IS THIS ACCEPTABLE ADVERTISING FOR AN ‘ABSOLUTE AUCTION’?

 

January 2010 NAA- Auctioneer Magazine.

 

Recently I saw some ads from a new real estate auction group that said, ‘Absolute auction at any price over $1.6M.’

 

I re-read the NAA Ethics Code and saw that it says an absolute auction is one in which the property is ‘sold to the highest qualified bidder with no limiting conditions or amount.’ It seems to me that using the term ‘absolute auction’ with a minimum requisite is antithetical to our Code of Ethics. I met with the auctioneer responsible for this advertising and he told me that the biggest Auctioneer in his state advised him that this was perfectly legal – and that he had been using it for years! I contend that it is misleading and merely a contrived derivation of ‘reserve.’

 

Nicholas Varzos, Auctioneer ~ Lake Tahoe NV

 

(Ric Souto, of Vail CO. asks the additional related point: “However, if the auction’s Terms and Conditions clearly state that once the minimum bid is made, then the property will be sold to the highest bidder without any additional reservations or conditions, doesn’t this auction become an absolute auction once the minimum bid is made? There seems to be some debate about whether this is appropriate advertising or not.”)

 

ANSWER – Kurt Buchman, Attorney / Author – NAA

 

The above advertisement raises several issues and may be unethical. The advertisement is not an advertisement for the standard absolute auction. Instead, it is an advertisement for a reserve auction with the reserve price set at $1.6 million using absolute auction language. The average consumer after reviewing the language, however, may be confused. The NAA Code of Ethics defines an absolute auction as “[a]n auction where the property is sold to the highest qualified bidder with no limiting conditions or amount. The seller may not bid personally or through an agent.” The NAA definition is unambiguous and clearly defines what constitutes an absolute auction.

 

An auction is either a reserve auction or an auction without reserve. A reserve auction does not become an absolute auction when a bid exceeding the reserve price is submitted by a bidder. Several state legislatures and the NAA have taken the time to meaningfully define the terms ‘absolute auction’, ‘auction without reserve’, and ‘reserve auction’. The NAA defines ‘reserve auction’ as: “[a]n auction in which the seller retains the right to establish a minimum price, to accept or decline any and all bids or to withdraw the property at any time prior to the announcement of the completion of the sale by the auctioneer.” The definition expressly states that the seller has the right to withdraw the property from sale prior to the Auctioneer announcing the completion of the sale. At an absolute auction, for comparison, the seller cannot withdraw the property after calling for bids. Similarly, a bidder can withdraw his or her bid any time before it is accepted. So, Auctioneers should refrain from calling a reserve auction an ‘absolute auction’ after the reserve is met, because it may limit the seller’s authority.

 

The use of the absolute auction language can change the rights of sellers and buyers and mislead the bidding public. …From an ethical point of view, the practice of marketing a ‘reserve auction’ as an ‘absolute auction’ is prohibited under Standard of Practice 1.2. Specifically, the NAA Code of Ethics, Standard of Practice 1.2, states: “The practice of encouraging a client to market a property as ‘absolute’ when in actuality the member has verbally promised to convert the sale to an auction with reserve, or alternatively to cancel the sale if the marketing campaign does not produce an opening bid sufficient to satisfy the intended reserve of the client, is strictly prohibited.”

 

Although this rule does not specifically address the question, it does reflect that only ‘absolute auctions’ should be advertised as absolute.

 

When an auction is only sort of real

When reporter Sean Cole began to investigate housing auctions, he stumbled upon a kind of auction he had never heard of before -- a not-an-absolute auction.

TESS VIGELAND: We talked earlier in the show about how foreclosure rates just keep going up. One side effect is the booming business of foreclosure auctions. Banks hire auction companies to off-load properties that the original owners couldn't pay for. And bidders sign up by the hundreds hoping for a great deal on a house.

Sean Cole recently reported on the trend for us. But then he stumbled across an aspect of these auctions that you'll want to know about if you ever attend one.

---

Sean Cole: So the auction was held in a small ballroom at the Boston Park Plaza Hotel. And this thing happened about midway through that really kind of put a bee in my ball cap. It happened to this kid; I call him a kid. His name is...

Gardiner Bowen: Gardiner Bowen.

Cole: And what do you do.

Gardiner: I'm a real-estate investor.

Cole: I hope you'll forgive me for saying so, you seem very young to be a real-estate investor.

Gardiner: I am.

Cole: How old a guy are you?

Gardiner: I'm 23.

I didn't even know what real-estate investing was when I was 23. And here Gardiner was already a landlord. He was also one of more than 200 bidders at the auction that night, all competing for just 36 properties. But Gardiner had his eye on one in particular -- a rundown, single family house in Bristol, R.I. He'd seen it and told me it needed $60,000 in repairs and was in the middle of nowhere, which he liked.

Cole: Why does that appeal to you?

Gardiner: I rent to college students. And having a house in the middle of nowhere means no neighbors. I'm only going to be bidding on one. That's the only one. Yeah. Keep that between us.

Cole: I will. I will. But after the auction I'm going to see if you... I hope you get it.

Gardiner: I'll let you know after the auction then.

Cole: Please do.

Gardiner: All right.

Auctioneer: Ladies and gentlemen start the bidding at $19,000 and who came in to buy this one now. $19,000 to buy, $25,000.

Ten houses went up on the block before Gardiner's. And I just have to take a moment to say these events are truly entertaining. The auctioneer holds court from this high podium, wearing a tuxedo. Two other guys in tuxedos work the floor egging people on to bid more. And every time a bid card goes up, one of the spotter guys lets out a little yelp and cups the air like he's catching a penny.

Auctioneer: 50. Now 60.

Bidding assistant: Yup!

Auctioneer: 70.

Bidding assistant: Yup.

Bidding assistant: Yup.

Auctioneer: I'm bid $60, $70,000, now $80.

Also the auctioneer doesn't say "Sold!" after the bidding like you'd expect. He says this instead:

Auctioneer: Subject to confirmation sold at $20,000, subject to the sellers confirmation. Let's go to Bristol.

This was Gardiner's house originally valued at $305,000. The bidding started at just $49,000. And went up really quickly.

Auctioneer: Bristol. 49. 50. 60. 60. 70. I'm bid 60 riiiight here $70,000 to buy. 60 riiight here, $70,000 to buy, $80,000 now.

Gardiner didn't want to spend more than 60,000, but he hung in. And in the end, with a bid of $87,500, he landed the house.

Auctioneer: It is history. And subject to seller confirmation your way. Thank you.

Or so he thought. He and his mom were quickly led over to the financing area to the right of the stage. And just as quickly, they came back. Gardiner slumped down in his chair like he'd been punched. His mother, Judy, said, "They wouldn't sell it to us."

Judy Bowen: The bank will not accept the bid.

Gardiner: It has a hidden reserve. So I drove up here, spent the night, paid to get here and still can't buy the property. Even though I won the bid.

Judy: But what does that mean, a hidden reserve? I mean like...

Dan Saccoccio: It's not an absolute auction.

This is the broker Dan Saccoccio. He said absolute auction is an industry term.

Saccoccio: Absolute means it's a real auction and whatever you bid on, that's the price.

Which is what we think of when we think of an auction. But there's another kind, a "subject to lender confirmation" auction.

Chris Longly: With subject to lender confirmation auctions, the bank has a price that must be met.

This is Chris Longly, a spokesman for the National Auctioneers Association.

Longly: And so there is a reserve price set.

Cole: So when the auctioneer, at the end of the bidding, says, "Subject to lender confirmation," that's what he means.

Longly: Absolutely. It is not sold. It is sold, subject to lender confirmation.

Cole: How many foreclosed home auctions are absolute auctions?

Longly: I have not come across any absolute foreclosure auctions yet.

Cole: Is that OK?

Longly: Yeah. You know, our job is to represent our seller. In this case, it is bank. You know, many of these properties are selling, but some are just not getting a price at the auction block that meets the needs of the bank.

Now, lots of auctions have reserve prices; eBay has reserve prices. But at this auction it came as a surprise. At least to Gardiner and me. The company that held the event is Real Estate Disposition Corp., or REDC. And it said the reserve condition is clearly stated in the terms and conditions handed out ahead of time. And it is -- at the bottom of page five. (Actually, REDC hides their reserve terms in teeny-tiny print at the bottom of that page!)

