Mortgage lenders are a strange lot

[desdawg]

I recently put in an offer to buy a duplex in AZ City, AZ. It was listed by a Realtor as a short sale. The original loan was 120K, now in default. The Realtor put the property on the market at $65K. I offered $50K cash, no contingencies. The duplex was scheduled to be sold on the court house steps on Monday, May 5th. That would have been the opfficial foreclosure. The lender stopped the sale, ordered an appraisal and has never responded to my offer which has now expired. The Realtors tell me this is typical behaviour for the lenders now days with all of the foreclosures and short sales that are going on. What a strange world we live in today.
I took a forced retirement in September when I shut down my excavating business due to a lack of work. Since then I have rehabbed 3 rental houses, installed a mobile home on a property and done a TI in one of the Suites in my office building which I now occupy as my own office. I scratch my head and wonder if I am doing anything that is smart since I keep spending money like I was in a normal economy and watching my nest egg dwindle away. I have lived through some strange times but this has to be the strangest I have ever seen in my 60 years on the planet.
Someone once told me to keep both eyes on the road, both hands on the wheel, nose to the gridstone and put one foot in front of the other. Now try to work in that position. I don't think there is any conventional wisdom right now that applies to anything that is going on.
John, I took your advise and am trying to muddle through. Trouble is I don't know where I am going.

[considerations]

When I think about mortgages I break out in hives.  Too many lives have been macerated in the slow inexorable grinding of the the system as it has evolved.  Too many fingers in the same pie.  Some make money off the borrower for doing nothing.  In the beginning, one went to the local bank, borrrowed frm people they knew, and had someone to talk to if a problem came up.  Now, the bank sells the "paper" at closing, to who knows.  'nuff said

[Redoverfarm]

Since it appears that we are headed into a recession or at the early stages I generally point the finger at the homeowner in most failed mortgages. Although this is not always the case.  I was raised in believing to "live within your means".  When I refianced my home several years ago I elected to go to a fixed rate for the duration of my loan. Yes I could have taken a ballon rate but unsure what the rate would have been at the maturity I liked to play it safe.  I think it is a balancing act to live within your means and select a rate that would allow a buffer of flexibility with your finances and not strap yourself to the max.  There is an exception in which some individuals become prey to a corrupt system and my heart goes out to them but for someone to try to use the system to better their financial gain with buying an selling expecting to gain a profit from one house to another I have no sympathy.

With the present state of the economy I think every one has to start small and grow again.  As I was told to save the pennies, they turn into dimes, then quarters and eventually dollars.  Same could be said for small investments then grown a little bit at a time.   

[Homegrown Tomatoes]

I don't think we're headed into a recession... I think we're already there and I don't see it getting better any time soon.  And usually I'm the optimist.

[ScottA]

Looks to me like they are sending everyone back to the 70's in economic terms. Americas been living high on the hog the last 20 years and the roll back has arrived. So far as mortgages go, alot of people don't understand what they are getting into when they sign the line. Unfortunatly no one ever taught them. Sure many people just want it all but many others are simply clueless.

[Sassy]

They believed the advertisements of easy money, low interest rates & no money down & get $$$ in their eyes thinking they're going to make a lot of money...  they don't do their research, think "get rich quick" & over extend themselves...  I'd say that's what happened to a large percentage of people who've lost their shirts...  yes, some were duped, finally able to get into their 1st home only to lose it...  but a lot of others were greedy, I'm sure & are paying for it now.  Glenn & I have been very careful what we buy in the way of real estate & have paid rock bottom prices for what we've bought so even with the recession, the properties still have their value.

Desdawg,  I know we went through this before on another thread, but since you were talking about making an offer on a property that had gone into foreclosure.  There is a home up for auction close to where my dad's property is (my siblings & mine now) - 3 bedroom, 2 car garage, 1 1/2 acres - everything remodeled - granite counters, bathrooms totally remodled with new fixtures, new carpeting & flooring throughout, new windows, the garage has an extra bathroom & workshop area - $25,000...  sounds too good to be true!  Glenn mentioned that you'd have to look at the liens, etc on it before making a bid.  It was up for auction recently & no one bid, I guess.  I'll have to look into this - if it is only $25,000 with no encumbrances, I'd go for it in a second!  Would be a great investment.  So what should I be lookin out for?

