A national company name Mortgage Electronic Registration Systems or MERS is both the holder of record of many mortgages across the country and the major filer of foreclosure actions in most states. There have been several law suits involving MERS and many headlines claiming that they used robo-signers and had no authority to foreclose anyway.
Some of the suits were probably brought by the same clowns who loudly proclaim that the U. S. Government has no legal right to collect taxes. There will always be a vocal cadre of ignorant people shouting nonsense about legal issues for about which they don't have a clue. MERS has prevailed in most cases, but they now face a series of cases in Michigan in which the Michigan Court of Appeals has rules that they did not have standing under Michigan law to file for foreclosure.
Read the details below, which contain the comments from Dan Elsea, President of Brokerage operations for Real Esatate One, Michigan's largest real estate company.
MERS Michigan Case Details
The general theme of this case is the interpretation of the statue as it applies to the entity Mortgage Electronic Registration Systems, Inc. (MERS) and their legal ability to act as the nominee for the lender in the foreclosure action, even if named as the mortgagee. In spite of the opposite ruling in the two prior courts, the Michigan Court of Appeals recently held that MERS is not "the owner of the indebtedness, or of an interest in the indebtedness secured by the mortgage, or the servicing agent of the mortgage" 9MCL 600.32 04(1)(d). The court also held that MERS as the mortgagee only held an interest in the property as security for the note, not an interest in the note itself. (remember that the note is the promise to pay)
The Michigan statute requires that ALL of the provisions of the statute must be met to permit foreclosure by advertisement versus judicial. Specifically, it requires that the party foreclosing is 'THE OWNER' of the debt , or the OWNER of an INTEREST in the debt secured by the mortgage or the SERVICING agent of the mortgage. In MERS case, they acted on behalf of many lenders as nominee or mortgagee of record. Their role was to supervise and report on the moving around of the beneficial ownership interest or servicing rights which were often transferred amongst members. It appears there were never any specific recordings of these transfers in a public forum, only electronic tracking services. In Michigan the opinion is that the Legislature REQUIRES ownership of an interest in the NOTE before permitting foreclosure by advertisement.
One reason the Michigan Legislature wrote the language the way it did was to prevent the possibility that borrowers would be obligated under the note to more than one entity and potentially be subject to double exposure. In other words, one could potentially lose the property through MERS, and still be sued by the NOTE HOLDER for the amount of the debt because MERS technically does not have the authority to discharge the NOTE.
The conclusion of this case (3 judges-1 dissenting) was that MERS did not OWN the indebtedness, did not OWN and interest in the INDEBTEDNESS SECURED BY THE MORTGAGE OR EVEN SERVICED THE MORTGAGE. The court concluded that MERS' inability to comply with the statutory requirements renders the foreclosure proceedings in the cases VOID ---ab initio. (For example, if something is said to be void ab initio,the thing was never created or valid to begin with) Remember-- there was a dissenting opinion from one judge and there are options for another hearing that may reverse this current opinion or uphold it.
Until the case winds its way to the Michigan Supreme Court, we won't know for sure whether the Appelate Courts decision will represent the law in Michigan. Clearly this is a mess in Michigan, as it is elsewhere, and will need to be resolved. Like Dan, I believe that homeowners might have at best a temporary moral victory. Whether it be by MERS or the banks directly, the deadbeat homeowners will eventually be foreclosed and evicted. Of course, many of these same deadbeats see this as a way to get another 6-8 months of free housing, which is the kind of mind set and thinking that got them into this situation in the first place.
The victory, however temporary the stay of foreclosure might be, it to be found in the principal that the banks cannot treat the system of recording and maintaining a documented trail of evidence of ownership as lightly as they have been. A recent article in Bloomberg Businessweek by Hernando deSoto. a renowned Peruvian economist, makes a convincing case that the recent financial meltdown was caused as much as anything by the breakdown of the public record keeping and transparency for debt of all kinds, not just mortgages. Mr. deSoto explores the lack of transparency and accountability in several sectors of what he claims has become a $15 Trillion underground parallel economy. The MERS scenario. along with huge pools of risk in arcane derivatives that were not understood by anyone and largely undocumented (at least in public), just set the stage for the eventual worldwide financial meltdown.
Let's hope that someone or some state eventually prevails against the lunacy of MERS and other attempts to obliterate the trail of documented ownership that is critical to the concept of begin able to pass "clear title" to a new owner. As it stands, the MERS mess gives title companies pause when considering the issuance of title insurance for homes that have mortgages that have been included in these bundled mortgage instruments. It might be difficult for a homeowner to prove that he really owns the property and has the right to sell it.
Saturday, April 30, 2011
Saturday, April 23, 2011
Seeking fairness for the loss of equity
The world of law often establishes guilt, settles disputes or establishes precedents by exploring and proving theories. There is a somewhat obscure and arcane branch of law called equity law. It takes place, when it happens at all, in special courts called chancery courts or in special sessions of the more normal civil courts. Only two states still have formal chancery courts – Mississippi and Delaware. The remainder of the states rolled their equity courts in the common law civil court after the Federal Rules of Civil Procedure were published in 1938. Chancery courts are sometimes appointed by the governor of the state.
The concept of equity that is separate from common law comes to us from our English heritage. In England people found reason to appeal directly to the King for redress of issues that were not dealt with fairly in the courts of common law. The King created Chanceries to hear the pleas of the people for fairness on matters that weren’t dealt with well under Common Law. The idea of appealing for “fairness” is core to the concept of equity in this branch of law.
According to The Free Dictionary by Farlex - In its broadest sense, equity is fairness. As a legal system, it is a body of law that addresses concerns that fall outside the jurisdiction of Common Law. Equity is also used to describe the money value of property in excess of claims, liens, or mortgages on the property.
There is also a concept under the broad heading of equity called waste. This concept is associated primarily with real estate equity in these courts.
Again as defined in The Free Dictionary:
Waste is an unreasonable or improper use of land by an individual in rightful possession of the land. A party with an interest in a parcel of land may file a civil action based on waste committed by an individual who also has an interest in the land. Such disputes may arise between life tenants and remainder persons and landlords and tenants.