I asked a spokesman, Rick Weinberg, why the auctioneer didn't spell it out verbally into the microphone.

Rick Weinberg: Well, we feel our auctioneers, and people who run the auctions do do that and do a great job.

Cole: You feel that or they do actually do it? 'Cause they didn't do it at the Boston auction. That's the only reason I ask.

Weinberg: Well, they are instructed to say many different things and that is one of them.

To be clear, I recorded almost all of the opening remarks and listened back to all of that tape. There wasn't anything about reserves. Also, if the banks want a certain price for these houses why not set that price as the opening bid? Some of these opening bids were as low as $500, which seems to say, "Look! You can maybe get a house for that much!"

Weinberg: No. No. That's never said. That's never said, and you'll never find it anywhere.

Cole: Yeah, it's kind of implied, though, you know, if I'm looking at a sheet and it says "Opening bid: $1,000." I'm like, "$1,000? Oh my God." Even if it goes up to $40,000 that's still $40,000 for a house.

Weinberg: But then someone has to do their homework and realize it's not an absolute auction.

Cole: How would they know to do that kind of work?

Weinberg: Well, they have to do their homework. They have to do their due diligence.

I talked to the bank that owned the house Gardiner bid on. They didn't want to go on the record, but they said that when you start the bidding low, there's a better chance it'll end up way above the reserve. That's just how auctions work they said.

Auctioneer: Ladies and gentlemen that concludes our sale tonight.

After the auction, Gardiner and his broker and his mom complained to the people in charge. It started as a gentle chat and quickly escalated into what looked like a fairly heated scuffle. The broker asked me not to record that part. And in the end, to its credit, REDC agreed to present Gardiner's offer to the bank.

Trent Ferris: And in this particular case, the young man actually was willing to discuss some other information about the property.

This is the vice president of auctions for the company, Trent Ferris.

Ferris: And while we don't think the seller's going to accept it because it was a subject to...

Cole: You don't think the bank will come down?

Ferris: You know, I don't know. I don't know. That's why we're going to be willing to go ahead and give him the opportunity on it.

I should point out that disputes like this are not common. They do happen and one analyst told me they used to happen a lot more before banks got more realistic about housing prices. Also, REDC only gets paid if the house sells. It makes its money from a 5 percent buyer's premium.

Gardiner: It's in their best interest to help us out and figure out a way to get the information to the bank.

I caught up with Gardiner again as he and his mom were finally filling out forms.

Gardiner: And that's kind of what they explained to us, after they found out I was upset with the way that the system worked.

Cole: So you told them you were upset.

Gardiner: Oh yeah. Just like I told you.

Cole: And how did they react when you told them you were upset?

Bowen: I'm signing papers now.

And a little more than a month later, the deal finally went through. And Gardiner was the proud owner of a rundown house in the middle of nowhere that needed $60,000 worth of work.

In Boston, I'm Sean Cole for Marketplace Money.

 

Why Are Homeowners Idiots?

January 26, 2010 |

Across the country, many homeowners have faced the devastating realization that the homes they own are now worth less than what they owe the bank. We all know this unenviable situation as being "underwater."

The pervasiveness of underwater homeowners is already fairly well known, particularly when it comes to hard-hit areas like Arizona, Nevada, Florida, and California. What is not particularly well known, though, is exactly why most of these battered borrowers are still making good on their monthly payments.

Why don't they walk away?
An interesting quirk of economics is that the dismal science generally assumes that all agents in an economy work in their own best interest. But this doesn't always happen in real life.

The mortgage crisis is a case in point. For many of the underwater homeowners in today's market, paying down their mortgage isn't really in their best financial interest. Particularly in states like Arizona -- where mortgages are nonrecourse, meaning the lender can't go after any of the homeowner's assets other than the property itself -- it makes little sense to continue paying a large mortgage on a devalued house when comparable rental rates are far below the monthly mortgage payment.

The situation had University of Arizona professor Brent White scratching his head, and as a result he wrote a very interesting paper on the subject, which University of Chicago luminary Richard Thaler brought to an even broader audience over the weekend.

Come on, everybody's doing it
Among the conclusions White reached is that borrowers are suffering from "norm asymmetry." That's a jargony term for sure, but it basically means that homeowners are being convinced that the "right thing to do" is to keep paying their mortgage -- even if it's not in their best interest. That stands in stark contrast to the financial giants that make these mortgages, which are free to do whatever they need to in order to maximize profits -- and bonuses.

And who's doing this convincing? For a large part it's the financial companies themselves, folks like Bank of America (NYSE: BAC), Citigroup (NYSE: C), JPMorgan Chase (NYSE: JPM), and Wells Fargo (NYSE: WFC)

But they're not alone. They've had plenty of help from government officials like Hank Paulson. Back in 2008, Paulson launched a sharp jab against those who would consider walking away from their homes, saying:

And let me emphasize, any homeowner who can afford his mortgage payment but chooses to walk away from an underwater property is simply a speculator -- and one who is not honoring his obligations.

Which makes perfect sense, since I imagine Paulson never speculated on anything when he was at the helm of trading king Goldman Sachs (NYSE: GS). And, of course, with de facto ownership of the ill-fated Fannie Mae (NYSE: FNM) and Freddie Mac (NYSE: FRE), the government doesn't stand to gain anything at all from persuading homeowners to act against their own best interest.

During the implosion of the housing market, the government has helped massive financial firms and many homeowners who bought houses they never should have qualified to buy in the first place. Meanwhile, responsible borrowers who bought houses they could afford on traditional fixed-rate loans are made to feel as if they are morally bankrupting themselves if they decide to do what is often highly financially advisable.

Why do we have this "norm asymmetry"? Why would we heap guilt onto this particular group? My guess is that if the powers that be answered honestly, that answer would be "because we can."

Thanks to folks like Brent White, Richard Thaler, and homeowners who are already choosing to move against the grain, though, the stigma of walking away from a severely devalued asset may be waning. If this is the case, the big banks and Uncle Sam need to put away the wagging finger and instead actually deal with the situation in a reasonable and sound manner. I'd suggest a confab with White and Thaler as a good first step.

Underwater homeowners have been getting some rotten advice, but they're not the only ones.

 

Warren Buffett's Best Advice Ever

January 25, 2010 |

It's funny how often a prominent person's legacy is remembered with a single speech, or even a single phrase. Four score and seven years. I have a dream. Ask not what your country can do for you. One small step for man. Tear down this wall. You know what I mean. Without comparing the contributions of those men, I wondered whether one speech could define the career of the world's greatest investor, Warren Buffett, and his creation Berkshire Hathaway (NYSE: BRK-A) (NYSE: BRK-B).

Turns out, it can. While Buffett had been dominating for decades, his talent wasn't truly apparent to the world until he gave a 1984 speech at Columbia University titled "The Superinvestors of Graham-and-Doddsville."

The lengthy speech can be found in its entirety here (opens PDF file), but I'll give you the Cliffs Notes version.

Dumb luck, pure skill, and flipping coins
Buffett begins by imagining a nationwide coin-flipping contest. Everyone in the country participates and calls the flip of a coin. Call correctly and move on to the next round, guess wrong and you're out.

After 20 days, about 215 lucky flippers will have correctly called 20 consecutive flips. They gloat in success, yet the nature of coin-flipping tells us they're just lucky. It's a game of random chance.

But what if all 215 flippers lived in the same town? What if they all hailed from the same school? The same fraternity? Then we'd get excited. The laws of probability suggest 215 winners after 20 days. But those same laws tell us that if all 215 belonged to an associated group, that almost certainly wouldn't be the product of random chance. These 215 flippers clearly would know something we don't.

Meet nine "lucky" flippers
The real flippers in Buffett speech are nine "superinvestors" -- himself included. All nine crushed the market averages over multiyear periods by between 8% and 22% per year.

In a world with millions of investors, such returns can occur by sheer luck -- just like the 215 coin-flippers appeared at first glance. But all nine superinvestors hailed from the investment school of Benjamin Graham and David Dodd -- Columbia professors now known as the fathers of value investing. That meant something big. It meant that their success wasn't the product of luck. It almost had to be attributable to the only common link they shared: the investing philosophy learned from Graham and Dodd. The "intellectual origin," as Buffett put it.

