Bergen County Foreclosures Blog and Listings

Centuria Project Up For Auction?

Tom — Sat, 7 Feb 2009 00:01:43 -0500

I've been busy improving the site and I can't believe I missed this listing yesterday. A notice of sale was issued for a property in Fort Lee, NJ with a judgment of $31,342,684.70. The address of the property is a fairly non descript "Vacant Land Along Lemoine Ave."

I won't be able to verify it until Monday, but the only property I can think of that it could possibly be is the 16 acre plot of land near the George Washington Bridge on Lemoine Ave in Fort Lee that was supposed to be the future home of the Centuria Project.

Update: It is indeed the Centuria Project that is being foreclosed. The plaintiff in the case is TDC Fort Lee, LCC which I believe is a company set up by Tucker Development Corp to invest in the project. Tucker Development corporation is a commercial real estate firm from Chicago, IL that was going to invest up to $1.5 billion in the Centuria Project. In May 2008, they put out a press release that they purchased a $29 million loan from an affiliate of Principal Financial that was secured by a portion of the development. That's probably the loan in question that is being foreclosed on.

The Centuria Project was supposed to be a mixed use development that would build over 1.7 million square feet of residential, retail, office and hotel space in downtown Fort Lee. For over 35 years, the property has been vacant and the project was an important part of Fort Lee's redevelopment plans.

Since 2003, the only thing that ever developed on the site was a fence and a sales office. Town & Country ran into problems early on with contaminated soil from a previous dry cleaning business on the site. Before the foundation could even be dug, the tigtening credit markets made find financing for such a project difficult, if not impossible.

Driving through Fort Lee, you see many signs for vacant storefronts and office space. The slowing residential market and current abbundance of luxury highrises probably made the project seem unviable.

Back in May 2008, Town & Country Developers announced they had engaged the services of Cushman & Wakefield's Metropolitan Area Capital Markets Group to sell the project for $1 billion. According to the various news articles on the project, Town & Country had secured around $80 million in financing for the project. If this foreclosure takes precedent over the other loans secured by the property, it could be a great deal for the next developer but bad news for the other lenders.

In June 2008, Town & Country was stripped of it's rights to develop the property it bought for $45 million in 2003, because it was behind $878,000 in taxes and fees. Town & Country seemed to also have another agreement with the Borough of Fort Lee to be the approved redeveloper for the Borough, and that status was also going to be revoked. At the same time, one of Town & Country's lenders began foreclosure proceedings in which the Borough of Fort Lee was also a named defendant. That's likely the loan associated with this notice of sale.

The property has quite a history. It used to have one and two family homes that were built after World War I and some stores and a movie theater along Lemoine Ave. Most development proposals since included a movie theater. With Fort Lee's rich history in film making, it's very strange for the Borough not to have a movie theater.

Investors Funding Corporation started buying up and demolishing all the properties in the 70's. They ran into problems when serveral officers of Investors Funding were convicted of attempting to bribe the Mayor of Fort Lee in order to obtain the approvals necessary to build the proposed project.

In 1980, Harry B. Helmsley started looking to acquire the property and after purchasing it proposed a mixed residential/office project in 1985 which was never built. By 1990, Helmsley had received approval from the town, but not from the county.

Quite a troubled history for a project considered to be one of the prime commercial real estate plots in the north east.

Monmouth County and Morris County Foreclosures

Tom — Thu, 5 Feb 2009 15:38:20 -0500

This week, 2 additional NJ Counties were added to the site. You can now find Morris County foreclosures and Monmouth County foreclosures on this site.

Adding more counties has been the most frequent request I've received so I'll do what I can to in that regard. To access other counties, use the drop down menu in the header of the site. Put your mouse over the white county box and it will drop down to show a list of counties. Click on the county you are interested in. The following screen shot illustrates how to do this. (currently this menu is not on the blog so click the logo to get to the home page)

Once you select a county, you will go to the county page, which shows overview information and statistics about the foreclosure auctions in that county. There are charts that show the top 10 cities by foreclosure auction activity in that county, number of foreclosures and average foreclosure judgment for the past few months as well as average winning bids and the average judgment of homes sold at foreclosure auction. You'll also see number of current foreclosure auctions scheduled and when the next foreclosure auction is scheduled.

To see foreclosure listings, select the municipality (city) from the Municipality drop down list. Only municipalites for that county will be displayed. Or you can use the link at the bottom of the page.

The interface for viewing foreclosure home listings is the same interface you know and (hopefully?) love from viewing Bergen County foreclosures on this site.

There were some other enhancements to the site that should improve performance. Some of you were having a problem where the table of foreclosure listings was not being populated unless you reloaded the page. That should now be fixed as well.

If you have any feedback on the changes or thoughts please leave a comment on this blog post or use the Contact form on the top menu.

If you're looking for other NJ foreclosures use the page for US Foreclosures & REOs. The listings are provided by a third party. To get detailed listing information you need to sign up but they have a free trial period.

January 23, 2009 Sheriff Auction Sales

Tom — Mon, 26 Jan 2009 12:06:16 -0500

Twelve properties had been scheduled for last Friday's foreclosure auction in Bergen County. Of the 8 that seemed to be auctioned off, only 2 were sold. Both were sold to an investor that also had the winning bid on 2 foreclosures in the previous auction.

