Mammoth Short Sales––Take It In The Shorts?

Real estate short sales are becoming all the rage in the Mammoth MLS inventory. And anybody who consistently reads here knows I’m skeptical about them in the Mammoth market for many reasons. But with an ever changing economic landscape, manipulations from Washington DC, and fluctuating bank policies, I’ve tried to keep an open mind and continue to do my own research on what to expect in the future. Furthermore, I don’t think many of my readers appreciate how relevant the Q&A’s and columns found here are to what is really happening in the market.

So while this column was largely researched and half written, I walked into a conversation yesterday at an open house between two very experienced Mammoth real estate agents. Both were disgusted. One was complaining about how her buyers want to see all these short sale listings because they appear to be such good buys, and how they were wasting her time. The other was complaining because his investor client was listing all of his investment properties as short sales but wouldn’t take the time to even look at some of the paperwork the bank will request in a short sale transaction. These agents were clearly verbalizing the many quandaries I have anticipated.

So back to the column. In some of my recent research I came across a very simple and concise (and almost brilliant) explanation of the problem. This comes from Patrick Schutte a RE/MAX Realtor who is very active in foreclosures and short sales in Prescott, AZ. He says, “While I used to shy away from short sales, now there are 10 questions that I ask the listing agent before my clients and I craft their offer.” This methodology is very astute, and displays his experience (and probably frustration) in dealing with short sales. These 10 questions give any potential buyer and/or their agent a real clue as to whether this is viable, or a complete waste of time. So let’s look at Mr. Schutte’s 10 questions (they’re in bold) and my comments (what makes them so important) follow. And then I have some questions to add that are more Mammoth specific. Hopefully, the sum total of this exercise gives buyers and sellers some enlightenment about short sales, especially here in Mammoth.

1. Who initiated the short sale? May seem like a harmless question but it is rather important. Mammoth’s inventory is filling with short sale offerings by agents that have no clue other than to follow the crowd or trend. They have no idea (yet experience) at what it takes to complete. So is it a knee-jerk reaction by the listing agent or the seller? OR has the seller/agent been talking to a specialist (not the receptionist) at the lender who requested that the property be listed as a short sale? Big difference.

2. Has the homeowner stopped making payments on the property? Historically, a lender won’t even consider a short sale unless the property is in default (i.e. late on payments). Many short sale offerings are not in default, the sellers are just trying to get out from under the property while preserving their credit. In most cases there is no true “hardship” other than the owner no longer wants this “investment.”

3. Has the bank received the seller’s short sale package including the hardship letter and have they approved the homeowner for a short sale in writing? Well, here’s where the rubber meets the road. The “short sale package” is an application to the bank to be approved for the short sale. For many Mammoth wannabe short sellers, this is going to be more detailed than the application they made to purchase or re-finance the property. This will include copies of tax returns, bank statements, credit reports (including the Mercedes lease), personal balance sheet (and extensive financial worksheet), etc. The hardship letter explains why they deserve to qualify for the short sale. The more assets the seller has the more likely the bank will dig and look for ability to pay.

4. How was the listing price arrived at (BPO, CMA), and has the bank approved it? Sorry, the bank isn’t going to let any buyer steal the property. There will be appraisal(s), Broker Price Opinions and other assorted evaluations. And in this market, while the short sale is in a protracted escrow period the value declines so the deal that was isn’t as good as the deal it is. That’s why buyers usually back out of the transaction at some point.

5. Are there any subordinate lien holders? Have all lien holders agreed to short sale? Here’s the critical modern day problem in Mammoth––there’s more than one loan. And while the holder of the first loan might be agreeable, the holder of the second loan isn’t (or even worse, it can’t be determined who even has the loan––remember, this was the era of slice-and-dice). And speaking of lien holders, the homeowners associations are holding liens on some of these properties and they want to get paid.

6. Is their Primary Mortgage Insurance (PMI) on the 1st mortgage? This isn’t so relevant to Mammoth, but if the property IS owner occupied (and thus having a much better chance of completing the short sale) then this could be a real issue. The lender may not care for the short sale because it may be in their best interest to foreclose and let the accountants jockey the numbers.

7. Have you received any other offers, and has a loss mitigator been assigned to the case? Now you’re getting down to brass tacks. If everything is in order so far and these questions have been answered properly (the listing agent has done their job!), now you’re getting down to an understanding of what the bank may accept as a price in a short sale. And whether the buyer is willing to be in the range. And you have a live-body decision-making human being looking at the file. I could write a whole column on this question. All of these people are so swamped (and probably disinterested) that this is serious consideration.

