Target Corp., the second-largest U.S. discount chain, said it wrote off 8.1 percent of its credit-card loans in March as consumers grappled with job losses and the biggest housing slump in a quarter century.
This Month:
Target Corp., the second-largest U.S. discount chain, said it wrote off 8.7 percent of its credit-card loans in March as consumers grappled with job losses and the biggest housing slump in a quarter century.
Maybe the Banks are lowering the values of the homes by putting out a fake story about vandal homeowners.
Maybe they are doing it themselves to get the insurance money.
Maybe the Banks are lowering the values of the homes by putting out a fake story about vandal homeowners.
Well, now, there's an angle I hadn't considered. And the darned banks are so clever that they launder the story through a bunch of relitters! And we know relitters have a real interest in lowering home values. Or else, well, they can be bought for cheap. Cash for survey results?
It still doesn't work for me, though, as a theory until we've accounted for how Countrywide Envy fits into this.
I've been looking for a rental house in Orlando. There is plenty to choose from, especially in the newer neighborhoods. You don't need a sign in the yard to spot the houses for sale or rent. Just look for the brown lawns. In some neighborhoods, it seems like every third yard is dead. It kind of gives you an eerie feeling.
There is also plenty of commercial space for lease. You can see a sign in almost every plaza or office building. Naturally, along the five-mile trip to my gym, there are three large commercial properties under construction. They're very nice. Could be a good purchase in ten years, but these things don't stand a chance of breaking even anytime soon.
In my experience, RE agents can take a lot of heat if the house they're trying to sell is unsightly or unkempt. I've seen a few "On your side" news segments with complaints about weed lawns and teenage parties, and the for-sale sign is featured prominently in the coverage. Often the agent ends up doing simple maintenance just to keep the image up.
That 50% number probably includes circumstances like this.
I have a friend who's underwater on not only his heloc but also his mortgage. The heloc company offered to settle for ten cents on the dollar right out of the gate. Countrywide is the primary lender. It's pretty clear that they don't have either enough people or experience to deal with this crisis. To no avail, I had tried to convince my friend three years ago that at best he'd break even on his house once he finished with the extreme renovations he was doing. He's extremely sharp, but he like everyone else I spoke with believed his house would always be able to sell. Granted I too think it will sell--just nowhere near the breakeven price. Nevertheless, he's committed to selling at this point. I think he's finally ahead of the curve, as he now just wants out.
I think the trash-out term is subjective and those with little experience in foreclosures may tend to get excited about "normal" deficiencies seen in a typical foreclosure. And 25% in repairs?? Gimme a break.
Cash incentive to move out - that is something that used to be done in certain cases where it made economic sense. Pay the owner a couple-three thousand in return for a deed in lieu. Gets them out faster, less cost to servicer, and the owner has a few bucks for moving/deposit expense.
I think the media might be combining a couple of issues that have nothing to do with each other. Paying someone not to trash the house is a bit far fetched.
Anyone think the rising foreclosures are related to the rising credit card delinquincies and the rising CRE debt delinquincies and the rising municipal delinquincies and the rising bank failures and the record Federal deficit?
I wonder what the cash difference is now between what houses usually look like (normal wear/tear/messiness) and what they are when staged for sale and if that doesn't explain some of the monetary figures being loosely tossed about. As I understand it (being a serial and committed renter - white paint is my -favorite-) don't people always find things to fix in between making an offer and signing the final papers? Hasn't staging gotten wildly more extravagant recently? My cousins were talking about $1,000s for plants when selling their condo and that was after the new floors and the complete interior paint job.
If I come and strip all the copper and brass out of your house, you can bet it is going to cost you very big chunk of money to replace it. I'll take the stainless steel sink but just smash the bathroom since to get at the brass fitting in it since that is easier.
I'm not saying this is what is happening, but I wouldn't need a backhoe to put you in $100,000 hole while making myself a few grand.
Hasn't staging gotten wildly more extravagant recently?
There might well be some n00b RE agents out there who think REO typically "shows" like non-distressed sales, or that the typical buyer of REO expects "staging" rather than a substantial repair bill, but I don't know why we'd care about their opinions on the subject.
People who need or want "move-in condition" are advised to avoid REO. People who are interested in REO are advised to be prepared to 1) haggle over repairs or 2) buy as-is and do the repairs themselves.
On the other hand, if you might consider some compromise between "move-in condition" staged properties and REO needing a few repairs, you would not be well-served by a buyer's agent who tries to convince you that REO typically needs repairs of 25% of value or that it would be terrifically difficult to replace a furnace in a home otherwise acceptable to you. This is an agent who is simply steering you to the most expensive properties on the market.
I'm not saying this is what is happening, but I wouldn't need a backhoe to put you in $100,000 hole while making myself a few grand.
I don't buy it. Sorry.
Sure, if the value of the home were $100,000, you could easily create $25,000 worth of damage.
But I need someone to come up with some actual numbers for $100K in repairs on a $400K house. Even if you took a sledgehammer to every piece of porcelain, every panel of drywall, ripped out every fixture and pissed on all the carpets, how could it cost $100K to repair that?
Tanta- I wonder where realtors will come out in the next one of those'trusted professions' surveys? Somewhere between Grifter and Crack Junkie I'd guess, and deservedly so.
Also, let's not forget those fools who bought derelicts at phantastic prices, slapped on a perfunctory paintjob and rented them out, thinking they could pay the mortgage from the rental income and then unload the property before the rate on their mortgage resets.
but when you're looking for a dramatic story, no doubt a n00b with dramatic numbers is exactly the source you'd cling to! Now that I think more about it, there might be a kind of mark-to-model issue worming in, if they're anchored on what the original loan was worth / original price and measuring current messy value against that, could they also be conflating general underwaterness with state of trasheddom? Granted, there are probably long-standing heuristics for distingishing the two, but would they be ignored by aforementioned n00bs and reporters that cling ivy-like to them?
I think the media might be combining a couple of issues that have nothing to do with each other. --DEC
People who need or want "move-in condition" are advised to avoid REO. -Tanta
I agree with Tanta and DEC. This is just sensationalism or bellyaching.
