Category Archives: House Flips

A Review of Recent Trustee Sale Purchases and Flips in Irvine

Today's featured property is part of a growing trend toward Trustee Sale flipping as lenders finally foreclose on many defaulting owners.

73 West ARDMORE Dr kitchen

Irvine Home Address … 73 West ARDMORE Dr Irvine, CA 92602

Resale Home Price …… $528,000

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{book1}

Let me be your rock

I can be the pillar of strength that you need

I'll help you keep it all together

It's better late than never

Lay your world on me

I can take the weight

Lay Your World On Me — Ozzy Osbourne

When I first started writing for the blog, I wanted to save people from buying when prices were too high. As prices moderate, I want to put those families that waited into houses at fair prices. Examining the alternatives, Trustee Sale buying puts families into homes at the lowest possible price; therefore, providing this service becomes a high priority.

When I set out to find a Trustee buyer to serve the IHB community, I wanted someone who was very experienced, fiscally conservative, detail oriented, and calmly confident. Trustee Sale buying is no arena for the inexperienced and foolishly aggressive who skip important research and get overly excited when bidding starts, particularly if the Trustee Sale buyer is working for others.

I turn to Brian Cassingham, a friend and former co-worker at The Shopoff Group, where he served as corporate broker. I worked closely with Brian on the due diligence investigations of a number of large, complex land deals. He earned my respect and confidence with his meticulous preparation and thorough research. In short, he is the ideal Trustee Sale buyer.

When I first talked with Brian about buying for clients at Trustee Sales, he was not enthusiastic. He has been approached by various parties with cash looking for someone to partner with to flip houses, but being busy with his own deals, he was not in need of capital and not excited about flipping for others. As we talked further, I told him of my desire to put families into foreclosures at reduced prices, and I piqued his interest. As it turns out, doing good for people still motivates.

I asked Brian to prepare a post introducing himself and sharing some of his observations of the Irvine Trustee Sale market. The remainder of this post is by Brian Cassingham.

Buying Foreclosures

As a longtime buyer of foreclosures, I am often asked if it is possible to get a great deal on a foreclosure in a declining real estate market. The answer, I’m glad to say, is yes. There are many ways to buy a foreclosure. You can buy from the borrower in default, the lender, and the government. You can buy at the foreclosure sale. You can even buy a defaulted note and foreclose on it yourself. I have acquired property using each of these strategies, and in the current market, the best way to get a deal on a foreclosure is at the Trustee Sale.

Buying from the borrower in default can be successful, but also problematic. In this market, it is a challenge to find a defaulted borrower not under water, and if there is no equity, there is no deal. Sometimes, especially when they do have some equity, they remain in complete denial of their situation and ignore what is coming — “this could never happen to me, no one would actually take my home away.” I’ll never forget what a man said to me when I knocked on his door (actually at that point it was my door) to inform him that I was the new owner of the property. With complete seriousness, he said “You mean I don’t own my house anymore? Where do I go to get a check for my equity?”

Buying from the lender has long been a staple of foreclosure buyers. Not so long ago, when a property I was interested in was acquired by the bank, I could pick up the phone and make an offer. Now, it is nearly impossible to get a human to answer, if you can even find the right phone number. To deal with the sheer numbers of REOs (Real Estate Owned by lenders), lenders typically use asset managers and brokers, who list REOs on the Multiple Listing Service, for prices a lot closer to full market value than in the good old days.

When done right, buying at the Trustee Sale has remained a very effective way to go. I have made some outstanding deals at the Trustee Sale. The cream of the crop for me is a triplex in Santa Monica I bought at a Trustee Sale some years ago. I was quite pleased, to say the least, when no other bidders appeared at the sale and I merely had to bid a penny more than what was owed to the lender. I picked it up for less than $250K, and it is now worth 7 figures.

These days, with home values down significantly from their peaks during the housing bubble, buying at the Trustee Sale remains an excellent way to buy, and the reasons are simple; lenders are highly motivated to slow their ever growing stockpile of REOs, and with financed buyers excluded from Trustee Sales, they know they have to offer significant discounts to motivate all cash Trustee Sale buyers to buy.

Banks Just Say No to REO

Banks hate REOs. They trap capital, they are expensive to maintain, and they are a paperwork nightmare. Record foreclosure rates in recent years have led to record numbers of bank owned properties, far more than banks are set up to handle. Add to this the extremely high volume of short sale offers being submitted to banks for approval, and they are simply swamped with work. At a time when banks are being pressured to tighten up procedures and cut costs, their loss mitigation departments have unprecedented workloads.

What do lenders do, therefore, to avoid more REOs? With the limited success of recent loan modification efforts, there is only one effective solution: lower the opening bids at their Trustee Sales to increase the chances that a third party will take the property off their hands. And as lenders quicken the pace of foreclosure, it is likely they will continue to discount heavily in the Trustee Sale market, as this is less costly than taking on yet another REO and processing it through an already overburdened system. This will provide significant opportunity for cash buyers active during the next several years.

Dropping the Opening Bid

By law, lenders can start the bidding at the Trustee Sale at the total amount they are owed, including principal, interest, late fees, Trustee’s fees, and a myriad of other fees allowed by the promissory note and deed of trust. But lenders also know the obvious: if they start the bidding at an amount above the value of the property, they are assured of yet another REO.

