Yesterday, we got an inside look at the appraisal side of the business courtesy of a long time appraiser in the Orange County area better know to us as OC Appraiser. That post sparked some good comments and e-mails. One of the most common questions was “how can I find a good appraiser?” that will give me an honest representation of the value of my home at any given time.

There was also quite a bit of discussion as to how internet sites like www.zillow.com were having an impact on things.

Well, OC Appraiser had even more good info for everybody. From how to find and research a good appraiser, to the impact and shortcomings of internet sites such as zillow.com. Instead of having that valuable information buried in the comments, here it is for everybody:

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From OC Appraiser:

I’ve been trying to do my part by sending emails and calling local newspapers, to no avail. Several months ago the Wall Street Journal ran an article on appraisal fraud that I found to be very accurate. Unfortunately, it did not gain much traction.

Currently, I have activly been in contact with honest, professional, appraisers throughout the country.
One of these appraisers has contacts with the FBI and Justice Department in Washington, amoung other agencies. A database is being put together listing all suspicious addresses and names of participating appraisers and brokers nationwide. From what I hear it is beginning to yeild results. Point being, (we) are trying to clean things up and rid the industry of the bad players. It just takes time. Wish we had more media help, then things would snowball much faster, and crooks would most likely run to another profession.

One way to find an honest appraiser, or at least one that you know is NOT on the take, is to go out and personally hire him/her yourself. DO NOT call to find an appraiser from a list that the agent gives you. Just search yellow pages, or go to www.asc.gov for the national registry of licensed and certified appraisers. On this registry you can search by city, county and state, and it will give you all the appraisers in that city, as well as if they have active licenses or not.

You can also search www.orea.ca.gov for the California list, and narrow it down to your city. On this site (OREA - Office of Real Estate Appraisers), you can also search to see if appraisers have ever been busted for any wrong doing.

Other tips: Find an appraiser who is Certified, and check their ID, so you can check the websites to make sure they match. In Orange County, most of the appraisers running around arent even licensed. They are trainees who are working for some other licensed appraiser who just signs off on the report, more often than not, that the supervisor also inspected the house, when in fact he did not. There are tons of “skippy mills” in OC, for this is the fastest entry into the profession, and the easiest. The scary part is these trainees learn nothing but how to “pump” value, and their goal is to become newly licensed so they can go out and hire a hand full of trainees themselves. They typically give the trainee 50% of the fee, and the cycle repeats itself. That is why more than half of all appraisers in OC are either trainees or newly licensed, and mostly unqualified to do anything.

If an appraiser comes to your house or calls before coming and asks you what “you” think your house is worth, or what “value” you are looking for, find another appraiser. This guy is just looking for a baseline starting point so he knows what values to look for in the area. Thats because he doesnt really know how to appraise, rather he conducts searches by value, not by property comparability.

This is NOT appraising. Competent, professional appraisers do not need a starting point or target value. They go to your house, analyze the data, and form an opinion, applying various methods and technical analysis. The value may come in high, it may come in low, it may be right on target. But rest assured, what you at least have is an unbiased professional opinion.
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Now that you know where to go to find a good appraiser, it is time to look at the other side of sites like zillow.com. The internet is an excellent tool, but nothing is going to replace a trained professional actually spending some time on site to find the actual ‘value’ of your home.

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From OC Appraiser:

Web sites like zillow are currently facing litigation by homeowners who relied on zillow for accurate valuations. The problem with web site valuations, BPO’s and all other desk-top valuations, is that they do not account for subject location. Zillow cannot tell if a property backs a freeway, which in some markets can account for a 15% discount. AVM’s cannot tell a panoramic catalina ocean view, from a peek thin southern coastal view, which can be as much as a 20-30% difference, depending on how close to water the house is. Computer and desk-top valuations cannot tell the difference between higher end Bosch, Viking and SubZero appliances, versus the Sears specials.

Computer valuations cannot determine over-improvements, superadequacies, physical, function or external obsolescense influences, who’s value contribution or discount cant be as high as 40%. Now I dont know about you, but if I am borrowing 100’s of thousands of dollars to buy something, you better believe I want to make damn sure its worth what I paid for it. And I aint gonna trust the appraiser who is hand picked by people who stand to gain a commission when the deal is closed. $350+ dollars, to potentially keep from making the biggest financial mistake of your life seems like a no brainer to me.

I’m not worried about the appraisal profession or my role in it. The cream always rises to the top, and profesional investors (lenders and others who actually loan out their own money and keep the assets in their portfolio) always want an actual qualified professional appraiser doing the inspection and analysis.

Shadash, I can certainly understand how you think appraisers will be replaced because they cant be trusted. But the fact of the matter is that professional money managers and debt holders do understand the importance of a professional valuation. Its just that in recent years they have been more risk tolerant and because they have been shuffling the loans down the line, they did not need accuarate valuations.

I suspect however, that this packaging of loans, and passing the buck down the line will cease, when the end holder does not get paid what he thought he was supposed to make. Look at it this way. If you loan money to someone, even if its not your money, you will stop loaning out the money if you stop getting paid. Because if you dont get paid, how is the guy who loaned you the money going to get paid? And so on and so forth.

The only way to insure coverage is to know that the collateral will cover the debt burden. And the only way to sleep soundly at night as a lender, is to have full faith in the value of the collateral. Computer valuations will be around to do the low loan to value deals, but with people continuing to borrow against their homes, inceasing loan to values, there will always be work for the honest appraiser. Its all about being selective in the clients you have. The clients that I do have all loan out their own money and want real valuations. I quite doing work for brokers 12-18 months ago, because they just stopped caring, and their competition heated up.
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So there you have it. More ‘real world’ info on what you won’t hear about the appraisal business. So again, take this information and use it to make the best decision for your particular situation. If you think we are making this stuff up, that is fine. But if you think there ‘might’ be some truth to what you are hearing here, I would seriously consider spending an additional $350-$500 bucks to get an ‘additional’ appraisal by an unbiased 3rd party before I was on the hook for hundreds of thousands of dollars. Why take the the chance of overpaying for a property, when for about .1% of the purchase price of the property ($350 on $350,000), you could have some solid information in your hand regarding the ‘real’ value of the real estate in question. Sounds like a no-brainer to me.

**ATTENTION ORANGE COUNTY READERS**
For all the Orange County readers, I have something you might be interested in. If you would like to have your property appraised by OC Appraiser, send an e-mail to me at socalmtgguy@gmail.com and put ‘OC APPRAISER’ as the subject. I will pass your contact info along, and let OC Appraiser take it from there. I have never met OC Appraiser, but we have traded quite a few e-mails and their posts on this site and Ben’s blog speak to their credibility. I was never an appraiser, but I did spend a decent amount of time in the appraisal review department of a major lender, so from what I have seen, I feel confident that OC Appraiser is the real deal and will give you an honest appraisal of your real estate. So, send me an e-mail if you would like me to pass your contact info to OC Appraiser.

For those of you who have been checking in less frequently because I was on a posting ‘haitus’, there were 3 new posts this week including this one. So be sure to scroll down and catch those. Lots of good info in the comments as well. Look for more frequent posts from me in the future. Just remember 2007 is the year when things WILL get interesting.

BE INFORMED… be patient… and stay tuned…

SoCalMtgGuy

There is a shift happening in this country in the ways that people get information. No longer are people held ‘captive’ by the big 3 network news shows, and a handful of national newspapers. The TV news ratings are slowly dropping, along with newspaper circulation of the ‘big name’ newspapers. This is due to the internet, and the fact that people can get information from other places. Sure, anybody can start a blog, and say whatever they want. We have also seen that the major media outlets will say what they want as well. My point is that you need to look at all the information available to you, and make an informed decision.

