Turbo REO Tour
Let’s keep the videos shorter – the first two seen in this Carlsbad tour were foreclosed in the last two weeks, but what will become of the remaining new homes/lots on the last street has yet to be determined:
REO Rancho
There has only been one house in the Covenant close under $1,000,000 so far, the 1,862sf one on 3.16 acres at 6427 Paseo Delicias:
http://www.sdlookup.com/MLS-090036222-6427_Paseo_Delicias_Rancho_Santa_Fe_CA_92067
It had listed for $1,320,000 in June, but had to lower to $999,800 before it sold for full price on September 30th. Will there be more?
This will be a good test:
Pre-Approved Short Sales
Sean and the folks at Foreclosureradar.com are very gracious in providing their data, though I don’t like this – fewer trustee sales, and more cancellations.
If the trend continues, we’ll have fewer REO listings, which are typically well-priced and vacant, and instead have more short-sales and loan modifications:
The bulk of the defaulting mortgages are from refinancings, which are full-recourse. Are the lenders/servicers gearing up for The Big Collection?
Maybe not, and perhaps the opposite. They could be anticipating HAFA, the latest foreclosure-avoidance device that encourages lenders and servicers to approve short sales, and deeds-in-lieu of foreclosure. HAFA begins April 5th.
HAFA directs the servicers to pre-approve the short sale, prior to listing the home for sale.
Once approved, the homeowner gets four months to sell the house, stalling any foreclosure proceedings, and then gets $1,500 for moving expenses. It also looks like the homeowner get released from all liability too.
Here are more details on HAFA, from Inside Mortgage Finance:
Sleuthing
More auction-list and REO properties; these are in Del Mar and Leucadia, west of the I-5 freeway. But first, some short-sale advice for listing agents:
Crazy Suzy
hat tip to the Leucadia Blog for sending over Suzy’s story, plus they mentioned the Encinitas Extreme Home Makeover house in foreclosure too:
http://www.theleucadiablog.com/2009/12/encinitas-monster-house-and-extreme.html
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We’ve been waiting patiently for the lender to list Suzy Brown’s old house for sale – remember the 16,330 square footer in Olivenhain?
She had purchased it from Barry Axelrod for $850,000 in 2003, and took out a loan for $4.55 million in 2006. You know the story, the bank foreclosed and found that ‘somebody’ had stripped the house.
She was in court yesterday, here’s the story from the nctimes.com:
The former owner of an Olivenhain mansion who is accused of stealing $1 million worth of fixtures from the bank-foreclosed home repeatedly refused to identify herself at her arraignment Tuesday, prompting a Vista judge to handcuff her in the middle of the proceedings and finally order her to jail.
Suzy Brown, 45, eventually pleaded not guilty to one count of grand theft and one count of felony vandalism, but not until the hearing had been postponed several times because of the unusual actions of the short-haired woman in a pantsuit who, to the amusement of many in the courtroom, wouldn’t admit she was the defendant.
It is not clear why Brown would not acknowledge her identity —- which Judge Marshall Hockett eventually confirmed through a copy of her Department of Motor Vehicles photo that the court requested —- but Brown apparently contested the legality of the complaint against her issued by the district attorney’s office, according to her attorney.
“Ms. Brown claims she has not seen what she calls a ‘genuine charging document,'” said public defender William Matthews, who stepped in to represent Brown after Hockett declined Brown’s request to represent herself.
From the start of the afternoon hearing, Brown would not say who she was.
She said she had no identification with her.
“Are you or are you not Suzanne Meredith Brown?” Hockett asked, getting fed up. “… You’re playing games with the court.”
“I’m genuinely not playing games,” Brown said with a deferential, somewhat pleading tone.
Sending a Message?
In the previous post, we saw that second mortgage holder Bank of America was willing to take nothing now, and allow the first lender to foreclose – rather than accept $10,000. Let’s examine the possible reasons why this happened.
1. Banks are stupid – a crass generalization that deserves more depth.
You could speculate that banks/servicers are making faulty policy decisions, but usually where I see ‘stupid’ decisions are from those clerks on the front lines – people who are buried with files and aren’t able to make quick decisions accurately. Some are buried with files and can handle it, others can’t, and if this B of A decision was a mistake, oh well, it’ll probably be absorbed. B of A was the actual lender, not just servicer – on the tax rolls they were the bank that funded the loan, and was the decision-maker, according to the LA.
2. Banks are backstopped by U.S. Government
You could imagine a few conspiracy theories here – that B of A might have some sort of incentive to lose money, but because will have to wait for the book/movie to expose it, we’ll be a little short on specifics today. Let’s add, this wasn’t a Countrywide deal, Bank of America was the lender of record in November, 2007 when this $100,000 second mortgage was funded on top of a $900,000 first mortgage that Empire Mortgage Co. had funded in March 2006 (and likely sold off by now?).