In most cases, therefore, the lender will reduce the amount of opening bid from the amount owed (usually the amount published in the Notice of Trustee Sale) to an amount they hope will attract bids from third parties. Often the amount the opening bid is dropped is significant, and this is where the great deals can be had. In the last four months there were 52 Irvine properties acquired by a third party at Trustee Sale. Of those, the lenders dropped the opening bids on 45 of the sales, and most of these were to an amount significantly lower than the market value of the property.

Show Me the Deals!

That’s a great start, but how good were the resulting deals? How did the winning bids compare to the property’s market values? Let’s take a look some actual Trustee Sale deals in Irvine in the last four months:

10 Foxcrest

10 FOXCREST   Irvine, CA 92620  front 10 FOXCREST   Irvine, CA 92620  kitchen

In October 2009 the 4 bedroom 3 bath house located at 10 Foxcrest in Irvine was purchased by a third party at the Trustee Sale.

The original published bid by the lender was $856,504, but prior to the sale the lender dropped the opening bid to $752,200. The price was bid up a bit at sale, and the winning bid was $796,600. On December 12, just 53 days later, the buyer sold the property and closed escrow at a quick sale price of $940,000, more than $170,000 more than he or she paid for it.

4182 Fireside Circle

4182 FIRESIDE Cir   Irvine, CA 92604  front 4182 FIRESIDE Cir   Irvine, CA 92604  kitchen

Also in October of ‘09, the 4 bedroom home at 4182 Fireside Circle in Irvine went to Trustee Sale.

Following a published bid of $840,467, the lender had dropped opening bid to $403,200. The buyer’s winining bid was $498,000, and only 36 days later, the buyer flipped it and close escrow at $625,000. That is more than a 20% discount at Trustee Sale.

92 Townsend

In December of ’09 a buyer got an excellent Trustee Sale deal on an upper end 3 bedroom 3 bath condo located at 92 Townsend in Irvine. Recent market comparables indicate a value in the mid $500,000s, but the buyer bought it for $451,000, after the lender dropped the opening bid by almost $250,000.

21 Tangelo #288

21 Tangelo 288 front 21 Tangelo 288 kitchen

A buyer got a sweet deal on lower end condo at the Trustee Sale last month.

The one bedroom unit located at 21 Tangelo Number 288 had an original opening bid of $293,673. When the lender dropped the opening bid to just $148,011, there was just one bidder, who got the place by increasing the opening bid by one cent. 25 days later the property, with an asking price of $224,900, is already in escrow.

These deals are real and happening today

Needless to say, I picked some of the better deals for this post. While there are no guarantees that you would get a similar deal at a Trustee Sale, these deals are far from unique or unusual. The buyers did their homework, came to the Sale prepared, and took advantage of the opportunities when they presented themselves. As you probably noticed, most of the examples I picked were properties that were flipped a short time later. I chose them because the fact that they were resold – quickly — clearly illustrates the extent to which they were purchased under market value.

There were undoubtedly other homes that buyers purchased to occupy. In fact, I would argue that these buyers got an even better deal. They won’t have marketing and resale costs, and their assessed property tax value is significantly less than it would be if they paid retail. This will save them many thousands of dollars in property taxes over their ownership tenure. In fact, families that intend to occupy are who Ideal Home Brokers’ Trustee Sale Service seeks to help most. We are happy to work with investors, but it is our aim to provide homebuyers with greater opportunities to buy at lower prices in Irvine and greater Orange County.

Today's featured property is yet another example of what is occuring at Trustee Sales.

73 West ARDMORE Dr kitchen

Irvine Home Address … 73 West ARDMORE Dr Irvine, CA 92602

Resale Home Price … $528,000

Income Requirement ……. $110,951

Downpayment Needed … $105,600

20% Down Conventional

Home Purchase Price … $421,700

Home Purchase Date …. 12/2/2009

Net Gain (Loss) ………. $74,620

Percent Change ………. 25.2%

Annual Appreciation … 142.8%

Mortgage Interest Rate ………. 5.13%

Monthly Mortgage Payment … $2,301

Monthly Cash Outlays ………… $3,020

Monthly Cost of Ownership … $2,410

Property Details for 73 West ARDMORE Dr Irvine, CA 92602

Beds 3

Baths 2 full 1 part baths

Home Size 1,569 sq ft

($337 / sq ft)

Lot Size 1 sq ft

Year Built 2000

Days on Market 9

Listing Updated 1/28/2010

MLS Number P719165

Property Type Condominium, Residential

Community West Irvine

Tract Othr

''''Standard Sale'''' Super Floorplan!! 3 bedroom with 2.5 bath. Spacious Living room with Fireplace, Kitchen with Breakfast Counter and Computer Desk. Nice Hardwood Floor, Fresh painted, New Carpet, Large Master with Huge Bath Area. Bright & Airy, Nice size Patio. '''''''Gated Community''''

Irvine Housing Blog No Kool Aid

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing the Irvine home market and combating California Kool-Aid since 2006.

Have a great weekend,

Irvine Renter

Government Prepares for Foreclosure Onslaught: FHA's 90-Day Flip Rule is Reversed

Flippers can now sell to FHA borrowers which should help lenders move their bloated inventories. Today's featured property is another Trustee Sale flip.