What set Graham and Dodd's philosophy apart? That's where the title of this article comes in. Explaining it was simply the best advice Buffett ever gave.

Here it is
Buffett states the superinvestors' core values quite succinctly:

The common intellectual theme of the investors from Graham-and-Doddsville is this: they search for discrepancies between the value of a business and the price of small pieces of that business in the market. Essentially, they exploit those discrepancies without the efficient market theorist's concern as to whether the stocks are bought on Monday or Thursday, or whether it is January or July, etc ...

It's very important to understand that this group has assumed far less risk than average ...While they differ greatly in style, these investors are, mentally, always buying the business, not buying the stock.

It's that simple
Most investors aren't superinvestors. To them, there's little distinction between price and value. A cratering stock means risk, while a soaring stock somehow indicates strength and safety -- all with little regard to other, more deeply rooted factors. This is akin to assuming that all attractive people make great spouses.

But a more philosophical view shows how crazy this is. Risk appears when market value equals or exceeds the long-term value of a company's discounted cash flows -- its intrinsic value. It then diminishes in proportion to how far market price drops below intrinsic value. Really simple. The relationship between price and risk is often the opposite of what it's comfortable to assume.

Here's an example: Was Google (Nasdaq: GOOG) riskier in 2007, when optimism was on fire and shares exploded, or in late 2008, after shares crashed and bottomed out at around 12 times forward earnings? The answer is easy. Google was enormously risky in 2007, when the market assumed it was a surefire bet, and steadily approaching riskless territory in late 2008, when market volatility made investing look suicidal. Same goes for companies such as Alcoa (NYSE: AA) and Dow Chemical (NYSE: DOW). Investing risk was lowest when the performance and volatility of their shares looked bleakest. That was when the gap between price and intrinsic value was widest. That's when you want to invest.

Looking ahead
Our Motley Fool Inside Value service looks for this kind of gap. Right now, the team has identified Western Union (NYSE: WU) and Wal-Mart (NYSE: WMT) as companies whose market is price is far below their long-term intrinsic value. Since inception, the team's picks have outperformed market averages by more than seven percentage points, making them superinvestors in their own right.

Fool contributor Morgan Housel owns shares of Berkshire Hathaway. Berkshire, Wal-Mart Stores, and Western Union are Motley Fool Inside Value selections. Google is a Motley Fool Rule Breakers pick. Berkshire and Western Union are Motley Fool Stock Advisor recommendations. Motley Fool Options has recommended writing puts on Western Union. The Fool owns shares of Berkshire, and has a disclosure policy.

 

Lenders Pursue Mortgage Payoffs Long After Homeowners Default

January 28, 2010, 08:53 AM EST

By Kathleen M. Howley

Jan. 28 (Bloomberg) -- When John King stopped making payments on his home in Coral Gables, Florida, two years ago, he assumed the foreclosure ended his mortgage contract, he said. Last month, a Miami-Dade County court gave collectors permission to pursue him for $44,000 stemming from the default.

King is among a rising number of borrowers who are learning that they can be on the hook for years after losing their homes. Amid a crisis that stripped $6.4 trillion, or 28 percent, from the value of U.S. residential real estate since the 2006 peak, lenders are exercising their rights to pursue unpaid mortgage balances. To get their money, they can seize wages, tap bank accounts and put liens on other assets held by debtors.

“The big dogs get a bailout, and the little man gets no mercy,” said King, 39, referring to the U.S. government’s rescue of banks and other financial institutions. While there are no statistics on the number of deficiency judgments approved by courts, the Federal Deposit Insurance Corp. tracks the amount banks collect after defaulted loans were written off.

These mortgage recoveries rose 48 percent to a record $1.01 billion in the first nine months of last year compared with the year-earlier period, according to the Washington-based regulator. Recoveries on defaulted home-equity loans almost doubled to $392 million, the FDIC data shows.

The figures don’t include money retrieved by trusts overseeing mortgage-backed securities, such as the one that holds the loan on King’s former home, or efforts by distressed- asset funds and companies that buy bad loans to profit from collection rights. Judgments such as the one levied against King usually tack on court fees, fines and interest.

‘Next Big Crisis’

Deficiency judgments were rare in the 15 years since the last real estate slump, said Ben Hillard, a former investment banker who now is a real estate and corporate attorney at Hillard & Rogers in Largo, Florida. “The banks have been too underwater with foreclosures to spend much time on deficiency judgments, but that’s beginning to change,” Hillard said in an interview. “This is going to be the next big crisis.”

Almost 4.5 percent of mortgaged U.S. homes were in foreclosure during the third quarter, the highest rate in the 37 years of tracking the data, the Mortgage Bankers Association said Nov. 19. A record one in every 10 mortgages was at least one payment overdue in the same period, the Washington-based trade group reported.

The Obama administration is seeking to modify as many as 4 million loans by 2012 to prevent foreclosures through the Home Affordable Modification Program, which cuts monthly payments to about a third of borrowers’ income. By the end of December, the program was responsible for more than 850,000 modifications, the Treasury Department said in a Jan. 15 report.

20-Year Window

The federal government spent $230 billion in the year ended in September to support homeowners, according to the Congressional Budget Office in Washington. Those efforts didn’t help people who had already walked away from their houses. In states such as Florida, courts give mortgage holders as long as five years to seek a deficiency judgment and, if granted, up to 20 years to collect. Usually, they have the option of renewing the judgment if it’s not paid off within 20 years.

About a third of U.S. states, including California and Arizona, prohibit collection efforts on primary residences after foreclosure. In some cases, homeowners waive that protection if they refinance. Most states allow collection on unpaid home equity loans.

Depression-Era Protections

The laws in states that protect some borrowers stem from the Great Depression in the 1930s, when a lack of bidders at foreclosure auctions caused deficiencies that, with added fees and interest, sometimes were bigger than the original loan amount, according to a 1934 Virginia Law Review article by Sol Phillips Perlman. Today, many courts measure the shortfall using a property’s market value at the time of foreclosure rather than auction results.

The likeliest candidates for deficiency judgments are so- called rational defaults, said Larry Tolchinsky, a real estate attorney in Hallandale Beach, Florida. In those cases, people who are current on their mortgages decide to walk away from a property because its value has sunk so far below their loan balance they have no hope of recouping the loss.

About 21 percent of American homeowners owe more on their mortgages than their properties are worth, according to Zillow.com, a Seattle-based real estate data firm. “Walking away from a property comes with a cost, especially for people who otherwise have good credit,” Tolchinsky said in an interview. “The bank is going to pull your credit report, and if you’re current on your other bills they are going to come after you and potentially ruin you.”

Fine Print

It’s not just foreclosures that can trigger debt collections. Short sales also may lead to deficiency judgments years after former homeowners have moved on, according to Hillard, the attorney in Largo. In a short sale, lenders agree to let borrowers sell a home for less than the mortgage balance.

“Banks are being very careful to preserve their rights, either outright in the short sale agreement or by using vague language that leaves that door open,” Hillard said. About 90 percent of people who do a short sale think they are “off the hook.” That was the case when two of his clients, Brigitte and John Howard, sold their home in New Port Richey, Florida, almost two years ago without using a lawyer to check the bank’s short- sale agreement.

$20,000 Shock

“We got a call out of the blue saying we owed $20,000,” said Brigitte Howard, 45. “It was a shock. There was no mention in the short-sale contract that the bank might come after us for the difference.” The money King owes to the Soundview Home Loan asset-backed security that holds the mortgage on his former Coral Gables condominium consists of $38,000 for unpaid principal and almost $6,000 in legal fees and interest accrued prior to the ruling. According to the judgment, the security can charge 8 percent interest until he pays off the debt.

King, who said his default was caused by a reduction in his income, now rents near Fort Lauderdale, Florida, where he teaches ballroom dancing. “I thought the foreclosure was the worst of a bad situation, but it’s not,” said King. “The people who got sucked into the real estate bubble are still paying for it, even after they’ve taken our homes.”

 

PHOTOS: Cher's Hawaii Home Sells For $8.7 Million

Recession? What Recession?

With the housing market still supposedly in a slump as the world economy struggles to recover following a global recession that’s been felt by all, Cher has managed to buck the trend, selling her luxurious Hawaiian home for a whopping $8.7 million at auction.

