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With the new tax relief enacted in December, the sellers of over-encumbered homes don’t have much to lose, if anything – now sellers aren’t taxed on the amount of the bank’s loss like they used to be.

Mortgage Forgiveness Debt Relief Act of 2007 – Amends the Internal Revenue Code to exclude from gross income amounts attributable to a discharge, prior to January 1, 2010, of indebtedness incurred to acquire a principal residence. Limits to $2 million the excludable amount of such indebtedness.

Yet, in my estimation, about one out of three foreclosed homeowners never bother to try and sell their house, though they do enjoy the free rent for 6-12 months, in exchange for a foreclosure on their credit report. 

The alternative is to hire a realtor and short-sell the house.  The only things you have to worry about is getting the mortgage holder(s) to agree to the sale amount, and approving the sellers’ financial statement.  That’s right, if the borrowers are solvent and able to make the payments, the bank may deny the short sale.

Unfortunately there are mountains of listings all around the county who are in need of a short sale transaction – many of whom aren’t aware of it.  They have their home listed at a price that’ll get them to break-even (‘steak-dinner sale’) yet they aren’t selling.  Those sellers will be faced with some tough decisions in the next few months if they can’t find a buyer. 

For those who have admitted to themselves that they need to get on with their life, and are now willing to short sell, all you have to do is start lowering the price until you get an offer or two.  You aren’t going to get any (more) money out of this house either way, you might as well get ‘er done.

I’d recommend 5% drops every 2-3 weeks, because that way you can at least show the bank that you had tried to sell higher, but had no takers.

Others are catching on – here are some other strategies:

4798 Calle Los Santos

3 br/2 ba, 902 sf

$300-$339,000  Tues.

$220-$250,000 today

Officially this is a probate, not a short sale, but same effect – a radical price drop to ignite some action.  Good idea.

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917 Raintree, Vista

4 br/2 ba,  1,542 sf

$346,000  Tuesday

$220,000   today

Owner paid $12,500 in December, 1987, and now has a $310,000 loan with Downey Savings (that’s probably even higher if the neg-am was tacked on).

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638 Michael, O-side

4 br/2 ba,  1,600 sf

$391,900  Tuesday

$349,900  today

An 11% drop is a good idea too, but they may have to keep going.  There are four others for sale on the same street, starting with an 1,192 sf REO at $234,900.

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3968 Cadena, O-side

3 br/2 ba,  1,501 sf

$540,000  Tuesday

$350,000  today

Paid $490,000 in November, 2006, and loans equal $490,000.  This is the classic "steak dinner-to-short sale" price reduction.

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1731 Olivenhain

4 br/3 ba,  3,090 sf

$849,000  Tuesday

$749,000 today

Nice 12% price drop in the heart of Encinitas, but they hedged later, putting it on the range $749,000 to $799,000.  So much for momentum.

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1017 Manteca, O-side

3 br/2 ba,  1,844 sf

$299,000 last week 

$395-$450,000 today

now shows pending

This is the one they were auctioning off over the weekend, with an opening bid of $299,000.  This sold for $530,000 in August, 2005, and financed 100% by the owner/agent.  Not sure what it sold for, but probably smart to cover their tracks by raising the price – when the bank send out their appraiser, it’ll look like it was on the market for 39 days on this range, so they can say they tried.

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Whether you lower early and often, or opt for reducing in big chunks, or attempt to auction it off by starting low and going up – do what you have to do, to generate offers.

CA renter has made an important point here a number of times – the power of substitution.  When better values nearby get so appealing that buyers are willing to compromise on location, it can drag down demand, and values, in nearby higher-priced areas.

Consider the following Oceanside active (unsold) listings:

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342 La Soledad

5 br/3 ba, 3,103 sf

$637,500 loan 10/06

$449,000 today’s LP

REO

Looking at this, I guess the lenders quit caring about the comps – the last model-match sale was in November for $580,000.  The HOA fee is $110 per month, and no Mello-Roos in this newer (built in 2002) home in a decent part of town.  You don’t get much yard, and only a two-car garage, but what do you want for $145/sf?

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1049 Boulder

5 br/3 ba, 3,533 sf

$663,500 7/06 last SP

$489,900 today’s LP

REO

We’ve seen this one before, the original buyer put 20% down and then refinanced all of it out with Citibank within the first 45 days of ownership – but before the new second loan was even closed she already had it back on the market for $749,995 – the classic flop.

But at least she did a better job with the pictures – the REO agent makes it clear what one of the problems is, look at the funky behind-the-back 2-car garage.  The 1.75% tax rate probably doesn’t help either.  Today’s list price?  $139 per sf.

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1166 Midnight Way

4 br/3 ba, 3,000 sf

$705,000 4/06 SP

$500-$550,000 LP

144 days on market

You’d think that if you were the agent who has taken responsibility for helping the seller out of a jamb, that you could find a way to get a few pictures into the MLS by now.  Not only has the agent forgot all about inputting some pics, I wonder if he’s even talked to the seller in a while – because the owner got foreclosed on three weeks ago, yet this still shows as an active listing.  BTW, the tax rolls show 2,749 sf – the REO agent will probably list it under $450,000 shortly.

