Real Estate Foreclosures in a Nutshell

1/14/2011:

A snap shot into the Real Estate Crisis: Lehigh Acres

Below is an interesting documentary called Dreams for Sale: Lehigh Acres and the Florida foreclosure crisis.

It depicts how and why the Real Estate boom in other parts of the country swept in like a flash – and just as quickly decimated entire communities. Very well done.

However, one part of this documentary that I didn’t feel they spent enough time on – was the fact that many customers were lured in with sub-prime and aggressive adjustable-rate mortgages, no money down offers and more. Quite simply – folks that shouldn’t have been purchasing homes were all “jumping on the bandwagon” without know what the potential future of this bubble – and our economy as a whole was. It also didn’t depict the greed many of these new “start-up” Real Estate offices that would allow practically anyone to buy – just to make a buck. Still, it’s an excellent look into how bad it is out there.

Another thing that deserves mention nowadays is – that a select few people, groups and companies have made tons of money – even in the down-economy. Whether it’s those “in the know” (i.e., insiders), or lucky recipients of bailout money (i.e., insiders), or those that essentially caused this whole economic crash (i.e., insiders). I find it funny now that the prices have come slamming down – that foreclosed properties are being bought out by investment groups – to make money once again. How did a select group of people get such deep pockets? Just smart investing?

Anyway – the NYC tri-state area, while suffering much less than cities like Lehigh Acres still suffered nonetheless. In my opinion, one thing that has prevented this “gold coast” area from falling completely during this market correction is – that you’ve always needed to be wealthier than the rest of the country to live comfortably out here. In other words, the customers are of a higher caliber. However, I still think that doesn’t mean we’re one big economic crisis from having similar issues. At that point – I’d suspect much more foreign money will start infiltrating.

Related: Bloomberg reported yesterday that foreclosures are expected to jump 20% more in 2011. Doom?

Below is Part 1 of the documentary.

Dreams for Sale Part 1:

See Part 2 and Part 3 after the jump!

Dreams for Sale Part 2:

Dreams for Sale Part 3:

Do you think Hoboken will hold on? If so, why? For how long? If not, why? When will it collapse?

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11 Comments on "Real Estate Foreclosures in a Nutshell"

homeboken
Member
homeboken

Russ – good for you for thinking about the problem, but your proposed solution is not capable of being carried out.

Your plan is flawed. The current owners are being foreclosed on, because they are seriously delinquent. That means that they likely have zero equity in their home, and will likely have very little cash to put towards a new home purchase.

Let’s say I work at the bank that is foreclosing, you want me to originate a new loan with the same borrower. Why would I do that? These borrowers have already proven to me that they are not credit-worthy. You want me to re-invest in these people? The owners that default will have terrible credit scores, very little money for down-payment, and have already screwed me once. That is the last party that I am willing to lend to.

Also, it is basic tax law that forgiveness of debt is taxed as regular income. So, in your plan, if homeowner A borrows $500,000 to buy a home, then goes through your scenario (impossible but whatever). The new market price is $400,000, so the bank writes-off $100,000 of debt. In that case, Uncle Same will be happily collecting regular income tax on that $100,0000.

