Perrysburg Blog

I was talking this week with a fellow Realtor.

About the dearth of new REO orders.

In the face of hundreds of empty houses.

“What is going on in your business?” I asked . . .

He is seeing the same thing that I am.

The REO pipeline has been shut down.

It started 3 or 4 weeks ago.

Someone “of a higher paygrade” decided to slow down the marketing of new foreclosed homes.  The news is grim – at least in the headlines.  Then you read the reassuring copy – “nothing to worry about”, “move on . . . nothing to see here”.  Let’s say I agree.  There is no wave of new REO coming.    Then the tactic of the lenders to hold off inventory now is a premeditated attempt to firm up prices and values for today’s buyers and to protect their asset values.

The houses that are foreclosed and not available?

Oh – they are still there.  They are just sitting empty.  Waiting.  Marinating.

Does this make sense?  Does this make money?  Does this “help” the housing market?  Does this increase prices?

Like “Rosebud” in Citizen Kane . . . NO MAN KNOWS.

There are many.

Sewer tap fees that keep people from building.

Zoning rules that keep people from “stepping down” to the right use or “stepping up” to the best use.

But 2 that I really hate and detest, because of the “unintended consequences” that their use causes are:

1. Condo associations that want the “right of first refusal” on you or me buying into their association.

What’s wrong with that?

Example:  property has been on the market for months.  Everyone in the association knows it is for sale . . . and vacant.  But they want the right to know who is buying it so they can decide if any of their current members wants a crack at it?

Seriously?

That’s not a “right of first refusal”.   It’s a right to discriminate and try to select your neighbor.

Outrageous conduct often results from such a mischievous law.  Many years ago I was representing a divorced single parent mother.   Who hoped to buy a condo.   But the nosy neighbors did not like her single parent status and tried to keep her out.    Big mistake.  (That’s what the Fair Housing Center is for, btw).

2. Utility Bills that are the Banks Responsibility.

This one is really rearing its’ ugly head now.

From $200 electric bills to $8500 water bills.

Every little town, village, utility, and conglomerate wants my bank clients to shell out $$$$ for the utilities that the prior, now foreclosed owners ran up a tab for.

And if you don’t pay – no service. (while the house fills up with mold and water and other damage happens)

What’s the harm in that, you say?

If everyone thinks they don’t have to pay – they won’t.

If the bill keeps getting punted down the line to the next owner – at some point (which is . . . oh, right about NOW) normal business forces will stop working.  Utilities will just keep giving “free” service to free riders.   Normal Joe who pays his bill?  Sucker.   The utility is racking up bad debts and expecting you to front the money to keep them running.   Foreclosed Phil?  Once he figures out that others will pay – he will run the air and heat all the more.  Utility Dude who runs the utility?   He doesn’t have to worry about credit checks, deposits, or even shutting people off when they don’t pay!   The bank will pay someday.

Lucas County Auditor Anita Lopez is trying to put a stop to this mess.

Other counties ought to think about the consequences of their policies too.

“It can’t happen here!”

“This is an unsinkable ship!”

“The Maginot Line will protect France!”

Umm.  Might want to check your assumptions.

Sellers in Perrysburg need to check theirs too.  RIGHT NOW.

I wrote on this before and told you

If your assumption is “The Lender Will NEVER Come After Me!!”  you may be embarking on a financial voyage of Titanic consequences.

I just put a house on the market today – $120k area in Toledo.

The owner thought he would be smart and TOTALLY REMOVE his updated kitchen.

The home is going on market for . . . $44,900.

And there is a good chance that the banks that are forced into those situations are going to challenge your assumptions.

Read all about this ACCELERATING trend in the Washington Post ….. HERE.

What Palacios did not see coming was the letter from his lender demanding that he pay the shortfall: $148,064.02. “I really thought I was through with this house,” said Palacios, who fell behind on payments when the economy soured and his cleaning business stumbled.

Some consequences:

-Short selling?  Make sure you do it right.  Hire an expert.

-Foreclosed?  Don’t have a trash out the house party.   Keep the “asset” (that’s what it is to the bank) in good condition.  They are going to run a tab on your decisions.

-Facing foreclosure?  There are plenty of options and decisions you have.  Make smart ones.

In all their gory glory . . .

In their totality . . .

Median price change in Northwest Ohio over 36 months is -$30k.

Median price change in Northwest Ohio of closed single family homes is -$31.5k over 36 months.

EVERY house on average lost 20% to 30% in value.

My observations -

1. Ranches in the suburbs have resisted this trend more than anything else.

2. 80% of the “active” real estate agents have an idea this has happened, but are in “pricing denial”.   They eventually seem to be running out of money after 3 years of not selling any houses they have listed.

