Review: Foreclosures on Google Maps

Not Ready For Prime Time

I just spent 20 minutes or so checking out foreclosures on Google Maps.

My conclusion?

It's hard to escape the feeling you are an unwitting beta tester (guinea pig) -- plus, it's apparent that Google's real aim is use limited free data to goose paid subscriptions (translation: Google's business model is cable, not TV).

That is, once Google's data gets better.

Test Drive

The concept -- visually show where foreclosures are most (and least) concentrated -- is terrific.

At least for now, however, the execution is plagued by inaccurate and/or stale data, as well as purposefully incomplete information designed to get visitors to pop for the unabridged version.

To test out Google Maps, I drilled down on the neighborhood I know best: my own.

In my case, that would be Minneapolis' Sunset Gables neighborhood just south of Cedar Lake, and just to the East of Fern Hill in St. Louis Park.

Here's what I found:

Google Maps found (and mapped) ten foreclosed properties within about one mile.

So far, so good.

Of those, however, only two had specific street addresses; the other eight simply gave a street name, along with a push pin showing a specific location.

Chowen Ave Foreclosure? Where??

So, Google Maps lists "Chowen Ave S.", a 3 BR, 1.5 Bath home for $486,823.

The corresponding push pin locates the home somewhere on the 2900 block of Chowen, just north of Lake Street.

However, when you search MLS, there's nothing active on Chowen.

Instead, the closest home meeting that description is 2900 Chowen, a foreclosure that sold last July for a fraction of its $426,500 tax assessed value; see, "THAT Sure Went Fast (Too Fast??").

0-for-2

I had even less success finding "Inglewood Ave. S." in Fern Hill, which according to Google is a 3 BR/2 Bath home for $335,920 that it locates at the intersection of Inglewood and Sunset.

However, when I searched the corresponding stretches of Inglewood and Sunset on MLS, I found no listings, Active or otherwise, going back more than one year.

Which leaves me with the question,"where is Google getting its foreclosure info?," and this conclusion: 'if you can't use Google Maps to identify specific properties for sale -- which may not even be for sale -- what good is it?'

My answer: Google Maps is useful, kind of, to give a broad overview of which Twin Cities areas have the highest (and lowest) concentrations of foreclosures.

Assuming, of course, that Google's data is passably accurate -- for now, a big "If."

Try it Yourself

Want to try it yourself?

Here are the steps:

1. Punch in any US address into Google Maps.
2. Your options are Earth, Satellite, Map, Traffic and . . . More. (Select “More”)
3. The drop down menu gives you a check box option for “Real Estate.”
4. The left column will give you several options (You may have to select “Show Options”).
5. Check the box marked “Foreclosure.”

Good luck!

$80 to Mow a Lawn. In Phoenix

Green Gold?

Interesting article in the Sunday NYT about the spiraling cost of bailing out Fannie Mae and Freddie Mac.

The article profiles one Phoenix-area Realtor in particular, who sold homes at the peak, and now sells them for Fannie and Freddie after they've repossessed them (albeit at dramatically lower prices).

But here's the line that caught my eye:

Fannie asks contractors to mow lawns twice a month during the summer, and pays them $80 each time. That’s a monthly grass bill of more than $10 million.

--"Cost of Seizing Fannie and Freddie Surges for Taxpayers"; The NYT (6/19/2010)

Nice gig, especially in Phoenix in the summer!

P.S.: the above recalls a favorite cartoon from the last baseball strike. It shows a striking (and overweight) ballplayer -- in uniform with his gut hanging out -- knocking on a random house doorbell with the caption, "mow your lawn for $20,000, Ma'am?"

Edina Realty's Crystal Ball

On Tap for 2010: Social Media, and
(More) Foreclosures and Short Sales

No, I don't predict the direction of home prices.

But housing trends are another matter.

Fortunately, if you're an Edina Realty agent, corporate does that for you (or at least helps).

Each year, senior management highlights at the annual meeting -- and reinforces during the year -- the themes and issues it expects to drive the marketplace over the coming twelve months.

From experience, their track record is pretty good.

So what is management emphasizing now?

Training on how to get up to speed on two things: 1) So-called "social media" like FaceBook, LinkedIn, Twitter, etc.; and 2) handling foreclosures and short sales.

