Hey,
I know, it’s been a while.
I wrote a story about the time that I went fishing with Fidel Castro, in Havana. We decided not to run it. Too controversial.
I wrote a story about my experiences as a time and space traveler, but decided not to send it out. Too controversial.
I wrote a story about my psychic abilities and mind controlling experiences, but decided to pass on that one too. Too controversial.
I was going to write about the health care issues, but decided to let it play out a little longer first. I’ll take that one on next.
A few weeks back, when the weather first got cold, very cold, I stayed home one day to write.
The change of seasons is brutal to me, because my hearing doesn’t work properly when Mother Nature can’t make up her mind to be hot or cold. Actually my hearing is always the same, but during periods of change of barometric pressure, stress, and rapid fluctuations of hot and cold weather, I develop tinnitus, or ringing in the ear. Once it finally settles on cold, my hearing gets okay, the best that it gets altogether. In fact, this one day I had my best hearing day in years. I took all of the calls on my cell phone, and actually got to speak to people. Felt great.
But anyway, with cold weather, comes heat. We tried to turn on the furnace, and weren’t able to, so we decided that the best thing to do is to call someone. The best they could do was Monday (this was Friday). This is the best time of the year for plumbers. They are at their busiest as the beginning of the heating season. On the first cold days, they work around the clock. 24/7. Good for them. Wish Realtors® had busy seasons. We used to.
The good old days, Realtors® Rush Season: Super Bowl Sunday through Mother’s Day, Realtors® working round the clock to deliver houses for their clients.
Anyway, no heat that weekend, which happened to be the introduction to winter 2009, meant sleeping in sweatshirt, flannel shirt, sweat pants, and socks for three nights. Drinking lots of hot coffee to keep warm, people freezing at Yankee Stadium watching the Yankees beat the Angels. I watched the game, wrapped up in a blanket, and it felt just like I was at the stadium. I could see my breath when I exhaled, just like on TV.
So the guy comes Monday morning and can’t get it going, tries to add water and it comes out the bottom, and says, the furnace is cracked, you need a new boiler, it can’t hold water. “It cracked because I didn’t flush it out properly last winter,” he said “the new furnace would be $7,500, 200,000 mega something’s with all the bells and whistles, including removal of the old one”
Billed us $145 for the house call.
Now I know a couple of things about boilers. One of them was that my boiler has an automatic water feed, and does not have a low water shut off valve, to be flushed.
So I did what I tried to do earlier, I called Mike, the boiler expert.
Mike came over and analyzed the situation, said that the reason water came out was because the boiler was full. There were no cracks. The problem had to do with the pilot and some sensors. He took a wire brush and cleaned the pilot, replaced a sensor, and just like snap crackle and pop, we had heat, better than ever, and at a savings of over $7,000.
My wife asks does this only happen to us? At the beginning of cooling season last summer, one of our units wasn’t working properly. We called 1-800-AC person who said that our compressor was blown, shot, and kaput.
Once again I got Mike to come, he looked at it, and found that the fuse was blown, and replaced it.
I told her that it happens to everyone; just that not everyone gets a second opinion from someone that they know isn’t going to rip them off. Problem with Mike is getting him, because he is so good, he is always in demand and hard to get.
Today I stayed home all day because my wife had her car inspected and the mechanic held it for 6 hours to find things wrong. He wouldn’t inspect the car, but he found $500 worth of work that needed to be done, for which he charged $43.40.
What a world we live in, where you need second opinions on plumbers’, and mechanics for fear that they rip you off.
And don’t let me get started on Doctors.
Which somehow brings us to the subject of this story.
What’s happening in the real estate market?
(It really had nothing to do with the rest of the story, but I thought that it would be a nice transitional phrase
In the beginning, when I first started working on my list, after I had called my friend Randy at Merrill Lynch who told me that they didn’t own any real estate, after they had written down $6 Billion in bad real estate loans, before any of us knew what sub-prime mortgages and derivatives were, before I had a book with an official name of Lasher’s List, but after I had gone through every single listing in the MLS, all 3600 of them at the time, I had a pile of 35 properties, in no particular order, that were bank owned foreclosures- REO as we say in the trade. 35! (I never was able to find out if Randy was one of the traders at Merrill with the big bonuses- he was a “director” which is like partner).
I counted all of the active listings in my Lasher’s List of foreclosures’, short sales, estate sales, and fixer uppers binder, which by the way was just expanded from a 2 inch binder to a 2 ½ inch binder, and now contains (drum roll) 275 listings.
That’s right folks.
And what a job it is to maintain this list as current. If I fall behind a day, there is hell to pay. There are sometimes 200 items on the hot sheets in a day. Sometimes more, sometimes less.
Today I saw a new listing and the owners name was someone who I had been dealing with a couple of weeks prior, on a bunch of stuff. Always one to give the other person the benefit of the doubt, I sent the listing to them, to see if in fact it was his home, and he responded yes.
This also happened the week before with a different customer. He wouldn’t even acknowledge my email, but continues to demand information on listings.
So it has dawned on me that many of you don’t realize that I am a hard working, real estate broker, who sells real estate for a living. There are two brokers in every transaction- the one who lists it onto the MLS, and the one who sells it. Through my emails I hope to be a selling broker, but would also like to be a listing broker. Although I enjoy writing, and I hope that my comments are witty, and enjoyed, and while I realize that I am performing a service for all of the brokers on Staten Island and my readers, by disseminating so much information, on so many properties, there is no one paying me for my time. Some of you take my listings and go to other brokers. Some of you go to the listing brokers thinking that it helps get you a better deal.
Please consider me when thinking of selling. I think I am a marketing genius, well versed in selling properties, yet I remain humble. I haven’t had that many listings, but have sold all I have listed. I take a personal interest in my listings, and will be brutally honest with you about your property, if it is necessary. I could be sending out your listing to over 1500 people, many of whom send them to their friends and others.
As far as those two customers who listed with someone else, my broker Jon Salmon (always the salesman) said to leave them on the list, continue to send them stuff, and hope that at some point they will see the error in their ways, do the right thing, and if they should see something they like, call me.
Do unto others as you would have others do unto you!
Nuff said.
So what’s happening?
In the good times, the mortgage brokers and underwriters’ had their organizations where they partied, exchanged information and got paid vacations from the banks they work for.
In 1989/90 I was promoting a young company that I had started called the Landmax International Corp. Landmax was and is in the business of making land ready to be built on, because land that is ready to build on is worth more than land that isn’t. Helping landowners realize the maximum value of their property. (Since Landmax is no longer a new company, does it mean it is now an old or middle aged company?)
A friend of mine is a very famous Bankruptcy lawyer in Manhattan. He represented Bacharact in the Bloomingdales Bankruptcy, he represented the pilots on disability when one of the airlines filed.
Anyway my friend Harris brought me to the National Association of Bankruptcy Judges conference that was held in Boston in 1988 or 1989 as an exhibitor (vendor). So I set up my Landmax Display, created a special bankruptcy brochure for the event, and sat there while the judges and bankruptcy lawyers had their meeting.
Well at night, after the meetings, the Big 10 accounting firms threw parties for the assembled multitudes, with the most opulence that I had even seen in my life. Certainly the most extravagant parties I had ever attended. There were bankers and lawyers from all of the big institutions who were forecasting doom and gloom for the world and how good things would be for them, (followed shortly thereafter by bankruptcies, foreclosures, banks going under, the RTC, the first President Bush, the failures of all the banks, etc.). The late 80’s early 90’s were bad times for the country, especially real estate.
I remember breaking bread with a guy who was a big mucky muck at Manny Hanny (Manufacturers Hanover Trust) - remember them?
As a result of my exposure at the convention, I was flown all around the county for my opinions on several properties and portfolios in bankruptcy.
The REO trade organizations must be having incredible parties thrown by the servicing companies that are servicing all of the foreclosures now.
I was listening to a radio program about companies who try to recast loans for people to reduce the payments, and they had a whole discussion on the whys the wheres and the therefores, about it, and a discussion about how successful they were and the reasons for the successes and failures.
What was not discussed, and what is not being discussed anywhere else that I can see, is that notwithstanding Government initiatives, besides the programs of the major banks, (Chase, Citigroup, BofA,) who own their own mortgages and in whose own interest it was to make the loans performing instead of non-performing, and with the help of the Stimulus packages, is that the banks that are not going along with the programs, and whom are continuing the large numbers of foreclosures, are the dirty old derivatives.
Remember them?
The mortgages where no one owns the real estate.
Where there is no one who cares about cutting losses, because the government has stepped in to guarantee these toxic loans, so there is not pressure on anyone to do the right thing.
I believe that the real villain, the group that is not part of the solution, so therefore are the problem, continues to be the servicing companies.
You might want to go back and read one of my prior emails at my Blog at http://lasherslist.blogspot.com/ where I started that we should have known something was wrong when the banks became MERS (Mortgage Electronic Reporting Service).
Q. Whom do the servicing companies answer to?
A. Themselves.
If it makes the most sense for a bank like Chase, to reduce the principal amount on a mortgage, and/or lower an interest rate, to take all of the arrears and add it to the top, or even waive them, in the long run, that’s what they do, did and continue to do.
The servicing companies don’t think that way. They think how they can make more money. (Same story as the health insurance industry, but let’s leave that for another email).
When the bank or servicing company decides whether to do a short sale, or reduce a price, they act based upon information provided through BPO’s. Broker Price Opinions. They charge the customer $150 for this, and pay the broker who does it $50.
When the servicing company has determined that they are going to take possession of a house, they have companies that go in to break the locks, and drain the water. Their criterion for hiring these companies is price and results. The less that they are charged, the bigger their profit. Ergo the “mutts” that do the winterizing, instead of disconnecting the radiators, they hit them with a plumbers wrench to crack them. More to fix. It’s easier for them. Rather than nicely open a lock, they break the doors. We see this all of the time.
The servicing company doesn’t care, as long as it is collecting fees for “servicing the asset”
Same with the foreclosures.
The servicing companies get paid for participating in the foreclosures. Signing documents, meeting with lawyers, hiring the foreclosure lawyers, hiring the brokers, every step of the way, it is the servicing company that is making fees. They even get paid to go to lavish parties at REO conventions. And think about it, these are the same people who made the bad loans in the first place. Only in America.
So what is the incentive of these servicing giants to stop foreclosing?
THERE IS NONE!
If they make the loans performing, reduce principals, the people will be eventually able to refinance at the real banks, they will lose business.
Sure there are still waives of new foreclosures, sure there is record unemployment, but how is it that CHASE, CITIBANK, and the others, that are responsible for their own loans, are able to reduce their foreclosures dramatically, yet Deutche Bank as trustee of series of bonds #1-1000, dated June 2004, continue and increase their rates of foreclosures.
Because it’s good business.
Changes in the Marketplace
I started talking about the trade conventions earlier, (probably held at beautiful resorts in hot climates). The reason I spoke about them was that there are people out there who really want to dispose of the REO. Ultimately the bankers, the REO officers, have to answer to someone, and there are always those spreadsheets and monthly, quarterly and annual figures that must be presented and justified, and improved.
These people who are selling to the Banks and Servicing Organizations, have their resources that at this point are developing strategies to help sell the property. Think tanks, marketing research, and all that, their own branch of Madison Avenue except they aren’t selling Coca Cola and M&M’s.
One of the marketing techniques that I am noticing quite frequently is the lowering of prices dramatically.
For the past few years, when a REO is first put onto the market, it would remain at the same price until there was no longer any activity, and it didn’t sell. Then every month or two, the price was reduced $10,000, or so. It was so consistent that I was almost able to predict the reductions.
