10.27.08
Loan modification handbook
In dealing with a toxic mortgage you can no longer carry, so far I have identified three options:
- Stop making payments and let the bank foreclose on you.
- Find a buyer and negotiate a short sale with the bank
- Keep the property and get a loan modification
I’ve written about short sales previously in this blog. The foreclosure option is the option of last resort. Although I have no emotional attachment to the properties it appears the least harmful thing I can do to my credit is to try and negotiate a loan modification as a first step. If that didn’t work I could look into a short sale or simply give the deed back to the lender. This is called a “deed in lieu of foreclosure” and not quite the same as a foreclosure.
I belong to a few real estate mailing lists. One poster to the group, claimed she was able to negotiate a loan modification that cut down on her payments and knocked $46K off the principal balance. That sounded pretty good to me, so purchased the book she recommended: The Loan Modification Handbook
Written by Michael Albert and Rami Ibrahim, it arrived from Amazon a few days ago. The Loan Modification Pamphlet would have been a better name for it. So at first I was rather disappointed at the rather slim size for the price. However it is a good introduction to the topic. It provides examples of letters you write to the lender and good advice on how to get to the right decision maker (hint: it’s not the person that answers the customer service line). A nice touch was a listing of the actual phone numbers for many banks’ loss mitigation departments. That alone is quite useful, as anyone knows from navigating a large corporate bureaucracy by phone.
So far I haven’t acted on any of the steps in the book, but I will soon. I read somewhere that a loan modification is 40% cheaper for a bank than a foreclosure. For one of my houses in particular, the area is gutted with foreclosures and nothing is selling, if the lender has any sense at all they should be willing to work with me.
10.19.08
Cabana Cay fiasco
A couple of days ago, I talked with the third person I have met that has been burned by a Cabana Cay investment. About two years, the Cabana Cay investment pitch was making the rounds on the real estate investment clubs/seminar circuit. Cabana Cay was in the building of building or refurbishing resort properties, mostly in Florida. From what I gathered the deal was a preconstruction opportunity that, when finished, you would own a resort condo that would lease out to vacationers at high rents providing lots of cash flow. The deal was sweetened by a developer lease back for a year or two, and/or the ability to put your down payment towards mortgage payments, so there was very little out of pocket.
Fast forward a couple of years and everyone I have met is trying to get out of the deal by selling the unit as a short sale. They have all stopped making mortgage payments (which were big once the funding for them – lease back/down payments – ran out), which of course has trashed their credit. There are allegations of fraud as it appears that consistently the units were valued higher than what they were worth. Promises of refurbishing a resort into a 5 star property never happened and Cabana Cay, as a real estate developer, apparently is defunct. Although you would never know it from browsing the internet.
There appears to be a viable Cabana Cay property in northern Florida. I couldn’t find the other ones.
10.12.08
How many real estate agents will survive this market?
A real estate agent once told me that 20% of the agents make 80% of the money. From what I have seen it has to be true. I’ve had the pleasure to work with great agents, but these can be hard to find, so I’ve ended up having to deal with not so great agents. It seems to me that many agents are just glorified order takers, which might have worked ok during the boom, but this tough market requires more aggressive marketing strategies.
What is amazing to me is that the mediocre agents continue to be well .. mediocre. You would think that they would see the writing on the wall and take their game to a new level. When will these people wake up and either find a new profession or improve?
Here’s what I have had to put up with:
- Inability to write decent copy. You would think they would mention that the property has a view, or is the lowest price in the subdivision.
- Not returning phone calls for days or checking email.
- