Foreclosures Are Driving Everything In California
The Press Enterprise reports from California. “On Saturday, hundreds of homeowners in distress crowded a hall at the National Orange Show Events Center to meet with representatives of their banks, to hear experts explain what caused the mortgage meltdown, and to learn how borrowers can dig their way out of default through strategies such as short sales or forbearance. Banks already have been saddled with a glut of homes borrowers have walked away from, the day’s speakers emphasized.”
“They said that homeowners in trouble should overcome shame and denial because the problem only will get worse the longer they wait.”
“Moreno Valley resident Catherine Cee said she’s ‘upside down’ on her mortgage. She paid $178,000 for her six-bedroom, 3-bathroom, 2,630- square-foot house in 2001, long before the real estate market went crazy in the Inland Empire, and she got a fixed-interest loan.”
“But when she refinanced a few years later to fund some renovations, she unwittingly signed an adjustable-rate loan.”
“Now Cee said she owes $345,000 on her house, and her loan has been sold several times to different mortgage companies, making it hard to direct her inquiries to the person able to devise a solution other than default.”
“‘I did not want my loan to default,’ Cee said during a question-and-answer session with panelists.”
The County Sun. “Veronica Turner of San Bernardino is tired of unreturned phone calls from her lender and choosing between buying food for her son and paying the mortgage on her house.”
“Andrew Eakins and his wife of Apple Valley are six months into foreclosure on their house and are looking for help on how to save their home.”
“And while many of those in attendance were happy to be given a chance to get questions asked and obtain the information they needed, some wondered why it was happening now.”
“‘Where were they six months ago?’ Veronica Turner said. ‘This is a big step and there’s a lot of good information being talked about, but you have to wonder, why now? Is it because they’re losing their profits?’”
The North County Times. “Twelve small units in Brookhaven Condominiums, a development of two converted apartment buildings, have sold since December for $360,000 or more —- roughly double the prices of similar condos in the neighborhood. Indeed, the dozen Brookhaven units had surged by 31 percent in value since 2006, even as the median price of condos in the area plummeted 54 percent.”
“Neither Brookhaven’s developers nor their bankers would explain this remarkable performance, despite repeated requests from the North County Times. Two of Brookhaven’s buyers say they face foreclosure and tarnished credit records.”
“After eight months of no sales activity at the complex, which is near the corner of 15th Avenue and Escondido Boulevard, a 1,128-square-foot condo sold for $385,000. However, according to the county assessor’s office, the sale never happened.”
“The buyer of record, Julie Cottam of Escondido, said she never provided any money for the condo and did not know she briefly owned a unit in the Brookhaven complex. She said she signed some documents as a favor to a friend, Nancy Renfeldt.”
“‘I don’t know if it was a deed. I just trusted her; I was a friend,’ Cottam said, adding she never planned to buy the condo.”
“Soon after Cottam’s transaction appeared on the database, business improved for the developers. A month later, in December 2007, a 948-square-foot condo sold for $360,000. The price was up dramatically from the $256,000 paid for an identical unit purchased the previous March, the most recent sale.”
“The buyer who broke Brookhaven’s long sales drought was Maria Roberts of Tijuana. Roberts’ husband, James, said the couple had no knowledge of the Escondido real estate market. ‘They said several (condos) had sold for that price, so it had to be a good price,’ he said.”
“James Roberts said the sales pitch on the investment worked like this: The couple would hold the property in his wife’s name for a year while the developers paid the mortgage by finding renters. After a year, the developers would buy back the property and cover any depreciation.”
“For their trouble, the Robertses would receive $50,000, he said. They have received only $20,000, he said.”
“One month later, another sale to Maria Roberts closed with a 5 percent down payment, according to county records. But that wasn’t part of the deal, said James Roberts. Further, Roberts said they never put any money into escrow for the down payment. Now, the Robertses face foreclosure on both condos as the mortgages went unpaid.”
“‘The banks are screaming at us for the mortgage payments. And we’re screaming back at the bank because it shows she purchased two when she only purchased one,’ James Roberts said.”
“A boom in popularity of converting apartment complexes into condominiums has turned into a bust, driving condo developers into a corner, especially in places such as Escondido, where sales have been particularly anemic.”
“While condo conversions countywide have suffered in the downturn, condo sales in North County, especially Escondido, have been decimated: Highway 78 corridor sales are on pace to drop 90 percent from sales in 2005, according to MarketPointe.”
“Escondido’s condo conversion market peaked in 2006 with 236 sales. So far this year, sales sit at ‘negative-five’ in the city. MarketPointe considers sales contracts that were cancelled as ‘negative sales,’ meaning five more sales contracts were cancelled than sold.”
“Once prices started to decline, investors disappeared, said Russ Valone, CEO of MarketPointe. ‘They were affordable enough that Donald Trump wannabes could look at buying the condo conversion and maybe rent it at a break-even,’ he said. ‘When you lost that investor mentality, all of a sudden conversions didn’t work.’”
“Further, prices have declined to the point where single-family houses are as cheap, or cheaper, than many condominium conversions.”