If there is an honorable mention, it would be becoming proficient with alternative financing (contract for deeds, assumable mortgages, and various other "seller-facilitated" financing).

Banks & Foreclosures: Rational Actors or . . .

. . . Foot-Dragging Ostriches?

Just a heard a very thorough -- and harrowing -- overview of the foreclosure picture nationally from Rick Sharga, a senior executive at RealtyTrac.

His company compiles one of the most complete databases tracking foreclosures, so he's speaking from authority.

What does he see?

--The housing mess is going to persist longer than is currently projected, because rising unemployment is exacerbating the problems with dubious mortgages -- especially Option-ARM's -- originated when the housing market was flying high.

Think of it as two rivers merging into a mega-river.

So when does he expect to sound the "all-clear," signifying a return to "normal" housing market conditions?

Not before 2012, and perhaps 2013 (no, not a typo).

--Peel back all the confusing statistics, short-term noise, etc. and the current foreclosure numbers are staggering.

According to Sharga, prior to 2009, there's never been a month where the number of foreclosure notices exceeded 300,000. Just so far in 2009, there have already been seven such months.

--Conventional wisdom is that every 6-10 job losses result in one foreclosure. However, because there's typically a 3-6 month lag, there are lots more foreclosures in the "pipeline."

Foreclosure Pain: 4 More Years

More gloomy news:

--Foreclosure pain has metastasized, spreading from places like Southern California, Florida and Arizona to previously unaffected places like Portland, Boise, and the northern Virginia suburbs.

--A combination of logistical delays, federal intervention, and the banks' self-interest are keeping many would-be foreclosures off the market -- for now.

According to Sharga, a bank that forecloses on a home can expect to incur $100 a day managing it, paying the utilities, taxes, etc. That comes to about $36k a year.

Now assume that the bank originally lent the homeowner $600k, and that the home is currently only worth $300k. When the home sells in foreclosure, the bank stands to lose more than 8x its annual carrying charge.

What initially looks like ostrich-like behavior on the banks' part suddenly seem quite rational!

"Highest & Best" -- Games & Abuses

The "Highest-and-Best, I-Really-Mean-it-This-Time" Offer

I've previously blogged about the practice of "highest and best" offers ("Highest and Best, Explained.") Typically used by banks selling foreclosures, "highest and best" is a way to efficiently sort out multiple offers and identify a winning bidder.

Implicit in "highest and best" is a quid pro quo between the bank and would-be Buyers: Buyers "cut to the chase" and put their highest offer -- with the best terms (closing date, contingencies, etc.) -- on the table.

In exchange, the bank agrees to select the best offer -- one more round, no counters.

Except in practice, that's not what the banks have been doing (at least in many cases).

"Highest & Best" Redux

I've been in at least five deals the last few months where my client was told, after submitting an offer, to re-submit their "highest and best" offer -- which they did.

After a few days elapsed, guess what the listing agent (representing the bank) called to tell me?

There was still no clear winner, so my client was invited to -- you guessed it -- "submit their 'highest and best' offer" once again. (I suppose this would be their "really-highest-and-best-I'm-not-kidding" offer.)

Since my client already submitted their (genuinely) highest and best offer the first time . . . they dropped out.

Feeling manipulated, no doubt other bidders did as well.

No wonder you see so many foreclosure deals fall apart, start over, and otherwise stagger across the finish line.

IPO's, REO's & Market Manipulation

Bank Foreclosure Sales Recall '90's IPO's

We've seen this movie before.

Specifically, many of the practices embraced today by banks selling foreclosures, or Real Estate Owned ("REO"), echo tactics used by Wall Street more than a decade ago to sell "hot" tech IPO's ("initial public offerings").

Consider these 3 parallels:

One. Artificially low prices.

At the height of the tech boom, it wasn't uncommon to see IPO's priced at $15 or $20 a share skyrocket to $100 or more the first day of trading.

Similarly, I can point to dozens of foreclosure sales in the Twin Cities this Spring that have attracted at least 10-15 offers, and sold for huge premiums over the artificially low list price.

In each case, the effect is to whet "investor's" appetite -- also known as "pump demand" -- for the next offering. Pretty soon, you have a full-blown feeding frenzy on your hands -- at least in the short run.

