Boomer’s Blog

California foreclosures and the mortgage meltdown have been making international news headlines for some time. But this month, news  from the Golden State went from bad, to the Twilight Zone.

Much like the classic TV show, first made popular in the 1950s due in large part to host Rod Serling’s melodramatic gravitas, California’s housing market begs for a prelude to prepare readers for the truly bizarre. As Serling said: “There is a fifth dimension beyond that which is known to man,” He might as well been introducing late-breaking developments in California’s foreclosure crisis.

Here are the five most most startling, weird and ugly foreclosure stories to come out of California so far this month.

1. California REO Foreclosures Selling like Ipods
   This month, the LA Times reported that in April, California home auctions sold nearly 23,000 foreclosure properties at courthouses throughout the state. That’s is a 44 percent jump from the number of REO auctions reported for the state in March. That’s 1,000 homes sold at auction each business day for an entire month.
2. IRS Tax Delinquency, Lies and the Lawmaker
   Although she denied it earlier this week in a written statement, public records show that California Congresswoman Laura Richardson’s Sacramento house was sold via foreclosure auction on May 7. When she bought the 1,600 square-foot home in 2007, she paid more than $535,000. By the time it sold at auction, she owed $600,000 in unpaid loans and fees, including nearly $9,000 in property taxes, reports Capitol Weekly.
3. Countrywide Exec’s Email Debacle
   When an e-mail sent by a distressed homeowner inadvertently landed in his in box, Countrywide Financial Chairman Angelo Mozilo mistook the “reply” button for the “forward” button and sent his caustic response directly to the sender. The LA Times reports that not only was he unsympathetic in his response, he characterized the online foreclosure counseling service that encouraged the homeowner to contact his lender as “unbelievable” and “disgusting.” Mozilo has been under fire for cashing out while Countrywide, and the rest of the mortgage industry was tanking. In 2006, Mozilo was paid nearly $50 million in compensation; between 2006 and 2007, he cashed in stock options then valued at $140 million.
4. Never Neverland Again?
   Mid-month, entertainer Michael Jackson averted the scheduled foreclosure sale of his 2,700 acre Encino Neverland Ranch when his $23.5 million loan was purchased by real estate investment giant Colony Capital, according to Reuters.com.
5. REO Lender Takes the Bat to Canseco’s Portfolio
   At the beginning of this month, news got out that baseball great Jose Canseco let his 7,300 square-foot Encino home slide into foreclosure. He bought it in 2005 for $2.8 million, and when foreclosure struck, the property already had an IRS lien from a judgement levied against Canseco for starting a fight that leveled a Miami night club several years ago. This week, the Chicago Tribune reported that Canseco, who blames his two divorces for his financial woes, intends to generate wealth in his new career as a celebrity boxer.

Black gold is making real estate investment king in states that produce energy by fueling prices in dozens of local U.S. housing markets.

Today, the price of crude oil topped $135 per barrel, up from $65 this time last year, and experts are predicting that the price is likely to reach $200 before too long. While difficult for most of the world to swallow, these prices are producing a boom in some U.S. housing markets, while others languish in an ongoing struggle for economic survival.

Because soaring oil prices result in higher consumer costs for gas, energy bills and food, local economies in many housing markets still reeling from the foreclosure epidemic are suffering from lower tax revenues and other harsh realities. Once-thriving infrastructures appear to be fizzling out in many of the markets that saw the greatest gains during the housing boom.

Give and Take
At the same time, high fuel costs are driving hot housing markets in many energy-producing states. In these real estate markets, high gas prices are stimulating job growth, boosting personal income, contributing to a healthy tax base and rising demands for housing.

The Wall Street Journal reports that five states producing oil, gas and other fossil fuel commodities are beating April’s national unemployment rate of 5 percent and personal income growth of 5.9 percent by significant margins. Here are the numbers from some of the hottest energy producing states for the sake of comparison to the overall national average:

Montana

• Unemployment rate: 3.8 percent;
• Personal income growth: 6.6 percent.

North Dakota

• Unemployment rate: 3.1 percent;
• Personal income growth: 6.4 percent.

Oklahoma

• Unemployment rate: 3.2 percent;
• Personal income growth: 7.0 percent.