[desdawg]

Sassy, a title insurance company should be able to do a title search for you and tell you if there is anything hanging out there. They not only search the property but the owner/seller for IRS tax liens, or any other recorded liens, etc.  Here in AZ we use title companies to handle the escrow and do the closing. Then we buy "title insurance" where the title company insures the title per their report. If anything happens later they would be on the hook for it since that is what you paid them for. I haven't ever done any business in CA so I am not sure of the procedure in that state.
The duplex I offered on is what is known as a "short sale" where the original buyer is in default but hasn't yet been foreclosed on. The lender would have to agree to accept what I offered knowing they will never collect the full mortgage balance. If they complete the foreclosure process and become the owner of the property their losses would be greater yet as they would not only have the amount they loaned originally plus the legal fees to foreclose, whatever repairs they would do to make the property salable and the expenses of selling it again for whatever they can get at that time. I assume right now they are in the process of weighing all of that out, thus they stopped the forexlosure and ordered an appraisal. What boggles my mind is that they have not responded to my offer in any way, neither saying get your lowball offer out of here or let's get this offer extended and keep it active while we go through our process. They simply haven't responded in any fashion what-so-ever. The realtors tell me this isn't unusual right now.
I suppose if I were to demand my earnest money back it would be over. If I wait patiently there is still a chance it could go through as written. In normal times that offer would have been responded to in some way or other, either by rejection, time extension or a counter offer but these aren't normal times and the old rulebook seems to have gone out the window.
The duplex has been repainted inside and out and has a new roof. With some carpet cleaning and some trash hauling it is ready to rent out. Weeds are growing up around it and it is vacant. Since it is an income property the fact that is vacant will lower the appraised value as the income it produces is part of the valuation formula for income producing properties.
I think the lenders have so many of these going on right now they don't have the time to give any one much attention. Their losses are so great that they may just accept this as part of the bigger picture. There are definitely some buying opportunities out there for those who are capable of being a buyer. In my area valuations have dropped to the 2003 level. We grew so fast here that this area will be one of the slowest to recover. Too many people flooded in and bought at the top of the bubble, anticipating a quick flip and some easy money. Suddenly the brakes were slapped on and they hit the windshield. Many of these players were way over-leveraged and don't stand a chance. The others who can handle it for a while spent so much on their purchases they will be very reluctant to accept a big loss just to get out and they will have expectations that can't be met. Truthfully, I don't know how an appraiser can be accurate in this market. I look at any appraisal with a lot of skepticism.

[Sassy]

Thanks, Des!  California requires a title company also - we have a good one in town - the guy is really helpful & will answer a lot of questions even if you are not actually buying anything...  I'll have to go down there & check it out better...  I would think that others looking at investments would bid higher...  but if it's already gone through the bidding process once & no one took it...  good info!

[desdawg]

Everything I have ever heard about California real estate says it is way more expensive than other parts of the country. 25K sounds unreal. I run into people who have moved here from CA so they could afford to buy a house. You may have found the deal of the century.

[CREATIVE1]

I've been in the mortgage business as a sideline for the last ten years.  Many times I was set to go with a fixed rate as low as 4%, and some
fast talker convinced the client to go with adjustable rate mortgages with 1 to 2 percent teaser rates for the first six months to a year.  I tried to  talk to them about the downside to these loans (I'm an accountant and financial planner) but they all went with the other guy.  Now they're losing their houses or finding it more and more difficult to make payments that have as much as doubled.  So everyone but the fast talking mortgage broker loses.  By the way, those brokers never seem to get in trouble, even when they falsify loan applications and lie about what the paperwork says.

