One issue that Tim made perfectly clear, and we all felt was important to get out to those of you who may not have attended, is this.  In Arizona, there is anti-deficiency protection for a large number of property owners who go through foreclosure, however, there is no statute that proves anti-deficiency protection to any property owner in the case of a short sale.  Our anti-deficiency laws only cover foreclosure.

Tom Farley stressed that it is important that we not make incorrect representations to the sellers in this regard.  The deficiency protection they may be able to receive is only found in the terms of the short sale approval letter provided by the lender. If the lender does not fully release them from the lien, but only releases the property to close and transfer, there is not any guarantee that the lender will not pursue the seller for the remainder of the unpaid balance on the note.

One popular myth that was dispelled at yesterday's meeting is that there was protection if it was purchase money.  This is not true.  While some lenders are providing the release in these cases they are not obligated to do so.  Tom stressed the importance of legal counsel for sellers facing short sale with regards to this issue once again.

I'm not familiar with the law in this case, but consulting an attorney sounds like sound advice- no matter what state you live in.

Long time owners cashed out from 2004-2007 and the new owners leveraged their properties greatly.  They were sold on the idea that rents in tucson were too LOW. But hey, with property prices rocketing up, it took no genius to realize the time bomb investors where sitting on, and we’ll see a few more of them explode soon this year.

I sold some apartments in 2007 which are now in bankruptcy – this guys problem was that he didn’t have good financing and not a lot of money behind his grand dreams.

I predicted it when I sold it and EARNED MY COMMISSION.

Now I am looking at buying them for a steep discount.

It’s not clear to me if Saba was merely the seller’s agent, or if he owned those apartments in 2007. Whatever the case was, I’m wondering who he made his predictions to when he "earned his commission".  Did he warn the buyer, who ignored him?  If so, I suppose there’s a certain poetic justice if the agent buys the apartments now.  Why do I get the feeling though that he made his predictions to someone else?

What do Doomers think?  Did Saba "earn his commission"?

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.

It’s true that the foreclosure happened after the homeowner moved out- she was not forced out of her home.  It hardly seems like it worked out well for the lady or her kids though.

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.
…

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
…

• 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.

…

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

————————————–

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>

——————————-

[1]: "Real estate legislation updates", by Ray Pugel, Payson Roundup, August 25, 2009.

[2]: "Highlights, status of Arizona budget bills", AP / AZ Republic, September 3, 2009.

[3]: "Valley foreclosures drop, but reasons unclear: Drop in foreclosure rates may be just temporary", by Catherine Reagor, Arizona Republic, September 5, 2009.

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:

According to the complaint, few investors read all of the loan documents presented to them for signing.

Kudos to Goddard for prosecuting this one, but there’s a limit to what the AG can do.  It’s tough to protect people who won’t take the trouble to protect themselves. We will never know how much fraud could have been avoided by consumers reading before signing, signing nothing they don’t understand and knowing that if it sounds too good to be true, it probably is.

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.

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.

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:

The development could take decades to build out.

"This is probably 40 years of land," Hogue said. "This isn’t something where we go out and sell it all tomorrow."

No they won’t sell out tomorrow- or the next day, or the next year, or….

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

For the fifth consecutive month, new contracts opening escrow in ‘07 exceeded the same month in 2006. The October 2007 shows 993 new pending contracts, and the October 2006 shows 782. This indicates there are more buyers in the market finding their dream home and making offers and sellers are more receptive to these offers.

This consistent monthly increase in new contracts pending is reflected in the increase in the October 2007 total closed units of 790 units, an increase of 107 units over Septembers’ number.

Additional good news indicates the Active Listing inventory has declined for the fifth consecutive month, with October ‘07 showing an inventory of 9,313, a decline even when compared to October ‘06. The 2,399 new listings coming into the market are less than the September number, as well as the same month last year.

 I have a different view of the increase in pendings.  Many homes are staying pending longer as buyers are having difficulty selling their previous residence and/or obtaining new financing.  With homes staying pending longer, this causes the number of pendings to rise when sales are in fact down.  [See yesterday's post.]

I have no idea what Lowe is talking about when she refers to actives decreasing.  Listings have increased every month for the past four months. However, it is true that all of these months are down slightly year-over-year. [October's listings were down .25%.]  There were 9,313 this year as opposed to last year’s 9,336.

About the only good news is the increase of sales from September to October, although sales are still down 28% year-over-year.  A couple of possible factors for the increase were that the rush to close in August before loan programs were discontinued may have adversely impacted September’s numbers, as well as September having fewer business days.  It is unlikely that the month-to-month improvement will be an ongoing trend.

