The “strategic default”.

The “jingle mail”.

You can look up the term on line.

But it happens when your personal life and your financial life have collided with your real estate life and the value of your real estate is smaller than the amount owed the bank.

The process is painful.  Traumatic. And fraught with risk.

Earlier today I went to a house, which shall remain hidden from identity for now (see description above . . . ), which was very nice.

Whose professional, educated owner had walked away from.

Gone.

Vanished.

Spurned our offer of “cash for keys”.

Turned off the water and the gas and the power – and vanished in the night.

Some thoughts:

1. Talk to your lawyer before you do this.  Seriously.  Just get a lawyer and get their opinion on what to do next.

2. Get help from ANYONE.  Family.  Friends. Charity.  Even the Federal Government has lots of programs.  And as worthless as HAMP or HEH! or HUH!? have been in the past 2 years – at least they often slow down the foreclosure train a little bit and give you time to recover.

3. Do not stop paying your food/gas/electricity/heat in order to make one more interest payment to the bank.  Sit down and think about what you have to have to live and survive.  Get some counsel.  Get some special help – but don’t lose everything in order to save an upside down, underwater house.

4. Get another legal opinion – lawyers are just like every other profession.  There are good ones, bad ones, and ones that do not know what they are talking about.   Get 2 opinions when you need brain surgery.  And 2 legal opinions when you are thinking about walking away.

5. At least call the broker/agent who was trying to talk to you.   This vanished owner lost $3000 simply by not calling me.  I bet he might have needed that money . . .

6. Put your families finances first – see #3 above.  I cannot stress this enough!

Many homeowners are being forced into this hard, cold calculus.  Banks might want to consider some very aggressive modifications to principal and not just kick the can down the road.   When upscale neighborhoods in Wood County are being hit and ravaged by strategic defaulters – it’s time to change the game plan.

What was the REAL effect of the following:

HAMP/the foreclosure moratorium/the robo signer moratorium/”Making Home Affordable”/and HopeNow?

(these were all roadblocks to market clearing foreclosure activity or government sponsored mortgage crisis programs for homeowners in distress)

The considered net effect?

Some economists are saying it was ZERO.   It just pushed foreclosures ahead to the future.

Like this guy . . .

“It is pretty clear, however, that overall foreclosure moratoria, foreclosure delays, modifications, and other workout activity continued to keep the number of homeowners who “lost” their homes to foreclosure massively lower than one would have expected given the delinquency/in foreclosure numbers.” (Quote from economist Tom Lawler in Calculated Risk blog.)

Here is my take “from the street”.  From Main Street USA.

I just met a guy today.

Foreclosed.

I was helping him move out and securing the asset for my client.

The city/house/street do not matter – because this is happening all over Northwest Ohio.

What did he tell me?

What is the street effect of this crisis?

He has lived in the house for 4 years without making one single mortgage payment.

And with no property taxes paid by him either . . . . that equals a lot of money.

In fact it is “worth” over $50,000.

$50,000 of imputed savings/benefits/gain that he has accrued to him.

While he was being foreclosed.

I am not an economist.

But this is being repeated all over the country.  The effect is real.  The bills are going to come due.   The merry go round will stop.

“3 or 4 times MORE foreclosures”???

Hard to think about that . . .

“I can’t find them right now” he told me.

They are hidden.

In the shadows.

Today’s news from Core Logic confirms it:

The “shadow inventory” of unlisted bank-owned homes and potential foreclosures increased to 2.1 million units in August, up 10% from one year earlier, according to new estimates from CoreLogic, a real-estate research firm.

That’s around eight months of supply, compared to a five-months’ supply one year ago.

Banks and asset managers are holding them.   Like trump cards they don’t want to play right now.

The reasons are varied, good, and at the same time unimportant.

They are “their” cards.  And if they don’t want to play them right now it’s their call.

8 months of future sales . . . sitting there like a deep and dark shadow.

It’s getting larger.

(I have argued in the past that the Detroit Metro and Toledo Metro markets have been in sync for several years as to inventory and price trends . . . Core Logic estimates that the Detroit market has a 21 month supply of shadow inventory!!!  That is an amazing number – but we could be worse off if we live in Miami which has a 33.5 month supply.)

And it’s going to cause market disrupting and market cascading effects when it unwinds.

