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According to a report released by CoreLogic yesterday, 23.1 percent of residential properties with a mortgage were underwater at the end of 2010. That is up slightly from 22.5 percent earlier in the year, and represents a 300,000-home increase in just three months[1]. These numbers do not surprise many analysts, but they do worry them since underwater homes are a “drag” on the market because they prevent homeowners from exiting those homes via traditional routes like selling and they also stifle the “trade-up” market in real estate, which consists of homeowners buying better, more expensive homes and selling their old ones.

Mark Fleming, CoreLogic’s chief economist, says that these high levels of negative equity will keep housing and mortgage finance markets sluggish even if the rest of the economy begins to recover. Perhaps of equal concern is that 2.4 million borrowers have “near-negative” equity, meaning that they have less than 5 percent equity in their homes. This could quickly turn negative if CoreLogic predictions that home prices will fall another 5 to 10 percent in the coming year.

In light of this news, many in the Obama administration are protesting Republican proposals to cut HAMP (Home Affordable Modification Program) as part of the budget adjustment even more vehemently. In fact, the White House has threatened to veto attempts to do so, saying that the program is a “cost-effective approach to assisting underwater borrowers”[2]. However, the program, which was intended to help as many as 4 million homeowners, has thus far only helped a few hundred thousand and wasted massive amounts of taxpayer money, say HAMP critics.

For many real estate investors, these types of numbers mean more involvement in the real estate market thanks to creative financing and other alternative methods for buying property. Do you think that this is the way out of this mess?

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Let us know what you think should be done about the underwater housing situation below.

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[1] http://blogs.wsj.com/developments/2011/03/08/report-more-borrowers-underwater/

[2] http://online.wsj.com/article/BT-CO-20110308-714971.html

Thanks to the massive foreclosure slow-downs brought on by last fall’s robo-signing fiasco, the shadow inventory is still, well, lingering in the shadows and bringing down the housing market, reported Lawrence Yun, the National Association of Realtors (NAR)’s chief economist today[1]. Yun cited this pervasive shadow inventory as a major reason that the housing market has not yet recovered even though other aspects of the economy are stirring and showing signs of life. Yun addressed the commercial market’s relatively superior recovery by pointing out that a lack of construction in that sector has “essentially fixed the supply of available space… [meaning] vacancy rates could fall quickly from any increase in demand”[2]. Thanks to the shadow market in the residential sector, however, the glut of available space is so great that movement in this arena is likely to remain sluggish and demand is likely to remain low.

With the entire residential market still hanging on many factors like rulings dealing with robo-signer-plagued banks and legislation to handle how foreclosures must be processed in the future, it seems unlikely that the shadow market will come out of the shadows any time soon. Do you think that this will permanently change the face of residential real estate in this country?

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Let us know how you are dealing with the shadow market in your business in the comments below.

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[1] http://www.ibtimes.com/articles/117045/20110228/housing-shadow-inventory-real-estate.htm

[2] http://www.consumeraffairs.com/news04/2011/02/will-2011-be-the-year-of-the-real-estate-rebound.html

Large investors involved in the law suit against Bank of America’s Countrywide Financial Corporation are pulling out of the process as the approval date for the $624 million settlement approaches[1]. Believing that they can “get a better deal by going it alone,” investors like the California Public Employees Retirement System are rejecting the settlement as too small[2]. Oregon’s attorney general, John Kroger, stated in reference to the $624 million settlement that the state would net less than $500,000 in damages when it suffered $14 million in losses. “Oregon will not accept pennies on the dollar when Wall Street defrauds Oregonians,” Kroger said[3].

As more investors withdraw, the settlement number is shrinking along with the lawsuit. The current agreement is now down to $601.5 million. Although the settlement could be retracted thanks to opt-outs, BofA and the Countrywide division have decided to keep the settlement alive, calling the situation “unfortunate” and expressing regret that “some investors have not wanted to embrace a fair and equitable agreement.” Plaintiff’s lawyers, who have knocked about $1 million off their fees, also have stated that they believe the settlement is a “really excellent deal,” but understand that some investors will prefer to “take a different kind of risk” in order to have a chance at recouping more losses.