It seems like people's memories go back five years. So in 2006, we had always been in a RE boom. In 2008 people are saying "Houses that need work? WTF, the last two years have been different from all of human history before." In 2012 people will say RE has always been dangerous and costly to own. Banks doing a lot of deeds in lieu on houses that need work will just be normal, the way it's always been.
Even if you took a sledgehammer to every piece of porcelain, every panel of drywall, ripped out every fixture and pissed on all the carpets, how could it cost $100K to repair that?
If you strip all the plumbing out of the walls and floors, it is a real mess. I'm not talking about someone doing damage for damage's sake. I'm talking about someone taking anything of value out of the house. All copper plumbing and wire and in the process not caring what got wrecked along the way. I don't think $100,000 is out of the question to hire a plumber, an electrician, drywall and painting crew to replumb and rewire a house. Plus the cost to replace all the materials. I can get my hands on a quote for what that would cost to do for new construction. I'll get back to you on that but I can tell you it is a lot closer to $100K than $25K with a high level of confidence.
So am I to believe that there's a bunch of thuggish deadbeats holding their foreclosed residences for ransom? "Pay me or the house gets it". How much due diligence was done on the part of the lender prior to loaning the money in the first place. About a year ago I got a C-30 express (Freddie's version of the Fast & Easy) with a property inspection waiver. There were no red flags that made it stand out (excellent credit, verified employment, income was reasonable, etc...) and on top of the PIW we were pulling an AVM. The UW brought me the loan because there was an appraisal in the submission that showed significant siding damage. The loan was declined but only because the appraisal was in the file. How many loans were approved without having any idea what shape the collateral was in to start with?
"Houses that need work? WTF, the last two years have been different from all of human history before."
It's not the condition of an individual property that's the problem. After all, the term "fixer-upper" has long been equated with "bargain." No, the real problem is the fomenting of "there goes the neighborhood" fears. This meme will kill a market faster than just about anything. At the end of the day, and at the end of every bear market cycle, fear rules.
I agree with 12th percentile. Remember, the cost of new construction is lower due to the assembly line efficiencies and methodical scheduling of trades. These repairs fall under the renovation column of costs. Frequently more has to be undone beyond the original damage to competently replace the removed items. Having said that, there are obvious levels of repair and individuals (and real life budgets) can swing that one way or another.
Plumbers and electricians are required to insure their work is up to snuff, and to cover themselves they may need to 'redo' a lot more than patchwork. Again, this varies as per locale and buiulding codes and inspectors.
If buyers can do a lot of this themselves (sheetrocking and painting, even tile work) that obvioulsy brings budgets down too.
I don't think $100,000 is out of the question to hire a plumber, an electrician, drywall and painting crew to replumb and rewire a house.
Maybe it would be easier just to go the insurance policy and see what the estimated replacement cost of the whole damned thing is.
We are talking about a $400,000 home. You will have to make some assumptions about location, square footage, number of bathrooms, quality/age of existing structure, etc. here, of course. I, however, can easily imagine some $400K homes that had a cost to construct--less lot and foundation and grading and permits etc. etc.--that was about $100K.
I think I need someone to explain to me how anyone can do $100,000 worth of damage to a three-bedroom two-and-a-half bathroom home with doors that are not wide enough to admit a backhoe.
What kind of $400,000 home is it: a $100,000 home on a $300,000 lot, or a $300,000 home on a $100,000 lot? Sell off the upscale appliances ($25,000), window treatments ($10,000), trash the stone countertops in kitchen and bathrooms ($15,000), and leave the house open long enough to develop a serious mold and vermin problem, and you're at $100,000 easily. Like cars, houses can be totalled--to the point where you might as well bring in your hypothetical backhoe and start over from the mudsills up.
Also remember that when your house is one of 100 foreclosed homes in your tract-home suburb, even minor damage can push you far enough down in the rankings to make it unsaleable--which may easily mean a 6-figure hit on the sale price.
How many loans were approved without having any idea what shape the collateral was in to start with?
Hard to say.
It's also hard for me to square the record billions o' dollars in "home improvement loans" over the last several years with tons of foreclosed properties that have siding falling off.
In fact, I used to shake my head over these stories you'd see in the paper about some hapless borrower who bought a new--brand new--home for some ridiculous price and then within a year did a cash-out or got a HELOC for "improvements." I could never quite figure that out. I have often believed that people were just borrowing the money to do routine maintenance and repair, and calling it "home improvement" just because.
If they were doing that, though, then it's hard to know how there can be so much deferred-maintence damage out there.
Sell off the upscale appliances ($25,000), window treatments ($10,000), trash the stone countertops in kitchen and bathrooms ($15,000)
Well, see, right there you have me confused. If the just the appliances, window treatments, and countertops add up to $50K of the value, how likely is it that the structure is valued at only $300K?
I personally use appraisals that give value to "window treatments" as fireplace kindling, but that's another subject, I guess.
As a buyer, what is the best way to protect myself from getting into a home that has been damaged? Right now I think "don't buy" feels pretty safe. I can just think to hire a home inspector...
Just bought a foreclosed trashed out doublewide trailer because I wanted the well, septic, electric and 9 acres it sits on. You can't believe the damages. Every door was kicked in, all the windows broken, carpets smell of urine, doors were ripped off the cabinets, conter tops were scratched, no wall was left without a hole punched in it. Funny - the toilets were left intact! I plan on cleaning it up by having the volunteer fire dept. burn it to the ground. They need and want practice fighting fires. The left over frame members will make great roof supports.
However, I think I need someone to explain to me how anyone can do $100,000 worth of damage to a three-bedroom two-and-a-half bathroom home with doors that are not wide enough to admit a backhoe.
Step 1: Live in home while market value falls from $416,995 to $295,000.
Step 2: Sell appliances that weren't even framed in to cover mortgage.
Step 3: Lose house anyway.
And there you are. 100K worth of damage.
Residential metal mining is a more serious explanation, though I'm uncertain why we want to take seriously yet another Realtor Anecdote Crisis: The value of the brass valves may be $8.35 plus tax at Home Depot and 75 cents at the recycling depot.