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4959 Marin

5 br/3.5 ba,  3,253 sf

$860,000  10/06  SP

$549,900  today’s LP

REO

$169 /sf

Comps don’t matter much here either – model-match sales for $650,000 in August and $610,000 on December 27th haven’t been enough to get this sold.  The HOA fee is $110 per month and no Mello-Roos on this 1990-built home, and it’s in a nice area near Shadowridge.

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1062 Straightaway

5 br/4.5 ba,  4,461 sf

$1,002,500  3/06 SP

$599-$669,888  LP

loan is $750K

This is one of those big bombers in Arrowood near the golf course.  It has views, big lot, culdesac location – what else do you need?  Just overlook the $105/month HOA fee and the $4,800 per year Mello-Roos, and it’s not a bad deal.  The seller has gone through four agents while trying to sell since December, 2006, when he started at $1,040,000 – now hopefully the price is right, or close, at $142/sf.

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If you have been looking at homes under $550,000 around Carlsbad or further south, you have been looking at a lot of junkers.  Listings like these look great, comparatively, and if schools are a concern, you can always put the kids in private school.   Do these tempt you to buy in Oceanside?

Mortgage rates have been taking a beating the last couple of days – today’s 30-year fixed conforming rate is around 6.25% with no points.

It was only a couple of weeks ago that you could have gotten under 5.5% without much cost, today a rate of 5.625% will cost you 2.5 points for a conforming 30-year fixed.

They say that the investors don’t want to buy mortgages, can you imagine that?

I still get inquiries about this high-profile location on the corner of Highland and Elm Ave Carlsbad Village Drive - I had represented the sellers in 2003 when their beloved father passed away.  It was an old 912 sf  house, built in 1930, on 1.55 acres that ran along Carlsbad Village Drive, and was known for the sunflowers he grew in the backyard.

view photo from top of hill

It was ripe for development, but tricky because of the dimensions – 114 ft. wide x 600 ft. deep.  The city didn’t want to see another street/signal coming off CVD, so the only access was from the skinnier side off Highland.  But Mayor (King) Bud Lewis was on record that he would never allow another flag lot development like what was needed here.

We found a developer who was willing to take a chance (this was back in late-2002), and while we were in escrow, he made a deal with the neighboring lot owner, and ended up paying $1.45 million for the package.  We closed five years ago, in February, 2003.

How have they done?

The tax rolls show that it was sold in May, 2005 for $2,650,000, and included a loan for $1,457,000.  In the MLS it was mentioned that it was ready for seven lots – just start building!

The buyer/builder proceeded to build the seven houses, ranging from 3,342 sf to 3,494 sf on decent-sized lots - but they all back to Carlsbad Village Drive, the main artery through the area, with an I-5 freeway exit about a 1/4 mile away.  I think the traffic count was around 60,000 cars per day.

They listed all seven at the same time in June, 2006, and used two different price ranges – either $1,200,000 to $1,399,000, or $1,300,000 to $1,499,000. 

Like many sellers who aren’t going to be denied, they RAISED the prices in February, 2007 – putting all seven on the range $1,350,000 to $1,550,000.

They followed the market down, reducing the prices a little during the year, and in November, 2007 lowered all of them to $1,199,000.

If we do the math, and figure that they were able to build for an average of $125 per square foot, the cost of construction was probably around $3,000,000, so they have roughly $5.5 million invested, and possibly more.  If they could sell them all for $1 million, there is still profit to be made – hopefully.

But you know the mantra, ‘we’re not going to give them away’ – they gave up trying to sell at the end of December - with their ‘days on market’ ticker reading 554.  

They are now trying to rent them out instead, for $3,695 per month.  But still no landscaping or fences, and last we knew there was no flooring either, which exposes numerous settling cracks that you and I know are normal, but a hurdle to the buyers looking to drop a million-plus.

After more than a year-and-a-half of comstruction and waiting, there are still no occupants.  You can’t say they are maxed out on financing either, there is only an additional $221,000 loan recorded since the original $1.457 million loan from 5/05.  These are sellers that could lower their price, but refuse.

Backing up to a busy street was enough of a hurdle for buyers and agents, if they had at least finished off the interiors/landscaping/fencing, they might have sold a home or two.  Hopefully the tenants won’t put much of a hurt on the houses, while the sellers "wait for a better market".

Below is a compilation of the notices of default, which last for 90 days, and the notices of trustee sale. The actual trustee sale can take place 21 days after the notice is filed, but as you’ll see, the trustees are taking their sweet time in foreclosing – 240 of 609, or 40%, had their sale date before December 2, 2007, yet the trustee hasn’t foreclosed yet:

Notices of Default/Trustee Sales

The data available from the MLS tax rolls includes liens, release of liens, lis pendens, etc., which in 92007,92008,92024, and 92130, showed to be about 30% of the total. So the NOD numbers are an approximation, and are 70% of the total, minus the NOTSs, which are an accurate count.

How is the million-dollar-and-up market doing in SD County?

