Foreclosures

This week in real estate news, two stories on the same day (one Canadian, one American) focused on 'sky-high' debt and real estate prices as well as 'high in the sky' connections.

Sky-High Debt

Since 1999, TD Economics has been gathering Canadian data and creating special financial reports. Their latest edition gauges the financial vulnerability of households in regions across Canada. TD organized this report as a response to growing worries about high debt levels and the overall financial state of Canadian households. The index of financial vulnerability measures six key metrics of household financial position.

TD Economics assigned a weight to each metric based on its perceived importance. The metrics include debt-to-income ratio (combined total of mortgages, lines of credit, and additional loans as a percentage of personal disposable income), debt service (percentage of income), and the proportion of households with a debt service ratio of 40% or more. The index is not a predictor. Yet it tries to determine which region would be most vulnerable financially if faced with an economic shock.

The report considers circumstances such as a rise in unemployment or interest rates as well as a housing downturn. The report noted increasing vulnerability across Canada but no sign of a household debt crisis in the future. British Columbia showed as the most vulnerable province in case of economic shock. Actually, this result is not shocking to residents of that province.

British Columbia has been the most vulnerable every year since TD Economics started these reports. Alberta, Ontario, and Saskatchewan are ranked as second, third, and fourth most vulnerable followed by Quebec and the four Atlantic Provinces. Manitoba is the least vulnerable province.

Sky-High Housing Prices

Why is British Columbia the most vulnerable for economic shock?

Sky-high prices are part of the answer to B.C.'s vulnerability. As well, the province's household debt-to-income ratio is 160.5% - way above the Canadian average of 127%. In addition, British Columbia is the only province to have a negative savings rate. Every available dollar is directed toward mortgage, additional debt, or living costs.

B.C. most vulnerable to economic downturn TD report Debt-to-income ratio high

Sky-high real estate makes B.C. most vulnerable to shocks: TD

Sky-High Real Estate Prices

In yet another February 9 news story, there was talk about 'sky-high' real estate prices with a 'high in the sky' connection.

Chesley Sullenberger, the pilot touted as a hero for landing his plane safely on the Hudson River, and his wife, Lorraine, are accusing a bank official and a real estate broker of overinflating a purchase price. In 2002, the couple bought a building in Paradise, Northern California, for $935,000. Sullenberger and his wife claim that the price was far above market value.

The suit requests that the original loan be nullified and the couple reimbursed for alleged overpayments. The real estate broker, Cherie Huillade, claims that the appraisal was an accurate representation. If mediation fails, a trial is set for September.

Hudson pilot Sully sues over real estate deal

Do You Have Any 'Sky-High' Real Estate Stories?

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Industry analysts predicted the collapse of U.S. commercial real estate but it never materialized in reality. Of course, the market is just coming out of an economic downturn. Recently, a Federal Reserve executive told a congressional committee that commercial real estate was close to bottom.

Yet an even greater crisis had been predicted by many observers. It was believed that commercial real estate would fall, drag the economy back to a recession, and cause a catastrophe in the banks. Indeed much to the surprise of many people, commercial real estate is on the rebound.

Overall Recovery

Although the positive trend can be seen across the country, it picks up steam in major centers like New York City. Overall, the commercial real estate market looks promising but there are pockets of distress. As well, the market is far below its 2007 peak.

Underlying market fundamentals are reaching a stabilized state. At the end of 2010, vacancy rates were not increasing in office, industrial, and retail sectors. Although vacancy levels were elevated to varying degrees (13%-16%), sales of commercial real estate improved in every quarter of 2010.

CB Richard Ellis in Los Angeles, the world's largest commercial property brokerage, reported double-digit fourth-quarter gains in all its global business lines except real estate development services. Bricks & Mortar Capital President, Craig Silvers, explained that improving economies in the United States and Asia have more companies taking action on real estate matters. In fact, Silvers suggests that companies are trying to "lock in real estate leases or buy property before prices get out of control."

Commercial real estate due for upswing?

Financial Stress

If lenders concentrated their efforts in commercial real estate, they may feel more than a little stress. Keep in mind that $3.4 trillion is outstanding on real estate loans. Plenty of defaults will mean a ton of foreclosures. Almost 1,300 small banks nationwide hold a considerable number of commercial real estate loans.

