Today's featured property is part of a growing trend toward Trustee Sale flipping as lenders finally foreclose on many defaulting owners.
Irvine Home Address … 73 West ARDMORE Dr Irvine, CA 92602
Resale Home Price …… $528,000
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.
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:
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
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.
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
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.
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
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
''''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''''
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,