Texas

• Unemployment rate: 4.1 percent;
• Personal income growth: 7.4 percent.

Wyoming

• Unemployment rate: 2.6 percent;
• Personal income growth: 6.8 percent.

Since many of these states never experienced the real estate price surges that came with the housing boom, they’re not being ravaged hit by the bust. This may factor significantly into long-term real estate investment stability as the overall U.S. economy struggles to overcome recession, lost revenues and other related economic pangs.

Shelter from Recession’s Storm
Because energy producing states currently are boasting more robust tax revenues, public infrastructures are thriving: schools, hospitals parks and law enforcement are well-funded, roads are better maintained and additional funding is available for the improvements that contribute greatly to property value increases.

These factors all work together to improve the quality-of-life assets that attract qualified buyers for home relocation and up-sizing. When such conditions are in place, they also stimulate the service industry and retail sectors, prompting them to expand their presence, poised to join the party.

Nature Takes her Course
In energy booming states, especially those that smartly diversified their economies during former energy market declines to minimize their economic dependance on oil prices, these indicators offer real estate entrepreneurs broader investment options than many other markets. Currently, they’re generating demand for many different types of housing: rental properties, low-income housing, single family homes and retirement communities, to name a few. When favorable market conditions spark demand, the nature of capitalism takes its course.

Boom and Bust Economy
In the past, real estate markets in energy-producing states were vulnerable to the boom and bust economic cycle. When energy prices would surge, local economies would quickly grow, only to be subjected to painful busts when energy prices inevitably declined. Today however, analysts are saying that we may never again see dramatic declines in oil prices. So as long as the supplies hold out, and local economies strike a healthy balance, these markets look like promising investment opportunities. Savvy real estate entrepreneurs may want to take a look at what some of the up-and-coming markets in energy producing states have to offer their portfolios.

As the number of foreclosed homes continues to skyrocket in many real estate markets, an increasing number of pets are being abandoned by families who are forced to vacate their homes and rental properties. Since the mortgage meltdown began, animal shelters in areas with high instances of distressed properties have been reporting over-crowding, and neighbors complaining about an influx of stray animals roaming streets and alleyways.

Although abandoning animals is illegal, people leaving distressed properties, such as those in foreclosure, often move to locations that don’t allow pets or they find their finances are too strained to continue caring for their pets. Whatever the reason for abandonment, pets often are the helpless victims of their owners’ bad decisions, and the law offers them few meaningful protections.

Where Helping Hands Are Tied
Currently, bank employees, property inspectors and others who enter abandoned homes usually are advised to leave property, including pets, untouched until the foreclosure is complete either for legal reasons, or because because the real estate owned (REO) lenders don’t want responsibility for the animals.

In most states, pets are defined as personal property under the law. Often with foreclosure, property remaining after the home is vacated by distressed homeowners is subject to seizure by the lender. In some states, the law fails to provide for personal property forfeiture until a designated time has elapsed in accordance with the terms of the foreclosure. So, under prevailing laws in many states, REO lenders and others are prevented from removing the pets, even if they would like to help. This is where animals can really fall through the cracks.

Abandoned Homes and Neglected Responsibilities
When people such as property inspectors, REO lender representatives, real estate agents and brokers are allowed to enter an abandoned house, they often encounter the rubble of deliberate destruction. Widespread instances of abandonment-related animal abuse and animal neglect have garnered a great deal of media attention.

The problem is so bad, that even Business Week reports that increasing number of these folks are discovering dogs tied up backyards, cats and turtles in garages, and rabbits and lizards left in children’s bedrooms. Many cruel and unscrupulous homeowners have left forsaken dogs and cats behind inside their homes, who have created unmeasured property damages in the process of their truly horrific demise.

California Lawmakers Tackle the Problem
A new law under consideration in California seeks to make it easier for these pets to get the help they need. It also may effect real estate investors who buy properties where pets have been left behind. The bill, A.B. 2949, as it is currently written, would require anyone who encounters an abandoned animal in a property that has been vacated through lease termination or property foreclosure, to immediately contact animal control officials.

