Archive for December, 2009

Stripped Homes are Worth Less…

A friend of mine sent me this article and I thought it would be appropriate to re-post it here.

 

By JOHN COLLINS RUDOLF

Published: December 22, 2009

 

The author of the Craigslist posting in Las Vegas made no effort to disguise his or her intentions. Skip to next paragraph“Stripping House — Before Foreclosure,” the ad declared, offering potential buyers the cabinets and countertops, the sinks and toilets, the doors, the appliances, the sprinklers. Even the palm and citrus trees in the yard were for sale, with a catch. “You dig,” the author advised.

 

In Nevada and other states hit hard by the housing crisis, stripping fixtures and appliances from homes in foreclosure has become commonplace. Craigslist, the Web site for classified ads, functions as a bazaar where stripped items are sold openly. Often, the stripping is not done by strangers. It is done by the owner, just before the bank forecloses on the mortgage and takes the property back.

If that seems like a situation tailor-made for the police, it is — at least in Arizona, where the Federal Bureau of Investigation has used Craigslist to arrest a handful of people for stripping homes and trying to sell the goods, charging them with felonies under a state fraud statute.

 

In other parts of the country, however, the police are stymied. As it turns out, several troubled states, like Nevada, have no specific criminal prohibition against stripping fixtures from a property before foreclosure. Mortgage contracts do prohibit such behavior, requiring that homes be kept in good order. But violating those provisions is a civil matter, not a criminal offense.

“If the homeowner sells the components to the house while they still own the house, that’s not a crime,” said Officer Bill Cassell, a spokesman for the Las Vegas police.

So too in Florida, another state swamped by foreclosures. Several prosecutors and police agencies there said that unless laws were modified, such behavior would have to be sorted out between borrower and lender in civil court.

 

Even in Arizona, which has an applicable law and where thousands of homes have been stripped, convictions are rare. There, to make a charge stick, law enforcement basically has to catch people in the act, said Julie Halferty, a special agent with the F.B.I. in Phoenix and head of a mortgage fraud task force.

“This window of time can be quite short,” Ms. Halferty said in an e-mail message. “Once homes are abandoned, arguably any number of people can get access and strip the fixtures.”

 

Statistics on foreclosure stripping are elusive, and experts disagree on just how widespread the practice is. Yet even those who play down the number acknowledge that the problem is serious, particularly in housing boom-and-bust areas like central Arizona, southwest Florida and the Las Vegas region.

“Clearly it’s happening, and it’s happening with some frequency,” said John A. Courson, president of the Mortgage Bankers Association.

Banks are largely powerless to stop a homeowner determined to strip a property. Lenders can pursue such homeowners in court, but the expense and difficulty typically outweigh the gain.

 

Though the efforts are scattered and feeble, law enforcement officials are trying in places to stop the practice.

Last April, Randolph Guzman, 42, of Phoenix, was arrested while trying to strip appliances and fixtures from an investment home he owned, shortly before a bank was to hold an auction.

Mr. Guzman posted an ad on Craigslist and found a married couple interested in buying the air-conditioners, kitchen cabinets, ceiling fans and a light fixture for $2,300. They met at the house, in Surprise, a distant Phoenix suburb, and Mr. Guzman accepted a down payment of $400 in cash.

Then he was handcuffed and read his rights. The couple, he discovered, were police officers working undercover with the F.B.I.

Mr. Guzman pleaded guilty to defrauding a secured creditor, a felony. If he completes 18 months of probation, the charge will be reduced to a misdemeanor, he will serve no jail time and pay only a few hundred dollars in court fees.

 

David Michael Cantor, Mr. Guzman’s attorney, called his client’s offense minor when compared with the thousands of homes that have been thoroughly stripped by their former owners.

“I understand why they want to crack down on this stuff, but Randy is small potatoes,” Mr. Cantor said.

After the F.B.I. publicized the arrest of Mr. Guzman and a handful of others caught stripping homes, the number of ads for stripped goods on Craigslist in Phoenix dropped sharply.

“That was our objective — to get the word out that stripping a foreclosed home is illegal,” Ms. Halferty said.

