Entries Tagged 'Mortgage' ↓

Today I received an excellent email from a reader of mine and I have permission from him to post his email here. I thought the information is excellent for first time buyers who are interested in condos. It’s funny but my parents were just telling me this weekend that they met a taxi driver who bought a condo in San Mateo and was assessed one of these secret fees for $20,000 or $40,000. San Mateo’s condo fees seem to be extremely expensive and basically I really wouldn’t want to buy a condo here. The reader also attached a picture of the Colina Condos at 1 Appian Way. That address has been on the home sellers in trouble list in the past and it seems that more will flood the market.

Hi Baglady,

I just want to stress the importance of looking carefully into the signing documents when purchasing real estate, especially condos. Often, sellers may try to slide in information about “special assessment fees” hoping the buyer won’t notice. “Special Assessment Fees” are levied by the HOA for repairs that affect the whole complex that the standard monthly HOA fee can’t cover, usually as a result of shoddy construction, bad planning, or mismanagement. The HOA or property management company usually informs owners about these assessment fees a year or so in advance and sometimes set up an installment payment plan, as some of these fees are outrageously large. These assessment fees are a bad sign, as they often indicate possible future problems and therefore, more future fees. And unfortunately, you can’t deduct it off your taxes like a mortgage. It is an out-of-pocket expense. And unfortunately for some condo-owners, they are already financially stretched to the point where they can’t afford this surprise fee, thus forcing them to sell early before the fee hits them, hoping some other poor sucker buyer was
equally as negligent as they were and gloss over the signing documents in haste.

Here’s an example I saw earlier this year. The condos at Pointe Pacific at the top of San Bruno Mountain in Daly City had an assessment fee levied because the location of the condos was a poor decision. Pointe Pacific is on the side of the mountain, battered by rain and wind moreso than another condo complex no more than a block away. This
results in the buildings at Pointe Pacific requiring more repairs. The special assessment fee: approximately $15,000 per household. Even worse, this was not the first time its happened. Just about 5-7 years ago, the HOA levied a similar fee. So you can probably bet there will be another fee in another few years, after the current fee.

Its even worse when the HOA neglects the repairs as they snowball into a huge financial disaster in the long run. Probably the worst example of “Special Assessment Fees” gone awry is the one CURRENTLY HAPPENING at Colina Condos on 1 Appian Way (cross street Gellert) in South San Francisco. I know several people who have bought condos there. Apparently, the condos were poorly built as the original builder went bankrupt halfway through the construction process. The whole complex requires approximately $13.5 million to repair the run-down buildings. The HOA meetings are shouting matches and whole HOA board has quit in horrified disgust. The property management company has abandoned the complex. The only hope left is for the city of SSF to take over and help solve the process, something many of the homeowners are hotly debating. The ship is sailing in the dark with nobody at the helm, so to speak.

The average estimated cost per household for Colina Condos: $70,000. Yes, you heard right. $70,000 out-of-pocket repair costs for condos going for about $400k on the market.

Even worse, you may need to temporarily move when they finally do get the repairs going (and possibly spend even more money on renting a temporary place), as the condos have some deep structural integrity problems. (Some people have water-logged walls, others have collapsed bathrooms.) So, as you can imagine, many new condo owners with no equity can’t afford it and may need to sell. This will probably result in a bunch of impatient, panicked sellers putting those condos on the market all at once, driving value down further. They are hoping for a miracle of miracles: that someone else will be dumb enough to buy their lemon condo and lift the load off their shoulders.

Lessons to be learned: 1. Read all the signing documents carefully. 2. Don’t buy crappy condos. It is of such importance, I hope you publish this email on your main webpage.

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The winter isn’t very chilly in San Mateo, but the real estate market is almost frozen. Surprisingly these two weeks there were more listings than the last two weeks and I managed to find about 240 new listings, and of these 18.3% qualify as homes in trouble. Lets take a look:

Total Count of San Mateo Home Sellers in Trouble for 12/2/2007 to 12/16/2007: 44

Average Time from Last Sale Date: 1.52 Years

Average Annualized Loss: 14.9%

Average Size of Home: 1173

Average Price Per Square Foot: $492

Biggest Loser: 2491 Rowntree way with an annualized loss of 60%

It seems that a lot of these homes are REOs or short sales and the banks are getting anxious to get rid of them. Anyway, data on these homes are available at the statistics page. The average price per square foot is still extremely high. Since this new data is not extremely interesting I decided to look back at some of the older reports. I examined the approximately 150 homes from the first two reports listed here and here and the findings are quite interesting.

Update of Homes Listed in Report #1 and Report #2 Including Homes Listed Up to 10/21/2007

Total Number of Homes: 144

Homes Still on Market: 100

• Price Increased: 3
• Price Further Reduced: 53
• Price Stayed the Same: 44

Homes Off the Market: 44

• Sold: 9
• No New Sales Information/Withdrawn: 35

It is interesting to see that three homes actually increased their listing prices because these homes have been on the market for months. What makes them think that raising their price would make their home sell? The home at 123 Fey in Burlingame was relisted so it doesn’t seem like it has been on the market for that long and it increased its price by 1000.