8. How long do you estimate the loss mitigator will take to respond to our offer? Now Mr. Schutte has to be respected for not messing around, and his website indicates he was a Marine, and in a short sale a buyer needs a good Marine on their side (storm the beach!). I don’t know how accurate the answer will be but it is worth asking. If you’ve got this far it shouldn’t be too long, “ah, next week, or next month, or next year.”

9. Has the loss mitigator ordered another BPO yet? When will they? More brass tacks. In this market it is normally an updated appraisal. (And I have news for you, real buyers aren’t paying “appraised” values in Mammoth, appraisals are typically 10-15% higher than what the today’s buyer is willing to pay––they’re typically educated and qualified!)

10. When is the scheduled trustee’s sale? Has the bank postponed it in writing?
We were just assigned a foreclosure/REO and the prior owners were “shocked” they had been foreclosed on. They said they had talked to the bank the day before and the bank was “working with them.” The property had been listed and everyone was clueless that the bank was going to pull the plug. Right now the pipeline shows there are a dozen or so short sale listings with looming Trustee’s Sales. Some have been in escrow already and have fallen out. Some Trustee’s Sales have been delayed pending potential short sales. But the odds are some (or most) of the “work” hasn’t been accomplished. (Sooner or later we’ll be leaving the jettisoned world of short sales/foreclosures/REOs and government intervention.)

Here’s a question that is more Mammoth specific:
Is the seller prepared to put cash or promissory notes into the short sale transaction to make it happen? Well, that’s what any seller that can’t prove hardship is typically being asked to do. You see, most of Mammoth’s short sellers aren’t hardship cases (as their financial worksheet/credit report will prove), so the bank scrutinizes their financial position and wants them to pony up something of value to make up for the forgiveness. This is when the seller gets to decide if it is worth it or not. This is why the exercise of asking the 10 questions is so valuable for any potential buyer. The lender will create pain for the non-hardship seller and many of these sellers don’t want the financial (or emotional) pain or compromise. Most are just looking for an easy way out of the mess (and their agents gladly enable them).

There are other concerns about short sales in Mammoth, but I’ve run on too long. Buyers will have to pay cash outside of the escrow for any furnishings. But that may not be a big deal. One local agent that has numerous short sale listings told me (to my face) that he doesn’t do anything except put the listings into the MLS. He said, “I tell my sellers they have to do all the short sale related work.” That should give you a high level of confidence on top of everything else we’ve discussed here.

Mr. Schutte’s 10 questions are extremely valuable to any buyer pursuing a short sale purchase. I highly suggest any buyer doing so to ask their agent to pursue them before writing any offer. For listing agents, the sellers should be prepared to answer them (and do the work first). Having the answers will save lots of time. And after all, time is the most precious commodity we all have.

15 thoughts on “Mammoth Short Sales––Take It In The Shorts?”

  1. Great article. Nothing like accountability for the generation that thought they could have it all…and not pay the price.

    The owners cannot possibly think they will not have to make good on their loans or pay the price of having their credit destroyed.

    The modern condos (really these are just hotel rooms) from Intrawest should be selling at $150/sq ft (given their poor construction quality and cheap appliances: that is what it cost to build them and what they are worth) and probably much less given the overhang of operating liability. Paying more than $150/sq ft for these Intrawest properties and the Westin will just lead to the disillusion/foreclosure cycle repeating for the next buyer.

    Currently they are still selling at $300-$600/sq ft.

    The market in Mammoth has still not corrected to the true values.

    Why bother with short sales? Wait for the total market to drop to the correct values and just buy the condo from the bank or a long term seller.

    Prices are heading the right direction, but most of the listings in the MLS are from sellers who are seriously waiting for the Easter Bunny or Santa Claus to bail them out.

    My guess is that between the burden of the homeowners association and the bank, most of these properties will eventually become REOs.

  2. Lets face it, things just don’t pencil out with the current business model and occupancy data. Prices have only one direction to go. I agree that they will not see the levels of the market high again in my life time. Do you hold on to an upside down investment that you can’t even refinance at a lower rate? or take your lumps and walk? What will happen if the house of cards finally collapses? What is the impact to the home owners associations from the non contributing units for months it takes to foreclose and sell? What is the long term on the community that depends on the T.O.T. that will be greatly reduced if the real estate market collapses? I don’t have the confidence in the current leadership to prepare for any of the likely scenarios. They didn’t have the foresight to plan for continuing flights service this summer. They are now concerned of gaining control of the 203 from Cal-Trans even though they can’t meet current pay-roll without layoffs and employee concessions. Maybe a good topic for the next Question and Answer blog. What the smart money to do with your Mammoth Investment under current economic and political conditions? What do you think Paul?