The mortgage situation has been a slow train wreck lasting several years.  I'm resentful that our entire economy is threatened by such overwhelming greed and stupidity.  Everyone is at fault, even though some homeowners have obviously been victimized. 

[peternap]

For what it's worth Des, I think your making some damn good investments, although I've shied away from rental property for years. Bad experiences.

Now is very likely the last time in my lifetime that we will be able to but property at rock bottom prices and it will improve in a year or so. I'm still working on more timber land. I found a small piece (17 acres) in Russell county a couple weeks ago, and got it for 700 an acre because the owner needed cash NOW. Even in the depressed economy, I can get 1200.00 an acre for the timber. I'll just wait for the next building boom.

[desdawg]

Rental properties can be a major PIA. It comes with the territory. I have been doing it since 1997 as a sideline. Lately it has become my full time job. By law I can only manage my own properties. Only a licensed Realtor can manage properties for others in AZ. I know I am building some equity as I put these places together. I just have no idea how much or when it will become liquid. That is what makes it scary. Some of the big players are preparing for the next building spree. In one are where I have some properties Cemex is building a plant due to come on line in 2012.
http://www.globalmanufacture.net/home/news/CEMEX%20Plans.cfm If they truely put $400 million into the small economy in that area in a 5 year period that area will change for ever. Cemex is an old company, 101 last year I believe and has lots of money. So if they are projecting 2012 I have to believe they have done some homework beyond my capabilities. Of course things change on a regular basis right now. The future has become very uncertain.
I have two rentals that are singlewide mobile homes on 1 acre of land. I have put each one together for under 30K so with those I feel certain I will never backslide. The other big unkown here is the taxman. The county mill levy is going down but the assessed valuations here run two years behind the current market. So even at a reduced rate it all hinges on the assessed valuation which were determined mid bubble. Very confusing. Add in a city government, school district or some other special district and I am completely lost when it comes to making predictions. 

[CREATIVE1]

In Florida my clients have been buying properties for $40,000 to $120,000, refurbing them, and renting them as Section 8 Housing where the government pays the rent.  That was working just fine until the county had more properties for rent than renters. 

[desdawg]

I phoned the Realtor I am working with yesterday and asked if I should just pick up my earnest money and call it a day. This precipitated a call to the listing agent who then called the lender. They are indeed going their process to consider making this short sale to me. I was promised a definite answer by weeks end. Then I went to my bank to see what mortgage product they might have available for an investment property. Apparently I could get a 30 year fixed rate at 7% with 20% down on this duplex assuming I can get therough the qualification process. I will see how that works out. I finally got my income tax return finished by the accountant yesterday. I owe a fair amount to be paid by October 15 with my extension. I knew this year was going to be ugly because I had been pulling out every $ I could last year to prepare for what is now happening in the economy.
I have one house that I bought in 2005 that was rented to a Section 8 renter when I took title. I went through that house this past winter fixing and repainting, new floor coverings, etc. That house had taken more of a beating than any other I have owned. That house had came to me with a mis-management company in place. The mis-management company has now been fired, never to darken my doorway again. They allowed that renter to do whatever they wanted just to keep the rent coming in so they could collect their percentage. Ultimately this was at my expense. When I was busy with the excavating business I had pretty much allowed them free reign because I was busy eslewhere. That was a bad mistake on my part. Live and learn. Now I am trying to learn how to take illiquid assets and make them liquid. I have been getting caught up on a lot of deferred maintenance in many areas. Last weekend I hauled 10,000 pounds of scrap metal out of my yard. My yard should drain better now as I think it lifted a bit on the planets surface when I relieved that pressure. I will haul some more this coming weekend. Now while I am in the fix-up, clean-up mode I have to stick with it. Unto every thing there is a season and a time for every purpose under the heavens. I collected enough to cover this month's house payment here on the home front. Scrap took a little dip just recently but is still higher than I remember it being in quite some time. When I can clean up my act and get paid for it too that is quite a deal.

