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What do you do if you have lousy credit, a home that is underwater and a mortgage payment that is too big to handle alone? While some homeowners are opting to walk away from this massive problem and give up their homes, others are inviting in some permanent residents to help shoulder the load. The trend, called homesharing, involves a legal agreement between two or more parties to share the burden of the costs of owning and running a home and part or all of the property amenities[1]. While some people simply split up existing living spaces and document what portion of expenses shall be paid by each party in exchange for interest in the deed to the property, others actually are expanding on their homes in order to improve the value of the property and then adding residents.

This trend is becoming increasingly popular with baby boomers hoping to age in a supportive environment among friends, reports one lawyer. While many baby boomers had planned to sell when they reached retirement age and downsize into a smaller, more manageable home or assisted living, market conditions are preventing this scenario in many cases. Instead, couples may opt to expand and improve existing properties with other couples, then work out a legal agreement that works for all members dealing with residency in the property and transfer of title in the event of one owner’s death. With many boomers reaching the age where health and money concerns may trump the desire to sell a home at a profit or where they simply must work out new living arrangements, homesharing seems like a trend that could become more prevalent in the coming years.

Do you think that this type of arrangement is asking for trouble, or a great solution to a unique market problem?

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Let us know about your creative financing ideas below.

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[1] http://www.mnn.com/your-home/at-home/stories/how-to-stop-foreclosure-through-homesharing

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

Equifax is going to distance, literally, to help lenders evaluate the likelihood of mortgage default. It’s new metric, “default distance,” is designed to measure the time lapse between a borrower’s initial default on any revolving debt such as a credit card or a car loan, and when that borrower enters the foreclosure process[1]. In a recent study, Equifax measured the efficacy of its new measurement, finding that “revolving debt defaults consistently occur before first mortgage loan defaults with the timespan between them decreasing over time”[2]. Essentially, the closer together the revolving debt defaults, the more likely a mortgage default is on the horizon. However, strategic defaults may be skewing the perceived “distance” somewhat.

Default distances are shortest in states hardest hit by the recession and the housing market collapse, making Florida, California and Michigan the states with the shortest default distances (less than five months). Texas and South Dakota came in with the longest distances of about 15 months. Interestingly, high credit scores do not necessarily mean long default distances because “in general, borrowers [with high credit scores] consistently pay all their credit obligations on time, [but] many of them end up defaulting on multiple other accounts at the same time.”

Do you think that default distance should play a role when lenders evaluate applicants for mortgages?

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Please leave comments below and explain how you would feel about this potential change to the credit rating system.

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[1] http://shortsaledailynews.com/equifax-gives-lenders-tool-to-measure-mortgage-default-likelihood/

[2] http://www.housingwire.com/2011/02/07/equifax-introduces-default-distance-to-measure-likelihood-of-mortgage-default

While “hardest hit” areas like Phoenix and Las Vegas still dominate media coverage of the housing market doldrums, around the country markets previously considered to be “stable” despite the crash are starting to cave. This “new wave of distress” is probably not surprising to residents of these areas who may have been experiencing low prices, high foreclosure inventories and difficulties selling for some time, but many “outside” analysts who believed that “economically diversified cities” would emerge relatively unscathed are finding themselves to be painfully incorrect[1]. According to a report from the New York Times, last year Seattle home prices declined more than those in Las Vegas, and Atlanta home prices declined more than Phoenix.

“Bubble markets” like Phoenix and Vegas may have fallen harder and faster overall because “builders and banks ran wild.” However, they may be slowing just in time for other markets that appeared to be more stable to start catching up. According to calculations by Zillow, Seattle home prices, for example, could fall as much as an additional 10 percent in the coming year. Government tax credits may actually have prolonged the pain because they artificially stimulated markets and made a recovery appear to be imminent when, in fact, the markets were simply not ready to recover yet. “We went into 2010 feeling gangbusters, thanks to Uncle Sam,” explained Zillow’s chief economist Stan Humphries. “We ended it feeling penniless, with home values tanking.” According to a report by Zillow earlier in the month, 34 percent of Seattle homeowners were underwater on their mortgages at the end of 2010[2].

With mortgage application volumes falling[3] and government-controlled Fannie Mae and Freddie Mac being phased out in the coming months, 2011 looks to be a year of uncertainty for the housing market for many areas instead of the beginning of a recovery. Many experts and real estate investors are adjusting to this change by placing heavier emphasis on a property’s current income potential (e.g. how much rent it brings in each month or how much cash it will generate in short order when it is resold) rather than on its appreciation potential, since no one knows what the future will bring in that regard. How have you adjusted your investing strategies to the new housing market in America?

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Your comments and questions are welcomed below.