Why am I bringing this up? Because there is a lot of good information on this blog and in the comments posted by readers of this (and other) blogs. Sometimes you have to look beyond the major news headlines to see what is ‘really’ going on. Like I have said before…the media is a lagging indicator.

I want to share some information from an Appraiser that specializes in the Orange County area. This persons comments were buried way down in the comments on another thread, but I think they deserve to be read by more people.

Sometimes you can get a better picture of what is going on by listening to a few quiet voices that are whispering solid information against the background of an industry that is screaming “EVERYTHING IS FINE!” at the top of their lungs.

Here are the first comments from an OC Appraiser:

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As an ethical, professional appraiser in OC, I can tell you all that YES, I have been checking the declining values box when the market warrants such an action. I am doing many more foreclosures now than ever before. I just did one in Trabuco Cyn (Wagon Wheel). There are 4 REO’s alone within the same development, and a couple actives that were purchased in 2005 for more. Kind-of eary driving around. Nice cars in the drive-ways, with “bank-owned” for sale signs in the lawns. How could this happen in South Orange County???

Looking at public data indicates no shortage of “underwater” borrowers in this area (Wagon Wheel Cyn). To make matters worse, the last contract (pending) was signed 3 months ago. This, in a market that usually sees 2-3 contracts (sales) per month.

Yes, the sky appears to be falling in this sub-market. The scary part is that I see the same thing across most of OC.
I have not seen a market with “valid” price increases in over 10 months. I’ve been doing foreclosures from the Santa Ana markets, to the higher end Coto Markets, and all areas in between (Mission Viejo, Laguna Niguel, Dana Point). Not seeing so much REO work in the high end $3M+ markets, as those buyers have appeared to be more well healed. A lot of REO work in the $1-2M range, where I suspect it was move-up buyers biting off way more that they could chew, especially in the way of higher property taxes. Be careful you guys, there is still a lot of fraud and it seems to be picking up. I get several call a week now from local brokers asking me to pump values, as they go down their list of appraisers in a given area. Sad part is, they always find someone willing to commit fraud. No shortage of appraisers in OC that is for sure. And since most are really new, they dont know what they dont know. So they actually think they are giving their clients “good customer service”, when they phish for comps to hit a predetermined value. Just be careful out there.

The OC real estate market is currently in decline and the mommentum appears to be shifting into high gear.

At least from my vantage point.
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So that this second comment by the same OC Appraiser makes sense, another poster asked for more specifics regarding some of the areas talked about. The Appraiser could not give specifics because of confidentiality reasons. But here is some more information:

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Thats correct, enforcement is lacking, and its just too damn easy to make money as a crook in the real estate business. The thing I dont understand is why someone would be willing to commit a federal offense for a measly $350.00 I guess it goes to show you that the many appraisers in California and namely OC arent very bright, and are just looking for the easiest way to make money, with the least amount of effort. How hard is it really to find a slimmy broker in OC? They are practically on every corner. All the appraiser has to do is knock on the door with a smile and a wink to be assured a steady stream of business. I’ll be interested to see how long these relationships last with the fraud investigations starting to gain traction. In Colorado and N. Carolina, appraisers are going to Federal Prison, just for being stupid. One trainee even tried to plead ignorance. Sorry, up the river you go. Now we just need the wave to hit California and they should be running scared. Hopefully they will go back to working at Del Taco, or whatever else these sorry bunch of characters did before they got their appraisers license.

On the REO side: In WW, they are located on Charokee, Raindance, and Longhorn. For confidentiality purposes, I did not include the street name of the appraisal I did as a pre-foreclosure. Some of these are already bank owned, and others are just active for less than original sales price.

I would not offer list price in this environment. A prudent buyer will attempt to take advantage of a sellers desperation. Afterall, like I said, not one buyer has been willing to sign on the dotted line in the area in 3 months. If that is not a RED flag, I dont know what is. Do your research!! Oh yea, Coto REO’s: Look in the “Tanglewood” tract, streets: Charleston Ln, Raleigh Ct, and Westchester Ct. There are some folks underwater in there, as well as many other area of Coto. I could list these all day long, they are all over OC.

Maybe later I’ll come back and give you guys some from some coastal communites. Hot tip: if you have access to public data or the local mls, you can see when someone bought something, for how much, and best of all, how many times have they refied and for how much and when. This is the key. Find someone who is totally underwater, and there is a good chance it will be an REO at some point. Find multiples in certain neighborhood, and you will be well served to hold out for the firesale that will soon follow, as the banks will all dump these at the same time. In my opinion, right now is too soon to get anything at a “percieved” discount, for more will follow.

Good luck, and watch you backs. Dont trust anyone you dont go out and hire yourself. And even then, be careful.
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Here is some more information that OC Appraiser shared with me via e-mail:

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I think it is important to at least inform the public about the shadiness of the business. I think about how much business I have lost over the years due to my integrity and how my good name has been tarnished amoung people I thought were my friends, who work as mortgage brokers, and its real sad. The public needs to know that when mortgage brokers refer to an appraiser as a “good” appraiser, its because the appraiser has a reputation for making the deals work, all the time, without regard to a property’s true market value. This is fraud.

“Deal killers” are appraisers who go out and do their job, which is to collect data, analyze, and form an opinion without bias. The appraisal is to help protect the lender against losses. Problem is, brokers arent lenders, and many lenders today sell their loans, so they really dont care about the quality of the appraisal either. They all get paid when they sell the loan down the chain. Its like a big pyramid scheme, with the debt holder (borrower) as the stooge holding the bag. Not a problem when your house is going up 20% per year, but take that away, and you are in serious trouble. I think the overall mentality of a person having debt needs to change, and it typically does throughout market cycles.

In my opinion there are 2 kinds of debt: Bad debt, and worse debt. Lets take a typical senerio I run into all the time: Home is purchased by local area agent. Its fixed up, listed way above market value. The same agent brings in a buyer, uses the “in-house”, or “favorite” lender/broker shop, who has a list of “good” appraisers. Agent pushes the house on a buyer as a “great deal”, and claims to have “access to lenders”, funding will be “no problem”. Take away the shady appraiser and this deal is dead in the water. But there is too much money at steak to let this deal die. Its much easier to find a “skippy” appraiser, pay him $400 bucks to sign the appraisal report with the predetermined number and collect the commission check. If you refi your house, the broker will usually ask you what you think your house in worth. They draw up the papers using this number, and find an appraiser who will “get” this number. 9 times out of 10, the appraisal will come back at exactly that number. Its a miracle!!

The public needs to not be fooled. These people are not your friends. Sure they may appear to be getting you out of a jam, but in reality are digging you in deeper, and screwing you because now the asset that you “own” is worth less than what you owe the bank. Try selling your house now. It wont happen. You will eventually be in foreclosure and probably bankrupt, while your so called “friends” are off closing more deals. Folks need to take control and do their own research first before allowing these “snakes” in the door. I know its difficult for most folks, but I think for the sake of your future, and that of your family, you need to get educated. Do your own research! And if it sounds to good to be true, it most certainly is.
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So, you have heard me mention appraisal fraud along with some of the other types of fraud that are being committed in the mortgage industry. Here is an actual appraiser that has been in the business for a while telling you their side of the story and what they see on a daily basis. Now is where you have to ask yourself, should I belive this information even though it is not being told by the major media outlets or the real estate experts? …yet

Use this site as one of the tools to help you make an informed decision. Remember…2007 is the year when things will really start to get interesting. It takes time for all of the creative financing, fraud, and people living maxxxed out beyond their means to take its toll on things and work its way through the system in a way that is finally reflected by decreasing home prices.