Two. Favored insiders.

In a practice called "spinning," Wall Street firms doled out cheap shares to favored customers -- existing and prospective -- who could quickly sell to dumb outsiders -- the public -- clamoring to get in on the "boom."

With foreclosure sales, the favored customers are the Buyers represented by the listing agents -- who also represent the banks!

Tech IPO's -- The Sequel?

Imagine you're conducting an auction with multiple bidders. If Buyers #1, #2, or #3 -- all of whom have their own agent -- submit the winning bid, you split the commission.

However, if Buyer #4, who happens to be your client, submits the highest offer, you get all of the commission.

As listing agent, you see all the other offers.

Now, guess how often Buyer #4 prevails?

Interestingly, such "dual agencies" are enough of a red flag that I've now seen an off-shoot practice: the listing agent steers Buyers to a supposedly independent agent in return for an undisclosed kickback.

Three. Legions of Losers.

We all know how the late '90's IPO boom turned out: eventually, the IPO market got sated, tech share prices collapsed, and the ensuing bloodbath brought down the rest of the stock market (and economy) with it.

We all know what that ushered in: free money, courtesy of the Fed, to revive a prostrate economy (be careful what you wish for!).

Do we really want to see what happens when the foreclosure feeding frenzy subsides, and the "winners" of all these bidding wars wake up with hangovers? What then: REO's -- the Sequel?? Pump-and-Dump . . and Dump again?

Even if foreclosure Buyers didn't overpay, it hardly excuses all the market manipulation on display, and what should instead be a focus on "discovering" -- honestly -- market-clearing prices for a huge class of assets.

If government is serious about (re-)regulating financial markets, a good place to start is policing how banks sell their REO's.

Foreclosure "Bait & Switch"

One-Item "Bait & Switch"

Bait and switch (noun): 1 : a sales tactic in which a customer is attracted by the advertisement of a low-priced item but is then encouraged to buy a higher-priced one.

--Webster's dictionary

Can "bait and switch" ever involve just one item?

I'd argue that it can.

Normally, of course, there's the low-priced "bait." When that's unavailable -- and it's always unavailable -- the customer is presented with the much more expensive "substitute."

With many foreclosures lately, it certainly would appear that the "bait" instead consists of the artificially low list price dangled in front of the public.

The "switch"?

The real -- and dramatically higher --price.

How much higher?

That all depends: on how many bids come in; how motivated -- and flush -- the bidders are; and on how many rounds of manipulative bid-raising they'll tolerate before they storm off.

If you want to auction off the property, fine, but then do it in public, and don't call for "highest and best" offers.

Bank Shareholders Cum Taxpayers

So what's so bad about all this? Two things.

One. Listing a $100k home for $50k (or $25k) is deceptive advertising. (See, "Sold Price: Almost 5x Over Ask").

We don't let automakers, pharmaceuticals, or cigarette makers (er, scratch that one) engage in such practices -- and we shouldn't let banks selling foreclosures do it, either.

Two. The banks own the foreclosures, but who owns the banks?

If it's a busted, toxic lender like Washington Mutual, Countrywide, or IndyMac, the answer is: us. That's because the government brokered their sale -- or what was left of their carcasses -- to mega-banks kept alive by taxpayer bailouts. Of course, that was after the FDIC -- taxpayers again -- made depositors whole.

Bank shareholders cum taxpayers have an interest in seeing that foreclosures are expeditiously sold off in a manner that is fair, transparent, and serves to maximize each home's selling price.

Instead, in many cases the process appears to be opaque, rigged, and designed to repel any Buyer unwilling to play the required games.

South Minneapolis Foreclosure Sale: 36% over List

Where: 37XX 17th Ave. South, Minneapolis

What: 4 BR/2 BA, 2,386 FSF

When: on market, April 3; closed, May 22; days on market: 2

How much: list price - $88,900; sold price - $121,000

Want an example of a too-cheap foreclosure setting off a feeding frenzy?

This spacious 1 1/2 story (much bigger than it looks) in south Minneapolis attracted more than 10 offers -- my client's was one of them -- and ultimately sold for $32,100, or 36%, over the asking price.

