Duplex Chick

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Amidst the noise of the holidays, Lender Processing Services (LPS) somewhat quietly issued a news release detailing performance statistics about the 40 million mortgage loans their company helps service.

Perhaps they did so deliberately, as much of the data their report contained wasn’t necessarily cause for celebration.

A full 8.15 percent of their 40 million loans, which represents 3,260,000 mortgages were 30 days or more past due, but not yet in foreclosure.

This figure, while down 9.6 percent from the year before, nonetheless represented an increase of 2.7 percent over November.

According to LPS, they have mortgages on 4,144,000 properties that are 30 or more days past due, but not in foreclosure. Of these, 1,809,000 are actually 90 or more days delinquent, but not yet in foreclosure.

Their inventory of properties in foreclosure but still in the pre-sale process, stands at 2,116,000.

In all, they report they have 6,260,000 properties with mortgages that are 30 days or more delinquent or in foreclosure.

The states with the highest number of contributers to this mess are Florida, Nevada, Mississippi, New Jersey and Illinois. Those with the least are Alaska, Montana, North Dakota, South Dakota and Wyoming.

Minnesota foreclosure numbers actually appear to be improving according the report. In fact, the number of non-current mortgages they service in Minnesota dropped 12.9 percent year-over-year, with 7.9 percent in all not being current.

Looks like we have a ways to go before this is all over.

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To quote Bette Davis in “All About Eve”, fasten your seat belts, duplex buyers and sellers. We’re in for a bumpy ride.

RealtyTrac, the nation’s leading source for foreclosure data reported that while foreclosure activity was down nationally for the third straight quarter, there were signs it was beginning to ramp back up.

Remember, starting last October when the robo-signing controversy cropped up, banks have dramatically slowed their foreclosure filings while being investigated for their paperwork.

Realty Trac President Rick Sacchio stated, “Third quarter foreclosure activity increased marginally from the previous quarter, breaking a trend of three consecutive quarterly decreases that started in the fourth quarter of 2010. This marginall increase in overall foreclosure activity was fueled by a 14 percent jump in new default notices, indicating that lenders are cautiously throwing  more wood into the foreclosure fireplace after spending months trying to clear the chimney of sloppily filed foreclosures.”

Notices of default were filed on 195,878 U.S. properties in the third quarter; a jump of 14 percent from the previous quarter.

Read the rest of this entry »

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Buying a duplex can be a lot like having your senior photos taken in high school.

Selecting the right outfit and photographer is a bit like getting pre-qualified for a loan and selecting a Realtor.

And if you decide you want to see every duplex on the market,  it’s kind of like digging through all the proofs where your eyes are half-closed or you had a hair sticking up on the back of your head.

What would that experience be like if, instead of weeding through 80 proofs (like I had to) in order to find the one or two good ones, you just saw the good ones?

And what if instead of seeing the duplexes with mold in the basement where the light fixtures had been ripped off the walls, you just saw the ones that were right for you?

There are a lot of duplexes listed for sale all over the Internet. And, if you’re anything like me, it’s easy to write a mental story of how wonderful the property is based on a few good or bad photos.

It’s easy to get discouraged when time and again, those stories don’t come true.

I used to show buyers a lot of duplexes. The more they saw, the more disappointed they became.

So I don’t do that anymore.

I ask my duplex buyers a lot of questions. And then I do my very best to run out and find properties that match their answers.

It saves us both a lot of time. And disappointment.

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Whether you’re an investment property owner or prospective duplex buyer, when you read or hear RealtyTrac Vice President Rick Sharga share their monthly foreclosure statistics, you should mentally respond with the following thought…

“And all of those people will need to rent.”

For example, while the headline on this week’s report was “Foreclosure Activity Falls to 44-Month Low in July”, the rest of the story went on to state that while lenders already have 850,000 homes on their books nationally, there are another 1.1 million property owners in earlier states of foreclosure…and all of those people will need to rent.

There may also be as many as three million more properties that will be foreclosed upon before the housing market improves…and all of those people will need to rent.

Remember the pay option mortgages? The ones where you could pay interest only, interest plus principal, and so forth? Well, $200 billion of those mortgages are due to start resetting this year. It will be difficult for those homeowners to refinance, because the mortgages are on properties that have lost a great deal of value.

And if those folks face foreclosure?

All of those people will need to rent.

The greater the demand for places to live, the higher rents go.

Has there ever been a better time to invest in duplexes?

Probably not in our lifetimes.

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Sometimes I wonder if duplex foreclosures have been good for Sears.

See, foreclosures often come with many things; abandoned socks, broken toys, dust bunnies…

But they don’t always come with appliances.

