Here in Florida, the Foreclosure State, we thought we’d already cataloged every genus responsible for this plague on all our houses, from the predatory lenders to the oblivious robosigners and rocket dockets to the no-mod-for-you bank Nazis. That was, until we caught wind of the HOA chasers.
The St. Petersburg Times recently profiled an opportunistic little industry that discovered a loophole in the state’s foreclosure laws and is milking it for all it’s worth.
Florida law allows homeowners associations, or HOAs, to foreclose on properties when dues are in arrears and does not require the HOA to notify the primary mortgage lender. Florida has 40,000 homeowner and condo associations, many struggling to keep basic services going with so many owners behind in dues. The HOA’s lawyers encourage them to foreclose because, if the bank beats them to it, they usually won’t see a cent.
Here’s where opportunity creeps in: Since most homeowners owe less than $15,000 in association dues, the HOAs can file their foreclosure cases in county court rather than in circuit court, where caseloads are backed up. This allows the associations to get final judgment on a foreclosure in as few as 270 days verses the 617 days it now takes for the average bank foreclosure.
Yes, a mortgage lender would gladly pay the back dues to protect their investment — if they knew about it. But because the HOA doesn’t have to notify the bank of its foreclosure actions, it could be months or even years before the primary lender forecloses.
Enter HOA chasers like Barry Haught and his associates. They acquire HOA foreclosures in private for pocket change, since they only have to pay off the delinquent HOA dues, not satisfy the mortgage. They then rent the property, and sometimes live there, for the months and even years it takes for the bank to foreclose.
This loophole has allowed Haught and his associates to acquire 71 properties in Tampa’s Hillsborough County worth $8.2 million for a little more than $220,000. Among his deals: a $1.2 million home on Tampa Bay for $10,010; a 3,700-square-foot home for $8,090; and dozens of single-family homes for $4,000 apiece.
And no, they are under no obligation to inform their renters that the primary lender could unceremoniously kick them to the curb one day.
Did I mention that this is all perfectly legal?
We’re used to this stuff in the Foreclosure State, where the unofficial state motto is: Only in Florida!
Pemeliza suggested that sellers might be better off staying put and locking in a low interest rate now, rather than reduce their list price. Shadash added that sellers should look closer at the other houses for sale, and price competitively (I’m paraphrasing).
Should sellers wait?
And wait for what, exactly?
If you are waiting for prices to magically come back to peak levels or higher, make yourself comfortable. If you are enjoying the home, and won’t move unless you get your close-to-peak price, no problem, but any market rebound is out of your hands. Do what pemeliza suggested, lock in a low rate, and shorter term and pay off the mortgage sooner.
If you want to do something to improve your chances of getting top dollar, fix up the house.
If you want/need to sell in the next 2-3 years, here are my thoughts:
1.You may not be that far off on price.
For those who are keeping their list price high because they’re heavily-encumbered and are hoping to get enough to get out, good luck – because you need a ‘lucky sale’, which are becoming more unlikely. Now that the law has changed and you can sell with no recourse, consider a short sale. Yes, your credit gets dinged, but if homeownership is too much of a financial burden now, waiting isn’t going to change it.
For sellers on the market longer than two weeks – your listing is now stale in the eyes of the buyers, and they will expect a healthy discount from now on.
The summer season is almost over. Drop your price 5-10%, and it should be enough to generate offers – if not, keep dropping until it does. At least you’ll be ahead of the other active listings, who are paralyzed with the shock that they haven’t sold and August is two weeks away – or ignoring the calendar altogether. Get a jump on them.
2.If you can’t, or won’t lower your price, then do home improvements.
The biggest problem with waiting is that your house looks more dated every year. Are you keeping up? Buyers will want discounts for work they need to do, so you might as well get some of it done now. Do your best to convert to the newer granite/stainless/travertine look. If your house is so old that it is functionally obsolescent, just clean it up and concentrate on pricing.
3.The new-home tracts are where the buyers cut their teeth on the latest designs.
