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Remember the other day when we were speculating about the lis pendens problem in Magnolia Estates?  Rob Dawg said, "this isn’t a nothing burger".  Sure enough, and thanks to a couple of readers, Bunka and shoppingaround, for following up on the story – they noted that there are 53 lawsuits filed against Barratt in the San Diego court system.

Then this today from Zach Fox at the North County Times:

One of North County’s largest home builders is struggling to raise enough money in bank loans to pay its bills, forcing it to search for new investors, the company president said Tuesday.

The housing recession appears to have damaged the financial standing of Barratt American, a private builder based in Carlsbad. More than 40 civil lawsuits, many from subcontractors suing over failure to pay, have been filed against the company in the last six months.

Barratt American cannot afford to pay off the subcontractors, which include drywall and concrete companies, because of a credit crunch that has left banks unwilling to make loans —- especially to companies with significant exposure to the housing downturn, said Michael Pattinson, president and one of the company’s owners.

Barratt American is forced to turn to London in hopes of securing foreign investment so it can pay off the outstanding bills, Pattinson said. The builder was originally a British company, starting an American division in California 28 years ago. Barratt American is now an independent entity.

"The story here is that the U.S.-regulated banks are basically getting out of home building as quickly as they can, and to the maximum extent that they can," Pattinson said. "And so we’re getting proposals for capital not only for U.S., non-bank sources, but from overseas as well."

The company expects to secure enough cash to be able to pay off its outstanding bills within the next 30 days, said Pattinson in a phone interview Tuesday. He was in Atlanta Tuesday speaking as a panelist to members of the Federal Reserve, the nation’s central bank, about the effects of the credit crunch.

Civil suits regarding contract and payment disputes are fairly common in the home building industry. However, about as many lawsuits have been filed against Barratt American in the last seven months as were filed in the seven years previous.

Housing weakness has hurt home builders across the board.

Goldman Sachs, a global investment firm, expects most of the nation’s largest builders, including KB Homes and Lennar, to post losses this year and has applied a "sell" recommendation on Lennar’s stock, according to a report released by Goldman Sachs Monday.

"This is, by far, the toughest time for home builders since World War II," said James Hamilton, an economics professor with UC San Diego. "It’s really a phenomenal collapse in the market these past two years. So it’s serious times for anyone trying to make a living by selling homes."

Some building analysts acknowledge rough waters for home builders. But one does not expect Barratt American is in danger of bankruptcy.

"There are some builders that are in trouble. Cash is king right now and those companies that have a lot of cash are sitting in a better position. Companies that are a little bit more leveraged are having a little rougher time," said Russ Valone, president of MarketPointe Realty Advisors, a San Diego research firm that tracks new home sales. "I don’t expect to see Barratt American go away."

Valone has not seen Barratt American’s financials. Because Barratt American is a private company, it does not publicly release revenue or liability numbers.

The Carlsbad builder typically builds and sells about 500 homes a year but sold only about 125 homes in 2007, Pattinson said.

http://nctimes.com/articles/2008/04/30/business/nctc249e8505b4110c58825743a0061b.txt

Recently I had a very unusual experience – I got to see a potential real estate transaction blow up from an outsider’s perspective.  I happened to know both the sellers and the buyers involved, but didn’t represent either of them.  The sellers had already been listed with a local agent when I ran into them, and the husband who wanted to purchase their home was an agent himself.

The buyers had done their inspection, and requested about a dozen things to be fixed in a house that was only five years old.  The sellers begrudgingly agreed, but gave the buyers a short time frame - only three more days - to release all contingencies.  For the buyers that was too short – they hadn’t done their appraisal yet, so they cancelled the sale.

The listing agent didn’t question how smart the short time frame was, and instead went on to berate the buyers, called them manipulative, and accused them of never being serious in the first place.  The sellers shrugged their shoulders and figured there will be another deal in the future.

After asking a few questions, I think I got down to the problem – the sellers and agent had a six-month listing.  Both parties must have figured that this will be a long haul, and more opportunity will be had – and causually chucked away this deal.