Believe it or not, big items like refrigerators, stoves, washers and dryers are considered personal property. As such, the party who lost the duplex to foreclosure has the right to either sell them on Craigslist before they leave, or put them on the moving truck. 

Even if there are appliances on the premises after the bank has taken possession, they can’t guarantee they’ll be there after closing. Most of the time they are, but theoretically anyway, they belong to the previous owner.

As a result, it’s always a good idea to budget for new appliances as you begin the duplex buying process.

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When showing a duplex buyer a foreclosed property, I often hear them exclaim, “This one has appliances!”

What’s so special about a refrigerator and a dryer?

Plenty.

Large appliances like refrigerators, stoves, washers and dryers are considered personal property. As a result, they are considered to be owned by the people who lost the duplex to the bank.

More often than not, foreclosure victims take these appliances with them, either to use in a new location or to sell in a garage sale or someplace like Craigslist.

Of course, this means that the duplex buyer has to factor the cost of replacing multiple refrigerators and stoves into her purchase. This can cost several thousand dollars.

So finding appliances in a foreclosed property is a bonus. However, it’s important to remember they are still considered personal property, and the previous owner has the right to reclaim them. Therefore, the bank selling the duplex can’t guarantee a buyer that they’ll be in the property at closing.

Theoretically, anyway, the previous owner could pick them up before the house is sold.

Most of the time, they don’t; saving the buyer significant amounts of cash.

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I have to admit sometimes it’s tough to come up with blog posts four days a week. So, today, I want to report some exciting, non-scientific news.

There’s finally a fresh shipment of produce down at the real estate market.

Last winter I showed countless properties. Of them all, there were three, all short sales, I absolutely loved. For a variety of reasons, none of them sold. And all went back to the respective banks that held the loans.

I’ve stalked these duplexes ever since; to the point of calling the lenders in order to try to ascertain when they were coming on the market.

It took months, but as of six weeks ago, I knew two of them were in the works.

In the last 24 hours, all three of them appeared on the MLS.

What’s more, a couple I hadn’t even known about also showed up.

I love having nice properties that are good values to show my clients. Trouble is, even in this market, they don’t last very long.

Call me if you’d like to see them. But hurry.

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One of the reasons today’s real estate market is so challenging for investors is the 20 to 25 percent down payment most lenders require to be willing to finance a property.

It seems the government sponsored entity (GSE)  Fannie Mae recognizes this. And to that end, they have created a new investment property financing program through Fannie Mae HomePath.

This program allows investors to buy properties owned by Fannie Mae due to foreclosure with just a 10 percent down payment. What’s more, Fannie Mae will not require the buyer to obtain an appraisal or pay mortgage insurance premiums.

Not every property, nor every Fannie Mae owned property is eligible;  only those appearing on Fannie’s 10 percent down list are.

It’s encouraging to see Fannie Mae doing what they can to stimulate their sector of the housing market.  Remember, these are the same folks who also recently relaxed the number of  investor’s loans they will back from one to ten.

If historical trends hold, the other GSE, Freddie Mac will create a similar program, making another small sector of the market a little more investor friendly.

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In the boom years of the housing market, one of the hot things investors loved to do was buy an apartment building or duplex, rehab and break them up legally, and sell them as condominiums.

To accomplish this, they created what is known as a common interest community, or CIC, whereby they legally divided the units, leaving each with its own property identification number or PID.

Banks require any property they lend on to have a single PID. So what’s the big deal?

Well…

Once Humpty Dumpty’s fallen off the wall, how do you put the pieces back together again?

While many investors drafted the legal paperwork to “condo” their building, many of them utterly failed in the endeavor.

Guess what?

Some of those properties are coming on the market as foreclosures. But the lenders aren’t selling the units individually. They’re marketing them as whole buildings that just happen to have several PIDs.

How does that effect the purchase of the property?

I suppose an investor could, say, on  a fourplex, have her Realtor draft four separate purchase agreements. She could then buy each unit individually, and obtain four mortgages.

Or, she can ask the Seller to file what’s known as a CIC Termination.  Drafted by an attorney, this termination can only be achieved if 80 percent or more of the owners in the building agree to do so.

In the case where the bank owns the entire place, it shouldn’t be difficult to get a majority vote.

The owner then files for a single deed at the county recorder’s office, regaining a single PID to allow for one mortgage on the property.

This doesn’t mean the property can’t be developed as condominiums at some point in the future. The legal break-up would simply have to be done all over again.

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I came across a simple, two-part explanation of the credit crisis this morning that I thought I should pass along.

The video was done as part of a Media Design Program thesis by Art Center College of Design student Jonathan Jarvis.

Here’s part two.I think the kid’s got a big future.