The four common types of waste are voluntary, permissive, ameliorating, and equitable waste.
• Voluntary waste is the willful destruction or carrying away of something attached to the property.
• Permissive waste is an injury caused by an omission, rather than an affirmative act, on the part of the tenant.
• Ameliorating waste is an alteration in the physical characteristics of the premises by an unauthorized act of the tenant that increases the value of the property.
• Equitable waste is a harm to the reversionary interest in land that is inconsistent with fruitful use.
I read some about the background and theories that are involved in this peculiar branch of law after a potential client, who happens to be a lawyer, suggested that the concept of waste under the laws of equity might provide the legal umbrella under which successful class action lawsuits might be brought by homeowners who find themselves in positions of greatly reduced home equity due to no fault of their own.
Even though the concept of waste is usually applied towards an owner or a tenant, the theory here is that it can be extended to cover the mortgage holder who certainly is a person with “an interest in the property.” The line of reasoning in seeking redress would be based upon the premise (theory) that certain lenders willfully, knowingly and unfairly engaged in practices that caused a loss of equity for the owner.
There is already some evidence and a few admissions on the part of some lenders that they knowingly (and in some cases fraudulently) made risking loans and then packaged those risky loans together with pools of normal loans and sold the resulting investment instruments without proper disclosure of the risks to unsuspecting investors. When a high percentage of the bad loans went into default the pools themselves went bad and the whole house of cards that was based upon those investments came crashing down. The increased foreclosure rates caused by the bad loans had the effect of pulling down the value of those other homes in the pools, and the rest, as they say, is history – the housing crash and recession followed.
A few of the big lenders even created hedge instruments that allowed them to bet that the bonds for the mortgage-backed pools would fail. So, they made money selling the bonds based upon the pools of mortgage AND they made money by selling bonds (mainly to themselves and friends it would appear) that bet that those mortgage-backed bonds would fail due to high default rates.
Now, supposing that this behavior on the part of the lenders and the resulting loss of equity can be proven to the satisfaction of a chancery court judge (jury trials are not required in these courts, just a hearing in from of a judge or panel of judges) the directed redress from the court might well involve restoring the lost equity to the homeowners, which is usually how equity cases are settled.
Since it is literally impossible to restore the equity, even by court order; the next best solution might be for the court to direct that the lost equity be forgiven by the errant lenders involved and resets of loans to the current equity levels (which their actions caused to happen) should take place. While that is financially painful for the lenders involved, it does have a ring of fairness about it and it is what many experts have been saying needs to be done to get out from under the current cloud of negative equity. The banks aren’t about to do that on their own.
A solution based upon a court of equity decision wouldn’t necessarily apply to all mortgage loans everywhere. There were and are many lenders who did not engage in the practices that led to the crash of home equity. These might be smaller regional banks or credit unions which made mortgage loans and held on to them. They watched in horror, along with their mortgagees, as the home market tanked. They and their mortgagees probably have no chance for redress under actions that might be taken in the court of equity; however, these homeowners might join the class of actual customers of those lenders who caused the problem and claim that their actions tainted the entire mortgage pool and thus impacted their own equity. How that would be redressed is problematical.
So, what, you may ask, is the point of all of this? Well, the tobacco companies were able to thwart the legal efforts of many individuals and some early class action suits until lawyers finally found an argument (a theory) that they could apply across the class of smokers who became cancer victims even after the tobacco companies had plenty of evidence (and lots of juicy internal emails to boot) that their products were a cause of greatly increased risk of cancer for smokers. In other words they knowingly caused waste to the health of their customers. When enough States Attorneys General jumped on that bandwagon the big tobacco companies caved and they settled.
Perhaps the same cause-effect theories can be shown and proven for real estate under the concept of waste by the lenders causing the loss of equity of the homes of mortgage borrowers across America. It’s worth a shot by some good lawyers somewhere. Imagine the juicy emails that would come out of the disclosure process for that Chancery Court hearing.
To read more about this interesting, if somewhat obscure, branch of law just Google “waste and a legal term” and follow the links.
The concept of equity that is separate from common law comes to us from our English heritage. In England people found reason to appeal directly to the King for redress of issues that were not dealt with fairly in the courts of common law. The King created Chanceries to hear the pleas of the people for fairness on matters that weren’t dealt with well under Common Law. The idea of appealing for “fairness” is core to the concept of equity in this branch of law.
According to The Free Dictionary by Farlex - In its broadest sense, equity is fairness. As a legal system, it is a body of law that addresses concerns that fall outside the jurisdiction of Common Law. Equity is also used to describe the money value of property in excess of claims, liens, or mortgages on the property.
There is also a concept under the broad heading of equity called waste. This concept is associated primarily with real estate equity in these courts.
Again as defined in The Free Dictionary:
Waste is an unreasonable or improper use of land by an individual in rightful possession of the land. A party with an interest in a parcel of land may file a civil action based on waste committed by an individual who also has an interest in the land. Such disputes may arise between life tenants and remainder persons and landlords and tenants.
The four common types of waste are voluntary, permissive, ameliorating, and equitable waste.
• Voluntary waste is the willful destruction or carrying away of something attached to the property.
• Permissive waste is an injury caused by an omission, rather than an affirmative act, on the part of the tenant.
• Ameliorating waste is an alteration in the physical characteristics of the premises by an unauthorized act of the tenant that increases the value of the property.
• Equitable waste is a harm to the reversionary interest in land that is inconsistent with fruitful use.
I read some about the background and theories that are involved in this peculiar branch of law after a potential client, who happens to be a lawyer, suggested that the concept of waste under the laws of equity might provide the legal umbrella under which successful class action lawsuits might be brought by homeowners who find themselves in positions of greatly reduced home equity due to no fault of their own.
Even though the concept of waste is usually applied towards an owner or a tenant, the theory here is that it can be extended to cover the mortgage holder who certainly is a person with “an interest in the property.” The line of reasoning in seeking redress would be based upon the premise (theory) that certain lenders willfully, knowingly and unfairly engaged in practices that caused a loss of equity for the owner.