Recently, I noticed it with the HUD listings. Two of the houses that I have been following were lowered dramatically and one of them rose dramatically. I am talking about reductions of almost $100,000, or increases as large. I expect the one that they raised to be lowered at some point.
My guess is that HUD, Fannie Mae, Freddy Mac, and the servicing organizations too, all utilize the same technique.
I’m noticing some properties being listed, priced exactly right.
I’m noticing some properties being listed much too high, but being followed with huge reductions in price after 2 weeks.
Big price reductions definitely get my attention. I’m sure it gets others too.
I’m noticing a lot of the REO listings going to off Island brokers, and I’m noticing a lot of REO sales being made by Off Island brokers too. Staten Island is still the bargain basement of New York City. Houses cost fractions in Staten Island then they do elsewhere in the City. That is why we have such a high percentage of city workers living here, because to work for the City, you have to live in the City. Staten Island is the affordable borough. Add to that low crime and good schools and you wind up with a great standard of living, notwithstanding the commute. However, add to the equation, closeness to public transportation- i.e. bridge or ferry, then Stapleton and Concord, become hot areas, and those are the areas that I especially notice being sold off Island. Finally, I notice some population shifts in Stapleton, Concord, as well as the social changes, i.e. rock and roll shops, and you have what someday will be remembered as gentrification.
I’m noticing more people looking to buy. I’m not seeing more sales, but I am seeing more interest.
I think that a lot of people are looking. They know that there are good deals to be had, but are still nervous. Afraid to make the move.
So what should you do?
There will definitely be more good deals coming to the market in the weeks and months ahead.
While there is still record unemployment, although the indicators indicate that the recession is over or ending, it will take some time before prosperity kicks in. The stimulus programs are working, and in the process of trickling down.
Lowes broke ground on a second Staten Island store. That is a real positive economic indicator.
Macy’s has an ad on SILIVE.com today that they are hiring.
The tax credit for first time home buyers has been extended and expanded. To receive the $8,000 that does not have to be repair, provided you live in the house for three years, you must be in contract no later than April 30, 2010, and must close title within 60 days thereafter.
Additionally, if you have lived in your home for 5 years or more, and wish to buy up to an $800,000 home, you can receive a $6,500 tax credit.
I believe that there will be no more drastic price decreases. The world has more or less settled at where it is, because the worst is over. Not to say that prices won’t come down, especially the overpriced properties.
But I believe that the time has come, that when you see something that you like, that you think is a good deal for you, that it is time to act. We aren’t going to see that many more 2 family homes in good condition for around $200,000. We aren’t going to see semi’s and townhouses, that are priced $100,000 below the market that much longer.
The days of the disposal of the derivates are numbered.
There are only so many toxic loans left. The fire sale is going to end.
Don’t allow yourself to wind up in the never never land of shoulda
………………………….to be continued
Showing posts with label foreclosures. Show all posts
Showing posts with label foreclosures. Show all posts
Thursday, November 5, 2009
Saturday, August 8, 2009
The long road to the bottom of the market.
Are we there yet? Are we there yet? Are we there yet?
Those of you that receive my emails of foreclosures have been seeing notes on some of the properties saying things like “This price must be the bottom of the market,” or “this house is another sign of the bottom of the market.” (Those of you who don’t receive these emails, and would like to, please tell me. Those of you who would like to receive the cheapo cheapo listings, that I no longer send out, email me to be put on the cheapo cheapo list).
In preparation of writing this article, I gazed at my crystal ball, read tea leaves, threw tarot cards, and counted the bumps on my head, to find the answers. What did I find? I found Questions, like:
Which market are we looking at for the bottom? We have the stock market, we have the bond market, we have the gold market, we have the Real Estate market, and lots of other markets.
The Stock Market
The stock market reacts to all of the markets. Wall Street says that this recession and fall of the stock market is in response to the crash of the subprime mortgage market. My friends in the market tell me that the market still hasn’t dealt with the inflation, and unemployment, so the stock market has not hit bottom, and could even have another serious down spin, or crash. Of course that’s easy to say.
The Unemployment Factor
Many say that we haven’t peaked in unemployment as yet. That as unemployment grows, more people will lose their houses to foreclosures, and there will be more REO property on the market, less buyers due to unemployment, and on and on.
345,000 US jobs were lost in May 2009, and the unemployment rate jumped to 9.4%, its highest point in 25 years (1984- just before the wild 80’s took off?). Economists said that job losses are likely to continue to pile up through the rest of the year.
Yet the stock market took this as a good sign, because the pace of losses was lower than they anticipated, and that is was showing sustained signs of stabilizing (does stabilizing mean hitting bottom?).
But does the stock market really ever make sense?
There are lots of people selling books and emails, and courses that offer advice on how to buy and sell stocks, and play the market, based upon their formulas which always worked, always did better than the stock market. I just Googled “bottom of the market” and came across one of these guys, who shows how to tell the signs of the bottom of the market. This particular genius stated that after a crash; check the BKX index for a 10% rise…that will be the bottom. He also said when the economy reaches the front page of the NY Times, and every other major newspaper, that is when the market has hit mega bottom, and it is time to buy. He was wrong, the market continued to tank.
I never trusted the stock market. I never trusted the prices of stocks, IPO’s, stock tips, etc. If I got a stock tip, I know how far down the food chain I am, it can’t possibly be any good at that point. It was probably time to sell, by the time I got the tip. Especially after watching the films Wall Street and Pretty Woman. And what about Ivan Boesky, Michael Milken and Nicholas Leeson,… companies manipulate stock prices for their own accounts, and to big Wall Street players. We all know that.
Over the past several years, prior to the crash of the sub-prime mortgage crisis, I sat on the side lines, and watched as the prices of real estate climbed, and the stock market went up, despite our financial losses and costs in running the war in Iraq. (Which at this point seems small). I never could understand why the prices of stocks kept going up, and why the prices of real estate kept going up. Made no sense then.
So why should the stock market make sense now? Has anything changed? Aren’t the big players, just buying up the bargains while they can? They have the money; they borrowed billions from the fed. They had to have done something with the money; they bought stock that they can manipulate later. And didn’t they clean house? Got rid of the older high paid employees? Trimmed the fat, as it were? But mark my words, when the time is right, when the money is flowing again, when their customers are in the mode called buy and spend, they will re-sell these companies and stocks at huge profits. Next time the stock market is on the rise.
Housing Market
Now the housing market is different than the stock market. The major difference is that housing is a necessity shelter. People have to have a place where they can go with a roof over their heads to protect them from the elements. I don’t have to explain the use and necessity of housing.
But in the housing market there are certain constants, and there are always new people entering the housing market, and people ready to make a move to their next house:
People graduate; get married; have babies; get new jobs; get promotions; hit the lottery and/or have other windfalls and inheritances; children grow, and leave the house (empty nesters- I wish).
So there is a constant flow of new people entering the housing market, but what happens during the bad market times (or whatever you want to call whatever it is), these people don’t enter the market.
Why aren’t they entering the market now?
People aren’t entering the market for the obvious reasons, like they are afraid, they want to wait until the bottom is hit, they are waiting for the buy of their life to come knocking on their door. No one wants to buy on the way down, when it could still go down further. When things start to go up however, “when the train is starting to leave the station” according to my friend Jon Salmon, that’s when everyone wants to buy!
While there are good reasons to buy now, and good reasons not to buy now, the result of these people not buying is being felt in the market. Today, there is a growing amount of pent up demand for housing. At some point, we will understand that we have passed the bottom, and that it is “okay” to buy real estate now. At that time, there will be a rush, which will bring the prices up, because of this pent up demand. (Look what happened with the stimulus package to buy a new car and trade in your clunker- all of the pent up demand hit the market and the program was overwhelmed- The amount provided to last for 3 months, was used up in 3 days).
History has this strange habit of repeating itself.
In the late 70’s and again in the early 80’s, our economy was in really bad shape. We had left Vietnam, in disgrace, and the Shah of Iran was overthrown and our embassy was held hostage for 444 days. Our cities were falling apart; New York was on the verge of bankruptcy. Money for mortgages disappeared. Interest rates were up to 16% for a home mortgage, if you could get one.
And the real estate industry, including new home construction, grinded to a halt.
So some of the builders and some of the bankers came up with an idea, where they could lower the interest on the mortgage for a short period (3 years or so), and make them affordable.
Woodbrook Condominiums had just opened its first phase, and they offered a deal where you could get a mortgage at Citibank where the interest rate for the first three years was 10.5%. The builder paid the bank three years interest on the difference in rates, and sales were phenomenal. (they were called negative amortization mortgages).Other builders got the idea, and the market began again, slowly. And then we ran out of inventory, the builders that had the jobs ready to go, became the biggest builders. (Does Mirador ring a bell?).
Perhaps what really kick started the real estate market was the influx of foreign money, in the mid 80’s, as the United States had become such a terrific bargain. Large buyers from Japan, Germany and other European countries went on a buying spree, stimulating the market, as these dollars trickled down. Of course they not only spent money on real estate, they also spent money buying companies, and stocks. Next came the wild days of the 80’s where people made so much money that opulence was the way of the day.
The buzz around was he who has the most toys at the end- wins. Michael Douglas’ movie Wall Street had a scene where he was preaching GREED to his shareholders.
The builders on Staten Island decided that the best way to go was to utilize existing zoning laws and build as many townhouses on a piece of land as was possible. Houses went from 20 feet wide to 12 feet wide. Townhouses’ were built attached on all sides including the rear so the only property would be the 8’ front yard. And the price of houses went through the roof. I remember wondering how a person making $40,000 is going to be able to buy a house that cost $180,000. The price of homes went up faster than the salaries.
But then in the late 80’s government got into the act and all of a sudden the market crashed, and all of the banks built on their houses of cards fell with them.
In New York City, government (city council) decided to change the zoning laws and created something called contextual zoning. This only affected houses in Staten Island and Queens. It meant that from then on, garages counted in the computations of FAR (Floor Area Ratio’s), and other changes that made absolutely no sense to us on Staten Island were enacted. The net effect was that houses would either be 1/3rd smaller, buyers would get less room (no more garages, lofts, splays, etc.) and builders would get less units or yield from their land.
At the same time, President Reagan changed the tax code and eliminated capital gains treatment in real estate. That meant that profit from real estate was taxed as ordinary income, instead of as capital gains, which is taxed at a lower rate.
Bye Bye foreign money, hello recession.
Bye Bye banks, hello RTC (Resolution Trust Corporation.)
And then there were lean years and slow markets, etc., but then a funny thing happened.
Instead of building townhouses, some builders started to build detached one and two family homes, and the people who were ready to move out of their “starter home” into their next home, started buying these homes. The new entry level buyers, with all of that pent up demand, started buying the resale’s from those I just mentioned, and again we ran out of inventory, and prices started to climb again.
Only this time, they were fueled by real easy credit, and the subprime mortgage business, which enabled anyone who could breath and had a driver’s license (or was it a library card) could get a mortgage and buy a house.
So what will happen this time?
Smart money is already buying up the bargains. How much longer do you really believe that you will be able to buy a two family house for under $200,000? C’mon. Maybe we haven’t hit bottom, but some of the merchandise has.
Is now the time to invest in Real Estate?
Yes
Here are some of the reasons why:
First: $8,000 Tax Incentive available at closing- does not get paid back. (Unless you don’t live in the house as your primary residence or violate the other terms). Expires November 30, 2009. (First time homebuyers- haven't owned a home in 3 years)
Second: 96.5% Financing FHA & SONYMA
Third: Lowest Rates in History, and below market programs available.
Fourth: Lowest prices in 20 years
Fifth: This is a buyer’s market- Huge Inventories. Sellers are nervous and are negotiable.