You don’t know if there will ever be another buyer, so sellers – and agents especially – need to create a win-win with the buyers that do step up.  What can be done to ensure the sellers and listing agents recognize this?

Sign a one-month listing.

If both the sellers and agents operated like they had to find a buyer in 30 days, they wouldn’t be so casual about price, about inquiries, and about offers & repairs.

Extend the listing beyond the one month if you have to, but only under these terms:

A price reduction of 5% if there had been offers, or a price reduction of 10% if there were no offers tendered during the first 30 days.

Because of the internet, the listings are distributed to all waiting buyers within seconds, and literally by the next day everyone knows your house is for sale.  After a home is one the market for two weeks, the traffic dies down considerably – don’t think it is going to get better after 2-4 more months, it isn’t.

I spoke with a local mortgage broker yesterday - here are a couple of his comments:

1.  If you need jumbo money, you need to qualify. There are no more EZ-qual jumbo loans, and with many high-end buyers being self-employed, qualifying for a loan could prove to be quite difficult. 

He thought that you might be able to get an EZ-qual jumbo neg-am loan through a retail bank like WaMu, Wachovia, or Downey. 

2.  A year ago his company brokered loans to 71 different mortgage lenders, now only 16 of them are left.

3.  The ‘conforming jumbo’ loans are a joke – they are the same as jumbos, just a tick or two less on rate.  More government nonsense that won’t change anything.

4.   All mortgage lenders left are gearing their operations towards loans they can sell to government entities; Fannie/Freddie, FHA, and VA.

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Where does that leave the million-dollar market?

Currently there are 19,251 active listings of detached and attached homes in San Diego County, and 2,522 of them are listed at $1,000,000 or higher.  Their list prices average $619 per square foot.

Comparing the same time frame, Jan. 1st to April 28th:

Total New Listings:

2007 – 2,898

2008 – 2,583

# 0f $1M+ sales closed:

2007 – 847

2008 – 471    (44% decrease)

Average $/sf

2007 – $485/sf

2008 – $520/sf

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Will there be any relief in sight from the B of A/Countrywide merger?  The word on the street is that if/when it closes, the end result will be that only the high-producing loan originators will have a job.  Bank of America will keep the loan servicing portfolio, and streamline the rest of the operation.  Most think the deal has to close, because if it didn’t, it could send the mortgage industry into total collapse.

Here is the summary of the merger from Inman News:

In another move intended to smooth the way for its planned acquisition of Countrywide Financial Corp., Bank of America has announced that the combined company would work to modify $40 billion in troubled mortgages in the next two years — about 265,000 loans.

Bank of America also announced Monday that it’s committed to make $1.5 trillion in community development loans and investments over the next 10 years, double the existing goal of $750 billion.

Bank of America plans to complete its acquisition of Countrywide in the third quarter. Although the Charlotte, N.C.-based bank plans to phase out the Countrywide brand name, it said the companies’ combined national consumer mortgage headquarters will be located in Calabasas, Calif., where Countrywide is based.

Bank of America’s announcement coincided with hearings on the merger convened by the Federal Reserve in Los Angeles, and followed last week’s release of new lending guidelines. The new guidelines would shut down the remnants of Countrywide’s option adjustable-rate mortgage (ARM) loan program and "significantly curtail" other nontraditional mortgages such as low-documentation loans.

Countrywide stopped making most subprime loans last year, after shifting origination to mortgages eligible for purchase or guarantee by government-sponsored entities Fannie Mae and Freddie Mac.

We’ve been waiting for the foreclosure in Davidson’s La Costa Oaks to make it to market, and it’s going to happen this week.  As predicted, the list price will be around $900,000 (they’re still working on the price).

Is there a potential for flipping this?

We just saw the guy in Encinitas Ranch purchase a 3,416 sf foreclosure for $925,000 and turned it around in 30 days and sold it for close to his full price of $1,147,760 (with a back-up offer standing by).