Yet a top Federal Reserve official, Patrick Parkinson, played down any worries. He believes that bank struggles will not be as grave as earlier predictions. Commercial real estate will not be the downfall of U.S. banks.

Future Issues

It is possible though that there could be difficulties in the future. Present loans will mature and need rolling over, therefore, putting banks under strain. Most commercial mortgages have shorter maturities (three-ten years) than those offered by banks for residential loans. In addition, commercial loans are structured so that they are 'rolled over' instead of being repaid during the life of the agreement.

No Threat

Commercial loans are not a huge threat to big banks. No doubt, the market is dragging a little. A few financial institutions hold large portfolios of mortgage-backed securities. Yet already, they have taken huge write-downs on them.

"While we expect significant ongoing CRE-related problems, it appears that worst-case scenarios are becoming increasingly unlikely," says Patrick Parkinson, the Federal Director of banking supervision and regulation.

U.S. Commercial Property Recovery Spares Economy

UPDATE 2-US commercial property loans a drag, not huge threat

Do You Have Confidence In The U.S. Commercial Real Estate Market?

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2011 is shaping up to be the "Year of The Landlord." As many people face the winter winds, we are reminded of a wise old saying.

"It's an ill wind that blows no good." ~ John Heywood (1497-1580)

In the case of the winds of change in real estate, falling house prices and slow sales have challenged many sellers but benefited more than a few apartment building landlords. More people are choosing to rent but others can find no suitable alternative to apartment living. Everyone has their own reason for deciding to rent property rather than buy a home.

Rent or Own

Sometimes renting is the best choice for an individual. Indeed, many renters prefer the apartment lifestyle. After all, renting a luxurious NYC condo does not seem like such a bad deal. Even renting any apartment has its perks such as more flexibility in relocation and less maintenance responsibilities.

Of course, other renters would sooner own a home. Often foreclosure forces homeowners to become renters. Sometimes potential first-time buyers discover that they cannot afford the financial commitment of a home. The Federal First-Time Homebuyers' Tax Credit is no more and not everyone has an "angel investor."

Whether people choose to rent or have no other choice, landlords are gaining tenants. Banks and lenders are also smiling – especially if the apartment building owner had been previously under financial duress. Borrowing has become less expensive with low interest rates.

This effect is noticed with commercial real estate of all types. The low rates have a positive effect on borrowing for office buildings, retail outlets, and company warehouses. The apartment market, however, is the healthiest of the commercial categories – mainly because of cheap financing.

Investing in Apartments

Obviously, investors are interested in apartment buildings. Actually, 'flipping' properties is coming into vogue again. The practice of reselling quickly for profit is somewhat prevalent at all times.

Yet 'flipping' is as popular now as in earlier thriving economic periods. This practice can have its place - if done responsibly for the right reasons. Illegal flipping, however, is a different matter. It involves scams, disregard for others, and a goal of profit at any cost.

Higher Values

Apartment building values have risen to levels not seen since the middle of 2007. According to the brokerage firm Marcus & Millichap, values of apartment buildings rose 16% in 2010. Green Street Advisors, a research company tracking REITs, say that present values are now within 10% of their 2007 peak value.

Of course, apartment values in major centers such as New York and Washington, D.C., have shown signs of recovery since 2009. Currently, increasing apartment values can be seen in additional markets including Los Angeles and Seattle as well as other U.S. cities. At the end of 2010, TIAA-CREF paid $62 million for the 261-unit Newbury Commons in Stamford, Connecticut. According to Real Capital Analytics, this sale price was 65% more than the amount paid by Seaboard Properties in February 2009.

Apparently, even Las Vegas is seeing the high values. Keep in mind that Las Vegas was affected greatly by the economic downturn. Yet in December 2010, the Croix Townhomes complex in the Las Vegas Henderson suburb sold for nearly $20 million - $143,000 for each unit – a price even far above the national average. The 'apartment advantage' might be the start of the next big trend in investment property.

Housing Woes Fuel Apartment Surge

Will 2011 Continue To Be The "Year Of The Landlord?"