7 E Smokestone 3 Irvine, CA 92614 kitchen

Irvine Home Address … 7 SMOKESTONE 3 Irvine, CA 92614

Resale Home Price …… $348,000

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{book1}

He made a giant mess

Sloppy disaster

And he left it for the rest

To clean up after

Now the lawyers do their best

To try to divvy up

What's ever left

In the ending you can bet

Everyone feels cheated

Kiss your ass good-bye

Boy you're out of time

You didn't choose life

It's just your luck

You got your turn now

Give it up and

Kiss your ass good-bye

Kiss Your Ass Goodbye — Styx

As we have been watching the Trustee Sale market more closely, we observe a recent trend toward speeding foreclosure. No, lenders are not issuing Notices of Default (NOD) any quicker — there is still massive shadow inventory — but lenders are proceeding to Trustee Sale at a brisk pace once the NOD is filed. In early 2009, most auctions were delayed, and many were delayed several times. Not anymore. The majority of Trustee Sales in Irvine are occurring at their scheduled date with no postponements.

With the huge influx of inventory coming our way, our government is removing any impediments to moving properties quickly through the system. One of these impediments is the 90-day no-flip rule at the FHA, HUD TAKES ACTION TO SPEED RESALE OF FORECLOSED PROPERTIES TO NEW OWNERS:

"In an effort to stabilize home values and improve conditions in communities where foreclosure activity is high, HUD Secretary Shaun Donovan today [January 15, 2010] announced a temporary policy that will expand access to FHA mortgage insurance and allow for the quick resale of foreclosed properties."

There is a rule, widely known among property flippers, that prevents FHA financing from being used on properties sold in the last 90 days (actual FHA regulation):

(b) Time restrictions on re-sales—(1) General. The eligibility of a property for a mortgage insured by FHA is dependent on the time that has elapsed between the date the seller acquired the property (based upon the date of settlement) and the date of execution of the sales contract that will result in the FHA mortgage insurance (the re-sale date). The mortgagee shall obtain documentation verifying compliance with the time restrictions described in this paragraph and must submit this documentation to HUD as part of the application for mortgage insurance, in accordance with §203.255(b).

(2) Re-sales occurring 90 days or less following acquisition. If the re-sale date is 90 days or less following the date of acquisition by the seller, the property is not eligible for a mortgage to be insured by FHA.

(3) Re-sales occurring between 91 days and 180 days following acquisition. (i) If the re-sale date is between 91 days and 180 days following acquisition by the seller, the property is generally eligible for a mortgage insured by FHA.

From HUD Press Release:

The waiver will take effect on February 1, 2010 and is effective for one year, unless otherwise extended or withdrawn by the FHA Commissioner. To protect FHA borrowers against predatory practices of "flipping" where properties are quickly resold at inflated prices to unsuspecting borrowers, this waiver is limited to those sales meeting the following general conditions:

  • All transactions must be arms-length, with no identity of interest between the buyer and seller or other parties participating in the sales transaction.
  • In cases in which the sales price of the property is 20 percent or more above the seller's acquisition cost, the waiver will only apply if the lender meets specific conditions.
  • The waiver is limited to forward mortgages, and does not apply to the Home Equity Conversion Mortgage (HECM) for purchase program.

Flippers everywhere are rejoicing, but they aren't the only ones; fraudsters everywhere must be figuring out how they can game the system. Interesting that official policy and language at HUD and FHA considers flipping "predatory." It is clear from the language they chose that authorities at the FHA are not keen on flippers.

I am a bit unclear on how the predation takes place. If it is an arms-length transaction, and the appraisal is legitimate supporting the value, isn't the flipper merely converting a property back to cash?

I suspect this rule and its repeal are a reaction to retail flippers as I described in The Changing Face of Flipping. If you encourage retail flipping — which this rule change does — it merely inflates prices for families — an arguably predatory practice — but if you encourage Trustee Sale flipping, it provides market liquidity at Trustee Sales where families are generally excluded anyway. IMO, it would have been much wiser to simply carve out an exclusion for Trustee Sales or Mortgage auctions, but that isn't the route the FHA is going. Perhaps the change is also a recognition of lender's new role as property flippers; the more money flippers make, the more money lenders recover from their real estate owned (REO).

Been there done that

Today's featured property was for sale last fall for $300,000, and for whatever reason, it did not transact (2007 Knife Catchers). The current flipper is hoping it had short-sale bids at $350,000 but the lender wouldn't approve the sale.

Should you buy it?

Let's say you make $75,000 a year, and you have $12,000 in liquid savings plus other reserves. You could buy today's featured property for $350,000 and have your monthly cost of ownership top out at $1,750 per month. That is a reasonable DTI at or near rental parity.

If you purchase today, you will be able to afford a fully amortized payment and you will build financing equity by paying off the mortgage, but that is reflected in the $2,380 you are actually spending each month to live there. If the total monthly cash outlays were equal to rent — with prices at cashflow investor levels — then I might be interested, but to simply tread water with a forced savings account is something I could do in a rental, and I have no downside risk.

Saving money versus renting is the financial consideration that should pique the interest of buyers purchasing properties they would not want to live in long term. It isn't an appreciation play, it is a savings play. You don't bank thousands per month for nothing via appreciation, you bank what you can out of your wage income by paying down a mortgage or saving versus renting. It isn't as easy, and it isn't as glamorous, but it is our future.