Yes, in the last video, the only Plan 3 available is on the worst lot in the tract, and they probably have people in line for future releases. But buyers will consider those as competition, so the more you can look like them, the better. If you don’t want to spend big money on home improvements, at least consider installing new flooring/paint, ditching the old furniture, and removing all clutter. Spruce up the front-yard landscaping too.
We were looking around La Costa Valley/Oaks over the weekend, and it appears that a glut of mcmansions is forming. But the problems were obvious – every house either had a funky floor plan, or looked dated even though it may have only been 10-12 years old. The houses purchased new without upgrades, and haven’t been improved since, look like fixers to the buyers.
Those sellers can wait, but they’ll need to upgrade sooner or later, if they want top dollar.
A unit of Hartford-based Cornerstone Real Estate Advisors has paid $58 million for the 111,403-square-foot Bressi Ranch Village Center along Gateway Road in Carlsbad.
The center was purchased by Cornerstone’s Regency Bressi LLC Partnership, and handled out of that firm’s Santa Monica offices.
The center, developed by LNR Property LLC’s Commercial Property Group (LNR) in 2008-09, is anchored by Stater Brothers, Trader Joes, Unleashed by Petco, Souplantation Express, Chase Bank and Rubios. The property was seven years in the planning before it was constructed.
Stewart Keith and Bill Thaxton of Flocke & Avoyer were the local market leasing representatives for the team.
Thaxton said there was so much interest in the center, which is 96 percent leased, the selling price ended up being around what it might have sold for at the peak of the market in 2006 or 2007.
“The price would have been very close to this,” said Thaxton. “You have a grocery-anchored center in an affluent community. It will be the only grocery-anchored center in the whole (Bressi Ranch) community and the closest Trader Joe’s is in Oceanside or Encinitas.”
Thaxton said the center is close to a large community park that helps bring people in as well.
The fact that Bressi Ranch Village was able to lease up right in the middle of a downturn also bodes well for the center.
New tracts are more concerned about holding on price, and waiting – a plan that usually takes a couple of years before selling out.
I think we’ll see more and more sellers try a similar program. They’ll list during the selling season – at their price – and if a buyer comes along that’ll pay within 5% or so, then great. If not, the sellers will wait until next year.
We’ll see sporatic sales here and there, and wonder the the future holds.
It’ll be the new norm – low sales counts, and uncertainty.
A tour of the two bigger Sandalwood models in La Costa Oaks in southeast Carlsbad:
Government programs aimed at refinancing mortgages for homeowners in negative equity are plagued with disappointing results, long-shot legislation and growing conflicts among regulatory agencies.
As of May, 2.1 million mortgages sat somewhere in the foreclosure process, according to Lender Processing Services. Of those delinquent home loans, 80% were in negative equity, meaning the borrower owed more on the mortgage than the property is worth. Of the seriously delinquent loans that were current just six months ago, roughly 6% had loan-to-value ratios of 150% or higher.
U.S. home prices have fallen 32% from their peak in 2006, according to the Standard & Poor’s/Case-Shiller index, but prices may not have bottomed. Robert Shiller, who helped develop the index, recently said prices could drop another 10% to 25%.
In response to the growing number of underwater borrowers, the Obama administration established several programs to urge investors toward writing down the principal on these loans. Each has underwhelmed because the two largest mortgage investors in the country, Fannie Mae andFreddie Mac, do not participate or cannot help homeowners with severe negative equity.
The programs
In September, the Department of Housing and Urban Development launched the $8 billion Federal Housing Administration Short Refinance program. Through it, underwater borrowers can refinance into an FHA-insured loan if the lender or investor writes off the unpaid principal balance of the original first-lien by at least 10%.
As of June, only 246 borrowers made it through the program.
One month after FHA Short Refi launched, the Treasury Department started a principal reduction initiative under the Home Affordable Modification Program. Participating servicers evaluate borrowers with a loan-to-value ratio of more than 115% for a reduction.