3. We really did not destroy 30% of the housing stock in either Afghanistan or Iraq.   But we managed to do it here.   Thanks!

4.  Toledo now has some of the cheapest housing prices in America, for what that is worth.

5.  This has caused some of the strongest and most well capitalized builder/developers to throw in the towel.   I have developed land, sold land, marketed new subdivisions, and done market research for new projects . . . . and I no longer can tell you who is going to do future non-condo/villa development in the suburban market.

Details?

Can’t give them to you.

But in a recent meeting with a Perrysburg homeowner, I realized that they were in denial.

Which can be a serious emotional state that is impervious to reason, evidence, and logic.

These potential clients want their 2005 price.

They “NEED” it as an old mentor, Howard Brinton, used to say.

But it is 2010.

Chrysler is BK.   Toledo, City of, is BK.   Ohio, State of, is broke.   GM has filed for BK.  The entire giant mortgage brokerage that loaned them their money . . . BK and gone.

2005 is long gone.   What you or I paid is immaterial.  What you or I “NEED” is not important.

We should be moving beyond denial to truth.

In fact, we actually have more practice and experience at distressed markets than anyone else in America.

Seriously.

We (Northwest Ohio) went into this market first – along with Cleveland and Detroit.    (“Why?”, o student of history, you ask.  I will tell you:  we shipped our manufacturing jobs over to China first.  Before we shipped our tech jobs and info jobs and pharma jobs.  We – first!, but I digress.)

So – no excuses.   We are experienced in these matters.   Or we should be.

Nationally, 30% of the ENTIRE U.S. market is distressed.

Perhaps 50% of the total market activity in Toledo is now “distressed”.   That means short sales, REO, foreclosures, deed in lieu, and upside down, underwater sellers who have to bring cash to the table just to close.

Half.

One out of two.

We have to move beyond denial now.

There are some very good Realtors that I know that have not closed a single deal yet this year.

They are in denial.

There are some very good homes that will not sell for their owners.

Denial.

“But . . . the tax credit!”

“But . . . ”

Denial.

It hurts.

But you have to move on.

If you want closure.

“I am an out of town owner, and I want to rent my 4000 sq. foot, river front mansion in Perrysburg.  I will sign a 12 month lease for $299 per month.   I need a deposit of $2000.  Email me back on Craigslist or call 419-260-XXXX!”

Hmm.

Too good to be true?

Yes.  It is.

People are actually out there purporting to rent houses THEY DON’T REALLY OWN.

There have NEVER been more vacant houses in Perrysburg than there are today.

This weekend I had to check on 2 new assigned assets for a bank.  Both in Perrysburg.  Both long vacant.

It is neither hard to find them or to pretend to own/control/rent them.

Here is how they do it – and what it costs.

1.  Get a prepaid cell phone.  Use a false ID.  $120

2.  Find an empty house.  $0

3.  Jimmy the lock – put your own on.  $25

4.  Place a bogus Craigslist ad – $0

5.  Make the “deal” so good . . . that you have multiple takers.

6. Spend one day collecting the rental deposits.

7.  Vanish.

This is happening in many other markets – here is a report from San Diego.

I have experienced versions of this scam in Toledo with foreclosed houses.   But . . . it’s just a matter of time in Perrysburg.

Do not “leave the money on the table”.

Don’t rent from a person who is offering something too good to be true.

Don’t trust anyone who does not have a legitimate business presence in the area.

Verify the actual ownership of the property you want to rent – the Wood County Auditor is free!

One of my favorite real estate writers posed a similar query in the Wall Street Journal’s excellent real estate blog – Developments.

James Hagerty posed the question: “Will the bank take my iPhone?”

Which is sobering – I have an iPhone.  You can’t have it.  You can’t take it.  It’s addictive and it’s mine . . . and I have a hard time imagining it being surrendered to a creditor.

Which made me do some thinking.

And then some investigation.

Since I deal with many homeowners today who owe the bank MORE than the market value – what can happen to their iPhones?

And their cars?

And their retirement savings?

And their other assets and possessions?

5 or so years ago this was a pointless, absurd question.

It just did not happen in Perrysburg.

Today – it’s a vital, important, timely question.

According to the Fed (specifically the Federal Reserve Bank of Richmond VA) in their monolithic report “Recourse and Residential Mortgage Default:  Theory and Evidence form U.S. States) Ohio is considered a “recourse” state.

That means that lenders may have MORE remedies against a defaulting homeowner than just taking the house back in a foreclosure.

(N.B. – for this entire post, please remember that I am not an attorney and you should and are highly recommended to hire your own attorney to answer your questions!  You need a good, honest attorney . . . call me, and I will recommend one to you)

If I am a defaulting homeowner, I do not like “recourse”.