8 Orchard Ct, Lodi, NJ - had a winning bid of $337,500 by John Gloria, which was 25.73% below the foreclosure judgment of $454,428.03. The home was last sold in December 2005 for $515,000. The winning bid was 34% less than the bubble price. From 2004 to 2005, this house was sold 3 times for $424k, $467k and finally $515k. Not sure if people were going crazy flipping this house of if there were issues because of the odd shaped lot that backs up to an apartment building and a commercial business.

804 Grand Ave, Leonia, NJ - had a winning bid of $174,000 also by John Gloria. The winning bid was 65.94% below the foreclosure judgment of $510,854,59. The house changed hands twice during the bubble. Selling for $370k in 2004 and $580k in 2006. The winning bid was 70% below the 2006 price. I think that's the biggest drop we've seen in Bergen County.

Deutsche Bank had 3 properties at auction that didn't sell, one property appears to have gone back to the cond association and one went to HUD.

January 16, 2009 Sheriff Auction Sales

Tom — Tue, 20 Jan 2009 17:04:05 -0500

28 properties were scheduled for last Friday's foreclosure auction, 3 were sold out of the 10 that were put on auction. Two were sold below the awarded foreclosure judgment.

67 Willow Ave, Hackensack, NJ - had a winning bid of $235,00 from John Gloria. The house was last sold in 2006 for $455,000. The winning bid was 39% less than the foreclosure judgment of $384,445.57 and over 50% below the 2006 bubble price. It looks like the home was picked up by an investor in 2005 for $285,000 and flipped a a few months later for 60% more than paid for it.

68 Cresskill Ave, Dumont, NJ - had a winning bid of $260,000, also from John Gloria. The house was last sold in 2005 for $364,500. The winning bid was 19% below the foreclosure judgement of $320,037.94 and about 29% below the bubble price.

549 Howard St, Washington Twp, NJ - took a while to get to auction. The foreclosure judgment on the property was awarded almost a full year ago. The winning bid of $355,00 by East Coast Acquisitions, LLC was 53% above the foreclosure judgment of $231,752.59 awarded to US Bank NA in January 2008. This house was last purchased before the bubble for a price of $284,900 back in November 1993.

January 9, 2009 Sheriff Auction Sales

Tom — Fri, 16 Jan 2009 05:11:12 -0500

The first auction of the year had 42 properties scheduled, 22 weren't auctioned off, 18 didn't receive bids and 2 were sold.

555 Kipp St., Teaneck, NJ - had a winning bid of $239,000 by Eric Van Auken. The property was last sold in September 2006 for $420,000. That's a 43% discount compared to the bubble price. The judgment awarded was $381,124.65 and the winning bid was about 15% less than that.

2 Valley Lane, Upper Saddle River, NJ - had a winning bid of $510,100 by James Vercelli. That's about 28% off the foreclosure judgment of $712,596.15 awrded to Avelo Mortgage, LLC. The home was also last sold in September 2006 for $$1,160,000. That's 56% below the bubble price.

The strange thing about the Upper Saddle River property is that it was previously auctioned off before and I mentioned it in the November 7 auction report. Back then it had a winning bid of $504,000 by Matthew LLC.

One Million Homes Lost To Foreclosure Last Year

Tom — Thu, 15 Jan 2009 09:21:48 -0500

BusinessWeek is reporting that foreclosure.com released data that 1 million homes were lost through foreclosure in 2008. Up 63% compared to 2007.

President of Foreclosures.com, Alexis McGee, believes that the worst is behind us. I'm not sure that this is the case. While home prices have fallen a bit, and interest rates are low, house prices are still overpriced compared to incomes and many Americans are dealing with losing their jobs or seeing their income decline.

While the bailout has helped some banks cover their loses, it hasn't opened up lending much. Especially for those looking to refianance out of problem mortgages.

So far, the programs aimed to help homeowners in foreclosure haven't had much success.

RealtyTrac, another company that tracks nationwide foreclosure information, reported slightly different numbers.

U.S. foreclosure activity jumped 81 percent in 2008, with one in every 54 households getting at least one filing notice, suggesting various state laws and private programs to slow the process have been ineffective, RealtyTrac reported on Thursday.

Nearly 3.2 million foreclosure filings on 2.3 million properties were made last year, the Irvine, California-based research firm said. Filings include notice of default, auction sale or bank repossession.

While foreclosure activity did slow in the 4th quarter, it was still up 40% from the 4th quarter of 2007. If other parts of the country are similar to what happened here in Bergen County, many foreclosures were likely postponed due to the holidays. Hundreds of foreclosures that were scheduled to be auctioned off in November and December were pushed back to January 2009.

Incorporating your Foreclosure Investments and DIY Real Estate Forms

Tom — Mon, 12 Jan 2009 07:24:09 -0500

You can save a lot of money by selling your home yourself (for sale by owner) or buying a home without the aid of a real estate agent. Here in NJ, real estate agent commissions are usually negotiated to around 4-6%. If you're selling a house priced at $450,000 that's $22,500 which is not an insignificant amount of money, especially considering the current housing market might have left you in a position where you might actually take a loss on selling your home.