The buyer of a property like this one should be entering the market well below rental parity in order to save downpayment money for the big house they want later. Renting is not the only path to income savings; owning can be a path to increased savings if the focus is on savings versus renting, but most people don't look on ownership as a cost-saving opportunity because during the bubble, they didn't have to — ownership itself was enriching.

Buying this property only makes sense as an investment if you believe rents will go up, inventory at lower prices will dry up, and therefore resale prices will go up. It is a foolish appreciation play. An owner-occupant might do as well as a renter if they hold for five years, and perhaps better if they hold longer. There is the intangible element of "owning," but second-story apartment condos don't exude pride-of-ownership like more desirable detached properties. Do you want to spend the next 5 years here?

(pictures below are from the previous listing and do not reflect any pergraniteel installed by the flipper)

7 E Smokestone 3 Irvine, CA 92614 kitchen

Irvine Home Address … 7 SMOKESTONE 3 Irvine, CA 92614

Resale Home Price … $348,000

Income Requirement ……. $73,127

Downpayment Needed … $12,180

3.5% Down FHA Financing

Home Purchase Price … $295,000

Home Purchase Date …. 10/23/2009

Net Gain (Loss) ………. $32,120

Percent Change ………. 18.0%

Annual Appreciation … 50.6%

Mortgage Interest Rate ………. 5.13%

Monthly Mortgage Payment … $1,830

Monthly Cash Outlays ………… $2,380

Monthly Cost of Ownership … $1,750

Property Details for 7 SMOKESTONE 3 Irvine, CA 92614 http://www.irvinehousingblog.com/wp-content/uploads/2008/02/turkey.JPG

Beds 2

Baths 1 full 1 part baths

Home Size 917 sq ft

($379 / sq ft)

Lot Size n/a

Year Built 1980

Days on Market 4

Listing Updated 1/27/2010

MLS Number S603193

Property Type Condominium, Residential

Community Woodbridge

Tract Pv

Quiet,inside loop location. This turnkey Upper end unit with good size balcony is at one of the best locations in Woodbridge. It is facing the park with pool and spa and only a few blocks from beautiful South Lake Beach Club, Lagoon, tennis club, and Meadowpark Elementary School. There are over $15,000 of upgrades throughout… New hardwood flooring, New paint, New granite kitchen countertop, brand new waterheater and furnance. Move In condition.

I am in favor of compounding words, but "waterheater?"

furnance? Is that like flaming finance?

Furnance: the place toxic mortgages burn and smolder in the Federal Reserve's vault.

The Changing Face of Flipping

Are flippers the scourge of the earth, or are they capitalists exercising their freedom to make money? Depending on the circumstances, most flippers are somewhere in between.

388 FALLINGSTAR 39 Irvine, CA 92614 kitchen

Irvine Home Address … 388 FALLINGSTAR 39 Irvine, CA 92614
Resale Home Price …… $549,000

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{book1}

Dear Prudence, won’t you come out to play
Dear Prudence, greet the brand new day
The sun is up, the sky is blue
It’s beautiful and so are you
Dear Prudence won’t you come out to play

Dear Prudence open up your eyes
Dear Prudence see the sunny skies
The wind is low the birds will sing
That you are part of everything
Dear Prudence won’t you open up your eyes?

Look around round round
Look around round round
Oh look around


Dear Prudence
— The Beatles

Flips first attracted me to the Irvine Housing Blog. My wife discovered the IHB in November of 2006, and showed me property flips Zovall and IrvineSingleMom were profiling. I found flips funny because I foresaw flippers in the bag with bubble kool aid enduring equity seizure, and sadly to say, I enjoyed the schadenfreude (and picking on floplords).

Some notice that my attitudes and opinions about many facets of the housing bubble change over time. As circumstances change, new information becomes available, and hopefully with a small measure of wisdom from seeing a bigger picture, my views change — hopefully improve. Over the last year, I have been maligned by bulls for “missing the bottom” and various other spurious claims, and I have been attacked by the bears for losing my purity of vision and accepting that massive unprecedented government intervention may make the most dire of my prognostications unlikely. At times I feel like a politician hearing criticism from both extremes, but unlike a politician, I don’t have to please anyone; I need only report what I see and what I believe.

With that preamble, I want to look at flipping and relate my current opinion on the most common forms.

Knife Catcher Award

Retail Flipping

Retail flipping is the kind where a flipper purchases a normal resale home, does nothing with it while withholding it from the market briefly, then attempts to resell at a profit. Some will argue retail flipping is capitalism and the flipper earns money through taking risk. Fair enough, but consider the impact this has on families.

In a market without flippers, demand is lower, and so are prices. If a family buys a home, they pay less money, and any increase in value improves the family balance sheet. Contrast this to a flipper who is reselling for a profit; any increase in home value improves the flipper’s income statement, not his balance sheet. This income is robbed from the collective equity of families and instead is converted into flipper income, which in turn, provides a way of life for a person providing no tangible value to society (like realtors).

If retail flipping did not exist, many thousand people would no longer make money for nothing, and they would go find productive work.