However, the damage from extraction without properly turning off the water at the service point? Priceless.
Tanta and All,
I am having a bit of trouble getting my mind around the idea that going to all the trouble of pulling out copper wire, copper pipes and fixtures is worth the effort. I could see using a back hoe to tear the place down and then pulling the copper out because I have seen house teardowns and it is fast. It just doesn't compute to balance the effort required with the scrap value of copper. Is it going to 1000 and oz?
I wish I'd saved the link, but just the other day I was browsing homes in Elk Grove on movoto (which looks like you can't throw a stone without hitting a forclosure there), and I saw a home that had the sheet rock completely ripped out of one wall. And it looked like the bathroom ceiling was torn apart with the air ducts pulled out. As my husband said, "Imagine if they put that much effort into reading their loan documents..."
Well, see, right there you have me confused. If the just the appliances, window treatments, and countertops add up to $50K of the value, how likely is it that the structure is valued at only $300K?
I don't know about you, but most of the "Executive Homes" I've been in recently are piece-of-shit $100,000 houses with $100,000 of glitzy amenties. People aren't trashing out Frank Lloyd Wright originals, they're trashing out overpriced tract homes with stainless-and-granite kitchens. What's going on in and under the walls would gag any self-respecting carpenter, electrician or plumber.
I could see using a back hoe to tear the place down and then pulling the copper out because I have seen house teardowns and it is fast. It just doesn't compute to balance the effort required with the scrap value of copper.
I find it hard to believe that the scrap value of copper would cover the rental and fuel on the backhoe.
saw a home that had the sheet rock completely ripped out of one wall. And it looked like the bathroom ceiling was torn apart with the air ducts pulled out.
My guess is that that's the "typical" kind of owner-damage you see, and that the necessary repairs would probably add up to $5-10K at most.
For all we know, though, it wasn't originally trash-out behavior. Possibly it was a panicky idiot with a cat stuck in the ductwork, who ripped things up getting the cat out and then realized he/she couldn't afford to fix the damage. Is that plausible? I don't know; all I know is that everyone is making up narratives to fit things they see or hear about, and sometimes what people assume about other people says more about the observer than the observed.
I am not denying that homes can be damaged; I am merely having some problem with these wildly exaggerated numbers.
Anyway you look at it, especially with federally chartered banks that operate with impunity, a Congress who you elected and lives better than you do,a Banking system that does not provide regulations to help a distressed borrower in fighting their foreclosure, a distressed borrower
that can't afford a lawyers creativity, yes, trashing the lenders house is the only recourse left.When the government lives better than its people,and the people find out-there will always be a reaction-in this case a trashing reaction.
PS- If you pay $65K to remodel just your kitchen, then it doesn't take a whole lot to create $100K in repairs.
Remember ,this is America where the American Dream has now become the foreclosure or is it the credit crisis sponsored by the greedy for the needy.
Michael LittleBig
I have a theory. Perhaps real estate agents are sales people with a pronounced tendency for exaggeration?
I think the comments show that although the actual cost of putting copper back may reach 10k, in terms of perceived loss of value, it's much greater. Another factor might be when there is a kitchen or bath to be fixed, the cost might be viewed on par with the cost of a remodel, which, since a remodel is usually an upgrade, is more expensive than simple replacement.
Again, from my discussions with real estate agents, it's apparent that they live in a vastly different world than I.
My price range puts me looking at REOs. I thought it would be good bec the bank will just wants to unload. I have had my agent set up 6 showing in the last 2 months. 5 of the 6 had EXTENSIVE mold and water damage. To the point where I chased my 8 month pregnant wife out the the house! The damage is so massive that it would take thousands of dollars to fix. I am not sure if this is because of maliciousness or just that the bank never looks at these homes and does not take measures to prevent it. Many of the bad ones, we have left having scatchy throats and runny noses. These properties will go for far below pre-bubble prices.
"Most people don't want cash for keys," says the researcher Popik. "They want their credit ratings to stay intact."
What fresh horseshit is this?!?
Thomas Popick should stick to reselling his (freely-available) HMDA data, rather than billing himself as a 'researcher' while bleching out statements as asinine as the one above.
I promise you, gentle CR readers, that any borrowers who are at the point of getting 'cash-not-to-trash' offers from their mortgage servicers passed the point of 'keeping their credit intact' about a lightyear ago.
Consider non owner occupied units, which made up 40% of demand in recent years. The landlord who bought 10 houses at 1% interest for way too much money and rented them out for 1/2 the amount of a 30 year fixed conventional. When he can't flip them in 2008, he hands all 10 of them back to the bank - with the renters still living there. Can you say "eviction party"?
Having owned and managed rental properties for the past 13 years my experience is that it is quite rare for people to maliciously destroy property - no doubt, I've seen properties get incredibly distressed (after evicting tweakers or a home where several families reside - illegally) but mostly just from negligence. I still think it will be the exception that a home-owner would trash their house.
Also, from what I know of the REO market right now (in Vegas and San Diego) the "cash-for-keys" is what is commonly offered to those who have already lost their house to foreclosure in a completed Trustee Sale - as opposed to such being offered for a Deed in lieu of foreclosure.
I think the quoted agent and reporter are conflating two pieces of the REO puzzle.
Damaged REO homes sell for 25% less than their value (estimated price for a staged house) but empty REO homes with normal wear and tear sell for say 15% less than a staged home with a seller disclosing any known defects. That's still a bit much if "substantial damage" means replacing carpets, flooring and drywall and painting but closer to reality.
I can't imagine that half of all REO homes are stripped of their wiring and plumbing.
Okay, I found the house I was looking at. 5 bedroom, 3134 sf house with property damage, going for the low low price of $329,000. I think that's still very pricey for a damaged forclosure. It's a very bland house and ugly kitchen even for the bank owned price.
BTW, photo #9, is that a bag of insulation on the floor? Check out photo 7 with the air ducts hanging through the bathroom. And photo 4 of the "remodeled" dining area. Also looks like the window was damaged and the light fixtures were pulled out of the ceiling in the kitchen.