Sixth: High amount of foreclosures and short sales available. There are bargains galore in every area of town, even Million dollar short sales.
Seventh: Prices in the neighborhood that you are interested in are relatively stable- either they are holding their own, increasing, or the pace of decline is slowing.
Eighth: You plan on staying in this home for more than 5 years. That way regardless of the market at this point, it will have stabilized and you will ride out any downturn, and come out ahead in price.
Ninth: Your rent equals a mortgage payment.
Tenth: You can use the tax deduction against your income.
Eleventh: You’ve found the right house in the right area for you. The schools are great. You know that if the market were better, this house would have been sold already, or there would be more competition for it.
Twelfth: You’ve got equity in your house, and want to move to a smaller house (empty nester). Although you will not be getting as much for your sale, you will more than make up for it in your purchase.
Thirteenth: If you don't buy now, you will kick yourself for the rest of your life.
Fourteenth: There probably will never be another market like this one in our lifetimes.
There is a lot of competition for the bargains
While there are lots of good deals out there these days, there are also a lot of savvy real estate professionals in the marketplace that are buying up the good deals wherever they can. Here on Staten Island, because of the large numbers of foreclosures on the market, there are a whole new group of OFF Island Realtors® who have joined SIBOR, because they receive foreclosures (REO) from the banks. These off island realtors also have “off island customers” who have discovered Staten Island as a fantastic bargain basement -the best bang for the buck- (compared to the prices of real estate in Brooklyn and Queens, and are grabbing huge amounts of these great deals as they occur.)
So how will we know that we’ve hit the Bottom of the Market?
We will know for sure that we've hit the bottom of the market, well after we are on the way up. We will read about it in Newsweek and Time Magazine, we will see TV shows about it. More and more of the articles and stories we hear and read about will be talking about the bottom, and then they will be talking about the bottom as having passed the bottom. In other words, we won't know for sure officially that we are at the bottom, until we are well passed it.
So are we there yet?
Yes and No.
The June numbers are in, and new construction sales are up for the 4th month in a row, although still below last year's numbers.
New Building Permits are up for the 4th month in a row, which means that the Building Industry is confident that the worst is over.
I am getting more calls than ever before, and more inquiries and requests to be added to the email list to receive free foreclosure listings.
Some aspects have hit bottom, others haven’t. Some things will get worse, some things are getting better.
Some house prices have hit the bottom, others have a ways to go.
So what is the answer?
…………………to be continued
Those of you that receive my emails of foreclosures have been seeing notes on some of the properties saying things like “This price must be the bottom of the market,” or “this house is another sign of the bottom of the market.” (Those of you who don’t receive these emails, and would like to, please tell me. Those of you who would like to receive the cheapo cheapo listings, that I no longer send out, email me to be put on the cheapo cheapo list).
In preparation of writing this article, I gazed at my crystal ball, read tea leaves, threw tarot cards, and counted the bumps on my head, to find the answers. What did I find? I found Questions, like:
Which market are we looking at for the bottom? We have the stock market, we have the bond market, we have the gold market, we have the Real Estate market, and lots of other markets.
The Stock Market
The stock market reacts to all of the markets. Wall Street says that this recession and fall of the stock market is in response to the crash of the subprime mortgage market. My friends in the market tell me that the market still hasn’t dealt with the inflation, and unemployment, so the stock market has not hit bottom, and could even have another serious down spin, or crash. Of course that’s easy to say.
The Unemployment Factor
Many say that we haven’t peaked in unemployment as yet. That as unemployment grows, more people will lose their houses to foreclosures, and there will be more REO property on the market, less buyers due to unemployment, and on and on.
345,000 US jobs were lost in May 2009, and the unemployment rate jumped to 9.4%, its highest point in 25 years (1984- just before the wild 80’s took off?). Economists said that job losses are likely to continue to pile up through the rest of the year.
Yet the stock market took this as a good sign, because the pace of losses was lower than they anticipated, and that is was showing sustained signs of stabilizing (does stabilizing mean hitting bottom?).
But does the stock market really ever make sense?
There are lots of people selling books and emails, and courses that offer advice on how to buy and sell stocks, and play the market, based upon their formulas which always worked, always did better than the stock market. I just Googled “bottom of the market” and came across one of these guys, who shows how to tell the signs of the bottom of the market. This particular genius stated that after a crash; check the BKX index for a 10% rise…that will be the bottom. He also said when the economy reaches the front page of the NY Times, and every other major newspaper, that is when the market has hit mega bottom, and it is time to buy. He was wrong, the market continued to tank.
I never trusted the stock market. I never trusted the prices of stocks, IPO’s, stock tips, etc. If I got a stock tip, I know how far down the food chain I am, it can’t possibly be any good at that point. It was probably time to sell, by the time I got the tip. Especially after watching the films Wall Street and Pretty Woman. And what about Ivan Boesky, Michael Milken and Nicholas Leeson,… companies manipulate stock prices for their own accounts, and to big Wall Street players. We all know that.
Over the past several years, prior to the crash of the sub-prime mortgage crisis, I sat on the side lines, and watched as the prices of real estate climbed, and the stock market went up, despite our financial losses and costs in running the war in Iraq. (Which at this point seems small). I never could understand why the prices of stocks kept going up, and why the prices of real estate kept going up. Made no sense then.
So why should the stock market make sense now? Has anything changed? Aren’t the big players, just buying up the bargains while they can? They have the money; they borrowed billions from the fed. They had to have done something with the money; they bought stock that they can manipulate later. And didn’t they clean house? Got rid of the older high paid employees? Trimmed the fat, as it were? But mark my words, when the time is right, when the money is flowing again, when their customers are in the mode called buy and spend, they will re-sell these companies and stocks at huge profits. Next time the stock market is on the rise.
Housing Market
Now the housing market is different than the stock market. The major difference is that housing is a necessity shelter. People have to have a place where they can go with a roof over their heads to protect them from the elements. I don’t have to explain the use and necessity of housing.
But in the housing market there are certain constants, and there are always new people entering the housing market, and people ready to make a move to their next house:
People graduate; get married; have babies; get new jobs; get promotions; hit the lottery and/or have other windfalls and inheritances; children grow, and leave the house (empty nesters- I wish).
So there is a constant flow of new people entering the housing market, but what happens during the bad market times (or whatever you want to call whatever it is), these people don’t enter the market.
Why aren’t they entering the market now?
People aren’t entering the market for the obvious reasons, like they are afraid, they want to wait until the bottom is hit, they are waiting for the buy of their life to come knocking on their door. No one wants to buy on the way down, when it could still go down further. When things start to go up however, “when the train is starting to leave the station” according to my friend Jon Salmon, that’s when everyone wants to buy!
While there are good reasons to buy now, and good reasons not to buy now, the result of these people not buying is being felt in the market. Today, there is a growing amount of pent up demand for housing. At some point, we will understand that we have passed the bottom, and that it is “okay” to buy real estate now. At that time, there will be a rush, which will bring the prices up, because of this pent up demand. (Look what happened with the stimulus package to buy a new car and trade in your clunker- all of the pent up demand hit the market and the program was overwhelmed- The amount provided to last for 3 months, was used up in 3 days).
History has this strange habit of repeating itself.
In the late 70’s and again in the early 80’s, our economy was in really bad shape. We had left Vietnam, in disgrace, and the Shah of Iran was overthrown and our embassy was held hostage for 444 days. Our cities were falling apart; New York was on the verge of bankruptcy. Money for mortgages disappeared. Interest rates were up to 16% for a home mortgage, if you could get one.
And the real estate industry, including new home construction, grinded to a halt.
So some of the builders and some of the bankers came up with an idea, where they could lower the interest on the mortgage for a short period (3 years or so), and make them affordable.
Woodbrook Condominiums had just opened its first phase, and they offered a deal where you could get a mortgage at Citibank where the interest rate for the first three years was 10.5%. The builder paid the bank three years interest on the difference in rates, and sales were phenomenal. (they were called negative amortization mortgages).Other builders got the idea, and the market began again, slowly. And then we ran out of inventory, the builders that had the jobs ready to go, became the biggest builders. (Does Mirador ring a bell?).
Perhaps what really kick started the real estate market was the influx of foreign money, in the mid 80’s, as the United States had become such a terrific bargain. Large buyers from Japan, Germany and other European countries went on a buying spree, stimulating the market, as these dollars trickled down. Of course they not only spent money on real estate, they also spent money buying companies, and stocks. Next came the wild days of the 80’s where people made so much money that opulence was the way of the day.
The buzz around was he who has the most toys at the end- wins. Michael Douglas’ movie Wall Street had a scene where he was preaching GREED to his shareholders.
The builders on Staten Island decided that the best way to go was to utilize existing zoning laws and build as many townhouses on a piece of land as was possible. Houses went from 20 feet wide to 12 feet wide. Townhouses’ were built attached on all sides including the rear so the only property would be the 8’ front yard. And the price of houses went through the roof. I remember wondering how a person making $40,000 is going to be able to buy a house that cost $180,000. The price of homes went up faster than the salaries.
But then in the late 80’s government got into the act and all of a sudden the market crashed, and all of the banks built on their houses of cards fell with them.
In New York City, government (city council) decided to change the zoning laws and created something called contextual zoning. This only affected houses in Staten Island and Queens. It meant that from then on, garages counted in the computations of FAR (Floor Area Ratio’s), and other changes that made absolutely no sense to us on Staten Island were enacted. The net effect was that houses would either be 1/3rd smaller, buyers would get less room (no more garages, lofts, splays, etc.) and builders would get less units or yield from their land.
At the same time, President Reagan changed the tax code and eliminated capital gains treatment in real estate. That meant that profit from real estate was taxed as ordinary income, instead of as capital gains, which is taxed at a lower rate.
Bye Bye foreign money, hello recession.
Bye Bye banks, hello RTC (Resolution Trust Corporation.)
And then there were lean years and slow markets, etc., but then a funny thing happened.
Instead of building townhouses, some builders started to build detached one and two family homes, and the people who were ready to move out of their “starter home” into their next home, started buying these homes. The new entry level buyers, with all of that pent up demand, started buying the resale’s from those I just mentioned, and again we ran out of inventory, and prices started to climb again.
Only this time, they were fueled by real easy credit, and the subprime mortgage business, which enabled anyone who could breath and had a driver’s license (or was it a library card) could get a mortgage and buy a house.
So what will happen this time?
Smart money is already buying up the bargains. How much longer do you really believe that you will be able to buy a two family house for under $200,000? C’mon. Maybe we haven’t hit bottom, but some of the merchandise has.
Is now the time to invest in Real Estate?
Yes
Here are some of the reasons why:
First: $8,000 Tax Incentive available at closing- does not get paid back. (Unless you don’t live in the house as your primary residence or violate the other terms). Expires November 30, 2009. (First time homebuyers- haven't owned a home in 3 years)
Second: 96.5% Financing FHA & SONYMA
Third: Lowest Rates in History, and below market programs available.
Fourth: Lowest prices in 20 years
Fifth: This is a buyer’s market- Huge Inventories. Sellers are nervous and are negotiable.
Sixth: High amount of foreclosures and short sales available. There are bargains galore in every area of town, even Million dollar short sales.
Seventh: Prices in the neighborhood that you are interested in are relatively stable- either they are holding their own, increasing, or the pace of decline is slowing.
Eighth: You plan on staying in this home for more than 5 years. That way regardless of the market at this point, it will have stabilized and you will ride out any downturn, and come out ahead in price.
Ninth: Your rent equals a mortgage payment.
Tenth: You can use the tax deduction against your income.
Eleventh: You’ve found the right house in the right area for you. The schools are great. You know that if the market were better, this house would have been sold already, or there would be more competition for it.