Rehab Flipping

Rehab flippers, like many who watch HGTV, are at least attempting to add value to make a living. Most people who slap pergraniteel on property believe they are adding huge value, and many make a profit who have done this; however, the profit came not because they added great value, but because appreciation made money for everyone. The linkage of cause and effect — pergraniteel adds value — is deficient because improvements add about seventy cents value per dollar spent, and appreciation turns the loss into a gain — something painfully obvious to those who attempted rehab flipping since 2006.

The people who consistently make money rehab flipping are professionals who can add improvements at wholesale. For instance, a general contract can use his or her own crews to perform work at a cost less than its value resulting in profit. Only those with special advantages — or those willing to put in sweat equity — can make money this way.

Entrepreneurs investing their own time and effort to add value and make a profit are admirable, and when we see families doing it on HGTV, we can all relate. Wow! We can do that! We could either make money, or we could improve our balance sheet.

I have no problem with good rehab flipping that requires risk and special expertise. If these operators did not exist, our housing stock would quickly run down in marginal areas, and once dilapidated, it would never recover; think Detroit. Since retail flippers can’t make a living in a non-appreciating market environment, rehab flipping and Trustee Sale flipping will be the only successful flips over the next decade.

Trustee Sale Flipping

Trustee Sale flipping has the same dynamic as a rehab flip; a buyer risks cash to make a profit and takes special advantage of their cash.

Cash is king.

When a property is going to Trustee Sale, it is either going to be purchased by the first lien holder’s (lender’s) opening bid, or a third party must bid higher. In most cases these properties discount significantly from resale, and either the bank or the third party is going to obtain the resale finance market premium for buying at Trustee Sale: the bank hopes the additional funds will cover their processing losses and help them recover capital; the third-party buyer hopes to make a profit. Banks hope to improve their balance sheets while flippers improve their income statements.

Income Statement or Balance Sheet

The disdain for retail flipping and the delight in family rehab flipping are rooted in its impact on a family’s balance sheet. Retail flippers profit at the expense of family balance sheets, and family rehab projects improves it, but what about Trustee Sale flipping?

For reasons discussed at length in Foreclosure 101: Mechanics of a Trustee Sale, families rarely bid at Trustee Sales; consequently, Trustee Sales have no impact on family balance sheets. One of the things that appealed to me about offering a Trustee Sale Service was that we could put families into Trustee Sales, and the discount from resale is added to a family’s balance sheet rather than a bank’s balance sheet or a flipper’s income statement.

Have I gone soft on flips because I can make money off them? Perhaps I delude myself, but I don’t think so. When I put a family into a Trustee Sale and put equity on their balance sheet, I will feel I earned my fee.

388 FALLINGSTAR 39 Irvine, CA 92614 kitchen

Irvine Home Address … 388 FALLINGSTAR 39 Irvine, CA 92614

Resale Home Price … $549,000

Income Requirement ……. $115,104
Downpayment Needed … $109,800
20% Down Conventional

Home Purchase Price … $423,000
Home Purchase Date …. 11/4/2009

Net Gain (Loss) ………. $93,060
Percent Change ………. 29.8%
Annual Appreciation … 109.0%

Mortgage Interest Rate ………. 5.11%
Monthly Mortgage Payment … $2,387
Monthly Cash Outlays ………… $3,200
Monthly Cost of Ownership … $2,560

Property Details for 388 FALLINGSTAR 39 Irvine, CA 92614

Beds 3
Baths 2 full 1 part baths
Home Size 1,411 sq ft
($389 / sq ft)
Lot Size n/a
Year Built 1985
Days on Market 5
Listing Updated 1/19/2010
MLS Number S602409
Property Type Condominium, Townhouse, Residential
Community Woodbridge
Tract Sg

Gorgeous end unit townhome with hardwood floor. All newly upgraded/installed: Kitchen cabinets,Granite countertop,carpet,paint,baseboard,water heater,light switches,door knobs,blinds. No mello Roos assessment. Move-in ready.

Now that I point out the word “gorgeous,” do you see how overused it is?

{adsense-ir}

This flipper is likely to discount this property to sell it quickly, but a significant amount of that $93,060 will be made, and it could have gone to provide security to a family instead.

Just Sayin’

Irvine Housing Blog No Kool Aid

I hope you have enjoyed this week, and thank you for reading the Irvine Housing Blog: astutely observing
the Irvine home market and combating California Kool-Aid since
2006.

Have a great weekend,

Irvine Renter

IHB News 1-23-2010

We launch Ideal Home Brokers Trustee Sale Service today, and not-coincidentally, we have a Trustee Sale purchase being flipped. We can put families with cash in properties at Trustee Sale prices instead of flippers.

7 MOON DUST 25 Irvine, CA 92603 kitchen

Irvine Home Address … 7 MOON DUST 25 Irvine, CA 92603

Resale Home Price …… $535,000

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{book1}

We have cleared off the table

The leftovers saved,

Washed the dishes and put them away.

I have told you a story

And tucked you in tight

At the end of your knock about day.

As the moon sets its sails

To carry you to sleep

Over the midnight sea,

I will sing you a song no one sang to me

May it keep you good company?

You can be anybody that you want to be

You can love whomever you will.

You can travel any country

Where your heart leads

And know I will love you still.

Everything Possible — Shaina Noll

IHB News

A long time reader of the Irvine Housing Blog recently contacted us for our support.

Todd Larsen, director of the Irvine Music Academy has been struck with leukemia at age 44. He was the family's sole wage earner taking care of his wife and 10 month old son by teaching music and coaching swim lessons in Irvine.