“The condo conversion fallout was inevitable, said Miller, the University of San Diego professor.”
“‘When speculators enter the market, they’re the ones that drove prices up,’ he said. ‘Of course, there’s no fundamental way to support those prices. You couldn’t support it by how much you could rent it for or by how much people were making in income.’”
The Union Tribune. “As the slumping housing market erodes equity for many San Diego County homeowners, analysts say condominium communities face additional challenges as sales slow and renter populations grow.”
“When home prices were soaring between 2000 and 2005, high renter populations at condo communities weren’t a problem for lenders, said Robert Geiler, a mortgage banker in Rancho Bernardo.”
“‘During the craziness, with prices going up, lenders didn’t look at that as much,’ he said. ‘Loans used to just fly right through. Now, owner occupancy is coming to the forefront.’”
“Dilapidated stairways, rickety decks, leaky roofs, moldy walls and corroded sewer pipes. These are the sort of structural headaches confronting scores of homeowner associations as costly repairs to older complexes drain their communal treasuries.”
“After years of deferred maintenance, compounded by tightfisted members’ unwillingness to pay higher monthly fees, condominium associations are facing a looming financial crisis, condo experts say.”
“‘Deferred and unfunded maintenance is a ticking time bomb because so many homeowner associations are unprepared for it,’ longtime condo attorney Erik Basil said. ‘What sometimes happens is association members don’t want to contemplate having to write a $1,000 or $5,000 check, so they pretend there’s nothing wrong, and that’s what has occurred for the last 10 years.’”
“The problems associated with stalled repairs have worried Conlon’s association for some time and are being complicated by the slide in home values and the credit meltdown.”
“‘Before we started having high assessment delinquency rates and foreclosures, the issue of aging communities was one of our top trends we were tracking, and it still is,’ said Karen Conlon, president of the California Association of Community Managers.”
“Even associations with well-heeled members, such as that of the oceanfront Surfsong condominium complex in Solana Beach, haven’t escaped financial misery. Built in the mid-1970s, many of the units, with stunning, unobstructed ocean views, are valued at more than $1 million.”
“The 72-unit complex is in the midst of an $11 million rehab that includes new roofs, decks, railings, siding, fencing and a new sea wall. Each condo owner has been assessed more than $150,000 for the work, although the association had to foreclose on one owner who was unable to pay.”
“‘We are the prime example of deferred maintenance,’ board President Gail Steel said. ‘The magnitude of the problem was so frightening we had no choice. Things were actually falling down.’”
“Invariably, the answer is a special assessment. Often, the mere mention of high assessments infuriates stunned condo owners, association board members say.”
“‘They’ll say that all the experts are wrong, that ‘we’re going to get rid of you,’ ‘you don’t know what you’re talking about,’ said real estate agent Marguerite Thompson, a board member of a large condo association in Bernardo Heights. Her complex is the one facing $5 million in repair work. ‘There’s anger; there are threats to sue.’”
“Two condo eras are now converging to create an explosion in needed repairs. The first was the construction boom in multifamily housing 30 years ago, said San Diego attorney Mary Howell.”
“‘You’re now seeing the manifestation of deferred maintenance - the termites have come home to roost, subsidence has happened, you have irrigation problems, and the stucco and wood members are deteriorating,’ Howell said. ‘It takes 30 years for this to materialize and 30 years for the proverbial excrement to hit the fan.’”
“Ellen Kanady, a legal secretary at a downtown San Diego law firm, has already spent several thousand dollars toward repairing a leaking gas line in the eight-unit condo conversion where she has lived since December 2006. The College Area complex, built in 1980, has been bedeviled by unforeseen problems almost since the day Kanady moved in. Making matters worse, some owners have gone into foreclosure or are nearing that stage.”
“‘It’s a nightmare for me knowing that if we have another major emergency, we won’t be able to fix it,’ Kanady said. ‘And I don’t know what we’d do at that point.’”
The San Francisco Chronicle. “How much is your house worth in this turbulent market? That’s the question on the minds of many Bay Area homeowners, but it’s become increasingly tough to answer, even for the pros.”
“‘It’s miserable,’ said Karen Mann, who runs a small East Bay appraisal firm. ‘I’ve been in the business 28 years, and this is the worst downturn I’ve seen.’”
“‘They are shooting down the value of appraisals like I’ve never seen before,’ said Rick Gordillo, whose practice specializes in residential real estate. ‘It’s almost as if they don’t want the business. They are turning away loans even when the values are there.’”
“‘You can have what I call a very realistic or conservative appraisal done by an independent fee appraiser and that will go to a lender’s underwriter, and the lender can come back saying we don’t think that value is accurate,’ said Ed Craine, VP of the California Association of Mortgage Brokers. ‘It used to only happen once in a blue moon. Now it’s happening maybe 1 in every 10 times.’”
“The number of homes sold in the Bay Area’s nine counties fell almost 10 percent in June, according to DataQuick. That decline put June sales volume at its lowest level since 1993.”
