Housing Doom

Anyone who’s ever watched any late night television has seen those commercials for reverse mortgage.  They are always touted by older celebrities claiming how safe these things are.  For those who actually believe that there’s little risk to a reverse mortgage, here’s a cautionary tale from our faithful longtime correspondent in Tucson- M.R.:

Recently I passed a vacant house with a NOTS posted on the front fence. I know the owner of this property — she’s an elderly lady who took out a reverse mortgage in 2006.

The NOTS gave the amount, $285,500. Twist, in no way, even during the height of the bubble, was that place ever worth that much. Very few places in zip code 85705 are. Furthermore, the lady was known for feeding every stray cat in the area, and for allowing them into her house. You can just imagine what the place smelled like.

After she got the reverse mortgage, she went on a truly baffling spending spree. We’re talking things like signing up for a coffee bean of the month club, which included an expensive grinder, and she didn’t even drink coffee. (Aren’t reverse mortgages supposed to go to people of sound mind?)

In December 2007, she fell in her shower and broke her leg. After surgery and a stay in rehab, she went to live with her eldest son and his wife. They’re up in northern Arizona. The house was cleaned out, and, boy, did the place need it. The family paid for some fixup work — new kitchen cabinets, new A/C, that sort of thing. The house was put up for sale in June 2008. Listed at about $220,000, and it sat there. And sat there. There was another price cut into the mid-$100,000s.

In February 2009, the "For Sale" sign disappeared, but I didn’t see any signs of a new owner taking the place over. In June, I was at a neighborhood meeting, and the young lady who lives next door said that the house was in foreclosure, and that if someone wanted to buy in, call Wells Fargo.

So, there you have it, reverse mortgage to foreclosure in less than three years.

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Five months ago, we published an article on Arizona’s anti-deficiency statute to explain our state’s law on the potential liability a homeowner may face if their home is sold for less than they owe.
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As quickly as it passed, Senator Pierce asked that his own bill be repealed. Did anyone read the bill?

There is another bill at the governor’s office (HB 2008) awaiting signature to repeal the original bill and add some protection for people who are renting homes that go into foreclosure. 8/25 Payson Roundup¹

Thanks to Doomer AZSALUKI for alerting us to this story.  He adds, "I just saw that they did repeal that bill passed back in july….the one that would allow banks to go after borrowers, even on their residence, for the difference between the loan and the sale amount on a foreclosure."

I didn’t immediately see anything to nail down the confirmation beyond this cryptic note² from Thursday.

PENDING
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• GENERAL GOVERNMENT (HB2008): Scraps plan to build $7.5 million emergency operations center. Reduce deposit to Military Installation Fund by $2.8 million. Eliminates $25 million advance appropriation for 21st Century Fund. Allows Commerce Department to use money from lottery, bond and economic development fund for operations. Requires lawful proof of presence in the United States to receive state and local benefits, with some exceptions. Allows counties to furlough workers for budget reasons without appeals. With exceptions, prohibits agencies from adopting rules that hike costs for other agencies, local governments or citizens. Puts two-year cap on local impact fees and prohibits adoption of new ones.

Well, it’s obviously an Omnibus Bill …

I’ll try e-mailing Sen. Steve Pierce (not Russell Pearce, hopefully I’ve got the right guy now) shortly, but in the meanwhile, any other Doomers out there have a link or further confirmation that AZ recourse is dead?

LATER: Oh, well, "two heads are better than one, even if one’s a sheep’s head".  AZSALUKI’s finally got through to me the message that the AZ Republic’s Catherine Reagor really did definitively report³ that recourse mortgages died yesterday (see below — comment stream):

Foreclosure law

Some lenders held off on foreclosures during August to see if a controversial new law that would have allowed them to go after some borrowers’ assets survived the current Legislative session.

Arizona legislation passed in July would have made some homeowners in foreclosure liable for the difference between their mortgage and the resale price of the house starting Oct. 1. In the current housing market, the difference is generally more than $100,000 on the typical Valley home.

Real-estate lobbyists fought the legislation, and it was repealed Friday. Real-estate attorneys say there were lenders waiting to foreclose on properties until October, in case the law went into affect.

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UPDATE 9/10: Thanks go to Sen. Pierce’s office for this definitive word …

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From: Steve Pierce
Date: Thu, Sep 10, 2009 at 12:12 PM
Subject: RE: Clarification Requested — HB2008: Arizona May Have Backed Off Recourse Mortgages
To: John M <john@housingdoom.com>

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When Arizona Attorney General Terry Goddard says The violations alleged in this lawsuit are among the worst abuses of vulnerable consumers that I’ve seen in my time [as attorney general], you know he’s saying something.  Fraud in the real estate industry has reached new highs [or lows, depending on your point of view] here in recent years. The Attorney General’s Office filed a consumer fraud lawsuit in Pima County against 13 real estate agents and businesses.