There is already some evidence and a few admissions on the part of some lenders that they knowingly (and in some cases fraudulently) made risking loans and then packaged those risky loans together with pools of normal loans and sold the resulting investment instruments without proper disclosure of the risks to unsuspecting investors. When a high percentage of the bad loans went into default the pools themselves went bad and the whole house of cards that was based upon those investments came crashing down. The increased foreclosure rates caused by the bad loans had the effect of pulling down the value of those other homes in the pools, and the rest, as they say, is history – the housing crash and recession followed.
A few of the big lenders even created hedge instruments that allowed them to bet that the bonds for the mortgage-backed pools would fail. So, they made money selling the bonds based upon the pools of mortgage AND they made money by selling bonds (mainly to themselves and friends it would appear) that bet that those mortgage-backed bonds would fail due to high default rates.
Now, supposing that this behavior on the part of the lenders and the resulting loss of equity can be proven to the satisfaction of a chancery court judge (jury trials are not required in these courts, just a hearing in from of a judge or panel of judges) the directed redress from the court might well involve restoring the lost equity to the homeowners, which is usually how equity cases are settled.
Since it is literally impossible to restore the equity, even by court order; the next best solution might be for the court to direct that the lost equity be forgiven by the errant lenders involved and resets of loans to the current equity levels (which their actions caused to happen) should take place. While that is financially painful for the lenders involved, it does have a ring of fairness about it and it is what many experts have been saying needs to be done to get out from under the current cloud of negative equity. The banks aren’t about to do that on their own.
A solution based upon a court of equity decision wouldn’t necessarily apply to all mortgage loans everywhere. There were and are many lenders who did not engage in the practices that led to the crash of home equity. These might be smaller regional banks or credit unions which made mortgage loans and held on to them. They watched in horror, along with their mortgagees, as the home market tanked. They and their mortgagees probably have no chance for redress under actions that might be taken in the court of equity; however, these homeowners might join the class of actual customers of those lenders who caused the problem and claim that their actions tainted the entire mortgage pool and thus impacted their own equity. How that would be redressed is problematical.
So, what, you may ask, is the point of all of this? Well, the tobacco companies were able to thwart the legal efforts of many individuals and some early class action suits until lawyers finally found an argument (a theory) that they could apply across the class of smokers who became cancer victims even after the tobacco companies had plenty of evidence (and lots of juicy internal emails to boot) that their products were a cause of greatly increased risk of cancer for smokers. In other words they knowingly caused waste to the health of their customers. When enough States Attorneys General jumped on that bandwagon the big tobacco companies caved and they settled.
Perhaps the same cause-effect theories can be shown and proven for real estate under the concept of waste by the lenders causing the loss of equity of the homes of mortgage borrowers across America. It’s worth a shot by some good lawyers somewhere. Imagine the juicy emails that would come out of the disclosure process for that Chancery Court hearing.
To read more about this interesting, if somewhat obscure, branch of law just Google “waste and a legal term” and follow the links.
Thursday, April 21, 2011
Break out the bubbly, the bleeding has slowed…
Today’s Detroit Free Press has a story under the headline – Oakland Co. housing set for rebound, report says. The story is based upon a report that shows that assessed housing values in Oakland County dropped less last year than the year before; with a forecast of an even smaller decline in the assessed value for next year. The story also reported the decline in our foreclosure rate. The assessed value drop reported for 2011 was 9.18%, which was les than the 11.75% for 2010. The 2012 forecast drop in assessed values is only 3%. Foreclosures peaked in 2010 at 9,292 in Oakland County and are forecast to be down about 11% this year. There were even two markets in which the assessed values actually went UP! The city of Northville (at least the portion in Oakland County reported an increase of .53% and the city of Pleasant Ridge was up .60%. Below are the numbers for the markets that I track in Oakland County:
Milford Township: -5.42%
Highland Township: -6.87%
Commerce Township: -3.84%
White Lake Township: -6.50%
Lyon Township:-2.73%
City of South Lyon: -5.55%
West Bloomfield Township: -7.33%
While it may seem strange to celebrate while declines in assessed values are still taking place, the decline to low single digit losses in value are good indicators that the market is in the process of leveling off and about to head in a positive direction. There are still some sore spots in Oakland County. Pontiac, for instance is off 22.89% in assessed values. Other hard hit cities include Hazel Park at -17,74, Oak Park at -14.81, Fenton at -13.95 and Southfield at -13.20%. Of the Oakland County townships, Waterford was the hardest hit at -11.70%, with Novi also in double digits at -10.18%
The Free Press story went onto chronicle some of the tax base consequences and the difficulties that local governments are having dealing with the revenue losses, due to lower taxes. It’s hard for homeowners to be too empathetic to the trials of local governments when many find themselves trapped in homes with negative equity; however, those reduced local budgets are starting to manifest themselves in reduced local services and local infrastructures that are badly in need to attention.
So, what are we to make of stories like this? Certainly everyone is searching for the bottom of the current economic and housing malaise. Some of the stories that we see about increases in existing and new homes sales are caused by the seasonal nature of real estate – more people just finally get out and start looking to buy it eh spring. However, if you look across the whole spectrum of articles that are finding small positive signs of recovery, yo can’t help but be hopeful. There is sufficient evidence in the decline of bad things, whether it be the rate of foreclosures or the lower rate of assessed value loss; and, the stories of increases in applications for mortgages and housing starts going up and inventories going down, to find reason for optimism that worst is over in this long winter of discontent.
I think I have personally written at least 3-4 blogs over the last few years asking the question, "Are we there yet?” about the bottom of this dreary market. Well, I’m not sure that we’re there yet, but it feels like we’re damned close. It may not be time to break out the Champaign , but maybe I’ll pop the top on Bud (after all it has bubbles, too).