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[1] http://www.nytimes.com/2011/02/14/business/economy/14dip.html?src=busln

[2] http://www.kirotv.com/news/26795616/detail.html

[3] http://www.bloomberg.com/news/2011-02-09/mortgage-applications-in-u-s-fell-last-week-as-costs-rose.html

Just when you thought that you had a handle on the scope of the problems presented by 2010’s robo-signer debacle and subsequent ForeclosureGate, turns out that the paperwork fiasco is also contributing to the growth of negative equity around the country[1]. According to a report from Zillow, “Accelerating home value declines, as well as a slowdown in the nation’s foreclosure rate following the late-2010 robo-signing controversy, contributed to an increase in negative equity.” Basically, when foreclosure delays started to pile up, more and more borrowers went “underwater” instead of ending up in foreclosure. Since the entire process stalled, those homes were not liquidated during the foreclosure process and the negative equity nationwide piled up. Should foreclosures start to increase in 2011, then this may cause negative equity to fall.

However, according to recent reports on January numbers, fewer homes in the United States entered the foreclosure process in January than at any time in the past three years[2]. Additionally, scheduled foreclosure auctions have hit a two-year low. Do you think that the extension of the foreclosure process – deliberate or otherwise – is a good thing for homeowners in the long run? How about for the housing market?

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Please leave comments and questions below.

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[1] http://www.dsnews.com/articles/dip-in-home-values-and-robo-signing-pushes-more-borrowers-underwater-2011-02-10

[2] http://www.businessweek.com/ap/financialnews/D9L9NE9O0.htm

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

According to the fourth annual Sustainability Survey conducted by CoreNet Global and Jones Lang, LaSalle, half of corporate real estate executives will “pay extra for space in green buildings”[1]. The survey also indicated that “sustainability” plays a major role in how businesses select office space, with 64 percent of respondents saying that this factor is a “critical business issue” and 92 percent citing it as criteria in location decisions. Fully 50 percent were willing to pay more for green leased space in 2010 – a 13 percent jump from 2009.

Interestingly, the perspective on green office space has changed as well. Dan Probst, Jones Lang LaSalle’s chairman of energy and sustainability services, says that just a few years ago, sustainability would have been viewed in many cases as a “costly way to make the company look good.” Even as recently as two years ago, it might have been viewed as a way to save money in the short run, but now “pursuing green strategies [can] enhance employee productivity,” he said.

Interestingly, green strategies are being viewed as a way to actually stabilize budgets and the economy this year. 23 percent of respondents (on top of the original 50 percent) said that more rent would be acceptable if it were offset by lower energy costs. Furthermore, the strategies are increasingly being viewed as a way to pay for ownership of space rather than leasing, and green spaces may ultimately tend toward longer, more stable ownership trends than other types of retail and commercial space simply because they enable a company to “pay itself” for a real estate investment while also demonstrating a commitment to sustainability.

Are you investing in green real estate? Please leave a comment below if you would be interested in learning more about legitimate, simple ways to go green that can immediately impact your bottom line.

Thank you for reading REJournalOnline’s Commercial Real Estate Letter!

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[1] http://www.prnewswire.com/news-releases/corporate-sustainability-programs-focus-on-employee-productivity-and-health-as-more-companies-say-they-will-pay-extra-for-green-leased-space-115618834.html

In the Detroit area, a record tax auction in October 2010 sold 4,300 properties and got those properties off the books and helped the city recoup staggering losses causes by the non-payment of property taxes. Sound like a success? Absolutely not, says Maggie DeSantis, president of a local non-profit development corporation. “[We’ve] got to make it so onerous to speculate [in property],” she explains, “and we have to do it now”[1]. DeSantis and others like the mayor of Detroit, Dave Bing, who believe that “shrinking” the area of Detroit is the best way to get the city back on track, are concerned that out-of-state buyers who make up an increasingly large percentage of the real estate investing and owner population of Detroit, are contributing to neighborhood blight and to the “cycle of going from speculator to foreclosure every three years,” according to Dan Kildee, head of Detroit’s Center for Community Progress.

Detroit has a two-tiered tax auction system. At a preliminary auction in September, buyers must pay back taxes and other liens in order to acquire parcels. However, the “leftovers” from this auction are sold off in October for a minimum bid of $500 and buyers do not pay back debts. Kildee believes that the second auction needs to be eliminated and that those properties should go into a “land bank” that would market to developers with “the community’s goals in mind.” Treasury officials are less willing to dump the October auction, but say that they are “seeking reforms to change the low pricing…including allowing the city more chances to buy properties for $500.” Other counties across the country have used this strategy with some success, including Anderson, Indiana, which recently opted to let a contested online tax auction continue after allowing the public library first dibs on some property[2].