Stay tuned…

SoCalMtgGuy

I know, it has been a month or so since my last post. With the amount of ‘housing bubble’ news that is hitting all aspects of the media, I started to figure that the blogs weren’t needed as much as they were when ‘nobody’ was talking about a housing bubble. Well, I ended up having a good conversation with one of my long time readers. They said that a new post was needed from me now, more than ever, since things were starting to happen. After our hour long conversation, I agreed. It was also suggested that not every post has to be a long one…that even shorter posts would be fine. I agreed that it was getting tough to write long posts, so I think making shorter posts more frequently will be on the order. How does that sound? Now lets get going…

What I am about to say probably won’t come as a surprise to many of the long time readers, but after talking to my friend, he believes that many people could benefit from much of what we talked about in our conversation.

As much as many people are seeing inventories increase, prices decrease, and the sales pace drop dramatically…I am here to tell you that YOU AIN’T SEEN NOTHING YET!!!

I know the pundits and experts like our favorite econoMISSED Leslie Appleton-Young, are saying that yes, things are slowing, but that is all that is going to happen. Things will turn around in 12-18 months. The market is just finding a balance between buyers and sellers.

BLA BLA BLA… Read this ‘gem’ from a nice Desert Sun ‘fluff piece’ titled “Real Estate Upswing Predicted for Valley - Expert says market will bounce back“: Leslie Appleton-Young, chief economist for the California Association of Realtors, told more than 500 real estate agents, mortgage brokers and other business people at a real estate forecast symposium Thursday in Palm Desert that home sales and median prices statewide are likely to decline slightly from the once ‘red-hot market,’ then level off over the next 18 months.

“‘The housing market is going through an adjustment after a four-year boom that was not sustainable, but the (economic) fundamentals are still very positive for this region,’ Appleton-Young said. ‘But there’s no area of California that is immune to the adjustments,’ she said.”

I am here to tell you BULLSH!T regarding ‘positive fundamentals’ or that things are just going to ‘level-off’. What part of doubling inventories, and a 40-50% slower sales pace makes the fundamentals so ‘positive’? Not to mention that incomes in the desert communities do not afford most of these 400k+ ’starter homes’. I also find it pretty funny that 500 RE agents show up to a meeting in an area that has barely sold 700+ homes so far this year. I’m not so good at math, but it doesn’t seem like that is enough houses to ‘employ’ 500 agents.

All you have to do is read the articles on Ben Jones fabulous blog to see what is going on. I scan his blog daily…the difference is that I am not surprised one bit at anything I read there. Heck, I tried to tell people what was coming….and I STILL AM!!

I tried telling people for the past few years that this was going to happen, but nobody wanted to hear it. I was told that I was just bitter because I ‘didn’t own a home’ or missed the boat. This blog gave me a place to share my thoughts to whomever wanted to read them. I guess some people wanted to hear what was really going on in the industry as well over a million unique visitors have hit my blog. As for some of the people who told me I was crazy a year or so ago, some of those same people have actually contacted me for advice because all that ‘equity’ they had, is evaporating, and the mortgage payments are starting to take their toll. Again, lets use Orange County as an example…what REALLY happened the past 5 years to take the median home price from about $220k to about $620k??? Think about it…

I was just in NYC for a quick business trip. I happened to get lucky and was asked to share a limo with 4-5 other people instead of waiting in the taxi line that was easily 60 people long. As traffic from JFK was terrible, we had plenty of time to talk. The topic of real estate came up when they found out I was from SoCal (the other people were from Utah). Needless to say, these people were surprised by much of what I said, but they all agreed that mathematically things didn’t make sense. After we dropped the group off at their hotel, it was just the limo driver and myself. I guess he was listening pretty intently to our conversation, because he asked me what I knew about filing BK. He said that his mortgage alone was over $2700 a month, and that didn’t include the taxes. He said he had talked to some friends about the BK process, and that he wasn’t considering it now, but in a few months. He was amazed at how fast things turned, and that he couldn’t even sell his house for what he paid for it. I didn’t get into too much detail with the guy, I just hope he and his wife figure things out.

Lets take a look at some of the things we have seen in the news lately. We have seen homebuilders reporting large amounts of cancellations, a decrease in profits, and some smaller homebuilders are even losing money now. We are seeing inventories increasing, and the sales pace in many major areas is 35-55% slower than it was just a year ago. We are seeing stories start to pop up about appraisal fraud, people being upside down on their homes, and people trying to find ways out of their housing contracts. We are seeing that the builders are cutting prices in many areas, and this is ’screwing’ the individual homeowners that can’t match the builders with incentives and/or price decreases. We are seeing rather large layoffs in the mortgage industry as loan production is down from previous years. ALL of this is happening…AND WE ARE NOT EVEN IN 2007 YET!!!!!!!

You think things are getting interesting now? Just check back in 12 months and see how things are. I will tell you that the spokespeople for the NAR and CAR are doing nothing but blowing hot air. Their logic of a ’soft-landing’ is filled with more holes than all the golf courses in Florida. I’m sorry, but the fundamentals do NOT support property values where they currently are in the ‘bubble areas’. There is NO way to rationalize or explain it. Over the next 12-24 months, many of the flippers, ‘investors’, and interest-only-ARM-home’owners’ will be flushed from the market. There will be even MORE properties coming on the market, with less people that will be in the market for them.

That also brings me to another point. Just as many ‘novice’ investors and flippers hit the market, there were also a lot of ‘novice’ developers that entered the fray. Many of these developers (along with established homebuilders/developers) started housing projects when things were good, but won’t be completing things until 2007/2008 time frame. You have already heard stories of some developments being canned because it was early enough in the project. But many more were too far along and have to complete their projects. These builders/developers are facing cancellations and will be forced to sell their units in a market that already has a larger than normal inventory. It will be interesting to see how well these ‘new homes’ are absorbed into the already bloated housing inventory.

So, my advice to you BE INFORMED before you make any financial decisions. Do NOT blindly follow the advice of the industry ‘experts’ or any other person that has a financial interest in the industry. Look at the stock market bubble. All of the analysts, MBAs, and financial ‘gurus’ said “it was different this time”. They had ’strong buy’ on stocks that were trading at 100+ times future earnings. As we can look back and see, they were all WRONG. The same things are being said today about property values. If the numbers don’t make sense…then it is NOT a good deal, no matter what the realtor says! Notice how people call property ‘investment property’ and not ‘income property’ anymore?? Maybe that is because most of the ‘investments’ of the past few years are NOT throwing off ‘positive income’. Check back to this post in 1, 2, 3 years from now and see where things are. I feel confident that 2007 is going to be the ‘year’ that REALLY shakes things up a bit. It is going to be interesting to see what happens when 18-25% of the 9 trillion dollars of outstanding mortgages adjusts in 1 year.

Well, I hope this helps people some. I am working on a few posts right now. There was a ‘Flip that House’ marathon on TV this past weekend, and I managed to catch quite a few shows. I will give the shorter posts a shot, as that will help me be able to post more frequently and get ideas on ‘paper’ when I have them, and not have to incorporate them into a larger post. I look forward to the comments and feedback.

Stay tuned…the next 12 months will be VERY interesting!

SoCalMtgGuy

I am working on a few posts, but I wanted to get this article up for people to see. Below is an article titled: Nothing Quick About Getting Rich With Real Estate. The author (MP Dunleavey) looks at the Real Estate seminars and for the “1000 new millionaires” that ‘were’ created. Some really good insight in this column.