Twelfth: You’ve got equity in your house, and want to move to a smaller house (empty nester). Although you will not be getting as much for your sale, you will more than make up for it in your purchase.
Thirteenth: If you don't buy now, you will kick yourself for the rest of your life.
Fourteenth: There probably will never be another market like this one in our lifetimes.
There is a lot of competition for the bargains
While there are lots of good deals out there these days, there are also a lot of savvy real estate professionals in the marketplace that are buying up the good deals wherever they can. Here on Staten Island, because of the large numbers of foreclosures on the market, there are a whole new group of OFF Island Realtors® who have joined SIBOR, because they receive foreclosures (REO) from the banks. These off island realtors also have “off island customers” who have discovered Staten Island as a fantastic bargain basement -the best bang for the buck- (compared to the prices of real estate in Brooklyn and Queens, and are grabbing huge amounts of these great deals as they occur.)
So how will we know that we’ve hit the Bottom of the Market?
We will know for sure that we've hit the bottom of the market, well after we are on the way up. We will read about it in Newsweek and Time Magazine, we will see TV shows about it. More and more of the articles and stories we hear and read about will be talking about the bottom, and then they will be talking about the bottom as having passed the bottom. In other words, we won't know for sure officially that we are at the bottom, until we are well passed it.
So are we there yet?
Yes and No.
The June numbers are in, and new construction sales are up for the 4th month in a row, although still below last year's numbers.
New Building Permits are up for the 4th month in a row, which means that the Building Industry is confident that the worst is over.
I am getting more calls than ever before, and more inquiries and requests to be added to the email list to receive free foreclosure listings.
Some aspects have hit bottom, others haven’t. Some things will get worse, some things are getting better.
Some house prices have hit the bottom, others have a ways to go.
So what is the answer?
…………………to be continued
Thursday, July 2, 2009
So how do you buy a foreclosure anyway?
While foreclosures are plentiful, making up a huge chunk of the real estate market, the way that you buy them is not a whole lot different than the way that you purchase any other property.
Seeing the Inside of a Foreclosure
First of all, seeing foreclosures is easier than any other house. They are always vacant, generally they have been cleaned out of debris (although not always), and they usually have a lock box These lock boxes have combinations of either numbers or letters, which when set properly will release a key
There are three condo's in a building on the North shore that I have been trying to show for some time to my customer. And we just can't coordinate it. Friday we showed up, and the homeowner wasn't there. One homeowner says only after 4, and one says only before 2, and the third says wait until next Monday. Oy vey.
Foreclosures are Sold “As Is”
When you buy a foreclosure, the banks make no representations, other than good and clean title,. They don’t represent the roof is free from leaks, nor that the plumbing, heating, and electrical systems are working.
Sometimes, you can’t check things because the water has been shut off, and there is no electric on. But you can still see roof and basement leaks, and other structural items. They will allow you to bring in an engineer to make an inspection/evaluation, even after they have accepted your offer. A decent engineer can pretty much tell you the condition of everything, even without electric, gas or water. You know that the bank gave a mortgage to someone and at that time, these things worked. There aren’t that many moving parts in a furnace. You can still follow the path of damage to a unit. You know when the pipes broke, what the damage was. Leaks leave stains and odors.
Speaking of engineers and home inspections, Bill Coull, who was the first person on Staten Island to specifically do home inspections and reports died this week of cancer. I have to wonder how many people bought houses on Staten Island only after Bill said they were okay first. I knew Bill for 30 years, and I never heard a single negative thing ever said about him, or by him. He was a good guy, a good engineer/home inspector, and will surely be missed.
Making an Offer
In order to make an offer, you have to submit, in writing with proof, how you will pay for the property if your offer is accepted. If it is an offer of all cash, you must show proof that you have the cash (bank statements). If you plan on putting down a certain percentage, and getting a mortgage for the balance, then you must substantiate the cash part, and submit a “pre qual”, a letter from a lending institution that states that you have been “pre-qualified” for a loan in the amount of at least what you have put into your offer.
Now some banks/asset managers require that the Pre Qual be case specific- that it specifically mentions the property that you are making the offer on. Not a problem, as most mortgage brokers/bankers want your business and would gladly accommodate you with as many letters as you want. It’s easy since its all word processing anyway.
Some selling banks require that you get the “Pre Qual:” from them, regardless of whether you have a pre qual or not from another lender, they want you to go through them. (They want this to make sure that they aren’t wasting their time - or - to try to sell you a loan?)
Still other banks will make the financing attractive to purchasers of their inventory. Lenders like Wells Fargo, Countywide, Chase, etc. They have bitten the bullet, and decided to make the best of their situation by turning the non-performing loan into a new performing loan. These banks are in the loan business.
Finally, there are situations where there have been undocumented alterations which may render the property un-mortgageable in the conventional market. Often times in these cases the bank will offer the financing.
I had a customer who wanted a certain house, but there was an alteration that needed to be filed, so he couldn't get the 3% down below market first time homebuyer FHA deal he wanted, so he didn't buy the property, even though Wells Fargo agreed to loan 90%.
As you know from my prior emails, no one is quite sure who owns many of the loans that are merely “toxic assets”, Mortgage Based Securities’, that were the cause of the crash of the subprime mortgage industry, and the fall of wall street, etc. These mortgages were bundled in packages and sold to investors, and have ownership like Deutche Bank as trustee of series of bonds #200-212, of 2007, etc.). In these cases, there is no bank to offer financing, and the servicing company is not in the business of making new loans.
(If you are new to Lasher’s List, or just want to re-read some of my past articles including the explanation of the crash, why there are so many foreclosures on Staten Island, the role of organized crime, and all the rest., they are all posted at my blog, at http://lasherslist.blogspot.com/)
When you make an offer to buy a foreclosure, the bank generally responds in one of three ways:
1. If your offer is full asking price, all cash, and close in 30 days, they might say yes.
2. If your offer is for less, and your terms are reasonable and your financing checks out, they probably will counter at “give us your highest and best offer”
3. If your offer is too low, and the servicing agent is not having a good day, then they will not respond at all.
Even if your offer was not responded to, they do not take it personally, you can then make a new higher offer, and again one of the three above will occur.
Some banks respond quicker than others.
Sometimes a property hits the market that is in a desirable location, and lots of people see it and make offers. Sometimes the bank will tell everyone to come back with their highest and best offer, and take the best deal in their eyes.
We don't really know how they see the offers in their eyes - You would think that a stronger buyer all cash would beat out a 3% down deal for more money, but it doesn't. Sometimes higher price wins, sometimes all cash quick closing gets it. Probably depends upon the history of the particular property, how many times they've sold it, but the buyer wasn't able to get financing after a long drawn out process.
Those of you that receive all of my emails receive these BOM's which I identify as outstanding opportunities. If you do not receive all of my emails and would like to, just send me an email and I will move you to the appropriate list. (Some people only get occasional listings, but all of my news type emails and my pontifications).
Your offer is accepted/Contract signing
Now that your offer has been accepted, a contract is sent out to your lawyer, or some banks require the customer to sign an 8-18 page agreement that you are not able to make any changes to. Sign it, or you don’t get the house. It doesn’t matter whether it’s the addendum/agreement or the regular contract of sale by and between the lawyers. Sign it without making any changes, or you don’t get the house. This is just the way that it is.
One of my clients who is a well known substantial builder on Staten Island asked that the contract of sale be put into his building corporation, instead of his personal name. the bank said no, and put the property back on the market, while we prepared a new offer, for the same amount, same terms, in the name of the building corporation, and had to get a separate letter from the bank showing the funds in the name of the building corporation.
Some of the lawyers for the lenders are requiring certified funds or bank checks for the down payments. It used to be that the contract down payment clause said “subject to collection”
I think that it has to do with the fact that the bank is taking a hit, and it's a kind of like their way of getting some sort of Montezuma's revenge.
No biggie, small price to pay for the bargain that you are getting.
Financing a Foreclosure
Financing a foreclosure is no different from financing any other property.
If the buyer is going to occupy the house themselves as their primary residence, then all of the mortgages available for any other buyer is available for the foreclosure, depending upon the condition of the house. In order to get a 96.5% FHA or SONYMA, the house has to be in good shape, with everything working. But regardless of the percentage down, the house is going to have to appraise, and you still only can borrow the percentage in the particular mortgage you apply for (The loan to value of the property).
If the house is a wreck, then foreclosure or resale, the same financing is available generally. The difference is the conditions to obtain financing that the seller allows you. But if the house is a fixer upper with things not working, so that the house doesn’t qualify for FANYMA etc., then you have to go to a commercial lender to get the financing, although there are mortgage programs out there for fixer uppers- but generally calling for you to get architectural plans permits and approvals first.
My associate Don Adler and I just sold the Landmarked 1869 Bedell house in Tottenville to a young lawyer on Lasher’s List, Thomas Kocian and his wife. They plan on restoring it for their primary residence and an office for Tommy’s law practice. This house had gotten a lot of notoriety because the prior owner had painted the outside precipitating the Landmarks Preservation Commission to jump in and landmark the house. The house is/was a wreck. The selling bank required that the “prequal” acknowledge that the house was a Designated Landmark, that it could not be torn down, and that it was in a deplorable condition in order to make an offer. Kocian had a prequal from an international well known bank that he had been doing business with for years, but they refused to issue the specific prequal, as did several other lenders that Kocian tried. Victory State Bank stepped up to the plate, and made the deal happen. Victory loaned the money for the acquisition, and gave a commitment for the rehabilitation, and after the work is completed they will refinance. If you need financing, go see Richie Boyle, head of the Loan Department @ Victory State Bank 718-979-2000. (Tell him I sent you)
Sometimes the seller bank will not give you a mortgage contingency on a property, so what you have to do is either get a loan on your own home, or other property, or go to a commercial lender like Victory that will give financing on your own home as well as the foreclosure being purchased.
But regardless of what you do, it all boils down to Loan to Value (LTV). What percentage is the bank lending of the total purchase?
The Closing
The contracts of sale now have provisions that all of the funds have to be sent to the attorney for the lender and then they will send out the deed. In other words, at the closing the only ones there may be you and your attorney at the lenders office, unless you go to the Sellers lawyers’ office. Closings that are done via wire and fed ex, are similar to how closings are done in other parts of the country.
Another difference with a foreclosure closing and a regular closing is that the buyer usually pays the Real Property Transfer Tax (NYC 1%), and the NYS Transfer Tax .4%, in addition to all other expenses. Normally the seller pays these items. Now because the buyer is paying these items, they pay the tax on the tax too. (1.4% of the purchase price, and 1.4% of the tax- don’t ask me why, makes no sense to me, other than an opportunity for the taxing authorities to make an extra couple of bucks).
Is this negotiable- NO. It is written in Stone.
What is the rationale? When the bank foreclosed on the property, they received a deed from the referee appointed for the foreclosure. In order to record the deed, they had to pay the transfer tax (1% and .4%). Since they just paid it, they don’t want to pay it again, and since they can get away with it, they do. It is called Sour Grapes.
………to be continued
Seeing the Inside of a Foreclosure
First of all, seeing foreclosures is easier than any other house. They are always vacant, generally they have been cleaned out of debris (although not always), and they usually have a lock box These lock boxes have combinations of either numbers or letters, which when set properly will release a key
There are three condo's in a building on the North shore that I have been trying to show for some time to my customer. And we just can't coordinate it. Friday we showed up, and the homeowner wasn't there. One homeowner says only after 4, and one says only before 2, and the third says wait until next Monday. Oy vey.
Foreclosures are Sold “As Is”
When you buy a foreclosure, the banks make no representations, other than good and clean title,. They don’t represent the roof is free from leaks, nor that the plumbing, heating, and electrical systems are working.