[BiggKidd]

Guys,

  I am dumb as a fence post when it comes to contracts and legal mumbojumbo. I expect that there are more like me out there. Who don't have a clue. We take what we get and try to make it work best we can. Life was so much simpler when people shook hands and called it a deal. When my granddad bought some property in the late 60s out in chesterfield he did just that. Went by the guys house every fri afternoon and dropped off his payment until the deal was done. Man oh man simpler times. Though the land we bought was done more or less the same way. Very simple the whole contract fit on a single sheet of paper. Low rate owner financed. You can bet your bottom dollar thats the first bill I pay each month.

Desdawg,

Did you ever use the LL24 mill you bought? I am looking at getting one and would love to hear about it.

Larry 

[desdawg]

Larry,
I got it (the mill) moved to the mountains and then life started taking it's twists and turns and I haven't gotten back to it. I had hopes that this summer would be my time there but now it doesn't look that way. I am going Memorial Weekend but then I have to hurry back and tend to some business. I am a real "one day at a time" kinda guy right now and the priorities keep changing.

[desdawg]

I received a message yesterday that the lender will delay their decision regarding my offer until the 29th. Apparently they are having the property cleaned up. The last renter took their toothbrush and left everything else behind. My assumption is if that is happening at their expense they will reject my offer and try to market the duplex for more money. But they haven't said that yet so that is only an assumption on my part. And you know what happens when we assume. So even if that is the plan they seemingly don't want me to go away. Sounds like a real mugwump attitude. A mug wump is a bird that sits on the fence with their mug on one side and their wump on the other. On top of that the lender didn't complete the foreclosure so they don't actually own the property yet. And you can bet the cleanup funds didn't come from the guy who is in default on his $120K mortgage. Like I said in the beginning mortgage lenders are a strange lot, stranger today than a while back. So I am trying to read the signs since I don't have a direct answer.  The extra time doesn't bother me as I am trying to sell enough construction equipment, truck, etc. to pay for the building outright and not need any financing if it should happen to go through. This is perhaps the strangest real estate transaction or non-transaction I have ever encountered. My offer to purchase expired on Friday May 2nd but I haven't retrieved my earnest money and no one has offered to return it to me. Anyway it is all good. If I wind up not buying the property I will have put together some cash that I will use to pay down some other debt and get myself in a better position economically. 

[MountainDon]

Hey desdawg. Are you near Maricopa?

They made the ABC Sunday news just now.... looks like a ghost city with all the realtor for sale and bank owned signs...   

[desdawg]

Don,
I live 18 miles SW of Maricopa. I guess I don't watch enough TV, didn't know it was famous or infamous as the case might be. Having never been much of a city slicker I stayed clear of the in town stuff. My office is in Casa Grande (25 miles away) and I have never owned any property in the City of Maricopa, although I do have a Maricopa mailing address. This area was like a boom town in 2005 and what goes up must come down. And it is. Recovery in this area will be slower than most places because of that. The subprime fiasco was in full force and effect in town. The big name builders made a fortune. Prices in the outlying areas soared as well. I sold everything I could while that window was open. Those who didn't and those who were buying during that time frame will be stuck owning what they have for a good long time if they can manage to keep it. I have one buddy who is a small home builder that has three new homes that have never been lived in and he is paying the interest on those 3 loans month after month. he is pretty good at landing on his feet so he may pull something off although I can't imagine what it would be.
Anyway I started this thread because I had made an offer on a "short sale" property and I thought it might be interesting to some of you to see what kind of vacilations the lenders are going through as they attempt to make the best of a real bad self induced situation. And I am kind of intrigued by their seat of the pants rule writing as they go along. I am completely in the dark as to what this lender may do next. Technically I am off the hook with my offer and I can walk away at any time. And yet they haven't told me to do that. It seems they want to string me along without committing to anything. One thing I did have to do to have my offer considered was prove to them I had the cash in the bank to close. So I am interested to see what the next manuever will be.
Guess I better go turn on the news and see what I can see.