3. B of A has recourse, and will pursue borrower.
Irene mentioned in the previous comments that lenders will have recourse for the duration, and I don’t see them waiving it for short sales – especially on seconds. Let’s be clear about one critical component – there are no reminders to borrowers coming from the realtors about future recourse. NAR, CAR and the local realtor boards have done very little to instruct realtors about the possible future liability of recourse loans. As a result, everyone is just pushing to close a deal, and not many folks are demanding that the lenders waive their recourse. I appreciate any views from the attorneys here, and thanks CA Law for bringing it up.
4. Banks are having a change of heart about their “gentleman’s agreement”.
Rob Dawg mentioned it early on that the big lenders/servicers will likely play nice when it comes to settling these disputes between first and second lenders, because on the next deal the shoe will be on the other foot. Most cases over the last few months have had the first mortgage holder paying the second $5,000 to $10,000 to go away nicely, and this is why the listing agent was mad – it didn’t happen in this case.
Possibility #4 is one we will be following closely, because I don’t expect that a major lender is going to make a statement on CNBC that they are waging all-out war in their race to the exits. It will only be seen by examining individual cases and stringing together a series of events to learn what the lenders/servicers are thinking.
I’m pretty sure about this – they will be firing all their guns at once in 2010, and it may not be that obvious to the casual observers. We’re expecting more NODs to make it to the auction list, more trustee sales executed instead of postponed, and the REO listings to increase slow but steady, all while the powers-that-be are frantically pushing loan mod programs that may look and sound good, but aren’t resolving anything.
All-Lagoon
The 4 br/3.5 ba, 3,265sf house at 3291 Avenida La Cima in Carlsbad has sat vacant all year, and was being offered as a short sale, listed for $925,000.
The owner bought it new in 2003 for $694,500, and had refinanced at least three times. The latest left her with a $900,000 first mortgage, and a $100,000 second mortgage.
An all-cash offer for $900,000 was tendered, but declined by the bank. The frustrated listing agent has this in the remarks:
Second lien holder Bank of America WILL NOT release their lien unless they receive 5% of the net proceeds that the first receives. The first lien holder generously will only allow $10,000 to the second. B of A will not accept this amount and therefore is forcing foreclosure. HOME FORECLOSED ON 11/12/09.
Today’s opening bid was $739,500, and no takers – so it goes “back to bene”, and the first mortgage holder gets another REO on the books.
Three things appear to be in the works here….
1. Banks are stupid.
2. Servicers are losing patience on short sales, and foreclosing is becoming a primary option.
3. JtR has three people (Jim, Lucy and Richard) who are filming houses that are heading for the court house steps, and building quite a library for their clients!
Here is Richard’s tour:
F-List Review
Folks have been wondering about what details could be culled from the foreclosure list. We’ll give the benefit of the doubt and omit those on the NOD list – they might be able to save themselves, or get a loan mod.
Let’s just look at the 100 SFRs valued between $685,000 and $1,250,000 in Carlsbad, 92009 and 92011 that have received their notice of trustee sale, or have met their fate on the steps of the county court house:
What’s the mix of Defaulted Purchase Loans vs. Refinances? If you refi’d your way into trouble, and wound up over-encumbered, that’s one thing. How many people either never saw the downturn coming, or or were hit by a hardship after purchasing?
| Purchase Loans | Refinance Loans |
How Many were Neg-ams? Tabulated by counting those who must have only made the minimum payment, and whose loan balance increased substantially, as noted on the NOTS. The cutoff was simple – if the amount on the notice of trustee sale was more than 10%, it was called a neg-am:
| Neg-Am/Option ARMs | No-Neg Loans |
Conservative vs. Riskier? Breakdown of above – How did folks use the neg-am loan as an affordability product?
| Purch No-Neg | Refi No-Neg | Purch Neg-Ams | Refi Neg-Ams |
Skin vs. No Skin in Game? How many used at least a 10% down payment when they purchased?
| At Least 10% Down Pmt | Less Than 10% Down |
What Year was the Mortgage Originated? How long are people able/willing to endure?
| 0-2003 | 2004 | 2005 | 2006 | 2007 | 2008 |
How Quick are Banks Processing? How many months have gone, or went by since the first notice of trustee sale was recorded?
| 1 mo | 2 mo | 3 mo | 4 mo | 5 mo | 6 mo | 7+ mo |
Auction List/Bank-Owned/3rd Party?