Milford Township: -5.42%
Highland Township: -6.87%
Commerce Township: -3.84%
White Lake Township: -6.50%
Lyon Township:-2.73%
City of South Lyon: -5.55%
West Bloomfield Township: -7.33%
While it may seem strange to celebrate while declines in assessed values are still taking place, the decline to low single digit losses in value are good indicators that the market is in the process of leveling off and about to head in a positive direction. There are still some sore spots in Oakland County. Pontiac, for instance is off 22.89% in assessed values. Other hard hit cities include Hazel Park at -17,74, Oak Park at -14.81, Fenton at -13.95 and Southfield at -13.20%. Of the Oakland County townships, Waterford was the hardest hit at -11.70%, with Novi also in double digits at -10.18%
The Free Press story went onto chronicle some of the tax base consequences and the difficulties that local governments are having dealing with the revenue losses, due to lower taxes. It’s hard for homeowners to be too empathetic to the trials of local governments when many find themselves trapped in homes with negative equity; however, those reduced local budgets are starting to manifest themselves in reduced local services and local infrastructures that are badly in need to attention.
So, what are we to make of stories like this? Certainly everyone is searching for the bottom of the current economic and housing malaise. Some of the stories that we see about increases in existing and new homes sales are caused by the seasonal nature of real estate – more people just finally get out and start looking to buy it eh spring. However, if you look across the whole spectrum of articles that are finding small positive signs of recovery, yo can’t help but be hopeful. There is sufficient evidence in the decline of bad things, whether it be the rate of foreclosures or the lower rate of assessed value loss; and, the stories of increases in applications for mortgages and housing starts going up and inventories going down, to find reason for optimism that worst is over in this long winter of discontent.
I think I have personally written at least 3-4 blogs over the last few years asking the question, "Are we there yet?” about the bottom of this dreary market. Well, I’m not sure that we’re there yet, but it feels like we’re damned close. It may not be time to break out the Champaign , but maybe I’ll pop the top on Bud (after all it has bubbles, too).
Wednesday, April 20, 2011
Olly, Olly All In Free...
There is some disagreement about that phrase. It is often written as Olly Olly Oxen Free; but, whichever, the phrase yelled at the end of a game of hide and seek told the still hidden that it was safe to come out of hiding now...that the current game was over and it was time to restart the game.
Well, it's time for a big "OLLY OLLY ALL IN FREE" cry to go out to the housing market. The current housing depression game is over and it's time to start a new game. The problem is that too many would be sellers are still hiding out, hunkered down and waiting to put their homes on the market. Well, Olly, Olly All In Free. It's time!
Our local inventory has been dropping for several quarters and now we find ourselves with a severely depleted inventory of non-distressed homes as well as distressed homes. The distressed homes have been selling so briskly that they are now subject to bidding wars as more investor money chases the falling inventory. And so-called "normal" sales have been good enough to more than absorb what little inventory that has been hitting the market. The result is an inventory as we enter the spring selling season that is pathetically thin, especially in the middle prices. Olly, Olly All In Free! Let's get out there people.
Many homeowners who would like to sell have been trying to guage the market bottom; but, as stock market analysts will tell you, trying to time the market is a fools' game. Stockmarket pundits can tell you with great certainty when the market changes...about a quarter ago. They look back at data that is months old and finally see the inflection points. We'll probably be able to do the same thing in the housing market. I'm sure that Lawrence Yun, the NAR economist, will be able to provide great scholarly proof of what happened and when, about 2-3 months after the fact. In the mean time Olly, Olly All In Free! It's changing people.
Somehow buyers seem to know that the end of the buyer's market may be near. They are out in a frenzy buying up distressed homes in my area, with many now involved in bidding wars over HUD houses and foreclosures. An would be move-up buyers are calling, looking for help because they can't seem to find what they're looking for as they wander around searching for lawn signs. That's because the sellers are still hiding. Olly, Olly All In Free! Come out, come out, where ever you are and join the new game.
Well, it's time for a big "OLLY OLLY ALL IN FREE" cry to go out to the housing market. The current housing depression game is over and it's time to start a new game. The problem is that too many would be sellers are still hiding out, hunkered down and waiting to put their homes on the market. Well, Olly, Olly All In Free. It's time!
Our local inventory has been dropping for several quarters and now we find ourselves with a severely depleted inventory of non-distressed homes as well as distressed homes. The distressed homes have been selling so briskly that they are now subject to bidding wars as more investor money chases the falling inventory. And so-called "normal" sales have been good enough to more than absorb what little inventory that has been hitting the market. The result is an inventory as we enter the spring selling season that is pathetically thin, especially in the middle prices. Olly, Olly All In Free! Let's get out there people.
Many homeowners who would like to sell have been trying to guage the market bottom; but, as stock market analysts will tell you, trying to time the market is a fools' game. Stockmarket pundits can tell you with great certainty when the market changes...about a quarter ago. They look back at data that is months old and finally see the inflection points. We'll probably be able to do the same thing in the housing market. I'm sure that Lawrence Yun, the NAR economist, will be able to provide great scholarly proof of what happened and when, about 2-3 months after the fact. In the mean time Olly, Olly All In Free! It's changing people.
Somehow buyers seem to know that the end of the buyer's market may be near. They are out in a frenzy buying up distressed homes in my area, with many now involved in bidding wars over HUD houses and foreclosures. An would be move-up buyers are calling, looking for help because they can't seem to find what they're looking for as they wander around searching for lawn signs. That's because the sellers are still hiding. Olly, Olly All In Free! Come out, come out, where ever you are and join the new game.
Monday, April 18, 2011
Dramatic differences when distressed sales removed
I track and report upon several local real estate markets. In general I report on all of the sales in each market, which obviously includes a big slug of distressed sales - foreclosures and short sales - these days. Potential customers often complain that they shouldn't be lumped in with those distressed sales when I'm evaluating a market price for their home. They are partially correct. The distressed sales do have an impact on the overall market by lowering everyone's value. But by how much and what is the difference between the two categories - total market and non-distressed only sales? I decided to review my data to see if I could see that difference.
I must admit that I was not prepared for the dramatic differences in some key metrics. In general the median non-distressed homes sold for $40,000 or more than the total market median price. The impact on the SEV multiplier is even more dramatic, rising between .35 to .5 depending upon the specific market. The difference in price per square foot is also dramatic, ranging between $16-26 per square foot for non-distressed homes. Below are some of the markets and the differences.