YipYap
Member
Russ WTF is all I have the say. One of the first things you should at least learn in Real Estate school is you cannot get blood from a stone. The homeowners that are in foreclosure or are trying to sell their home via the short sale process cannot afford the current payment for the most likely reasons of unemployment or underemployment etc, so how they heck are they going to afford a somewhat reduced payment amount later? Does a high paying gig come with this short sale for the under employed and unemployed? Let me put it to you in a Hoboken context. Husband and Wife Jeffery and Jessica levered up income to buy at peak 800k for a 2 Br in Hoboken (which seems foolish now) and in 2011 the Hubby who worked a desk on Wall St pushing paper is busy with his new career of farting holes into his sofa all day. Wifey works full time bringing in 30% of what is now needed to pay the mortgage payment. Guess they are going come up short even if the cut out the lattes, pilates, vacations in Antigua, fire the Dog Walker as well as the Mexican Maid and the African Nanny. When you have no job and no income and no prospects well things are even worse.Many of those people and the rest of the 99ers like Jobeless Josh are going to soon be living in Mom’s basement if they don’t get work soon. The real… Read more »
russeppen
Member
russeppen
So which real estate school did you attend? Of course the current owners can’t afford their mortgage! So, if you had read my ENTIRE plan, you would have realized that the house has fallen in value. So, when the mortgage company sells the house to a buyer, the mortgage payments are based on current market value. I am suggesting the current owner be allowed to “purchase” this property for current market value…someone is going to anyway, so why can’t the current owner? The result is the mortgage company will be receiving the EXACT SAME PAYMENTS from them, as they would a new buyer…again…did you read my entire plan??? [quote comment=”202290″]Russ WTF is all I have the say. One of the first things you should at least learn in Real Estate school is you cannot get blood from a stone. The homeowners that are in foreclosure or are trying to sell their home via the short sale process cannot afford the current payment for the most likely reasons of unemployment or underemployment etc, so how they heck are they going to afford a somewhat reduced payment amount later? Does a high paying gig come with this short sale for the under employed and unemployed?Let me put it to you in a Hoboken context. Husband and Wife Jeffery and Jessica levered up income to buy at peak 800k for a 2 Br in Hoboken (which seems foolish now) and in 2011 the Hubby who worked a desk on Wall St pushing paper… Read more »
russeppen
Member
russeppen
The Problem: Homes are being sold after foreclosure or short sale far below actual market value. These homes are flooding the market, which has been driving down market value of surrounding properties for the past five years. The Solution: “Sell” the house to the current owner at current market value instead of foreclosing. Erase the original mortgage and start a new mortgage at the current market value ONLY IF the current owner agrees not to sell the property within five years. The new loan would be contingent on agreeing to paying back the original mortgage to the company if the owner sells the house before the five year period ended. Mortgage companies would be receiving the same amount in monthly payments from the current owner as they would from a new buyer – what’s the difference who makes the payments? It’s going to be sold for a reduced price anyway, so why not “sell” it to the current owner if they can afford the new payments based on current value? Everybody Wins: Mortgage companies would save money by not having pay for the foreclosure process, not having to pay property taxes during the foreclosure process, not having to pay the staff that is needed to manage all the distressed properties the mortgage company has, not having to pay real estate commissions, and not having to sell a home that, on many occasions, has been damaged by the former owners. Also, it would not be months before the property is actually… Read more »
HansBrix
Member
HansBrix
Who determines market value? What prevents moral hazard of home debtors who have the means of paying but would like to bring their principal down? Can the lenders handle the volume/overhead of implementing the plan? Do they have the expertise in sufficient quantity to make it work? Will the IRS tax the debt “forgiveness”? How will the inevitable fraud be prevented/mitigated?[quote comment=”202263″]The Problem: Homes are being sold after foreclosure or short sale far below actual market value. These homes are flooding the market, which has been driving down market value of surrounding properties for the past five years. The Solution: “Sell” the house to the current owner at current market value instead of foreclosing. Erase the original mortgage and start a new mortgage at the current market value ONLY IF the current owner agrees not to sell the property within five years. The new loan would be contingent on agreeing to paying back the original mortgage to the company if the owner sells the house before the five year period ended. Mortgage companies would be receiving the same amount in monthly payments from the current owner as they would from a new buyer – what’s the difference who makes the payments? It’s going to be sold for a reduced price anyway, so why not “sell” it to the current owner if they can afford the new payments based on current value? Everybody Wins: Mortgage companies would save money by not having pay for the foreclosure process, not having to pay… Read more »
russeppen
Member
russeppen

Who determines market value? The market does! Fair market value is determined by recent sales of homes of comparable size in the same neighborhood that have been sold in the past few months.