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Nothing quick about getting rich with real estate

A real estate seminar promoter promised to create 1,000 new millionaires, but so far none are in sight. See what happened to his believers.

By MP Dunleavey

Like a lot of people these days, Marjorie Stark wouldn’t mind making a little extra cash — or even a lot of it. So when she attended an information session for Robert Allen’s “Creating Wealth Through Real Estate” seminar in New York, she was more than willing to pay $2,495 for Allen’s intensive three-day course on real estate investment strategies.

Concerned about not having enough to retire on and wanting to pass along some wealth to her kids some day, the 62-year-old New York City educator said to me then: “I am convinced that real estate is the way to go.”

I was there that night, too, and I could scarcely resist the mouth-watering idea that those three days could make me rich. As the guy leading the session announced: “We are on a mission to create 1,000 new millionaires in 12 months!”

A year later, Stark isn’t any closer to being a millionaire. She hasn’t bought any new property nor made any money on real estate — except for the rental property she owned before and bought “the hard way” (with cash and bank loans). She even admitted that when she saw Robert Allen’s newest venture was in vitamin sales, “I thought I was going to puke. I was very disillusioned.”

But Stark is undaunted and still believes there are fortunes to be made in real estate. She just enrolled in another seminar at a local college on how to buy distressed and foreclosed properties, she says. “With a full-time job, I’m not sure how I can do it, but, boy, am I itching to go!”
There’s something about real estate
Stark is not alone. The National Association of Realtors doesn’t track independent real estate investment seminars or how many people attend them, but their allure springs eternal like the get-rich hopes of those who sign up for these courses.

The odds of winning are not high. Robert Allen’s “1,000 new millionaires” never materialized in the last year, for example. Allen operates what’s called The Enlightened Millionaire Institute. Its Millionaire Hall of Fame Web site lists only 50 millionaires (defined as having generated gains averaging $2.6 million). A spokesman admits not all of them exclusively used the Allen method of real estate investing. (And, in a disclaimer, the site notes, “No information has been verified or authenticated. Results vary. All successes are subject to one’s own knowledge and effort.”)

Despite all that, the Robert Allen Institute still conducts two or three seminars a week in different cities and says it reaches about 1,200 people each month. (That’s 1,200 x $2,495 = $2.99 million a month, in case you left your calculator home.)

Allen is just one of dozens of artful salesmen who preach fancy financing, “no money down,” flipping properties quickly and numerous other strategies to get rich buying and selling real estate.

And the question all this preaching raises is, do these investment techniques, systems and strategies really work? Can they actually make you rich? After all, would people keep trying it if it couldn’t be done? Or are hundreds of thousands of people simply seduced by expert sales pitches and swindled out of hundreds and sometimes thousands of dollars?
Weighing the evidence
Like so many things in life, it depends on whom you talk to. Or whose Web site you believe.

John T. Reed is a real estate investment coach himself, based in Alamo, Calif. He’s also a self-appointed watchdog for this industry. He keeps the most exhaustive list I could find of dozens of so-called gurus, along with reviews of their techniques, books and other products.

Although Reed’s Web site, where you also can buy his various books for $29.95, reads a bit like he has a chip — a very big chip — on his shoulder, he was recommended by the National Association of Realtors as a serious investigator in the industry. Not that he’s against real estate investment, or some of the reputable folks who teach their own hard-won wisdom. But those have been degraded by “the endless parade of B.S. artists coming into the real-estate-investment-advice field. It is an embarrassment to the good people in the business.”

And many people believe his grousing is justified. Norm Bour is the host of “The Real Estate and Finance Hour” on KLSX in Los Angeles, a top talk radio station. He’s worked in real estate as a mortgage lender and describes the proliferation of real estate seminars, workshops and scams as “a major pet peeve.”

“Case in point: foreclosures,” he begins. “Real estate in California has gone berserk in the last few years so people are looking for foreclosures to buy.” The idea being you can buy a foreclosure more cheaply than other property and potentially gain a windfall when you sell it.

But, as Bour notes, “You can count on one hand how many actual foreclosure properties there are (for sale). Yet there’s no lacking of people who are offering real estate foreclosure lists.” One might pay $35 for a list, but it may be peppered with properties in other states. “It’s not fraudulent, but it’s certainly deceptive.”
The shady gray area
Well-known personalities like Robert Allen or Carleton Sheets, who have extensive marketing organizations, are a little different, Bour says. “They offer some very solid basics, but the number of people who can do what they propose is very small — because they make it sound so much easier than it is.”

That’s what Josh Kelinson, a freelance advertising consultant in New York, found when he and two friends tried to follow the Sheets method.

The three pals pooled their resources to master what Sheets preached, which is similar to the Allen method: buying property with no money down (or some other creative financing method) and flipping later on for a profit.

One of his pals took the seminar, another bought the 8-CD set, etc. Thus inspired and determined, they tried to buy a building suitable for five apartments in Massachusetts, not far from where they’d all grown up.

Kelinson says the actual experience of trying to buy an income property proved eye-opening. “We spent a ton — and I mean a ton — of time on it. There was the approval process, the paperwork, getting lawyers.” It took two to three hours a day, not including weekend travel time and unexpected snafus. “I found it impossible to do with a full-time job.”

Ultimately, the project bogged down because of a major zoning problem. The building was in an area zoned for three apartments, and the building had been illegally converted into five apartments. The zoning authorities refused to grant an exception to the rules. Then, the building owner refused to return their deposit. The three were out $35,000.

Still, Kelinson doesn’t feel misled or duped by the Sheets method, and he and his friends are sure they can make it work with their next deal. “There are a lot of other things out there that are scams, but this definitely can be done,” he says.

But investing in real estate is not nearly as easy as it looks, he says. “Make sure you have the time to do it,” he advises wannabe investors. “If you don’t allocate the time, it probably won’t work.”
We want the system to work so much
And therein lies the fundamental appeal, and ultimate trouble, of get-rich-quick (GRQ) strategies. “It’s the jackpot mentality,” says psychologist Patricia Farrell, author of “How to Be Your Own Therapist.” Just like the schmoe who buys a winning lottery ticket — every once in a while, someone, somewhere really does use these edgy real estate investment techniques to make millions.

“It’s not the principles that are flawed,” says Bour. “It’s the simplicity and ease that are overstated.”

Most of these courses are so seductive, Farrell says, because they operate according to a tried-and-true principle of behavioral psychology called the variable ratio reinforcement schedule. Basically, people (and rats) will persist in doing something, even with little or no return, if they are given the tiniest bit of hope of a coming reward.

So the fact that some people do succeed at “no money down” strategies acts like a financial aphrodisiac for all those watching, waiting, hoping.

So could the Starks and Kelinsons of the world be next? Is it just a matter of reapplying the Robert Allen/Carleton Sheets techniques until they work?

Mark Wilson, one of the millionaires created by the Robert Allen Institute, would say yes. The president of Southeastern Housing Partners in Hickory, N.C., Wilson started investing in real estate in the late 1980s. “We were doing OK, but nothing to write home about.”

Then in 2002, after hearing Robert Allen speak, Wilson paid $5,000 to join a one-year intensive coaching course. It changed his life, his business and, above all, his cash flow, he says. Although he’d read Allen’s “No Money Down” in college, the seminar focused more on another Allen signature strategy: developing multiple streams of income (from rentals, rehabs, buying foreclosed properties, commercial properties, etc.). Now, Wilson says, he’s about to close a deal that will put his net worth at $8.5 million.

He believes anyone can make big bucks from real estate if he or she is willing to take action — not just sit on the sofa listening to tapes.

