Here is more from our trustee-sale investigation.
When the trustee sale has no bidders, and the property goes ‘back to bene’, how does the bank perform in the open market? This is a review of the sixty Bank of America and forty of the Wells Fargo REO sales since September 1st:
When was the house purchased by the former owner?
2002 or before: 24
2003: 8
2004: 20
2005: 17
2006: 20
2007: 11
There are a number of long-time homeowners who are now renting or staying with family (more than half owned for at least 5 years!).
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Was it a purchase or refinance mortgage that was foreclosed?
Purchase: 42
Refinance: 58
Whether they knew it or not, 42% of the buyers were speculators. When things didn’t work out, they weren’t willing, or able, to endure.
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Of the 42 purchase loans that got foreclosed, when did they buy?
2004: 5
2005: 13
2006: 16
2007: 8
Those who purchased in 2004 and 2005 could have refinanced by fogging a mirror in 2006, but didn’t. Were they already underwater?
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Opening Bid vs. Eventual REO Sales Price
Sold REO for at least $100K more than OB: 5
Sold REO for $50,000 to $100,000 more than OB: 18
Sold REO within $50,000 of OB: 62
Sold REO for $50,000 to $100,000 less than OB: 5
Sold REO for at least $100,000 under OB: 10
Generally they are getting the opening bids pretty close to retail value. But if you are really good at flipping, there is excess opportunity if 23% of the ‘back-to-bene’ properties are selling for at least $50,000 more than the price you could have paid on the court house steps. Note that 15% sold for at least $50,000 under OB price too.
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Only six of the 100 were in our stretch from Carlsbad to La Jolla, and only two of those were houses (both in Carlsbad). There were a lot of condos and Chula Vista properties!
Great work jim.Have you ever bought a property at a trustees sale?Seems like a lot of research to steal one from the bank.All the liens that are on the proeprty etc.With an reo at least you get title insurance.There are no property disclosures because the bank says they never lived at the home.For the avg joe they might be safer with an reo vs trustees deed.
How do most realtors get hooked up with a bank to sell reos?
If FHA financing dries up and/or Frannie/Freddie are forced to maintain some kind of fiscal sanity the playing field will change.
If you told be 4 years ago that the housing bubble would be maintained/reinflated with government tax dollars I would have laughed. Sadly whoever said that would have been right.
Elite – Yes, it is more/different work to safely acquire homes at a Trustee’s sale. However, that is why there is more potential opportunity for a better discount due to the perception of risk. The seasoned people just know how to filter through the risk factors and highly increase their odds at success.
If it was easy to make $100k flipping a house everyone would do it. Guess that is why they call it ‘work’.
clearfund, thx for the insight.
I guess most liens on a property you are bidding on would be recorded in the county where the property is located.What I am uncertain on is the possibility of unrecorded liens.Not sure what the implications are on that.I guess timing of recording gives priority of the lien but some liens such as tax or irs get bumped to the front I think.I guess you must get real good at sorting through the records.
Great info JTR as always! This must have been a lot of work. Are the opening bids public record or do you have someone keeping up with the info as it comes in?
“If you told be 4 years ago that the housing bubble would be maintained/reinflated with government tax dollars I would have laughed. Sadly whoever said that would have been right.”
Shadash, if you think the bubble has been maintained/reinflated then you have not been paying attention to selling prices. We drove off a cliff and the government provided a parachute not a jetpack.
1349 CORVIDAE ST (earlier post) went back to the bank for 760K…
With another unit having sold for 799 there doesn’t seem to have been much of a discount.
pemeliza,
“if you think the bubble has been maintained/reinflated then you have not been paying attention to selling prices. We drove off a cliff and the government provided a parachute not a jetpack.”
Who benefited from that parachute? Home owners or home buyers? Last time I checked both pay taxes.
I didn’t mean to be too negative on that last post.
760K is a VERY good price if you are looking to buy for for yourself, which I think is more of Jim’s intended client.
If you are flipping, however, you need a little more room for costs in order to turn a profit.
I estimate it would have to have been in the very low 700s or even high sixes to become interesting for a flipper.
Jim is doing fantastic work and providing lots of insight into the market with this blog. I am sure many are benefiting from it. I know I am.
I would have loved to see the cliff.
Fictitious story?
Joe buys a home in 2005 for $1M, no down payment. 100% financed.
Joe stops making payments in Fall of 2008, but by his choice.
Dec 1 2009 Joe is still living in the house for free, Joe has plenty of money and has saved even more from 15 months free living. Joe did not quit paying for his mortgage because of a money issue, it was a business decision.
Joe’s house goes back to the bank (by his choice…in this case plan) and is going to be sold on the courthouse steps.
Does Joe have the chance to buy it back?
Joe has 650k cash as money never was the issue and is now doing business as “This time I’ll buy if for 35% off and keep it LLC”.
Possible?
doughboy,
Your evil plan should land people in jail for fraud but probably won’t.
It would likely work but you’d have to assume all the closing costs in 2005, and payments made from purchase date to the time they stopped paying are less than the amount the amount “saved” by not paying between 2008 and 2009.
If you got 100k cash back at close that covered all the closing costs and left you with 70k for payments. Numbers wise this would work out.
I don’t know how buying under an LLC would work. I would think a judge would see through it if the person doing this was caught.
doughboy – your hypothetical is possible. I don’t see any illegality.
Doughboy,
That is fairly common business practice.You can actually hire someone to bid on your house at the couthouse steps.Hard money lenders are good for this type of deal.