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:

Listings

There were 9,297 active listings, down 1% from 9.297 in September 2007.  However, inventory has been increasing since July:

This represents a 13.5 month supply of homes on the market.  This is the largest supply of homes on the market since 1997- which is as far back as I have records available.

Median price

The median price has been fairly resistent in Tucson so far.  At $215,000, it is up 2.4% from last year’s $210,000.  However, this is the lowest price in nine months. The median has fluctuated, but appears to be back about late 2006 levels.

The median increase is more likely a reflection of the fact that the first-time buyers have left the market in greater numbers than move up buyers, and non-price incentives offered by sellers are not reflected in purchase prices.

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.

First Magnus Financial Corp. still is not sending out paychecks to its former employees.

But the Tucson-based mortgage lender announced it is creating an assistance fund of more than $1 million to ease the burden.

In a news release, the company said paychecks have been delayed because its accounts were frozen by investors that provided capital to First Magnus to make loans.

Quite a month for real estate in Tucson! Our inventory is down, new listings are down and pending contracts are up, all good signs for our market. 

Despite the "good signs," July was quite a disappointment. While inventory did decline slightly from last month’s 8725 to 8692, the decline wasn’t due to increased sales. Lowe said of pendings for June:

Pending contacts are also newsworthy,they are up over 2,000 for the first time in 2007, rising to 2,053 last month. This is an increase of 18.92% over June 2006, and the highest number we have seen in over 12 months.

Pendings however, don’t always turn into closings- July home sales were down to 1098- down 10.4% from June 2007, and down 10.5% from July 2006. Given that this is the end of the peak selling season, it is unlikely that we will see sales above this figure for the rest of 2007, and with the tightening in the credit market and a more negative market psychology, steeper declines are possible. 

In spite of last month’s inventory decline, lower sales have increased the month’s supply of homes on the market slightly from a 7.1 to 7.9 month’s supply. 

The median price in Tucson has risen for the past four months, but July’s median price of $218,750 was a 4.5% drop month-over-month and a decline of 2.8% from last year’s $225,000. Tucson’s median price first broke $218,750 in March 2005. Appreciation has remained below the rate of inflation since last summer. When you take into consideration the incentives offered by sellers, and that the median price is affected by the mix of buyers, it is to be assumed that the actual rate of price decline is not reflected in the median price number. 

Our inventory is down, new listings are down and pending contracts are up – all good signs for our market.

We’ll come back to Lowe’s comments in a moment, but first let’s consider what she didn’t mention- sales:

TAR reports that 1226 properties sold in June.  That is down 6.7% from last month’s 1313 sales figure and down 19.6% from last year’s 1524.  This is the slowest June for home sales in Tucson since June 2002.

June is typically the high point of the sales season in Tucson, so this does not bode well for sales for the rest of 2007.

The most interesting and surprising number is the inventory number.  While inventory typically peaks late summer in Tucson, TAR is reporting that listings reached their peak in April, when there were 10,387 properties listed.  They are reporting 8725 properties listed in the month of June.  Looking at their other numbers, this significant drop is difficult to account for, as they are only reporting a slight decline in new listings and no significant change in canceled and expired listings.  What also is odd, is that Tucson Realtor Greg McCown is reporting on Realty Times that as of July 5, there were 10,602 listings- quite an increase for only five days time!  It leads me to wonder if in fact there is an error in the June listings number.  Here, for what it’s worth then, is Tucson’s listings vs. sales. graph:

TAR is reporting that the median price for a home in June was $229,000.  This appears to be a record for the Tucson market,  up a modest 1.8% from last year’s $225,000.  It is important to remember that the median price is a function of the mix of homes sold, and is not necessarily indicative of "same house" appreciation.  In addition, incentives offered by sellers have also skewed median prices.

Sales were down 14% year-over-year, falling from 1526 is May 2006 to 1313 in May 2007.  This is the slowest May since 2002, when 1299 homes were sold.  Pending sales are down 41% year-over-year as well, which doesn’t bode well for future summer sales:

Surprisingly, listings have dropped 6.4% from April.  Last month was the second month that listings exceeded 10,000, with 10,387 homes listed.  This month however, listings dropped well below that level to 9721.  This is not a typical pattern for this time of year- generally the number of listings is more likely to decline in the winter months.  Listings do remain high however, 15% higher than last year’s 8,423.

Judy Lowe, President of the Tucson Association of Realtors (TAR) said of home prices:

Regardless of what is being reported by the media for other regions nationally, the average sales price in Tucson continues to rise, reaching $280,589 in May 2007. The median sales price for May ‘07 was $223,500, compared to the $221,500 of May ‘06.