As of June, servicers included this write-down on 4,911 HAMP modifications.
In February 2010, the Treasury initiated the roughly $7 billion Hardest Hit Fit to provide Troubled Asset Relief Program dollars to state housing finance agencies. Some states including California and Arizona built principal reduction programs, but only Bank of America and Ally Financial agreed to participate and only under investor approval.
The Arizona Department of Housing expects BofA to reach up to 8,000 homeowners with the assistance with no estimate yet for California. Ally Financial has given no estimates.
The Home Affordable Refinance Program is by far the most successful. Since it launched in March 2009, more than 784,000 Fannie Mae and Freddie Mac loans pushed through the program and out of negative equity. But 84% of them held LTVs of less than 105%. Only 5,400 borrowers higher than 105% LTV underwater received help.
The ‘Boxer Rebellion’
Sen. Barbara Boxer (D-Calif.) introduced a bill in January that would eliminate upfront fees and underwater restrictions Fannie and Freddie include when evaluating a homeowner for refinancing out of negative equity.
The bill gained recent support from several trade groups and Moody’s Analytics Chief Economist Mark Zandi, who said the cost of the bill would be offset by the savings Fannie and Freddie would recoup by helping these borrowers avoid default.
But the bill has Wall Street jumpy. Analysts at Bank of America Merrill Lynch called the bill the “Boxer Rebellion” in a research note released Friday.
“Due to the existence of HARP and HAMP, programs which have performed well below initial expectations, the practical need for this new, seemingly sensible legislation is hard to rationalize. Why would this program have any more implementation success than its predecessor programs?” BofAML analysts said. “Sen. Boxer’s push for legislation to refinance underwater homeowners stands in opposition to perhaps the most pressing need of the U.S. economy and fiscal situation: reliance on, not help for, responsible citizens.”
Manzanita Trail next door had combined the homes with zero-lot-lines and regular detached homes in the same tract, and have sold all but a couple of their 187 homes available.
They have split the concept now – Hampton Lane’s 114 homes will all be the zero-lot-line format with interior locations, and a separate tract of the regular detached homes will start later this year on the perimeters.
Pardee will muddle through the Hampton sales (half of the 18 available are taken) until they open the tract of regulars. If those sell briskly, the zeros should enjoy some spill-over. Here’s the model tour:
San Diego homeowners who are considering a short sale of their troubled properties can rest easier today after Gov. Jerry Brown signed into law Senate Bill 458. The new law broadens previous short sales laws.
The previous law allowed homeowners to sell their homes at a value less than their existing mortgage value, and the first-mortgage holder had to agree that the sale was accepted as full payment of the obligation, with no recourse.
The new law, Senate Bill 458 requires the same “no recourse” treatment for any secondary, or other junior loans involved in the transaction. Up until now, it was possible for a homeowner to successfully complete a short sale, only to have the lender come back at a later date and require full payment for any short-falls.
Approximately 18% of all June home sales in San Diego were short sales.
Local real estate agents are applauding the new law. A short sale transaction may take several months to complete because of the inability of lenders to make timely decisions. These same local real estate agents are now concerned that the lenders may take even longer deciding the merits of a short sale.
From CAR:
SB 458 (Corbett) Anti-Deficiency – C.A.R .initially sponsored SB 458 to revisit the “anti-deficiency” issue of SB 1178 (Corbett, 2010), which was vetoed by Governor Schwarzenegger. As introducedSB 458 would have extended existing anti-deficiencyprotections to cover the refinance of purchase money mortgages, and new debt (cash out) incurred to acquire, construct or improve the home. C.A.R. and the lender groups reached an agreement to amend SB 458 to instead expand the provisions of existing law (SB 931 of 2010) which became effective this year. SB 931 requires a first mortgage holder to accept an agreed upon short sale payment as full payment for the outstanding balance of the loan, but does not apply to junior lien holders.
SB 458 extends the protections of SB 931 to junior liens effectively providing that any lender that agrees to a short sale must accept the agreed upon short sale payment as full payment of the outstanding balance of all loans. In addition, this measure will clarify that this rule applies only to residences.