Caveat Emptor!

Mr. Clark said he did not know what to do. “I’m kind of hoping I have a place to live,” he said. “Now, who knows?”

My advice – get an expert to help you.

3 or 4 days.  In Dallas.

At the 5 Star REO / Foreclosure Conference.

Which is now, in my opinion, the BIGGEST real estate conference in America.

Sad to see that.  We used to, as a trade group, fill up Waikiki or SFO or New Orleans to meet and network about new houses.

Now?  We fill up Dallas to meet about foreclosures.

Theme song?  “I Used to Rule the World” . . .

Dallas? Nice town.  I lived there once.   Great climate . . . except when it snows (which it does) and then the denizens of the Metroplex turn into suicidal automotive kamikazes . . . but I digress.

Heard former First Lady Laura Bush speak.

Former Minnesota Viking Nemesis Roger Staubach speak (it WAS pass interference by the way).

Met with other top producing Realtors from across the country.

To “compare notes”.

And heard from a passel of nervous – in fact, very nervous bankers and Fed guys.

What are they worried about?

I will post on that next.

But a hint  -  it rhymes with “Strategic Default”.

Big houses in Perrysburg?  Yes.

Little houses in Toledo?  Yes.

Today I had one in Maumee, several in Toledo, one in Perrysburg, and one in Genoa.

The REO Market is absolutely the prime force in Toledo area real estate as of today.

You have to take this market force into account when you are coming up with your plans.

If you are a buyer . . . you need to understand what may happen with more and more bank owned houses coming on the market.  Do you want to look at them?  Do you want to exclude them?  Do you want to wait and see what they do to values?

If you are a seller . . . you need to understand your competition.  And their price advantage over you.  And their power on market values.  What if more REO comes on the market?  What if it your neighbor’s house?  What do buyers now expect?  What is this REO tsunami doing to appraisals?

I was reading the WSJ today.

The real estate part.

A great resort that I have been to . . . on Maui . . . was just foreclosed.

My wife and I honeymooned on Maui.

The idea of a single family house being foreclosed there is foolish to me.

And yet, the Ritz Carlton Kapalua is going down.

The current owners borrowed too much and now cannot finance.

Ritz Carlton REO.

Perrysburg is no different.

Yes it is a great place to live.  But so is Maui.

And the cost of the real estate bubble and the job destruction and shift of industry overseas continues apace in our little city.

There really was one a couple of weeks ago . . . although I did not feel it.

But there has been an ongoing one . . . for the past 3 or 4 or 5 years.

The “mortgage implosion”.  Which is really the “people who have lost their jobs can’t pay their mortgages implosion”.

Excerpting from today’s Toledo Blade:

Metro area 52nd highest in ’10 foreclosure filings

Metro Toledo ranks 52nd highest in foreclosure-related filings in the first half of the year among the nation’s top 200 metro areas, a new study shows. The ranking, the worst among the metro areas in Ohio, is based on the number of filings of default and auction notices and repossessions per households. RealtyTrac Inc., a national real-estate data tracking firm, says in a report released today the Toledo area has one such filing for every 65 houses.

#52.  Of the top 200 foreclosure towns.

Not.  Good.  At.  All.

You can argue about school funding, TARTA leaving, and the constant I-75/475 construction projects all you want to.

But when 1 out of 65 houses in T Town has JUST GONE UNDER THE GAVEL in 2010 . . . . the other problems are not that important.

My advice?  No need for a Foreclosure Czar.  No need for a conference.  No need for a telethon.

People in Toledo need J.O.B.S.

That is the only thing that is going to bring housing back, equity back, and end the misery and physical destruction of real estate in Northwest Ohio.

Their process may be different from mine.

This buyers process in buying a home may be different from that buyer.

But they all like a process.

And one thing that absolutely NO buyer likes is to hear “give us your highest and best offer.”

That means that the house in question is wanted.

By other buyers.

Sometimes lots of other buyers.

Sometimes only one other buyer.

I have 2 or 3 of these “highest and best” offer negotiations going on today.

Here are a few buyer responses and results:

A. One possible response from a buyer is “I want to see the other offers!”

- No.  You can’t.  If I tell you or your agent that there is another offer – there is.  Anything else is fraud and we don’t do that.  We say it is true and it is.