Milford Overall Market
Median Sold Price - $200,000
Average SEV Multiplier - 1.5316
Average Sold Price/Sq Ft - $80
Milford Non-Distressed
Median Sold Price - $240,000
Average SEV Multiplier - 1.8775
Average Sold Price/Sq Ft - $100
Highland Overall Market
Median Sold Price - $97,000
Average SEV Multiplier - 1.4881
Average Sold Price/Sq Ft - $72
Highland Non-Distressed
Median Solf Price - $235,500
Average SEV Multiplier - 2.0011
Average Sold Price/ Sq Ft - $102
White Lake Overall Market
Median Sold Price - $136,425
Average SEV Multiplier - 1.5937
Average Sold Price/Sq Ft - $75
White Lake Non-Distressed
Median Sold Price - $179,375
Average SEV Multiplier - 1.8624
Average Sold Price/Sq Ft - $87
Commerce Twp Total Market
Median Sold Price - $154,000
Average SEV Multiplier - 1.5943
Average Sold Price/Sq Ft - $80
Commerce Twp Non-Distressed
Median Sold Price - $225,000
Average SEV Multiplier - 2.0028
Average Sold Price/Sq Ft - $96
So there is a case to be made for keeping the two markets separated for purposes of advising would be sellers what their home might fetch on the market. In general sellers still want to start out too high, but not as bad as one might have thought. I looked at the Days on Market figures too and not unexpectedly the non-distressed homes are on the market longer, although that is a statistic that is so often gamed by the listing agents (keeping the listing "fresh" by re-listing rather than extending) that ii is not always a very accurate indicator.
I must admit that I was not prepared for the dramatic differences in some key metrics. In general the median non-distressed homes sold for $40,000 or more than the total market median price. The impact on the SEV multiplier is even more dramatic, rising between .35 to .5 depending upon the specific market. The difference in price per square foot is also dramatic, ranging between $16-26 per square foot for non-distressed homes. Below are some of the markets and the differences.
Milford Overall Market
Median Sold Price - $200,000
Average SEV Multiplier - 1.5316
Average Sold Price/Sq Ft - $80
Milford Non-Distressed
Median Sold Price - $240,000
Average SEV Multiplier - 1.8775
Average Sold Price/Sq Ft - $100
Highland Overall Market
Median Sold Price - $97,000
Average SEV Multiplier - 1.4881
Average Sold Price/Sq Ft - $72
Highland Non-Distressed
Median Solf Price - $235,500
Average SEV Multiplier - 2.0011
Average Sold Price/ Sq Ft - $102
White Lake Overall Market
Median Sold Price - $136,425
Average SEV Multiplier - 1.5937
Average Sold Price/Sq Ft - $75
White Lake Non-Distressed
Median Sold Price - $179,375
Average SEV Multiplier - 1.8624
Average Sold Price/Sq Ft - $87
Commerce Twp Total Market
Median Sold Price - $154,000
Average SEV Multiplier - 1.5943
Average Sold Price/Sq Ft - $80
Commerce Twp Non-Distressed
Median Sold Price - $225,000
Average SEV Multiplier - 2.0028
Average Sold Price/Sq Ft - $96
So there is a case to be made for keeping the two markets separated for purposes of advising would be sellers what their home might fetch on the market. In general sellers still want to start out too high, but not as bad as one might have thought. I looked at the Days on Market figures too and not unexpectedly the non-distressed homes are on the market longer, although that is a statistic that is so often gamed by the listing agents (keeping the listing "fresh" by re-listing rather than extending) that ii is not always a very accurate indicator.
Monday, April 11, 2011
Up popped the devil we know…
My gut told me that March was a tough month, just based upon the high percentage that I saw in the data for my little patch (9 townships that I track), and the headline in today’s local paper confirmed that feeling. Foreclosures jumped back up in March, after having been down in January and February. There were 955 foreclosures in Oakland County in March of this year, as compared to only 915 in March last year. January 2011 started out with only 558 foreclosures in Oakland County, which gave us some hope that the worst was behind us. It was not to be. We seem to be in that confused and confusing state of change that occurs near the bottom of any recession. We haven’t quite reached the inflection point or at least not one that has proven to have legs. We keep bouncing along near the bottom, moving up and down in what appears to be a random pattern, but with distressed sales – foreclosures and short sales still dominating the markets. Last week was the first time in a long while that distressed sales made up less than ½ of my market. I took that to be a good sign. Another good sign is the fact that houses above $200K are selling again, even if they aren’t distressed. That’s good for two reasons – 1.) it says that move-up buyers are back out in the market, and, 2.) it will encourage more would be sellers of midrange homes to get them on the market. We have actually had a very low inventory on the market locally of good mid-range homes that are not distressed. A good portion of the newspaper article about the foreclosure spike in our area focused upon the impact on the tax base and revenues of local governments. This was another year of declining assessed values in our area, with properties down 8-12% depending upon the area. That not only impacts the tax base, but the ability of many owners to even consider selling. The value declines are a real mixed blessing. They mean lower taxes, which everybody is in favor of; however, the continued decline in values continues to put “innocent bystander” homeowners underwater. Now many people who did nothing wrong, who did not overextend themselves or buy more than they could afford; find themselves in the some boat as the people who supposedly caused this mess. I guess, if you are on the Titanic, you never know who you’ll end up in the lifeboat with when the ship goes down.
Thursday, April 7, 2011
Census uncovers size of the problem in affluent neighborhoods…
Articles in today’s Detroit News reported on the surprisingly high percentage of empty homes in some of Detroit’s more upscale suburbs. Places like Bloomfield Hills and Birmingham with upscale homes have always been considered to be somewhat immune to economic downturns. After all these are not places where hourly workers live, don’tcha know.
The News articles reported empty hoe rates of of 9.4% in Birmingham and 10.2% in Bloomfield Hills. One interesting note in the article was the fact that this issue is masked somewhat in those areas because the local governments make sure that the lawns and exterior of the empty homes are maintained, so as to keep up a good impression for the neighborhoods. One resident was quoted as stating, “Even our blight is better.”