As an agent working with people in trouble--- before they are at the cash for keys stage--- I am seeing many of them selling all the appliances out of the house. Even that has an impact on price! And the cash for keys, for squatters, that can be worth quite a bit more than just taking the copper (we have a lot of that going on in our more urban areas!)
I wonder if there's a honey for keys plan in the works
...Evicting the squatting bees starts with a phone call to the city's Code Compliance department, something real estate professionals say just isn't happening enough.
I've seen at least a dozen REOs on my house hunting quest. They were ALL grim. Holes in the floors, walls, cabinets trashed, bathroom doors gone, holes in the closet doors, broken windows, water damage, one had a tree growing in the middle of the kitchen floor (!!), etc.
You are not going to sell these houses to your average homebuyer, these are properties that only an investor would buy. The banks still haven't cut the prices to the point an investor has a chance to profit, so they sit.
karen- that looks like an incomplete remodel, the care in removing the sheet rock and the relatively square hole argues someone wasn't trying to damage the place.
sdtfs writes:
karen- that looks like an incomplete remodel, the care in removing the sheet rock and the relatively square hole argues someone wasn't trying to damage the place.
Ohh okay. Is that usual for someone to remodel several rooms at the same time like that? Bummer to put all the work into it and then lose it before you get a chance to do anything.
Karen, I agree that those pictures look like an incomplete project, not damage. In any event, it doesn't look like a very expensive fix. This is indeed the kind of home I was thinking of as the "cross" between an REO fixer-upper and a "move-in" condition home.
I agree with you generally that the problem is probably over stated. Having said that in the process of looking for foreclosures in Phoenix to buy for out own account, we have seen some pretty spectacular examples of stripping. Some houses have had all cabinets, flooring, plumbing fixtures, interior light fixtures and heating and air coditioning units removed. It is becoming quite rare to find a foreclosure that has an air coditioner still in place. Some homeowners have even advertised on Craigslist. Here is one advertisement- METROPOLITAN | Property Management & Real Estate Investments.
Tom, I frankly cannot believe that lender is not applying for a deficiency judgment. I would just attach the Craislist ad to the motion and let the judge tell me why I shouldn't get it.
Somebody like that homeowner is asking to be the one made an example of. Appliances, hell. I could even ignore the AC or the furnace (although those are fixtures). But the hardwood flooring? Dude needs a deficiency judgment and I think the court would agree.
I have seen at least 5 homes in my market where pipes have frozen and burst, creating huge mold problems where everything would need to be ripped down to the studs and completely rebuilt. Walls, ceilings, floors, appliances, cabinets, everything ruined. Sometimes I just wonder why they don't raze the house.
Dude needs a deficiency judgment and I think the court would agree.
That's an interesting question, I agree with something as egregious as Tom's Craiglist situation, you can't just chalk it up to "the cost of doin' bidness." But what to do? I think it boils down to the State in which this occured. I have a feeling some might find this a criminal, rather than a civil matter. Or the lender might be better off to pursue it as a fraudulent conveyance complaint and just get the shit back from whomever "bought" it.
The whole wrinkled reptilian snout thing dates back to this comment by our friend MaxedOutMama, which was just so out-there (even for this blog) that is became, basically, an instant hit/meme.
In my experience, the number is good. We were looking at a property at auction. We had seen it a couple of weeks before the auction. All of the appliances were there, sinks, cabinets, etc.
A couple of days before the auction, we went to look at it one more time. At this point, no agent was attached to it, so we walked the property and looked inside windows.
No sink, appliances, or cabinets. Big holes where they were though.
When the items were there, the home was to auction for $380's for an original mortgage of $560. With the damage, the price started at $297. We didn't buy it, because we were fearful of what other damage the owner did prior to handing over his set of keys.
I have my notorious condo. Bought for 135k in 02, in as is condition. Owned by a chain smoking pot dealer. Needed a lot of work.
I've probably put 30k into it- paint, refinishing the floors (twice) etc.
Also, I spent 12k on a kitchen. And that was using mid-grade cabinets from Lowes- not the ones they keep in the store, but by no means the expensive ones, the cheap in store formica countertops, tile from my parents house, and some really nice metal things for the cabinet I got for .20 each.
And it was 12k. For what I would consider a basic kitchen redo- and I kept the appliances I had, save for the microwave range hood. It was only an "upgrade" if you consider replacing the 1974 kitchen with a clean set of stuff that actually attached to the wall an upgrade. (oh, alright- the $400 microwave was in fact an upgrade)
Paint, labor, and stuff are where the money went.
So as a percentage of the original purchase price? i've probably easily spent 25%.
As a percentage of the $330k it was theoretically worth at one point? ha.
But I'm in a big building, where we have a lot of the issues of 40 years of deferred maintence.
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Last Month:
Target Corp., the second-largest U.S. discount chain, said it wrote off 8.1 percent of its credit-card loans in March as consumers grappled with job losses and the biggest housing slump in a quarter century.
This Month:
Target Corp., the second-largest U.S. discount chain, said it wrote off 8.7 percent of its credit-card loans in March as consumers grappled with job losses and the biggest housing slump in a quarter century.
More coming????
Maybe the Banks are lowering the values of the homes by putting out a fake story about vandal homeowners.
Maybe they are doing it themselves to get the insurance money.
Are these the same people who want tax cuts and big increases in government spending?
Maybe the Banks are lowering the values of the homes by putting out a fake story about vandal homeowners.
Well, now, there's an angle I hadn't considered. And the darned banks are so clever that they launder the story through a bunch of relitters! And we know relitters have a real interest in lowering home values. Or else, well, they can be bought for cheap. Cash for survey results?
It still doesn't work for me, though, as a theory until we've accounted for how Countrywide Envy fits into this.
I've been looking for a rental house in Orlando. There is plenty to choose from, especially in the newer neighborhoods. You don't need a sign in the yard to spot the houses for sale or rent. Just look for the brown lawns. In some neighborhoods, it seems like every third yard is dead. It kind of gives you an eerie feeling.
There is also plenty of commercial space for lease. You can see a sign in almost every plaza or office building. Naturally, along the five-mile trip to my gym, there are three large commercial properties under construction. They're very nice. Could be a good purchase in ten years, but these things don't stand a chance of breaking even anytime soon.