| Auction List | Bank-Owneds | Sold to Third Parties |
Trying to Sell? Five of the REOs just closed, and the other is pending (there are no active REO listings currently). The 3rd parties jump right on it, of the four: two are ACT, one PEND, and one SOLD:
| Auction List on the MLS | REOs on the MLS | 3rd Parties on the MLS |
Shadow Inventory? The reverse of above. Once a property gets on the auction list, how much chance is there that they’ll be saved? If not saved, how many properties on the list are heading for market?
| Auction List/REOs/3rd Party Properties Not on MLS |
The 75 properties will probably roll onto the open market spread over the next 2-4 months, and get plenty of attention. The REOs that have already sold closed for $99,000 over list, $91,000 over list, $20,000 over list, list price, and $10,000 under list price.
Will the short-term market get overwhelmed with REOs and short sales, or just get dripped to death? Either way, I think there will be buyers – it’s just a matter of price!
REO Nights
Stop the whining. You should be grateful for the opportunity to spend hours driving around in the middle of …..well, um…Hellhole Canyon:
I mentioned the business opportunity because the pot-house video a few months back generated more calls from buyers than all other videos combined. Apparently, horticulture is a thriving hobby in the area.
Only The Shadow
Here’s one more 16-page report on shadow inventory, with many charts and graphs:
http://matrix.millersamuel.com/wp-content/3q09/Amherst%20Mortgage%20Insight%2009232009.pdf
An excerpt:
The single largest impediment to a recovery in the housing market is the large number of loans that are either in delinquent status or in foreclosure that are destined to liquidate.
This creates a huge shadow inventory. We estimate this housing overhang at 7 million units, or 135% of a full year of existing home sales.
We look at the impact on a number of local markets, then look to the causes of the overhang:
1. Transition rates are high,
2. Cure rates are low, and
3. Loans (foreclosures) are taking longer to liquidate.
We are concerned that, in light of this housing overhang, the stabilization we have seen in home prices the last few months is temporary.
They’ve identified the big picture, and used Riverside as a test case. Let’s take our own look at Carmel Valley, 92130, which is a pertinent test for a couple of reasons; 1) it’s housing stock is mostly newer tract houses, and a more-homogenous sample should run truer, and 2) it has been one of the best performers so far. You can probably guess that your favorite surrounding areas may be faring somewhat worse.
Current MLS detached and attached active listings: 242
ForeclosureRadar.com’s NODs, NOTs, and REOs list: 192
Duplicates: 58
Total Inventory 242 + 192 – 58 = 376
Month’s Worth of Inventory: 376/77 = 4.88 months – if we can assume low or no seasonality into September’s 77 closings. This report makes a big deal about seasonality, but I think in Carmel Valley there will be less seasonal effect this year due to lower pricing. Last year in 92130 the number of monthly sales for September through January were 46, 50, 31, 32, 32.
Of the 134 defaulted properties that aren’t on the MLS:
There are 10 bank-owned properties and 55 others on the auction list that aren’t on the MLS. Let’s assume that ALL 65 of those will make it to market at some point over the next six months. (65)
Many of the unlisted 69 NODs are homeowners who have applied for a loan modification. How do I know this? I’ve knocked on their door, and close to 100% of the owners say it. But let’s assume that half will either get an acceptable loan modification, or go back to their original payments, rather than get foreclosed. Let’s be conservative and add 40 more of the NODs to the ‘future foreclosure’ roll. (40)
But let’s also include about 30 of the 58 that are trying to sell who will fail, and get foreclosed anyway. (30)
60 + 40 + 30 = 135 more houses and condos are ‘shadow inventory’, properties that aren’t on the open market currently, but should be in the next six months.
You can decide for yourself what the impact will be on 92130 with an extra 10-20 homes per month coming on the market. I think there are enough buyers waiting that they will all sell, it’s just a matter for how much. There are only 20 of the 198 detached active MLS listings that are under the magical $300/sf number on their list prices – you can bet the REOs will be right around there.
True, those who are delinquent but haven’t received an NOD yet are not in the count, but did they just got a later start than these folks? Most importantly, are the defaulters growing faster today than earlier in the year? If so, tack on more pain to your own opinion.
Here is the list – if you see one you’d like to pursue, contact me:
Jim Klinge
Klinge Realty Group
Broker-Associate, Compass
Are you looking for an experienced agent to help you buy or sell a home?
Contact Jim the Realtor!
- 682 S. Coast Hwy 101, Suite #110
Encinitas, CA 92024 - (858) 997-3801 call or text
- klingerealty@gmail.com
CA DRE #01527365, CA DRE #00873197