These are neighborhoods where owners are walking away from $1.5 Million homes that are nor only worth $600-700,000. These are mainly occupied by what were (and still are in most cases) wealthy Baby Boomers who are now retiring. Many are people with money who are making “strategic default” decisions (see my blog on that topic here). Some are older and may be headed to elder care homes. There are many reasons sited for the high vacancy rates in these rich suburbs, but the bottom line is that many of the people who were apparently wealthy weren’t as well off as we thought or they aren’t as willing as the average Joe on the street to sacrifice in order to keep up payments on underwater assets. That is perhaps the main reason – they see these houses more as assets than as homes and they are willing to cut their losses with those assets just as they would with a poorly performing stock. After all, they can go live in their 4,000 Sq Ft cottages in Traverse City or Aspen until this all blows over. One is hard pressed to feel much sympathy for those now “homeless” people.
In the same Detorit News issue there was also an article that claimed that much of the current home buying in America right now involves cash sales to foreign investors. Apparently they see the U.S. housing market as a golden opportunity to park money in something that they feel has better potential for income (rentals) or eventual appreciation than stocks or bonds. We certainly all know that it is great time to be a buyer, especially if you come with cash in hand. So if you see a foreign buyer wandering around you market with a bag of money, send him my way – have I got some houses for him.
The News articles reported empty hoe rates of of 9.4% in Birmingham and 10.2% in Bloomfield Hills. One interesting note in the article was the fact that this issue is masked somewhat in those areas because the local governments make sure that the lawns and exterior of the empty homes are maintained, so as to keep up a good impression for the neighborhoods. One resident was quoted as stating, “Even our blight is better.”
These are neighborhoods where owners are walking away from $1.5 Million homes that are nor only worth $600-700,000. These are mainly occupied by what were (and still are in most cases) wealthy Baby Boomers who are now retiring. Many are people with money who are making “strategic default” decisions (see my blog on that topic here). Some are older and may be headed to elder care homes. There are many reasons sited for the high vacancy rates in these rich suburbs, but the bottom line is that many of the people who were apparently wealthy weren’t as well off as we thought or they aren’t as willing as the average Joe on the street to sacrifice in order to keep up payments on underwater assets. That is perhaps the main reason – they see these houses more as assets than as homes and they are willing to cut their losses with those assets just as they would with a poorly performing stock. After all, they can go live in their 4,000 Sq Ft cottages in Traverse City or Aspen until this all blows over. One is hard pressed to feel much sympathy for those now “homeless” people.
In the same Detorit News issue there was also an article that claimed that much of the current home buying in America right now involves cash sales to foreign investors. Apparently they see the U.S. housing market as a golden opportunity to park money in something that they feel has better potential for income (rentals) or eventual appreciation than stocks or bonds. We certainly all know that it is great time to be a buyer, especially if you come with cash in hand. So if you see a foreign buyer wandering around you market with a bag of money, send him my way – have I got some houses for him.
Wednesday, April 6, 2011
Get over it...
“Sometimes you’ve got to say to someone, ‘Get over it.’”(Anon) from the Jack’s Winning Words blog.
I’ve blogged in the past about Anon, the world’s most prolific author. The words of Anon seem particularly appropriate in today’s real estate market.
I spent the weekend basically telling potential seller’s to get over it as it concerns the lost value of their homes. Sometime you will hit a fairly realistic homeowner – one who has watched what is gong on in the world and does not believe that somehow there was a miracle and his house was spared the ravages of the current market. However, more often I hit the older couples who just can’t come to grips with the fact that between 1/3 and ½ of their nest egg of home equity is now gone. Moreover, many of them are holding on to the false hope that the dust on the horizon is the cavalry riding to their rescue with an immediate return of value, rather than just more Indians joining the battle to pick over the remains of their equity.
I use lots and lots of facts and comps and charts and other data driven stuff to support the “news” that I have to break to them; however, I continue to get the push-back that , “my house is different, it’s better, it certainly hasn’t lost that much value.” It has. Get over it!
Now, obviously, I’m seldom that blunt or insensitive to the pain that my market pricing analysis brings into the discussion about selling and moving on. In fact, I’ve cried with recent divorcees who have to sell and move their children as part of a settlement and prayed with recent widows who found out that their deceased husbands didn’t provide well enough for an untimely death. I’ve had long, empathetic discussions with husbands whose losses of jobs have forced them to the brink of bankruptcy and into feelings of failure and inadequacy. Even in all of those circumstances one eventually comes to the point of having to say; OK, we’ve had our cry; now, get over it and let’s move on.
So, I’m off to present yet another market analysis to yet another underwater pair of sellers who recently retired. I’ve got my hankies ready. We’ll get over it. That’s how real life works.
I’ve blogged in the past about Anon, the world’s most prolific author. The words of Anon seem particularly appropriate in today’s real estate market.
I spent the weekend basically telling potential seller’s to get over it as it concerns the lost value of their homes. Sometime you will hit a fairly realistic homeowner – one who has watched what is gong on in the world and does not believe that somehow there was a miracle and his house was spared the ravages of the current market. However, more often I hit the older couples who just can’t come to grips with the fact that between 1/3 and ½ of their nest egg of home equity is now gone. Moreover, many of them are holding on to the false hope that the dust on the horizon is the cavalry riding to their rescue with an immediate return of value, rather than just more Indians joining the battle to pick over the remains of their equity.
I use lots and lots of facts and comps and charts and other data driven stuff to support the “news” that I have to break to them; however, I continue to get the push-back that , “my house is different, it’s better, it certainly hasn’t lost that much value.” It has. Get over it!
Now, obviously, I’m seldom that blunt or insensitive to the pain that my market pricing analysis brings into the discussion about selling and moving on. In fact, I’ve cried with recent divorcees who have to sell and move their children as part of a settlement and prayed with recent widows who found out that their deceased husbands didn’t provide well enough for an untimely death. I’ve had long, empathetic discussions with husbands whose losses of jobs have forced them to the brink of bankruptcy and into feelings of failure and inadequacy. Even in all of those circumstances one eventually comes to the point of having to say; OK, we’ve had our cry; now, get over it and let’s move on.
So, I’m off to present yet another market analysis to yet another underwater pair of sellers who recently retired. I’ve got my hankies ready. We’ll get over it. That’s how real life works.