Before you sign up, count to a million

Of course, Wilson admits that it was easier for him to take the Robert Allen techniques and run with them. He had a lot of experience in real estate already. Most people, Bour points out, don’t have those skills. And few people have the time or the diligence to acquire them. (”Some skill sets you need to have — and the course can’t teach it to you,” agrees Kelinson.)

Bob Underwood of Stafford, Va., is one person who can testify to the fact that investing in real estate is not for those steeped in fantasy. Underwood bought an e-book from yet another author and teacher by the name of Joe Crump.

Crump, who hails from Indianapolis, teaches a no-money-down technique, but he told me that he does it “legally and ethically.”

Underwood, 43, has a wife and family and a full-time job — and no time to muck about in real estate with no return. He paid Crump about $500 for one-on-one coaching in 2002 and, after a rocky start, has managed to buy three properties in the last two years. He’s sold one of them, made about $10,000, after taxes, in the process and is hoping to rehab and sell another this year.

One deal Underwood did alone, the next was with a partner. He says there’s no cookie-cutter method that works. What works, he says, is getting out into the market, investing the time to learn about the business, not neglecting your wife and kids (or day job), learning from your mistakes, making friends and getting advice from others as you move forward. Slowly, steadily and not particularly wealthily.

“Remember, you have to pay capital gains (taxes)” on the profits, he says, “so it’s not a lot of money in the end.”

But that, of course, isn’t what people want to hear. “People are lead to believe that all you need is the right plan and you’ll make a million, that if you use this system you’ll be rewarded,” says psychologist Farrell. “They don’t realize that the possibility of getting that big reward is so remote.”

————————————————————————————-
I bet a lot of people wish they saw this article BEFORE they plucked down a few grand for one, two, or several of these courses.

I will have more posts up as the week goes on. Thanks for your continued support!!

Stay tuned…

SoCalMtgGuy

It looks like Gary ‘in the bag’ Watts is at it again with another real estate outlook. It is for 2006/2007, but at this time, there are NO predictions for 2007. Lets get down to business and look at some of the highlights of this latest report…

Here is Gary’s predictions for how 2006 will end:

——-
How Will This Year End?

1. As mortgage rates continue to decline, buyers will get off the fence and purchase homes as soon as they believe housing prices have stabilize.

2. Sales of homes should start to rise by the fall, while inventory goes into its seasonal decline.

3. Appreciation should continue to rise in the fall, compared to last year when prices actually dropped.

4. With luck, we may end the year with double digit appreciation in homes with small gains in condos.
——-

Lets take a look at numero uno. Ok, so mortgage rates are declining a BIT, there is no way they will return to the levels of 2003 and 2004. Rates dropping half a point is not enough to force buyers to ‘get off the fence’ and buy homes that are still overpriced. I am not a highly acclaimed real estate agent, but I believe the stabilization period is many months, if not years away. We have yet to see any REAL sort of correction at this time. BUT, we are seeing huge increases in inventory which is the first step towards lower prices. See this report from the CAR (California Association of Realtors) and see for yourself that the sales pace is off just over 30% from the same time last year, and we all know that inventories are way up as well.

So, with the sales pace slowing drastically, and inventories steadily increasing, how do we get stabilization or even appreciation?

We are almost in October, so fall is just around the corner. I have yet to see anything that leads me to believe that the sale of homes will start rising this fall, or that inventories will decline. There is ONE thing that could make both of those things happen and THAT is a REDUCTION IN PRICES. And I am talking about REAL reductions in prices. Not 10-15k here or there on 500k+ properties.

I am sure there will be a ‘median’ number somewhere that will show some incremental appreciation in California. But based on the report above, I don’t think 1.6% increases are what many people need, or are counting on. Meager appreciation like that doesn’t buy new BMW’s, Hummers, or kitchen remodels…much less give that ‘I’m getting rich’ peace of mind that so many people have become accustomed. Not to mention the fact that ‘appreciation’ has been the major selling point from RE agents, mortgage brokers, and all the real estate seminar guru’s out there. I don’t know how many times I heard brokers tell people that if they ever get into trouble, they can just refinance…no problem.

I don’t know for sure, but I think the holidays will be a bit different at Fashion Island and South Coast Plaza the next Christmas season or two. There IS a lot of money in Orange County, but there are even more people trying to live like they have more money than they really do. Lately, this money has come from the house of ATM. It will be interesting to see how or even ‘if’ the slowing appreciation in housing will affect the upcoming shopping season. 1.6% appreciation is the equivalent to having a $40 withdrawal limit at an ATM in Las Vegas…it’s better than nothing…but it doesn’t help very much.

One other quick thing I would like to point out: unless I missed something, how can somebody address the real estate market without any mention to the exotic loans that are making much of this possible? I guess the financing isn’t that important when things only go up…silly me.

I will counter his comments about the media and more in further posts this week.

Stay tuned…

SoCalMtgGuy

Well, it looks like Casey Serin shut down his website. Too bad that Google keeps a cache of sites. I will show you the last things he had on his site BEFORE he pulled the plug.

I don’t have time at the moment for a long post, but there is a LOT of good info in the comments on the previous post. That said, here is what Casey’s website showed after he took it down…but before it was completely taken down. His website only says ’stay tuned’ at this time. www.iamfacingforeclosure.com
———————————
What I did was Stupid!!

September 24, 2006.

This blog was the WRONG kind of exposure. I APOLOGIZE to my friends, family, associates and especially EVERYONE WHO HELPED ME with my real estate transactions.

I DO NOT BLAME ANYBODY for ANYTHING and take full responsibility.

What started as an honest desire to share my experience turned into something dangerous - playing with fire. After talking to a business associate this morning I realized I went TOO far and shared TOO much. I turned something small into a big exaggerated mess. Others were telling me this too, but I wasn’t getting it. Now I crossed the line. I misused my ambition.

I have damaged my reputation and I have damaged many good relationships through this. I never meant to hurt anyone. So to stop any further damage I am shutting down and laying low.

I am sorry.
–
Casey Serin [email}

—————————————————————–

Before he removed the info completely from his site, these were the last few posts. I guess he was featured in the Voice of San Diego before he axed his site. Here is the text of his site before it was pulled down. Sorry there are no pictures and the formatting might be off a bit.

I am Facing Foreclosure .com

– September 23rd, 2006

Voice of San Diego Reports on My Story

Thanks to Kelly Bennett for writing a fair and balanced article about my foreclosure situation on Voice of San Diego.

Here it is for your convenience:

My Life is an Open Blog

Casey Serin is a 24-year-old Sacramento man who bought seven properties in four states within the first three months of 2006. Even after selling a home in Utah a few weeks ago, he’s $2.2 million in debt and will be four months behind on all of his mortgages come October.

He started a blog to tell people about his experiences and his mistakes as a novice investor — it’s called iamfacingforeclosure.com.

I talked to Serin this afternoon and he told me he first got into real estate as a 19-year-old in 2002, buying a condo as his residence in Sacramento. Originally from Uzbekistan, Serin and his family immigrated to the United States 14 years ago. His parents own their home in the Sacramento area, but haven’t invested in any other real estate.

He sold that first condo in 2003 and made about $30,000 in profit, he said.

“That was kind of my first experience,” he said. “This real estate is a good business if you do it right.”

And, Serin admits, “a rising tide floats all ships” — he knows he was successful then primarily because of the appreciation in the housing market.

But he admits he had no idea what he was getting himself into when he started investing in properties earlier this year. He financed all of the mortgages 100 percent and has been paying only the interest on those loans. (Click here to read my story about the risks involved with those loans and their popularity in San Diego.) He used “stated-income” forms that don’t require lenders to do background checks to make sure the borrower actually earns as much as he says he does.