Affected were over 130 investors and 270 prospective homebuyers, multiple defrauded lenders and 130 properties in foreclosure:

[Thanks M.R.!]

The complaint states that the defendants participated in a scheme that used deceptive tactics to entice under-qualified, novice investors into purchasing homes and then sold them to rent-to-own buyers. However, the attorney general’s office says the scheme was designed to fail by targeting rent-to-own homebuyers with credit problems and ignored whether they could qualify to purchase the homes.

The alleged scheme occurred in three parts. First, the scheme allegedly enticed investors to buy homes they could not afford. Second, it allegedly deceived lenders in order to allow unqualified investors to secure loans which would profit loan orginators. And third the scheme allegedly defrauded rent-to-own consumers into a scheme which was designed to fail.

Read the above link for the morbid details- I was amazed at how many fraudulent techniques this crew managed to pack into their master plan- and I’m pretty tough to amaze any more.  Here’s one thing that didn’t amaze me though:

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Tucson: Five of last year’s Parade of Homes properties have gone back to the bank- and there were only seven of them: [Hat tip M.R.!]

Five custom homes featured in last year’s Parade of Homes have now gone back to the Bank of Oklahoma after several months of negotiations.

Their failure to sell reflects the sharp decline in the high-end housing market where there are soft prices, a limited number of buyers and plenty of properties to choose from.

Of the seven featured properties in the Sonoran Preserve on the Bajada, near Dove Mountain in Marana, only one home ever sold in the traditional sense. Another one sold earlier in the year, but as part of a trade.

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I guess when one gets used to the abnormal, it becomes the new "normal".  You gotta love this assessment of Tucson new home prices: [Hat tip MR!]

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The headline in yesterday’s Arizona Star was Home Price Median Here Below $200K:

The Tucson real estate market hit a milestone in February: The median price dipped below $200,000 for the first time in almost three years.

The median price dropped to $199,900, down about 9 percent from $219,500 in the same month last year, said a report issued Tuesday by the Tucson Association of Realtors Multiple Listing Service.

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Hat tip to L for the latest from Tucson.  It has me scratching my head and thinking, "ARE THEY OUT OF THEIR MIND?"

A huge swath of state trust land in southeast Tucson would become a master-planned community over the next 40 years under a development deal expected to be finalized between the state and a Phoenix developer next week.

The developer, Westcor, is expected to receive a permit from the state Land Department that will allow it to begin the planning process for 12,000 acres east and south of Davis-Monthan Air Force Base, Deputy State Land Commissioner Jamie Hogue said.

Tucson officials called the project one of the biggest in the city’s history that will create a "second city" with residential and commercial development and open space.

I believe the part about the open space anyway.  Tucson already has new developments filled with specs and unwanted open spaces in the lots between them.  The article continues:

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According to the Tucson Association of Realtors, the median home price in October was $210,000.  This was down 1% year-over-year, and down 8.3% off of the record price of $229,000 set in June 2007.  While prices have been up and down in recent months, prices are back to levels first reached in the spring of 2005:

According to Judy Lowe, President of the Tucson Association of Realtors:

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Judy Lowe, President of the Tucson Association of Realtors, had a strange assessment of this month’s home sales:

ONCE AGAIN, according to the Tucson Association of REALTORS® Multiple Listing Service September 2007 housing report, we see an increase in new contracts opening escrow (989 units) compared to the same month in 2006. This is the fourth month this has occurred - thus supporting the belief the local Tucson real estate market has stabilized.

Pendings are one thing however, and sales are another.  Tucson sales paint a different picture.  With only 683 homes selling in the month of September, this is the slowest month for Tucson’s sales since January 2000. This represents a 37% drop from last year’s 1077, and a 33% drop month-to-month:

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From today’s Arizona Daily Star:  [Hat tip to MR!]

A bankruptcy judge tried to auction off some of First Magnus Financial Corp.’s assets Tuesday, but only one bidder showed up, and the judge put the sale on hold.

The failed mortgage lender intended to either sell about $8.5 million in construction loans and 29 foreclosed properties to Colorado-based Summit Investment Management LLC for about $6.4 million, or sell the assets at auction.

Judge James Marlar expressed reservations about the price of the proposed sale to Summit, which he said might be too low for both the loans and the 29 properties taken by First Magnus through foreclosure.

John Clemency, an attorney representing First Magnus, told the judge that the company had shopped the assets around to numerous potential buyers, and Summit’s offer was the best it could find.

Marlar said he would take the matter under advisement.

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