Could we do the same?

After all, there hasn’t been a Davidson resale close under $1,000,000, and the lowest was this same floor plan that listed for $989,000 in July - and it sold the first week, closing over list at $1,007,000.

The last sale in Davidson was a 4,000 sf Plan Two that I just sold a few doors down for $1,150,000 that had all the bells and whistles.  The buyers and I knew about this foreclosure, and felt their house was well worth the extra expense.  But we might be the only ones, because we investigated thoroughly.  A casual buyer just looking at basic stats might think the foreclosure with improvements could be worth $1,050,000 or more.

Forget the fact that the opening bid at the trustee sale was $839,393, and nobody picked it up.  If this could be bought around $900,000, could you make money on a flip?

$1,080,000  Flip sales price

$  900,000   Buy price

$ 180,000  Potential gross profit

You make all your money on the buy side -  YOU HAVE TO BUY THEM RIGHT!

To buy this for $900,000 would mean that you edged in front of other buyers and nabbed it before a bidding war broke out.  Tough to do on an REO property, because the banks take their time responding.  But if you want to take a shot at it, I have the idea that might work.  But first, let’s see if it’s worth it.

The house, built in 2005,  has never been landscaped.  Can you spend $20,000 or so and make it look like $100,000 invested?  You can tell in the picture above that you might be able to get away with sprinklers and sod for the front yard, how about the back?  From the street you can see the houses above, but once in the backyard they are mostly out of the line of sight.  But with 3-4 large palms on the slope, a good-sized grass area, and a decent concrete patio you might be OK.  Admittedly, you have to either know a landscaper who owed you a big favor, or a good realtor with connections!

Front Yard = $5,000

Back Yard = $20,000

Speaking of realtors, how much are closing costs?

Purchase side = $6,000

Sell side = $50,000

Closing costs = $56,000

That’s a hurdle – heck I’m practically a partner with you!

But if we assume that I can sharpen my pencil on the fees, will this work as a flipper?  These homes came with granite slab counters and other upgrades, will that be enough? 

Specifically, you have to nail the flooring – 18-inch diagonal travertine in entry and kitchen is preferred, plus upper-grade carpet.

Did we get lucky that the owner already did those upgrades?  Nope, this is the same guy who tried to spec the house on Keeneland, and lost both to foreclosure.  He cheaped out here, and only did 12-inch standard ceramic tile flooring (strike one), but he did include plantation shutters, but they are a red-ish color (strike two). 

Being able to identify the deal-killers is the critical difference between flipping and flopping these days.  If someone tries to flip this without changing the flooring, they’ll need a lot of luck.  I’d figure $8 to $10 per square foot for travertine installation, and if you do most of the downstairs, that’ll be around $15,000 to $25,000.  To have new carpet help the sale, you need to spend at least $30/yard, and let’s play it safe and say $38/yard.

Travertine = $20,000

Carpet = $10,000

You can figure that there will be other stuff too, plus the cost of sitting.

Miscellaneous = $5,000

Carrying costs = $5,000

Final tally

$1,080,000 Flip sales price

$  121,000   Costs

$  900,000  Buy price

$   59,000  Net profit (before taxes)

How could you do better?  Sell it yourself would be an option, but in this market buyers want to deduct the commission off what they offer.  It might be better to work with an agent who can cut you a deal, and one who works to find the buyers themselves.  The buyer’s agent commission here is figured at 2.5% ($27,000).

Also consider that virtually all buyers have access to what price you paid for the house.  If they think that you are making a killing (you’re not, but it looks it), they either will shy away or lowball you.  The guy on Heritage got very lucky to dodge this bullet.

It is much more likely that there will be multiple offers in the first week, and this will probably go to a owner-occupant in the low $900,000s. 

But keep an eye out for ones that already have the upgrades installed.  I’ve noticed that some of the REOs were fixed up pretty nice – some of the owners who refinanced out hundreds of thousands of dollars did put some of it back into the house.

