Sunday, August 26, 2012

Short Sales 2012

It has been quite some time between posts. Some of you may have thought I died, or dropped off the face of the earth. Well that is not the case. The short sale business has really went through a transformation over the last two years. A year ago it seemed as though everywhere you looked someone was touting themselves as a expert in short sales. Now the tough environment has weeded out all of the wannabes and only the shrewd and courageous, have continued to play in the short sale market. 

Have no fear Joe Realtor, we are no threat to you. We are not interested in buying short sale properties at their current alleged market value. That is suicide. Our expertise is to look for properties that can be purchased at severely distressed values and then sold for much more employing a few dollars and a little elbow grease. 

The lenders are still difficult to deal with and in order to succeed you need patience perseverance and ingenuity. Anyone can get a short sale approved for the alleged appraised value. If that is what your looking for, just call your Realtor. You may be committing economic suicide, but that is your option. In order to really get the bargains you need to know how the lenders value the properties, and what you can do to present the lender information that will apprise them of the realistic value of the property, That is something no real estate agent wants you to know because they make their money based on a percentage of the sale price. 

Stay tuned for more information in the coming weeks on how to make money with short sales in today's environment.

Friday, September 16, 2011


Those who read this blog know that I am an avid advocate for real estate investing and that I believe that left to its own device the real estate market will correct itself through American ingenuity and capitalism. But with all of the bad news floating about, and a new surge in Bank of America's preforeclosure filings, I feel compelled to say a few more words about my philosophy and opinion of the way forward out of this real estate crisis.

Four years ago I accurately predicted that the real estate bubble would burst, and that the market was going to experience years of price contraction and stagnation. The major banks and many others bet that through government supports and market manipulation that the crisis was temporary, and that after a short dislocation, prices would level off and the market begin to function again. That logic caused lenders to at first foreclose on a huge number of homes, and then hold those properties in inventory waiting for better days to return. How wrong were they!

Now companies such as GMAC now known as ALLY privately predict that the real estate market will not stabilize and function normally until 2012.Over the last two years I have come to the conclusion that unless the Federal Government and Federal Reserve stop intruding in the market that dysfunction may be normalcy. What does that mean to real estate investors and developers? It is my opinion that the focus of investors in this market should be on acquiring wholesale properties that need rehabilitation and also pre-foreclosure and foreclosure properties that require rehabilitation.

Where should you buy these properties? It is important to survey your market and acquire properties only in areas, or zip codes, were sales are still occurring. Areas around colleges, employment centers, transportation hubs and shopping districts, are more desirable, as students need a place to live, employees want to live closer to their work and public transportation is becoming more critical.

We focus are attention on up and coming neighborhoods, targeting more functionally obsolescent properties. This keeps our acquisition cost down, and allows us to concentrate more of our capital on the rehabilitation of the property. Those properties usually have a much greater return on investment, as the final product has a much higher value.

I believe that if Fannie Mae and Freddie Mac would get out of the real estate business, private investment and prudent lending, would right the market faster and more efficiently. But, in the meantime an investor  should look for obsolescent properties in good neighborhoods and rehabilitate them and they will get a very nice return on their investment.

Wednesday, September 7, 2011


Last week amid great fanfare the Federal Government filed suit against all of the major lenders claiming they defrauded investors by bundling sub prime loans together and selling them as mortgage backed securities. While the effort is commendable on one hand, the real question is will it be effective and how will it effect homeowners who are facing foreclosure, and the real estate market in general.

I am afraid my readers will not like the answer to either of these questions. One of the biggest problems facing the real estate market over the past four years is the politicization of the foreclosure issue. Four years ago the government proposed the mortgage modification program, Make Home Affordable, in response to a growing storm of political criticism that it was not doing enough to help defaulting homeowners stay in their homes.

Most homeowners who attempted to navigate the highway of that legislation, learned quickly that it was a slow trip to nowhere, and that little help was provided by the lenders or HUD. Instead, the lenders used the program as a personal piggy bank granting as many temporary modifications as they could, until that loop hole was closed, and then refusing to grant the majority of qualified modification requests.