  3. R.I.P. LuLu’s Mammoth, another one bites the dust. Talk about taking it it the shorts. I guess poor service, small portions and high prices isn’t a recipe for success.
    Could this help property values of the village? Small units,high prices with poor guest experience. Smells like the same chef.
    Maybe the smart money should double down?
    Oh thats right they already have with values in the village nearly halved.( Just check the latest appraisals.)
    This “tumor” is cancerous and will spread like a wind driven wild land fire!
    Are those Buzzards circling above?

  4. I think it a sign of the times or maybe a harbinger of times to come when the discussion of Mammoth real estate focuses solely on the economics and ignores the factors which provide the base of support and the motivation for absorbtion of units. Mammoth is so fortunate that it has amenities (think nature) and lack of accessibility to a major urban area (think Stockton, Lancaster, Palmdale, Moreno Valley) so that the demand is always present although at price points which are 30% or more below peak. And the lack of proximity to any economic base or speculative credit insures that the persons purchasing these units are not Section 8 landlords, foreclosure vultures or buy-and-flip speculators. They are from the same gene pool which has always purchased Mammoth property: families from Southern California with good/great credit and (now) MVP passes. The Village stores close? Yawn. I’ll get upset if Whiskey Creek or Wave Rave folds. Persons I have spoken with down here are just waiting for the market to shake itself out before they jump in (my guess is this summer) and buy. All that said, the “market correction” is really in my mind a “buyer correction.” The investors, speculators and idiots who drove up prices to 2006 levels will get foreclosed upon or will simply walk-away and the real buyers, those persons clogging up 395, will backfill the inventory when the prices stabilize and the economy brightens.
    No one ever short-saled the mountains or foreclosed on the lakes and streams.

  5. Now that Lulu's is gone from the Village, the cost to the homeowners in the Village will go up.

    One of the major amenities for owning in the Village (room service) is now gone too and there is no attached restauraunt.

    Yet the prices of the units being offered for sale in the Village stays the same.

    I wonder why the homeowners association has not brought a lawsuit against commerical managment firm for breach of fidiciary responsibility (the homeowners are responsible for the lost revenues of the commercial tenants leaving). The gross negligence of the management firm in allowing (encouraging) the loss of commercial tenants is egregious.

    If they owners at the Village are unable to take this legal action to protect their interests due to CC&R's, then the units in the Village should be selling for almost nothing given the overhang of liability.

    Lulu's had clearly gone downhill (I ate there a few weeks before it closed), but it was full of customers. So, my guess is that their leaving was probably due to factors having to do with the management company leasing space to them.

    I have run into landlords that are unreasonable and end up with empty buildings. I have never seen a homeowner's association tied to a commercial leasing obligation that they had no control over.

    Or, am I missing something here?

  6. What values, what promise, what dream, what long-term nightmare are Mammoth property values based on?

    Does anyone think we have seen the bottom?

    The questions go back several decades. If you are “buying in” for long-term family experience and have cash to carry property, no problem. In fact, great time to shop.

    I do not need to tell speculators this is not a time to buy. (I could be wrong, but ???)

    Mammoth realestate will make a very big shake down, agent cut back,if only buyers are SoCal bargin/bones buyers.

    The dream is dead or it has realistically changed. Mammoth will struggle below top five market Ski resorts average revenue and given MMSA’s capitol improvment level, that may be a blessing.

    It sure looks like MMSA’s BP will be based on HWY-395.
    Mammoth real-estate will have two drivers, IMHO.
    1. Barign family buys not based on near term return or cost of carry.
    2. Very unique big ticket buyers that have a special love for Mammoth and no glitz scene. The later is such a micro market.

    Commercial will be in toilet for very long time.

    Their is a silver lining to this for non spec, non realestate sale folks.

  7. The Mammoth MLS should disclose the short sales and if there are offers on them. Its very misleading to see all these condos and not know what the deal is on them. Also I am appalled at the poor quality listings that the agents in this town put out. How do they expect to sell anything with crappy pictures and poor discriptions. If you are not famillar with the condos in mammoth it would all seem getto. Have some pride in your profession. Thanks Paul for your excellent blog.

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