I don’t think it’s worth the risk to make $59,000 – my rule of thumb is that there has to be an easy 10% profit, due to all the things that could go wrong.

This chart gives you a decent feel for how each area is doing, year-over-year. The first two categories compares the number of closed sales for the first three weeks of April, 2007 and 2008. The next set compares the median sales price divided by the average square footage (MSP/ASF).

First Three Weeks of April, 2007 vs. 2008

The totals were based on average $/sf, not median $/sf, and look a little high as a result (the MLS limits searches to 250 items). It looks like the days of $300/sf are gone in Carlsbad, 4S/Santaluz, Rancho Bernardo, and Scripps Ranch, plus Carmel Valley and Encinitas are heading that way.

Poway is quite a town – eight sales under $400,000, and five above $1,000,000.

Oceanside shows some pretty strong sales numbers, after another 20% decline in price, but the load of foreclosures should keep pressure on pricing. We should see 92056 slip under $200/sf before long, and I would guess that we’ll see 92057 in the mid-$100/sf range by summer. There are currently 107 houses listed under $300,000 in 92057.

While it seems like there has been an upsurge in activity lately, is it extraordinary, or ordinary? How does the active/pending ratio compare to last year?

Here is a look at the actual counts, and the actives-divided-by-pendings number from May 22, 2007 compared to April 27, 2008:

The 506 pendings from 2007 were the actual pendings, not sure how many closed – but it’s likely that the 2008 fall-out ratio will be higher than last year. Buyers are more confident than ever, and if the house doesn’t check out perfectly, or if the sellers don’t compensate for repairs, it’s not going to close – unless the price is very attractive. That said, it looks like a slight improvement over last year – we’ll see how it looks around the third week of May.

The hype machines will be running rampant over the next few months, examine the details very carefully!

Not sure if the word just travels slow, or if these are daredevil surfers, but this is a photo of Tamarack Beach, about 12 miles north of where a triathlete was killed by a great white shark yesterday.   The area has been buzzing with the story, so the last thing you’d expect is people in the water!

We’re in the ‘pre-listing’ stage of nine Countrywide REOs, which includes evicting occupants, removing trash, making repairs, and getting a price. 

For those wondering if listing REOs will become a full-time obsession, rest easy.  I have hired three agents and two staff people in the last 30 days, growing Klinge Realty to ten agents and three staff people.  We have excess capacity, and I think we could handle a hundred of these REOs – bring ‘em on!

Having adequate staffing enables me to continue my Carlsbad-to-Carmel Valley commitment, and keep the blog running!

But folks here are probably interested in the workings behind the scene on these Countrywide REOs, so here’s a peek. 

1.  The properties sent are so fresh off their trustee sale that eight out of nine don’t reflect the bank’s ownership on the tax rolls yet.

2.  The properties are assigned to different asset managers, but they all seem to be on it.  I’ve had over 50 messages through the system already, and by 1pm yesterday, five of the seven occupied properties already had their eviction notices processed with the attorney.

3.  The processing is automated on the website www.REOTrans.com which also gives the public a glimpse of the properties once they are officially on the market.

I don’t like advertising properties that don’t have a price on them – who cares about a property unless you know what they want for it? 

But to give you a taste of what’s coming, here’s the one that will probably be the first to hit the open market:

392 Compass, Oceanside

4 br/2.5 ba, 2,209 sf

$469,000  SP 3/04

$431,000 loan amount foreclosed

YB: 1979

HOA & MR = $0

Compass Road is up on the hill in Sea Mesa, a typical tract built in the late-1970s in Oceanside.  It’s a decent neighborhood too – I sold one of the 2,021sf models down the street to a postman in 1997, and they still live there (cops and postmen know where the better neighborhoods are).  This one has a 10,000 sf lot, but the flat part isn’t that big, and well, um, I guess you can say the house needs some work.  It still has the original wood shake roof, and the interior needs a good carpet-and-paint job, at a minimum. 