In my experience, RE agents can take a lot of heat if the house they're trying to sell is unsightly or unkempt. I've seen a few "On your side" news segments with complaints about weed lawns and teenage parties, and the for-sale sign is featured prominently in the coverage. Often the agent ends up doing simple maintenance just to keep the image up.
That 50% number probably includes circumstances like this.
Tanta,
I have a friend who's underwater on not only his heloc but also his mortgage. The heloc company offered to settle for ten cents on the dollar right out of the gate. Countrywide is the primary lender. It's pretty clear that they don't have either enough people or experience to deal with this crisis. To no avail, I had tried to convince my friend three years ago that at best he'd break even on his house once he finished with the extreme renovations he was doing. He's extremely sharp, but he like everyone else I spoke with believed his house would always be able to sell. Granted I too think it will sell--just nowhere near the breakeven price. Nevertheless, he's committed to selling at this point. I think he's finally ahead of the curve, as he now just wants out.
I think the trash-out term is subjective and those with little experience in foreclosures may tend to get excited about "normal" deficiencies seen in a typical foreclosure. And 25% in repairs?? Gimme a break.
Cash incentive to move out - that is something that used to be done in certain cases where it made economic sense. Pay the owner a couple-three thousand in return for a deed in lieu. Gets them out faster, less cost to servicer, and the owner has a few bucks for moving/deposit expense.
I think the media might be combining a couple of issues that have nothing to do with each other. Paying someone not to trash the house is a bit far fetched.
Anyone think the rising foreclosures are related to the rising credit card delinquincies and the rising CRE debt delinquincies and the rising municipal delinquincies and the rising bank failures and the record Federal deficit?
Is the whole game subprime right now?
I wonder what the cash difference is now between what houses usually look like (normal wear/tear/messiness) and what they are when staged for sale and if that doesn't explain some of the monetary figures being loosely tossed about. As I understand it (being a serial and committed renter - white paint is my -favorite-) don't people always find things to fix in between making an offer and signing the final papers? Hasn't staging gotten wildly more extravagant recently? My cousins were talking about $1,000s for plants when selling their condo and that was after the new floors and the complete interior paint job.
Perhaps the article's author intended to write that "50% of real estate agents cited an instance of trash outs that they had heard of."
If I come and strip all the copper and brass out of your house, you can bet it is going to cost you very big chunk of money to replace it. I'll take the stainless steel sink but just smash the bathroom since to get at the brass fitting in it since that is easier.
I'm not saying this is what is happening, but I wouldn't need a backhoe to put you in $100,000 hole while making myself a few grand.
Hasn't staging gotten wildly more extravagant recently?
There might well be some n00b RE agents out there who think REO typically "shows" like non-distressed sales, or that the typical buyer of REO expects "staging" rather than a substantial repair bill, but I don't know why we'd care about their opinions on the subject.
People who need or want "move-in condition" are advised to avoid REO. People who are interested in REO are advised to be prepared to 1) haggle over repairs or 2) buy as-is and do the repairs themselves.
On the other hand, if you might consider some compromise between "move-in condition" staged properties and REO needing a few repairs, you would not be well-served by a buyer's agent who tries to convince you that REO typically needs repairs of 25% of value or that it would be terrifically difficult to replace a furnace in a home otherwise acceptable to you. This is an agent who is simply steering you to the most expensive properties on the market.
What exactly would you hang a dog for?
My criteria would be significantly higher that what I would hang a human for...
Cheers,
prat
I'm not saying this is what is happening, but I wouldn't need a backhoe to put you in $100,000 hole while making myself a few grand.
I don't buy it. Sorry.
Sure, if the value of the home were $100,000, you could easily create $25,000 worth of damage.
But I need someone to come up with some actual numbers for $100K in repairs on a $400K house. Even if you took a sledgehammer to every piece of porcelain, every panel of drywall, ripped out every fixture and pissed on all the carpets, how could it cost $100K to repair that?
Tanta- I wonder where realtors will come out in the next one of those'trusted professions' surveys? Somewhere between Grifter and Crack Junkie I'd guess, and deservedly so.
Also, let's not forget those fools who bought derelicts at phantastic prices, slapped on a perfunctory paintjob and rented them out, thinking they could pay the mortgage from the rental income and then unload the property before the rate on their mortgage resets.
I wonder where realtors will come out in the next one of those'trusted professions' surveys?
Some of them seem to be trying to give "mortgage servicers" a run for their money.
but when you're looking for a dramatic story, no doubt a n00b with dramatic numbers is exactly the source you'd cling to! Now that I think more about it, there might be a kind of mark-to-model issue worming in, if they're anchored on what the original loan was worth / original price and measuring current messy value against that, could they also be conflating general underwaterness with state of trasheddom? Granted, there are probably long-standing heuristics for distingishing the two, but would they be ignored by aforementioned n00bs and reporters that cling ivy-like to them?
I think the media might be combining a couple of issues that have nothing to do with each other. --DEC
People who need or want "move-in condition" are advised to avoid REO. -Tanta
I agree with Tanta and DEC. This is just sensationalism or bellyaching.
It seems like people's memories go back five years. So in 2006, we had always been in a RE boom. In 2008 people are saying "Houses that need work? WTF, the last two years have been different from all of human history before." In 2012 people will say RE has always been dangerous and costly to own. Banks doing a lot of deeds in lieu on houses that need work will just be normal, the way it's always been.
Even if you took a sledgehammer to every piece of porcelain, every panel of drywall, ripped out every fixture and pissed on all the carpets, how could it cost $100K to repair that?
If you strip all the plumbing out of the walls and floors, it is a real mess. I'm not talking about someone doing damage for damage's sake. I'm talking about someone taking anything of value out of the house. All copper plumbing and wire and in the process not caring what got wrecked along the way. I don't think $100,000 is out of the question to hire a plumber, an electrician, drywall and painting crew to replumb and rewire a house. Plus the cost to replace all the materials. I can get my hands on a quote for what that would cost to do for new construction. I'll get back to you on that but I can tell you it is a lot closer to $100K than $25K with a high level of confidence.