Tuesday, April 5, 2011
Using distressed sales as comps – some states say no…
In today’s RealtyTimes email is a story by Bob Hunt about several states passing or looking at passing laws that try to govern how appraisers might use (include or not include and how to factor) distressed sales – foreclosures and short sales. Click here to read the entire article.
The legislators in the states involved undoubtedly believe that they have the best interests of their citizen at heart – legislators, after all, always seem to think that they know what’s best for us. However, as Hunt points out in the article, these state laws may put the appraisers at odds with Federal laws which state that they must use all available sales in establishing the local market pricing. Hunt goes on to point out some of the complexities that appraisers already need to figure out in order to comply with the Federal guidelines under the Uniform Standards of Professional Appraisal Practice (USPAP), and how these new state rules would further complicate things.
Hunt uses the figures 30-40% of all sales as his measure of what percentage of all sales involve distressed properties. In my area that is still running well about 50% and reaches as high as 70% in some markets. It would be almost impossible to find enough comps to do an analysis without using distressed properties in my markets. The challenge for Realtors® and appraisers alike is figuring out how to factor in the impact of neglect or intentional damage to these distressed houses when using them as comps.
One might make the argument that even if one is diligent in not using distressed homes as comps they still have a large impact on value, since they are now heavily influencing assessments in most areas, causing home values to continue to drop. It is also somewhat ingenuous to think that these homes are not a major part of any local market, especially in my area where they make up such a large portion of the actual sales. I have seen figures that show that they make up less than 25% of the overall inventory on the market in my area and yet they constitute 50-70% of the actual sales in 8 out f the 9 markets that I track.
When I’m doing CMA’s for local clients I try to take out the most egregious examples of distressed homes – those maybe selling for $40-50/Sq Ft in a neighborhood that averages $90-100/Sq Ft. Those are usually the homes that have been trashed or stripped by angry ex-owners and should not be included. I trend to leave short sales in the analysis and foreclosed homes that look like they brought reasonable prices. Those are arbitrary calls on my part, but then the whole home valuation process is much more arbitrary these days that in “normal times”, whatever that was.
The legislators in the states involved undoubtedly believe that they have the best interests of their citizen at heart – legislators, after all, always seem to think that they know what’s best for us. However, as Hunt points out in the article, these state laws may put the appraisers at odds with Federal laws which state that they must use all available sales in establishing the local market pricing. Hunt goes on to point out some of the complexities that appraisers already need to figure out in order to comply with the Federal guidelines under the Uniform Standards of Professional Appraisal Practice (USPAP), and how these new state rules would further complicate things.
Hunt uses the figures 30-40% of all sales as his measure of what percentage of all sales involve distressed properties. In my area that is still running well about 50% and reaches as high as 70% in some markets. It would be almost impossible to find enough comps to do an analysis without using distressed properties in my markets. The challenge for Realtors® and appraisers alike is figuring out how to factor in the impact of neglect or intentional damage to these distressed houses when using them as comps.
One might make the argument that even if one is diligent in not using distressed homes as comps they still have a large impact on value, since they are now heavily influencing assessments in most areas, causing home values to continue to drop. It is also somewhat ingenuous to think that these homes are not a major part of any local market, especially in my area where they make up such a large portion of the actual sales. I have seen figures that show that they make up less than 25% of the overall inventory on the market in my area and yet they constitute 50-70% of the actual sales in 8 out f the 9 markets that I track.
When I’m doing CMA’s for local clients I try to take out the most egregious examples of distressed homes – those maybe selling for $40-50/Sq Ft in a neighborhood that averages $90-100/Sq Ft. Those are usually the homes that have been trashed or stripped by angry ex-owners and should not be included. I trend to leave short sales in the analysis and foreclosed homes that look like they brought reasonable prices. Those are arbitrary calls on my part, but then the whole home valuation process is much more arbitrary these days that in “normal times”, whatever that was.
Sunday, April 3, 2011
A tale of two townships - Green Oak and Hartland
Two of the townships that border on Milford, Michigan are in Livingston County on either side of Brighton. They are Green Oak, which is just west of Lyon Township in Oakland County and Hartland Township, which is just west of Highland Township. Green Oak and Hartland share some characteristics in common. They are both what might be considered to be "bedroom communities", that is to say that they don't have any strong central town/city/village downtown areas around which they revolve.
While Hartland Township does have an unincorporated little area that calls itself Hartland and another unincorporated area called Pharshallville, neither little "village area" has a strong downtown and were likely never much more than a small farm towns. There are few businesses in either to attract anyone. Green Oak has even less of what could be called a central core and was always a fairly rural area. I supposed that it could be argued that the Village of Whitmore Lake is Green Oak's "commercial center." Both tend to be heavily influenced by the City of Brighton, although both do have commercial, shopping strips. Green Oak is served by three different school districts - Brighton, Whitmore Lake and South Lyon - while Hartland does have its own consolidated school district.
One would assume that the real estate markets in these two little suburbs of Brighton would be fairly consistent with that of Brighton itself. In fact, Green Oak is not even tracked and reported separately from Brighton by the Altos Research folks, from whom I get my market charts. However, Hartland is reported separately and is on a completely different track than that of Brighton. The chart shows what appears to be a bottoming out of the market in Hartland after a sustained fall in median home values of sold homes and a continued drop in inventory.
The Green Oak market is included in the Brighton chart, which shows a remarkable recovery of median home prices late last year,, with a bit of leveling off early this year and a continuing decline in inventory.
So far this year, there have only been 31 homes sell in Green Oak Township above $20,000 (my arbitrary cut-off point for tracking purposes) at an average price of $84/Sq Ft and an SEV multiplier of 1.6206. That means that homes that the assessor says are worth $200,000 have been selling on average for about $162,000 in Green Oak or about 81% of the value that they are assessed for. Distressed sales - those that are short sales or foreclosures - made up 46% of all sales in Green Oak so far this year.
In Hartland Twonship, only 30 homes have sold thus far in 2011 at an average SEV multiplier of 1,6255 and at an average of $74/Sq Ft. Hartland has seen distressed sales of 53% of all sales so far this year.