I don’t anticipate any repairs being done by the bank, so figure this one "as-is".  The opening bid at the trustee sale didn’t show up on the tax rolls, so I’m not sure what that was.

What will the list price be?  I don’t have their opinion on price yet, and I’m not sure how much influence I will have.

They know about the blog, maybe they’ll listen to you?  A set of Padre tickets to the person who guesses the closest to the eventual list price!  The last two sales in Sea Mesa were both the 2,021 sf plan; $450,000 in December, and $399,000 in March.

Below is the article on deficiency judgments that is published on the C.A.R. website.  For those looking for a good reference point, check it out!

From KPBS:

The FBI reports mortgage fraud cases are skyrocketing nationally. Yesterday, a key figure in a San Diego scheme admitted to forging documents to secure loans for mostly Latino borrowers who couldn’t afford them. A judge then sentenced Alejandro Lopez to three months in prison and four months in a residential re-entry center.

KPBS Reporter Amita Sharma has more on how the mortgage fraud worked in this case.

This is a story about the kind of crime that’s helped wreck the American dream and damage the economy. It starts out with two brothers Alejandro and Emilio Lopez. Together, they partly owned and ran The Century 21 El Dorado office in San Marcos. They along with others made up what the government calls the Lopez Team. And like all teams this one wanted to win — commissions that is. And the team thought Hispanic immigrants with visions of owning homes could help so the Lopez group targeted them.

Saide: They would advertise on Spanish language radio stations and they would advertise in Spanish language newspapers and publications including El Latino El Comprador, Mexicano and Esponos Unidos.

That’s federal prosecutor Yesmin Saide. She says the Lopez Team found scores of Latinos who just wanted to buy homes. The team knew the people they had targeted didn’t qualify for mortgage loans. But the Lopezes refused to let a detail like income stand in the way of qualifying their newfound clients anyway. The Lopezes didn’t just cut corners by bending rules. Saide says they broke them.

Saide: What they would do is they would inflate the borrowers incomes.

In fact, the incomes were exaggerated by as much as five times the actual amount. Federal prosecutor Valerie Chu says the Lopezes also inflated bank balances to match falsified incomes.

Chu: What they would do in some of those cases is go with a client to open a bank account and then funnel some money in there triggering the bank to issue a verification of deposit indicating that such amount of money was in the bank on that particular day and then after that the money would transfer back out to the defendants.

The team falsified employment information on loan papers — some of the borrowers were told to sign statements they were business owners or they were housekeepers for the wives of the Lopez brothers. Chu says to back that up, the Lopezes went further.

Chu: They would often times indicate their own names or the names of relatives or family members to serve as employers so that when the lender called there would be someone there to answer the questions and say why yes this client does work here and they make such and such amount of income.

Chu says they even got fake letters to bolster the deception.

Chu: The Lopez team actually purchased these letters, these fraudulent letters from these third party tax preparers and they would put them in the loan applications for the client to justify these higher income amounts and the employment that would fit the income amount."

The government won’t comment on how fluent the clients were in English. Prosecutor Saide did say borrowers were simply told to sign loan documents. They were not told about what kind of information the papers contained.  

Saide: Almost the entire loan file was fraudulent …if not the entire loan file.

The scheme affected over 200 borrowers over two years starting in 2003. They each received mortgages totaling an average of 400 thousand dollars.

Meanwhile, the FBI has seen a huge rise in mortgage fraud investigations, according to special agent Darrell Foxworth. The bureau is investigating about 1,300 mortgage fraud cases nationally, up sharply from last year.

Foxworth: The FBI views mortgage fraud as a significant crime problem. We recognize the impact this has on the nation’s economy. You see effects on interest rates. You see the impact it has on the banking community on loans that are defaulted.

Prosecutors won’t say whether any of the Century 21 borrowers lost their homes. The Lopez brothers, a loan officer and an office manager have cut a plea deal with the government. They admitted they made more than one million dollars in commissions off the fraudulent loans. They said they did it to help the Latino community. Prosecutors said they did it to make money.