(Craigslist does not vet the postings created by its users, and a spokeswoman, Susan MacTavish Best, said the site had not been contacted by law officials about ads for stripped merchandise. “One wonders how one would know the provenance of each fixture and appliance,” she wrote in an e-mail message.)

 

The police in Las Vegas would like to follow the lead of those in Phoenix, but Nevada law hinders them. “We don’t have the tools to prosecute,” said David Roger, district attorney for Clark County, which includes Las Vegas. “It’s obviously an issue that the legislature should address.” Not all legal experts agree that existing law is insufficient, given that homeowners who strip a house are violating their mortgage contracts. General fraud statutes might be stretched to apply. Yet so far, few prosecutors or the police — dealing with budget cutbacks — are making arrests or bringing cases.

 

The key to reducing the number of homes being stripped, experts suggest, lies not with the law but with lenders.

“If banks focused more on prevention, everybody would be better off, particularly them,” said Kenneth Thomas, a banking consultant in Miami.

Already, some indicators suggest that mortgage servicers are starting to delay the final step in a foreclosure — seizing the home — in part to limit the number of homes being stripped and vandalized.

 

Yet for some areas, it is too late. In several Phoenix suburbs, the stripping of homes appears to have peaked, but not before taking a heavy toll.

In Maricopa, a distant Phoenix suburb that had rapid growth before the crash, new developments were stripped one after another, often in the order they were built, according to Shawn Schlegel, a real estate broker who publishes a weekly community newspaper.

“The same way they built the city is the same way the city got stripped out,” Mr. Schlegel said. “It’s gone through every neighborhood.”

In Florida, the online trade in stripped goods is brisk, no doubt encouraged by the low profile of the police. As in most of the country, sympathy for banks is running low, and opportunism is running high.

 

Some see an upside. Justin Cellini, 29, spent the last year being rejected by lender after lender in his quest for a home loan. Finally, with cash from relatives, he was able to buy a four-bedroom, two-bath house in Hollywood, Fla., that had been stripped by its former occupants.

He paid $111,000. “I’m actually thankful that they stripped the house,” Mr. Cellini said. “It wound up costing me a lot less money in the end.”

He has been refurbishing it on the cheap — by buying fixtures and appliances off Craigslist.

Written by Jack Lewitz | Discussion: 2 Comments »

Mortgage Foreclosure Policy: Past, Present, and Future

This is a follow up to a recent Foreclosure Seminar I attended at the Federal Reserve Bank of Chicago on December 9th and 10th

The two day Seminar was quite impressive and the discussions were even more interesting. 

THE   PAST: 

Home ownership was considered the American Dream.  As desire to own a home increased  the building boom soon followed. As new homes were being build, new buyers entered the housing market.

 New Buyers created a demand for new mortgage products.

 The rapid appreciation of home values fed the the second boom in housing demand.

As more buyers entered the market,  mortgage lenders competed with one another and tried to attract these buyers with exotic mortgage products ( sub-prime, Adjustable Rate, Intrest only, 100% financing) with teaser rates.

The combination of new buyers, higher risk loans, and higher risk capital all created a very competitive housing market. 

Loan originators had no risk because they did not hold onto the loans. They pooled and sold these mortgages to the Secondary Mortgage Market. 

There became a market demand to bundle these high risk loans as security instruments and sell them to investors on Wall Street.

 Private-Labeled securitzation fueled the demand for high risk lending. Sub-prime and Alt-A2 mortgage backed securities increased from $98 billion in 2001 to $814 billion by 2006.

Investors who bought and sold these securities felt home values would compensate for any risk associated with the loans. If a loan went into default the homes value would more than cover the cost of the loan.

 PRESENT:

 More homeowners are falling behind. One in four homeonwers are delinquent on their mortgage. 

Foreclosures are at an all time high and home values are declining as a result.

 The  Government  program to modify loans  “Making Home Affordable Modification Program” (HAMP) has been a failure to date.

Only a fraction of the mortgages on a national basis have been permanently modified.

 Nationally there are over 9 million homeowners in default and to date there are only 728,000 active modifications. Only 31,282 mortgages have been permantly modified across the nation. This means a majority of the modifications remain as trial mortgages.

It is predictated that most of these mortgages will re-default.