The three-quarter-acre property, that overlooks the Pacific Ocean in Kailua, Kona, was one of five Big Island residences auctioned off on Monday for a total of $19.4 million. Cher’s Balinese style residence was sold by a luxury Real Estate auction company, who had estimated the value at between $8 million and $12 million.

Located in the beautiful and exclusive Hualalai Resort, the 8,800-square-foot home features a gated center courtyard leading to the main residence. Designed by Cher herself, the property boasts six bedrooms, a master wing, great room, top of the range kitchen, dining room, outdoor living area and an infinity pool with spa overlooking the resort’s golf course.

The house was purchased by an unnamed, and obviously wealthy buyer in Arizona

 

Bottom-feeding' investors drawn to US real estate in hope rates stay low

By Henny Sender in New York
FT.com

The beleaguered US commercial real estate sector has been attracting a new wave of money from sources including foreign banks, US private equity firms, and a leading Chinese sovereign wealth fund. Market participants warn that the activity represents "bottom-feeding" by opportunistic investors whose strategies could be derailed by rising interest rates. Also, the deals done so far are tiny compared with the debts that need refinancing.

Nevertheless, the growing interest from investors is a sign of stabilisation, making it less likely that worsening commercial real estate conditions will sink banks and choke off a US recovery. "We believe the real story is that capital is ready to buy, even though it may not be so visible today," said Bob Steers, co-chairman of Cohen & Steers, a real estate investment firm.

Recently, state-owned China Investment Corporation (CHA) has enlisted Cohen & Steers, Angelo Gordon and Morgan Stanley to identify commercial real estate opportunities, people familiar with the matter say.

A public sign of such activity came on Friday when Colony Capital won a Federal Deposit Insurance Corporation auction for $1bn of commercial property loans formerly held by failed banks in states hit hard by the real estate downturn. The deal valued the loans at 44 cents on the dollar and was structured so the FDIC contributes $136m and holds 60 per cent of the equity, while Colony, a Los Angeles investment firm, puts in $90m for the remaining 40 per cent.

Tom Barrack, Colony founder, called the investment "an implicit bet that rates stay low" and warned: "If rates go up, everyone will be crushed." Earlier last week, SL Green, a real estate investment trust, said it had refinanced a Times Square tower it owns with Canada's Caisse de Dépôt et Placement du Québec in a $475m deal ed by Bank of China.

In December, JPMorgan Chase raised $625m for Inland Western, a real estate investment trust, of which $500m was in the form of securities backed by commercial real estate assets.

The deal was particularly notable because it was done without help from the term asset-backed securities loan facility, or Talf, which was set up to provide financing for investors in such deals. In all, an estimated $1,500bn to $1,800bn in commercial property debt needs to be restructured, as well as $800bn in commercial mortgage-backed securities.

 

West Palm Beach Foreclosures going once, going twice, going online

January 05, 2010 Juan Carlos Fanjul

WEST PALM BEACH-- Look around virtually every neighborhood in the area and you will see a for sale sign. And many of those homes are also foreclosures, about 45,000 in Palm Beach County alone.

"The foreclosures are terrible, there are 6 of them in my block alone," said Alan Mentser. The professional real estate investor is in the business of bidding for foreclosed homes, traditionally done at a live auction run by the county. But now the clerk's office has decided to go once, go twice, and go online.

"We are hoping to reach a broad audience and to open up sales globally. Conceptually, someone in China could bid for these properties going on sale," said Mark Broderick of the Palm Beach County Clerk and Comptroller's office.

Starting January 21st, all Palm Beach County foreclosures will be conducted online, no more live auctions. That's why a group of real estate experts took part in an orientation class Tuesday to find out how to make their bids on a new specially designed website.

The clerk's office, which had to cut 100 employees in 2009 because of state budget cuts, says the E-bay-like auctions will free up the remaining workers, while bidders will not be tied up at the court house all day.

"I can put in my maximum bid on the computer and then basically walk away. At the end of the day, the results are generated and I will receive an email notification," said Ian Yorty of Grant Street Group, the Pittsburgh-based firm which designed the website for the county. But Mentser says nothing beats a live auction.

"You kind of know who who you are bidding against. You put a face to that number and that has some advantage," he said. Starting Wednesday the site will go live enabling people to register, place deposits and research properties.

 

U.S. Loan Effort Is Seen as Adding to Housing Woes

PETER S. GOODMAN

The Obama administration’s $75 billion program to protect homeowners from foreclosure has been widely pronounced a disappointment, and some economists and real estate experts now contend it has done more harm than good.

“If they had said, ‘We can’t work with you,’ I’d have said: ‘What are my options? Short sale?’ None of this would have happened,” said Jaimie S. Smith. Her lender simultaneously modified her loan and foreclosed on her.
The New York Times

Since President Obama announced the program in February, it has lowered mortgage payments on a trial basis for hundreds of thousands of people but has largely failed to provide permanent relief. Critics increasingly argue that the program, Making Home Affordable, has raised false hopes among people who simply cannot afford their homes.

As a result, desperate homeowners have sent payments to banks in often-futile efforts to keep their homes, which some see as wasting dollars they could have saved in preparation for moving to cheaper rental residences. Some borrowers have seen their credit tarnished while falsely assuming that loan modifications involved no negative reports to credit agencies.

Some experts argue the program has impeded economic recovery by delaying a wrenching yet cleansing process through which borrowers give up unaffordable homes and banks fully reckon with their disastrous bets on real estate, enabling money to flow more freely through the financial system.

“The choice we appear to be making is trying to modify our way out of this, which has the effect of lengthening the crisis,” said Kevin Katari, managing member of Watershed Asset Management, a San Francisco-based hedge fund. “We have simply slowed the foreclosure pipeline, with people staying in houses they are ultimately not going to be able to afford anyway.”

Mr. Katari contends that banks have been using temporary loan modifications under the Obama plan as justification to avoid an honest accounting of the mortgage losses still on their books. Only after banks are forced to acknowledge losses and the real estate market absorbs a now pent-up surge of foreclosed properties will housing prices drop to levels at which enough Americans can afford to buy, he argues.

“Then the carpenters can go back to work,” Mr. Katari said. “The roofers can go back to work, and we start building housing again. If this drips out over the next few years, that whole sector of the economy isn’t going to recover.”

The Treasury Department publicly maintains that its program is on track. “The program is meeting its intended goal of providing immediate relief to homeowners across the country,” a department spokeswoman, Meg Reilly, wrote in an e-mail message.

But behind the scenes, Treasury officials appear to have concluded that growing numbers of delinquent borrowers simply lack enough income to afford their homes and must be eased out.

In late November, with scant public disclosure, the Treasury Department started the Foreclosure Alternatives Program, through which it will encourage arrangements that result in distressed borrowers surrendering their homes. The program will pay incentives to mortgage companies that allow homeowners to sell properties for less than they owe on their mortgages — short sales, in real estate parlance. The government will also pay incentives to mortgage companies that allow delinquent borrowers to hand over their deeds in lieu of foreclosing.

Ms. Reilly, the Treasury spokeswoman, said the foreclosure alternatives program did not represent a new policy. “We have said from the start that modifications will not be the solution for all homeowners and will not solve the housing crisis alone,” Ms. Reilly said by e-mail. “This has always been a multi-pronged effort.”

Whatever the merits of its plans, the administration has clearly failed to reverse the foreclosure crisis.

In 2008, more than 1.7 million homes were “lost” through foreclosures, short sales or deeds in lieu of foreclosure, according to Moody’s Economy.com. Last year, more than two million homes were lost, and Economy.com expects that this year’s number will swell to 2.4 million.

“I don’t think there’s any way for Treasury to tweak their plan, or to cajole, pressure or entice servicers to do more to address the crisis,” said Mark Zandi, chief economist at Moody’s Economy.com. “For some folks, it is doing more harm than good, because ultimately, at the end of the day, they are going back into the foreclosure morass.”

Mr. Zandi argues that the administration needs a new initiative that attacks a primary source of foreclosures: the roughly 15 million American homeowners who are underwater, meaning they owe the bank more than their home is worth.