Unfortunately, the government in their rush to address the issue (or parenthetically, because they choose not to) did not include any enforcement penalties in the legislation allowing the lenders to reap the financial  benefits from the program without providing homeowners the essential relief they needed. Isn't this the outcome every time the government intervenes in the marketplace to attempt to correct market forces.

If Americans are expecting the government to solve the mortgage foreclosure problem, then good luck to all of us! The law suit may allow Fannie Mae and Freddie Mac to recover some of the ill gotten gains of those who peddled these despicable securities, but I'm not betting on it. The only solution to the current mortgage crisis is to allow the market to unwind naturally. This process will result in prices continuing to fall until the market reaches bottom and then stabilizes. The biggest impediment to that process is the government and lending institutions who are still trying to shirk the consequences of their actions.

If the lenders and the government would allow homeowners to short sale their properties than, the market would retreat in a somewhat orderly fashion. The new mortgages would be based on realistic loan to value ratios, and the real estate markets could begin to function again. This would require both the public and private sector admitting the loss is upon us, and salvaging the distressed assets to begin again. It is akin to realizing that your 1990 Chevy is no longer worth repairing and it is time to trade it in, or send it to the junkyard for $250.00. Or, you could continue to invest in your jalopy and try to sell it for far more than it is worth.  Which is the better choice?

When the market is allowed to function as our founding fathers intended, capitalism will cure the mortgage  crisis. Only through the force of a free market and the passage of time will this problem be solved.

Friday, August 26, 2011


Is that Warren Buffett or Jimmy Buffett investing in bank of America? A young drunk Jimmy Buffett might invest in Bank of America, the older one would not. So it must be Warren Buffett. Are you serious? He should have spoken with one of the thousands of real estate investors, agents and short sale negotiators, who try to deal with B of A before he threw his good money into one of the most inefficiently run companies in the world.

Many very experienced investors and negotiators will not seriously consider an attempted purchase of a Bank of America distressed property. Part of the reason is their fault and part is beyond their control.

When Bank of America purchased Countrywide they really got a bag of bull sh-t. The Countrywide loans are a poisonous swill and, if you have ever attempted to purchase one of these proprieties via a short sale from Bank of America, than you know that they often cannot be significantly discounted. On top of that Bank of America/s short sale department is woefully inept.

The natural result of these two factors is Bank of America carrying a huge number of distressed properties on its books. Competent real estate investors have little interest in buying these properties, because they either can not be significantly discounted, or, Bank of America is so inflexible and disorganized that you can not get an offer approved in a timely fashion. Too big to fail, is also too big to succeed.

For Bank of America to rise from the ashes like a Phoenix it will need the cooperation of the government in discounting the numerous Countrywide loans to permit real estate investors to buy them and, re position them so they can enter into the market again. It will also require Bank of America to reorganize its mitigation efforts, to become user friendly, instead of  difficult to work with. In all fairness to Bank of America Chase and many other of the lenders are just as difficult and inefficient to work with, when trying to short sale their properties.

It is clear that the economic crisis and the great recession (really a depression) will not subside until the housing market is stabilized. The housing market will not be stabilized until the distressed property inventories at the banks are liquidated and the real estate market resets. At the current pace, and with the current management, the end appears no where in sight.

Tuesday, August 16, 2011


On a postlet on the side of this blog is a property 2834 Cambridge Street in Philadelphia, Pa. It is a property in Brewerytown, a gentrifying neighborhood near the Philadelphia Art Museum. It is a short sale property that is being rehabilitated by a cooperative effort of Prime Financial Group LLC and Top Tier Holdings LLC. It is also the perfect example of how a short sale works.