Sometimes, you can’t check things because the water has been shut off, and there is no electric on. But you can still see roof and basement leaks, and other structural items. They will allow you to bring in an engineer to make an inspection/evaluation, even after they have accepted your offer. A decent engineer can pretty much tell you the condition of everything, even without electric, gas or water. You know that the bank gave a mortgage to someone and at that time, these things worked. There aren’t that many moving parts in a furnace. You can still follow the path of damage to a unit. You know when the pipes broke, what the damage was. Leaks leave stains and odors.
Speaking of engineers and home inspections, Bill Coull, who was the first person on Staten Island to specifically do home inspections and reports died this week of cancer. I have to wonder how many people bought houses on Staten Island only after Bill said they were okay first. I knew Bill for 30 years, and I never heard a single negative thing ever said about him, or by him. He was a good guy, a good engineer/home inspector, and will surely be missed.
Making an Offer
In order to make an offer, you have to submit, in writing with proof, how you will pay for the property if your offer is accepted. If it is an offer of all cash, you must show proof that you have the cash (bank statements). If you plan on putting down a certain percentage, and getting a mortgage for the balance, then you must substantiate the cash part, and submit a “pre qual”, a letter from a lending institution that states that you have been “pre-qualified” for a loan in the amount of at least what you have put into your offer.
Now some banks/asset managers require that the Pre Qual be case specific- that it specifically mentions the property that you are making the offer on. Not a problem, as most mortgage brokers/bankers want your business and would gladly accommodate you with as many letters as you want. It’s easy since its all word processing anyway.
Some selling banks require that you get the “Pre Qual:” from them, regardless of whether you have a pre qual or not from another lender, they want you to go through them. (They want this to make sure that they aren’t wasting their time - or - to try to sell you a loan?)
Still other banks will make the financing attractive to purchasers of their inventory. Lenders like Wells Fargo, Countywide, Chase, etc. They have bitten the bullet, and decided to make the best of their situation by turning the non-performing loan into a new performing loan. These banks are in the loan business.
Finally, there are situations where there have been undocumented alterations which may render the property un-mortgageable in the conventional market. Often times in these cases the bank will offer the financing.
I had a customer who wanted a certain house, but there was an alteration that needed to be filed, so he couldn't get the 3% down below market first time homebuyer FHA deal he wanted, so he didn't buy the property, even though Wells Fargo agreed to loan 90%.
As you know from my prior emails, no one is quite sure who owns many of the loans that are merely “toxic assets”, Mortgage Based Securities’, that were the cause of the crash of the subprime mortgage industry, and the fall of wall street, etc. These mortgages were bundled in packages and sold to investors, and have ownership like Deutche Bank as trustee of series of bonds #200-212, of 2007, etc.). In these cases, there is no bank to offer financing, and the servicing company is not in the business of making new loans.
(If you are new to Lasher’s List, or just want to re-read some of my past articles including the explanation of the crash, why there are so many foreclosures on Staten Island, the role of organized crime, and all the rest., they are all posted at my blog, at http://lasherslist.blogspot.com/)
When you make an offer to buy a foreclosure, the bank generally responds in one of three ways:
1. If your offer is full asking price, all cash, and close in 30 days, they might say yes.
2. If your offer is for less, and your terms are reasonable and your financing checks out, they probably will counter at “give us your highest and best offer”
3. If your offer is too low, and the servicing agent is not having a good day, then they will not respond at all.
Even if your offer was not responded to, they do not take it personally, you can then make a new higher offer, and again one of the three above will occur.
Some banks respond quicker than others.
Sometimes a property hits the market that is in a desirable location, and lots of people see it and make offers. Sometimes the bank will tell everyone to come back with their highest and best offer, and take the best deal in their eyes.
We don't really know how they see the offers in their eyes - You would think that a stronger buyer all cash would beat out a 3% down deal for more money, but it doesn't. Sometimes higher price wins, sometimes all cash quick closing gets it. Probably depends upon the history of the particular property, how many times they've sold it, but the buyer wasn't able to get financing after a long drawn out process.
Those of you that receive all of my emails receive these BOM's which I identify as outstanding opportunities. If you do not receive all of my emails and would like to, just send me an email and I will move you to the appropriate list. (Some people only get occasional listings, but all of my news type emails and my pontifications).
Your offer is accepted/Contract signing
Now that your offer has been accepted, a contract is sent out to your lawyer, or some banks require the customer to sign an 8-18 page agreement that you are not able to make any changes to. Sign it, or you don’t get the house. It doesn’t matter whether it’s the addendum/agreement or the regular contract of sale by and between the lawyers. Sign it without making any changes, or you don’t get the house. This is just the way that it is.
One of my clients who is a well known substantial builder on Staten Island asked that the contract of sale be put into his building corporation, instead of his personal name. the bank said no, and put the property back on the market, while we prepared a new offer, for the same amount, same terms, in the name of the building corporation, and had to get a separate letter from the bank showing the funds in the name of the building corporation.
Some of the lawyers for the lenders are requiring certified funds or bank checks for the down payments. It used to be that the contract down payment clause said “subject to collection”
I think that it has to do with the fact that the bank is taking a hit, and it's a kind of like their way of getting some sort of Montezuma's revenge.
No biggie, small price to pay for the bargain that you are getting.
Financing a Foreclosure
Financing a foreclosure is no different from financing any other property.
If the buyer is going to occupy the house themselves as their primary residence, then all of the mortgages available for any other buyer is available for the foreclosure, depending upon the condition of the house. In order to get a 96.5% FHA or SONYMA, the house has to be in good shape, with everything working. But regardless of the percentage down, the house is going to have to appraise, and you still only can borrow the percentage in the particular mortgage you apply for (The loan to value of the property).
If the house is a wreck, then foreclosure or resale, the same financing is available generally. The difference is the conditions to obtain financing that the seller allows you. But if the house is a fixer upper with things not working, so that the house doesn’t qualify for FANYMA etc., then you have to go to a commercial lender to get the financing, although there are mortgage programs out there for fixer uppers- but generally calling for you to get architectural plans permits and approvals first.
My associate Don Adler and I just sold the Landmarked 1869 Bedell house in Tottenville to a young lawyer on Lasher’s List, Thomas Kocian and his wife. They plan on restoring it for their primary residence and an office for Tommy’s law practice. This house had gotten a lot of notoriety because the prior owner had painted the outside precipitating the Landmarks Preservation Commission to jump in and landmark the house. The house is/was a wreck. The selling bank required that the “prequal” acknowledge that the house was a Designated Landmark, that it could not be torn down, and that it was in a deplorable condition in order to make an offer. Kocian had a prequal from an international well known bank that he had been doing business with for years, but they refused to issue the specific prequal, as did several other lenders that Kocian tried. Victory State Bank stepped up to the plate, and made the deal happen. Victory loaned the money for the acquisition, and gave a commitment for the rehabilitation, and after the work is completed they will refinance. If you need financing, go see Richie Boyle, head of the Loan Department @ Victory State Bank 718-979-2000. (Tell him I sent you)
Sometimes the seller bank will not give you a mortgage contingency on a property, so what you have to do is either get a loan on your own home, or other property, or go to a commercial lender like Victory that will give financing on your own home as well as the foreclosure being purchased.
But regardless of what you do, it all boils down to Loan to Value (LTV). What percentage is the bank lending of the total purchase?
The Closing
The contracts of sale now have provisions that all of the funds have to be sent to the attorney for the lender and then they will send out the deed. In other words, at the closing the only ones there may be you and your attorney at the lenders office, unless you go to the Sellers lawyers’ office. Closings that are done via wire and fed ex, are similar to how closings are done in other parts of the country.
Another difference with a foreclosure closing and a regular closing is that the buyer usually pays the Real Property Transfer Tax (NYC 1%), and the NYS Transfer Tax .4%, in addition to all other expenses. Normally the seller pays these items. Now because the buyer is paying these items, they pay the tax on the tax too. (1.4% of the purchase price, and 1.4% of the tax- don’t ask me why, makes no sense to me, other than an opportunity for the taxing authorities to make an extra couple of bucks).
Is this negotiable- NO. It is written in Stone.
What is the rationale? When the bank foreclosed on the property, they received a deed from the referee appointed for the foreclosure. In order to record the deed, they had to pay the transfer tax (1% and .4%). Since they just paid it, they don’t want to pay it again, and since they can get away with it, they do. It is called Sour Grapes.
………to be continued
Friday, June 12, 2009
Lasher's List: Buying a Bank Owned Foreclosed property at a National Auction at the New York Hyatt
Being in the foreclosure business, I found myself at the New York Hyatt on Sunday, at the REDC auction, with two separate clients. They had advertised 294 properties including 11 from Staten Island. On the day of the auction 108 properties were offered, including 6 properties on Staten Island. All of the Staten Island properties were currently listed as active in the Staten Island Multiple Listing Service (MLS).
The atmosphere was one of a circus, with 3 huge screens in front; but instead of clowns, they had men in tuxedos for entertainment. These were the “bid assisters”. Their stated purpose was to help the bidders understand what they were bidding, but the subliminal purpose was to get the bidders into the excitement of the auction so that they would bid over their heads and get caught up in the action.
They did this with sounds, and gyrations. When you bid, they would run and jump in front of you and try to pump you up by rounding their arms in large circles, with eye contact, with clapping and whooping, etc..
The auction started when a person claiming to be the president of the company stood in front of the rows of anxious bidders and talked about how auctions were the easiest way to buy real estate. If you were the successful bidder,and if the property were financeable, you would go to the back of the stage where one of the several banks in attendance would qualify you and get you a mortgage. Even if it were all cash, you would go to the side and sign a contract and give them the deposit ($2500 bank check) plus the difference in a personal check).
And then it begins.
There were three screens. On the left, a screen that had boxes of each of the item numbers in the auction (The Staten Island #’s were 311, 316d, 317, 319, 320, & 321). Once a property was sold and the buyer had signed the paperwork, submitted the check, and their credit checked out, the number changed to a green “CONTRACT”.
On the screen in the center was a photo of the property; and on the right hand side of it was the starting bid (which in many cases was $1,000), and what the property had been valued at once before. Can you imagine? These homes were in this auction because they either had phony appraisals to justify ridiculously high prices in the first place, but most certainly because they weren’t worth what was owed on them, and they were currently pushing the highest value they had ever had.
The final screen on the right showed the number of the item being auctioned at the time. This screen also contained a legend of either CASH or financeable.
And so it went. First a few properties from Newark, NJ; then East Orange, NJ; and then it jumped upstate to Newburgh, New York for a few; then back to New Jersey, and then to Connecticut.
Surprisingly there was bidding on every single property! All the while the auctioneer was doing what auctioneers do: speaking very fast, repeating the price he had, the price he was looking for, etc. (The auctioneer was so loud that I took off my hearing aid and was able to hear a lot of what he said). The auctioneer would also tell the audience how great a deal
they were getting because of the previoiusly appraised value.
Every once in a while a property that had already been bid on was returned to the auction and was re-auctioned; or, as it was put: “we were given a 2nd chance.” This was because either the original buyer didn’t realize what he had done, or he wasn’t credit worthy, or some other reason why the successful bidder did not sign a contract.
Finally, they got to the Staten Island properties. The first one on the agenda was a property at 45 Anjali Loop: a two-family semi in New Springville. The property had originally been listed for $399,000 on March 30, 2009, and reduced to $394,000 shortly thereafter. At the auction it was a hot item. It got high into the $300,000’s before the bidding ended. You could see that there were several people who came to the auction just for this one property, because a lot of people left when it was finished. They probably could have purchased it through the MLS for less.