Increasingly, such borrowers are inclined to walk away and accept foreclosure, rather than continuing to make payments on properties in which they own no equity. A paper by researchers at the Amherst Securities Group suggests that being underwater “is a far more important predictor of defaults than unemployment.”

From its inception, the Obama plan has drawn criticism for failing to compel banks to write down the size of outstanding mortgage balances, which would restore equity for underwater borrowers, giving them greater incentive to make payments. A vast majority of modifications merely decrease monthly payments by lowering the interest rate.

Mr. Zandi proposes that the Treasury Department push banks to write down some loan balances by reimbursing the companies for their losses. He pointedly rejects the notion that government ought to get out of the way and let foreclosures work their way through the market, saying that course risks a surge of foreclosures and declining house prices that could pull the economy back into recession.

“We want to overwhelm this problem,” he said. “If we do go back into recession, it will be very difficult to get out.”

Under the current program, the government provides cash incentives to mortgage companies that lower monthly payments for borrowers facing hardships. The Treasury Department set a goal of three to four million permanent loan modifications by 2012.

“That’s overly optimistic at this stage,” said Richard H. Neiman, the superintendent of banks for New York State and an appointee to the Congressional Oversight Panel, a body created to keep tabs on taxpayer bailout funds. “There’s a great deal of frustration and disappointment.”

As of mid-December, some 759,000 homeowners had received loan modifications on a trial basis typically lasting three to five months. But only about 31,000 had received permanent modifications — a step that requires borrowers to make timely trial payments and submit paperwork verifying their financial situation.

The government has pressured mortgage companies to move faster. Still, it argues that trial modifications are themselves a considerable help.

“Almost three-quarters of a million Americans now are benefiting from modification programs that reduce their monthly payments dramatically, on average $550 a month,” Treasury Secretary Timothy F. Geithner said last month at a hearing before the Congressional Oversight Panel. “That is a meaningful amount of support.”

But mortgage experts and lawyers who represent borrowers facing foreclosure argue that recipients of trial loan modifications often wind up worse off.

In Lakeland, Fla., Jaimie S. Smith, 29, called her mortgage company, then Washington Mutual, in October 2008, when she realized she would get a smaller bonus from her employer, a furniture company, threatening her ability to continue the $1,250 monthly mortgage payments on her three-bedroom house.

In April, Chase, which had taken over Washington Mutual, lowered her payment to $1,033.62 in a trial that was supposed to last three months.

Ms. Smith made all three payments on time and submitted required documents, Chase confirms. She called the bank almost weekly to inquire about a permanent loan modification. Each time, she says, Chase told her to continue making trial payments and await word on a permanent modification.

Then, in October, a startling legal notice arrived in the mail: Chase had foreclosed on her house and sold it at auction for $100. (The purchaser? Chase.)

“I cried,” she said. “I was hysterical. I bawled my eyes out.”

Later that week came another letter from Chase: “Congratulations on qualifying for a Making Home Affordable loan modification!”

When Ms. Smith frantically called the bank to try to overturn the sale, she was told that the house was no longer hers. Chase would not tell her how long she could remain there, she says. She feared the sheriff would show up at her door with eviction papers, or that she would return home to find her belongings piled on the curb. So Ms. Smith anxiously set about looking for a new place to live.

She had been planning to continue an online graduate school program in supply chain management, and she had about $4,000 in borrowed funds to pay tuition. She scrapped her studies and used the money to pay the security deposit and first month’s rent on an apartment.

Later, she hired a lawyer, who is seeking compensation from Chase. A judge later vacated the sale. Chase is still offering to make her loan modification permanent, but Ms. Smith has already moved out and is conflicted about what to do.

“I could have just walked away,” said Ms. Smith. “If they had said, ‘We can’t work with you,’ I’d have said: ‘What are my options? Short sale?’ None of this would have happened. God knows, I never would have wanted to go through this. I’d still be in grad school. I would not have paid all that money to them. I could have saved that money.”

A Chase spokeswoman, Christine Holevas, confirmed that the bank mistakenly foreclosed on Ms. Smith’s house and sold it at the same time it was extending the loan modification offer.

“There was a systems glitch,” Ms. Holevas said. “We are sorry that an error happened. We’re trying very hard to do what we can to keep folks in their homes. We are dealing with many, many individuals.”

Many borrowers complain they were told by mortgage companies their credit would not be damaged by accepting a loan modification, only to discover otherwise.

In a telephone conference with reporters, Jack Schakett, Bank of America’s credit loss mitigation executive, confirmed that even borrowers who were current before agreeing to loan modifications and who then made timely payments were reported to credit rating agencies as making only partial payments.

The biggest source of concern remains the growing numbers of underwater borrowers — now about one-third of all American homeowners with mortgages, according to Economy.com. The Obama administration clearly grasped the threat as it created its program, yet opted not to focus on writing down loan balances.

“This is a conscious choice we made, not to start with principal reduction,” Mr. Geithner told the Congressional Oversight Panel. “We thought it would be dramatically more expensive for the American taxpayer, harder to justify, create much greater risk of unfairness.”

Mr. Geithner’s explanation did not satisfy the panel’s chairwoman, Elizabeth Warren.

“Are we creating a program in which we’re talking about potentially spending $75 billion to try to modify people into mortgages that will reduce the number of foreclosures in the short term, but just kick the can down the road?” she asked, raising the prospect “that we’ll be looking at an economy with elevated mortgage foreclosures not just for a year or two, but for many years. How do you deal with that problem, Mr. Secretary?”

A good question, Mr. Geithner conceded.

“What to do about it,” he said. “That’s a hard thing.”

 

Auction of failed banks' assets yields $6.2M

January 2, 2010

BLOOMBERG NEWS

The financial crisis that popped the real estate bubble and pushed U.S. bank failures to a 17-year high let the Federal Deposit Insurance Corp. reap about $6.2 million from the auction of assets of failed banks in 2009, six times the total in 2008.

Along with the mundane, such as desks, lamps and chairs from shuttered branches, banks also left behind a rapper's tour bus (reeking of marijuana), a 2001 Ferrari, artwork and a palm tree.

While the $6.2 million is a sliver of the $38.3 billion of failed bank assets that the FDIC held as of Sept. 30, any cash is useful after the surge in crippled lenders sent the FDIC's deposit insurance fund into the red.

The tour bus was acquired by Omni National Bank in repossession from a leasing company before the Atlanta-based lender went bust in March. The bus sported 12 coffin-like bunks, each with flat-panel televisions, and sold for $310,000 to a company in Nashville, Tenn., that leases buses to touring musicians.

New Frontier Bank of Greeley, Colo., which cost the insurance fund $670 million, also left the FDIC with a 1,000-horsepower drag-racing Chevrolet pickup truck, and almost 1,000 milking cows.

 

Auction ecstasy, agony

DAN OAKES

December 14, 2009

MELBURNIANS flirted with trading a record $1 billion worth of real estate in the past week, coming in just shy of that figure but still hitting a record $963 million.

But behind that landmark sum are all the underbidders who missed out at the weekend's 1057 auctions.

Agents reported up to eight bidders at some auctions but, even with an average of four per auction, that is almost 3200 buyers in the inner 20-kilometre auction ring who will end the year without finding a new home.

This year's big auction weekend had a clearance rate of 81 per cent and that strength, agents claim, will continue in 2010.

But the boom seems to be stagnating turnover because many would-be sellers are opting to stay and renovate rather than trade up and face huge stamp duty costs.

 

Rates Are Low, but Banks Balk at Refinancing

 
Mark Belvedere says his bank has refused to refinance his condo outside San Francisco, citing the property's lost value.

 

By DAVID STREITFELD NEW YORK TIMES

Published: December 12, 2009

Mortgage rates in the United States have dropped to their lowest levels since the 1940s, thanks to a trillion-dollar intervention by the federal government. Yet the banks that once handed out home loans freely are imposing such stringent requirements that many homeowners who might want to refinance are effectively locked out.

The scarcity of credit not only hurts homeowners but also has broad economic repercussions at a time when consumer spending and employment are showing modest signs of improvement, hinting at a recovery after two years of recession.

Refinancing could save owners hundreds of dollars a month, which could be spent, saved or used to pay down debts. Extra spending would help lift the economy, and lower payments might spare some people from losing their homes to foreclosure.