The means of paying their current mortgage is based on the income of the owner of the real estate.

The mortgage companies are currently handling a massive amount of short sales and foreclosures. My plan would ease this burden.

IRS forgiveness? The homeowner is NOT making income on this transaction, and my plan calls for the owner to keep this property for a minimum of 5 years, in which time the market could recover because most foreclosures and short sales would be cleared within 2 years of implementation of my plan.

Fraud? The current owner of the real estate would remain the future owner for the next five years. If they sold the home before the five year period ended, then they would be responsible for paying back the original mortgage! All of your questions were covered in my plan…[quote comment=”202278″]Who determines market value? What prevents moral hazard of home debtors who have the means of paying but would like to bring their principal down?Can the lenders handle the volume/overhead of implementing the plan? Do they have the expertise in sufficient quantity to make it work?Will the IRS tax the debt “forgiveness”? How will the inevitable fraud be prevented/mitigated?[/quote]

bmacqueens
Member

@Hans – Lis pendens, moral hazard? I like the way you write. Lawyer?

Agree with you re. obvious fraud potential … that’s why you cannot transfer your stuff to your own family in anticipation of bankruptcy. “Yeah, I’ll sell the beach house to my brother for $50, and then buy it back later.” Nope. It might work for ditching the liquor for Passover, but not in US bankruptcy court.

@Russ – it’s called a preferential transfer, and there’s a mountain of case law almost always ruling against the party who tried to screw the creditors by selling stuff for cheap to their own friends and relatives. You can Google it – standard doctrine in US bankruptcy law. Not going to be permitted.[quote comment=”202278″]Who determines market value? What prevents moral hazard of home debtors who have the means of paying but would like to bring their principal down?Can the lenders handle the volume/overhead of implementing the plan? Do they have the expertise in sufficient quantity to make it work?Will the IRS tax the debt “forgiveness”? How will the inevitable fraud be prevented/mitigated?

[/quote]

russeppen
Member
russeppen

Fraud? The EXACT same person who is currently getting foreclosed on, or going through a short sale, IS the person who will retain the property. And if they sell the home within 5 years, they have not met the criteria of my plan and will have to pay back the ORIGINAL mortgage back to the company who last held the mortgage. I am surprised that many commenters here have not read my entire plan…and are just commenting on their thoughts after reading just a portion of my idea.[quote comment=”202285″]@Hans – Lis pendens, moral hazard? I like the way you write. Lawyer?Agree with you re. obvious fraud potential … that’s why you cannot transfer your stuff to your own family in anticipation of bankruptcy. “Yeah, I’ll sell the beach house to my brother for $50, and then buy it back later.” Nope. It might work for ditching the liquor for Passover, but not in US bankruptcy court.@Russ – it’s called a preferential transfer, and there’s a mountain of case law almost always ruling against the party who tried to screw the creditors by selling stuff for cheap to their own friends and relatives. You can Google it – standard doctrine in US bankruptcy law. Not going to be permitted.[/quote]

Craig-D
Member
Craig-D

The NYC/Hoboken market will hold up for the very reason that was cited: you have to be relatively affluent compared to the rest of the country to live here. Thus most buyers here were very qualified to buy their homes. The fact is there are very few foreclosures and short sales in Hoboken. The few that exist are strategic. The Sky Club was particularly hard hit because there were so many speculators who bought in that building as an investment. Most of them never resided there and never intended to, so it was easy for them to walk away from their underwater investment. But Sky Club is the exception that proves the rule here. Lastly, Hoboken’s condo for sale inventory is now under the 400 unit mark and moving towards a healthy supply level.

HansBrix
Member
HansBrix

One way to see what’s in foreclosure (and where) is via Google Maps. Just bring up an area, click “more” and select “real estate”. Then on the left check “foreclosures” and uncheck everything else.

Unsurprisingly, poorer neighborhoods (newark, paterson, passaic, etc) are getting hammered. But even Maxwell Ln has a lis pendens.

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