B. Another possible response from a buyer is “I don’t want to bid on that house anymore – pull my offer!”

- Will do.  You can.  But then you won’t be purchasing that house.   And you may facilitate the other buyer getting it at a price much lower than you would have paid.    I try to explain to my buyers that if a multiple offer situation is occurring on a bank owned property that bank does not care about WHO or WHAT they just want to close the sale.  You can pull out but you won’t hurt their feelings or teach them anything.

C. You can do your research.  And bid accordingly.  Then you get the house or investment you want at the price you can afford.   One of the best and sneakiest tactics is real simple – offer, in writing, to bid $1000 HIGHER than any other competing written offer.   Sometimes, again in a bank owned situation, they won’t let you do this.  But other owners will, and it gets you back in control, with an effective “veto” over the final price if you write the counter offer properly.

No one likes unwanted competition.

It disrupts the buying process.

But for the BEST HOUSE at a GREAT PRICE you must be prepared for a “Highest and Best” offer scenario.

Toledo is on this trajectory:  lost jobs, out of control State government, public school meltdown, and out of control local government.

You can just look north . . . to DTW . . . to see what the potential future holds if some serious changes are not made in Northwest Ohio.

With interest rates rising,  taxes increasing, and a steady grab of diminishing income from private citizens being answered with decreasing city services, things are not on a good path right now.

Toledo does not need this kind of publicity.

This blog is about PERRYSBURG real estate.

And . . . I sometimes have made tongue in cheek comments about Perrysburg gaining at Toledo’s expense . . .

But I do not want to see Toledo drained dry.

I don’t know anyone who does.

It’s the Greater Toledo Metro Area . . . and we are all interdependent economically.

Let’s hope they make some wise decisions up there!

Here are the comments and the list from Forbes:

1. Milwaukee, WI: Some cities’ housing crisis stemmed from rampant overbuilding. Others can blame the decline of the manufacturing industry. Milwaukee has felt both. The worst-selling housing market saw a 47% increase in unsold homes between 2008 and 2009, thanks both to underlying economic problems and overzealous development during the housing bubble.
2. Denver, CO: Denver doesn’t come to mind as a housing-crisis hot spot, but the city that once looked like it would escape the housing bust unscathed now shows signs of strain. More than 42,000 homes are on the market in the metro, 27% more than last year.
3. Los Angeles, CA: Los Angeles has yet to recover from the blows it took when the housing bubble burst. Home sales fell by 5% in the metro between 2008 and 2009, while they rose, if only modestly, in most other large metros. Home sale prices peaked in late 2006, and it looks like the remnants of overbuilding will continue to clog the housing supply.
4. St. Louis, MO: The city has shed jobs and seen housing prices plummet. Inventory in the metro is up 36%, in part as a result of its 11% unemployment rate. Manufacturing jobs no longer drive the city’s economy, and slow sales are just one symptom of its economic maladies.
5. San Francisco, CA: Unemployment has reached 11% here, and home prices fell by 6% between 2008 and 2009. The area’s poor-home-sale performance shows that California’s housing woes spared no city.
6. New York, NY: New York likely made the list in part because the condominium market, which drives much of Manhattan real estate, wasn’t included in the analysis. Still, not everything’s rosy in the Big Apple: Sale prices were down 13% between 2008 and 2009, and inventory has seen a 13% rise.
7. Cincinnati, OH: Like Cleveland and other Rust Belt cities, Cincinnati suffers from a lack of jobs–the city is 11% unemployed–which has cut sales dramatically and left a glut of unsold houses behind. Inventory in the city rose 48% between 2008 and 2009.
8. Cleveland, OH: Cleveland was suffering before the housing crisis hit, but the bursting of the bubble surely didn’t help. Unemployment is at 10% in the metro, which has hemorrhaged manufacturing jobs. That means families don’t have the means to buy, and homes remain unsold.
9. Atlanta, GA: Inventory was up 6% in 2009 from the previous year. That may not sound like much, but together with flat quarter-over-quarter single-family home sale prices and sluggish sales rates, the overbuilt city shows significant signs of strain.
10. San Diego, CA: Scores of new condominiums were constructed before the market peaked in the first quarter of 2006, driving up prices and spurring overbuilding. Many units were built for speculative buyers, but today the brand-new luxury buildings sit empty.