The plight of homeowners has become a volatile political issue. On Friday, as the House passed a series of new financial regulations, it narrowly defeated a provision that would have allowed bankruptcy judges to modify the terms of mortgages. The measure was strongly opposed by the banking industry.

President Obama, in his weekly address on Saturday, placed much of the blame for the recession on “the irresponsibility of large financial institutions on Wall Street that gambled on risky loans and complex financial products, seeking short-term profits and big bonuses with little regard for long-term consequences.”

The president is scheduled to meet with banking executives at the White House on Monday in another administration effort to increase the flow of loans to consumers and small businesses. Among those expected to attend are representatives from Citigroup, JPMorgan Chase, Bank of America, Wells Fargo and Goldman Sachs.

An estimated six of 10 homeowners with mortgages have rates that exceed the 4.8 percent rate currently available on 30-year fixed mortgages, the least risky form of home loans.

Nevertheless, only half as many refinancing applications were reported last week than were reported at the beginning of January, the peak level for the year. The total dollar volume of refinancing activity in 2009 will be about $1 trillion. In 2003, another year when rates fell, it was $2.8 trillion.

(Mortgage applications to purchase houses showed modest improvement for much of the year, but recently fell sharply to their lowest level in 12 years.)

“The government has succeeded in driving mortgage rates down to their lowest level in our lifetime,” said Guy Cecala, the publisher of Inside Mortgage Finance magazine. “That hasn’t been a big home run, because a lot of people can’t take advantage of it.”

It is highly unusual for mortgage money to be available below 5 percent. Average rates fell as low as 4.7 percent in the 1940s, as the government held down interest rates to finance World War II, and stayed just below 5 percent until the early 1950s. Rates went above 5 percent in 1952 and stayed there — until this year.

The super-low rates are not likely to last much longer. The Federal Reserve program that has driven rates to such lows, which involves buying $1.25 trillion in mortgage-backed securities, is scheduled to expire in March, and Fed leaders have said that it would not be renewed.

Some analysts believe rates could jump as high as 6 percent in the spring. On a $300,000 mortgage, such a jump would cost an extra $225 a month.

Andrew Knapp, a sales executive in Bartlett, Ill., has tried twice to refinance, which would save his family several hundred sorely needed dollars every month. Lenders said the house had lost value and the Knapps had too much debt. “There was no urgency for them to do anything,” Mr. Knapp said.

The most recent Federal Reserve survey of lenders found that they were continuing to tighten terms for business and household loans. Banks say they are under pressure from regulators to raise their cash reserves, which means fewer loans. They also argue that a troubled economy breeds extreme caution.

“More than ever before, lenders are very conscious of making good quality loans,” said Michael Fratantoni, the vice president for research at the Mortgage Bankers Association. “They are looking at the value of the collateral and the credit quality of the borrower.”

But some borrowers argue that more refinancings now might well forestall losses for the banks later.

Mark Belvedere bought a condominium in a San Francisco suburb in early 2004 and refinanced it in 2005. He now owes $235,000 on a property that would sell for barely half that today.

Mr. Belvedere said he would be willing to live with all that lost equity if he could refinance his loan from a variable rate, which could eventually go as high as 12 percent, into a 30-year fixed term.

 

If You Don't Buy a House Now, You're Stupid or Broke

Have you read this article yet? It was featured in Business Week. 

My first thought, wow! what a blunt and harsh statement! But the writer, Mark Roth, uses this headturning title to get your attention to make excellent points for those who are on the fence.  Namely that interest rates are at an all time low, in fact, the lowest in 40 years. He noted that in the late 70s, rates hit a high of 18%!

Can you even imagine buying a house at 18%?  I personally can't fathom it as I bought my first house with an FHA loan while I was in college for 7% in 2001.  In the 80s, when rates dropped from 12% to 9%, my parents practically danced their way to the 1^st refinance of their home. 

Generation X'ers probably would never dream of purchasing a home above 7% given all we have ever known are super low rates hovering between 5-6%. Mr. Roth points out the history of previous interest rates as well as the impact of rates on one's purchasing power. I happen to agree with his prediction that as the economy becomes more stable, interest rates WILL rise to hedge inflation.  My prediction has been that by this time next year, rates will have risen 1-2% at a minimum.

In Charleston, the average sale is $250,000. Assuming a 5% down payment at 5% interest on a 30 year fixed, your monthly principal and interest payment would be $1275.  If rates rise to 7%, your payment increases to $1580/month.  Some buyers may be on the fence because they fear prices may drop further.

Consider this. If there is a 10% decrease in price and the $250,000 falls to $225,000 in one year, but you wait to purchase and the interest rate rises to 7%, your payment will be $1422. 

You spend more money per month plus at the higher interest rate, you pay more interest over the life of the loan.  Real estate appreciation is always a cycle and as the economy stabilizes, values will level out.  Steve Harney is already analyzing data this is happening in many markets and that this will occur by 2014 in many states. Making a home purchase is still a decision that should be weight carefully and is not for everyone.  One important consideration will depend on how long you plan to stay in the home.   

Mark Roth summed up the article, "What I'm trying to impress upon everyone is that if you are planning on being a homeowner now and/or in the foreseeable future, or if you are looking to move your family into a bigger home, then pay more attention to the interest rates than the price of the home. If you have a steady job, good credit, and the down payment, then you really are being offered the gift of a lifetime."

The Charleston Relocation Experts team specializes in helping families make good decisions.  We do NOT think you are stupid or broke if you don't buy a house right now.  But if you are considering purchasing a home now would be a good time. 

 

Real Estate Auctions Becoming Purchase Vehicle of Choice
July 9, 2007

Summary
Profit in real estate is made on the buy and the opportunities present today in the most attractive residential buyer's market in decades are there for the bidding.  Yes, there for the bidding.  The sluggish home sales experienced across the nation due to stale inventory is getting a helping hand from auction companies who are drawing record crowds to move the REO of their lender clients.

Analysis
As the housing swoon continues and foreclosures climb, more buyers are turning to real estate auctions to find good deals. Valued from $100,000 to more than $800,000, homes come with guaranteed title insurance paid by the seller, ensuring that all properties are free of any back taxes or liens.

Citing data from the National Auctioneers Association, H&M said the fastest growing sector of the $257.2 billion auction industry is residential real estate auctions, which jumped 12.5% in 2006. It's not unusual for some properties to sell at auction for 70%-80% of their list price.

Some of the biggest auction house customers are traditional banks and big name residential lenders who can ill afford to let costly REO sit dormant in neighborhoods across the nation. 

Auctions provide an emotionless format where pre-qualified buyers are ushered into the room for a chance at investment acquisitions at fire sale prices.  Internet auctions open the purchasing audience,literally,to the entire electronic world which helps frustrated mortgagors and their REO managers shed themselves of maintenance overhead associated with the glut of inventory currently available due to foreclosures on subprime paper;a smaller audience of qualified buyers as lending standards are tightened and new homes completed just after the fallout from the interest only and hybrid ARMs. 

The bargain shoppers showing up at these auctions are not all individuals.  They include the real estate acquisition professionals of very prominent REITs and Wall Street investment companies.  Profit in real estate is made on the buy!  See you at the auction.

 

 

Silverdome fetches $583,000 - Soccer teams could use it 

 

BY MELANIE D. SCOTT, JOHN GALLAGHER and KEVIN BULL
FREE PRESS STAFF WRITERS

The Pontiac Silverdome and its 127 adjacent acres could become home to a Major League Soccer team now that the city has accepted a bid of $583,000 from a Toronto-based real estate company to buy the facility.

The Auctioneer and real estate firm conducting the auction of the vacant stadium, announced Monday that the unidentified winning bidder plans to use the complex for a men's Major League Soccer team and women's professional soccer.

"Many people said they were going to be bidding tens of millions of dollars and that's easy to say if you're not going to put up the money," said Fred Leeb, Pontiac's emergency financial manager.

A purchase price of $583,000 shows how depressed the real estate market has become in Michigan!

 

Homeowners are relying less on real estate agents

By Denise Law

Published: November 13 2009

A larger number of property sellers are beginning to privately sell their properties, according to a study by The Office of Fair Trading (OFT). Although the majority of sellers prefer a traditional real estate agent, over a third considered using an online agent or selling at an auction, an increase from 2004’s survey.