Do you think that the BofA/Countrywide settlement numbers are fair?

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Let us know how you feel about Countrywide and BofA’s role in this lawsuit below.

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[1] http://blog.riskmetrics.com/slw/2011/02/some-investors-flee-624-million-countrywide-financial-settlement.html

[2] http://blogs.wsj.com/law/2011/02/22/countrywide-deal-too-thin-for-some-investors/

[3] http://www.law.com/jsp/nlj/PubArticleNLJ.jsp?id=1202482515549

According to the Chairman of the Board of the Miami Association of Realtors (MAR), there is nothing like an unusually harsh winter season to send South Florida’s home sales soaring[1]. “There is solid demand for local properties…as we see increased interest from U.S. buyers looking for moderate weather and an exciting lifestyle,” Jack Levine said of Miami’s climbing home sales. In the fourth quarter of 2010 sales of homes and condominiums together increased 29 percent compared to a year prior, giving Miami 10 consecutive quarters of increasing sales. Wintery weather throughout the country in January likely gave the Miami market even more excitement, and Levine believes that international buyers will also continue to be active in the market thanks to “increased affordability enhanced by the weak U.S. dollar and world-class ambiance and amenities.”

However, while sales are up, prices are down. According to Zillow, now is an even better time to buy in Miami than a year ago, as prices in December 2010 were actually 7 percent lower in the area than they were the same month in 2009[2]. However, realtors’ associations have their traditional high hopes, with the MAR’s Residential President, Ralph DeMartino, observing that “as excessive distressed inventory is absorbed in Miami, we expect home prices to strengthen”[3]. The inventory in the area has decreased 9.5 percent from the third quarter of 2010, which is a pretty significant drop given that it had fallen less than 2 percent in the quarters prior. Based on these numbers, it should come as no surprise if you hear “Let it snow, let it snow, let it snow,” being caroled in Miami ‘til May.

Would you make a buying decision based on weather?

Are you investing in South Florida?

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Please leave comments and questions below.

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[1] http://www.realestatechannel.com/us-markets/residential-real-estate-1/miami-home-sales-miami-condo-sales-miami-association-of-realtors-southeast-florida-multiple-listing-service-miami-home-foreclosures-winter-weather-3877.php

[2] http://finance.fortune.cnn.com/2011/02/10/miami-cuts-the-weather-a-break/

[3] http://www.prweb.com/releases/miami/real-estate/prweb8128925.htm

Talk about teamwork: when Tim Hardaway, former star of the NBA team the Miami Heat, ran into trouble and ended up with a hefty tax lien on his property, his former team bailed him out[1]. Hardaway faced the loss of everything, including his mansion in Miami which is currently work $2.5 million and has a pool and basketball court that have been customized to show the Heat Logo. His former team stepped up, purchasing the home and enabling Hardaway to remain in the residence, although the property remains for sale.

Oddly, the lien has not yet been released, although the basketball star is not comfortable saying why. He simply asserts that the lien has been handled and that he does not care to comment on why his team bought his house. Likewise, the franchise also refuses to comment on its generous $1.985 million purchase, though observers are noting that if the team can manage to sell the place at market value, they will stand to make a hefty profit on the “flip”[2]. Regardless of the motivation for the move, it certainly gave Hardaway some time to get his house in order, literally. Hopefully, in the end everyone will benefit from this unique display of team solidarity.

What do you make of this unusual move?

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Please leave comments and questions below.

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[1] http://www.nbcmiami.com/news/local-beat/Hardaway-Gets-House-Bailout-From-Heat-114725669.html

[2] http://www.cbssports.com/mcc/blogs/entry/22748484/27276338

All over the country, homeowners and their municipalities are discovering that they are going to have to find a way to work together on utility bills. In many areas of the country, local governments are reporting that delinquent accounts have tripled as homeowners struggle to make payments or simply inform the country that the bills cannot – and will not – be paid[1]. This creates serious problems for city governments, which are responsible for schooling and public safety, among other things, and often rely on the current year’s tax dollars and utility fees to fund their budgets. When utility fees are deemed uncollectable, the county can foreclose on the property and sell the deed at a tax auction or, depending on the location, sell the lien itself at a tax lien auction, but this process generally takes over a year and is not initiated until all other routes have been exhausted. As a result, explains one director of utilities, thousands and even hundreds of thousands of dollars are just “hanging out there” in limbo waiting on properties to be sold.