And another reason he was able to get so much financing was that he claimed he’d be living in each of the properties. Normally, only one property in an investor’s portfolio can be claimed as “owner-occupied,” and it’s easier to get financing on that property because it’s supposed to be your only property. (Investor property financing often requires much larger down-payments, to avoid cases like this).

“Some lenders told me, it’s no big deal, as long as you can say that [living in the property] was your intent,” he said. “I just feel that’s not right.”

Because Serin was applying for financing for properties in California, New Mexico, Texas and Utah within days of each other, the banks couldn’t trace the pending loan documents to check up on his story — so it looked like each one really was his only property.

Now he’s trying to figure out what to do. He got married two-and-a-half years ago and his wife is in school to get a degree in accounting. They’re living with her parents while he sorts out his debt.

“I’m an example of what not to do,” he said. “It was a combination of lack of experience and also, buying too much, too fast. I’m kind of an open personality. If my honesty helps somebody, great.”

While he characterized his goals in investment as buy-fix-sell, he said he doesn’t like to be called a “flipper .”

“I don’t like the word flipping because it makes it sound like you’re doing something illegal,” he said.

I want to add, that “flipping” is a misunderstood term and has a bad stigma in the media.

See Ron LeGrand’s article Flipping is Illegal.

Also, Steve Cook of FlippingHomes.com in his FAQ on Flipping puts it this way:

Flipping, also known as real estate investing or the buying and selling of a home, is not illegal in any shape way or form. There is absolutely nothing wrong with buying a home cheap and selling it for more then what you bought it for. There is also nothing wrong with buying a home, investing in fixing it up, and selling the same real estate for way over market value. If your buyer wants to pay you way over market value, and they have the means to pay you, then it is their choice. They can do that and so can you without any recourse.

The problem arises when a lender is involved. What people typically refer to as “illegal flipping” should be called mortgage fraud. The media has given real estate investors in general a bad name, because they aren’t focusing on the real problem. Without mortgage fraud, homes could not be sold for more then what they are worth when a lender is involved. Lenders want to lend based off of what a house is worth today. They lend at varying different Loan to Value ratios depending upon the borrowers credit worthiness. The problem with “illegal flipping” is when investors, mortgage brokers, loan officers, appraisers, etc… get together to “create” a better picture of a loan package to a lender. They do things such as inflating appraisals, gifting down payment, drawing up false w-2’s, manufacturing pay stubs, writing credit letters, etc…

– September 22nd, 2006

Is This a Scam? Why am I doing this?

Reading through the initial feedback I received, many people think that I am making this up. They think I’m just blogging about facing foreclosure to get traffic, exposure, leads, whatever.

You may also be thinking:

* Why would I share my financial details with the world and risk being embarrassed, criticized, made fun of or taken advantage of? Don’t people in distress normally want to hide and save face?
* Why would I admit to doing “shady loans” and risk going to jail?
* Am I really facing foreclosure on all these houses?
* How can I be so calm talking about my distress?

I was amazed that people mistake my honesty / confidence for a scam. However, I understand how that may be. I went from being embarrassed and distressed about my situation to being confident about overcoming it, learning from it and sharing it publicly. Maybe it’s my new-found confidence that made people suspect it to be a scam.

Nevertheless, I still feel down about the whole situation and feel sorry for making bad moves this year. But, instead of crying about it I decided that I will be writing about it.

Here are my goals for IamFacingForeclosure.com:

1. Market Non-Performing Properties. When I first realized I am facing foreclosure and that I need to sell all the houses very quick, I started marketing everywhere. I sent an email to everybody I know. I posted ads on craigslist. I brought my deals in front of investment clubs. Keeping track of all the details and keeping everyone on the same page was hard. I am using this website to solve the problem.

2. Sell Fast by Being Up Front. It was embarrassing at first to tell everyone that I’m in trouble. But then I figured, I will have the best chance to move my properties quick if people understand that the time is running out!

3. Demonstrate Genuine Hardship. I share my financial details to show publicly that I’m really in trouble. Banks want to see evidence of distress before they offer options like loan-modification, payment plans, or allowing a short sale.

4. Show You What NOT to Do. By telling my story honestly and in detail I have the best chance to help others learn from my mistakes. The lessons I’m learning are costly and painful. I don’t want people re-inventing the wheel like I did. Whether you’re looking to buy a house to live in or you are a beginner real estate investor. Learn from me!

5. Expose Shady Industry Practices. Too many real estate professionals encourage you to cheat and lie in. Yes, I am not innocent. But I decided to take a stand with this blog. No more compromise!

6. Expose Bad Real Estate Gurus and Education. Don’t get me wrong. There is a lot of good books, tapes and seminars out there. However, some of them teach you just enough to be dangerous. A lot of education is overpriced / incomplete / inaccurate / shady.

7. Help You Stop Foreclosure and Recover. Are you facing foreclosure too? I know the feelings of denial, desperation, helplessness and intense financial pressure you feel. As I learn and get out of my situation I can help you through my experience. I will help you to either save your home, or help you sell it fast. I want you to understand the foreclosure process, the time line, your options, forbearance, loan modification, short sale, etc. Know when (and if) to file bankruptcy. Learn how to rebuild your credit. Learn how to get back on your feet.

Bottom line, why this is not a scam:

A couple of weeks ago I sent an email to everybody in my address book - friends, family, real estate contacts, associates, past clients and co-workers. In the email I shared the situation and provided a link to this blog. Why would I lie to EVERYBODY and destroy my reputation?

You can check all the facts. Drive by the houses. Call the lenders and verify. Check the public record next month for Notices of Default. It’s all legit!

What do you think?

– September 21st, 2006

Brutal Comments and The High Cost of Honesty

I was featured on The House Bubble Blog with Attitude and received a flood of mostly angry comments. People are giving me a beating! (NOTE: it was the housingpanic.blogspot.com blog that ‘featured’ this story)

Yes I do deserve a beating. I fully own up to my mistakes and choose to take the consequences!

However, some people are taking it a bit too far with obscenity and just pure HATE. I had to delete a few comments to keep this blog PG. I am all for honest feedback but lets be reasonable.

So I enabled comment moderation. And NO I am not trying to silence the critics. Anybody who has something helpful or honest (but not overly brutal) to say will receive my approval. As you can see from my blog I am not trying to hide anything.

Aside from the brutality, there has been a lot of good and constructive feedback. You can look through the different posts in the sidebar and check out the comments.

On the constructive side, I did receive some good advice from Osman, a real estate blogger in Colorado. Thank you.

The High Cost of Honesty.

It’s true I got into some shady loans this year including….

1) Calling investment properties OWNER OCCUPIED

and

2) Stating a high income that I can’t prove

But…

Shall I continue to lie to cover up my old lies??

That’s not right!

I am braking the lie cycle. On this blog I will tell the world the full truth. I will take whatever consequences that come as a result.

Some future topics will include:

* The truth behind stated income loans aka “Liar’s Loans”
* What some mortgage brokers will tell you to make a quick commission check
* The truth about owner-occupied loans and ” the intent to occupy”
* The truth behind cash-back at close
* Consequences of lying on your mortgage application
* Does “flipping houses” cause housing inflation ?
* Is buying, fixing and flipping houses wrong / illegal?
* Do “house flippers” improve neibhorhoods and provide credit-challenged buyers a way to realize the American Dream and Pride of Home Ownership?
* Is it wrong to make a profit while providing a valuable service?
* The consequences of not having a solid exit strategy or two.
* The result of not having a business plan
* The effects of the “Get Rich Quick” mentality in housing
* How the Real estate Gurus teach you just enough to be dangerous
* The true cost of fixing houses with no construction experience .
* When and why should you file for bankruptcy?
* Can you go to jail for mortgage fraud?
* And more on my situation, selling houses quickly, foreclosure, short sales, subject-to, etc…
* Did I miss something?