“‘Any time you have a reduction in volume, especially because that is when the underwriting criteria of lenders tends to become more stringent, it’s difficult,’ said Charles Warren, who runs a San Francisco appraisal business. ‘Lenders want to see comparables from the last 30 days, and all of a sudden you are left without any valid data. That exacerbates the problem.’”
“‘Appraisals are extremely important,’ said Craine. ‘It’s not that that wasn’t true in the past, but we tended to minimize that during the real estate bubble. We’re getting back to it now.’”
The Recordnet. “In a hot foreclosure sales market, the latest trend taking shape is investors bundling their cash to buy bundles of homes. They want to either mass cherry-pick the market or buy at discount from a bank, wholesaler or mortgage company.”
“Bob A. Sullivan, a semi-retired owner and broker of a Stockton real estate firm…said he expects to no less than double or triple his investment.”
“‘What I like the best is the timing to buy,’ he said. ‘Prices are really depressed right now. In my mind, there’s no question that prices will go up again considerably. Whether it’s one year or five years, I don’t know. I don’t see any downside.’”
The Manteca Bulletin. “What is the best flippant way to describe the Manteca housing market in four words? The vultures are feasting. A stratospheric 52 homes went pending in the week ending Aug. 11 for an annual pace - if it holds - of 2,704 homes.”
“The accelerated sales pace doesn’t surprise Florsheim Homes’ CEO Joseph Anfuso. ‘Those who expect homes to fall another 30 percent in value aren’t being realistic,’ Anfuso said. ‘Home (values) can not fall below rental value.’”
“Anfuso said the overwhelming majority of new renters who have moved out of foreclosures ‘make excellent renters.’ ‘They have been paying a higher mortgage payment than their rental payments,’ Anfuso noted. ‘They were really de facto renters anyway as they didn’t have any skin in the game with zero percent down and low introductory loan terms.’”
“The inventory of available homes in Manteca on Aug. 11 was 462 with all but 109 being either bank owned or short sales.”
“‘Foreclosures are driving everything now,’ Anfuso said. ‘The amount of foreclosures has surprised me.’”
The Westside Connect. “Vacant homes are proving to be a magnet for trouble, adding to the struggles in neighborhoods already hard hit by the meltdown of the housing market and the continuing wave of foreclosures. Empty dwellings can be found throughout Newman - most commonly in newer neighborhoods where buyers snapped up home at the peak of the market before the housing crisis hit.”
“With increasing frequency, police say, those homes are being occupied by transients, drug users or those looking for a place to party.”
“‘We are getting a lot of complaints about people in the vacant homes,’ Police Chief Adam McGill said recently. ‘It has really picked up in the last few weeks. We are probably getting five complaints a week.’”
“‘In the last week, we have been to a number of homes with multiple mattresses laying around and tents in the back yard,’ the chief added. ‘We have a transient, mobile population that doesn’t lay their head in the same place twice. They are staying with friends, or sometimes with people they don’t even know.’”
“In many cases, McGill theorized, those using the vacant homes as flophouses aren’t technically homeless. ‘They may be people in their late teens or early 20s who might technically still live at mom and dad’s, but they only sleep at home a night or two a week,’ he said.”
“Officers responding to reports of activity at vacant houses often find indicators of drug and alcohol use, according to McGill.”
“‘People are going to look for somewhere to hide and be secluded,’ he commented. ‘Unfortunately, some of the homes are being damaged in the process. There is no water or electricity. We have seen cases of them using lanterns or generators, and continuing to use the restrooms.’”
The LA Daily News. “The Golden State kept some rare company during the second fiscal quarter. California was one of only 13 states where sales of previously lived-in homes (I can’t stand the phrase ‘existing home sales’) increased from the first quarter, according to the National Association of Realtors.”
“And what an increase it was - a whopping 26 percent, the association said in a report released late last week. Areas that saw the biggest sales gains were those hardest hit by foreclosures and biggest price declines.”
“Could this faintest of lights be signaling the end of a very dark tunnel? Richard Gaylord, a Long Beach Realtor who is president of the national association, says yes.”
“‘Everything I’ve seen indicates … we’re beginning to come out of it,’ he said of the real-estate slump. ‘People around the country are saying that California is of one of the states hit the hardest. Now that they are seeing some turnaround, the other places are going to follow.’”
“But will this burst of optimism last? ‘I don’t think it’s a temporary thing,’ Gaylord said. ‘I think it’s the beginning of a turnaround.’”
“115 metro areas saw prices decline - Los Angeles among them. The median home price here fell an annual 29.5 percent in the quarter, to $417,800.”
“Bill Brown, president of the California Association of Realtors, said one thing is clear. We are closer to the end of this bear market than the beginning. ‘Buyers for the first half of the year were on the sidelines. They were confused about pricing and financing,’ he said.”
“‘There is value in the current market and they should buy now,’ Brown said of anyone thinking about home ownership. ‘One things we’re telling people is not to try to time the absolute (price) bottom of the market. Buy now and you will do very well on your investment over the next three to five years.’”