It adds up very quickly.
How about simply turning on the faucets? Water damage and mold could make a house all but worthless.
So am I to believe that there's a bunch of thuggish deadbeats holding their foreclosed residences for ransom? "Pay me or the house gets it". How much due diligence was done on the part of the lender prior to loaning the money in the first place. About a year ago I got a C-30 express (Freddie's version of the Fast & Easy) with a property inspection waiver. There were no red flags that made it stand out (excellent credit, verified employment, income was reasonable, etc...) and on top of the PIW we were pulling an AVM. The UW brought me the loan because there was an appraisal in the submission that showed significant siding damage. The loan was declined but only because the appraisal was in the file. How many loans were approved without having any idea what shape the collateral was in to start with?
"Houses that need work? WTF, the last two years have been different from all of human history before."
It's not the condition of an individual property that's the problem. After all, the term "fixer-upper" has long been equated with "bargain." No, the real problem is the fomenting of "there goes the neighborhood" fears. This meme will kill a market faster than just about anything. At the end of the day, and at the end of every bear market cycle, fear rules.
I agree with 12th percentile. Remember, the cost of new construction is lower due to the assembly line efficiencies and methodical scheduling of trades. These repairs fall under the renovation column of costs. Frequently more has to be undone beyond the original damage to competently replace the removed items. Having said that, there are obvious levels of repair and individuals (and real life budgets) can swing that one way or another.
Plumbers and electricians are required to insure their work is up to snuff, and to cover themselves they may need to 'redo' a lot more than patchwork. Again, this varies as per locale and buiulding codes and inspectors.
If buyers can do a lot of this themselves (sheetrocking and painting, even tile work) that obvioulsy brings budgets down too.
I don't think $100,000 is out of the question to hire a plumber, an electrician, drywall and painting crew to replumb and rewire a house.
Maybe it would be easier just to go the insurance policy and see what the estimated replacement cost of the whole damned thing is.
We are talking about a $400,000 home. You will have to make some assumptions about location, square footage, number of bathrooms, quality/age of existing structure, etc. here, of course. I, however, can easily imagine some $400K homes that had a cost to construct--less lot and foundation and grading and permits etc. etc.--that was about $100K.
OTOH, most people leave the refrigerator, clothes dryer etc. in the house when ISTR those are NOT covered by the lein.
I think I need someone to explain to me how anyone can do $100,000 worth of damage to a three-bedroom two-and-a-half bathroom home with doors that are not wide enough to admit a backhoe.
What kind of $400,000 home is it: a $100,000 home on a $300,000 lot, or a $300,000 home on a $100,000 lot? Sell off the upscale appliances ($25,000), window treatments ($10,000), trash the stone countertops in kitchen and bathrooms ($15,000), and leave the house open long enough to develop a serious mold and vermin problem, and you're at $100,000 easily. Like cars, houses can be totalled--to the point where you might as well bring in your hypothetical backhoe and start over from the mudsills up.
Also remember that when your house is one of 100 foreclosed homes in your tract-home suburb, even minor damage can push you far enough down in the rankings to make it unsaleable--which may easily mean a 6-figure hit on the sale price.
How many loans were approved without having any idea what shape the collateral was in to start with?
Hard to say.
It's also hard for me to square the record billions o' dollars in "home improvement loans" over the last several years with tons of foreclosed properties that have siding falling off.
In fact, I used to shake my head over these stories you'd see in the paper about some hapless borrower who bought a new--brand new--home for some ridiculous price and then within a year did a cash-out or got a HELOC for "improvements." I could never quite figure that out. I have often believed that people were just borrowing the money to do routine maintenance and repair, and calling it "home improvement" just because.
If they were doing that, though, then it's hard to know how there can be so much deferred-maintence damage out there.
We have figures on the east coast (varies from market to market obviously) for new construction exclusive of land is 75 psf
Sell off the upscale appliances ($25,000), window treatments ($10,000), trash the stone countertops in kitchen and bathrooms ($15,000)
Well, see, right there you have me confused. If the just the appliances, window treatments, and countertops add up to $50K of the value, how likely is it that the structure is valued at only $300K?
I personally use appraisals that give value to "window treatments" as fireplace kindling, but that's another subject, I guess.
As a buyer, what is the best way to protect myself from getting into a home that has been damaged? Right now I think "don't buy" feels pretty safe. I can just think to hire a home inspector...
Just bought a foreclosed trashed out doublewide trailer because I wanted the well, septic, electric and 9 acres it sits on. You can't believe the damages. Every door was kicked in, all the windows broken, carpets smell of urine, doors were ripped off the cabinets, conter tops were scratched, no wall was left without a hole punched in it. Funny - the toilets were left intact! I plan on cleaning it up by having the volunteer fire dept. burn it to the ground. They need and want practice fighting fires. The left over frame members will make great roof supports.
Remember, the upscale stuff does not have to be replaced.
Not only that, with a recession in housing on, labor and material will be discounted.
My swag:
Electrical 7-10K
Drywall 3-5K
Plumbing 3-5K
Kitchen 3-5K
Carpet 3K
Total 20-30K
"Trash-outs" used to be big in Los Angeles. They were called "riots."
However, I think I need someone to explain to me how anyone can do $100,000 worth of damage to a three-bedroom two-and-a-half bathroom home with doors that are not wide enough to admit a backhoe.
Step 1: Live in home while market value falls from $416,995 to $295,000.
Step 2: Sell appliances that weren't even framed in to cover mortgage.
Step 3: Lose house anyway.
And there you are. 100K worth of damage.
Residential metal mining is a more serious explanation, though I'm uncertain why we want to take seriously yet another Realtor Anecdote Crisis: The value of the brass valves may be $8.35 plus tax at Home Depot and 75 cents at the recycling depot.
However, the damage from extraction without properly turning off the water at the service point? Priceless.
Tanta and All,
I am having a bit of trouble getting my mind around the idea that going to all the trouble of pulling out copper wire, copper pipes and fixtures is worth the effort. I could see using a back hoe to tear the place down and then pulling the copper out because I have seen house teardowns and it is fast. It just doesn't compute to balance the effort required with the scrap value of copper. Is it going to 1000 and oz?