The housing boom drew a lot of people into the real estate market, including many real estate agents that distorted the facts or didn't have much experience or knowledge, but were able to be successful because houses were so easy to sell. These days, selling houses is tough business. Even if you have a really good agent, you're still going to have to do a lot of work yourself. Why not do a little more, if you can, and save a lot of money?

With so many distressed sellers, foreclosures and high inventory, buyers know they can find deals. This is one way you can present a more attractive price to buyers without sacrificing your profits.

If, like many of this site's visitors, you're interested in foreclosure investing, you know it requires you to do a lot of work on your own. You don't have or need a a real estate agent in many cases and the following recommendations can help make things easier for you.

If you can do the work to research and purchase foreclosures, you know enough to handle most types of real estate transactions yourself. You may still want to use a real estate agent if you have a lot of properties or if you need exposure when you try and rent or sell a property. It's up to you, but you never know when someone might hear that you have a good deal and it's good to be prepared.

A real estate attorney is probably more important when buying and selling, but most of what they do is create boilerplate legal forms. If you have a bit of knowledge and experience you can use stock real estate forms that you can purchase online for most transactions.

This isn't for everyone, but the pace of the real estate market has slowed down. You may decide to still go with an agent or attorney but you have an opportunity to take the time to investigate other options and see if you're comfortable with them. The information contained in some of the kits will also help you choose agents and attorneys as well as educate you so that you understand what's going on better.

If you're starting a foreclosure investing business, you'll likely also want to set up a an LLC or S-Corporation to protect your personal assets in case your run into any issues with your real estate business. Even if you're purchasing just a single property as your residence, you may want to incorporate to limit liabilities. There are many things that can go wrong with buying foreclosures that you should consider protecting yourself. You can hire an attorney or CPA to do this for you, you can use an online service or you can register your business yourself.

In this post I'll cover different options for forming your business entity and links to resources that provide forms you can use in your real estate transactions, including real estate purchases, sales and leases.

Form an LLC or S-Corp

Incorporating your business provides you with some liability protection to guard your personal assets. You can create one business entity for your entire business or form a separate one for each property. You might have noticed in the foreclosure sales results that some of the buyers are LLC's with the address of the property in the name of the LLC.

By creating a new corporation for each property, you can also insulate liabilities from one property affecting others. This may also be necessary in some instances. Some foreclosure investors don't do it all themselves. They have financial backers/partners that may change with each property. Since one property may have different investors than the next, it makes sense to have different corporations.

Filing the paperwork is pretty simple and in NJ you can form your business online. You'll also need to register your business with the IRS and in some case you may need a Federal Employer Identification Number (FEIN). All of these are relatively cheap and easy to get. The hard part is creating the documents you need to file along with your application, such as your articles of incorporation. Using an online service or a kit, will help speed things up by creating these documents for you. They will even file some or all of them on your behalf. At the very least, I would recommend you pick up the Incorporation/LLC Kit from Socrates Media. It will provide you with information on choosing and setting up the right entity as well as the forms and instructions. You pay a bit for the service but it saves you a lot of time and it is cheaper than going with a lawyer or CPA.

The first thing you'll want to do is set up a legal business entity. Either an Type-S Corporation or an LLC. An LLC is easier to manage but an S-Corp does have it's own advantages. Both will provide liability protection for your private assets. Which one is right for your business will need to be determined and you might want to consult a CPA for advice if you don't feel comfortable doing it yourself. Though the information in the resources provided below can also help answer many questions you might have.

The biggest advantage to an S-Corporation is in the treatment of taxes. With an LLC you pay self-employment taxes on your total net income while with an S-Corp you only pay the 15.3% employment tax on salaries that were actually distributed.

For example. Your business has net income of $100,000. If you were an LLC you would pay $15,300 in employment tax. If you were an S-Corp and you decided to only pay yourself a salary of $50,000 and keep the rest in the business, you would only pay employment tax on the $50,000 which would be $7,650.

S-Corporations are more complicated to set up and you are required to file more documentation to maintain them. This can be too much for some, but if you're dealing in real estate you're likely dealing with large amounts of money and at some point you might want to hire a CPA to help you manage it after you get things running along with taking care of your taxes.

An LLC is easier to maintain and cheaper to set-up. An owner of an LLC pays his corporate taxes by submitting the same 1040 Schedule C form he would if he was just a sole-proprietor. Running as a sole-proprietor tough doesn't give you the protections of an LLC though.

Separate Your Business and Personal Funds

As with any business, you should have a clear distinction between your personal funds and your business funds.

To accomplish this, Set up at least a business checking account in the name of your business. Keep detailed records of any money you transfer between your personal and business accounts and label them appropriately if they're salaries, bonuses, loans, etc.

If you are doing you're own accounting, a good software accounting program can help make this easier for you. Quicken Home & Business provides enough for most personal and business accounts. You may also want to look into Quicken Online Edition which is available for free. At some point you might need a little more power in your bookkeeping software and you should consider QuickBooks Premier Edition , especially if you start hiring employees.

You'll likely also want to secure lines of credit or credit cards under the business name to make it easier to track business expenses. Since your personal credit can affect your business credit, I recommend you check your Fico Scores/Credit Reports.

