Mammoth Foreclosures 4.1–Postponements and Opportunities

Sometimes life in the small town of Mammoth becomes a bit bizarre, and the dog days of this summer have found us here again. Too many lovers of life have recently lost their lives. And just when we thought financing properties couldn’t get much more difficult (at least in this decade), our “go-to” mortgage banker over the years has passed away. The vacuum in the local market is substantial and is unlikely to be filled for sometime. He wasn’t the type to do the cherry-picking portfolio lending, he was doing the dirty work. This is a guy I talked to almost every day about the vagaries of the lending environment. We tried to help each other solve our business problems.

The last few months there were major crisis, namely “project approvals.” Oh, how the financing pendulum has swung in the last three years. Today, lenders don’t want to loan their own money, they want to be able to sell the new loans to the secondary market, to be precise, Fannie Mae. Well Fannie Mae is the Feds now and everything is under high levels of scrutiny (and risk assessment), especially condominium projects. Condo projects in resort towns are coming under greater scrutiny and new red flags are cropping up at every turn. The term condo hotel has become the scourge of the lending industry and is pretty much encompassing any project that has anything close to resembling a nightly rental program, front desk or website marketing. It has become guilt by association (is that a pun?) And Mammoth is full of condo guilt. I guess the dismal state of the hotel industry hasn’t helped much. And now we’ve lost out quarterback in the midst of this credit crisis.

Beyond balking at nightly rentals, the project approval process is drilling down deeper into financials and budgets, they’re scrutinizing details in reserve studies and common area delinquencies (the next big shoe to drop). They’re looking at corporate and LLC ownerships and multiple ownerships. Some projects were getting approved after great lengths, only to lose approval shortly thereafter. All of this is taking plenty of work and cooperation from the Homeowners Board, the HOA’s accountant, and even government agencies and title companies. On top of all of that frustration, I was hearing more complaints about the new government mandated third-party appraisal ordering system. Apparently appraisers unfamiliar with the market were assigned appraisals and they in turn relied on local agents for critical information, and there were mistakes being made.

Now a lot of this may sound like tedious administrative work, but there’s more to this game than filling out forms and putting it all into a file. Our “go-to-guy” knew how to talk to underwriters, bankers, and investors––the people who make lending decisions on the critical day, or at least open the door. He scoured the different sources for investors and loans and sold the product––Mammoth and the people who buy here––to financial people in the outside world. Sure, plenty of monkeys were pushing loans through during the goldilocks era, but outside of that gilded age Mammoth has always needed unconventional help in getting real estate financing through. Having a variety of lenders in the market is critical for transactions, especially in the midst of a credit meltdown. Stuffy institutional lenders aren’t likely to be much help in the near future. Basically, if you were looking to buy in Mammoth in the next two years and there was a hint of “challenge” in your loan, odds were you would be talking to this guy, but now you won’t. We’ll see who fills the vacuum.

Oddly, while all of this is going on, condo inventory offered for sale is on the low side, especially considering the time of the year and all the other market and economic conditions. Hopeful buyers and sellers are still waiting out short sale transactions, my condolences. And cash may be a bigger king if we can’t get reasonable loans. And none of this will help values.

Meanwhile, the foreclosure pipeline is filling with all kinds of interesting opportunities to come. I’m seeing an increasing volume of defaults, including a limited number in the condo hotel properties, and the start of serious defaults in high-end homes. The few owner-occupied properties in default continue to have their Sales delayed due to all the government intervention, but their foreclosure is inevitable. In the last 30 days we’ve seen lenders move away from any appetite for short sale consideration and move quicker toward foreclosure. The typical mid-summer sales lull (combined with the present-day financing challenges) is causing an increasing inventory of bank owned property that will ultimately see slashed pricing to “get it off the books.” The banks are moving slower but more methodically about bringing them to the market, and recently most have decided to proceed through full-blown evictions regardless of their occupancy status. Right now my company is managing ten properties that will come to market in the next 45 days. By late summer it may be 20 or more.

Postponement is the order of the day in the foreclosure world. Forget the conspiracy theories––the whole system is so clogged, probably at 500% of capacity. But the clog seems to ebb and flow. Here in Mono County the recent statistics are revealing. In May there were 34 Trustee’s Sales scheduled. Only eight were foreclosed on. The rest were postponed. In June, there were 49 Trustee’s Sales scheduled (including some postponed from May) and 11 foreclosures occurred. In July (this month), there are 47 Trustee’s Sales scheduled already and by mid-month only three have been foreclosed on. (By-the-way, the public is not showing up at the these Sales to bid on properties.) So why all of the postponements? From what we can surmise from a variety a sources, approximately 20-25% are now bankruptcies. These properties are now going to be stalled in the pipeline for a good six to 18 months, maybe longer. The other bulk of postponements are owner occupied properties affected by some temporary State or Federal intervention or properties lost in some short sale transaction or delusional loan modification negotiation. The rest of the postponements are the inevitable waiting to happen.

So what are these opportunities going to look like? Well, each one is different and there is already quite the spectrum. For those opportunists who don’t mind doing a little work, there will be great deals, especially if the property sits on the market for 30-60 days without an offer. Some of the other properties the banks are putting tens of thousands of dollars in repairs into so that they will ready to finance––things like new roofs, appliances, paint, flooring, etc. There is also another round of newer condos in the pipeline. So far the buyers have loved those. And beyond that there are homes in the $1M plus range that are in default (and have been for a long time) that now the banks appear to have lost patience. So really, opportunity all over the board. We may be on the verge of quality properties selling below true replacement/reproduction value. The strongest price support has been in the Village and homes in the $300K to $700K range. I’m sensing some really attractive pre-winter “crash-pad” buys. Homes in Bishop in the $300K range have strong support. And there are affordable buys showing in Crowley in both homes and condos.

On a side note, those watching for good bank owned opportunities shouldn’t rely solely on websites powered by the Mammoth Lakes Board of Realtors® MLS data, or IDX as it is known. The Board has denied the confidentiality rights of our clients including banks, lenders, and their servicing companies. It’s a disservice to the public, but my company will gladly keep you abreast of the market in lieu of their decision.

And if you ever wanted to talk to me, the last three weeks has not been the time. A serious case of laryngitis has killed my voice. Some think it is about time I shut-up, or some think it’s the opportunity to get their say in. Regardless, if you want to talk to me, please send me an email.