This looks like Linda Ronstadt and the Eagles when they were touring together in 1975?
Thanks to the several people who sent in this article, fromCNNMoney.com:
In this latest twist on short sale fraud, scammers have found a way to rip off mortgage lenders by tens of thousands of dollars — sometimes in a matter of hours.
The scam artists, usually real estate agents, will secure a legitimate bid on a home, one where the borrower owes far more on the mortgage than the home is worth. Then they arrange for an accomplice investor to make a lower offer on the home.
The agent then presents the lower bid to the lender and asks them to forgive any remaining balance owed — without disclosing that there was a higher bid made on the home. Once the short sale is approved, the scammer then sells the home to the higher bidder, often on the same day.
“These same-day resales are on average nearly $50,000 greater than the lender agreed upon short-sale price,” said Tim Grace, senior vice president of product management and analytics at CoreLogic, a financial analytics company based in Santa Ana, Calif.
Such transactions are expected to cost lenders more than $375 million this year, up more than 20% from last year, according to CoreLogic
The anatomy of a scam
Most of the time, pulling off one of these scams involves a real estate agent and an investor acting as a “straw buyer.” Sometimes, the owner of the home is involved as well, but not often, said Robert Hagberg, an investigator for the mortgage giant Freddie Mac.
“In most instances, the sellers are apathetic; they’ve, basically, already lost their homes,” he said. With nothing to gain or lose, they allow agents to handle the entire deal.
To get the banks to approve low bids, appraisals or broker price opinions are manipulated. Home prices have plummeted in many housing markets and the house may be worth far less than what the seller paid.
Sometimes, said Hagberg, fraudsters bribe appraisers or brokers to get the prices they want but they can employ sneakier methods as well. One method: Misstating the home’s location so it’s compared with much cheaper places.
One case in California last year involved an expensive Malibu property that the agent said was in Riverside, Calif.
“It didn’t cause any alarm bells to go off at the bank,” said Grace. “The short sale went through at $200,000, which was a fifth of its value. It was turned around for $1 million.”
Sometimes an agent will point out every defect in the home to get appraisers to reduce their values, according to Hagberg. In Wisconsin, an agent left the windows open during spring rains and flooded the basement. He told the appraiser the plumbing burst and would need expensive repairs. All it really needed was a pump.
“When the flippers say there’s something wrong with the electricity, the plumbing or the roof, the appraiser can’t tell whether they’re being deceived or not,” said Hagberg.
Fraud ultimately hurts homeowners
Five years ago, when the housing market was thriving, lenders rarely heard of a short sale fraud. But as the housing market crumbled and beleaguered homeowners increasingly turned to short sales to get out of their underwater mortgages, the frauds increased as well.
Now, 13% of all existing homes sales are short sales, according to the National Association of Realtors. And last year, frauds associated with short sales comprised half of all fraud investigations for mortgage companies like Freddie Mac,according to Hagberg.
The impact of short sale fraud goes well beyond the direct losses to banks. These frauds have become so common, it has become more difficult for legitimate short-sale transactions to go through.
That hurts sellers because it forces more of them into foreclosure. It hurts banks by adding to their costs and it can make all the parties more cautious.
The frauds “defeat why we do short sales in the first place,” said Hagberg.
In the Bridgeport, Conn. scam, two real estate agents were arrested. It was just one of four similar frauds that were listed in their indictment, which netted them a total of more than $180,000. They pled guilty and are awaiting sentence.
They may be out of business but with home prices off about a third from their peak nationwide and down 50% or more in many post-bubble communities, there are opportunities for other short-sale fraud artists to take their place.
Here in Florida, the Foreclosure State, we thought we’d already cataloged every genus responsible for this plague on all our houses, from the predatory lenders to the oblivious robosigners and rocket dockets to the no-mod-for-you bank Nazis. That was, until we caught wind of the HOA chasers.
