Mammoth Foreclosures v6.6 –– Do Not Report Fire – Controlled Burn

Mammoth weather redeemed itself. The wintry spring gave us lovely summer-like weather the past few weeks. And the trend may stick around after the current cold front moves through. The fall colors are turning slowly-but-surely and it continues to be a fabulous time to be in the east side. And I might add, a perfect time to come look at Mammoth real estate. That is, if your agent isn’t on vacation somewhere (not this agent, it’s pre-winter crunch time).

The foreclosure circus in Mammoth and the adjacent suburbs mirrors much of California and the rest of the country, but our market remains just a little bit different. My critics can laugh at the comment “it’s different here,” but it is. I’m not saying were insulated from all of the economic stress, but we’re hardly looking at newly developed subdivisions that are deserted or have hostile occupants squatting in properties. If that were the case, the most vulnerable developments should be the condo hotel unit in the Village and the Westin. And based on the recent Westin Monache auction and REO sales in the Village, buyers are gladly paying more than recent comparable sales for these properties. And buyers are still pursuing foreclosed condos that need significant repair for the opportunity to fix-up their own crash pad. And many have cash. The patient ones are getting good deals on Mammoth real estate. And while this whole segment of the market may appear rather mundane, there are more sub-plots, characters, drama, and twists and turns than many good novels.

Many real, deliberate, and pretended circumstances keeping a rush of foreclosures from coming to the market here in Mammoth (and other markets). As I said some months ago (in different words), this whole foreclosure saga in America is an orchestrated case of financial engineering, or re-engineering. Even I have to get over it. And even I spend some time with a calculator trying to figure out if I am a fool for continuing to pay my mortgage. At some point, living in my house for the next four years without making payments could outweigh the tradeoffs. I’ve thought of all kinds of strategies and some are beginning to make sense. Do I jest or not? Other people must be thinking the same way. If only we could see with clarity what is so uncertain. (Will there be a government bailout for me too?) But it was a load of unfortunate financial engineering that got us into this mess, so it only makes sense that the powers-that-be should engineer our ways out of it without creating pandemonium and chaos. The engineering is likely to last the rest of the decade, and by then, many of us may be too old to care anymore. We’ll live through the controlled burn.

Banks are truly doing their best at keeping real estate values up and their balance sheets puffed. And the government and media are playing right along. It seems as though every week there is a new angle to delay more foreclosures from happening. This last week was no exception, the headlines blared-out that the banks were now delaying foreclosures because they were accused of rushing foreclosures without fully reading the documents. In the REO business there is an inside joke “paperwork, paperwork, paperwork” because there is enough paperwork (and time/date stamped digital photos) to easily delay the process for the next decade. Hell, the borrowers didn’t read their pile of loan documents when they got the loan, why should the bank have to read the foreclosure documents when the “owners” haven’t made mortgage payments in 28 months? Just more fodder for the aggrieved and indignant homeowners and their attorneys, and more sensational but worthless word-count for the media who never dig into the story, and on-and on. The gamblers and speculators are now pretending to be victims. What a society we have. There are even politicians implying that all of this paperwork is rife with fraud, as opposed to just admitting it is the historic and daily administration of the foreclosure process as governed by their state law. It must be election time. And yeah, this will go on for at least a decade, and two or three Presidents will probably hone their spin and “savior” skills over this subject. And just now there are rumblings the title companies may not insure REO transactions until all of this is somehow cleared up. I smell another government bailout. Wow, maybe I can make it five years without making a mortgage payment…the math is looking better all the time.

Besides the most recent drama, the same old culprits continue to bog down the foreclosure process. I don’t know any bankruptcy attorneys, but many of them should be ripe for needing an escape home in Mammoth the next few years. As I drive around Mammoth I see properties that were close to foreclosure two or three years ago and the foreclosure was stalled because of the owner’s bankruptcy. They are likely lost in a bureaucratic void. These properties had “speculation” or “cash-out-refi” written all over them. But nothing has happened, except probably tons of paperwork. It must be nice to be in a protracted bankruptcy proceeding and still be able to pretend you have a second home (the Mammoth version of extend-and-pretend). Another magical delay tactic is referred to as the loan mod or modification. This has proven to be like making an addict take sips instead of gulps. That will solve the problem. This is just more delaying the inevitable, and more propping-up of the market here in Mammoth (and elsewhere). Gee, maybe I should be trying to negotiate for a 60-year mortgage.

Another devious delay tactic is the short sale. Everybody needs a short sale experience. There continues to be a mix of success and failure and the conspiracy theorists are beginning to think the delays in short sales are just another component of the bigger game of delay. I’ve even been sucked into short sale hell because clients become so enamored with particular properties. Mammoth is typically a discretionary purchase, so for many buyers there is no problem waiting around months for an answer from the bank, or waiting for the result of a drawn out negotiation between the bank and the seller (with someone having their epiphany about reality). Sometimes it becomes a game of “who blinks first.” Lately, the banks appear to be returning to stricter financial requirements from sellers, or “contributions” as they like to call them. If the sellers have any financial wherewithal remaining, odds are the bank wants the deficiency satisfied, now or promised in the future. And short sale sellers are beginning to realize that during the whole process the late payments stack up, and as they do their FICO score goes lower and lower. The successful short sales in the Mammoth market still aren’t representing great deals (and definitely not screaming deals), but I’m sure the buyer’s agent won’t give that impression. The seller’s agent just wants it over with.

Meanwhile, the banks and investors continue to price their REOs all over the board. Some prefer the cut-and-run method, and these often represent the best buys for today’s buyers. These investors likely need the cash, and quick. But these listings don’t stick around very long, so hesitation is not a good strategy. This is not for the “I’ll be up there in a couple of months to check it out” buyers. Other REOs are priced at what I call the “fish now, reduce later” method. This may be part of the delay and propping game some want/need to play. But these can end up being good buys too, but timing (and patience) is critical. And it doesn’t hurt to have an agent who is paying attention. The newer strategy for hot properties is to price the property low and accept (competing) offers over a week or 10-day period. This could be a crapshoot, the buyer could purchase a good property but may be induced to overpay, or maybe not. Part of the whole pricing problem is founded in unrealistic appraisals. It seems to me that some appraisers are still stuck in 2006 (or maybe they own too much property). And those appraisals are often being supported by Broker Price Opinions (BPOs) produced by neophyte agents. This combination can result in an asset manager setting the price too high. But ultimately, the market will speak

What else? We’re seeing that the new government programs in this arena are hard to implement. The acronym programs (HAMP, HAFA, etc.) rolled out by the Feds in the last few years have failed to have any real affect. But they probably created some short-term jobs and delayed the inevitable. More engineering, and mission accomplished…Deed-in-lieu (of foreclosure) has not become popular. That is telling. For the owner, why give up something you can live in or produce rental income from. And for the banks, that would mean more inventory on the market. Maybe the attorneys are advising against it for procedural reasons. When we start seeing banks offering deed-in-lieu’s, it may be a sign the jig is up… According to the public record, we’re likely to see the first foreclosure in 80/50…And as we wind on down this road, we’re beginning to see the longer term ramifications for those who have already been through the bankruptcy, foreclosure or short sale process; deficiencies are now being pursued, credit scores DO make a difference in the real world, residential rents are heading north, and the psychological hit of “living with less” is just too traumatic for some. Of course, the year 2012 is nearing so none of this may matter anyway.

The mantra remains, “expect the unexpected.” Now what we need is a big ‘ol snowstorm.