patrick.net

The story this morning on KCBS about banks bulldozing new house construction in Victorville due to foreclosures

Instead of bulldozing, firefighter practice?

Saying “just let the current loanowners default and it takes care of everything” kind of let’s the bank off the hook in that they’ll get the write off, the option to keep it off the market and re-sell at a time & price of THEIR choosing!

Some states have laws about how much REO a bank can have. Does California have a waiver on that? I thought that if a bank has too many forclosures on the books, the REO laws would force them to sell in the current market, with no option to wait it out.

Headset,

That may depend on whether they are a state chartered or nationally chartered bank. I believe at some point the OCC steps in. I just think it's unfair for cities that are struggling to provide basic services even having to throw time, effort or money at what clearly is a private sector, banking created problem? Don't they have enough of their 'own' self inflicted problems?

As for demolishing these nigtmares, AFAIK they weren't even finished homes? Foreclosed on whom? Maybe these builders should send the bill to the city or form some sort of public/private venture to deal w/ that too?

Bulldozing new houses is obscenity of the highest degree. As if we do not waste enough natural resources and energy already. It makes me ill just thinking about it.

Anyone that bulldozes houses to keep supply down should be penalized severely. Give them away to the government, yes, bulldoze, NO.

justme,

Gonna' beg to differ here, building them in the -first- place was obscene!

I don't know specifically about the area, from what i learnt for the article, bank didn't think they could sell it for 5 years. Rather than wait for termites to do their work and keep paying for taxes and violations, I would think bulldozing them was a better option.

I don't think this was a case of trying to bring down supply. Probably a case of "Just, no more head-aches please".

sa,

Selling them is simply a matter of price. For $5000, people would buy them. This is not some run-down shack in Detroit. It's a new house!

DinOR,

Of course! But let us not make bad decisions worse by compounding with yet another set of bad decisions.

sa,

As far as "I" could tell? I'm not sure if the video off of Mish's was Victorville but the homes getting the ax were in the middle of NO where. In fact, other than sand, the only feature at all.

Personally, I think they're a liability for all involved. Locals included. I will say that *astrid among others predicted this as early as 2006. Of course then, half jokingly. We argued that at some point, providing b-a-s-i-c services would become totally impractical!

How will people of limited means commute? Where will they work? Even at a reduced rate, how can that make that remote locale viable? But it was a lot easier to determine their fate back then.

More OT: I discovered that listing data varies across MLS access providers. Specifically, I see that ZipRealty shows much fewer listings than Mlslistings or Redfin do.

As an example, use Milpitas, no filtering except Class 1-2 only. The number of listings that appears are

110 Ziprealty
150 Redfin
158 Mlslistings

Does anyone know what the differences are?

DinOR,

>>Personally, I think they’re a liability for all involved. Locals included.

I bet the locals hate cheap housing. On that same note, let us just burn down some of those foreclosures in Menlo Park. That will learn'em !!

Seriously DinOR, do you not see how obscene this is? If they are in the M-O-N, why not market them as vacation homes, then? I'll take one.

Bap33,

It *may* be that the local mls can mark some of the listings as do-not-disseminate.

But still it is weird that ziprealty adheres, but redfin and mlslistimgs.com do not. Does it make any sense?

From CR:

>>On the night of April 27, for instance, the president invited to the White House some of his administration's sharpest critics on the economy, including New York Times columnist Paul Krugman and Columbia University economist Joseph Stiglitz. Over a roast-beef dinner, Obama listened and questioned while Krugman and Stiglitz, both Nobel Prize winners, pushed for more aggressive government intervention in the banking system.

Right on, Obama is a person that will listen to a variety of views. Next: Alan Greenspan and Milton Friedman (or is he dead?)

Another one from CalculatedRisk:

>>Banks that want to return Troubled Asset Relief Program funds will have to demonstrate their ability to wean themselves off ... a guarantee of debt issuance offered by the Federal Deposit Insurance Corp. ...

Again, a good move by Obama. Those banks that have been complaining about "not being allowed to return the money" have hereby been exposed as cheats. The banks wanted to return the money, and replace it with money they borrowed with the help of an FDIC government guarantee !! Talk about being disingenous. Phew.

TOB,

"not allowed to touch"

Perhaps we should point out that this is not Obama preventing you or anyone from withdrawing.

It is rather the mutual fund company that has invested in illiquid (read: overvalued) commercial real-estate, and that does not have cash to pay out without selling huge chunks of the investment at big losses.