The bill recently made its way through the California House unopposed, and it currently is mid-way through the Senate’s deliberation process. Although the bill has a few more legislative hurdles to clear before it becomes law, it raises some issues that many of us in the REI community might like to address in our business practices.

REO Expert Makes a Difference
Last month, Default Servicing News wrote a great story about Integrated Mortgage Solutions President Cheryl Lang, who has been so touched by the effects of pet neglect and abandonment she’s seen working in the mortgage industry, that she’s launched a non-profit Internet forum she hopes will affect change in how the system handles abandoned pets.

No Paws Left Behind is Lang’s Web site that allows pet owners facing foreclosure in different jurisdictions to log on, type in a zip code, and find the nearest animal shelters in the area. It also provides resources for real estate professionals who encounter abandoned pets in the course of their daily business.

Lang’s efforts began with a dog that was abandoned in a Florida pre-foreclosure her group was servicing. Since there was no animal control in the rural area where she was working, Lang contacted the police. They called the Miami Humane Society, who couldn’t reach the area for five days. Lang and her staff spent the week feeding the dog and making sure he had fresh water. In the meantime, she reports that authorities visited the property several times only to post code violations because the dog had been abandoned.

Look for the Signs
Lang advises real estate professionals to be vigilant for signs of abandoned pets when dealing with distressed properties that have been vacated. Listen for animal sounds coming from the house. Even though you may not be permitted to enter, you can contact the appropriate authorities, including the Humane Society, Animal Control or the police.

Traditionally, unless the animal shows immediate signs of distress, local authorities will post notes on the door to notify the pet owner that he or she is legally bound to care for the pet. Eventually, local authorities will move the pet to a new home or shelter. Because this process too often doesn’t work, Lang’s No Paws Left Behind Web site contains a petition geared to change the legal process from the Federal level to protect the pets.

Do the Right Thing
More distressed homeowners and occupants in transition likely would surrender their pets to animal welfare agencies that rescue pets, if they only knew where to turn. By identifying potential problems before pets are abandoned on your properties, you’re not only protecting your assets, in many instances, you may be saving a life.

Although real estate investors are generally not required by law to take any action to help abandoned pets, many of us want to help when we can because we believe it is the right thing to do. Here are some steps you can take as a real estate investor that may help you to avoid the problems and heartache you’re likely to encounter if you discover abandoned pets on your property:

Seven Ways REI Professionals Can Help Save Pet from Abandonment

1. If you you’re working with distressed homeowners or dealing moving tenants out of a property, ask if they have made plans for their pets.
2. Identify animal welfare organizations and animal control contacts in your area, and keep the contact information on hand.
3. If you know that the occupants are looking for rental properties, suggest they check with the Humane Society or local shelter for pet-friendly rental listings, or advise them to check out Web sites like PeopleWithPets.com, or HomeWithPets.com.
4. Distribute animal adoption literature, or Web resources like No Paws Left Behind whenever suspect it might be useful.
5. After the owners or tenants have moved, ask neighbors if the former occupants had pets. Check to make sure no pets were left behind.
6. Ask people you may have visiting the property to keep an eye out for abandoned pets.
7. Call your local Animal Control, the American Society for the Prevention of Cruelty to Animals (ASPCA), the Humane Society or other shelter for help with rescuing abandoned pets.

Have you encountered abandoned pets in any of your properties? How did you handle it? Please drop us a line and tell us about your experiences. Feel free to share any ideas you think could help other real estate investors who run into the same problem.

Real estate entrepreneur and $100,000,000 deal maker Ken Wade has ridden in the front car of the real estate roller coaster through all three market cycles in the past 30 years, and he’ll tell you that today’s housing market is perfectly normal. There’s no nationwide housing crash, he says. But a media obsession with a few markets is driving negative market psychology — and prices — into the ground.

Just the Facts
In reality, Ken says, what we’re seeing isn’t an economic catastrophe, but the natural cycle that moves the market. He recently crunched some intriguing numbers about the U.S. housing market. Between Q1 2002 and Q1 2006, widely considered to be the peak years of the housing boom, Ken reports the following data:

• Only 25 markets, or 7 percent of the United States, experienced a true housing boom, defined by a four-year total home appreciation greater than 80 percent.
• Only 75 markets, or 20 percent of the United States realized total appreciation between 38 percent and 78 percent.
• Half of all local U.S. housing markets realized cumulative home price appreciation lower than 9 percent for that entire four-year period.
• Approximately 25 percent of U.S. local markets never realized even 6 percent total appreciation during those four so-called “boom” years.