Finally, more homes are just being abandoned and left vacant. These vacant buildings cause more crime, continue to lower home values for  neighborhoods.

Future

Most of the experts predict the foreclosure crisis and larger financial crisis to continue well into 2010 .

New Option Arm Loans are due to reset next year, and unemployment will cause more homeowners to fall behind on their mortgage.

Home values will continue to decline and more people will owe more money than their home is worth. 

As more people go into foreclosure neighborhoods, cities, and regions are impacted.

 Vacant buildings that are neglected cause siginificant concern for most city officials. Not only is crime a problem, but the cost to cure the problems is a major concern.

 To address this problem communites are using Neighborhood Stabilization Program (NSP) dollars to buy up foreclosures in the community, demolish homes that are not salvagable, and rent and sell homes to qualified buyers.

It was recommended and generally accepted by most people who attended the seminar that it was best to keep homes occupied.

More effort  is needed to modify loans and keep people from loosing their homes to foreclosure.

The current “Extend and Pretend” policy of lenders needs to be abandoned. As home values continue to decline current mortgages should be re-set at the current market values. 

 Lenders will be required to write-off the difference between what is owed and the current market value in order to keep people in their homes.

 Until this happens, communites most affected will have to find ways to assist people and keep them in their homes.

Better foreclosure prevention programs need to be developed.

 Pilot programs like Annette Rizzo’s court in Philadelphia, where homeowners and lenders are forced to negotiate in a court room, needs to be explored and reviewed to see if it really does help people and stop foreclosure.

Better Credit counseling programs need to be developed where people are taught how to save more money.

Creating New Zoning ordinances and Urban design to help families work and live and prosper together.

Written by Jack Lewitz | Discussion: 4 Comments »

2009 Foreclosure Data: Impact on 5 Counties in Illinois

County map

On Wednesday December 9 and Thursday December 10, 2009 I will be attending a Mortgage Foreclosure Conference in Chicago. This event is being sponsored by The Federal Reserve Bank of Chicago, The Chicago Community Trust, John D and Catherine T. MacArthur Foundation, Neighborhood Housing Services of Chicago, and the Woodstock Institute.

The conference event is titled ” Mortgage Foreclosure Policy: Past, Present, and Future”. The conference will discuss the evolution, current impact, and likely outcomes of foreclosure on homeowners, lenders, housing counselors, secondary mortgage market, and local governments.

As I prepare for this conference I decided to do a little review of the foreclosure market from a point of view as a realtor. I decided to do research on five counties ( Cook, Lake, McHenry, Dupage, Will, and Kane) in Illinois. I plan to bring along and discuss this data at the convention.

The information is deemed to be reliable and comes from both my local MLS and Record Information Services of Illinois.

Single Family Home Sales data from January 1, 2009 through December 3, 2009:

County Total Sales Total # Foreclosure Re-Sales Total # of Short Sales Distressed Sales expressed as % of Total Sales
Cook County 20,730 6,761 2,098 43%
Lake County 4,362 1,073 459 35%
McHenry County 2,023 451 307 37%
Dupage County 4,865 782 527 27%
Will County 4,409 1,170 529 39%
Kane County 2,973 671 414 36%

The table above shows foreclosures are dominating the Real Estate Market in terms of total sales. Foreclosures out number the number Short Sales in every county.

Single Family Foreclosure  from January 1, 2009 through December 3, 2009

County Total #of Foreclosures Total # Foreclosure Re-Sold Remaining # to be Sold
Cook County 12,553 6,761 5,792
Lake County 1,841 1,073 763
McHenry County 1,243 451 792
Dupage County 2,368 782 1,586
Will County 3,095 1,170 1925
Kane County 2,368 671 1,697

The table above is showing total number of foreclosures in each county and then subtracts the number of foreclosures put back on the market and re-sold to new buyers and the number of remaining foreclosures unsold to date. As the data suggests there are more foreclosures that are going to be coming onto the market for re-sale.