Because of the difficulty recouping money spend on lawsuits and of the need for money soon, many municipalities may switch from selling tax liens – which, when they are purchased, only satisfy the property taxes owed on a property – to foreclosing on the homes and auctioning off the property in hopes of recouping utility debts as well. In fact, many areas of the country, such as Orange County, Florida, are taking their foreclosure auctions online as well to make these properties as accessible as possible to investors in hopes of attracting more buyers[2]. Do you feel that your money is better spent on the purchase of tax liens that may be redeemed in cash with interest or may result in your eventual ownership of a house, or would you rather purchase the house outright at a tax deed foreclosure auction?

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Please leave questions and comments below.

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[1] http://www.publicopiniononline.com/localnews/ci_17178681

[2] http://www.publicopiniononline.com/localnews/ci_17178681

In Closter, New Jersey, the small town was set to auction off a local mall at a tax lien auction in an effort to “recoup hundreds of thousands of dollars in back taxes from…owners.” And investors were at the ready, eager to bid on the commercial property. Now, however, the entire process is stalled thanks to a last-minute bankruptcy filing by the property’s owners which effectively prevented the sale from moving forward[1].

In this case, bidders were lucky. The bankruptcy filing happened before the sale rather than immediately after. When the owner of a property saddled with delinquent property taxes files bankruptcy, the taxes are still owed. And, as a city attorney pointed out in this instance, “Those taxes have to be paid one way or another anyway.” However, a bankruptcy filing can stall your ability as the owner of a tax lien or tax deed to collect on that lien or even beginning the “countdown” process in which you must engage before a foreclosure takes place.

In the city of Closter’s case, if the taxes remain unpaid for too long, it will actually impact the city’s budget. For tax lien investors, interference with a scheduled timeline for collection or foreclosure can not only impact personal and investing budgets but also delay profits that may be important to other aspects of the business. While you can never be 100 percent sure about how a property owner will opt to deal with their delinquencies, it is important to factor in that any tax lien in which you invest could suffer a delay should that owner file bankruptcy. Being aware of this potential pitfall will help you plan your tax lien investing strategies.

We love to hear from you! Please leave comments and questions below.

This is the first in a series of educational articles. If you have questions about tax lien or tax deed investing that you would like answered, please ask them in the comments area below.

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[1] http://www.northjersey.com/realestate/113124309_Closter__seeking_to_recoup_back_tax.html

Despite the real estate market crash, the United States real estate market seem to have done something right – foreign investors are looking at putting their money in the country’s real estate market this year. Though most of them choose to invest in just choice cities, the news is still welcome to investors and analysts in today’s real estate market. UW-Madison’s James A. Graaskamp Center for Real Estate has released its 19^th annual foreign investors survey and it reveals that foreign investors believe that the US market is now offering better opportunities than ever before[1]. The respondents are “big investors” who own $627 billion-worth of real estate in the world, $265 billion of which are in the U.S.

Survey results show that more than half of the respondents said that capital appreciation is best seen in the United States. Registering a margin of 54 percentage points over second placer China, the United States made a big turnaround from the record-low response of 23% in 2006. Investors, though, are not entirely optimistic. Their focus is not on the country in general, but honed in on key cities like New York and Washington, D.C. Boston, San Francisco, and Los Angeles are also attractive cities for foreign investors. Compared to 2010, foreigners are more likely to put more capital in the U.S. this year.