While these numbers are eye-popping, they are by no means unusual these days: I've personally seen at least two dozen of these real estate lotteries just in the last two months.

They create a handful of winners, plus a whole lot of losers: all the runners-up Buyers and agents who wasted their time in a process that looks and feels manipulative; the banks, who may or may not be selling their foreclosed homes at market prices; and the people who own the banks that own the foreclosures: the taxpayers.

"They're B-a-a-a-c-k . . ."

Return of the Sub-Prime Lenders

One of the surprises -- at least to me -- wading through all the foreclosures in Minneapolis neighborhoods like Phillips, Camden, and Powderhorn Park is the identity of the banks who now have title (i.e., they're the owners).

It's a veritable "who's who" of the most aggressive -- and least ethical -- subprime lenders: entities like Countrywide, Indymac, Washington Mutual, etc.

At least to my knowledge, none of these lenders had a major presence in the Twin Cities at the peak of the market. Of course, today they're folded into other banks that bought them at fire sale prices after they collapsed or outright failed.

So what gives?

The explanation has to do with how the mortgage market works.

Borrowers can either apply for a mortgage directly from a lender, or, go through a broker who does the shopping for them in exchange for a commission.

Guess which lenders dangled the fattest commissions in front of Twin Cities brokers (and presumably, mortgage brokers nationally) when the market was frothiest??

Unfortunately, as far as the subprime lenders are concerned, it's not so much that "they're b-a-a-a-c-k," as, "they never really went away."

What Offers Did the Banks See?

More B.S. ("Bait & Switch")
from the Foreclosure Banks

The water cooler is long gone, but that doesn't mean Realtors don't engage in "water cooler talk."

One of the hottest topics at the moment is foreclosures.

Here's how it appears to the (above) average Realtor -- OK, me -- who's had some passing involvement representing would-be Buyers in foreclosure deals this Spring, and has compared notes with a number of colleagues:

--A handful of Twin Cities Realtors appear to have "cornered the market" as listing agents, simultaneously representing anywhere from dozens to hundreds (no typo) of foreclosed homes.

--A small but growing number of foreclosed homes appear to be intentionally priced dramatically below market.

There's nothing wrong with pricing conservatively -- I routinely warn my Selling clients of the risks associated with doing the opposite.

However, there's pricing at or slightly below market, to create a sense of Buyer urgency and elicit more than one offer -- and then there's pricing 30% - 50% below market.

The result, as you might expect, is a feeding frenzy: I've now seen -- and participated in -- several deals where there were more than 15 offers on a single home.

More B.S. ("Bait and Switch") from the Banks

That's not savvy marketing; that's financial bait and switch. It's also a violation of Realtor ethics, and likely, state law. (Note: technically, a listing on MLS is not what attorneys call an "offer to sell." Rather, it's a solicitation of an offer.)

Some more details:

--The sales process accompanying many multiple offers is not exactly a model of clarity, punctuality, or fairness (or so it would seem to someone who's handled more than 100 deals).

To put a finer point on it: often times, the whole process smells.

The listing agent is uncommunicative about the status of the property, any required municipal inspections, or the timetable for responding to offers.

The deadline for submitting offers is either unclear, or not enforced.

The prospective Buyer must get pre-approved by the bank selling the foreclosure, even if they have their own financing (from a more reputable lender) lined up.

Even after the bank has accepted an offer, the listing agent's front desk is often unaware(?), and confirming new showing requests. ("Hmm . . . if we leave the door ajar, maybe an even better offer will materialize.")

Nothing is more annoying to a busy Realtor -- or their client -- than wasting your time on a property that you subsequently find out was already sold when you showed it (MLS rules strictly prohibit this, by the way).

Conflicts of Interest

Of course, the biggest issue of all regarding the conduct of foreclosures in multiple offers is, who won (and why)?

Surprise, surprise, in many situations the winning bidder is represented by . . . . wait for it . . . the agent representing the bank!

This is called dual agency, and is fraught with conflicts of interest. Perhaps that's why 42 states -- but inexplicably, not Minnesota -- prohibit it.

Even when the winning bidder is represented by another agent, it's hardly evident how -- or why -- that bid won.

