Talk to me about shadow housing inventory

[haapai]

I think that I saw a lot of it yesterday when I went on a self-directed walking tour of bank-owned properties. Most of the small, old, unoccupied and neglected properties that I looked at were listed in multiple places, had realtor signs, and were being maintained by a commercial service. They were pretty uniformly priced at assessed value (i.e. half-price), priced between $40K and $60K, and had property taxes of about two hundred a month.

There were an awful lot of similarly unoccupied and minimally maintained houses too. They weren't listed or signed but the level of maintenance and neglect was identical. No attempt was being made to rehab or rent them. They were just empty. They were most definitely not abandoned. I saw two or three abandoned properties too, so I know what no maintenance looks like.

Anything that you can tell me about these unlisted properties would be helpful.

[2kids10horses]

They are probably REOs (bank owned properties) that are not yet listed for sale. Why aren't they listed for sale? Maybe they're checking to see if they did the foreclosure properly, and need to get the title straightened out before they list them. Or, they could be holding them back until some other houses sell because they know if they list these too, then the prices for ALL the houses would drop due to an excessive supply. So, rather than dumping them all on the market at one time, they release them slowly as other properties sell.

You can get access to your county tax records and see who owns them. If it is a local bank, you could make an offer to their REO department. If they're owned by Freddie or Fannie, you can see if they are listed on their websites, and see if they are taking offers. If they are owned by Freddie/Fannie, and not on their website, that means they are holding them back. There's nothing you can do until they decide to sell them.

Were there lockboxes on the doors? That means they are REOs, usually.

[haapai]

Deliberately keeping them off the market doesn't seem like a rational decision. Annual property taxes are about 5% of what the house would list for now. I don't know what minimal maintenance costs but I'd guess it is $500 to $1000 a year and isn't particularly effective. Prices would have to go up pretty steeply to make up for a burn rate like that.

[Opti]

Jun 2, 2011 9:11:05 GMT -5 haapai said:

Deliberately keeping them off the market doesn't seem like a rational decision. Annual property taxes are about 5% of what the house would list for now. I don't know what minimal maintenance costs but I'd guess it is $500 to $1000 a year and isn't particularly effective. Prices would have to go up pretty steeply to make up for a burn rate like that.

Depends on how much the value goes down. If they were all put on the market and the prices dropped down to $30-$50K it might be worth it.

[haapai]

I didn't check for lockboxes on the unsigned properties. Although the maintenance/neglect was pretty similar, the unlisted properties did not have "maintained by ___ " notices on the doors either.

Guessing by the maintenance and what neighbors said, I'm guessing that they'd been empty for two to four years just like the listed properties.

[Deleted]

As Lenders Hold Homes in Foreclosure, Sales Are Hurt

EL MIRAGE, Ariz. — The nation’s biggest banks and mortgage lenders have steadily amassed real estate empires, acquiring a glut of foreclosed homes that threatens to deepen the housing slump and create a further drag on the economic recovery.

All told, they own more than 872,000 homes as a result of the groundswell in foreclosures, almost twice as many as when the financial crisis began in 2007, according to RealtyTrac, a real estate data provider. In addition, they are in the process of foreclosing on an additional one million homes and are poised to take possession of several million more in the years ahead.

Five years after the housing market started teetering, economists now worry that the rise in lender-owned homes could create another vicious circle, in which the growing inventory of distressed property further depresses home values and leads to even more distressed sales. With the spring home-selling season under way, real estate prices have been declining across the country in recent months.

“It remains a heavy weight on the banking system,” said Mark Zandi, the chief economist of Moody’s Analytics. “Housing prices are falling, and they are going to fall some more.”

Over all, economists project that it would take about three years for lenders to sell their backlog of foreclosed homes. As a result, home values nationally could fall 5 percent by the end of 2011, according to Moody’s, and rise only modestly over the following year. Regions that were hardest hit by the housing collapse and recession could take even longer to recover — dealing yet another blow to a still-struggling economy.