This median price rise was only 1% year-over-year, less than the rate of inflation.  The median can also be affected by the mix of homes sold and incentives offered by sellers.  Consequently in real terms, Tucson home prices are not appreciating.  With listings high and sales low, it is expected that there will be continued downward pressure on prices.

In addition, kudos to the TAR for the following announcement:

The Tucson Association of REALTORS® Multiple Listing Service Board of Directors voted to modify 2007 monthly closed residential statistics to more accurately reflect the true Tucson real estate market as it occurs within the Tucson market area, according to the boundaries of the MLS map. The out of county, out of state, and out of country (Mexico) properties will no longer be included. This will make only a slight difference when comparing 2007 to prior years.

The TAR is undoubtedly correct in saying that eliminating sales from outside the Tucson area will only have a minimal impact on the sales numbers they report.  We applaud their action– it is always nice to see efforts on the part of realtor’s associations to make their reporting be as accurate as possible.

We are seeing some movement in total unit sales and sales volume, but like our other indicators, it is slight. Both decreased slightly in April, reversing a rising trend we’ve seen since the beginning of the year. Unit sales totaled 1,280 in April, down only 73 units since March 2007, so not a significant decrease.

It is not unusual for April sales to be down a bit from March, in fact, in six of the past twelve years, sales have been down somewhat from March to April.  More significant is the fact that 2007 continues to track at a much lower pace than recent years- sales have not been this low during the month of April since there were 1249 sales in April of 2003.

Lowe says of Tucson’s home prices:

April’s statistics show some stabilization in our market, as we have not observed a great deal of change from March 2007. Average sales price has stabilized, with only a $60 decrease from March to April 2007. Median sales price is also following that trend – decreasing by $1,228 compared to last month.

Given the growing inventory and languishing sales, it is highly unlikely that prices have stabilized.  That said, the median has not shown a great deal of change- it continues to bounce around in a range reached late 2005.  The median price is up slightly year over year- the median price for April 2007 is $221,472, up 1%  from $219,250 in 2006. This price is not adjusted for inflation, and does not reflect the abundance of seller incentives such as closing costs, etc. The median frequently reflects the mix of homes sold, not same home appreciation.

Inventory continues to rise at a record level- total active listings reached 10,387, up a significant 27.8% from last year’s 8,131:

The continued imbalance of listings and sales along with tightening lending standards will continue to put downward pressure on prices.  The Tucson housing market is in the doldrums, and liable to stay that way for awhile.

For followers of the Tucson real estate market, I have found the Tucson Real Estate News blog, run by Tucson agent Barbara Lasky.  Her take on the Tucson market is more bullish than mine, but I have found a lot of useful information on her site.

Come to our Tucson workshop to learn about our community’s vulnerabilty and discuss what we can do to end shoddy lending practices in Arizona. Consumers can best protect themselves by becoming more informed.

Join us for the discussion, on May 16, on how predatory lending is degrading our state.

As MR pointed out to me, holding the workshop on a Wednesday afternoon might make it difficult for the working people it’s supposed to help to attend, but it’s a start.

I’m not certain how effective the workshop will be, but I really liked their logo:

A Tucson company that styled itself as a luxury homebuilder is no longer allowed to build houses because the state has suspended its contractor’s license.

The builder’s license with the Arizona Registrar of Contractors is suspended for failing to answer a complaint lodged by a home buyer. The company has 14 open complaints filed against it — a red flag, according to agency spokesman Brian Livingston. Two additional complaints were resolved.

Unhappy customers and a suspended license aren’t the only problems- subs are unhappy as well:

A subcontractor claims Sonoran Insights owes hundred of thousands of dollars to around 20 subcontractors.

Danny Butler, controller at Stan Greer Millworks, said Sonoran Insights has stopped returning his phone calls and hasn’t paid him. He said he is owed close to $40,000 and other subcontractors he has spoken to are owed as much as $130,000.

The slowing real estate market has claimed its first victim among local home builders.

The nearly four-year-old AmericaBuilt Construction Inc. and its affiliate, AmericaBuilt Communities Inc., filed for Chapter 11 bankruptcy reorganization Thursday.

The companies, which made $12 million in sales last year, are reorganizing in response to the housing market downturn, which has resulted in fewer people getting financing for new homes, said Eric Slocum Sparks, company attorney.

Sparks also said:

I assume AmericaBuilt is the first of many that are going to have to reorganize in order to stay in business.

Sparks is probably right.