Real Estate Forms

A lot of the legal forms concerning real estate are fairly standard. It's nice to have an attorney review and prepare documents, but it's not always necessary. Most attorneys will reuse the same forms for their transactions. You can do the same by using forms that were prepared by attorneys that take local laws into account.

Below are some State Specific Forms that relate to Real Estate transactions as well as software and educational information.

Complete Forms Package

This is the complete package of Real Estate Forms. It has over 100 forms to handle every type of Real Estate transaction from buying, selling or renting properties. It comes as a software application you can download and then enter the appropriate information and it will generate the form. If you need multiple forms, this is the most economical package.

Below are a list of the forms that area provided in this package:

Contractor Agreement
Bill of Sale
Quitclaim Deed
Agreement to Sell Personal Property
Assignment of Lease
Assignment of Mortgage
Authorization to Release Credit Information
Escrow Agreement
General Agreement
General Power of Attorney
Offer to Purchase Real Estate
Promissory Note
Sublease
Tenant's Notice to Exercise Purchase Option
Waiver of Lien
Warranty Deed
Commercial Lease
Residential Lease
Extension of Lease
Final Notice Before Legal Action
Mortgage Bond
Mortgage Deed
Notice of Change in Rent
Release of Mortgage
Balloon Note
Federal Lead-Based Paint Hazard Disclosure Requirements
Protect Your Family from Lead-Based Paint in Your Home Booklet
Lessor Disclosure on Lead-Based Paint
Seller Disclosure on Lead-Based Paint
Spanish Version-Protect Your Family from Lead-Based Paint in Your Home Booklet
Spanish Version-Lessor Disclosure on Lead-Based Paint
Spanish Version-Seller Disclosure on Lead-Based Paint
Real Estate Dictionary
Affidavit of Completion and Agreement Regarding Liens
Agreement to Amend Real Estate Purchase Contract
Agreement to Sell Real Estate
Appliance Inspection/Replacement Schedule
Assignment of Lien
Cancellation and Mutual Release of Real Estate Purchase Contract
Closing Costs Worksheet
Condominium Owner's Association-Proxy Form
Contingency Addendum: Sale of Real Estate
Contingency Release and Notice
Counteroffer to Purchase Real Estate
Exclusive Agreement to Sell Real Estate
Home Maintenance Schedule
Homeowner's Association Disclosure
HVAC Inspection Form
Letter of Intent to Purchase Real Estate
Limited Power of Attorney
Monthly Budget Planner
Mortgage Shopping Worksheet
Notice to Exercise Purchase Option
Open Agreement to Sell Real Estate
Option to Purchase Real Estate
Personal Financial Statement
Preliminary Home Inspection Checklist
Real Estate Sales Disclosure
Seller's Acceptance of Purchase Offer
Special Warranty Deed
Special Warranty Deed Subject to Vendor's Lien
Subcontractor Agreement
Vacant Land Agreement for Sale and Purchase-No Broker
Vacant Land: Offer to Purchase Agreement
Cleaning Checklist
Credit Check and Screening Receipt
Demand for Compliance or Right to Possession Notice
Drive-By Rental Inspection Notice
Emergency and Nonemergency Maintenance Numbers
Garage-Parking Space Lease
Indemnity Agreement with Landlord
Key Release
Late Notice Letter
Lease with Purchase Option
Lock-Out Assistance Receipt
Marketing Letter to Broker
Marketing Letter to Local Business
Mobile Home Park Lot Lease
Mold Addendum
Monthly Rental Agreement
Notice of Intent to Enter
Notice of Termination of Lease
Notice That Eviction Will Be Filed in Court
Notice to Quit or Pay Rent
Notice to Terminate Tenancy
Pet Policy-Residential Lease Addendum-Pets
Pre-Lease-Post-Lease Inspection
Property Management Agreement
Property Viewing and Key Arrangement
Rental Credit Application
Renter's Insurance Referral
Residential Lease-Furnished
Returned Check Notice Letter
Roommate Agreement
Safety Inspection Letter
Satellite Dish-Antenna Addendum
Smoke-Carbon Monoxide Detector Inspection
Statement of Interest Earned on Security Deposit
Tenant Behavior Policy
Tenant Employment Verification
Waiver of Landlord's Claim to Annexed Fixtures
Waterbed Agreement-Addendum to Rental Agreement
Promissory Note
Authorization to Release Credit Information
Final Notice Before Legal Action

Real Estate Investing Guide and Forms

If you don't need the complete kit, they also have one for people looking to invest in real estate or Essential Real Estate Forms .The invest in real estate kit contains:

detailed, easy-to-follow user manual covering such topics as:
- real estate investor personality
- long- and short-term investing
- finding a property
- inspecting a property
- flipping a property
- landlording duties
CD-ROM
neighborhood/suburb analyzer
preliminary home inspection checklist
buyer’s walk-through inspection form
maintenance schedule
HVAC inspection form
appliance inspection/replacement schedule
broker appraisal form
mortgage loan evaluator form
hazardous materials inspection checklist
banking information sheet
appraisal request form
tenant forms

For Sale By Owner Kit

If you are just looking to sell your home, you might find the For Sale By Owner Kit useful. It contains information and forms for:

Choosing a real estate attorney
Preparing your home for sale
Pricing to your market
Advertising your home
Attracting qualified buyers
Handling offers and negotiations
Disclosures and inspections
Structuring seller financing
Handling the legal paperwork
Mortgage, tax and estate planning basics

Purchasing Real Estate Kit

If you're interested in purchasing real estate, or even arranging a lease to purchase contract, the Essential Real Estate Purchase Forms kit provides the forms you need forms for both sides of the transaction, sellers and buyers. The five forms included are:

Offer to Purchase Real Estate: make an initial offer on a property
Agreement to Sell Real Estate: set out the conditions for a purchase
Lease with Purchase Option: lease or rent property with an option to buy it later
Quitclaim Deed: finalize the transfer of property
General Power of Attorney: transfer control of real estate transactions to another party

Real Estate Forms

If you already have the knowledge and just need particular real estate forms you can choose from the following individual forms:

What our Deficit is Really Costing Us

Tom — Fri, 9 Jan 2009 00:59:23 -0500

It's a bit late but I wanted to post about something I just saw on CSPAN. Late night C-SPAN? Yeah sometimes I'm up late and bored. Senator Sheldon Whitehouse, a Democrat from Rhode Island made some points during today's meeting with Congressional Budget Office (CBO) representatives.

[An aside: Peter Orszag, Director of the CBO, gave a great assessment of the TARP program when Congress was considering voting on it. I was very impressed with his testimony but it was sort of like watching someone ask an economist whether they should burn or shred their money. The CBO doesn't make policy decisions, they just evaluate what the impact will be of those decisions. I was still very happy to hear that Orszag has been selected by President Elect Obama to be his Director of the Office of Management and Budget, even though he still doesn't make policies, but his input can now have more influence on selecting the right ones.]

Senator Whitehouse pointed out that last years budget included $260 billion dollars to pay the interest on the Federal deficit and that money could have been used for better purposes. I'm glad to hear our elected officials thinking in these terms. In a previous post I explored some other ways to spend $1 trillion, in response to the bailout money that was being handed out.

The difference between the actual deficit, and what the CBO projected when President Bush first took office is $7.7 trillion. That's a pretty big chunk of change considering President Clinton left office with a budget surplus. The video on the right is from March, 2008.

During the bubble our economy was growing very fast. That's kind of what a bubble is. But instead of saving that money and using it to pay down our debt, we increased it dramatically. Financial Planning 101, put money away during good times because good times don't always last.

What might have happened is that instead of saving, money had to keep flowing out to keep the ponzi scheme that was the housing market keep going. And if you look at the bottom of this next link, you'll see that housing was very unaffordable under the Bush Administration.

I don't have any political affiliation but it's hard not to point out the obvious. I do get a kick out of either hard core republicans or democrats that link to some of the political topics I've discussed and use it to back up their arguments. And I've had both, sometimes for the same blog post!

Let's take a look now at what Sen Whitehouse determined we could have done with that $260 billion last year.

Provide Universal Healthcare - This one doesn't need much explaining. Cost of healthcare has been growing and many Americans are in trouble. Sick or injured people can't work. People that don't work don't pay taxes and sometimes have to rely on public funds. Healthier citizens means a healthier country. Healthcare costs are also a leading cause for bankruptcy in this country yet 15.3% of Americans (45.7 million) had no health insurance in 2007. That's not counting the underinsured.
Double Pell Grants - The cost of higher education has also been rising and many families are finding it harder to send their kids to college. If we're going to compete in the Global Economy we need smart citizens since we've shipped a lot of jobs that don't require college educations overseas. In the 2005-2006 year "the maximum Pell grant covered one-third of the yearly cost of higher education at a public four-year institution; twenty years ago, it covered 60% of a student's cost of attendance." Doubling it will bring us back to where we were 20 years ago.
Double the Head Start Program - The Head Start Program was created in 1965 to address systematic poverty and provide education, health, nutrition, and parent involvement services to low-income children and their families. Here we are 43 years later and 12.5% of our population (37.3 million people) still live in poverty.
Fix 95% of the bridges that need repair - Our infrastructure needs repair. Bridges in particular and they have already shown they can be a real threat to human life. Improving our infrastructure also puts people to work.

According to Sen. Whitehouse, we could have done all of these four things with the $260 billion that went to pay the interest only on the deficit. How do we run such a big deficit when the economy is booming?

Now, with all the bailouts and proposed stimulus package, things will only get worse. A lot of people made a fortune during the bubble, and now our government will have to spend even more money to try and fix things. Money we don't have. Money we didn't save. Money we have to borrow.

During the housing bubble, many people who got in trouble with their mortgage kept refinancing to cash out some equity and try and get ahead. This would give them more debt but give them some money to try and sort things out. As long as house prices kept rising, they could do this indefinately. But house prices were not sustainable. It seems like our government handled their debts the same way.

2009 To Set New Foreclosure Auction Records

Tom — Mon, 5 Jan 2009 16:06:23 -0500

Because of the holidays, it seems that many foreclosure auctions in Bergen County were pushed back, with only a little more than 100 auctions scheduled for November and December 2008 combined.

About the same as the number of Sheriff Sales scheduled for October 2008 alone, which was the highest month for 2008.