Hopefully people will learn from my mistakes and be positively encouraged by the way I handle it.

The Truth Hurts… as they say.

– September 20th, 2006

Very Honest “For Sale By Owner” Sign

Honest For Sale By Owner Sign

My For Sale by Owner sign for Muncy Modesto property with I am Facing Foreclosure. com address and my phone number.

I’m really putting myself out there and taking a risk by being honest about my situation. Hopefully people will sense the urgency and help find me a buyer.

I was a little embarrassed putting up this sign. Good thing I was there mid-day and nobody saw me. Although, after I put it up and started leaving I saw a neighbor from across the street go over to pick up a flyer.

Buyers may try to exploit my weakness. They tell you to negotiate from your strength, right? Is being honest = weak? I don’t know. I don’t really want to negotiate anyway. My terms are pretty straight forward. I just want some cash and walk away.

I will need to put on a thick skin. This may cause me to become the talk of the neighborhood. People might laugh, criticize or ridicule. The concerned parents of teenage or 20-something kids will tell their kids “See! This is what happens when you take dumb risks!”. Some may think “Facing Foreclosure .com” is just a ploy to make a sale.

I don’t care… I’m desperate.

– September 19th, 2006

Not Your Typical Flyer

Here is a flyer that I put together for the Muncy property. The big “I am Facing Foreclosure” will hopefully attract extra attention. I am going down to the property today and will put up a For Sale By Owner sign and put my flyers in the flyer box.

Muncy Modesto CA Flyer

I offer owner financing “takeover my payments” as an option. The flyer includes information on my loans as well as a break down of all the costs to justify the price.

I’m getting ready to list this property on MLS with a flat fee broker for only $249. Of course I will still be offering 2.5% to the buyers’ agent.

The MLS listing and the I am Facing Foreclosure flyer should help me sell the property quickly.

—————————————

Well, there you have it. It will be interesting to see what happens to this whole situation. I am sure that we will hear more about this in the future. Keep the comments coming. I will have more content coming down the pipes.

Stay tuned…

SoCalMtgGuy

I have been saying for a long time that anybody can get a loan. I have told you that there is a lot of crap going on in the mortgage industry. I saw the credit reports, the 1003’s, the income figures, etc. and was amazed at the loans people were able to get. The thing is, I was looking at numbers on paper…I did not deal with the actual borrowers, only brokers. I ‘knew’ there were shenanigans going on, but I can’t give you the details better than an individual who was DOING the shenanigans. That is why I am going to give you Casey Serin…and let you hear his story. www.iamfacingforeclosure.com

Seems 24 year-old Casey got himself into 2.2 MILLION in mortgage debt…and is about to foreclose on 5 houses.

Here is part of how he ‘did it’. The sad thing is….none of this surprises me. I will go into more detail later.why he is facing foreclosure:
——————————————————————-
What happened? Why am I facing foreclosure? Basically, I bit off more than I could chew.

Here is the long story.

I started investing full-time in January of this year. This is after going to numerous real estate investing seminars, reading books and learning from other investors for the past 2 years. Made a few successful deals on the side and was anxious to go full-time. I quit my website programming job and went all out!

In the last 6 months I bought 7 houses in 4 different states, mostly with the help of 100% LTV stated income (liar’s) loans. Most are fixers. I was going to rehab and flip each one within a month or so. Buying was easy, but man was I in for a surprise (or a lesson?).

I grossly underestimated everything. The money it would take to find contractors, run a rehab job, and resell quickly. Add the cost of doing out of state deals. I was not prepared for the huge travel expenses to manage the deals.

I messed up the local deals too. First I didn’t calculate all my costs correctly. Second, the lack of construction experience got me in trouble. The contractors took advantage of me. The first crew on the Modesto deal dragged me out for 6 month and never finished. The worst part is I paid them all of the money.

I did NOT have a solid exit strategy. I thought I would just wing it. You see, I become a “motivated” buyer. The kind they warned us in the seminars NOT to be. They told us to play it safe and start with wholesaling. But NO! I thought I can skip the basics and take a shortcut to the big profits NOW!

Yes, I did buy some of the houses at a discount enough to make a profit. However, I juiced up all of the equity on most of them right away by getting cash at close. So every time I bought one there was a “CHA-CHING” sound and my bank account got fatter. This gave me a false sense of profit and kept me going.

Well, everything went wrong. The rehabs were way behind schedule and grossly over budget. I was too busy flying around the country visiting each job. No time to manage details. I couldn’t sell the houses fast enough. I did sell one in Albuquerque on a round-robin auction. But I got stuck with the rest.

The holding costs on 6 houses is what started killing me. Paying about 15,000 per month in mortgage payments and utilities can really drain ones’ reserves. All the cash I pulled out at close is now gone. And the houses are not selling fast enough to keep me afloat.

As the last resort I went for one more cash-at-close deal. It’s another builder lease-back house in New Mexico from the same builder. The builder and I have become friends and we structured a pretty good deal. I told him I will close with no problems.

I went to get financing figuring I will get it just like before. However, this time my credit score took a dive because of all the maxed-out credit cards. I still pressed on and tried different loan programs and loan brokers. Finally I find the right program and was set to close. A few days before the close the bank denies the loan. Why?

They Googled me! Its ironic/funny/embarrassing. They found one of my early blogs where I was talking about flipping houses. It was pretty hard to find too. It was supposed to be hidden from the search engines.

Flipping (or quick turn investing) is not bad or illegal. What’s bad is applying for an owner-occupant loan but having no intention to live in the house. I have been doing this for most of the deals in order to get better rates and/or 100% financing. It’s actually pretty common and many mortgage brokers will encourage you to do it (along with stated income loans). But it’s plain lying! So the bank denied the loan.

That was the last straw.

Since that deal fell through I started falling behind on payments on all the mortgages. I ran out of money to finish the rehabs. No money to even buy groceries.

I may have to get back to a full-time job just so I can pay basic bills. I AM grateful to at least have my web development skills to fall back on. Or I may do some wholesaling or help other investors to make a little money.

It’s embarrassing to talk about this. Yes it’s my fault and I deserve the consequences. It sure is a tough way to learn though. This will teach me to be more responsible and play smart next time.

I started this foreclosure blog in order to talk about my experience. Hopefully this will help you if you’re in the same situation or know somebody who is.
————————————————————————-

I could go on and on about this situation, but I will keep it brief for now. This kid screwed up HUGE! He lied to get loans. He lied about income. He lied about owner occupancy. He wanted to get rich quick. At least this kid is standing tall and admitting his wrongdoings…for that I give him credit. He isn’t grabbing a lawyer and trying to blame everybody but himself for his situation (yet…anyway). He is taking personal responsibility for his mistakes. But just because you take personal responsibility doesn’t mean the consequences of your actions are waved. There should be no free-pass for Casey, or any of the people in similar situations. They deserve exactly what they have coming to them, and there should be NO taxpayer funded bailout of ANY kind.

Spend some time on Casey’s blog and read about his situation. He is NOT the only person that did such things, or that is in such ‘trouble’. Use it as a REAL WORLD example of what happened during this housing bubble.

AND PLEASE…keep the comments civil on my blog and his. Give your honest opinion and criticism, but keep the vulgarity out of it.