I wish I'd saved the link, but just the other day I was browsing homes in Elk Grove on movoto (which looks like you can't throw a stone without hitting a forclosure there), and I saw a home that had the sheet rock completely ripped out of one wall. And it looked like the bathroom ceiling was torn apart with the air ducts pulled out. As my husband said, "Imagine if they put that much effort into reading their loan documents..."
Well, see, right there you have me confused. If the just the appliances, window treatments, and countertops add up to $50K of the value, how likely is it that the structure is valued at only $300K?
I don't know about you, but most of the "Executive Homes" I've been in recently are piece-of-shit $100,000 houses with $100,000 of glitzy amenties. People aren't trashing out Frank Lloyd Wright originals, they're trashing out overpriced tract homes with stainless-and-granite kitchens. What's going on in and under the walls would gag any self-respecting carpenter, electrician or plumber.
I could see using a back hoe to tear the place down and then pulling the copper out because I have seen house teardowns and it is fast. It just doesn't compute to balance the effort required with the scrap value of copper.
I find it hard to believe that the scrap value of copper would cover the rental and fuel on the backhoe.
saw a home that had the sheet rock completely ripped out of one wall. And it looked like the bathroom ceiling was torn apart with the air ducts pulled out.
My guess is that that's the "typical" kind of owner-damage you see, and that the necessary repairs would probably add up to $5-10K at most.
For all we know, though, it wasn't originally trash-out behavior. Possibly it was a panicky idiot with a cat stuck in the ductwork, who ripped things up getting the cat out and then realized he/she couldn't afford to fix the damage. Is that plausible? I don't know; all I know is that everyone is making up narratives to fit things they see or hear about, and sometimes what people assume about other people says more about the observer than the observed.
I am not denying that homes can be damaged; I am merely having some problem with these wildly exaggerated numbers.
Anyway you look at it, especially with federally chartered banks that operate with impunity, a Congress who you elected and lives better than you do,a Banking system that does not provide regulations to help a distressed borrower in fighting their foreclosure, a distressed borrower
that can't afford a lawyers creativity, yes, trashing the lenders house is the only recourse left.When the government lives better than its people,and the people find out-there will always be a reaction-in this case a trashing reaction.
PS- If you pay $65K to remodel just your kitchen, then it doesn't take a whole lot to create $100K in repairs.
Remember ,this is America where the American Dream has now become the foreclosure or is it the credit crisis sponsored by the greedy for the needy.
Michael LittleBig
I have a theory. Perhaps real estate agents are sales people with a pronounced tendency for exaggeration?
I think the comments show that although the actual cost of putting copper back may reach 10k, in terms of perceived loss of value, it's much greater. Another factor might be when there is a kitchen or bath to be fixed, the cost might be viewed on par with the cost of a remodel, which, since a remodel is usually an upgrade, is more expensive than simple replacement.
Again, from my discussions with real estate agents, it's apparent that they live in a vastly different world than I.
Yea but a 65,000 kitchen can be replaced by a 5,000 kitchen to make a place salable.
My price range puts me looking at REOs. I thought it would be good bec the bank will just wants to unload. I have had my agent set up 6 showing in the last 2 months. 5 of the 6 had EXTENSIVE mold and water damage. To the point where I chased my 8 month pregnant wife out the the house! The damage is so massive that it would take thousands of dollars to fix. I am not sure if this is because of maliciousness or just that the bank never looks at these homes and does not take measures to prevent it. Many of the bad ones, we have left having scatchy throats and runny noses. These properties will go for far below pre-bubble prices.
"Most people don't want cash for keys," says the researcher Popik. "They want their credit ratings to stay intact."
What fresh horseshit is this?!?
Thomas Popick should stick to reselling his (freely-available) HMDA data, rather than billing himself as a 'researcher' while bleching out statements as asinine as the one above.
I promise you, gentle CR readers, that any borrowers who are at the point of getting 'cash-not-to-trash' offers from their mortgage servicers passed the point of 'keeping their credit intact' about a lightyear ago.
Consider non owner occupied units, which made up 40% of demand in recent years. The landlord who bought 10 houses at 1% interest for way too much money and rented them out for 1/2 the amount of a 30 year fixed conventional. When he can't flip them in 2008, he hands all 10 of them back to the bank - with the renters still living there. Can you say "eviction party"?
Having owned and managed rental properties for the past 13 years my experience is that it is quite rare for people to maliciously destroy property - no doubt, I've seen properties get incredibly distressed (after evicting tweakers or a home where several families reside - illegally) but mostly just from negligence. I still think it will be the exception that a home-owner would trash their house.
Also, from what I know of the REO market right now (in Vegas and San Diego) the "cash-for-keys" is what is commonly offered to those who have already lost their house to foreclosure in a completed Trustee Sale - as opposed to such being offered for a Deed in lieu of foreclosure.
fwiw
I think the quoted agent and reporter are conflating two pieces of the REO puzzle.
Damaged REO homes sell for 25% less than their value (estimated price for a staged house) but empty REO homes with normal wear and tear sell for say 15% less than a staged home with a seller disclosing any known defects. That's still a bit much if "substantial damage" means replacing carpets, flooring and drywall and painting but closer to reality.
I can't imagine that half of all REO homes are stripped of their wiring and plumbing.
Having spent easily 60k on renovations over the past 7 years:
New roof 7k - assuming previous owner deferred maintenance.
Full rewire 6k - assuming all copper was ripped out.
Kitchen cabinets 8k - if they took those, as happens.
Carpets 4k - assuming existing has been totally trashed
Landscaping 3k - assuming everything is dead.
Windows 5k - assuming they have been broken.
Plumbing 10k - assuming all copper was ripped out.
Misc odds and ends 5k
Property Detail
Okay, I found the house I was looking at. 5 bedroom, 3134 sf house with property damage, going for the low low price of $329,000. I think that's still very pricey for a damaged forclosure. It's a very bland house and ugly kitchen even for the bank owned price.