What is interesting about the lenders right of recourse in our state is that only in Ohio and Iowa does the lender have a very short period to seek recourse – and in Ohio, and thus Perrysburg, it is only for 2 years after the foreclosure.

Y0u can download their 50+ page paper yourself and read the gory details.  The financial equations on page 10 caused me to have a regression attack and revisit my finance classes at Duke University.   I was so shook up by this I had to go out and sell 5 houses today – but that’s another story . . .

2 years.

That is the time frame for recourse that your bank has to get more coins from you.

Lose your house to the bank . . . and they get an automatic deficiency judgment against you.

But they only have 2 years to collect it.

And many banks are taking 12 months to return phone calls right now – so what are the odds they will get your iPhone?

This recourse is usually obviated when a short sale is negotiated – which reinforces my belief that 2010 and 2011 will be the year of the Short Sale in and around Perrysburg.

Because then you will get to keep your iPhone.

Case history:

1842 Watermill Lane in Perrysburg.   Great house. Great street.  Great neighborhood (disclosure: my brother lives right around the corner – which is no reflection of the quality of the other people in Rivercrest).

New in 1997 with a $366,000 price tag – 4700 sq. feet.

1842 Watermill in better times . . .

Refinanced for $488,000 in 2001, just 4 years after it was sold.   An indicated 33% gain!?!?

A new loan added to the tab in 2003.  For $100,000.  New imputed value $588,000.

Refinanced again in 2004.  $535,000 loan.

And then a second mortgage with First Franklin for an ADDITIONAL $125,000 in 2004.

AND:  new debt of a nature that the records I have access to make it difficult to fully ascertain, but a new $197,000 loan from Irwin Union Bank and Trust.

I will be conservative and HOPE that the $197 paid off the $125 2nd mortgage.

Which means in 2004 as our local market started melting down in flames, this $350,000 house had $732,000 in federally insured mortgages on it.

You think about that for a moment.

For the story gets worse.

Much worse.

Somehow the home went into foreclosure.  Oh my!  What a surprise!

And then, abandoned, cold, lonely, and without anyone paying the electric bill (and thus the juice for the sump pump) – bad little invisible gremlins moved into this house.

The basement filled with water.

The mold grew and grew and grew.

The banks that foreclosed on it put it on the market for $400,000 in November of 2007.

It finally sold, for $225,000 in December of 2008.

All that time it went down in value, the mold went up the walls, and the neighbors watched a good house become a drag on their homes’ values.

Let’s look at the math:  some collection of banks loaned AT LEAST $700,000 on this house.

They sold it for $225,000.

They had to pay lawyers, Realtors, tax bills, some insurance, internal management and holding costs – all told at least $25,000 over 2 years.

That represents a $500,000 loss.

And SOMEONE has to eat it.

Someone has to pay it.

This represents one of those “assets” you are hearing about.   Bank assets that no one wants to value.   Except that this one already hit the books because Northwest Ohio was first into the real estate recession.

Ignore the lost income tax, the lost property tax to our schools/city/county, the impact on the immediate neighbors.

Ignore it all.

The people who MADE the loans have passed their mistakes onto the taxpayers.

THAT is how close Perrysburg is to the real estate financing implosion.

I will have to change the names and places and details to protect the identities of those involved, but the following story you are about to hear is true.

I had to go and inform a man that he had to leave his Wood County home. It was his only home. He and his little dog lived there. As things sometimes happen in life, he had gotten very ill.

This caused him to miss work. This caused him to lose income. This caused him to miss house payments. The nefarious lender that had “helped” him to refinance his house had really and truly taken advantage of him. His house was overleveraged. His equity was who knows where. The whole fabric of his life was torn and tattered just like the tee-shirt he was wearing when he stood on his front porch, and told me his sad story.

Not a friend in the world but his little dog.

And the bank says you have to move out.

Now.

Today.

The Great Man?

He lives in the country club. He drives the fancy foreign car. For many years he has worked in the “financial services industry” helping people to refinance their homes and live out the American Dream.

One night after church three weeks ago, after he avoided all of my calls and attempts to communicate with him, I stopped by HIS house.

It’s a big house.

The lawn service had just been there.

But I had a message from the bank.

You have to move out too.

The little, forgotten man and the great man.

Both ends of the economic and social spectrum.

Both crushed and harmed and defeated by the economic forces roiling the waves of formerly placid Wood County. What is happening to our little County? A cursory examination will show you that many, many people are suffering www.woodcountysheriff.com/showpage.asp?id=7

Hundreds of families.

Why? I suppose it is because of how we are living and how we are treating each other.

The little men have been taken advantage of.

The great men? They need to study a Book. It teaches something about sowing and reaping.

The last time this happen we came “this close” to avoiding a revolution in this country.

I hope some people in the centers of power and “leadership” are paying attention. I really do.