Although sales have picked up a bit in the last few weeks, banks and other lenders remain overwhelmed by the wave of foreclosures. In Atlanta, lenders are repossessing eight homes for each distressed home they sell, according to March data from RealtyTrac. In Minneapolis, they are bringing in at least six foreclosed homes for each they sell, and in once-hot markets like Chicago and Miami, the ratio still hovers close to two to one.

Before the housing implosion, the inflow and outflow figures were typically one-to-one.

The reasons for the backlog include inadequate staffs and delays imposed by the lenders because of investigations into foreclosure practices. The pileup could lead to $40 billion in additional losses for banks and other lenders as they sell houses at steep discounts over the next two years, according to Trepp, a real estate research firm.

“These shops are under siege; it’s just a tsunami of stuff coming in,” said Taj Bindra, who oversaw Washington Mutual’s servicing unit from 2004 to 2006 and now advises financial institutions on risk management. “Lenders have a strong incentive to clear out inventory in a controlled and timely manner, but if you had problems on the front end of the foreclosure process, it should be no surprise you are having problems on the back end.”

A drive through the sprawling subdivisions outside Phoenix shows the ravages of the real estate collapse. Here in this working-class neighborhood of El Mirage, northwest of Phoenix, rows of small stucco homes sprouted up during the boom. Now block after block is pockmarked by properties with overgrown shrubs, weeds and foreclosure notices tacked to the doors. About 116 lender-owned homes are on the market or under contract in El Mirage, according to local real estate listings.

But that’s just a small fraction of what is to come. An additional 491 houses are either sitting in the lenders’ inventory or are in the foreclosure process. On average, homes in El Mirage sell for $65,300, down 75 percent from the height of the boom in July 2006, according to the Cromford Report, a Phoenix-area real estate data provider. Real estate agents and market analysts say those ultra-cheap prices have recently started attracting first-time buyers as well as investors looking for several properties at once.

Lenders have also been more willing to let distressed borrowers sidestep foreclosure by selling homes for a loss. That has accelerated the pace of sales in the area and even caused prices to slowly rise in the last two months, but realty agents worry about all the distressed homes that are coming down the pike.

“My biggest fear right now is that the supply has been artificially restricted,” said Jayson Meyerovitz, a local broker. “They can’t just sit there forever. If so many houses hit the market, what is going to happen then?”

The major lenders say they are not deliberately holding back any foreclosed homes. They say that a long sales process can stigmatize a property and ratchet up maintenance and other costs. But they also do not want to unload properties in a fire sale.

“If we are out there undercutting prices, we are contributing to the downward spiral in market values,” said Eric Will, who oversees distressed home sales for Freddie Mac. “We want to make sure we are helping stabilize communities.”

The biggest reason for the backlog is that it takes longer to sell foreclosed homes, currently an average of 176 days — and that’s after the 400 days it takes for lenders to foreclose. After drawing government scrutiny over improper foreclosures practices last fall, many big lenders have slowed their operations in order to check the paperwork, and in two dozen or so states they halted them for months.

Conscious of their image, many lenders have recently started telling real estate agents to be more lenient to renters who happen to live in a foreclosed home and give them extra time to move out before changing the locks.

“Wells Fargo has sent me back knocking on doors two or three times, offering to give renters money if they cooperate with us,” said Claude A. Worrell, a longtime real estate agent from Minneapolis who specializes in selling bank-owned property. “It’s a lot different than it used to be.”

Realty agents and buyers say the lenders are simply overwhelmed. Just as lenders were ill-prepared to handle the flood of foreclosures, they do not have the staff and infrastructure to manage and sell this much property.

Most of the major lenders outsourced almost every part of the process, be it sales or repairs. Some agents complain that lender-owned home listings are routinely out of date, that properties are overpriced by as much as 10 percent, and that lenders take days or longer to accept an offer.

The silver lining for home lenders, however, is that the number of new foreclosures and recent borrowers falling behind on their payments by three months or longer is shrinking.

“If they are able to manage through the next 12 to 18 months,” said Mr. Zandi, the Moody’s Analytics economist, “they will be in really good shape.”

[Deleted]

I posted the article because it's NY Times.

[2kids10horses]

You can find out who owns them from the county tax records. Call your county clerk and find out how to get access on-line. It's usually free. The records might be a month or so out of date, but if the houses have been vacant for years, then the info is probably accurate.