The Nature of the Beast
Ken’s data show that a relative few free-falling markets have garnered a great deal of media attention. The ensuing media circus has helped to redefine public perception of the entire U.S. housing market market with trigger words words like: “housing crisis” and “mortgage meltdown.”

Ken is the Harvard-educated architect of the Housing Alerts’ Total Market Master program for research-based real estate investing. He has spent much of his career tracking local real estate trends and profiting from widespread price fluctuations. With his system, Ken translates the “buy low, sell high” adage into hard science and cold cash. We’ll talk about how he does it next week.

Americans are clearly divided on whether homeowners with distressed properties should receive government-targeted aid to help them keep their houses, as are their elected representatives in Congress.

According to a recent CNNMoney.com poll, only half of Americans surveyed believe that help should be extended to struggling homeowners. These results are derived from phone interviews with 1,008 adults conducted at the end of April. When the same survey was taken in December, 51 percent of survey participants favored special assistance, while 46 percent did not.

The split in popular opinion on the issue also is reflected in the U.S. Congress. Last week, the House of Representatives fiercely debated legislation that would provide federal backing for some at-risk loans and cut the principal owed on some mortgages. The bill passed through the House last week on a 266-154 vote.

The proposed legislation would allow the Federal Housing Administration (FHA) insure up to $300 billion in new loans over four years if lenders agree to reduce mortgage principals. In order to qualify however, lenders would be required to drop the debt to no more than 85 percent of a home’s appraised value. Under the bill, sponsored by House Financial Services Chairman Barney Frank, if the FHA-refinanced loans went into default, the FHA would pay the lender the remaining principal owed.

Critics allege that the legislation is unfair to those who didn’t bite off more debt than their finances could chew, and say it is an inappropriate use of the FHA to bail out lenders and homeowners — all of whom should take responsibility for their business transactions.

Still, due to growing support for the measure in Congress, many expect the legislation to survive bipartisan scrutiny — and predict the bill will gain support from legislators who represent states that have been pummeled by the credit crunch, mortgage meltdown and on-going housing market woes. The White House already has threatened to veto the legislation.

Can’t sell that flip? Consider becoming a landlord to generate cash flow while you hold on for better prices.

The Wall Street Journal reports that 2.2 million vacant homes were for sale in Q1, up from 2.1 million in Q4, and about one million more than was considered “normal” before economic crises permeated the market.

The U.S. homeowner vacancy rate, which tracks the number of vacant homes for sale, jumped to 2.9 percent in Q1, up from 2.8 percent in Q4 2007. According to recent U.S. Census Bureau housing data, the vacancy rate has risen significantly since the housing bubble morphed into the mortgage meltdown. Between 1995 and 2005, the rate sat between 1.5 percent and 2 percent.

Families today are no more likely to own their homes now than they were in 2002, despite widespread opportunities, such as subprime mortgages, that were purported to boost home ownership among borrowers with poor credit scores. Related Census data show that the seasonally adjusted share of homes occupied by owners rose to 67.9 percent Q1, up from 67.7 percent in Q4 – this level peaked at 69.3 percent in 2004. These numbers and the credit crunch fuel more speculation that home prices will continue to drop well into Q4 2008.

While the dream of home ownership has become an Ambien-fueled nightmare for many Americans, data show that droves of families who’ve managed to claw their way out of bad mortgage deals are looking for places to live.

There currently are 4.1 million vacant homes for rent, and the rental vacancy rate edged up to to 10.1 percent in Q1. The rental vacancy rate clearly is on the rise since Q4’s rate of 9.6 percent was recorded by the Census. Analysts say however, that the growing inventory of vacant rentals should keep rent prices relatively stable, and help to temper inflation.

For those looking into becoming a landlord, the Boston Globe offers six rules from the trenches that could save you from financial — and emotional ruin.