But the homeowners facing foreclosure didn't get a Christmas miracle, their auction dates were just pushed back into 2009. As you can see from the current snapshot of scheduled foreclosure auctions, 2009 doesn't look good. There are currently over 300 foreclosure auctions scheduled for January.

This number is likely to decrease as auctions are rescheduled into later months for various reasons including postponements, cancellations and I wouldn't be surprised if the sheer volume might be too much to handle in one month.

Higher priced neighborhoods aren't immune to foreclosures. Upper Saddle River has 8 properties scheduled for auction in the first 3 months of 2008 while it only had 3 for the last quarter of 2008.

The Housing Market was a Ponzi Scheme

Tom — Tue, 23 Dec 2008 13:41:25 -0500

Or at the very least behaved like one. You know what they say, if it looks like a duck, swims like a duck and quacks like a duck, it's likely a duck. I've covered some of these topics earlier but want to bring together some new factors that show that house prices are not sustainable and have been artificially inflated, along with some new charts to illustrate the point.

While I'm pretty good at math, I'm not a mathematician. What I can do is recognize and relate patterns. So there won't be any complex formulas as in a more advanced proof, but it should also be easier to understand.

What is a Ponzi Scheme?

To understand why the housing bubble acted like a ponzi scheme, let me briefly cover what a ponzi schme is. You've probably heard of a pyramid scheme. A pyramid scheme is where the whole process for making money is by recruiting new members for a fee or some other method to get them to give you money. You sign up for a pyramid scheme and you pay someone money, then they give a portion up to the person that signed them up, who in turn gives a portion up to his recruiter, all the way up to the top. For you to make money you have to find your own suckers.

Finding suckers can be hard because eventually people catch on. A ponzi scheme makes it easier to find suckers, by claiming there is some sort of tangible asset that they are investing in. Sometimes the asset doesn't even exist but many times it just becomes overvalued.

For a ponzi scheme to work new investors need to come in, just like with a pyramid scheme. If new investors see how well the old investors were doing, they are more likely to invest as well. So it is important to show continued growth. Since the underlying investment may or not actually appreciate in value, the scheme is set up to artificially inflate the value of the asset and they use the money from new investors to pay off old investors.

Ponzi Schemes Have Exponential Growth

To maintain the illusion of success, each year has to show positive gains without losing momentum. If you found out your friend invested in something and made 10% a year you are going to want to see similar results. Since the scheme needs you to help promote itself, they will also try to give you the same results. Because if you don't get a good rate of return, you're not going to help spread the scheme, and without new investors it all comes crashing down like a house of cards.

The problem with trying to maintain a consistent, positive rate of return results in exponential growth. It doesn't grow in a straight line, it curves upwards and at some point it just becomes unsustainable to maintain.

Here's a simple example. This may even start out innocently enough and there may not be any motives to defraud anyone. You claim to be able to have an investment strategy that will return 15% annually and you're looking to raise capital by allowing individuals to invest $100 in you. In return you will pay them 13% back each year and they can cash out at any time.

You're making a great return making actual investments at first, but then the investment starts losing value. If everyone decides to cash out because of this, you will end up losing money. So you continue to pay your 13% to your investors. The problem is you don't have the cash so you decide to sign up some new investors to pay the old ones. Hopefully the market returns to normal and you'll be ok. But it doesn't always work that way. Most investments don't grow that fast forever.

Lets say when the market goes soft, you have 10 investors and $1,000 in investments. At the end of that year you will need to pay out $130. So you sign up a new investor and use their investment to pay your old investors plus $30 bucks from cashing out actual investments that lost value. A 2-3 years later, you will need to sign up 2 new investors to pay the old. Then you need 3, then 4, and it doesn't seem so bad, but as you can see from the chart, it starts to explode and it is impossible to get the number of new investmentors to pay the old ones, so you start trying to get more money from each investor by further misrepresenting the value of the investment. Eventually nothing you do will be able to attract the huge amount of money you now need, and people start catching on.

House Prices also Grew Exponentially

House prices also started to show an exponential growth rate. The only time that house prices showed such a big increase was after the recovery from the Great Depression. But back then, there was a large decline caused by the great depression. In this latest housing bubble, there was a slow increase, with a small bump in the late 80's and then the explosive increase in house prices from the latest housing bubble.

The chart below shows the S&P Case Shiller House Price Index for the NY Metro Area in red, along with our example ponzi scheme with a 13% annual rate of return. As you can see, around 1999 it appears that house prices began to increase exponentially.

Myth: Low Interest Rates Caused House Prices To Rise

During the housing boom, interest rates were dropping and many people try and attribute that to the increase in house pricing. Since lower interest rates lower your monthly payment, people will be able to afford more expensive houses. Unfortunately that doesn't seem to be the case.

To illustrate why this is a myth we have to look at incomes and interest rates in addition to house prices.

First, lets try and define a good price to pay for a house. One way to determine the price you can afford for a house is to not exceed 25% of your monthly after-tax pay for your mortgage payment.