TOB,

I don't think so. They haven;t even started talking about CMBS yet (Commercial mortgage backed securities, as opposed to Residential MBS).

In any case, 100s of B of dollars is nowhere near enough to cover the problem.

Oh... that was only added to make it more freaking dramatic. Anyone that owns a CREIT knows that. Would it make anyone feel better if you weren't able to access it in your CASH account!? Sheesh.

Ahem, over the years many here and elsewhere have bemoaned the loss of Defined Benefit Plans. Want to talk about "illiquid"!? One of the Plans I was involved in, long before even the Tech Wreck, had access only granted ( once ) a year. As I'd -just- missed the Liquidity Window I had to wait about 15 months just to transfer the damn thing. Not 'liquidate', t-r-a-n-s-f-e-r.

We had absolutely no choice in terms of 'what' we were invested in, 'how' it was invested nor the right to make -any- changes! We were paid less than our counterparts elsewhere in the industry and we were told "the company PAYS for your retirement benefits!" What a joke.

I am hereby permanently shutting down all 401k's, IRA's and Qualified plans! Period. End of discussion.

DinOR.

That's crazy bad. I think the worst limitation I have seen was being allowed to re-balance the funds in the 401k only once per quarter.

Of course they only had something like 5-6 funds to choose from...

Thomhall,

Some buyers have spring fever, some sellers are underpricing the listing for the effect, The latter has been clearly documented for SF on socketside.com last month.

Price the listing 100k under the competition an bidders will go hog wild, Sometimes.

Evidently, this town has enough funds to get creative with the problem of foreclosures.
Desperate Households
What do you do with a house that won't sell... Paint the lawn.

I posted my diatribe against bulldozing homes also on CR. Here's a response.

>>Real "green" and "eco-friendly". Why not donate it to habitat for humanity, salvation army, hell, even ACORN for all I care?

Here's what I think : They need to tear them down, or else all the business school students would be out of their one-weekend Habitat For Humanity jobs(*), building houses for the poor.

(*) AKA: PR-and-insincerity-101

justme,

After utterly slamming the idea of Dozing homes yesterday, some folks at Ben's have had a change of heart. There's some sober realities I think we all need to face. Particularly the remote nature of this extreme edge of the rolling bubble?

Had these homes been in the heart of the city, I'd be protesting in front of the bulldozer my DAMN self! What are you doing!? People might actually be able to live there!

Some of these developments were so far flung, their sole support was cheap gas. When that evaporated, so did these.

EBGuy Says:
May 4th, 2009 at 3:33 pm
"Malcolm,
Just curious, does the LLC rely on a property management firm to take care of the day to day operations for the rentals? Also, are you buying “in bulk” from the bank, bidding on foreclosures or picking up “listed” REOs from the MLS?"

Sorry, I don't check the blog as often as I used to.
No, we're not that big yet, we are just buying one at a time. The broker that I make loans through does buy in bulk from banks, but honestly, my LLC is getting way better deals, mainly because we aren't buying in California. We are self managing with our own employee(s) who also happen to do a lot of our rennovation work. We have found that the area is lacking in good property management although we have used their services.

I don't agree with the type of logic that says "Must raze foreclosed developments that are more than X miles away from a city of population > Y".

But just to go with it for a moment:: Victorville is a city or hamlet of 107,721 people. I think that is big enough that something useful could be made of the houses.

What if someone forecloses on their vacation home development in Lake Tahoe?
Raze it? Too far from Reno?

But seriously, DinOR, I'm not saying all this to quarrel with you or anyone else. I just find it sickening to see all the resources, materials, labor and energy go to complete waste. And the logic makes very little sense to me. Peace.

FormerAptBroker Says:
May 5th, 2009 at 6:36 am
Malcolm Says:
> We’ve already picked up four houses and would love
> a credit line to buy four more. We’re getting unheard
> of cap rates.
What do you consider an “unheard” of cap rate?

30%

"How do you calculate your NOI (my quick and dirty is to use gross annual income – mkt. vacancy - $3,000 – Actual property taxes)?"

I use actual, but until I have a full year I can only project gross, minus taxes, and insurance. I also take out $100 per month for maint, although technically since they are houses our lease calls for the tenant to be responsible for maint and upkeep but you know how that goes.

"Are you using private money loans (I have heard that it is close to impossible to get bank loans today for investment home purchases)?"