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After Christmas, shoppers follow Boxing Day sales and all the other reduced prices to be found at year's end. Meanwhile, the real industry is reflecting on the more memorable deals of 2010. Of course, new home owners will be remembering their own private real estate transactions. As well, more than one commercial transaction during this year made a powerful impression.

Commercial Real Estate

The National Association of Realtors (NAR) predicts a more stabilized market in 2011 as well as a decrease in commercial vacancies. When commercial assets reach stabilization, owners are pleased with the outcome. The properties are generating profits rather than eating away at an owner's assets.

Denver, Colorado

This thriving Colorado city saw commercial real estate investments double year-over-year in 2010. In fact, Denver made the top ten list of preferred markets for investment during the past twelve months. Since many Denver commercial assets are stabilized, investors are targeting these properties.

Within this market, buyers cannot expect to find a good deal in terms of low prices. Yet investors are willing to pay a higher price for a stabilized asset. The purchase still adds up to a wise investment in the long term. During the coming year, Denver's commercial market is expected to see more big deals. The anticipated early 2011 sale of the 1800 Larimer building for $400 per square foot will be a record breaker (the 'per-square-foot record' for the sale of an office building in Denver).

Denver Commercial Real Estate Closes 2010 with a Bang

Hartford, Connecticut

In July 2010, Connecticut River Plaza, a well-known office property in downtown Hartford, was sold for $6,666,667 to a limited liability corporation in New York. This sale was one of the most anticipated transactions in the recent history of downtown Hartford’s commercial office market.

Winnipeg, Manitoba

During the past year, commercial property sales and leasing broke records in Winnipeg, Manitoba. This Canadian city can boast about $544.7 million of property sales between January-October, 2010. Winnipeg's yearly average for commercial sales is $300 million. One of the year's biggest sales transactions was the purchase of GEM Equities/B&M Land Co. property (three high-rise apartment blocks) by Toronto-based Timbercreek Asset Management for a reported $100 million.

Banner year for property purchases

Luxury Markets

New York City, New York

Throughout 2010, the NYC hotel industry was a vibrant market – the site of tons of transactions and substantial deals. In September, JRK Hotel Group sold the Hotel Roger Williams for $90 million (and $4.5 million in additional costs) to LaSalle Hotel Properties. The luxury hotel market is rebounding and investors have confidence in the Manhattan hotel scene.

Montreal, Quebec

Montreal has a smaller luxury market than New York City. Yet there is a growing demand for high-end condos. The sale of the penthouse at the Ritz Carlton Montreal Hotel and Residences brought in $13 million plus taxes – the highest price ever for a residential property in Quebec.

Distressed Properties

Of course, most real estate deals in 2010 were outside the luxury market. Interested buyers had abundant opportunities to pick up affordable properties. Even investors wanting to buy into the New York City hospitality industry were able to pick up distressed hotels at bargain prices. As well, home buyers across the country were paying discount prices for foreclosures.

Did You Find A Good Real Estate Deal In The Past Year?

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If you could catch a flight from the closest major airport to Santa's home in the North Pole, you would have to depart from Fairbanks, Alaska. Yet if a trek to the Geographic North Pole sounds a bit daunting, you cam always visit the 'City of North Pole' – a ten-mile drive southeast of Fairbanks. Actually, the City of North Pole is a 'jolly good' alternative.

City of North Pole

This scenic town with more than 2,200 residents is known as the place "where the spirit of Christmas lives year round." The City of North Pole offers year-round Christmas decorations, seasonal street names, and light poles decked in a candy cane motif. There is even a Santa Claus Lane with three consecutive traffic circles within a quarter mile.

The world-famous Santa Claus House is the most popular attraction in this northern town. Even mailing a letter takes on a whole new meaning in this festive city. Mail postcards from the U.S. Post Office and your family and friends – young and old – will have the pleasure of receiving mail from North Pole, Alaska. (Holiday tip – Santa's zip code is 99705.)

No doubt, the City of North Pole is the perfect place for a holiday visit or stopover at any time of year. Yet this holiday town is a year round home for many people. A huge part of the town's claim to fame is its proximity to Santa Claus but the City of North Pole is also a primary energy center.