Thankfully Todd has great health insurance but unfortunately did not have disability insurance. As you can imagine his family's world has been turned upside down. The Irvine community has been holding walk-a-thons and auctions to help the family make ends meet. (Click below to read more about how the Irvine community is rallying around the family – the second link is to Todd's blog where tickets to the event can be purchased.

http://www.ocregister.com/articles/larsen-todd-family-2606906-leukemia-supporters )

http://toddrockinleukemia.blogspot.com/

Members of IHB team will be attending the event at the House of Blues in Anaheim (Downtown Disney) on February 1st starting at 6pm and we have purchased extra tickets and invite any readers that would like to attend with us to contact Shevy Akason, shevy.akason@evergreenrealty.net to reserve a ticket to attend with the IHB Group. Or if you would like to attend on your own, tickets to the event can be purchased on Todd's blog at http://www.toddrockinleukemia.blogspot.com/.

Housing Bubble News from Patrick.net

Banks start foreclosure on 1,500 Orange County mortgages and High End Auction Properties Abound.

$1 million-plus houses in Orange County repo pipeline (mortgage.freedomblogging.com)

One in seven U.S. mortgages foreclosing or delinquent (reuters.com)

F.H.A. to Raise Standards for Mortgage Insurance (nytimes.com)

Housing Starts, Vacant Units and the Unemployment Rate (calculatedriskblog.com)

Obama to Propose New Limits on Banks (online.wsj.com)

The End of Wall Street As We Know It (blog.newsweek.com)

Wall St. Weighs Legal Challenge to Proposed Bank Tax (nytimes.com)

Goldman delays bonus decision (reuters.com)

Bankers Without a Clue (nytimes.com)

Moral Hazard and the Crisis (newyorker.com)

Homebuilding

Housing starts in 2009 worst since World War II (csmonitor.com)

Builders, buyers embrace smaller houses (marketwatch.com)

$75 Oil Cannot Support House Construction in Burbs (mybudget360.com)

Housing market's recovery to be slow, builder convention told (signonsandiego.com)

Warren Buffett's thoughts on bailout, housing, tax (nypost.com)

China

China and the U.S.: Dysfunctional Real Estate Bubble Twins (Charles Hugh Smith)

What Are the Costs of China's Currency Policy? (knowledge.wharton.upenn.edu)

Japan, China, Greece and Geithner (theautomaticearth.blogspot.com)

Rogers Says Hong Kong Property in Bubble (businessweek.com)

Hong Kong Leads Gains in Global House Prices (bloomberg.com)

Canada

Strength of Canadian housing market questioned (albertalocalnews.com)

Forclosed Whistler ski resort to auctioned during Vancouver Olympics (olympics.thestar.com)

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More bank failures expected in 2010 (therealdeal.com)

Failing Banks Offer Good CD Rates And FDIC Guarantee (financemymoney.com)

Joseph Stiglitz: 'We're More Strict With Our Poor Than With Our Banks' (huffingtonpost.com)

Poll Results from MA: Voters Think Obama Sides With Banks (thepeoplesvoice.org)

Obama Wades Deeper Into Banking Debate (nytimes.com)

7 MOON DUST 25 Irvine, CA 92603 kitchen

Irvine Home Address … 7 MOON DUST 25 Irvine, CA 92603

Resale Home Price … $535,000

Income Requirement ……. $112,168

Downpayment Needed … $107,000

20% Down Conventional

Home Purchase Price … $452,100

Home Purchase Date …. 1/4/2010

Net Gain (Loss) ………. $50,800

Percent Change ………. 18.3%

Annual Appreciation … 220.0%

Mortgage Interest Rate ………. 5.11%

Monthly Mortgage Payment … $2,326

Monthly Cash Outlays ………… $3,130

Monthly Cost of Ownership … $2,510

Property Details for 7 MOON DUST 25 Irvine, CA 92603 http://www.irvinehousingblog.com/wp-content/uploads/2008/02/turkey.JPG

Beds 2

Baths 2 full 1 part baths

Home Size 1,525 sq ft

($351 / sq ft)

Lot Size n/a

Year Built 1982

Days on Market 8

Listing Updated 1/20/2010

MLS Number P718065

Property Type Condominium, Residential

Community Turtle Rock

Tract Rb

Great Townhome in Prestigious Turtle Rock Community. Desireable corner location with a bright lit and welcoming living room, dining room, open kitchen and family room layout, fireplace, and stainless steel applianes. Within a quiet community featuring a swimming pool, spa, walking trails and tennis courts. Standard Sale, not an REO or Short-Sale! Turnkey Property! Perfect for first time home buyers and/or investors.

Desireable? applianes?

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Check out that rate-of-return. If you make a huge profit in a short period of time, that is what happens. No wonder flippers are everywhere….

Foreclosure 101: Vesting Title

Today is the first in a three-day series on the foreclosure process. We will look at the legal aspects of home ownership and peek at a Northpark flip.

