Mammoth Foreclosures 4.0––Walk-Aways and Weasels

This column has been delayed several times by work duties, showing property, great ski conditions, and my ongoing attempt to understand how the Stimulus and Housing Bills and foreclosure intervention by the government will ultimately affect the Mammoth real estate market. My summation at present: the artificial delay of many foreclosures that began early last fall will now only further postpone the inevitable and will prolong and flatten the downward slide of real estate values. Many can argue the virtue in these actions, but I’m more of the Tea Party mindset. But all these delays are much to the chagrin of many would-be buyers in the local market who are regularly scrutinizing the inventory online and are trying to somewhat time the bottom and who are getting impatient because they want to “set themselves up” before they’re too old. Maybe the Ski Area can bring back the senior citizen pass especially for them.

Very little of the Washington salvation packages directly apply to Mammoth. We have a small percentage of owner-occupied properties. Conforming loan limits eliminate another large percentage. And those owner-occupied locals that are in trouble can’t qualify for much because they already have late payments and few, if any, can meet the “affordable” criteria (that is unless they already live in “affordable” housing). Even the Ski Area appears to be having they’re own stimulus epiphany (like every other local resident, at least those not lost in denial, has been experiencing for at least the past year.) The revelation is that survival now means discounting EVERYTHING, getting volume up, cutting costs, and becoming more humble and proficient at what you do. The good news: air service is working and we’ll have water this summer.

Despite the government intervention efforts, Mammoth foreclosures continue at a slow but steady pace. My projection is that we’ll be at a similar pace for 2009 as we were in 2008, or maybe a little more. (One reader suggests that based today’s economic environment that I shouldn’t predict things beyond a few months, but I’m trying to plan fishing trips.) There is no flood of distressed property in the pipeline, no alarming concentrations of stress, and no apparent rush to exits (but that is one of the underlying rationales for the intervention.) But the foreclosures will continue to set the pace for prices in the market. So far they are driving prices down, but they are also finding the levels where there are ready, willing and able buyers. Price support is a good thing and we are clearly seeing it in the low-end of the market. (The foreclosures we are handling in the Bishop area are definitely finding solid price support.)

However, I see an insidious hidden indicator in the Mammoth MLS and it is growing. They are called short sale listings, and every agent in town (not me) seems to be taking them on. Regular readers know how I feel about short sales in this market. (My office did recently complete a short sale, but it met the two most important criteria: an owner occupied property and provable hardship.) The volume of new short sale listings could be telling, or maybe not. Stressed owners are thinking it could be the easy way out instead of foreclosure or enduring the pain. “Short sale experts” are popping up all over the place (don’t pre-pay any fees!!) Increasingly desperate (and inexperienced) agents are taking them on not knowing the work and uncertainty involved. The process can take many months and while it is going on an REO (or other real seller) can pop up and make the short sale deal not look so appealing to the buyer (now happening with frequency). And banks are now playing new games with non-hardship short sellers like demanding cash, or cash from credit card cash advance lines, or going after anything of value the seller has before finalizing the transaction. (The short seller is going to have to expose their full financial picture to qualify for the short sale—no more “stated income” shenanigans.) Further, the “bank” may just be servicing the loan for an investor (a non-portfolio loan) and the investor may be distracted or not care for a short sale. But I digress.

The REAL issue is how many of these proliferating short sale MLS offerings are future foreclosures. The trend is already clear. Many short sale listings end up as foreclosures. Savvy buyers are beginning to see and understand this trend. But again, the real issue is how many of these new and growing short sale listings will end up as foreclosures. Although there has been some signal from the lenders that they have some appetite for short sales, I see no indication they are moving strongly in this direction. (Part of it is they are overwhelmed.) Which brings me to the title of this column––Walk-Aways and Weasels. That seems to summarize the attitudes I’m observing of these distressed sellers. They seem to fit into one of these two categories. Many of these new aspiring short sellers would like to be Walk-Aways but they don’t want to destroy their credit. But many don’t want to put forth the effort (and disclosure) to facilitate the short sale. Or they don’t want to put anything in (like cash) to make it happen. They want their cake and eat it too.

In the Mammoth foreclosure market there have already been many true Walk-Aways. They rolled the dice and lost. They’re not asking the casino for their money back. They’re not whining about being victims. They politely walk away with their dignity (or the appearance thereof). They don’t rob the property. And some of the owners who might even qualify for a short sale don’t even try. We were recently assigned a new REO listing in the Village and you never know what you’re going to find when you walk in the door the first time. So there it was: clean, everything in order outside of a little wear and tear, almost like you would find it if you were a paying guest, except a bit dusty. When we went to put the electricity on we discovered that the service had been off for a year. The owner knew it was over a long time ago and didn’t abuse it, didn’t even use it, didn’t rent it, nothing. Just used their last freebie buffet coupon and left quietly.

On the other hand are the Weasels. Here’s the opposite experience––one foreclosed Village owner was still renting (and taking money from renters) a month after he had been foreclosed on. (There’s a nice resort experience for one of our visitors, “ah, well sir, the unit you rented was foreclosed on a month ago and the bank isn’t renting it out and you’ll have to get your money back from the previous owner, but we have some similar units available at $$$ a night.”) While the Walk-Aways are pretty easy to deal with, the Weasels are always something else, and sometimes disgusting and entertaining as well. The banks have a way to keep the Weasels at bay for the most part, it’s called “cash–for-keys.” It’s right out of the old landlord’s handbook––paying undesirable tenants to leave, leave the place in good shape, and sign their rights away. Foreclosed on owners, or their tenants, can get a check for being nice Walk-Aways.

And then there’s the weaseliest of the Weasels, and I just can’t help telling you about him because if you met him you just might think he’s a nice guy. But he is a small but prime example of why we are in this global economic pickle today that will cost us for decades to come. I refer to him as Bugs Bunny. See Bugs was a “real estate investor” and he always let you know it. He was a client of one of my former associates. We have subsequently ended up handling a property he was foreclosed on. As all the paperwork flows through my office, the financial damage he created becomes apparent. He bought a small 70’s built condo about 10 years ago. By 2007 he was able to put about $250,000 in his pocket via cash-out refinances. Shortly after putting the biggest loan possible on the property he stopped making payments to everybody––the bank, the Homeowner’s Association that was in the midst of a major (and costly) renovation project, the County (the State), and God only knows who else (little guys often get stiffed by these people). All the while he kept renting the property and generating revenue. Ultimately he gets foreclosed on. So now the bank pays him to remove his personal items and legally abandon the property. Today, we have the property in escrow and my calculations are the bank will lose about another $250,000 by the time they pay off the HOA liens, the taxes and other expenses to liquidate the property. So one little condo puts a $250k in cash in his pocket and the bank will realize about $500K in total loss. Oh, and this bank got bailout money from the Feds.

And if that doesn’t put Bugs the Weasel on my poop list, he starts claiming (after he gets his move-out check and signs away his rights) that a couple of Home Depot light fixtures (that were attached to the property) have “sentimental value” and we “stole” them from him. He thinks this is so important that it warrants regular, whiny voice mail messages. Then he tells me that he wants to “pick them up while he’s up in Mammoth skiing next weekend” and that if I don’t he’s going to file a police report. He was “greatly offended” when I called him a Weasel.

Man, this is a great country. And we wonder why we’re in such deep doo doo.