So far we are totally self-funded. Basically my LLC is a fund where investors have an equity stake in relation to the total. The ROI is high enough that moving forward it makes more sense to get debt financing as opposed to equity financing because then the spread is additional income to the existing members. Where other investors are having trouble like you say, is that banks won't lend on the market value of a distressed home so investors have to pay cash until they get a loan on the finished property. We've taken the other approach, which is to self fund, build up a portfolio. We can sell when times are better or we can borrow against the portfolio to acquire more houses. Being a cash buyer is the way to get a great deal in depressed parts of the country. I don't want to brag but this fourth house that we are closing on will cost a total of $20,000 including the work to fix it, and will rent for $800 per month.

HeadSet Says:
May 5th, 2009 at 2:18 pm
"Some states have laws about how much REO a bank can have. Does California have a waiver on that? I thought that if a bank has too many forclosures on the books, the REO laws would force them to sell in the current market, with no option to wait it out."

I'm not sure that it is state law, I thought it was something to do with reserve requirements. In any case, there is a mechanism that limits the numbers like you say. That's my understanding of why banks are bundling foreclosures and selling them. I have been approached to participate in such a purchase but I'm unimpressed when the price is basically 67 cents on the dollar. Still too much.

Malcolm.

Are you doing local San Diego County properties or farther away?

RealEstate Joe Says:

> The story this morning on KCBS about banks bulldozing
> new house construction in Victorville due to foreclosures,
> a non-existing buying market and the local government
> racking up fines, is awful.

Why do you have a problem of a bank bulldozing an unfinished home that has been vandalized?

> There should be some communication and negotiation
> with local government and lenders in the area to come
> up with a workable solution that benefits the community
> rather than resorting to destruction of assets.

They did not destroy “assets” they destroyed “liabilities”. If someone puts an unfinished Honda in front of your house and crack addicts move in to the car slashing the seats and thrashing it you can either pay $50K to finish and repair it so you can sell it for $25K (while paying to keep it insured and registered) or you can tow it to the scrap yard for $200. What would you do?

The homes were near finished, as apparent from the MSNBC video.

Actually even for the far flung houses, there can be other innovative ways to retain value.

For example, the banks can offer the house for anybody to live in for free, as long as they promise to pay the property tax and set aside an annual maintenance fee in a trust. Of course they need to sign a bunch of documents taking over all future liabilities from the banks, while the banks retain their equity stake in the house.

Bulldozing the houses is basically writing off the house off 100%. Letting someone else live in it for free, ridding of all ongoing property tax and maintenance and legal cost, is the same as writing it off almost 100%, except that there may be a slight chance of getting some money back in the more distant future.

The government can also help by offering the builders tax writeoff for the above-mentioned program as if the houses were bulldozed. At least from the local city's perspective, somebody will be making property tax payment.

EBGuy,

is this house in the east bay fortress?
http://sfbay.craigslist.org/eby/reb/1154141442.html

good deal?

>>is this house in the east bay fortress?

I'd say so, but it is also very near ground zero of the Berkeley Hills 1989 fire. Caveat emptor. There is a reason this house is new.

Sorry, I meant to say 1991 fire. 1989 was another disaster ;-)

is this house in the east bay fortress?
No. Like justme said, Caveat Emptor. And notice the Oakland address in the RedFin listing. A Berkley mailman will deliver your packages, but guess where the kids go to school. The only thing left standing in Oakland is the Rockridge area, which is still impregnable, even on the foreclosure maps.

... And now things really start to get ugly. The sellers PUT DOWN 20% and are about to lose that and then some (credit rating still intact, though). Don't worry, we get to participate too, as IndyMac owns their first and second mortgages.

EBGuy,

Seriously, not fortress? What about Piedmont district of Oakland on the other side of HW24? Don't they have their "own" schools?

justme Says:
May 6th, 2009 at 11:45 am
Malcolm.
Are you doing local San Diego County properties or farther away?

Out of state. No deals like that exist here.

hi, just found this blog and wonder can you help me out. I am interested in buying real estate in the US when the market bottoms out. As I only have European experience I don't have a clue as to what the regulations/ taxes are. Is there a handbook out there that could help me? Would really appreciate some good references re newspapers/magazines that are good at monitoring each city. Thinking of San Fran and Atlanta. Any ideas?

What about Piedmont district of Oakland on the other side of HW24? Don’t they have their “own” schools?
Piedmont is actually a separate city, not a district in Oakland. And yes, they are part of Fortress East Bay (but starting to show some foreclosure 'cracks').

EBGuy,

so which is more of a fortress, Piedmont or Berkeley? Btw, thanks for educating us on the fortress geography of EB. Is MSJ considered a fortress?