103 TERRA BELLA Irvine, CA 92602 kitchen

Irvine Home Address … 103 TERRA BELLA Irvine, CA 92602
Resale Home Price …… $449,000

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It’s mine it’s mine it’s mine
I can do whatever ever
I can do whatever ever

Give me lots of toys
So it don’t matter to me
This property belongs to me
And only me, let me break it down baby

It’s mine
I can give it if I want it
It’s mine
It don’t matter if they want it
I can give it to them
I can take it back (back)
It don’t matter ’cause I got it like that


It’s Mine
— Girlicious

Ownership is primal. The first two words children learn in any language are “no” and “mine.” People have an deep intuition of what is theirs and what is not. Emotionally, It’s Mine defines ownership; in the real world, it is not so black and white.

When people own real estate, what they really “own” is a bundle of property rights. What rights are the bundle, and how are these rights held? Today, I want to take a step back and review real estate law and outline property rights and vesting title. As I recently took the excellent Broker’s review course from Real Estate Trainers, much of the legalese comes from their study manual.

Foreclosure 101: Vesting Title

Foreclosure 101: Non-Judicial Foreclosure

Foreclosure 101: Mechanics of a Trustee Sale

Who or what is an Owner?

The Owner of Real Property can be (1) an individual owning in his or her own name; (2) a group owning together either as Community Property, Tenants in Common, or Joint Tenants; (3) an entity such as an LLC or a Corporation, (4) or a living trust.

Many people hold unshared title in their own name, and it is not limited to singles as many married owners in California are listed as either a man or a woman owning as “sole and separate property.” This distinction is important in a Community Property state like California where it is assumed that husband and wife act as a family unit with ownership apportioned equally between the two parties. In instances of inherited wealth, prenuptial agreements, or other business dealings, spouses often buy and sell property in their own name; however, these separations are tenuous in a marriage, and in hostile divorces, sole and separate can be anything but.

Tenants in Common is the most common form of multi-party ownership other than Community Property. Each Tenant in Common can dispose of their share of ownership as they see fit including passing it to descendants upon death. This stands in contrast to Joint Tenants where the death of one tenant causes their share of ownership to pass automatically to the other. Joint Tenancy is more common as a form of spousal ownership in states without Community Property laws.

Investors and others hoping to limit liability and remain somewhat anonymous often buy and sell real estate through special entities. These entities have the legal status of individuals capable of entering into contracts including owning real estate. There are advantages and disadvantages of using entities, and anyone considering doing so should consult an attorney and a tax advisor.

Another way people hold title is through a living trust. The trust itself holds title just as an individual or entity would, the main feature of living trusts, which make them a desirable method of holding real estate, is that property can transfer upon death directly to the heirs avoiding probate.

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What does an Owner Own?

An owner, to the exclusion of all others, has a bundle of rights: possess, use, sell, enter, give away, lease, encumber, dispose, exclude or, do nothing subject to governmental powers and claims of others, and the owner may dispose of the whole bundle or any one of these rights at any time. Ownership can be held in a number of ways known as Estates, of particular interest to us is the perpetual Freehold Estate; it has no termination date and no party to accept ownership after reversion as does the Less-Than-Freehold estate known as a lease.

Most homeowners possess a Freehold Estate known as a Fee Simple Estate or Fee Simple Absolute where the owner holds title without any qualifications. In my description of property rights above, I mention ownership is subject to claims of others, the most common being the mortgage encumbrance. Owners whose properties are encumbered by Trust Deed (similar to mortgage) also signed a Promissory Note with a lender stating they will pay back borrowed funds according with terms and conditions described in the Note. These owners still possess a Fee Simple Estate, but the mortgage lien is such an onerous encumbrance that an argument can be made that lenders are owners, and owners are money renters.

Trustee sale occurs because borrowers, for whatever reason, are not meeting their financial obligations. A process is set in motion when borrowers default leading often to a change in ownership either through (1) market sale, (2) short sale, (3) deed-in-lieu (legal abandonment) or (4) trustee sale.

Mortgage or Deed of Trust?

The legal system of Mortgages and Promissory Notes identifies the parties to the transaction and establishes rights and responsibilities. There are two basic systems from managing the complexities: Mortgage or Trust Deed. In California as in some other states, we have a Trust Deed system, but since it is the more complicated of the two, I will address the Mortgage system first.

The Mortgage system is simple; the borrower signs a Promissory Note and issues a Mortgage to the lender. The borrower is the Mortgagor, and the lender is the Mortgagee. The borrower still holds title, and if the lender desires to force foreclosure auction, they must petition in court as any other litigant would. I can only imagine the court system backlog in Florida where this system is in place. In reality, in the Mortgage system, all foreclosures become judicial foreclosures because they move through the judiciary, but the term Judicial Foreclosure has special meaning and entails obtaining a judgment against the borrower (a topic for tomorrow).

Courts are ill-equipped to handle several hundred thousand mortgage actions. What is ordinarily a rare occurrence courts can easily handle can become a crisis, and the Trust Deed system avoids the court backlogs.

In a Trust Deed system, a neutral third-party is involved similar to an escrow; in fact, the trust deed system functions just like an escrow lasting the term of the Promissory Note because legal title is actually held by the Trustee not by the Owner. The borrowers have a recorded interest in a property, and they possess all the rights of ownership subject to the Trust Deed encumbrance, but their interest is not unencumbered ownership, and it will not become true ownership until they pay off the Promissory Note; until the Note is paid off, legal title is held by a Trustee while Owners have Equitable Title with rights of possession and use.