What I did for the following chart is take the median household income, reduce it by 30% to account for state and federal taxes and then figure out what 25% of that would be each month. Like I said, it doesn't give the exact number as tax rates vary but it gets us in the ballpark. Using that number I was able to come up with a number that would represent the amount of mortgage principle someone should be able to affordably carry. Since we're talking about buying wisely, I also factored in for a 20% downpayment, to come up with the price the median househould should spend on a house. The representation of that data is in the chart below:

As you can see, what the National Association of Realtors reported for existing single family median house prices nationwide started to break away from what can be considered affordable house prices around 1999. By 2006, when the house price momentum started to plataeu, for interest rates to explain house prices, the average interest rate for a 30 year adjustable fixed rate mortgage would have to be 2.5%. In reality it was 6.41%.

To get people to feel they could afford these homes, they had to think they were getting great interest rates. That's were the teaser rates for adjustable rate mortgages (ARMs) came in.

To make houses affordable, interest rates will have to be cut dramatically and at some point even giving money away won't be able to keep the exponential growth in housing going. There are also reasons why lending money at such low interest rates is not healthy for our economy.

Based on the data, in 2006, houses were selling for about 75% more than what the median homebuyer should be able to afford.

I was surprised to see how closely this calculation followed median house prices. Based on the data, it seems that the housing bubble started in 2000. Up until 2000, the difference between NAR's median house prices and the affordable estimate based on this formula that estimates conservative lending standards was fairly close. Only a few percentage points separated the two and at times house prices were lower than the affordable estimate.

Then in 2000, that difference jumped as can be seen in the following chart.

Year	Affordable Price	NAR Median	Difference
1987	$90,310	$85,600	-5.22%
1988	$90,029	$89,300	-0.81%
1989	$91,786	$89,500	-2.49%
1990	$92,005	$92,000	-0.01%
1991	$96,371	$97,100	0.76%
1992	$103,309	$99,700	-3.49%
1993	$114,026	$103,100	-9.58%
1994	$104,052	$107,200	3.03%
1995	$111,952	$110,500	-1.30%
1996	$114,896	$115,800	0.79%
1997	$119,665	$121,800	1.78%
1998	$132,413	$128,400	-3.03%
1999	$129,142	$133,300	3.22%
2000	$121,559	$139,000	14.35%
2001	$132,168	$147,800	11.83%
2002	$136,510	$156,200	14.42%
2003	$147,056	$169,500	15.26%
2004	$146,386	$185,200	26.51%
2005	$147,522	$219,600	48.86%
2006	$140,326	$221,900	58.13%

These loose lending standards allowed people to borrow more than they could afford to pay back. What's worse, with teaser rates on adjustable rate mortgages, people thought the homes were even more affordable.

Then in 2003, the difference jumped even higher, nearly doubling. This is the last year that the origination of prime mortgages was greater than non-agency conforming mortgages. In 2004, the origination of non-agency conforming (subprime, alt-a, jumbo) mortgages combined was more than the total dollar amount of all agency conforming mortgages.

2004 is when we all became subprime. With traditional 30 year mortgages with 20% down, most people couldn't afford to buy the median home.

1999, the last year of affordable houses, was also the year of the repeal of Glass-Steagall.

This website telling people to stop buying houses, might have the right idea.

Realtor mouthpiece admits to positive spin

Tom — Mon, 22 Dec 2008 14:05:03 -0500

Thanks to grim over at njrereport.com for putting together a comprehensive post regarding David Lereah's spin during the real estate bubble. The post provides a good collection of articles of Lereah's past comments on the housing market.

David Lereah was one of the Chief Economists for NAR, the National Association of Realtors, during the bubble years. He voiced very optimistic projections on the house prices, as does his successor Lawrence Yun.

One of Lereah's quotes from the CNN Money article reads:

I worked for an association promoting housing, and it was my job to represent their interests. If you look at my actual forecasts, the numbers were right inline with most forecasts. The difference was that I put a positive spin on it It was easy to do during boom times, harder when times weren’t good. I never thought the whole national real estate market would burst.

Not only did the top dogs at NAR spin the truth, they encourage their Realtors to do the same. To make it easy, NAR has their Surround Sound Program, to provide optimistic reports to their agents. The goal of the program is to surround prospective buyers with enough positive noise that the real bad news gets drowned out.

NY Metro not in worst 10 real estate forecast

Tom — Mon, 22 Dec 2008 13:32:13 -0500

CNNMoney.com has a list the 10 worst real estate market projections for the top 100 real estate markets. Eight of the top ten markets are in CA.

It's surprising that the NY Metro area, which contains Bergen County, NJ, is absent from the list, considering back in August New York City was the least affordable housing market. That was the first time the top spot when to a city outside of California.

With this region being so unaffordable, and with the decline in home values being less than other areas, it doesn't make much sense to me. Many areas in California and Florida have already seen dramatic declines in house prices. Some people have even tried to call the bottom in places like LA. According to these projections, that doesn't seem to be the case and 9 of the worst 10 housing markets are expected to continue to decline into 2010.

Back in May, CNN Money listed house price forecasts for the top 100 markets, where the NYC real estate market was projected to see house prices drop 13.2%.

There have also been some notable changes in forecasts since May. Sacremento's forecast had the worst change. The forecast dropped 13.3 percentage points to -22.2% from the -8.9% forecast in May 2008.

Miami showed slight uptick of 2.1 points in the forecast, going from -24.9% in May to -22.8%.