Next up was a house that had been in the previous REDC auction held a couple of months ago: a two-family in a not-so-good part of Stapleton. 97 Osgood Avenue had been listed in the MLS originally in October of 2008 for $299,000; but over the months the asking price has been reduced to $168,000. The Staten Island Advance had reported that this property had been sold at the prior auction, but apparently that deal died. This property also was hotly contested and sold above the MLS asking price.
Another property that had a lot of action was a townhouse called Mariners Lane. I checked REDC; and in spite of its activity at the auction, they are listing it as "still active", ready for the next auction; so I guess that deal died too.
Meanwhile, the two properties that one of my customers was there to bid on sold for much higher than he was prepared to pay, and higher than the offers he had made through the MLS prior to the auction on both.
The final Staten Island Property, and one which I was very familiar with and with a customer to buy, was vacant land on Scribner Avenue. It was originally listed for $97,500, later reduced to $49,000. I had a customer whose offer had been accepted for $60,000; but during his "due diligence", he discovered that there was a commercial overlay on the property so that you might not be able to build a house; so my customer had walked away. My customer at the auction had asked the bank for a contingency of 45 days to determine by filing if he could build a house, but the bank said no. He went to the auction to try to buy the property for $20,000 or less. The property had formerly been a 4-family prior to the city’s demolition of it as an unsafe building, which had occurred within the past 2 years and which put the zoning issue into a gray area.
The opening bid was $1,000.
The screen stated that the property had previously been valued at $540,000. And the crowd went wild.
My guys went to $32,500. A couple of other people in the crowd kept bidding at the urging of the “bid assisters” who were egging them on, yelling, screaming, cheering, while the auctioneer was saying that the property is such a fantastic deal because it had been previously valued at $540,000 (he didn’t say, mind you, that it had been valued that highly with a 4-family on it).
The bidding ended at $65,000. I went up to the successful bidder and asked him whether he knew that there was a commercial overlay on the property. He had no idea what I was talking about. He asked me if I knew what the size of the property was and what could be built on it.
I recommended that he contact an architect before he did anything else.
Shortly thereafter I saw him again, after he had signed the contract, and given them his $2500 bank check and the rest of the 10% down payment by personal check. Again he asked me what he could build, and again I told him that he might be able to build a store with an apartment, but he should go to his architect.
Speed forward to Tuesday when I received a call from the successful bidder telling me that he lives in Queens and realizes he has no use for the vacant land on Staten Island. I suggested that he contact an attorney immediately (within 72 hours of the auction).
So what is the point of my story you may be asking yourself? The point is that buying at auction is probably not generally the smartest move. While it may be easy, as the president of the company says, but it might not be wise. I am not talking about the foreclosure auction at the County Clerk's office. I am talking about a situation like this, with professional hawkers.
What I have learned from this auction is that there were no real great bargains; no deals were made that you couldn’t have gotten from the MLS. Want to buy a foreclosure? Call me, its safer, and smarter.
………………………to be continued
The atmosphere was one of a circus, with 3 huge screens in front; but instead of clowns, they had men in tuxedos for entertainment. These were the “bid assisters”. Their stated purpose was to help the bidders understand what they were bidding, but the subliminal purpose was to get the bidders into the excitement of the auction so that they would bid over their heads and get caught up in the action.
They did this with sounds, and gyrations. When you bid, they would run and jump in front of you and try to pump you up by rounding their arms in large circles, with eye contact, with clapping and whooping, etc..
The auction started when a person claiming to be the president of the company stood in front of the rows of anxious bidders and talked about how auctions were the easiest way to buy real estate. If you were the successful bidder,and if the property were financeable, you would go to the back of the stage where one of the several banks in attendance would qualify you and get you a mortgage. Even if it were all cash, you would go to the side and sign a contract and give them the deposit ($2500 bank check) plus the difference in a personal check).
And then it begins.
There were three screens. On the left, a screen that had boxes of each of the item numbers in the auction (The Staten Island #’s were 311, 316d, 317, 319, 320, & 321). Once a property was sold and the buyer had signed the paperwork, submitted the check, and their credit checked out, the number changed to a green “CONTRACT”.
On the screen in the center was a photo of the property; and on the right hand side of it was the starting bid (which in many cases was $1,000), and what the property had been valued at once before. Can you imagine? These homes were in this auction because they either had phony appraisals to justify ridiculously high prices in the first place, but most certainly because they weren’t worth what was owed on them, and they were currently pushing the highest value they had ever had.
The final screen on the right showed the number of the item being auctioned at the time. This screen also contained a legend of either CASH or financeable.
And so it went. First a few properties from Newark, NJ; then East Orange, NJ; and then it jumped upstate to Newburgh, New York for a few; then back to New Jersey, and then to Connecticut.
Surprisingly there was bidding on every single property! All the while the auctioneer was doing what auctioneers do: speaking very fast, repeating the price he had, the price he was looking for, etc. (The auctioneer was so loud that I took off my hearing aid and was able to hear a lot of what he said). The auctioneer would also tell the audience how great a deal
they were getting because of the previoiusly appraised value.
Every once in a while a property that had already been bid on was returned to the auction and was re-auctioned; or, as it was put: “we were given a 2nd chance.” This was because either the original buyer didn’t realize what he had done, or he wasn’t credit worthy, or some other reason why the successful bidder did not sign a contract.
Finally, they got to the Staten Island properties. The first one on the agenda was a property at 45 Anjali Loop: a two-family semi in New Springville. The property had originally been listed for $399,000 on March 30, 2009, and reduced to $394,000 shortly thereafter. At the auction it was a hot item. It got high into the $300,000’s before the bidding ended. You could see that there were several people who came to the auction just for this one property, because a lot of people left when it was finished. They probably could have purchased it through the MLS for less.
Next up was a house that had been in the previous REDC auction held a couple of months ago: a two-family in a not-so-good part of Stapleton. 97 Osgood Avenue had been listed in the MLS originally in October of 2008 for $299,000; but over the months the asking price has been reduced to $168,000. The Staten Island Advance had reported that this property had been sold at the prior auction, but apparently that deal died. This property also was hotly contested and sold above the MLS asking price.
Another property that had a lot of action was a townhouse called Mariners Lane. I checked REDC; and in spite of its activity at the auction, they are listing it as "still active", ready for the next auction; so I guess that deal died too.
Meanwhile, the two properties that one of my customers was there to bid on sold for much higher than he was prepared to pay, and higher than the offers he had made through the MLS prior to the auction on both.
The final Staten Island Property, and one which I was very familiar with and with a customer to buy, was vacant land on Scribner Avenue. It was originally listed for $97,500, later reduced to $49,000. I had a customer whose offer had been accepted for $60,000; but during his "due diligence", he discovered that there was a commercial overlay on the property so that you might not be able to build a house; so my customer had walked away. My customer at the auction had asked the bank for a contingency of 45 days to determine by filing if he could build a house, but the bank said no. He went to the auction to try to buy the property for $20,000 or less. The property had formerly been a 4-family prior to the city’s demolition of it as an unsafe building, which had occurred within the past 2 years and which put the zoning issue into a gray area.
The opening bid was $1,000.
The screen stated that the property had previously been valued at $540,000. And the crowd went wild.
My guys went to $32,500. A couple of other people in the crowd kept bidding at the urging of the “bid assisters” who were egging them on, yelling, screaming, cheering, while the auctioneer was saying that the property is such a fantastic deal because it had been previously valued at $540,000 (he didn’t say, mind you, that it had been valued that highly with a 4-family on it).
The bidding ended at $65,000. I went up to the successful bidder and asked him whether he knew that there was a commercial overlay on the property. He had no idea what I was talking about. He asked me if I knew what the size of the property was and what could be built on it.
I recommended that he contact an architect before he did anything else.
Shortly thereafter I saw him again, after he had signed the contract, and given them his $2500 bank check and the rest of the 10% down payment by personal check. Again he asked me what he could build, and again I told him that he might be able to build a store with an apartment, but he should go to his architect.
Speed forward to Tuesday when I received a call from the successful bidder telling me that he lives in Queens and realizes he has no use for the vacant land on Staten Island. I suggested that he contact an attorney immediately (within 72 hours of the auction).
So what is the point of my story you may be asking yourself? The point is that buying at auction is probably not generally the smartest move. While it may be easy, as the president of the company says, but it might not be wise. I am not talking about the foreclosure auction at the County Clerk's office. I am talking about a situation like this, with professional hawkers.
What I have learned from this auction is that there were no real great bargains; no deals were made that you couldn’t have gotten from the MLS. Want to buy a foreclosure? Call me, its safer, and smarter.
………………………to be continued
Tuesday, March 17, 2009
Why does Staten Island have so many foreclosures and who owns the real estate anyway?
This is a continuation of the first email that I wrote, last September, where I told the story about how I called an old friend at Merrill Lynch, after they had just written down $7.2 Billion in losses due to bad mortgages (and that was when a Billion Dollars was still a lot of money), and I asked him if I could help them with their Staten Island Real Estate, at which time he told me that Merrill Lunch didn’t own any real estate and that they only had bonds. I followed up with another email which discussed servicing companies that run the whole mortgage industry servicing the bonds from Wall Street. Later I spoke about organized crimes role with Straw Buyers. In November I wrote that the financial crisis was a ploy by Wall Street so they could trim off the fat, fire their older employees, and insure that they had money for end of the year bonuses. Anyway, this is the next installment of that series.
Today the big story is all about AIG’s bonuses, although we are still talking about Merrill Lynch’s. Can you imagine the unmitigated gall of these people?
So what did these geniuses do to earn these fantastic bonuses in the first place?
Well it all goes back to the mortgage business. As credit eased, everyone wanted a piece of the pie. Everyone was making money and the values of property kept going up so it was a win/win situation- even if people couldn’t pay their mortgages, they could refinance them. They even went so far as to create products that didn’t require re-payments. That’s old news.
Merrill Lynch decided to get into the mortgage business because they saw others making big profits, but they were pigs about it.
As a way to squeeze extra dollars in profit, for themselves, Wall Street created layers of the same thing. Wall Street has to grab not only the cream, but the fat, and grizzle, and then suck the bones dry.
They did this by coming up with a type of modern financial engineering known as derivatives. Derivatives are a combination of financial instruments that are used to limit risk (ha ha). An amalgam (a combination of two or more characteristics) of “collateralized debt obligations (CDO’s- pools of loans bundled for investors) and credit-default swaps. Their value is derived by the amount of the underlying asset.
What does all of this mean?
In order to reduce the risk of losing money, Morgan Stanley came up with these CDO’s bundling various obligations (stock, bonds, notes) of their prime customers (IBM, GE, GM, etc.,) along with riskier loans (junk bonds), unsecured loans, and including some insurance from AIG to secure the bonds against losses. Then they would put a value on this package, charge a fee for putting it together, maybe charge fees for “servicing the loans” and maybe earn a commission by re-selling the package to a different investor (foreign investors, foreign governments, city, state, and local government) or for the un-used portions of bond issues that they haven’t used yet, etc.
Originally when you bought a CDO, there could be hundreds or thousands of original notes, mortgages, stocks or bonds, included in the CDO.
Now Merrill Lynch figured out how they could do it electronically, via computer, and no longer have to deal with the physical paper of the documents. This begat electronic reporting services. This is why the owner of the mortgage on a house could be Deutche Banque as trustee of a series of bonds # 1-200, etc. etc.
But good old greed reared its ugly little head into the picture again.
Originally, these bundles, packages or “derivatives” were safe. After all we were dealing with real estate mortgages, stock certificates, corporate bonds, etc.