The trustee is empowered to call a public auction without going to court — avoiding court being the main reason the system was developed. This gives lenders the option of forcing sale at minimal cost and minimal delay. The system is streamlined and capable of expanding and contracting to meet demand. Lately, the Trustee business has been a stellar growth industry.

A business transaction

First and foremost, the documents exchanged by borrowers and lenders are a business transaction as Henry Blodget recently informed borrowers:

“Specifically, when you borrowed money to buy your house, you engaged
in a business transaction. The bank or mortgage-lender evaluated the
risk of the transaction and concluded that it would was a risk worth
taking. To protect its money, the lender also required that you pledge
the house as collateral, and it required you to have some equity in the
house as an additional cushion. In the event that you didn’t pay, the
lender retained the right to seize the house, sell it, and pay itself
off before you got your equity. The lender loaned you the money because
it concluded that this was a smart business decision.

You, meanwhile, also made a business decision. You decided to
borrow money to buy your house even though it meant risking your
equity, home, and credit rating.

And now it turns out that both of you made a bad decision.

Fortunately, you don’t have to fight about what happens next.
The contract between you spells everything out: If you stop paying, the
lender gets the house. That’s it. Unless the contract specifically
differentiates between a failure to pay based on hardship (involuntary)
and a failure to pay based on a collapse in the value of the house
(voluntary), there’s no difference. If the lender thought at the
beginning that you had a “moral obligation to pay,” it would have
specified that in the contract.

Now, compare this to a situation in which you DO have a moral
obligation to pay: When you borrow money from a friend at no interest,
for example, and you promise that friend that you will give him or her
every penny back.
THAT is a moral obligation to pay. In this case, your friend did not
lend you money to make a profit. Your friend loaned you money to help
you out–with no collateral or contract other than your promise to pay.”

Many people persevere in business transactions throwing bad money after bad for vanity, entitlement or misplaced moral obligation.

The big bluff

Threat of calling a foreclosure auction is supposed to be a bluff. Neither the lender nor the borrower want an auction, but similar to Texas Hold-em, each party has cards to play, and where they are in the process and the relative strengths of their bargaining positions matter.

Ordinarily, threat of forcible eviction from the family home compels borrowers to do whatever is necessary to make payments, and the carrot (keep a home) and stick (threat of foreclosure) are enough to keep the system working. However, when people don’t have equity or when it is in their best interest financially to get out of a loan, lenders find the threat of forcible eviction less compelling; in fact, the more underwater a homeowner is, the less power lenders have. What possible threat can a lender hold over a money renter who is 30% underwater?

What property right does the 30% underwater homeowner particularly value that they don’t obtain as a renter?

http://www.irvinehousingblog.com/wp-content/uploads/images/uploads/2009102/Irvine%20Housing%20Blog%20No%20Kool%20Aid.jpg

The right to improve a lender’s property? Good luck getting a loan for that.

The right to lease out for less than the mortgage payment? Not a great deal for the owner.

The hope of appreciation years from now? Bring on the kool aid….

To be continued…

In tomorrow’s post, we explore judicial and non-judicial foreclosure and go step-by-step through the non-judicial foreclosure process. On Friday, we will go through the mechanics of a Trustee Sale auction and discuss the difficulties and opportunities this market offers.

Ideal Home Brokers Trustee Sale Service

If you are interested in learning how you can become active in the Trustee Sale market, review Ideal Home Brokers Trustee Sale Service or contact us at sales@idealhomebrokers.com.

103 TERRA BELLA Irvine, CA 92602 kitchen

Irvine Home Address … 103 TERRA BELLA Irvine, CA 92602

Resale Home Price … $449,000

Income Requirement ……. $95,848
Downpayment Needed … $89,800
20% Down Conventional

Home Purchase Price … $357,000
Home Purchase Date …. 12/24/2009

Net Gain (Loss) ………. $65,060
Percent Change ………. 25.8%
Annual Appreciation … 309.2%

Mortgage Interest Rate ………. 5.27%
Monthly Mortgage Payment … $1,988
Monthly Cash Outlays ………… $2,840
Monthly Cost of Ownership … $2,330

Property Details for 103 TERRA BELLA Irvine, CA 92602

Beds 2
Baths 2 full 1 part baths
Size 1,343 sq ft
($334 / sq ft)
Lot Size n/a
Year Built 1999
Days on Market 1
Listing Updated 1/7/2010
MLS Number P716608
Property Type Condominium, Residential
Community Northpark
Tract Othr

Private gated community of North Park with full time gate guard. Beautifully landscaped, well maintened community. New custom paint and new carpet and Travertine floor. 2 car side-by-side garage. Association offers pool, spa, parks, tennis courts, club house and more.

maintened?

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This kind of transaction is common at Trustee Sales. The cash markets often see discounts of 15%-20%. I haven’t pulled comps, but I suspect this is priced to the high side of reasonable, and the seller will drop the price $25,000 to quickly close the deal. In and out in 30-60 days with a $40,000 profit (10%) makes for a nice annual rate of return — if you could repeat flips over and over.

If you are a family with cash looking to buy at a discount, the Trustee Sale market is where you should be house shopping.

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The video below is a children’s lesson on how long-term property disputes slow economic development and give rise to eminent domain legislation. There is probably also a lesson about a stubborn refusal of buyers and sellers to move the little bit necessary to please both parties.