The city is home to two oil refineries and the largest electricity-producing generator in the Interior of Alaska. As well, the community is situated between two military bases - Ft. Wainwright and Eielson AFB. More than 30,000 people live in the 'Greater North Pole' area and this small town serves as the commercial hub in this northern region.

North Pole Home Sales

If you want to live near Santa year-round, expect to pay in the range of $221,000 (average listing price). A few area homes are selling in the $150,000 range (or even for lower prices). Other houses are priced closer to $300,000.

Within Santa's zip code (99705), last week's average listing price was $221,952 (a .3% increase). Actually, Santa's zip code was the most popular zip code for the second week before Christmas. That number is not a surprising statistic as Christmas nears and people want to get closer to Santa Claus.

Currently, there are 182 resale and new homes in North Pole listed at a real estate website. Even though the City of North Pole has a festive theme, the town cannot escape all the realities of modern life. Of course, foreclosures do not represent a significant percentage of North Pole home sales. Seven out of the 182 homes for sale, however, involved houses in pre-foreclosure, auction, or bank-owned stages of the foreclosure process.

Yet whatever the roadblock, the City of North Pole, Alaska, seems to be conducive to keeping up one's spirits and, eventually, finding the right direction. After all, Santa has been doing that for centuries – and it is his neighborhood, too.

City of North Pole, Alaska

Would You Like To Live In North Pole, Alaska?

Real estate flipping refers to buying low and selling at a higher price. With the typical "fix and flip," an investor will buy a home selling for a low (often, very low) price. The deep discount in the home's purchase price may have come about for varied reasons from a state of disrepair to home owners' divorce to pending foreclosure.

Flipping Homes for Good Reasons

The investor will perform any necessary repairs and put the house back on the market in the hopes of making a profit. There is nothing wrong with this scenario if everything is carried out in a proper manner. In fact, the transaction can have a positive effect on many levels.

The home seller gets rid of the home. Obviously, the seller wanted (or had to sell) the house. The sale can free sellers to relocate or move on with their lives as in the case of divorce. Even with the stressful process of foreclosure, the actual sale puts an end to the stress of 'pending' foreclosure. It allows people to move forward in a new direction.

An investor puts an improved home on the market. That process has general overall benefits to the economy. The renovation companies and building suppliers get business. The neighbourhood gets a nicer home and a bonus - increased property values. Even the system gains with higher property tax assessment value and sales tax on the renovation supplies.

Flipping Homes for Bad Reasons

Yet sometimes flipping homes can either border on fraud or be all-out fraud. Flipping homes can be part of a criminal scheme. The investor in illegal property flipping is not concerned with home buyers, the neighborhood, or even making a reasonable profit through honest efforts.

Illegal flipping is a 'fraud-for-profit' scheme. The investor acquires property and resells it for a considerable profit at an artificially inflated value. The property is put back on the market in record time.

If the home required repairs, they either will not be completed or will just undergo a superficial fix. The new buyer may not be aware of the situation. The buyer borrows to finance the purchase and the lender gets drawn into the fiasco. This type of fraud is costly for lenders because it involves a substantial loss.

Of course, an illegal property 'flipper' needs help to carry out the scheme. Illegal property flipping usually requires collusion between an investor, real estate appraiser, mortgage originator, and closing agent. The appraiser plays a big part in the scam. A false and artificially inflated appraisal is necessary for the successful completion of this criminal scheme.

When Flipping Homes Turns Ugly

Illegal property flipping can end up in an ugly mess. One example would be the recent complaint filed in Manhattan federal court on December 14 against sellers, appraisers, and even lenders. All parties allegedly conspired to commit mortgage fraud.

According to the current civil lawsuit, sellers allegedly purchased 17 homes and 'flipped' them without proper improvement to inexperienced, low-income buyers who could not afford the properties. The appraisers allegedly overstated the value of these homes in their appraisal reports. As well, a mortgage lender allegedly underwrote mortgages for the buyers with the knowledge of the false appraisals and inability of the buyers to afford the mortgage payments.

Read more about what happens when flipping homes turns ugly....

Have You Been The Victim Of Illegal Property Flipping?