“This is important research which updates the available evidence about the process of buying and selling a home and current and future developments in the sector,” said Heather Clayton, senior director of infrastructure at OFT.

“For example, it shows the enormous potential for new internet-based business models in home buying and selling.” The OFT published four reports that included a survey of estate agents and trading standard services, as well as consumer reaction to the home buying and selling procedure.

In the consumer report, 88 per cent of both buyers and sellers were satisfied with their real estate agents, up from five years ago, when the figures were 72 and 74 per cent respectively.  The reports also found that consumer complaints were directed primarily at the individual buyer or seller on the other side of the transaction, as opposed to the estate agent.

In another study, 24 per cent of real estate agents surveyed failed to comply with the Trading Standards’ regulations.  On the question of services provided to buyers such as legal advice and mortgages, estate agents made referrals to 65 per cent of buyers.

Thirty-six per cent of those buyers went on to use at least one of the recommended services.  In regards to an agent’s selling behaviour, 82 per cent of buyers said they did not feel pressured into purchasing a home.

When asked whose interests they felt the estate agent represented, 53 per cent of buyers said the agent was fair to both parties, while 40 per cent said the agent showed preference towards the seller.

Only 6 per cent felt that the agent was working on the buyer’s behalf.

The most common reason for a failed transaction was another buyer making a better offer, with 19 per cent of buyers losing out on an offer the seller had originally accepted.

Ms Clayton said: “Our final report will look at, among other things, how new ways of buying and selling a home may develop in the future, whether there is scope to improve consumer protection enforcement, consumer awareness of potential pitfalls in the process and ancillary services sold by estate agents.”

 

Colorado bank loan auction generates just $157M

DENVER — An auction last month of loans from the failed New Frontier Bank generated $157 million on a portfolio once valued at more than $500 million, according to government records.

The federal government salvaged 27 cents on the dollar in the auction, underscoring the poor quality of agriculture loans that were stranded when the Greeley bank failed in April, The Denver Post reported Tuesday.
One package of notes valued at $5 million sold for $122,778 — or 2 percent of its values, the newspaper reported.

About three-quarters of the notes sold were at least 60 days past due.
Cattle Consultants LLC purchased a $15 million loan package for $5 million. Records with the secretary of state’s office show the partnership is managed by Colorado Rockies team owner Dick Monfort.

A Greeley bank paid the most for loans, at $14.8 million for a portfolio, The Post reported. However, most of the buyers appear to be out-of-state banks or limited-liability partnerships. State Agriculture Commissioner John Stulp and other industry experts have worried that if out-of-state buyers without ties to the state farming community bought most of the loans, they could be tempted to turn a quick profit by foreclosing and cashing in any collateral.

No news of foreclosure notices has reached the state Agriculture Department or the Colorado Farm Bureau yet. “It remains to be seen how most people will come out of this — whether they will avoid devastation,” said Bob Winter, who is on the board of directors of the Colorado Farm Bureau.

The Federal Deposit Insurance Corp. liquidates closed banks’ assets to cushion the blow to its insurance fund, which protects most deposits. Greeley bankers said some borrowers avoided the auction block by reaching agreements with the FDIC to allow other banks to purchase their loans. The FDIC did not respond to
questions from The Denver Post.

 

South Florida Condos down 88% - is now the time to buy?

(LAS VEGAS, NV) -- In one of the largest and unorthodox condominium lawsuit settlements of its kind, Deutsche Bank AG has agreed to return about $140 million in down payment deposits to purchasers of homes at the 1,322-unit, $3.9 billion, under construction Cosmopolitan Resort & Casino West condo-hotel tower in Las Vegas. The tentative settlement still has to be approved by the Clark County District Court. The bank is settling for about 70 percent of the total $200 million cash deposits paid by buyers. 

The suit alleges the buyers were financially damaged when developer Ian Bruce Eichner never specified a completion date for Cosmopolitan West. The seven-million-square-foot, 600-foot-tall tower is now tentatively scheduled to open in late 2010, according to the Las Vegas Business Press.

Eichner defaulted on construction loans in January 2009. Deutsche Bank then bought the tower at 3700 Las Vegas Blvd. at a foreclosure sale for $1 billion. The site is between Caesars Resort and MGM's $11 billion CityCenter project.

Meanwhile, the planned 800-unit, 600-foot tall Cosmopolitan East Tower faces the same fate as Cosmopolitan West, according to Las Vegas brokerage sources following the development's construction pattern.  Buyers are depositing down payments averaging $140,000.  A total sellout of the project would generate about $112 million in deposits, local brokers estimate.

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(CHICAGO, IL) -- Chicago condos are moving quickly after developers slashed prices. For example, Mesirow Financial Real Estate Inc. has sold 100 units at its new 237-unit R+D 659 on the Near West Side. 

Smithfield Properties LLC sold 40 condos in July and August at SoNo, a 200-unit tower at 860 W. Blackhawk St., Michael Golden, co-founder of @properties and marketer for Smithfield, told ChicagoBusiness.com.  Golden lowered prices by 13 percent.

"It's all about price now," Golden says. "Buyers in this market are attracted to value," not to high-dollar incentives as in past markets.

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(LAS VEGAS, NV) -- The median price of a luxury condo in Las Vegas this summer was $386,500 - 25 percent less than a year ago, according to Vegas-based Restrepo Consulting Group.

Condos like Streamline, Juhl, Luxe Lofts and Turnberry Tower Two are all hurting.  At Turnberry Tower, for example, 256 of the building's 318 units are unsold. That's 80 percent of the asset.

"There is still a significant number of units on the market with very little sales taking place," says Brian Gordon of Las Vegas-based Applied Analysis.

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(MIAMI, FL) -- South Florida condo prices are down 88 percent from their 2006 peak and dropping steadily, according to Deerfield Beach, FL-based real estate consultant Jack McCabe.

Condos that sold for $1,000 per square foot in 2006 are down to a range of  $125 per square foot to $350 per square foot, McCabe tells Bloomberg. The price could drop to as low as $100 per square foot before the market bottom is reached, McCabe says.

The Florida Association of Realtors reports that in the past 12 months, condo prices in Miami fell 31 percent to a median $144,700. In the West Pal Beach-Boca Raton market, the drop was 15 percent to a median $112,200.  In Fort Lauderdale, the slide was 36 percent to $85,100.

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(BROOKLYN, NY) -- Brooklyn shelter categories are on a roll, according to the latest reports from Prudential Douglas Elliman, headed by CEO Dottie Herman, and the Real Estate Board of New York.

Third-quarter condo sales volume totaled $25.2 million; co-op sales $16.5 million; and one-family to three-family houses, $58.7 million.

Condo prices of existing units rose by 4.5 percent, or almost $20,000 per unit. New condo prices increased by about 2.25 percent, or about $10,000 per unit. More than 70 percent of all residential sales in North Brooklyn, or Williamsburg and Greenpoint, were condos.

In Park Slope, the perennial sales leader, the average condo price was $716,000, up 14 percent over third quarter 2008.

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(BRONX, NY) -- Fifty-four unsold units at the 64-unit, three-year-old, multi-million-dollar Solaria in the affluent Riverdale neighborhood of the Bronx, go on the auction block Nov. 22 at the Sheraton New York Hotel and Towers. 

Only 10 condos have been sold since the building was developed by Joseph Korff, president, Arc Development.  The developer says the project is not in financial straits but is only auctioning the unsold units because he is frustrated with the market.

"...Buyers seemed to like the project but were uncertain where the market was headed and how much the apartments were worth," Korff told The New York Times.

The minimum auction bid will be about 55 percent of the current asking prices.  The lowest-priced unit, a lower-floor, one-bedroom condo, will be offered at a minimum $299,000. The same unit was previously priced at about $660,000. Riverdale, a community of about 50,000 residents, is just north of Manhattan's west side on the Hudson River.

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(NEW YORK, NY) -- Daniel Radcliffe, the 20-year-old Wizard in Broadway's Harry Potter production, has purchased his third New York City property, a five-bedroom, 3,000-square-foot West Village townhouse.  The price:  $6.4 million.

Celebrity publications report Radcliffe now owns more than $16 million in Manhattan area condos and apartments, plus a luxury condo in his home United Kingdom neighborhood of Fulham in London.