I look forward to the comments on this one. I will be active in the comments, and possibly even editing this post to address certain issues. There is just sooooo much I could say, but it is getting late.

Stay tuned….there will be many more stories like this popping up!

SoCalMtgGuy

That was the headline in the OC Register this weekend in the ‘Marketplace’ section. The smaller print after the big headline is “Stats suggest borrowers are handling supposedly riskier mortgages – so far.” The BIG emphasis should be on those last 2 words…SO FAR. Here is the link to the online version: OC Register article - “Don’t blame exotic loans for the housing malaise”

I will expound on things a bit more, but I think a post that I did about 10 months ago will be a good start. I am sure some of you have read it before, but it won’t kill you to read it again. You will notice that some of the numbers in the post are lower than the numbers we are currently hearing today, that is because of more data is available today than was 10 months ago. Not to mention that mortgage resets is not the easiest statistic to compile. Well, here we go…

—————————————————————–
Tuesday, December 06, 2005

“Are we there yet??” “What is taking soooo long!?!?”

Like a neverending road trip in the family station wagon as a kid…one poster wonders “when are we going to get there?” (this post was actually taken from Ben Jones blog with the posters permission to use it here)

Former LA Homeowner said…

socalmtgguy and all the rest,

I believe there is a housing bubble, especially in So Cal but it is taking a freaking long time to burst. How long do we have to wait for this mess to unravel? I just want a decent house, nothing to flip or speculate on.

1:21 PM

There is not been any REAL pressure on the market yet for it to start coming down. Yes, interest rates have gone up some, and lending standards have tightened a smidge in some places, but for all intents and purposes, not much has changed. The latest increase in rates doesn’t really affect that many people at the moment.

We all know that in the bubble markets, there is an overwhelming use of ARMs, I/O ARMs, and option-ARMs to be able to “afford” the property. Most of these loans are fixed for a minimum of 2-5 years, with some going as long as 7 and 10 years. The borrowers that are refinancing right now more than likely bought 2-3 years ago, and now their ARM is adjusting, or about to adjust. Assuming they didn’t take out too many HELOC’s (home equity line of credit), they should have plenty of equity to be able to refi at a lower LTV. Some of these people will be impacted, but for the most part, they have enough equity cushion to keep themselves safe.

On the other hand, you have the people that have bought in the past 12-18 months. These people are still sitting pretty with their low payments for another 12-18 months at least. Some of these people have some decent appreciation.

Here is where things get tricky. In 2006 there are approximately 335 billion dollars worth of ARMs that are set to adjust. Let’s just assume that each loan set to adjust is for $500,000. That means 670,000 households are going to have 4 options: refi, sell, foreclose, or pay the higher payments.

Things get really tricky in 2007 as 1.2 TRILLION dollars of arms are set to adjust. That means 2,400,000 households have to pick one of those 4 options. (again, we all know that 500k is a high loan amount, but it will give us a ‘low estimate’ as the number of households that could be effected) Let’s look at those 4 options a bit closer now…

Refinance - Most people will NOT like their mortgage payment fluctuating on a monthly basis, and they will certainly not like the fact that their payments will jump pretty dramatically as rates will most definitely be higher in 2006 and 2007. Rates will still be historically low, but not in the 4’s and 5’s which many of these borrowers will have had.

Sell - This is an option that many people will take. They knew going in that they could not afford the property for 30 years, but they would do whatever they had to do to get a piece of property and start getting the appreciation. There will be many of these people who will try and sell. The only problem is that supply and demand works both ways. The got the appreciation when the supply was low, now they will have to give it back as there are massive increases in inventory.

Foreclose - do I really need to go here? Many borrowers will lose their property because they cannot make their adjusted mortgage payment, or they cannot sell fast enough, or they cannot sell where they won’t be upside down.

Make the higher payment - Some people might not be able to refi because of credit scores dropping, employment changes, or even tightening of lending standards. These people will do what is necessary to keep making the payment. Hopefully the jump in payment will not crush them.

So there you have it. That is one of the things I belive that will be the catalyst for the bubble to burst. Massive people selling will lower prices. Rising rates will force people to lower prices as the same payment buys less house. Tightening lending standards will pull potential borrowers out of the market. Once those stated loans get a bad rap and/or they actually start pricing them correctly, you will remove another section of people from the market.

Once these things start happening, I think you will see the beginning of things REALLY coming down. Don’t fall for the dead-cat-bounce when people start buying in on the first dip.

I hope this helps to shed some light on how much longer “you will be stuck in this station wagon”!

SoCalMtgGuy
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It really doesn’t surprise me at this time that the ‘toxic loans’ aren’t performing worse than the ‘conventional’ loans. You see, many of the people with the exotic loans STILL have the low payment, and the ones that did get into trouble were generally able to sell before they got into any real foreclosure problems. With inventories at least double in many areas, and the sales pace down 25-40% from the same time last year, selling to get out of trouble is going to become MUCH harder…and we aren’t even into 2007 yet. I can only guess that the first half of this article was to squash the ‘bubble talk’ that has become more commonplace in the media today.

The second half of the story is where people should be paying attention. The first half covers the ‘past’ the 2nd half of the story looks to the future. Once there is a reason…like…I don’t know…at least 1.5 trillion dollars worth of mortgages adjusting, that could spell trouble for the future. The foreclosure rate is up across the country from the same time last year. Sure, it is still not a very high number of actual foreclosures, but lets revisit the stats AFTER 2007. Remember, it takes months to gather this data, analyze it, and get it reported to the people. So don’t start jumping on my back when the first wave of numbers comes out in February/March/April of 2007 and say “you said 2007 was the year of reckoning”…much of that data will still be from 2006. Look at the data from late 2007 and early 2008 to see what REALLY happened with all the mortgage adjustments. Remember, 2007 will be a key year, but it will by no means be ‘over’ after 2007. You can’t have a 5-8 year bull run and only a 1-2 year pullback. This thing will take time to run its course.

On a side note, I had another friend who just left the business. He said he had 3 borrowers in the past month or so that got loans, and went 30, 60, 90, 120, default. The loans were all stated 100% loans from 500-800k. I guess the borrowers were hoping to ‘flip’ the property before they could default.

On another side note…I couldn’t sleep the other night, so I was doing a little channel surfing. I came across the show “Million Dollar Listings” which I had heard of, but not seen. Needless to say, I stayed up another hour to watch this show. I actually felt bad for the realtors in this show. The sellers they featured were completely irrational. This one lady bought her home for 1.5 million, did 200k of ‘renovations’ and wanted to sell it for 3 million a mere 18 months later. Actually, it was 2,995,000…or $5000 less. So shoot me for ’rounding up’! The realtor finally got an offer at 2.3 million, but the seller wanted nothing of it. The realtor took the lady to several other houses to try and show her that her house was priced to high. She did NOT get it. There was one she REALLY liked, nicer than here home, she asked how much it was…a mere 1.9 million. She says…GREAT! get me 3 million for mine and I might buy this one! The highest comp to her house was 2.19 million, but she said she would get 2.95 million, or nothing at all. She said she wasn’t in a hurry, and would wait to get exactly what she wanted. Needless to say, the listed was removed, and no sale was made. It was amazing how the sellers were completely disconnected from what their houses were really worth. The other realtors waited about 5 weeks to call the seller and recommend listing at a lower price. After debating firing them, the borrower decided to lower his price, and finally sold his house in the end.

Well, that is all for now. I look forward to the comments and feedback. Look for more frequent postings in the future.

Stay tuned…

SoCalMtgGuy