What is it you want to know? Are you looking to buy? For personal residence? Or investment? If investment, is there a demand for rental units?

[Deleted]

I tend to agree with 2kids' explanation.

But there are other explanations too. Those properties could have been owned by an investor group that has gone BK and foreclosure process has been stalled. Some of these lenders may be over whelmed with inventory and are getting to these properties when they can. Some banks may also be bundling up houses in large lots to be auctioned off to investors.

How old are these houses? I feel sorry for the remaining folks who have to live in neighborhoods like this.

[haapai]

The takeaway from my walkabout was definitely "no rush". A year from now, there will still be plenty of small, cheap houses available in this market.

I felt sorry for the neighbors who were outside doing yardwork. Even folks who bought a decade ago with 20% down and never did a cash-out refi are underwater and stuck.

[haapai]

Thanks for the NYT article anne. They cut me off last month, so I've been trying to be judicious about my visits.

I'll need somewhere to live in about a year and some of these houses might be cheaper than renting and even closer to work. I'd never had much interest in owning a house before, but prices like these make you think.

The houses that I looked at were old. The youngest was built in 1952. Three were built in 1900 and were on the path so I looked anyways. The heating and maintenance costs implied by those ages have me so spooked that I'm actually eliminating things from consideration because they are too large.

There's a 4-bedroom, recently remodeled 1870 vintage house with hardwood floors that I absolutely refuse to look at.

[haapai]

Ooooh, a 4th 1900 house showed up on the listings. Two beds, one bath, and 688 glorious square feet for $25,500. The price is right but what is the point of buying a house if it's too small to share with a dog?

[Wisconsin Beth]

Jun 2, 2011 9:43:28 GMT -5 haapai said:

The takeaway from my walkabout was definitely "no rush". A year from now, there will still be plenty of small, cheap houses available in this market.

I felt sorry for the neighbors who were outside doing yardwork. Even folks who bought a decade ago with 20% down and never did a cash-out refi are underwater and stuck.

They may not be as underwater as you think. DH bought our house about 12 years ago. Refi'd in 2004 for a lower rate but didn't take cash out. Mortgage is something like $38K now. He did make extra payments to principle for the first 5 years or so. We owe another 10K or so on the HELOC but we're assessed at $109K. Admittedly we're in the Midwest and not wherever you're looking.

[Deleted]

The price is right but what is the point of buying a house if it's too small to share with a dog?

Even as spoiled as our cocker spaniel is, she doesn't have her own room.

[haapai]

I'm just outside of Lansing MI. Definitely in the Midwest.

[Wisconsin Beth]

Jun 2, 2011 12:56:49 GMT -5 haapai said:

I'm just outside of Lansing MI. Definitely in the Midwest.

Ouch. Sorry, for some reason I was thinking you were in the southwest and not a neighboring state...

Around peak, our house was assessed at $130K or so. So we're down but then again, we're not expecting to go anywhere anytime soon either so it's kind of immaterial.

[Clever Username]

I think you're mis-labeling 'shadow inventory.'
I think I'm a better definition for that. My house, meh, I could take it or leave it. It's tough seeing all of these bargains around. But so far, no bargain I've seen is enough to warrant the effort and heartache of listing my current home to sell in this same slow market.
If you come to me offering a good honest price for my place, I'd take it.

My guess is that those other properties are pre-foreclosures.
In my state, it's a year after you've mailed your last payment until they've taken it back and kicked you out.

[HoneyBBQ]

How do you find such inventory??

[Wisconsin Beth]

I think Haapai just went for a walk and paid attention to the houses and the people out in the neighborhood. Signs to look for would be paperwork taped to the windows, overgrown/unkempt yard (although my house wouldn't pass this test right now) and a vacant look (curtains open/doors closed on gorgeous day/etc.

[haapai]

I found them by going to a real estate listing website and putting the zip code into a listing service and entering 60000 in the max price box. Then I went back and checked one plus bedrooms to eliminate the raw land and empty lots. Then I made a list of the seven most interesting properties and walked. I tended to find the unlisted stuff clumped around the listed stuff.