You can see the rest of the changes in forecasts in the table below:

	2008 Median House Price	2009 Forecast	2010 Forecast	May 2005 Forecast	Change from May 2005
Los Angeles,CA	$375,340	-24.9%	-5.1%	-16.8%	-8.1
Stockton, CA	$248,050	-24.7%	-4.0%	-16.8%	-7.9
Riverside, CA	$256,540	-23.3%	-4.8%	-16.9%	-6.4
Miami-Miami Beach, FL	$293,590	-22.8%	-6.4%	-24.9%	2.1
Sacramento, CA	$225,140	-22.2%	2.3%	-8.9%	-13.3
Santa Ana-Anaheim, CA	$532,810	-22.0%	-3.5%	-15.2%	-6.8
Fresno, CA	$257,170	-21.6%	-3.3%	-14.3%	-7.3
San Diego, CA	$412,490	-21.1%	-2.9%	-9.7%	-11.4
Bakersfield, CA	$227,270	-20.9%	-2.5%	-13.6%	-7.3
Washington, DC	$343,160	-19.9%	-5.7%	-13.2%	-6.7

37% of modified mortgages defaulting

Tom — Mon, 22 Dec 2008 11:32:03 -0500

I've discussed the lack of success people were having with getting their mortgage modifications in past posts. Either because the banks aren't willing to renegotiate a mortgage with terms that reflect that currect fair market value of a home, dragging their feet in processing requests to modify mortgages or because borrowers are having a hard time getting the necessary paperwork done in time.

The $300 billion Housing Rescue Bill set up a program to help get 400,000 homeowners in trouble into better mortgages. The FDIC has also been working on getting mortgages modified for banks that have failed such as IndyMac.

And now today Reuters is reporting that the rate of defaults for mortgages that have already been modified is rising.

The data showed that after six months, nearly 37 percent of mortgage loans modified in the first quarter were 60 or more days delinquent. After three months, 19 percent were 60 or more days delinquent or in the process of foreclosure.

"One very troubling point is that, whether measured using 30-day or 60-day delinquencies, re-default rates increased each month and showed no signs of leveling off after six months or even eight months," John Dugan, head of the Office of the Comptroller of the Currency, said in a statement.

Lenders may need to get more aggressive with their modifications if they want to keep homeowners in their homes. They should have an incentive to do so because the current real estate market is very soft and they would have a hard time unloading their REOs.

But with all the money the US has been siphoning into the coffers of these big banks through the Federal Reserve and the various bailout programs, do they really care? They got their money. Why shouldn't they work on repairing the broken housing market?

What more could they want? More importantly, do they really think there is much more to give?

No Hope For Homeowners

Tom — Wed, 17 Dec 2008 18:45:20 -0500

Today, more news on the failure of the Housing Rescue Bill to help homeowners that are having trouble paying their mortgages and possibly facing foreclosure.

The three-year program was supposed to help 400,000 borrowers avoid foreclosure. But it has attracted only 312 applications since its October launch because it is too expensive and onerous for lenders and borrowers alike, Preston said in an interview.

312 is far short of the goal of 400,000. Back in September I wrote on how the $700 billion Wall St bailout was not likely to provide homeowners with foreclosure help. Part of that discussions was about how hard it was for homeowners to get loan modifications.

I believe part of the reason for the failure was that lenders were able to choose if they wanted to participate or not. To do so, they would have to be willing to write down the mortgage to less than the current fair market value of the home. Since house values had already dropped significantly, this would mean a decent chunk of change.

You would think that the alternative of having to take posession of the home in the hopes of selling it in this market, where inventory is high and demand is low, wouldn't be very attractive. But when you factor in the billions in bailouts the banks have been getting it seems like a sweet deal. The lenders get the cash AND they get to take the house back.

It's a shame because getting people into these types of mortgages could have greatly helped with the foreclosure epidemic we're seeing.

Another part of the Housing Rescue Bill dealt with setting aside $3.92 billion to acquire and redevelop foreclosures. This partly helps out the communities by having homes that are unoccupied due to foreclosure not sit idle and unmaintained, becoming a blight in the neighborhood that would further reduce property values.

The big benefit though, again goes to the lenders. These homes have an owner. The lenders that took posession of them as a result of a foreclosure. The banks hold them, don't maintain them so they become an eyesore then federal (taxpayer) money is used to buy the homes from the banks and fix them up.

It was never about affordability and homeownership

Tom — Wed, 17 Dec 2008 17:49:35 -0500

Many of the bad decisions made by our government that allowed banks to run wild and create the housing bubble were done under the auspices of making housing more affordable and increasing homeownership.

Both President Clinton and President Bush had programs to increase homeownership.

But look at what's going on now. Part of the reason for the bailouts was to stabilize home prices and stop the steady decline. That's in direct opposition to the goal of making houses more affordable so that more Americans can own their homes.

In addition to the bailouts, the Federal Reserve has been drastically cutting rates so that lenders can make more attractive loans to keep demand for housing and house prices from falling further.

The foreclosure rate is still very high and nothing has helped. Obviously home prices and interest rates were too high for people to afford to stay in their homes. So why not let house prices fall so people can actually afford to buy?

Let houses naturally hit bottom. That's the only way for them to start rising again. Or did was all that talk about affordable house prices and increasing homeownership just a smoke screen?