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(BOSTON, MA) -- Los Angeles Dodgers left fielder Manny Ramirez, a former Boston Red Sox slugger, has dropped the asking price of his 37th floor Boston penthouse condo to $7.9 million from $8.5 million.

The four-bedroom condo at the Ritz-Carlton Residences has been on the market for six months and failed to attract a single buyer, according to Carmela Laurella of Aotis & Ahearn, who is marketing the unit.

The unit is located near the Boston Common and has a private master bedroom suite, six bathrooms, 10-foot ceilings and three valet parking spaces.  Boston city tax officials assess the unit at only  $4.4 million.

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(ORLANDO, FL) -- Short sales of condos, townhouses and single-family houses will overtake the current crush of foreclosures over the next five years, according to Gitta Urbainczyk.

In her online newsletter, the Lake Mary, FL-based agent says her team has closed 50 short sales over the past 15 months and is processing 15 others.

"The federal government is now exploring the short-sale process to be streamlined and used as a preferred method over the traditional foreclosure" route, she says. 


 

Detroit house auction flops for urban wasteland.

 

By Kevin Krolicki

DETROIT (Reuters) - In a crowded ballroom next to a bankrupt casino, what remains of the Detroit property market was being picked over by speculators and mostly discarded. After five hours of calling out a drumbeat of "no bid" for properties listed in an auction book as thick as a city phone directory, the energy of the county auctioneer began to flag.

"OK," he said. "We only have 300 more pages to go."

There was tired laughter from investors ready to roll the dice on a city that has become a symbol of the collapse of the U.S. auto industry, pressures on the industrial middle-class and intractable problems for the urban poor. On the auction block in Detroit: almost 9,000 homes and lots in various states of abandonment and decay from the tidy owner-occupied to the burned-out shell claimed by squatters.

Taken together, the properties seized by tax collectors for arrears and put up for sale last week represented an area the size of New York's Central Park. Total vacant land in Detroit now occupies an area almost the size of Boston, according to a Detroit Free Press estimate.

The tax foreclosure auction by Wayne County authorities also stood as one of the most ambitious one-stop attempts to sell off urban property since the real-estate market collapse. Despite a minimum bid of $500, less than a fifth of the Detroit land was sold after four days.

The county had no estimate of how much was raised by the auction, a second attempt to sell property that had failed to find buyers for the full amount of back taxes in September. The unsold parcels add to an expanding ghost town within the once-vibrant town known worldwide as the Motor City.

Critics say the poor showing at the auction underscores the limits of using a market-based system to clean up property tax problems. They say the system has enriched a few but failed to deliver a way for Detroit to staunch its dwindling population and could worsen the vacancy crisis. One proposed alternative would have officials take control of the tax foreclosure process through a land bank program of the kind being used to revitalize the nearby city of Flint.

The stakes in the debate are rising. The number of Detroit properties in tax foreclosure has more than tripled since 2007 and seems certain to rise further. The lots for sale last week represented arrears from only 2006, well before the worst of the downturn for U.S. automakers.

"We have to keep in mind that GM and Chrysler filed for bankruptcy this year," said Terrance Keith, chief deputy treasurer of Wayne County. "Some people are going to be totally tapped out next year." 

Detroit, already stuck with a $300 million budget deficit, is responsible in the meantime for cutting the weeds and responding to fire calls for thousands more abandoned lots.

'WHY AM I COMPETING AGAINST A BANK?'

Many potential homeowners that Detroit desperately needs said they felt penalized by the auction process. They mostly found themselves outbid by deeper-pocketed investors from California and New York who were in a race to claim the auction book's relatively few livable properties. Dozens of potential bidders, mostly local residents, were turned away on the first day of the auction by deputies after they failed to meet the morning deadline for registration.

Ross Wallace, a lieutenant in the U.S. Army, turned in his check for $500 and waited on the auction floor in full dress uniform for a chance to buy a Detroit house on the cheap. Wallace, 27, said he did not want to leave his fiancee and two children with a mortgage before shipping out to Iraq later this year. "I still have student loans and I'm trying to be responsible. I don't want to leave debt," he said.

Wallace waited for the auction to roll around to Detroit's Boston-Edison district, a once stately area that was home to boxing legend Joe Louis and Motown founder Berry Gordy. But he was quickly outbid. An unidentified investor at the front of the room who had scooped up several dozen properties took the home Wallace wanted for about $15,000.

"Why am I competing against a bank?" he said later. "It would be common sense to have a separate process for people who want to move back to the city or it's going to stay empty." Nearby, a Dutch-born local woman, Riet Schumack, 54, knitted patiently through the auction for a chance to bid on a lot in Brightmoor, one of the most blighted neighborhoods.

Schumack, who runs a community garden near her home that employs 14 neighborhood children, said she had been battling through a maze of bureaucracy for years to try to buy an abandoned lot nearby to expand and plant fruit trees. She learned the lot had been taken back from its previous owner -- an absentee investor with more than 100 abandoned lots in Brightmoor -- only because of her constant calls to city and county officials, she said.

When officials told her she would have to wait for a fourth day to bid on the property, Schumack broke down into tears. "Anybody with a job is not able to sit here for days. So you are left with the sharks," she said. Opinions were divided on whether the investors buying lots and homes by the dozen were a sign of better times ahead.

"They weren't here two years ago. So why are they here now? Unless, as speculators, they believe this is the bottom," said Keith of the Wayne County treasurer's office. Bill Frank, a Detroit realtor trying to buy a small house for a just-married friend, found himself repeatedly outbid. "Speculators are often not good for a city and, from my experience, they are going to lose a fortune," he said. "But there are no easy answers. It's a declining city."

 

Fewer McMansions on the Horizon

Builders Have Little Incentive to Create More McMansions and Hardly Anyone is Buying. There are Deals Out There, But You Better Act Fast.

By JUNE FLETCHER WSJ

If you're looking to buy a brand-new McMansion in the 'burbs, you'd better act fast. With home prices this low there's not much incentive for builders to start new houses. And inventories are getting razor-thin: Economists and analysts at the National Association of Home Builders fall construction conference in Washington, D.C. on Wednesday pointed out that the current 7.3-month supply of new homes is the lowest it's been since 1992.

Moreover, most of the summer's pickup in home sales and starts, which has since abated, could be attributed to the $8,000 first-time home buyer's tax credit. With that credit slated to end on Nov. 30—and with continuing problems securing money to build—builders have little incentive to ramp up their production of new homes.

Many places will take years to rebound. Rockville, Md. builder Robert Mitchell says these days he'll only build a home when he has contract in hand, because his lenders won't advance money for speculative building. "We sold off our standing inventory," he says.

AFP/Getty Images

Before the drought: Construction workers build a new home in August 2006 at a new sub-division in Sugar Grove, Ill., a suburb outside of Chicago.

Normally, short supply means higher prices. But consumers have been so battered by job losses and falling home equity, many are unwilling to commit to buying. Mark Zandi, chief economist of Moody's Economy.com, notes that "homes are as affordable as they've ever been," based on household income. However, he says that continuing layoffs and foreclosures will continue to depress prices, which have fallen 32% since their 2006 peak, according to S&P/Case-Shiller's composite 10-city index. He predicts that prices will fall another 5% to 10% before stabilizing in the middle of next year.

When the market does start to pick up, the NAHB sees that happening two years from now, the landscape will be changed, literally. After a long run-up in median new home size, peaking at 2,309 square feet in 2007,home sizes shrank to 2,091 square feet in 2009. "It's the largest decline ever seen," said NAHB's chief economist David Crowe. Since first-time buyers and their parents, the empty-nesters, will be the dominant demographic groups over the next decade, builders will cater to those groups more modest needs. Already, big builders like Toll Brothers have introduced models that look more like cozy carriage homes and four-squares than their usual English manor-style homes.

In the meantime, the next couple of years are going to be strange for those who want to buy new and have the means to do it. Sure, interest rates are likely to remain favorable (in the 5% to 6% range, according to Mortgage Bankers Association chief economist Jay Brinkmann). But you may have to settle for an already-built home in a builder's inventory if you want a bargain. Demand is so weak and prices so low, that for many builders, creating a new home to your specifications just isn't worth the effort. The NAHB's Mr. Crowe noted that 56% of builders the trade group surveyed recently reported that appraisals for their homes fell below the cost of building.