When Responsibility Becomes A Liability
The Marin Independent Journal reports from California. “Home sales in Marin last month continued to highlight buyer preference for discounted bargains as the overall median price dipped nearly 26 percent from last year’s level, matching trends across the Bay Area. The median price of a single-family home in Marin in March was $670,000, down 22 percent from $862,500 last year…MDA DataQuick reported. More than half of all homes resold in the Bay Area in March had been foreclosed on at some point in the prior 12 months. Though that figured nearly equaled the 52 percent in February, it more than doubled the 23 percent one year ago.”
“Marin foreclosure resales were 23 percent of total sales, up from 19 percent in February and single digits last year. The median price paid for a Bay Area home last month remained below $300,000 with a price of $290,000, down from February’s median of $295,000 and a massive 46 percent from $536,000 last year.”
“‘It is pretty sobering to see month over month, if you look back over the last couple of years we continue to reduce in dollar volume and units sold,’ said Katie Beacock, president of Marin Association of Realtors.”
“A large number of Marin residents - many retired seniors - invested their money with a Santa Rosa investment adviser who has been accused of defrauding investors of tens of millions of dollars and is under investigation by the California Department of Justice. Dilla Sunderland of Novato said she and her husband knew something was wrong when they stopped receiving interest payments on their investments. She said they have lost all of the $239,000 they invested in the Mountain House Golf Course, which has gone into foreclosure.”
“She said other Marin investors she knows haven’t fared so well. Sunderland said Armitage convinced a widow she knows to refinance her house and invest the proceeds with him. ‘She would have lost her home if her children had not moved back in with her,’ Sunderland said. ‘I know a couple who are going to have to sell their home in this depressed climate and leave Marin. They’re just heartsick.’”
“‘This is not a Ponzi scheme. People invested in real estate-based investments, whether or not they were managed-care facilities or properties,’ said…investment adviser, Gary Armitage’s attorney, Russell Marne of San Rafael. ‘The value of those properties have tanked, just like the value of my home in San Anselmo. That’s basically what happened.’”
“Marne said Armitage, who has put his $2.5 million Healdsburg home and his castle in the mountains near Redding up for sale, has lost everything.”
The Daily News. “Almost a quarter of the homeowners in San Mateo County stand a chance of getting their parcel taxes reduced this year as the assessor’s office reviews the value of thousands of properties. The assessed value of about 50,000 residential properties will be reviewed this month, more than five times as many as were examined last year.”
“The surge in ‘decline in value’ reviews can be traced to the depressed real estate market, which has driven market prices of some homes below the assessed values on the county’s property tax rolls. In East Palo Alto, which has been hit harder than most Peninsula cities by the housing crisis, the assessor is reviewing properties sold since 1999, Deputy Assessor Angelina Hunter said.”
“Local governments are already bracing for what they expect will be a sharp decline in the value of San Mateo County properties. The median price of a home in San Mateo County dropped to $502,250 in February, down from $646,500 at the same time last year, according to MDA DataQuick.”
“‘We’re getting kind of nervous because we’re seeing what’s happening in other jurisdictions and we usually look better than they do,’ said County Budget Director Jim Saco.”
The Santa Cruz Sentinel. “An affordable housing unit in the city is scheduled for a foreclosure auction. The couple who owned the condo owed nearly $190,000 on their mortgage plus $2,901 to the River Street Place Homeowners Association. County records show the homeowners had taken advantage of their equity, refinanced, then missed payments.”
“They bought the condo in 1995 for $100,500 with the help of a $20,000 ’silent second’ mortgage from the city. Ten years later, as condo prices topped $400,000, they took out a home equity line of credit with Washington Mutual…Within a year, they were behind on their mortgage.”
“Since housing prices began falling in September, affordable units have become less attractive. Buyers of a Measure O condo get a below-market price but must accept a limit on future appreciation. If values escalate, they will see little benefit. Since the housing finance breakdown began in 2006, more than 300 lenders have disappeared. Of those that remain, fewer offer financing for Measure O units because of the restrictions.”
“‘Always with first-time buyers, we get asked about Measure O,’ said Mark Junod, a mortgage consultant in Capitola, which still offers Measure O financing. ‘With values down, people are opting for market units.’”
The San Francisco Chronicle. “Linnette Edwards, an associate broker who focuses on the East Bay, said that investors are snagging half of the under-$200,000 homes selling in the Oakland flatlands. Some are international and some are local, but most tend to pay all cash. It’s led to an interesting phenomenon at open houses.”