I'm reasonably certain that the unlisted vacant houses had gone through the entire foreclosure process. We have a relatively short six-month redemption period in this state and it can be shortened to a month if the house is unoccupied. Few people move before the redemption period ends unless they are migrating for work.

Most of the houses that I saw looked like they had been vacant or at least horribly neglected for quite a while. On the other hand, maybe I am underestimating what a single season of haphazardly raked leaves will do to a lawn. One of the places with mature trees had only spindly little dandelions growing where the lawn once was. It had been listed the previous day.

The information available online regarding some of these houses is pretty haphazard. Misspelled street names and wrong zip codes are pretty common. A single house can be listed on the same site at three different prices. Basements and fencing don't get mentioned or shown in photographs. Places that excited me online routinely turned out to be oh-my-god-nos and places that I checked out on a whim or because they were on the path tended to have some nice exterior features that I would not have learned about otherwise.

[2kids10horses]

Welcome to the world of foreclosures! Your experience with the inaccurate listings is typical. Most of the foreclosures are given to agents who just depend upon "volume" listings. The agent is responsible for getting it cleaned out, mowed, etc. They get reimbursed, but they have to up front the money and submit their receipts monthly. The agents contract this work out to foreclosure specialists who know the drill, are willing to keep logs of when they do certain work, will "winterize" a house, etc.

Often the agents are given 20 to 25 houses at one time, and Freddie/Fannie want them listed within a day or two. Agents don't have time to get all the info right. (I'm not justifying their poor work, I'm just stating what happens.)

They also get paid a "reduced" commission that they usually have to share with Freddie/Fannie's property manager. For example, the last foreclosure I closed (I'm an agent) I got 3% as the Buyer's broker, but the listing agent only got 1.75%. But, they make up for the low commission in volume. He doesn't have to prospect for listings, he gets them dumped on him.

I know one agent who specializes in foreclosures, and he always says there is no heat/no air in his listings. There usually is, but if it gets stolen or doesn't work, he can just say, "I never said there was any!" He isn't really interested in getting a high price, he just wants it sold. Like I said, it's all in the volume.

So... if you see a foreclosure you want, don't be afraid to low ball it. You're not hurting the agent's feelings. All the bank can do is say no, and counter offer. As a practical matter, if it is a new listing, they won't take a low ball offer. If it's been listed for 4 or 5 months, they probably will.

The key is getting your financing arranged first. Cash is best, obviously, but getting PRE-APPROVED (not just pre-qualified) will also work.

[haapai]

Does changing the information in a listing put the agent in some sort of jeopardy? Does it cost money?

I'm looking at a combined street/road and school district/ zip code foul up that's been up for six months. The map directions are good and the lawn is getting mowed, but I can't find the corrected/accurate info elsewhere. That is, I don't think I'm looking at a snafu preserved by the internet. I don't think a good version exists.

[2kids10horses]

I'm sorry, I don't understand your last post.

It doesn't cost anything to change or correct a listing. But errors are made all the time. However, some agents won't want to give certain info. An agent in my area refuses to quote square feet. He once was sued by someone when he mistakenly overstated square feet in the listing by 10 square feet. So, the rest of us, when we quote sq ft, we will name the source of the info as "per appraisal" or "per tax records". That will make it so that the Agent is not held responsible if the sq ft is wrong.

You should try to find your tax assessor's info. Call the County Tax Assessor's office. Ask them what their website is. Ask how to search. Can you do it by address? Normally you can, and you can see what they have. Owners, year built, square feet, etc. Now, some info, such as square feet may not be accurate, but it will give you an idea. Also the Assessed value.

[haapai]

I thought that I was looking at the following situation. Smith Road runs through Smithville. Nearby Jonesville contains a Smith Street. The house in question is on Smith Road, has a Thirdville zip code and is in Jonesville school district. The house is listed under a Jonesville zip code.

Now that I've spent some time staring at various jurisdictional maps, it appears that everything in the listing is correct. It's just your typical house in the country where the zip code takes an unexpected jog.

It's listed at 27% of sheriff's sale price. Yeowza!