BTW, photo #9, is that a bag of insulation on the floor? Check out photo 7 with the air ducts hanging through the bathroom. And photo 4 of the "remodeled" dining area. Also looks like the window was damaged and the light fixtures were pulled out of the ceiling in the kitchen.
[I'm struggling with the idea that they're too pissed to collect an extra couple grand for the keys.]
Most cash for keys offers are nowhere near the economic value of staying until you have to leave.
Unless you've taken a job in another town and were already PLANNING on moving early, it makes little sense to take the pittance they generally offer.
It makes a whole lot more sense to stay home, sock away as much cash as you can, and THEN leave.
As an agent working with people in trouble--- before they are at the cash for keys stage--- I am seeing many of them selling all the appliances out of the house. Even that has an impact on price! And the cash for keys, for squatters, that can be worth quite a bit more than just taking the copper (we have a lot of that going on in our more urban areas!)
I wonder if there's a honey for keys plan in the works
...Evicting the squatting bees starts with a phone call to the city's Code Compliance department, something real estate professionals say just isn't happening enough.
The page cannot be found
I've seen at least a dozen REOs on my house hunting quest. They were ALL grim. Holes in the floors, walls, cabinets trashed, bathroom doors gone, holes in the closet doors, broken windows, water damage, one had a tree growing in the middle of the kitchen floor (!!), etc.
You are not going to sell these houses to your average homebuyer, these are properties that only an investor would buy. The banks still haven't cut the prices to the point an investor has a chance to profit, so they sit.
one had a tree growing in the middle of the kitchen floor (!!)
Yeah, that was supposed to be the bedroom (viz. The Odyssey) so you could build your bed.
karen- that looks like an incomplete remodel, the care in removing the sheet rock and the relatively square hole argues someone wasn't trying to damage the place.
I wouldn't hang a dog on the basis of a survey of real estate agents at this point.
Then take that hang dog look off your face!
Here is a real life incident. Common? I don't see it a lot but it is happening here in "it can't happen here" San francisco. Not Only Appliances, But A Shower Door And Some Light Fixtures Too at SocketSite™
sdtfs writes:
karen- that looks like an incomplete remodel, the care in removing the sheet rock and the relatively square hole argues someone wasn't trying to damage the place.
Ohh okay. Is that usual for someone to remodel several rooms at the same time like that? Bummer to put all the work into it and then lose it before you get a chance to do anything.
Karen, I agree that those pictures look like an incomplete project, not damage. In any event, it doesn't look like a very expensive fix. This is indeed the kind of home I was thinking of as the "cross" between an REO fixer-upper and a "move-in" condition home.
I agree with you generally that the problem is probably over stated. Having said that in the process of looking for foreclosures in Phoenix to buy for out own account, we have seen some pretty spectacular examples of stripping. Some houses have had all cabinets, flooring, plumbing fixtures, interior light fixtures and heating and air coditioning units removed. It is becoming quite rare to find a foreclosure that has an air coditioner still in place. Some homeowners have even advertised on Craigslist. Here is one advertisement- METROPOLITAN | Property Management & Real Estate Investments.
Tom, I frankly cannot believe that lender is not applying for a deficiency judgment. I would just attach the Craislist ad to the motion and let the judge tell me why I shouldn't get it.
Somebody like that homeowner is asking to be the one made an example of. Appliances, hell. I could even ignore the AC or the furnace (although those are fixtures). But the hardwood flooring? Dude needs a deficiency judgment and I think the court would agree.
I have seen at least 5 homes in my market where pipes have frozen and burst, creating huge mold problems where everything would need to be ripped down to the studs and completely rebuilt. Walls, ceilings, floors, appliances, cabinets, everything ruined. Sometimes I just wonder why they don't raze the house.
Dude needs a deficiency judgment and I think the court would agree.
That's an interesting question, I agree with something as egregious as Tom's Craiglist situation, you can't just chalk it up to "the cost of doin' bidness." But what to do? I think it boils down to the State in which this occured. I have a feeling some might find this a criminal, rather than a civil matter. Or the lender might be better off to pursue it as a fraudulent conveyance complaint and just get the shit back from whomever "bought" it.
Where's our lawyer friends when we need them?
Somehow the Chowhound Comment software ate this post, I think, so I repeat:
The burning question of the day is exactly what does Tanta mean by "wrinkled reptilian snout"?
Pas parler français, sil vous plaît,
The whole wrinkled reptilian snout thing dates back to this comment by our friend MaxedOutMama, which was just so out-there (even for this blog) that is became, basically, an instant hit/meme.
In my experience, the number is good. We were looking at a property at auction. We had seen it a couple of weeks before the auction. All of the appliances were there, sinks, cabinets, etc.
A couple of days before the auction, we went to look at it one more time. At this point, no agent was attached to it, so we walked the property and looked inside windows.
No sink, appliances, or cabinets. Big holes where they were though.
When the items were there, the home was to auction for $380's for an original mortgage of $560. With the damage, the price started at $297. We didn't buy it, because we were fearful of what other damage the owner did prior to handing over his set of keys.
Well to talk price-
I have my notorious condo. Bought for 135k in 02, in as is condition. Owned by a chain smoking pot dealer. Needed a lot of work.
I've probably put 30k into it- paint, refinishing the floors (twice) etc.
Also, I spent 12k on a kitchen. And that was using mid-grade cabinets from Lowes- not the ones they keep in the store, but by no means the expensive ones, the cheap in store formica countertops, tile from my parents house, and some really nice metal things for the cabinet I got for .20 each.
And it was 12k. For what I would consider a basic kitchen redo- and I kept the appliances I had, save for the microwave range hood. It was only an "upgrade" if you consider replacing the 1974 kitchen with a clean set of stuff that actually attached to the wall an upgrade. (oh, alright- the $400 microwave was in fact an upgrade)
Paint, labor, and stuff are where the money went.
So as a percentage of the original purchase price? i've probably easily spent 25%.
As a percentage of the $330k it was theoretically worth at one point? ha.
But I'm in a big building, where we have a lot of the issues of 40 years of deferred maintence.
And needless to say, nothing is selling.
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Nice one