Association of Foreign Investors in Real Estate’s chief executive James A Fetgatter said, “As the fear of a double-digit recession has faded, investors are becoming more enthusiastic about the prospects for the U.S. economy and are taking aim at real estate investment opportunities in the U.S. [Hpwever] their strategy is more akin to a rifle than a shotgun. Except for multi-family housing, (investors) are not scattering their interest throughout the U.S., but (are) rather narrowly targeting (the majority) of it to New York City and Washington, D.C., to an even greater extent than previous years.”

[1]http://host.madison.com/wsj/business/real-estate/article_613e7146-1a9d-11e0-9c8f-001cc4c03286.html

A number of factors have led the real estate market to end 2010 with numbers that are way below its starting point, including the cancellation of federal taxes, seasonal buying as people try to beat the federal tax cancellations, and low buyer confidence as some lose jobs [1]. Not only are home sales down, even home values are. Yet New England went against the national trend – though it doesn’t necessarily mean that the region is headed to better things for 2011.

Whereas S&P/Case-Shiller Home Price Indices reports declines in home prices during the third quarter of 2010, New England registered an upward trend. Even in Rhode Island, where unemployment rate was highest in the region (11.6% – also fifth in the nation), average prices shot up for single-family homes, condominiums, and even multi-family. From $243,968 in 2009, single-family homes went up 11.2% to $271,244 in 2010; even condominium prices cashed in a 10.1% increase. Multi-family homes saw the biggest increase at 20.4% from 2009’s $114,131 to 2010’s $137,451.

The increase in home prices though does not mean New England was clear of the pains of the real estate market crash. It was not spared the drop in home sales as it registered a decrease across all boards. Single family home sales had a 5.0% average drop, condominiums -2.8%, and multi-family homes -9.7%.

As more Americans also become underwater on mortgages, foreclosure activities are expected to increase – same as in New England. RE/MAX New England’s Executive Vice President and Regional Director Jay Hummer notes, “More foreclosures in the market will absolutely affect the timeline to an industry recovery. Purchasing a foreclosed property also takes anywhere from six to 12 months and even with conservative estimates, we won’t see a turnaround until at least 2013. That’s why it is so critical that investors ramp up activity now.”

[1]http://www.businesswire.com/news/home/20110110006434/en/2011-Housing-Market-Stable-Pricing-Increased-Mortgage

With the recent economic slump that had almost everyone suffering some financial loss, businesses have relied on lending to keep themselves afloat. Even mortgage companies have had their share of troubles during the economic downturn. One such troubled mortgage company is Ally Financial’s mortgage unit Residential Capital and its subsidiaries. This week, ResCap reaches an agreement with Fannie Mae in resolution of repurchase exposure that may arise from breaches in warranties and selling representations[1].

ResCap and its subsidiaries are now released from liability for the $292 billion unpaid balance it owed Fannie Mae – thanks to a $462 million settlement reached with the government-controlled GSE. The settlement will cover loans serviced by GMAC Mortgage prior to the 30^th of June, 2010 on behalf of Fannie Mae. Mortgage-backed securities purchased by Fannie Mae prior to the settlement are also covered in the settlement.

“At the start of 2010, we set a goal to substantially reduce risk in our mortgage operation and, during the last twelve months, we have successfully completed a series of steps toward that objective and are largely complete. This agreement, along with prior repurchase settlements with Freddie Mac and others and the sale of legacy assets and operations, has significantly reduced Ally’s risk related to the legacy mortgage business going forward,” Ally CEO Michael A. Carpenter said.

The settlement does not cover contractual obligations such as those that may arise from mortgage servicing. Also, Ally Bank is excluded from the settlement. Aside from the settlement, ResCap and Fannie Mae also made arrangements for ResCap’s mortgage insurance proceeds payment for rescinded or cancelled mortgage insurance coverage.

ResCap CEO Thomas Marano said yesterday that “We are very encouraged to have reached this agreement with Fannie Mae. They are a key counterparty to our mortgage business and we look forward to continuing our important and productive relationship. With our de-risking initiatives largely complete, the mortgage business will focus predominantly on the origination and servicing of conforming mortgages, which is where the company holds leadership positions.”

[1]http://www.dsnews.com/articles/ally-financial-reaches-462-settlement-with-fannie-mae-2011-01-03