 The property was purchased  by the previous owner for $235,000.00 in 2007. It had been rehabbed by the seller in 2007, but poorly executed.  After the real estate bubble burst the owner could no longer afford to pay the mortgage and it fell into delinquency. Bank of America sold the mortgage to IBM LPBS who pushed forward with a foreclosure. Christine Sherbert, founder of the Montgomery County Real Estate Investors Group,  a well known, experienced investor, and re-habber, located the property for the short sale team. In  April of 2011,  Top Tier Holdings LLC made an offer on the property to IBM LPBS for significantly less than the mortgage pay off amount, of course it was rejected and Prime Financial commenced short sale  negotiations on the property on Top Tiers behalf.

IBM LBPS had an interior BPO (Brokers price opinion) for twice what Christine,Top Tier and Prime believed the property was worth. Of course the negotiations bogged down. Prime challenged the BPO and submitted a value challenge, with accompanying comparable prices, and analysis, to IBM LBPS, ultimately convincing IBM to sell Top Tier the property for a fraction of the original IBM value.

Settlement on the property was held in July of this year. With in two days the renovations began on the property by the contractor First Development Corp. The complete exterior/interior rehabilitation will take 6-7 weeks. The funding was provided by a private individuals self directed IRA, with modest cost,s and reasonable interest rate.

At the conclusion of the rehabilitation the property will be worth substantially more than Top Tier Holdings paid IBM LBPS. Jennifer Grosskopf of Coldwell Banker an experienced real estate agent has been engaged as the listing agent for the property. The property will be resold before the snow falls on the ground. All of the participants in the process will profit handsomely for their endeavors.

Cambridge is an example of how team work between an  investor,  short sale negotiator, builder, and Realtor  can result in a successful project. Time and time again I hear experienced real estate investors say; "I hate short sales", not my bag baby.  But with team work, and creative thinking, they can utilize this product to share in a handsome profit. Before you write off the opportunities in short sales, consider the power that team work can bring to your real estate endeavors!

Wednesday, July 27, 2011


Investors looking to cash in on the collapse of the real estate market in Florida should beware of the condominium fees conundrum. To put it simply, during the default period of the loan the owners often rent out the properties, but do not pay the condominium fees. This means that even after you have negotiated a short sale price with the bank, the issue still remains how to deal with the condo dues and assessments that exist in all planned communities.

You should be aware that the condo association will need a separate authorization to talk to your representative, and then in most cases your call will be referred to their lawyer.  The first thing you need to request is a payoff balance. If you request it in writing this is known as a estoppel letter. The condo associations have been so inundated with letter requests that they charge a hefty fee to prepare the estoppel letter. I suggest you let the bank order the estoppel letter.

After obtaining the estoppel figure you have to negotiate the amount of money to be contributed between the condo association and the bank, to resolve the delinquent fees and assessments. Be aware that Florida foreclosure law limits the amount of fees the bank will have to pay if they complete the foreclosure, so the banks will be difficult to negotiate with. On the other hand, if you are making a great deal, the condo association will also be difficult to negotiate with, as they will want to share in your spoils.
On government backed loans their is an interplay between the regulated  payoff amount, and the payment of the condo fees. An experienced short sale negotiatior can resolve these issues and insure that your deal does not collapse prior to, or at the settlement table.

Saturday, July 23, 2011


Today we closed a  Wells Fargo/Fannie Mae short sale. After sitting at the settlement table for two and a half hours waiting for the final sheet to be approved I could not refrain from commenting on my observations. Short sales on government investor properties are tricky. The regulations promulgated by Fannie and Freddie force the lenders through a complex process to insure the final acceptance and payoff of the loss.

Most real estate agents  and the majority of title agents, (even the lawyers) have no idea how to resolve issues arising from changes in the settlement sheet that vary from the original short sale approval letter. We are always available to our customers to resolve these issues that arise at closing.

Investors should always stay away from  Fannie/Freddie properties as the regulations stifle your ability to wholesale the properties. Conventional loans are far more lucrative and easier to negotiate. But if you find yourself knee deep in the government quick sand we can throw you a tree limb, and drag you out.
There has never been a better moment in my lifetime to invest in real estate, just do not buy retail.