Mammoth Foreclosures 2.0––The First Inning

Foreclosures are reaching record numbers in many real estate markets, some to the extent that foreclosure numbers are exceeding actual closed sales. Seeing those kinds of statistics can be shocking. Clearly, the values in those markets will be greatly impacted by the volume of foreclosed properties. That is why I have been intensively watching and reporting on that segment of the market for the past 18 months. But all appearances are that the Mammoth Lakes market will be different. Not that it will remain unscathed, but foreclosures will not be the foot-on-the gas of a downward spiral in values.

After an early year push of a half dozen well priced and attractive lender owned properties, we have hit a lull. But there are more properties in the pipeline. Part of the lull was created by a moratorium of sorts––a farce government intervention that the lenders went along with because they were so backlogged anyway. (Oh, the things that will happen in an election year.) And we’ve been lulled by other delay tactics. Short sale attempts are causing lenders to forestall Trustee’s Sales. And pseudo bankruptcy filings (and some real ones too) are causing delays. And there are some squatters and other random salvation attempts. But even at some future peak I don’t see foreclosure numbers even being a small fraction of the sales here in Mammoth.

Each one of these pre-foreclosure (Notice of Default filed) or actual foreclosed properties is a story unto itself. Some are truly unfortunate, some are like soap operas, some reek of fraud and dubious dealing, and some were simple gambling on the Mammoth craps table. Most are a result of a series of poor decisions. And it is somewhat disconcerting to see certain local agents repeatedly appear as the agent who represented the owner in their purchase.

The process from actual foreclosure to bringing the property back to the market can vary greatly depending on the lender and the property. Some lenders are directly overseeing their REOs (“real estate owned”) through their own asset management companies. Others are using clearinghouse and sub-contracted companies. Soon after the properties are foreclosed on the status of the property needs to be assessed. If vacant, the locks are changed, no trespassing signs posted, utilities switched over, etc. Properties with personal property remaining need special care. If the properties are still occupied then the occupants need to dealt with according to the new owner’s policies. Oh, and there’s a million forms to fill out.

Eventually the property will be listed on the open market (no insider deals.) And that can take anywhere from a couple of weeks to several months. The marketing and subsequent sale and escrow are handled similar to any other sale and escrow except that the buyer must be pre-approved (but that is becoming standard in the day-to-day business too.) The critical thing for a buyer is that unlike buying straight at a Trustee’s Sale, the buyer of a REO gets to complete all their inspections, including physical inspections of the property as well as matters affecting title and any Homeowner’s Association related documents. The buyer and seller also pro rate expenses like property taxes, etc. For buyers trying to understand the whole process, it is much safer to purchase a property as an REO rather than at a Trustee’s Sale. And so far in this cycle the prices are lower too. That’s because the lender prices the REO to sell––usually slightly below the market. The REO pricing has nothing to do with how much the previous owner owed on the property.

We’re getting a glimpse of some other things; the Village will have its share of foreclosed property. We already have one under management that will come to the market soon. There are others in the pipeline. There are others being offered as short sales that will likely end up being REOs. (The real interesting question is when will the first Westin REO hit the market. It will be a year at least, but with the volume of buyer defaults, the number of quickly re-listed units and price reductions below the original selling price, AND the fact that we’re heading into the rental doldrums months, it is only a matter of time.)

We’re also getting a glimpse at which lenders kept their Mammoth loans in their portfolios and which ones sold them off (and their servicing rights.) This is an interesting sidebar to the national and international banking crisis that we are experiencing….And because of Mammoth’s geographical location we are seeing some local REOs listed with agents from places like Fresno and Chino. And their pricing is off because they don’t know the market. The lenders grade each REO you handle so a couple of bad grades and you’ll flunk out…And while the REOs in Mammoth so far have been good buys, they still have to be compared to other good buys in the market––and we are finally beginning to find out who the real sellers are.

Meanwhile, hungry agents and posers are jumping on the REO bandwagon. Don’t be fooled. Only a few months ago they were still trying to hype their favorite new development and didn’t know a Trustee’s Sale from a yard sale (some still don’t.) And they’ll likely be plagiarizing content from this column for their own promotion. (I do love the time stamps on blogs.) Now if they can just keep their names out of the public notices.