April 11, 2014

A Con Only Works When The Mark Is Greedy

It’s Friday desk clearing time for this blogger. “Bidding wars. All-cash deals. Foreign buyers. Manhattan? No, Queens! Jim Pappas, the owner of Jackson Heights-based real estate brokerage Rock Realty, told the Daily News many are from China, but buyers from Greece, Brazil, India, Tibet and Nepal are also hitting the market. Some buyers are coming in with all-cash offers and are bidding on properties without seeing them. Pappas is currently handling the sale of a house on 84th St. in the historic section of Jackson Heights. ‘Five offers were submitted sight unseen in less than one week,’ he said. ‘It’s crazy. There’s a frenzy.’”

“The first quarter figures for 2014, supplied by Strafford County Registry of Deeds Dennis Vachon, show that real estate activity in the county, from January through March, has taken a plunge. In neighboring Farmington, Craig Lancey of R-W Real Estate had this comment to make on some prospective home purchasers: ‘Too many buyers spend months chasing the ‘pot at the end of the rainbow’ looking at distressed properties and making low ball offers, only to find their best opportunities have passed them by. The 2013 fourth quarter interest rates climbed as high as 5.5 percent. They are now in the low 4 percents. Free money doesn’t last forever!’”

“Is the Sun setting on Atlanta home prices again? Yes, it probably is. In fact, it’s fair to say that the Atlanta metro housing market is a few months past any supportable market peak, and there is some good data to support this conclusion. The big hedge fund buyers are slowing their home purchases, while ramping up to sell off rental properties to other investors. Turn-key investing is becoming a ‘hot’ item once again as the big investment companies who bought up billions worth of foreclosures now seek to quietly sell them off.”

“The media will be reporting months-old data, saying that home prices in Atlanta are up quite a bit over 2012 and are ‘recovering.’ But I think the recovery part of this is already behind us at the moment. 2012 and 2013 were the recovery, such as it was. At present, in April of 2014, my sense is that supply-demand problems are still wide-spread, and we’ve gained back 50% of the losses from the crash. The only question now is what generated those gains – growing end-user demand or large scale hedge funds buying up foreclosures.”

“One big reason that many sellers have held off because of the unusually harsh winter weather. But other homeowners — especially those who bought during the housing boom — still can’t sell without taking a loss, and those properties are likely to stay off the market. ‘There are still sellers waiting for the market to improve in order for them to get out,’ said Jeff Adler, a Keller Williams agent in Ridgewood.”

“‘A lot of sellers have been taken aback by the amount of decline from the peak to where the market is now,’ agreed Jorge Ledesma, a Re/Max agent in Teaneck. ‘It’s a bitter pill to swallow when you see so much equity in your home, and through no fault of your own, you see it go away.’”

“Nobody lives in the home next to Kimberly Merida. The three-story Bellevue house, which is in foreclosure, was abandoned last summer. If someone doesn’t claim the vacant property soon, it may become a problem for Merida. She has been thinking about putting her house on the market in a year or two, and abandoned properties tend to bring down a neighborhood’s real estate values. Nearly 36,500 homes in Pennsylvania were in foreclosure in February, according to RealtyTrac. ‘It might be (a concern) because foreclosures sell for less,’ she said.”

“There were 584 foreclosure starts in El Paso County in the first quarter of 2014 from January 1 to March 31. That’s 35 more than the same period in 2013, but more importantly, says Thomas Mowle, El Paso County Public Trustee, it could lead to the first year-over-year increase in foreclosures in El Paso County since 2008-’09 at the height of the housing bust. If the first quarter trend continues, Mowle says El Paso County will see a 26 percent surge in foreclosures this year. ‘There’s not an obvious cause for why it’s going up,’ Mowle said, ’so we hope that it’s going to go down, but it is a little troubling that it’s been continuing for a few months now.’”

“The other shoe has dropped. A foreclosure inferno that raged across the Inland region and other hot spots in the U.S. is considered by industry experts be effectively contained, but new data shows banks have begun to turn their attention back to properties that have been in limbo. Foreclosure starts rose 10 percent in California in the first quarter from the same period in 2013, according to RealtyTrac. It was the first double-digit percentage increase for filings involving notices of default — the first step in the foreclosure process — in California since 2009.”

“In the Inland region, the 3,911 notice of default filings jumped even more, 21 percent, for the first three months of the year from the 3,236 filings over the same span of time in 2013. Banks, now adjusted to the 2013 California Homeowner’s Bill of Rights, are now taking steps to clear out the standing stock of homes that have long been in default. ‘I would suspect it will take a year for lenders to catch up with the foreclosure deficit created in 2013,’ said Daren Blomquist, VP of Irvine-based RealtyTrac. ‘We estimate that only 10 percent of these bank-owned properties are listed for sale and more than half are still occupied by the former homeowner or tenant.”

“Businessman Allen Zhao has been waiting since the middle of last year for prices in the scenic southern city of Hangzhou to rise high enough this year to sell his two-bedroom apartment for about 2 million yuan. Last Monday, he was horrified to hear that his neighbour let her place go for just 1.7 million yuan. ‘That is not much more than the price I paid in 2012,’ said a rueful Mr Zhao, 45. ‘Now I’m regretting not selling earlier - more bad news about the property market keeps coming in every day.’”

“Please allow me to take you back to 1991 and a Japanese middle manager looking at a sleepy suburb, an hour and 20 minutes from his job in the city. The Tokyo city government employee, who was then 36, took out a loan for almost the entire $400,000 (about £1 million at today’s value) and bought a cramped four-bedroom apartment. With property values then rising at double-digit rates, he would easily earn back the loan and more when he decided to sell.”

“Ten years later he tried to sell his property for $200,000, half what he originally paid. I’m afraid he still lives in it today. Of course the assets bubble bursting in Tokyo sent a tsunami of property devaluation right across the country, and a recession that still continues in Japan.”

“Now if a one small-bedroom flat in Knightsbridge cost more than £1 million, what do you think Buckingham Palace would fetch if the for sale sign went up? I leave you to guess where this will all end. So to all those first-time buyers, especially in Somerset, please hold on before you buy, and don’t be fooled by this property boom or for that matter low interests rates. Remember being trapped in negative equity will rob you of your freedom to choose where you can live. For these are not my words, but those of a Japanese gentleman by the name of Mr Nakashima.”

“It’s been said that a con only works when the mark himself is greedy. It’s a paraphrased adage from the glory days of caricatured grifters and confidence men, but it still rings true today. David Crisp and Carl Cole, the now-forlorn faces of a notorious Bakersfield mortgage scam that skimmed tens of millions of dollars from fraudulent home purchases, have been sentenced for their crimes.”

“It’s still too early to tell, but by some accounts, California’s real estate world may be showing signs of rebirth. In some locales, home prices are inching upward and banks are once again dolling out lines of equity for home improvements and debt consolidation. Who’s to say that a thriving market wouldn’t once again entice others to take the path of Crisp & Cole? And, if they do, how long will we wait to make note of the fact that the emperor has no clothes?”

“As of now, we’ve got some finality. The scheme is dead and buried. Going forward, though, it’s a different story. If we don’t learn from this homespun cautionary tale, how can we really say we’re all that much better than the con men?”

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