The good news is that a majority of sellers are coming to their senses and reducing their prices more. Some of the biggest reductions are $100,000 or more. Some examples are:

• 3550 Carter Dr #139, 480,000 in October to 380,000 today
• 3570 Oak Knoll Dr, 889900 in October to 789900 today
• 1363 Windmere, 649,000 in October to 499000 today

It was surprising to me that only 9 of these homes have sold for sure. At this rate it would take another 10 months or so to sell the remaining 100, and more homes are being listed every day. Of these 9, only one went for more than asking price, the other eight homes sold for anywhere from 2% to 10% less than asking! So if you like any of these distressed homes it doesn’t hurt to ask for more of a discount because it seems very tough to sell them. Since October 21st I have recorded almost two hundred of these distressed properties and at the snail pace they are selling I estimate there are 300+ of these home sellers in trouble in San Mateo right now. I think we’re nowhere near the bottom. I find it funny that Redfin has a real estate tip that says “wait for foreclosures in your neighborhood is off the market, and then sell your home”. In our current situation we would have to wait a very long time for all of these properties to get off the market.

Anyway, the raw data and past issues are available at the statistics page. The next issue will appear in 2008 since I will be on vacation. Enjoy!

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On Friday I performed an interview for my team at work. My job was to take the candidate to lunch and answer questions the candidate might have and attempt to assess his intelligence and “fit” for our team. This is one of those very rare interviews that actually turned out well and everyone who interviewed the guy liked him and we decided to hire him.

However, I feel like he may not join us because he is actually currently living in Austin, Texas. He said that he went to a nearby open house in Foster City and was shocked to find that a tiny townhouse less than half the size of his home in Texas is listed for $900,000. He used to live in Sacramento many years ago but the cost of living there is nowhere near the craziness of San Mateo. Then we chatted about the Bay Area in general and I said that I actually did some research on Texas and found that I could afford a 40% pay cut and still afford a better standard of living. He agreed with me, and I asked him if he would consider relocating and he said he would probably prefer telecommuting. However, after he finished his 8 hour grueling interview my team lead did mention that he would like all core members to be close to the headquarter and telecommuting from Texas is probably a deal breaker.

I imagine this is happening all over the Silicon Valley. There are a lot of great talent from other states that are interested in the companies here, but are totally put off by the cost of living and the cost of relocating. Additionally, I know dozens of people who are exiting this place due to the same reason. Even though I love the energy and dynamics in this place sometimes I wonder if it’s worth it. Yes, we do have fairly high incomes compared to the rest of the country, but with that we have extremely high taxes and a ridiculously high cost of living. When all the math is worked out, I think many of us who live in the Valley could have better lives elsewhere.

I thought that the job candidate is wise to investigate the cost of living before making a decision. I doubt that he is getting a 70 to 100% pay increase because Austin, Texas is also a very lively city with an abundance of jobs. On one hand, I do want him to join our team, but on the other hand I was honest with him and I want him to make the best decision possible for himself. I really don’t want him to join my company and then regret it and become grumpy!!

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So there is chatter in the news the government worked out a deal with major banks to freeze the adjustable rates on mortgages of many subprime borrowers. The rules are, the loan has to be originated from the beginning of 2005 to July 30th of 2007 and the rate is set to reset in 2008 to 2010. The subprime borrower also have to have a good payment history and live in the home to qualify. So I thought I would do an non-expert analysis on who benefits the most in this situation.

The Winners

The biggest winner is the banks that made these loans. Some of the teaser rates for these subprime loans are as high as 8%, so I don’t think the banks are hurting much by collecting a rate thats 16 times the average of national banks interest payout on savings accounts. Additionally, by keeping the borrowers in their homes, the banks do not have to deal with an asset that has depreciated in value. Basically, the banks are saving and earning billions by keeping subprime borrowers up to date with their debt.

The next big winner in this situation is the government. Why? One word: taxes. By keeping these stretched homeowners in their homes the government can continue to collect property taxes. Additionally, since the mortgage rates are not rising the homeowners will have less mortgage interest to deduct on their taxes and that means more tax revenue for the government than they would have had otherwise.

The Indentured

I don’t consider the homeowners who keep their homes in this plan to be winners. Sure, they get to keep their home, but many of them are so financially stretched that almost their entire income is going to the banks and that is a very stressful situation. In fact, if they weren’t financially stretched, they wouldn’t qualify for the program. This is Secretary Paulson’s outline of the plan:

Paulson offered a general outline of the plan on Monday. He identified four groups of subprime borrowers facing rate increases on their adjustable-rate loans: Those who cannot afford their payments even at the current rate; those who could afford payments at the higher rate; those can refinance into a “sustainable mortgage while keeping investors whole;” and those who can afford their mortgages today but could not at the higher rate.

Only the fourth group would get help.

These homeowners are just indentured servants to a gargantuan money hungry force. Their rates will be frozen for five years, but they will have to keep on paying the price on an asset that has depreciated greatly with all that they have.

The Angry

I would count myself amongst “The Angry” because I think the plan is unfair to most consumers and Americans in general. I don’t own a home, but I know many people who took out reasonable fixed rate loans at higher rates than these subprime borrowers, only to see irresponsible behavior rewarded. Additionally, as Paulson said, “those who could afford payments at the higher rate” will not get help. How is that fair? I suppose life just isn’t fair. I think this plan, and other mortgage related bailouts are just further discouraging people from saving money, and living a sustainable lifestyle. I also think the subprime borrowers who had absolutely no equity in their homes would do better just to walk away, save some money and buy a home for a much cheaper price. I know it’s not that easy, but we can’t continue to support this manipulated bubble economy.

Quote Source: San Francisco Chronicle 12/6/2007 Kathleen Pender: How mortgage-rate freeze could go wrong. This article is a great read that echos some of my thoughts.

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We’re heading into the winter doldrums of real estate and these two weeks I examined 218 properties that were up for sale in San Mateo County. Of these, 28 qualify as home sellers in trouble. Here are some highlights. Continue reading →

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