According to analysts like Kildee and other community advocates, the city needs to limit “short term” profit opportunities that are made possible by procedures like the two-tiered tax auction system. City officials also are trying to hold property owners responsible for “blight” properties that may be vacant, dangerous, filled with trash or responsible for other violations. Currently, “city officials haven’t found a way to force landowners to pay,” and nearly $41 million in fines remain unpaid. However, many of the landowners in question vehemently deny that their properties are in violation, including Michael G. Kelly, the largest private landowner in Detroit, who believes that he not only should not be fined for his largely vacant properties, but that he is in a position to drive up the price of land[3].

Do you think that changing the tax auction system in Detroit is the answer? Are you investing in the Detroit area right now?

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Please leave comments and questions below.

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[1] http://www.detnews.com/article/20110204/METRO01/102040358/1409/Reforms-urged-to-deter-land-speculators

[2] http://www.istockanalyst.com/article/viewiStockNews/articleid/4865070

[3] http://www.detnews.com/article/20110203/METRO01/102030395/Private-landowners-complicate-reshaping-of-Detroit

Quicken Loan, one of the nation’s largest mortgage lenders that has “survived and thrived” in today’s difficult market due to avoiding subprime loans and dicey practices, boasts the number one spot in surveys for customer satisfaction and has been rated as “one of America’s best places to work.” However, the Center for Public Integrity (CPI) is not buying[1]. According to reports by CPI, Quicken Loans has mislead homeowners about the details of their loans, charged excessive fees, utilized fraudulent appraisals and even forced employees to falsify borrowers’ incomes on loan applications[2]. A West Virginia judge who ruled in favor of one homeowner bringing suit called Quicken “unconscionable.”

Now, a group of former employees is joining the fray, alleging that they were urged to boost commissions by locking customers into higher interest rates even when they qualified for lower ones and “rolling hidden fees into the loan.” One former employee, Michael Pikora, has said in a sworn affidavit that “The worse the client’s situation was, and the lower their credit, the easier it was to charge excessively high rates.” Furthermore, the former employees claim that they were compelled to work unpaid overtime.

Quicken Loan has denied that it mistreats or mistreated workers or customers, and emphasizes that its mortgage lending practices follow industry standards. Furthermore, the company has described the former employees’ lawsuit as “the product of parasitic plaintiffs’ attorneys who specialize in filing meritless claims in an effort to coerce settlements from job-producing companies.”

Strong words, but can the company back them up? Have you done business with Quicken Loans, and would you again?

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[1] http://nationalmortgageprofessional.com/news23481/center-public-integrity-launches-attacks-reputation-quicken-loan

[2] http://www.publicintegrity.org/articles/entry/2889/

When property owners fail to pay taxes on their real estate, then the city in which the real estate is located has the option of selling off that property tax lien to the highest bidder. Particularly in these difficult economic times, municipal governments are relying heavily on these tax lien auctions to help bolster budgets that are lean and far in the red. However, in Detroit, many communities are saying that the money that comes into the government budget is not worth the blight on the neighborhoods when it comes to these tax auctions and that out-of-state owners who procure the properties via tax auctions and foreclosure auctions neglect the properties and contribute to neighborhood blight[1].

Michigan is a tax deed state, which means that the government forecloses on properties with delinquent taxes, and then sells the deeds to those properties at auction[2]. This means that buyers who purchase tax deeds in Michigan are purchasing the rights to the property and become the owners of those properties. While this is great for tax lien investors and others who are buying while the “getting is good” in Michigan, investors who do not accurately factor in the costs of owning the property, are unable to flip a property as they expected or fail to maintain a property once purchased often find themselves owners of properties that they have neither the means – nor, in some cases, the inclination – to care for long term.

Community organizations in the state say that they are “struggling to track out-of-state owners to complain about their blighted homes,” but in many cases the properties are owned by faceless companies or change hands so many times that the owners are impossible to track down. Critics of the tax auction program say that out-of-state owners “may be less concerned about the condition of the property because it will not impact their quality of life,” and, furthermore, that “[the owners] will be hard pressed to do so [care for the property] since they don’t live anywhere near it.”

Of course, the investors themselves believe that they are helping communities by taking homes out of foreclosure and getting them back on the market. While there are many critics of tax lien and tax deed auction programs, at least these properties are moving through the system. Do you think that states should be able to limit who buys at tax lien and tax deed auctions?

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Please leave comments and questions below.

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[1] http://www.detnews.com/article/20110203/METRO01/102030369/Out-of-state-real-estate-owners-spark-complaints-from-Detroit-area-activists

[2] http://www.realestateproarticles.com/Art/19191/265/Making-Profits-from-Tax-Deed-Sales-in-Michigan.html