“‘You go to these places listed at $150,000 and you see people in all these BMWs and Jaguars pulling up to check them out - because they’re all investors,’ she said.”
“One recent investor was Julie Chiang, a retiree in Fremont. She used family money to pay $361,000 in cash for a three-bedroom foreclosed home in her city, which she plans to rent out for between $1,800 and $2,000 a month. It sold for about $650,000 at the market peak, according to Joe Metz, a Realtor in Fremont, who represented her.”
“Chiang said she bought the house as a long-term investment after years of looking, because she felt prices had finally reached a reasonable level. ‘I decided this is the time to buy,’ she said.”
The Sacramento Bee. “From retailing to real estate and beyond, some businesses are starting to gear up for the next economic growth cycle. Ethan Conrad, a Sacramento real estate investor, has spent millions in recent months buying vacant residential lots throughout the Central Valley, the epicenter of the housing meltdown.”
“‘If you’re buying (at) 10 or 25 cents on the dollar, and it’s decent real estate, it’ll come back,’ Conrad said of his land purchases stretching from Yuba County to Merced. ‘The question mark is not, will I make money on them? The question mark is, how long will it take?’”
“Sanjay Varshney, dean of the College of Business Administration at California State University, Sacramento…said waiting too long can be counterproductive. Once the recovery becomes obvious, prices for everything will have shot up. ‘If this (economy) turns in late 2009 or early 2010, if you wait until 2010, it’s already too late,’ Varshney said.”
The Recordnet. “Real estate brokers and agents in San Joaquin County report that since last fall, more and more people have been investing cash into houses as foreclosures have driven sales prices to levels not seen since the 1990s. They’re either sinking their cash into down payments or paying full price in cash.”
“Valley Springs resident Jim Platner…bought all 11 foreclosures since February, paying as low as $35,000 and no more than $65,000, at an average purchase price of $50,000 to $55,000. Plus, he’s putting in about $10,000 rehabbing each of the houses before renting them out. ‘I’m buying at the low end of the market and rehabbing these houses,’ Platner said. ‘I believe I will be able to triple my price in five years.’”
“Mike Collins of Collins Realty in Stockton said he started seeing a jump in cash offers toward the end of last year. ‘I’ve seen more all-cash offers than I can ever recall seeing,’ he said. ‘I don’t see how you can miss. How can prices go down any lower?’”
The Modesto Bee. “Home sales prices continued to slip during March throughout the Northern San Joaquin Valley. Stanislaus County homes sold for a median $135,000 in March, down $1,250 from February, according to MDA DataQuick. Stanislaus prices have fallen nearly 66 percent since the December 2005 housing boom peak when homes went for a median $396,000.”
“‘We do not seem to have any shortage of qualified buyers,’ PMZ Real Estate President Mike Zagaris told a packed luncheon crowd this week during an Appraisal Institute conference in Modesto. ‘The cost of ownership today is extremely attractive. We’re in the window of opportunity for people to get into a house.’”
“But that window doesn’t look so attractive to homeowners. Property values have dropped so dramatically that many people owe more than their homes are worth. Homeowners who are upside-down on their mortgages can’t afford to sell their homes to buy newer or bigger homes, so higher-end homes are very difficult to sell.”
“‘I don’t think you’re going to see a move-up buyers’ market until we burn through the foreclosures. I think we’re two years away,’ Zagaris predicted.”
The Dallas Morning News. “Non-profit groups around the nation have made questionable loans to their executives, an Internal Revenue Service investigation is finding. IRS officials won’t name targets. But they say they’re focusing on loans over $100,000 — and are troubled by ‘loans with no real terms for repayment or loans where there are terms for repayment but no follow-up if the repayment is not made.’”
“The Dallas Morning News reported in January on a local arts exec who got a loan of more than $500,000. The lender was his previous employer, the Museum of Contemporary Art in Los Angeles. A written contract required him to repay any balance when his employment ended. But Strick — who quit his MOCA job under pressure in December, as the museum’s finances crumbled — now says he didn’t meet the contract’s terms. ‘When I left, we changed that,’ he told me.”
“Strick said that under the new deal, he owes the money when he sells a house that the loan helped him buy. Good luck with that. Southern California has suffered some of the nation’s steepest declines in housing prices.”