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Unless you are in a hot climate, November and December can be chilly months. This year, parts of the US and the UK are living through an early winter. Home sellers in these countries have also been experiencing a chilly period.

Los Angeles

Although Los Angeles might have warm temperatures, there has been a cooling down period in the housing market. During November 2010, the Los Angeles County housing market saw quite a slowdown. Home sales fell 21% compared to purchases in 2009. Condos sales had even a worse showing. Last year, 4,315 homes had sold in this region throughout November. Only 3,423 homes were purchased during the same period in the current year.

Sales were down 9% from October. Often home sales will decline somewhat in late autumn as the market heads towards winter. Yet the median price in Los Angeles County did not show much movement. In fact, median price was at almost the same place as in summer.

In a November 23 report, the California Association of Realtors suggested that the average home seller is not prepared for these chilly times. The housing market is in the midst of change. People must be willing to participate in a different game on an unfamiliar playing field. Leslie Appleton-Young, association chief economist, explains the "new reality."

"We're really seeing two different housing markets: one at the lower end driven by first-time buyers and investors, which is keeping prices stable, and one with nostalgic sellers who set unrealistic asking prices," says Leslie Appleton-Young, chief economist of the California Association of Realtors.

As well, Michael Nourmand, president of residential brokerage Nourmand & Associates, has noticed that buyers and sellers are finding it hard to adjust to a new market. Home sellers tend to think about the previous popularity of an area or earlier neighborhood prices. Yet sellers must think in the "here and now." In uncertain times, affordable options (such as fixer-uppers) are a big draw.

November Ushers In a Big Chill for Home Sellers

UK

In the UK, home sellers cut asking prices by 3% in December. These figures represent the worst December performance for home sale prices in three years. The statistics show the steepest decline since the 3.2% drop in 2007. Home purchase prices have now fallen during five of the past six months in all regions of England and Wales. The West Midlands saw the worst fall at 5% but Wales escaped with a mere 1.3% decline.

Despite a demand for homes and interest in quality homes and popular neighborhoods, dreams do not always translate into actual sales. Negative factors can come in to play to outweigh positive circumstances. Miles Shipside, director of Rightmove, explains part of the problem in the current UK housing market.

"The fact that many would-be buyers do not have the ability to proceed, and some homeowners find themselves in a position where they are forced to sell, drives prices down," states Miles Shipside, director of Rightmove.

Rightmove believes national home sales prices will at least remain flat in 2011. In fact, they predict the worst scenario could be a 5% decline because many homeowners are facing repossessions.

Home Sellers Forced To Slash Asking Prices

Are Home Sale Prices Experiencing A Chill In Your Neighborhood?

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Home buyers might expect to purchase a foreclosure for a bargain. Yet probably few buyers would be hoping for a 45% discount. According to Realty Trac, however, sales prices for Ohio foreclosures reached that low point in the third quarter of 2010.

Falling Prices

Purchase prices for foreclosures did not fall to that extent in every state. Yet foreclosures sold on the average for 32% less than non-foreclosure sales. In the second quarter, foreclosures sold for just 26% less than other homes. They could be purchased for 29% less in 2009. Realty Trac CEO, James Saccacio, said that he had never seen such disparity in prices of foreclosures and non-foreclosures since 2005.

The overall best deals went to buyers who picked up REOs (real estate owned by the bank after repossession). REOs were selling 41% lower than non-foreclosures in the summer and early autumn of the current year. That percentage means that a $300,000 foreclosure was selling for $177,000. A huge discount!

Distressed Properties

Of course, REOs may not be in prime condition. That factor is at play in the discount prices for certain foreclosure sales. Home buyers must always be realistic about purchasing distressed properties. These homes will need extra tender loving care – an investment of time, effort, and money. Home buyers must understand the implications of buying homes in less-than-mint condition.

If buyers are willing to take on the challenge, however, they will be getting a good deal in the current market. While the average price of homes rose 6.4% from the second to third quarter in 2010, distressed property prices fell 2.5%. Non-foreclosure sale prices rose to an average of $250,000 and foreclosure purchase prices fell to $170,000.

Behind the Scene

Home sales had dropped after the end of the Federal Homebuyers' Tax Credit. As well, more foreclosures came on the market. Buyers had plenty of choices. If homes were not set at favorable prices, they could just sit on the market for an indefinite period.

