn will reflect a perfect storm that includes record numbers of foreclosures, a sharp decline in migration to California, substantial increases in unsold inventory, and, of course, falling prices."

"'We are in for a very rough ride in California's real estate market, which is likely to be far more severe than analysts, state officials and real estate industry associations have acknowledged,' Norris said, adding, 'Foreclosures alone are likely to be more numerous than anything we've ever experienced, with bank repossessions ultimately accounting for as high or as many as 25-30 percent of all homes sold during the next three years.'"

"Norris said prudent investors need to arm themselves with the facts and come to terms with the fact that analysts, state officials and the California Association of Realtors are either not being frank about the severity of the coming crisis or they simply aren't looking at the right categories of statistics."

"But while Norris' outlook is gloomier than most observers for the short term, he expects California real estate prices to again rebound in 2011 as foreclosures decrease, the number of homes for sale declines to a manageable level and as California again experiences a net increase in population migration from other states."

"'There is light at the end of the tunnel,' Norris said, 'but we have to be very careful in this market environment. Investors need to know that marginal deals are no longer acceptable. The market will no longer cover their investment mistakes. If they don't know what they're doing, they need to stay out of the market until conditions change.'"

"The trouble with the analysis given by most real estate observers is that it's based on flawed assumptions, including the widespread belief that interest rate adjustments can somehow hold back the looming real estate crisis."

"'Interest rates alone do not determine the direction of prices,' Norris said. 'Look what happened the last time we had a real estate downturn in California. Interest rates were actually lower in lower in 1997 than they were in 1990. Yet prices declined by as much as 35 percent in some areas.'"

"The most reliable indicator of a downturn in California is low affordability. Historic affordability lows signaled the previous two real estate recessions and prevented inventory from selling quickly."

"'We still have strong employment and historically low interest rates,' Norris said, 'yet we continue to see the inventory of homes soar, even as builders lower prices and give huge sales incentives. This change in the market caught economists off guard because they said that without an increase in unemployment, you can't have a real estate downturn. That wasn't true!'"

"Centex Corp., Hovnanian Enterprises, Pulte Homes, Lennar and D.R. Horton together have written off more than a half-billion dollars worth of land option agreements during the past year, Norris said, citing published reports. 'If prices were heading upward and if demand for housing was strong, they wouldn't be walking away from these land option agreements,' he said."

"'Many economists and real estate observers and even government officials continue to offer rosy assessments because they are under political pressure to say nothing or because they are simply looking at the wrong statistics. Trouble is, there are many investors, including builders, who have been misled by their commentary,' said Norris."

"Various organizations are deliberately misleading investors and the general public, Norris said, adding that the National Association of Realtors (NAR) launched a $40 million ad camping in January of this year in which they told buyers that now is the perfect time to buy a home."

"Even more recently, Jeff Davi, commissioner of the California Department of Real Estate, is quoted in this month's issue of California Real Estate Magazine saying that California continues to need another 250,000 single and multifamily housing units to be built each year."

"'If this was truly the case,' Norris asked, 'why are we seeing vacant properties, increasing housing inventory and builders walking away from millions of dollars in land options? The reality is that the real estate market in California is going to get a lot worse before it gets better.'"

"The good news is that the market should turn upward again in 2011. By then, Norris said, prices will be low enough to lure many people back into California again, lenders will have again adjusted their lending guidelines and investors will again re-enter the market, sensing bargains and opportunities for additional profits and equity growth in the years ahead."