The Burbank Leader. “The economic slowdown is maintaining its stranglehold on local development, as virtually every planning-based statistic, down to the duration of board meetings, continues to plummet. A snapshot of the last three years reveals a steady decline in submitted plan checks, permits issued, inspections and revenue generated by permits, said Michael Forbes, principal city planner.”
“Revenue from building permits dropped by roughly 45% over the last year, with the city issuing 24% fewer permits and performing 42% fewer inspections in that time. ‘The reason is almost entirely economic,’ said Tom Sloan, deputy building official. ‘Burbank has a particularly good housing base, and a good commercial base, but it is not protected.’”
The Press Enterprise. “The tidal wave of foreclosures hitting Inland Southern California is leaving thousands in its wake who, like victims of natural disasters, are challenged to find shelter and rebuild their lives. Carol Byrd, a 42-year-old real estate agent, earlier this year tearfully watched her lender foreclose on a house with a pool, spa and view she had bought for $525,000 in Riverside and that had fallen in value to about $275,000.”
“Once pulling down an annual income of $200,000 to $350,000, she earned a fraction of that in her new job working for a company that lists bank-repossessed houses. It was her boss, a broker in Moreno Valley, she said, who advised her to stop struggling when it was obvious that, on her current $3,200-a-month salary, she could not afford the modified monthly mortgage payment of nearly $4,000 a month that her lender offered her.”
“Her biggest worry, she said, was whether anyone would rent a house to her because her credit was poor. She appealed to a landlord who had listed a house for rent. She went to see him armed with a recommendation from her employer. ‘I literally sat down and explained my whole situation for an hour, begging and crying. I was desperate,’ she said.”
“She said she landed the lease after paying a $2,100 deposit and the first month’s rent of $1,625. She said the landlord also insisted on examining the condition of her former house to be reassured she would make a good tenant. Byrd said it is a relief to have enough income to cover her household expenses, and she advises friends who are over their heads in mortgage debt that foreclosure is not such a bad alternative.”
“Her goal is to save enough to buy small investment homes that she can rent out to boost her income. She said she knows she will have to pay cash for the houses because she doesn’t have a hope of getting a mortgage for a long time.”
“James and Rhonda Arias were at the verge of foreclosure on their Rancho Cucamonga home when they were able to arrange a short sale, in which their lender accepted a price of $400,000, although that was about $300,000 less than their mortgage. The couple’s hope is that a short sale will do less damage to their credit than a foreclosure.”
“The couple said they could no longer afford their mortgage last year after James was laid off from his job with a lender. Their household income shrunk while the monthly payment on their adjustable rate mortgage jumped from $4,300 to $5,800. Each day he called his lender to get the loan modified to something they could afford, but he was unsuccessful.”
“After putting their house on the market, in mid March they moved into a two-bedroom apartment in Eastvale for $1,500 a month. The apartment is about a third the size of their former house. Before moving, James gave up his BMW and paid cash for a Toyota with 200,000 miles on it. Rhonda ditched her SUV. They also held garage sales to shed excess belongings.”
“Having adopted a more frugal life style, they now eat at home a lot more, Rhonda said. James said he is working on a masters of business administration while job hunting. ‘We thought we would scale down completely, get rid of our stuff and save, save, save and start planning for our future again,’ Rhonda said.”
“Many of those who lost homes to foreclosure hope that because the phenomenon has grown into a sign of the recessionary times, mortgage lenders will be more forgiving about the blotch on their credit history. But that may be too optimistic. Robert Satnick, chairman of the California Mortgage Bankers Association, said he doubts that the mortgage industry will soon forget the lesson that lax lending, such as what was practiced during the housing boom just a few years ago, can lead to disaster. New, stricter rules are likely here to stay.”
“‘Given everything we have learned in the mortgage industry over the last 18 months, my estimate would be the guidelines will stay the same and not get looser,’ Satnick said.”
“Mason Gaffney, professor of economics for 32 years at UC Riverside, said he believes foreclosures ‘will turn a lot of owners into tenants, maybe for the rest of their lives,’ and an enlarged renter population will strengthen the labor movement and prompt people to seek greater security from the government, just as they did as a result of the Great Depression.”
“Another UC Riverside economics professor, Richard Sutch, said he does not expect such a lasting impact unless the current recession lingers a lot longer. In that case, he said, it could have ‘a profound impact’ on young adults planning their lives. In an era of high unemployment, he noted, the responsibility of owning a home, which anchors the owner to a specific location, becomes a liability.”