Getting Rid of REOs

REOs have been returned to lenders but they are still eager to get rid of the properties. REOs come with a cost for bankers. Actually, lenders would prefer to take a low price rather than carry the cost of the home for months.

Buy A Foreclosure - Save 30% On The Price

REO Statistics

Even with the deeply-discounted prices, however, REO sales dropped during the third quarter. Since home sales also fell, foreclosures still occupy the same share of the market. Yet REOs remained popular with many home buyers.

Nevada had the highest percentage (54%) of REO sales in the third quarter of this year. Yet these figures were 2% lower than sales for the second quarter. Other states also showed high numbers of foreclosure sales. In Arizona, foreclosures accounted for 47% of home sales. Foreclosures within California made up 40% of all home purchases.

In Massachusetts, more than one third of home sales during July-September were foreclosures. The fourth quarter statistics will be released in the new year. These figures will reflect the impact of the robo-signing fiasco.

Already dirt cheap, foreclosure prices dive

Will You Be Taking Advantage Of The Falling Prices Of Foreclosures?

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The word 'foreclosure' strikes enough fear into people's minds without adding 'flawed' into the mix. Yet the nation is now facing the issue of "flawed foreclosures." What a mess!

Flawed Mess

Most of us have been faced with the issue of messy paperwork in our offices from time to time. This latest fiasco makes it evident, however, that even banks let their paperwork get out of hand. A scary thought – considering how much trust we are required to put in our financial institutions.

"Robo-Signing"

Vermont was one of the latest US states to become part of the joint investigation into the banks' use of flawed disclosure documents. The banks are been accused of "robo-signing" foreclosure documents. Supposedly, many recent foreclosures might have been based on false affidavits. A person signed the documents confirming that they had knowledge of the situation. The claim is that many officials had no knowledge of the circumstances regarding specific foreclosures.

Vermont joins other states in foreclosure investigation

Checking Signatures

Suspected incidents of flawed foreclosures have cropped up across the country. This flawed process comes as a surprise to everyone who trusted the system. One would think that all documents were double checked during a foreclosure. One would also expect officials to know the score when they sign their name to a document. Unfortunately, the whole process has to be rechecked because there seems to be monumental mistakes.

Foreclosure Moratorium

Despite the flaws that have come to light, the Obama administration does not want to issue a national moratorium on foreclosures. Their reasoning is that it might backfire and cause a decline in housing prices. Yet industry experts disagree and think that it might restore confidence in the market.

"...If you buy a foreclosed home, you would have confidence there would be no title fights down the road and someone else couldn’t make a claim to the house you are living in,..." says housing expert, Dean Baker."

Of course, a few banks, including GMAC’s Ally Bank, JPMorgan Chase, and Bank of America have issued their own moratorium on foreclosures. If you take comfort in that fact, don't let it make you feel too relaxed about the system. Obviously, banks are looking out for their own interests. If they were certain that they have no flawed foreclosures, the banks would proceed with normal business.

Most likely, they are not 100% sure about their practices. Did we double check these figures? Did our officials know the score? Inefficiency within a bank is cause for concern at the best of times. When you consider how tied up people's lives are in foreclosures, these flaws take on nightmarish proportions.

What You Need to Know About Flawed Foreclosures

Home Owner Response

Home owners are now left wondering if they have clear titles to their home – and they have to find the answers. Many people do not even know the details of their title insurance policy. Home owners need to know what is covered by that policy. A good real estate lawyer can be well worth the investment if it helps you to figure out this flawed process.

An Honest Mistake

Different sources have classified the flawed foreclosures as everything from technical mistakes to deliberate actions. We can expect the banks to favor the 'technical mistake' angle. U.S. Rep. Alan Grayson thinks that the 'mistake' was a deliberate action. Grayson has called for a criminal investigation.

"These banks are still claiming that the massive fraud they have perpetrated amounts to nothing more than a series of technical mistakes," says Grayson. "This is absurd. This is deliberate, systemic fraud, and it is a crime."

Grayson calls for criminal foreclosure probe

Do You Think That Flawed Foreclosures Were Honest Mistakes?