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Thinking about buying a property at, or before, the trustee sale?  At first glance, there looks like some properties that are being given away - is that happening?

For those who have followed the foreclosure market on a website like Realty Trac, you'll see some properties getting foreclosed that have ridiculously-small loan amounts - can you really buy a house in Olivenhain for 20 cents on the dollar?

Let's look at 2605 Lone Jack - the trustee sale scheduled for yesterday (but postponed to next month) was over a $170,000 balance.  Aren't those million-dollar homes on Lone Jack?  Indeed, this 3 br/3 ba, 3,655 sf house on a half-acre is currently listed for sale at $1,399,000.

However, further investigation shows that the $170,000 is the second mortgage - but most foreclosure sites don't tell you that there is also an underlying first mortgage.  In this case, the first is $335,000, and that's the starting balance from 1994 - hopefully it's less now.

Do we have a possible giveaway candidate here?  Say that the first has been paid down to $250,000, and add that to the second loan the combined balance is only $420,000 - not bad if it's a million-dollar house. 

If the $1,399,000 list price is overly optimistic (market time is 47 days) and it's only worth $900,000 - there is still a nice profit available if you buy it at the trustee sale for the $170,000, and take over the first loan of roughly $250,000.

But wait - you have to keep looking for more.  We also found the dreaded federal tax liens, which like the first mortgage, don't get washed out in the trustee sale - the new buyer has to pay them off too.  In this case, liens of $51,579, $33,759, $126,173, and $29,143 - that's over $240,000 and those are just the ones that were easy to find.

You might still be interested though, the total is $420,000 + $240,000 = $660,000.

The property's ownership was transferred into a professional trust - there might be additional liens in the individuals' names, and more searching required.  You really need a preliminary title report to know exactly what liens are on record.

One of the burdens of buying at a trustee sale, however, is no title insurance - but with the right investigation you can get reasonably good assurance about what liens will travel with the property.  Make sure to double-check on the morning of the sale too!

Once you have checked that the equity position is sufficient enough, then it's time for the field investigation.  Ideally it would be nice to find a vacant property, at least you don't have to worry about evicting some upset folks.  But if there are occupants, you can try to gain access to inspect the interior - it'll take some sweet-talking, and possibly some money, but it's worth a shot.  You may want to review some old 'Rockford Files' episodes before you go.

if you find a property that you feel comfortable with, call your insurance agent to make sure you can obtain coverage immediately upon a successful trustee sale.

Check the comparable listings around the property, and search for other notices of default too - try to predict where the next few sales in the neighborhood could take the future value.  Look back in time as to what year's price you are comfortable paying - are you getting in at 2003 pricing? 2002?  At this stage of the game you should be buying a trustee-sale property at 2002 prices or older, depending on area. 

Some of the guys who buy properties at the courthouse steps for a living are happy to buy at $50,000 off, but I think you should expect to pay at least $100,000 below today's prices to ensure an adequate buffer for any problems that could arise - especially other low sales that may be a result of a future buyer using your sale for a comp.

Some readers have asked to examine the latest insanity from Michael Aguirre, the City Attorney for San Diego.

Like Carl Luna said, "Mad Mike is a cross between Rasputin and a paranoid Dick Nixon off his meds", and his latest stunt is nothing more than a desperate politician pandering for votes - he faces a runoff election this fall.

Suing banks to stop foreclosures?

Jerry Brown beat him to the punch, filing a similar suit on behalf of the State of California, and the federal government passed their own version of insanity yesterday - but Mad Mike thinks his suing of the banks will force them to re-negotiate their mortgages? 

Will the banks cave?

Lenders have terminated their wholesale operations, got out of the jumbo-loan business, stopped other loan programs, and cut staffs all in an effort to be more efficient. 

Won't they take one look at Mad Mike and cross San Diego off their list too?  That won't help the local real estate market, Mike. 

Don't be surprised if we see a severe tightening of underwriting standards by lenders - they don't have to visibly delete San Diego from their map, just make it unbearble to get a loan.

Aguirre doesn't think about the ramifications of his lawsuits - he just thinks about himself.

Beginning on August 1st, a new underwriting rule goes into effect to halt the "buy-and-bail". 

Fannie and Freddie underwriting guidelines will require that borrowers applying for a mortgage to purchase a property, and who already own another, must verify that they have at least 30% equity in the old property - or they can't get a loan.

Countrywide has already instituted the new guideline, and is also applying it towards FHA applicants as well.  This came into play on the Arthur deal, and as a result, we don't have a winner yet - but stay tuned, tomorrow is the day!  In an interesting twist, Countrywide is applying the rule towards FHA loans, and Bank of America is not - at least, not yet.

FROM COLDWELL BANKER

After the gloom in the media and on Wall Street about housing values, someone forgot to check the stats!