Merrill Lynch wanted to be the biggest player in mortgages. Bigger even than Lehman Brothers, and so they bought their own banks around the world, to be able to make more fees and commissions on originating the mortgages, servicing them, bundling them, and making their own derivatives. They were the biggest players in the game at the end.
And all was good for a while. The economy was good, the real estate market kept going up, and there were no losses, because even with bad credit you could refinance your loan, and take out the payments for another year or so. They were all performing, and since they were bonds, they weren’t even regulated. (Not to be political, but thank you Bill Clinton and George Bush).
But big surprise, Merrill Lynch got sloppy. They started bundling the loans together without regard for risk factors. Their risk profile at the end was non-existent.
There used to be a mortgage banker in Brooklyn that had the best deals. Only thing was that they closed all of their loans, in large amounts of mortgages together ($25 Million, $50 Million) whatever it was. (This always created problems to buyers and sellers who needed a closing, but the bank wasn’t ready, always just another day, just another piece of paper, where what they were doing was buying time to get them all together at once. This was so that they wouldn’t have to pay for warehousing (holding) the money. If they closed all of the loans and they always resold the package the same couple of days, then it was all profit.) Smart for them.
In order to sell this portfolio of mortgages, they had to comply to certain formulas. The vast majority was owner occupied 75-80% loan to value; a small percentage was even lower risk, and a small percentage was higher risk (5-10% down). These packages or bundles were packaged according to industry standards at the time. The percentage of risk was known and the prices for the bundles based upon risk factors.
The geniuses that were making the money for Merrill Lunch, and don’t forget, we are talking about making Billions of Dollars in profits here, these guys were getting multimillion dollar bonuses. To make the loans faster, and reap larger profits, they stopped doing too much due diligence, stopped risk management (translation - looked the other way), at the quality of the loans, or mortgages, or paper contained inside. If someone complained, they got fired, or told to shut up. But not too many people complained because they were all making so much money.
But then AIG stopped insuring the Merrill Lynch derivatives, because they were too risky, Merrill Lynch wrote down $7.2 Billion in losses, and that’s where my story began.
And where are these geniuses now? Huge paying jobs with hedge funds or other monetary funds, making fortunes by picking up the pieces, for huge fees, and selling them to other investors’, for huge fees. God Bless America!
So what happened to AIG?
Well the former Secretary of The Treasury, Henry Paulson, who was also the former head of Goldman Sachs, always had a rivalry with the head guy at Lehman Brothers, Richard Fuld. So while the economy was melting down, he told Lehman that we weren’t going to bail them out, “get thyself sold.” Of course the arrogant former head of Lehman Brothers, who became the poster boy for Wall Street greed when he defended the $484 million he received in salary, bonuses and stock options when he terrified before Congress in October, before the fall of Lehman. waited until it was too late, and couldn't find a buyer for Lehman. Paulson said we weren’t going to bail out Lehman Bros, and we let it fail. And of course that was the mistake that almost brought down the entire world, and which is why AIG got bailed out so quickly. Perhaps if Lehman Brothers had been bailed out the melt down might not have happened? Who knows?
But Lehman Brothers did fall. Problem was, AIG, the huge insurance company, who was in the business of collecting fees, basically insured that the world wouldn’t end. Whenever Lehman Brothers did a bond issue, or some sort of other financial derivative or whatever, AIG got a piece for insuring that Lehman Brothers would be there. AIG sure sounds like a scam.
All of a sudden, “poof” no Lehman Brothers! AIG has to pay out Billions in claims, and we found out in today’s news, that besides paying themselves bonuses, they used the bailout money to pay: Goldman Sachs $12.9 Billion; Merrill Lynch $6.8 Billion; Bank of America $5.2 Billion, etc. These are the same people that we had to bail out because they had losses, but then they collected for their losses again, from more money that we paid out.
Life sure is good here in America except that when the US gets a fever, the rest of the world gets the flu!.
SNAFU means- Situation Normal- All Fouled Up- this was created during the battle of the bulge during WW II. It's sort of irrelevant to anything I’ve written, but I just found it out, and thought that it was interesting, and worth passing along. (there is another less politically correct meaning… Situation Normal – All F---d up).
Today the big story is all about AIG’s bonuses, although we are still talking about Merrill Lynch’s. Can you imagine the unmitigated gall of these people?
So what did these geniuses do to earn these fantastic bonuses in the first place?
Well it all goes back to the mortgage business. As credit eased, everyone wanted a piece of the pie. Everyone was making money and the values of property kept going up so it was a win/win situation- even if people couldn’t pay their mortgages, they could refinance them. They even went so far as to create products that didn’t require re-payments. That’s old news.
Merrill Lynch decided to get into the mortgage business because they saw others making big profits, but they were pigs about it.
As a way to squeeze extra dollars in profit, for themselves, Wall Street created layers of the same thing. Wall Street has to grab not only the cream, but the fat, and grizzle, and then suck the bones dry.
They did this by coming up with a type of modern financial engineering known as derivatives. Derivatives are a combination of financial instruments that are used to limit risk (ha ha). An amalgam (a combination of two or more characteristics) of “collateralized debt obligations (CDO’s- pools of loans bundled for investors) and credit-default swaps. Their value is derived by the amount of the underlying asset.
What does all of this mean?
In order to reduce the risk of losing money, Morgan Stanley came up with these CDO’s bundling various obligations (stock, bonds, notes) of their prime customers (IBM, GE, GM, etc.,) along with riskier loans (junk bonds), unsecured loans, and including some insurance from AIG to secure the bonds against losses. Then they would put a value on this package, charge a fee for putting it together, maybe charge fees for “servicing the loans” and maybe earn a commission by re-selling the package to a different investor (foreign investors, foreign governments, city, state, and local government) or for the un-used portions of bond issues that they haven’t used yet, etc.
Originally when you bought a CDO, there could be hundreds or thousands of original notes, mortgages, stocks or bonds, included in the CDO.
Now Merrill Lynch figured out how they could do it electronically, via computer, and no longer have to deal with the physical paper of the documents. This begat electronic reporting services. This is why the owner of the mortgage on a house could be Deutche Banque as trustee of a series of bonds # 1-200, etc. etc.
But good old greed reared its ugly little head into the picture again.
Originally, these bundles, packages or “derivatives” were safe. After all we were dealing with real estate mortgages, stock certificates, corporate bonds, etc.
Merrill Lynch wanted to be the biggest player in mortgages. Bigger even than Lehman Brothers, and so they bought their own banks around the world, to be able to make more fees and commissions on originating the mortgages, servicing them, bundling them, and making their own derivatives. They were the biggest players in the game at the end.
And all was good for a while. The economy was good, the real estate market kept going up, and there were no losses, because even with bad credit you could refinance your loan, and take out the payments for another year or so. They were all performing, and since they were bonds, they weren’t even regulated. (Not to be political, but thank you Bill Clinton and George Bush).
But big surprise, Merrill Lynch got sloppy. They started bundling the loans together without regard for risk factors. Their risk profile at the end was non-existent.
There used to be a mortgage banker in Brooklyn that had the best deals. Only thing was that they closed all of their loans, in large amounts of mortgages together ($25 Million, $50 Million) whatever it was. (This always created problems to buyers and sellers who needed a closing, but the bank wasn’t ready, always just another day, just another piece of paper, where what they were doing was buying time to get them all together at once. This was so that they wouldn’t have to pay for warehousing (holding) the money. If they closed all of the loans and they always resold the package the same couple of days, then it was all profit.) Smart for them.
In order to sell this portfolio of mortgages, they had to comply to certain formulas. The vast majority was owner occupied 75-80% loan to value; a small percentage was even lower risk, and a small percentage was higher risk (5-10% down). These packages or bundles were packaged according to industry standards at the time. The percentage of risk was known and the prices for the bundles based upon risk factors.
The geniuses that were making the money for Merrill Lunch, and don’t forget, we are talking about making Billions of Dollars in profits here, these guys were getting multimillion dollar bonuses. To make the loans faster, and reap larger profits, they stopped doing too much due diligence, stopped risk management (translation - looked the other way), at the quality of the loans, or mortgages, or paper contained inside. If someone complained, they got fired, or told to shut up. But not too many people complained because they were all making so much money.
But then AIG stopped insuring the Merrill Lynch derivatives, because they were too risky, Merrill Lynch wrote down $7.2 Billion in losses, and that’s where my story began.
And where are these geniuses now? Huge paying jobs with hedge funds or other monetary funds, making fortunes by picking up the pieces, for huge fees, and selling them to other investors’, for huge fees. God Bless America!
So what happened to AIG?
Well the former Secretary of The Treasury, Henry Paulson, who was also the former head of Goldman Sachs, always had a rivalry with the head guy at Lehman Brothers, Richard Fuld. So while the economy was melting down, he told Lehman that we weren’t going to bail them out, “get thyself sold.” Of course the arrogant former head of Lehman Brothers, who became the poster boy for Wall Street greed when he defended the $484 million he received in salary, bonuses and stock options when he terrified before Congress in October, before the fall of Lehman. waited until it was too late, and couldn't find a buyer for Lehman. Paulson said we weren’t going to bail out Lehman Bros, and we let it fail. And of course that was the mistake that almost brought down the entire world, and which is why AIG got bailed out so quickly. Perhaps if Lehman Brothers had been bailed out the melt down might not have happened? Who knows?
But Lehman Brothers did fall. Problem was, AIG, the huge insurance company, who was in the business of collecting fees, basically insured that the world wouldn’t end. Whenever Lehman Brothers did a bond issue, or some sort of other financial derivative or whatever, AIG got a piece for insuring that Lehman Brothers would be there. AIG sure sounds like a scam.
All of a sudden, “poof” no Lehman Brothers! AIG has to pay out Billions in claims, and we found out in today’s news, that besides paying themselves bonuses, they used the bailout money to pay: Goldman Sachs $12.9 Billion; Merrill Lynch $6.8 Billion; Bank of America $5.2 Billion, etc. These are the same people that we had to bail out because they had losses, but then they collected for their losses again, from more money that we paid out.
Life sure is good here in America except that when the US gets a fever, the rest of the world gets the flu!.
SNAFU means- Situation Normal- All Fouled Up- this was created during the battle of the bulge during WW II. It's sort of irrelevant to anything I’ve written, but I just found it out, and thought that it was interesting, and worth passing along. (there is another less politically correct meaning… Situation Normal – All F---d up).
Sunday, January 25, 2009
So whats the deal with foreclosure lists anyway?
This week I received an email from a client requesting information on several homes that are listed on one of the foreclosure services (foreclosure.com; AOL’s list, etc.)
So I checked the MLS, and found out that all of the houses that my client asked about were already either sold, accepted, or in contract.
But it started me thinking about these services, and what are they really about?
Well, we know what they are all about- making money- by selling lists.
Basically they sell you lists of every foreclosure in the works, by geographical area, but what does that mean? In Staten Island, you would be buying a list of every house where a “notice of pendency of legal action” - lis pendence - has been filed and served against a homeowner who has defaulted in the terms of their mortgage.
For additional money, you can also get the list of dates of the foreclosure sales, or auctions, which take place in the County Court House in a hallway on the first floor. Used to be that the foreclosure auctions were advertised and held on the front steps of the County Court House, 18 Richmond Terrace, St. George, but when homeless people became an issue, they locked all the doors leading to Richmond Terrace, Boro Hall too, the auctions were moved inside, and now the hallway is “Room 18”.
Anyway, some services sell you how to make money by buying foreclosure kits, which generally means approaching someone whose house is in foreclosure and trying to make a great deal for yourself.
Can you imagine? Hi, I’m Alan lasher, and I see that you are about to lose your house, how about I’ll get into the act, and figure out how I can make some money from your misfortune?