I've represented one client now who, in the span of three weeks, has lost out on three multiple offers, each time bidding anywhere from 10% to 30% over asking price, within 48 hours of the property hitting the market. Other Realtors tell me they've participated -- and lost -- on even more multiple offer deals.

Is this just sour grapes, or, is something else going on?

"I'm Never Going to Tell. Hang me"

It's certainly possible that the bank chose the highest and best offer, after carefully weighing the various offers' financing, closing dates, and other key terms.

However, given all the murkiness surrounding these deals, you certainly wonder.

The biggest question on the lips of the Realtors representing all the runners-up -- many who also offered well over asking price: exactly what offers did the bank actually see?

The potential for mischief -- or worse -- in foreclosure deals reminds me of a favorite joke:

A posse hunting a bank robber finally apprehends the suspect. However, he doesn't speak English, so the head of the posse has to find an interpreter. Through the interpreter, he tells the robber, "if you don't tell us where you hid the money, we're going to hang you."

The interpreter relays the warning to the robber, who blurts out (in Spanish): 'I hid it under a big oak tree a mile west of town.' The interpreter pauses a moment, then tells the posse leader (in English): 'he says, 'I'm never going to tell, hang me.''

Foreclosure Feeding Frenzies

Banks Price Low to Elicit Multiple Offers

Real-estate brokers say multiple offers on certain homes have recently become more common in parts of California and Arizona and the Washington, D.C., and Minneapolis-St. Paul metropolitan areas. . . Brokers say banks appear to be deliberately setting asking prices low in some cases to provoke bidding battles

--James Hagerty, "Bidding Wars Are Emerging on Foreclosures"; The Wall Street Journal (4/23/09)

I can personally vouch for the "deliberately setting asking prices low" part of the above quote: I'm working with a client who is now zero-for-three bidding on foreclosed homes in the last two weeks.

In each case, my client saw the property within hours of the property hitting the market (I'm watching like a hawk); submitted an offer for as much as 25% over asking price by the end of the day; waived all Seller disclosures, agreed to buy "As Is," etc. . . . and still lost.

In at least one of these deals -- all in Minneapolis -- the Seller had failed to provide a mandated (non-waivable) Truth-in-Sale of Housing disclosure. That's a big "no-no" that can be fined up to $1,000.

According to a Realtor representing one of the banks, the purpose is to create a feeding frenzy -- and a rash of instant offers -- that the bank can pick and choose from.

It may accomplish that, but it leaves lots of Buyers feeling chafed, and convinced that the system is "gamed."

Hard to argue that they're wrong . . .

P.S.: just underscores the wisdom of an astute Buyer like Warren Buffett, who never, ever gets into multiple offers on companies he wants to buy.

Making $$$ in Foreclosures

Are You Right For Foreclosures?

The key to making money in foreclosures isn't sizing up a particular property -- it's knowing yourself.

Specifically, your timetable, temperament, budget, fix-up skills (or access to them), and intended holding period.

If you're deficient in any one category, the odds of success go way down; two, the odds become infinitesimal.

Timetable. Before embarking on a lender-mediated property, ask yourself: can you wait a week or longer to find out if your offer is accepted? (1-2 days is the norm for non-bank deals)

If you're pursuing a "short sale," can you wait weeks -- maybe months -- for the bank(s) to approve the sale?

In the meantime, you'd better make sure you don't have to vacate an apartment or house -- or have access to a friend or parents' basement, if you do.

Temperament. More questions: will you be OK if you happen to get bumped from the house at the last minute -- possibly weeks or months after acceptance?

How do you feel about "swallowing" such lender-dictated terms as forfeiting your earnest money before you know whether you qualify for a loan; or accepting the home "As Is," with no Seller disclosures or legal recourse in the event of major problems?

Budget. Often times, the purchase price of a foreclosure is just the "cost of admission"; the subsequent fix-up costs can be equal or greater than the cost of the house.

Do you know what needs to be fixed? What doesn't? Who will be doing the repairs?

Fix-up Skills. If you're a contractor, you already know the answer to that last question. If you're not, what's your strategy for getting bids? Contractors come in all sizes and shapes. Some prefer to do bids, others work on a time-and-material basis.

Holding Period. The same foreclosure glut that let you buy low might very well turn and around and bite you as a quick Seller. Especially if you're planning on a market turnaround to generate your profit (vs. sweat equity), you should have a 2-3 year holding period, minimum.