Green Oak has benefited a bit from being out along the I-96 corridor, which makes is a good commuter location for those oriented towards Detroit for work. Hartland is along the M-59 and M-23 corridors, which is not nearly as accommodating for Detroit-oriented work commuters.
While Hartland Township does have an unincorporated little area that calls itself Hartland and another unincorporated area called Pharshallville, neither little "village area" has a strong downtown and were likely never much more than a small farm towns. There are few businesses in either to attract anyone. Green Oak has even less of what could be called a central core and was always a fairly rural area. I supposed that it could be argued that the Village of Whitmore Lake is Green Oak's "commercial center." Both tend to be heavily influenced by the City of Brighton, although both do have commercial, shopping strips. Green Oak is served by three different school districts - Brighton, Whitmore Lake and South Lyon - while Hartland does have its own consolidated school district.
One would assume that the real estate markets in these two little suburbs of Brighton would be fairly consistent with that of Brighton itself. In fact, Green Oak is not even tracked and reported separately from Brighton by the Altos Research folks, from whom I get my market charts. However, Hartland is reported separately and is on a completely different track than that of Brighton. The chart shows what appears to be a bottoming out of the market in Hartland after a sustained fall in median home values of sold homes and a continued drop in inventory.
The Green Oak market is included in the Brighton chart, which shows a remarkable recovery of median home prices late last year,, with a bit of leveling off early this year and a continuing decline in inventory.
So far this year, there have only been 31 homes sell in Green Oak Township above $20,000 (my arbitrary cut-off point for tracking purposes) at an average price of $84/Sq Ft and an SEV multiplier of 1.6206. That means that homes that the assessor says are worth $200,000 have been selling on average for about $162,000 in Green Oak or about 81% of the value that they are assessed for. Distressed sales - those that are short sales or foreclosures - made up 46% of all sales in Green Oak so far this year.
In Hartland Twonship, only 30 homes have sold thus far in 2011 at an average SEV multiplier of 1,6255 and at an average of $74/Sq Ft. Hartland has seen distressed sales of 53% of all sales so far this year.
Green Oak has benefited a bit from being out along the I-96 corridor, which makes is a good commuter location for those oriented towards Detroit for work. Hartland is along the M-59 and M-23 corridors, which is not nearly as accommodating for Detroit-oriented work commuters.
Saturday, April 2, 2011
South Lyon - a market that refuses to die...
The South Lyon/Lyon Township market has proven to be remarkably resilient in the face of the worst recession since the Great Depression. much of last year found the South Lyon market on an upward trajectory in median sold values and inventory. Near the end of the year, when most other local markets tanked, the South Lyon market stubbornly refused to be dragged down. It stabilized and has been bouncing along at that level every since.
A good part of the ability of this market to continue to prosper is based upon the fact that is was the fastest growing new-build market in the area before the bust. There are still new subs being built there and even though most slowed to a crawl in the depth of the recessison, most developers there did not go bankrupt, so they are still building as we come out of the recession. Many other areas saw developers and builders exit the business and leaving unfinished projects in the lurch.
The Lyon/South Lyon area also benefits from its location out along the I-96 corridor. It is relatively easy to access I-96 and get to where ever one wants to go from South Lyon. It is also perhaps feeding off buyers who work in the Brighton area, since it is right next door to Green Oak and Brighton Townships.
So far in 2011, 54 homes above $20K have sold in the Lyon area at an average price of $89/Sq Ft - well above surrounding areas and an SEV multiplier of 1.8638, also well above neighboring townships. South Lyon has had a lower percentage of distressed homes sell, too; which helps keep those numbers up. It is currently running at only 32% of all sales that are distressed, about half the rate of neighboring townships.
A good part of the ability of this market to continue to prosper is based upon the fact that is was the fastest growing new-build market in the area before the bust. There are still new subs being built there and even though most slowed to a crawl in the depth of the recessison, most developers there did not go bankrupt, so they are still building as we come out of the recession. Many other areas saw developers and builders exit the business and leaving unfinished projects in the lurch.
The Lyon/South Lyon area also benefits from its location out along the I-96 corridor. It is relatively easy to access I-96 and get to where ever one wants to go from South Lyon. It is also perhaps feeding off buyers who work in the Brighton area, since it is right next door to Green Oak and Brighton Townships.
So far in 2011, 54 homes above $20K have sold in the Lyon area at an average price of $89/Sq Ft - well above surrounding areas and an SEV multiplier of 1.8638, also well above neighboring townships. South Lyon has had a lower percentage of distressed homes sell, too; which helps keep those numbers up. It is currently running at only 32% of all sales that are distressed, about half the rate of neighboring townships.
Friday, April 1, 2011
In White Lake Michigan the swoon continues...
After a brief respite at the end of last year, when things looked like they had stabilized and might be turning around, median home sale values in the Township of White Lake are again headed down and is inventory on the market
White Lake continues to suffer a high percentage of distressed home sales, with distressed sales making up almost 70% of all sales in March. So far this year, there have been 55 homes sell at an average SEV multiplier of 1.5992. That means that a White Lake home that the assessor says is worth $200,000 actually sold for an average of $159,920 or about 80% of what the assessor thinks it's worth on the market. Home sale prices also averaged about $75/Sq Ft, which isn't all that bad when compared with other local markets.
White Lake is a fairly populous suburb and the last one along M-59 before you get into what might feel more like rural areas - Highland and Hartland are the next two townships out along M-59. White Lake features some very good shopping areas along the M-59 corridor.
White Lake continues to suffer a high percentage of distressed home sales, with distressed sales making up almost 70% of all sales in March. So far this year, there have been 55 homes sell at an average SEV multiplier of 1.5992. That means that a White Lake home that the assessor says is worth $200,000 actually sold for an average of $159,920 or about 80% of what the assessor thinks it's worth on the market. Home sale prices also averaged about $75/Sq Ft, which isn't all that bad when compared with other local markets.
White Lake is a fairly populous suburb and the last one along M-59 before you get into what might feel more like rural areas - Highland and Hartland are the next two townships out along M-59. White Lake features some very good shopping areas along the M-59 corridor.
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