Currently there is about a 10-month supply of houses for sale over $1,000,000, based on 2007′s average of 184 closings per month. The last column is counting today’s active listings, and the numbers are based on their asking prices. See any problem?

SD County Home Sales over $1,000,000

We’ve touched on the effects of baby boomers on the future 0f real estate, and this article by Lew Sichelman sums it up nicely:

WASHINGTON – The common perception among economists is that the current housing bubble will be a relatively short-term affair that should see a return to normalcy within the next few years.

But according to a new study by two University of Southern California researchers, a bubble of even more monumental proportions lies just ahead.

They call it the “generational housing bubble,” and maintain that it will be fueled by the same baby boomers who have been bidding up prices since 1970 as they moved higher and higher on the housing ladder.

Now, though, the 78 million boomers are about to enter their twilight years when people tend to become sellers rather than buyers. And as a result, they expect “many more homes (will be) available for sale than there are buyers for them.”

The tilt toward age groups that are net sellers of housing is “unprecedented,” according to the researchers. “The baby-boom generation was born over a period of 18 years, and once its sell-off commences, it could dominate the housing market for up to two decades.”

Click here for the full article:

http://www.signonsandiego.com/uniontrib/20080217/news_1h17sichelm.html

Here is the list of the actives/pendings ratios as of today – we’ll use these in the coming months to see how the individual markets are progressing:

A cornucopia of foreclosure properties for sale, or will be soon!

3371 Calle Tres Vistas 

Olivenhain

6 br/6.5 ba,  6,412 sf

$2,200,000  5/01

$1,857,854    2/08

Was purchased at trustee sale auction for the opening bid – it’ll be interesting to see if it was a flipper or ??  The attorney thought there would be a bidding war on the courthouse steps and this would get bid up into the mid-$2 millions.  He said he send his guy down to buy it – we’ll see.

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5850 Aster Meadows, CV

4 br/3.5 ba  3,384 sf

$1,300,000  4/06

$979,000    List price?

There is an active listing two doors down of the same plan that is listed on the range $999,000 to $1,039,000 and is unsold.  Current owner had financed 100% of the $1.3 million purchase price.  This one will provide some squish-down for the surrounding Pacific Highlands Ranch.

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7598 Circulo Sequoia

4 br/3.5 ba,  3,743 sf

$999,000  12/05

$959,000   List Price?

This is the guy who is also getting foreclosed on in Bressi Ranch.  A few doors down a 4,000 sf Plan Two just listed for $1,249,000 – will the bank lowball this one after the sale date at the end of the month?  Could you get this on the steps in about 10 days for $815,000?  We’ll see, their minimum bid is only $813,880.

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7951 Sitio Solana, CBD

4 br/4.5 ba  3,654 sf

.63-acre lot

$746,000  1/99

$999,000  List Price? 

If you could get this house on a .60-acre lot on a culdesac in the Ranch in Carlsbad for less than a million you did great.  Trustee sale date is in March, and the miminum bid is $921,877 – in one of the best areas in Carlsbad!  Master suite plus two bedrooms downstairs.  Model-match sale for $1,455,000 in August, 2005.

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7080 Cordgrass  CBD

4 br/4.5 ba,   2,964 sf

$979,000  5/06

$1,300,000  12/06

$985,000  Act. listing

The 50% run-up in sales price in seven months didn’t catch the underwriter’s eye in 2006, even though the $1.3 was financed 100%.  This one looks suspicious, they barely lasted a year?  Currently listed for $985,000 by bank’s agent.

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2486 San Clemente, Vista

5 br/3.5 ba 3,988 sf

1/2-acre lot

$620,000  6/03

$729,000 List Price?

The bank just got this one, after no one bid $687,695 – it should be on market before long.  The last time I saw it about a year ago it was vacant and lightly used.  It’s in the rural Vista area, where there’s quiet, peaceful country living!  Two more foreclosures coming on the street.

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4330 El Capitan, CBD

3 br/3 ba, 1,855 sf

$670,000  9/04

$525,000  1/08

No HOA or MR

Built in 1988

Shocking that this foreclosure in the heart of Carlsbad hasn’t sold yet.  It has a big flat grass backyard, and doesn’t back to power lines like the one I closed this week for $515,000 a couple of blocks down.

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523 Stanley, O-side

3 br/2 ba, 1,048 sf

7,400 sf lot

$700,000  9/06

$487,500  Act. listing

Seller is hoping for a short sale on this beach cottage about five blocks from the sand in Oceanside.  That’s a 30% drop in 18 months and it hasn’t been enough yet, and this is a decent beach area!

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1017 Manteca, O-side

3 br/2 ba  1,844 sf

$530,000  9/05

$299,000  min bid

$103/mo HOA

$1,678/yr Mello-Roos

They are doing the auction on Sunday night, after open house both days this weekend.  We have seen a number of these fail, mostly due to the lack of interest from the buyers to endure a short sale – the loans were run up to $575,000.  But for a one-story built in 2003, they might get lucky – though it is in Arrowood, which is a ways out.

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Let me know if you’d be interested in pursuing one of these!