Not for me, I don’t have that kind of stomach (although a stomach I do have but that’s another story).
But there are unscrupulous people out there who do prey on people in trouble. Shame on them. But this is not an email about that. Maybe I’ll write about the different foreclosure scams at a later date.
If you’re like me, you’ve always wondered how these list companies get their lists. Well today is your lucky day, I am going to tell you.
And this isn’t just about foreclosures lists it’s also about the people who “report” your credit activity and scores.
So where and how do they get the lists (the data)?
Some towns are online, so the information is gathered by computer geeks online.
Staten Island is not online, although we probably will be soon.
In order to file a law suit of any kind, including the filing of the lis pendence, you have to buy an index number. Every case, every foreclosure has its own distinctive index number.
Once upon a time, there was a set of books exclusively used to list the “lis pendence” at the County Clerks office.
The notice of pendency of an action was used not only to notify the homeowner, but also to notify everyone else in the world, that there was an action pending. “To put people on notice that there is a pending action against the property,” So the lis pendence is filed against the Block and Lot of the property.
Then of course there were also the index number books, that run consecutively, by number. A person that wanted to know about all of the new “foreclosures” could just go to the index book and copy the foreclosures, and/or lis pendence.
They no longer use books. Now they use computers.
Our Richmond County Clerk’s office has two sets of computers. One has the land block and lots on it, and another has the law suits on it. In Richmond County, even though a foreclosure is listed by Block and Lot, because it is an action against the land, the lis pendence, and the law suit, do not appear on the land block and lot computers. It only appears on the litigation computers. Makes no sense to me, but no one asks me.
Anyway, the way it works is that someone has to go to the county clerks office and copy the information.
Years ago, one of the title searchers (the people who search the titles in the county clerks office) was a woman named Rosalie. But Rosalie had another gig. Once a week, Rosalie went to the Civil Court, and copied all of the information (names, addresses’ of the parties including lawyers, amount sued for, etc.), in every new case, including small claims court. What Rosalie used to do is then sell the information, $1 per case, to the credit reporting company (or to a company that sold data to the credit reporting companies).
The way it worked was that they only report the information on the summons, when the case is started. They never bothered going back to find out what happened in the case, and that is why sometimes peoples credit gets screwed up without it being their fault. (We’ve all heard stories about blemish’s on credit reports because of people being sued in frivolous law suits). This has given rise to the credit repair industry, that helps people correct (or repair) the misinformation or incomplete information.
I wonder if they still only pay $1.
But anyway, the point of this story really is that if you’re interested in buying a foreclosure, you don’t need to subscribe to property shark or foreclosure.com; save your money, I’ll give you latest information for free since you are going to use me to buy the property.
So I checked the MLS, and found out that all of the houses that my client asked about were already either sold, accepted, or in contract.
But it started me thinking about these services, and what are they really about?
Well, we know what they are all about- making money- by selling lists.
Basically they sell you lists of every foreclosure in the works, by geographical area, but what does that mean? In Staten Island, you would be buying a list of every house where a “notice of pendency of legal action” - lis pendence - has been filed and served against a homeowner who has defaulted in the terms of their mortgage.
For additional money, you can also get the list of dates of the foreclosure sales, or auctions, which take place in the County Court House in a hallway on the first floor. Used to be that the foreclosure auctions were advertised and held on the front steps of the County Court House, 18 Richmond Terrace, St. George, but when homeless people became an issue, they locked all the doors leading to Richmond Terrace, Boro Hall too, the auctions were moved inside, and now the hallway is “Room 18”.
Anyway, some services sell you how to make money by buying foreclosure kits, which generally means approaching someone whose house is in foreclosure and trying to make a great deal for yourself.
Can you imagine? Hi, I’m Alan lasher, and I see that you are about to lose your house, how about I’ll get into the act, and figure out how I can make some money from your misfortune?
Not for me, I don’t have that kind of stomach (although a stomach I do have but that’s another story).
But there are unscrupulous people out there who do prey on people in trouble. Shame on them. But this is not an email about that. Maybe I’ll write about the different foreclosure scams at a later date.
If you’re like me, you’ve always wondered how these list companies get their lists. Well today is your lucky day, I am going to tell you.
And this isn’t just about foreclosures lists it’s also about the people who “report” your credit activity and scores.
So where and how do they get the lists (the data)?
Some towns are online, so the information is gathered by computer geeks online.
Staten Island is not online, although we probably will be soon.
In order to file a law suit of any kind, including the filing of the lis pendence, you have to buy an index number. Every case, every foreclosure has its own distinctive index number.
Once upon a time, there was a set of books exclusively used to list the “lis pendence” at the County Clerks office.
The notice of pendency of an action was used not only to notify the homeowner, but also to notify everyone else in the world, that there was an action pending. “To put people on notice that there is a pending action against the property,” So the lis pendence is filed against the Block and Lot of the property.
Then of course there were also the index number books, that run consecutively, by number. A person that wanted to know about all of the new “foreclosures” could just go to the index book and copy the foreclosures, and/or lis pendence.
They no longer use books. Now they use computers.
Our Richmond County Clerk’s office has two sets of computers. One has the land block and lots on it, and another has the law suits on it. In Richmond County, even though a foreclosure is listed by Block and Lot, because it is an action against the land, the lis pendence, and the law suit, do not appear on the land block and lot computers. It only appears on the litigation computers. Makes no sense to me, but no one asks me.
Anyway, the way it works is that someone has to go to the county clerks office and copy the information.
Years ago, one of the title searchers (the people who search the titles in the county clerks office) was a woman named Rosalie. But Rosalie had another gig. Once a week, Rosalie went to the Civil Court, and copied all of the information (names, addresses’ of the parties including lawyers, amount sued for, etc.), in every new case, including small claims court. What Rosalie used to do is then sell the information, $1 per case, to the credit reporting company (or to a company that sold data to the credit reporting companies).
The way it worked was that they only report the information on the summons, when the case is started. They never bothered going back to find out what happened in the case, and that is why sometimes peoples credit gets screwed up without it being their fault. (We’ve all heard stories about blemish’s on credit reports because of people being sued in frivolous law suits). This has given rise to the credit repair industry, that helps people correct (or repair) the misinformation or incomplete information.
I wonder if they still only pay $1.
But anyway, the point of this story really is that if you’re interested in buying a foreclosure, you don’t need to subscribe to property shark or foreclosure.com; save your money, I’ll give you latest information for free since you are going to use me to buy the property.
Thursday, January 22, 2009
Even when we give to charity, we get screwed
Thursday’s advance had a story about the city buying foreclosures. Since I sell foreclosures I was very interested.
• City using federal $$ to buy foreclosed homes
STATEN ISLAND, N.Y. -- The city will embark on a $24 million emergency program to salvage foreclosed homes, including on Staten Island, where the mortgage meltdown has had a particularly profound impact
Well it turns out, according to the article, that a "not for profit" is buying the foreclosures, Restored Homes, and they bought two properties on Staten Island.
82 Blackford Avenue was first listed on the MLS on March 17, 2008, as a two-family detached, on a nice block in Port Richmond, for $234,900. The house was a real good price and it was accepted on March 20th, just three days later.
However, a few months later on July 22nd, the house was back on the market, and the price was lowered to $219,900. When it came back on the market, I showed it right away. The house was being used as a one family, but had two sets of utilities. Upstairs had a finished attic in addition to the two bedrooms, so it would have been good as a rental. But, you go down the basement, and someone had poured concrete, so much concrete that you could not stand up. The two boilers were in “wells” because they didn’t pour the concrete into them. Not having a full basement is not terrible, means that no one can live down there, and it can only be used for some storage. No biggie. But it was turning off all of my customers. This is when I realized that although foreclosures are sexy as a concept, the units themselves, the really good deals, aren’t. In fact a lot of the houses are just plain ugly.
But anyway, by August 6th, there was another acceptance.
But on October 6th, the house was back on the market, and the price was now lowered to $174,900.
So on October 6th, I sent out a Lasher’s List showing this house as time to buy, great deal, yada yada yada. By October 6th, I am an old pro at this, and I know when its “time for the vultures” - the customers with a lot of money, who make the all cash offers, who wait until the house has been on the market for a while, been accepted a couple of times had deals that keep dying, and know that there is a problem., and know that the bank is ready to make a deal.
So true to form, on October 7th, I submit an offer for one of my customers, a low ball offer, at $87,500, all cash, close in two weeks, as is.
A few days later when I call to find out about the offer, the broker tells me that there is a question about whether it is a legal one or two, but my offer is a little light, try to get my customer up a little, low 100's should do it.
Then on October 15th, before we resubmit our next offer, the status of the property changed to “HOLD”, and somehow the property had become a one family.
So it turns out that the reason for the hold was that the bank sold it themselves to the NFP, i.e. the City, with federal funds, (our tax dollars), and as usual, once again, we overpaid.
Moral of the story- use me to buy your foreclosures and you will get a better price.
Moral of the story 2- so that the banks don't get stuck with bad real estate, the government will buy them, and pay full asking price. Reminds me of an old Woody Allen Joke- the only sin in my family growing up was paying retail.
Good Night Irene.
……………………..to be continued
• City using federal $$ to buy foreclosed homes
STATEN ISLAND, N.Y. -- The city will embark on a $24 million emergency program to salvage foreclosed homes, including on Staten Island, where the mortgage meltdown has had a particularly profound impact
Well it turns out, according to the article, that a "not for profit" is buying the foreclosures, Restored Homes, and they bought two properties on Staten Island.
82 Blackford Avenue was first listed on the MLS on March 17, 2008, as a two-family detached, on a nice block in Port Richmond, for $234,900. The house was a real good price and it was accepted on March 20th, just three days later.
However, a few months later on July 22nd, the house was back on the market, and the price was lowered to $219,900. When it came back on the market, I showed it right away. The house was being used as a one family, but had two sets of utilities. Upstairs had a finished attic in addition to the two bedrooms, so it would have been good as a rental. But, you go down the basement, and someone had poured concrete, so much concrete that you could not stand up. The two boilers were in “wells” because they didn’t pour the concrete into them. Not having a full basement is not terrible, means that no one can live down there, and it can only be used for some storage. No biggie. But it was turning off all of my customers. This is when I realized that although foreclosures are sexy as a concept, the units themselves, the really good deals, aren’t. In fact a lot of the houses are just plain ugly.
But anyway, by August 6th, there was another acceptance.
But on October 6th, the house was back on the market, and the price was now lowered to $174,900.
So on October 6th, I sent out a Lasher’s List showing this house as time to buy, great deal, yada yada yada. By October 6th, I am an old pro at this, and I know when its “time for the vultures” - the customers with a lot of money, who make the all cash offers, who wait until the house has been on the market for a while, been accepted a couple of times had deals that keep dying, and know that there is a problem., and know that the bank is ready to make a deal.
So true to form, on October 7th, I submit an offer for one of my customers, a low ball offer, at $87,500, all cash, close in two weeks, as is.
A few days later when I call to find out about the offer, the broker tells me that there is a question about whether it is a legal one or two, but my offer is a little light, try to get my customer up a little, low 100's should do it.
Then on October 15th, before we resubmit our next offer, the status of the property changed to “HOLD”, and somehow the property had become a one family.
So it turns out that the reason for the hold was that the bank sold it themselves to the NFP, i.e. the City, with federal funds, (our tax dollars), and as usual, once again, we overpaid.
Moral of the story- use me to buy your foreclosures and you will get a better price.
Moral of the story 2- so that the banks don't get stuck with bad real estate, the government will buy them, and pay full asking price. Reminds me of an old Woody Allen Joke- the only sin in my family growing up was paying retail.
Good Night Irene.
……………………..to be continued
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