Single Family Pre-Foreclosures from January 1, 2009 through December 3, 2009

Cook County Total # of Pre-foreclosure Notices Total # Unsold Foreclosures Total # Potential Foreclosures 2010 Total# Home Sold in 2009
Cook County 23,629 5,792 29,421 20,730
Lake County 3,344 768 4,112 4,362
McHenry County 2,123 792 2,915 2,023
Dupage County 3,758 1,586 5,344 4,865
Will County 4,984 1,925 6,909 4,984
Kane County 4,008 1,697 5,705 2,973

The Table above shows the number of homes who have received some sort of Pre-foreclosure Notice.

Typically a homeowner has to be 90 days past due or delinquent on their mortgage to receive such Notice of Default (NOD).

While many of these homeowners may be trying to modify their mortgage with their lender and never go to foreclosure there are many homeowners unable to modify their mortgage because they are unemployed.

As the data suggests if these pre-foreclosures do become foreclosures and are added to the already unsold foreclosure on the market the combined total will exceed the total sales of single family homes for 2009.

As a realtor it is difficult to see how  the real estate market is going to keep pace with the number of foreclosures. There isn’t enough buyers out there to absorb the number of homes that could potentially come on the market in 2010.

Written by Jack Lewitz | Discussion: No Comments »

How The Real Estate Market Affected One Middle Class Community

year in review

I decided to write about one particular middle class community. This community is a microcosm look at the 2009 real estate market. As we look back at the year we will notice some challenges this community faces.
These challenges are not unique to this community but emphasize the struggle most communities struggled with in 2009.

Community Facts Most Recent Statistics
Number of Residents 12,359
Number of Households 4,343
Percent Owner Occupied 92%
Median Family Income $83,657
Average Home Price 2009 $394,767

The information above provides the basic information on a typical middle class community. The name shall remain anonymous for many reasons. The name is not important, what is important is how a typical middle class community is being affected by foreclosures.

2009 Real Estate Market (Information is deemed to be reliable and comes from the MLS)

Sales Type # of Active Listings # Pending Sales # of Single Family Sales
Totals 101 25 88
Short Sales 14 7 11
Bank Owned 3 0 22
% Distressed 17% 28% 38%

As we can see from the table above 17% of all active listings are either Short Sales or Bank owned properties and foreclosures represent 38% of all sales during the last year.

According to Record Information Services, a Real Estate Service that searches public information and tracks foreclosures in all counties in Illinios, there were 42 homes in this community that went into foreclosure.

Only half of these homes 22 have come back on the market and have re-sold according to the MLS. Another 20 homes are waiting to come on the market.

If all of these foreclosures were to enter the market at the same time the number of Active Foreclosures would increase from 17%  to 30% of all Active listings.

What affect does this number of foreclosures have on a middle class community?

Well it will definitely bring down prices of homes.  According to the MLS the average sale price of a home has declined 15% in this community in  2009.

What will the outlook be for 2010? We will just have to wait and see…

Written by Jack Lewitz | Discussion: No Comments »

What Do You Do When A Fellow Realtors Name Appears on Foreclosure List?

national_association_of_realtors_logo

What should you do when you see a fellow realtors name appear on a foreclosure list and you notice they have the property listed for sale with the proper disclosure of being owned by a realtor but not be marketed as a pre-foreclosure Short Sale?

As a realtor who specializes in Short Sales and Foreclosures I realize that not all realtors are alike nor do they possess the knowledge to be successful in marketing, negotiating, a short sale particularly when they are a principal in the tranaction.

So what do you do. Do you call the agent or not? That is a dilemma I am currently faced with and I am pondering over my decision to call or not call the person.

I know as a Realtor we are no different than other sellers who are faced with the decision to sell a home rather than go into foreclosure.

So how do you reach out to someone who is a professional like yourself and offer advise if nothing else. I feel kind of compelled to help but should I stick my nose where it should not go?

Something should be done and done with some tact but I find the more I work with sellers and buyers in this market there only a handful of people who you can really help. Some people refuse to listen, accept the help, or in denial.

Its almost as if you have to go through the stages of loss according to Kubler-Ross. First stage is anger and then acceptance. Those people who are willing to accept the loss of a home can be helped, while those who remain angry, can never be helped.

Anyway, I have gone off a little bit and want to get some opinions from people about what they would do in this situation?

Written by Jack Lewitz | Discussion: No Comments »

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