Jim, The analysis of OB and SP is good, and the 23% margin between OB and SP is flawed. You have not accounted for seconds, tax leins and other important things that come along with buying at auction
Seconds are not leased at the auction?
leased = released. Sorry
All junior liens are washed out at the trustee sale, he’s just trying to make me look bad. People who have questions or concerns email me privately.
Yeah, I noticed there are some people spreading FUD (fear, uncertainty and doubt) obviously trying to stop people from entering this market.
I wouldn’t worry about it I were them. Most people are scared enough and don’t have the time to wait for the property they want to come to auction.
That said, I find buying at the courthouse preferable to a “real” transaction where I am signing some stack of 50 papers and getting charged bundles of junk fees by some escrow company.
Jim,
Ummm, I think that your comment:
Is not functionally correct for Doughboy’s question. Junior lienholders, I understood are not secured against the property, and therefore can pursue collections against the person. “Joe” still owes the money, and the lienholder can pursue hime. “Joe LLC” now owns a house.
Although, it’s likely that in court, the second lienholder could probably pierce the corporate veil just as Joe did to collect on monies owed them. Otherwise, it’s just sheltering or “laundering” money. The FBI tend to get grumpy when that happens. This used to be called “creating a long firm”.
Just want to make sure that people consult a lawyer (an honest one, if there is one available) before engaging in potentially illegal or immoral acts openly.
Chuck Ponzi
Chuck,
Just to clarify on the above example, a 100% purchase by “Joe LLC”, would be a secured “purchase money” second which is a non-recourse loan in California. The bank cannot go after Joe even though he is a “scammer”
Also all recorded seconds start out as secured liens, they can become unsecured when they are “lien stripped’ or removed by legal/court action such as a trustee sale.
But none the less “Joe LLC” would be an unethical scumbag
Chuck, Jim was not responding to doughboy’s unusual example, but rather the other (bogus) critque. And for that the statement “junior lienholders are wiped out” is accurate.
You are just creating confusion by mixing the two lines of discussion.
Also, you say:
Junior lienholders, I understood are not secured against the property, and therefore can pursue collections against the person.
What are you talking about?
Second loans are most certainly secured against the property. They are just given priority behind the first.
If they were not secured they would be priced at credit card (unsecured) interest rates.
Fictitious story?
Joe buys a home in 2005 for $1M, no down payment. 100% financed.
Joe stops making payments in Fall of 2008, but by his choice.
Dec 1 2009 Joe is still living in the house for free, Joe has plenty of money and has saved even more from 15 months free living. Joe did not quit paying for his mortgage because of a money issue, it was a business decision.
Joe’s house goes back to the bank (by his choice…in this case plan) and is going to be sold on the courthouse steps.
Does Joe have the chance to buy it back?
Joe has 650k cash as money never was the issue and is now doing business as “This time I’ll buy if for 35% off and keep it LLC”.
Possible?
doughboy | November 24th, 2009 at 11:56 am
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Not ficticious at all. Here’s one with an even “happier” ending:
Joe buys a home in 1999 for $300K, then proceeds to do cash-out refis to the tune of $1.1MM. Joe puts this money in CDs and other investments, then stops paying his mortgage in 2008. A year later, Joe gets foreclosed on and uses the $800K he cashed-out plus any amount saved during the year of no payments, and buys his house back from the bank for $750K.
Joe now has a paid-off house, and a little extra cash for “spending money.”
IMHO, there is a lot of this shady business going on right now, and it is all made possible by the actions and “encouragement” of our govt and the Fed. It makes those of us who tried to avoid excessive debt, and who waited patiently in rentals, feel like absolute chumps.
Lesson learned, right?
Your analysis doesn’t take into consideration the teaser bids by the banks. So the few that sold for more than 100k than the opening bid were most likely teaser bids in which the bene was planning to bid agains you higher. I know, sounds confusing but it happens more often than not when the bid seems too good to be true. Don’t think there are many deals falling through the cracks, expect to get bid up and bid up hard.
CA Renter–I am sure similar stories have happened, but I don’t understand how this makes you feel envious. I have trouble understanding how those who did not buy feel that they have somehow been vicitmized by the gov’t; those who bought in 2005-2006 and are now upside-down on their homes might have a better case, but probably not.
If we are going to harp on this example, it may be worth noting that (I think) cash out loans are recourse loans.
That is, the bank can go after the person if the sale of the house does not satisfy the loan. So Joe could be liable if the bank figures all this out (they probably won’t).
This does not apply to 2nds done at time of purchase.
Someone might want to check this if they think this discussion is of interest (I do not).
SDLA makes a good point. You cannot assume that properties would sell for $.01 over opening bid if there had been any interest. Many, many bids are “split” bids where once a third party bids the bene raises the minimum substantially higher, sometimes to total debt. I do not understand what the purpose of this process is (the only idea I came up with was savings on transfer tax). When I first started going to trustee sales a couple of years ago, I was intrigued at the $100 opening bids that just went back to bene. One day I felt frisky so I bid $100.01. The bene raised the bid to $232,697.64.
CA Renter–I am sure similar stories have happened, but I don’t understand how this makes you feel envious. I have trouble understanding how those who did not buy feel that they have somehow been vicitmized by the gov’t; those who bought in 2005-2006 and are now upside-down on their homes might have a better case, but probably not.
Local Boy | November 25th, 2009 at 6:07 am
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Not sure about being “envious” as that sounds like the old “bitter, jealous renter” bit we heard so much from the delusional bulls during the bubble.
I’d prefer a society where those who behave responsibly are rewarded over those who scam and throw caution to the wind and expect everyone else to clean up their mess.
All the bulls keep talking about this being a free market, but I’m not seeing it. The housing market has never before been so heavily manipulated.