Recently there have been a lot of stories about isolated areas that have seen 20% reductions in home values. Most agree that these areas saw the highest run-ups over the last few years. What seems to be working is the fact that housing affordability is now driving a reversal. Again, not everywhere, but the stats need to be appreciated. Interest rates are still very attractive and stable these days. In fact, the Mortgage Bankers Association reported increased mortgage applications and listed stable rates as an indicator.

The National Association of Realtors has now reported four straight months of rising housing prices, but it seems no one is listening.  According to NAR statistics, the median home price has fallen from a high of $230,200 in July 2006 to a low in February 2008 at $195,600, a drop of 15%. Since February, however, it has risen steadily every month. By May the index (which will be revised on July 24) had risen to $208,600, up $13,000 and a full 6.6%. Another indicator, the mean home price (otherwise known as the average home price), has also shown strength and has risen from a low of $242,000 also in February of this year to $253,100, a rise of $11,100 or 4.5%. It has also risen every month since February of this year.

'I just don't know where Wall Street's brains are today,' said David Michonski, CEO of Coldwell Banker Hunt Kennedy in New York City. 'Everyone on the Street is wringing their hands over housing when in fact the average American has been out this spring buying homes and pushing the median price higher. This has got to go down as one of Wall Street and Main Street's biggest disconnects in history.Rising prices on expanding volume should not a crisis make on Wall Street,' says Michonski.

So why the crisis?

They say that there are bulls and bears on Wall Street but there are also pigs. Pigs try not just to profit from a crisis but create one to profit from. Today there are just so many people who have positioned themselves to profit from a crisis that they refuse to admit the reality of what is happening on Main Street. It might hurt their positions.
Is this the bottom?

No one can know for sure, but the hard data is clear. The median price has risen four straight months. The average American is out there taking advantage of bargains in their local real estate market. They are not listening to Wall Street but following their own belief that the best time to buy is when no one else is, and they are out there buying. If this keeps up, February may prove to have been the low in prices.

It is possible that it will not be Hank Paulson or Ben Bernanke who will pull this country out of a housing recession, but the good common sense of the average American whose affordability to buy a home is at a five year high and is acting on it.

Here's the wrap-up on the Arthur REO contest.  The 4 br/2 ba, 1,279 sf house was listed for $169,900 on , and there were nine offers.  The bank did the usual, and asked each offeree to submit their highest and best offer.  Some people feel like they are getting worked over when that happens to them, but it is the fairest way to make sure everyone has an equal shot to buy a house.

The period given to submit offers has closed, and here are the three highest contenders:

1.  $202,000, all-cash

2.  $209,000 net, FHA ($219,000 with a $10,000 credit for costs) B of A lender

3.  $213,000 net, FHA ($220,000 with a $7,000 credit for costs) mortgage bkr

Tomorrow morning the bank will decide which deal to take.

To assist with the decision-making, I called the B of A lender who I've known for years, and discussed the appraisal concerns.  The house is in disrepair, and on a FHA deal the appraiser has the ability to require repairs he deems necessary, which then fall on the seller to complete.  In our purchase contracts it has a blank to fill in the limit on the amount of repairs to the seller, but neither agent put in an amount.

If you are the asset manager, do you take a chance on a higher sales price, even though the FHA appraisal could set you back?  Or do you take the sure bet, the cash deal that doesn't need an appraisal?  We don't fear the appraisal not coming in at the right value, the last two sales were $234,000 and $250,000 in the last sixty days for the same floor plan.  It is the possible-repair issue that has the potential to turn into a blank check from the seller.

Here are the contest entrants - price, name, and # of offers:

$149,000 - No_Such_Reality, 1

$150,000 - JE, 1

$174,000 - doughboy, 1

$180,000 - Simone, 7

$184,000 - ericabiz, multiple

$184,000 - mybleachhouse, 7

$189,000 - Merc Mont, 5

$190,000 - Chuck Ponzi, 3

$190,100 - First Time Renter, 11

$191,500 - money market, 5

$193,000 - SMC, 5

$195,000 - GLG, 10

$197,500 - Don, 7

$199,900 - CVman, 5

$200,750 - Al in IC, 7

$206,500 - FreedomCM, 7

$210,000 - Mojo, 7

$210,000 - Mr. T, 14

$210,000 - loharp, 20

$212,000 - Neil Diamond, 27

$215,000 - Steph in RB, 5

$219,500 - CVBidder, 10

$224,500 - Rob Dawg, 5

$237,000 - Stephen Watts, 14

$240,000 - Coconuts, 11

It looks like the winner will be either Al in IC, or Neil Diamond, unless B of A gets favored as the company lender - then it'll be Mojo! 

The all-cash offer had gone up to $208,000, but the buyer and agent went back to the property this morning and found that the neighbor across the street was sitting in his car, on his lawn, blaring the music at full volume.  They lowered their price back to $202,000 - sorry FreedomCM.

This is a bank decision - what would a regular home-seller do?  If this were a typical seller, and not a bank, most would go for the higher offer, or want to counter-offer the cash deal at $209,000.  I'm not kidding - most sellers would pass on the cash deal, or at least try to get them up higher.