Bottom line: is there money to be made in foreclosures and short sales? Sure.

But I'm not convinced that there isn't more money -- not to mention time -- to be lost.

"Bruised" Apples-to-Oranges

Lender-Mediated Sales Swallow the Market

[Note: the following dialogue, between local mortgage broker Alex Stenback and me, encapsulates a much bigger debate going on within real estate right now: how much do foreclosures and short sales "pull down" traditional sales?]

"When “lender mediations” are 60% of the market, it’s getting tougher to say “just ignore that other market” when it mostly IS the market."

--Alex Stenback, "Behind the Mortgage" (2/11/09)

While you could certainly make the case that lender-mediated sales are metastasizing -- even "blue chip" communities like Edina now have some foreclosures -- from my (Realtor's) perspective, it still seems that foreclosures have a pretty definite geographic concentration.

Obviously, once foreclosures surround you on a given block, it's pretty hard to overlook them and instead grab a "traditional" sale miles away as a comp (believe it or not, that what the tax assessors do!). But that's still the exception, not the rule, in most areas of the Twin Cities.

Bottom line: lumping foreclosures together with traditional sales is a "bruised apples to oranges" comparison.

Title Insurance Traps

Title Traps Can Bite
Foreclosure Buyers

The potential traps that lurk for Buyers procuring title work, especially for foreclosures, reminds me of a favorite attorney joke (I'm allowed to tell them because I am one, albeit non-practicing).

When a neighbor charges that the attorney's dog bit him, the attorney first denies it. When he's shown photos of the bite and the emergency room bill for the neighbor's stitches, the attorney then argues that the dog attacked in self-defense. When numerous witnesses come forward to testify that the attack was unprovoked, the attorney says . . . it's not his dog.

Similarly, Buyers paying good money for title exam and insurance need to be mindful of numerous pitfalls, especially when foreclosures are involved. Herewith is a partial list:

--Who is the title company working for? If they're hired by the bank that owns and is selling the property -- as some banks require -- their motivation to uncover all potential liens and claims against the property may be compromised.

--What's in the fine print of the owner's title insurance policy? Specifically, what's included -- and more importantly, what's excluded? Many municipalities are now imposing hefty abandoned building fees (Minneapolis' is $6,000). Is the title examiner checking to see if such a fee has been imposed? How recently did they look? Ditto for property taxes, unpaid utility bills, contractor liens, etc.

--Even if the owner's title policy covers a potential claim, it may be subject to a significant deductible. Or, to collect, the owner may have to incur significant legal fees that the title policy won't reimburse.

--Is the company issuing the owner's title policy financially sound? Even an airtight claim is worthless if the company standing behind the policy is bankrupt or otherwise out of business.

When it comes to title work, inattentiveness or unwise penny-pinching can cost Buyers A LOT down the road.

A Tale of Two Markets

Read Jim Buchta's Article
in Today's Star Trib

Jim Buchta, the Star Tribune's top real estate reporter, has an excellent article in today's paper surveying the Twin Cities housing market ("Best Sellers: Foreclosures"). And I'm saying that not just because I'm quoted and served as background for the story.

In particular, Buchta does a very nice job conveying that the local market -- like many others nationally -- has essentially cleaved into two. One market consists of lender-mediated properties (foreclosures and short sales) that are selling at dramatic discounts. The other market consists of traditional, owner-occupied homes that are selling for relatively small markdowns -- or even appreciating, in a few cases.

The difference between the two markets is stark: the '08 change in local prices ranges from Mahtomedi's up 11%, to Minneapolis' Camden neighborhood, which experienced a 54% drop.

So what does '09 hold in store? As Buchta notes:

'Tremendous uncertainty still plagues the market. Consumer confidence remains at record lows. Inventory levels hover near record highs despite recent declines in new listings. And rising unemployment hampers predictions for the coming year.'

What does all that add up to?

Here's one prominent local realtor's take (okay, mine): 'I don't think anyone has that kind of foresight. If they did, what would they be doing selling real estate in Minneapolis?" said Ross Kaplan, a sales agent with Edina Realty in south Minneapolis. "I would be dubious about anyone who says they know what's going to happen."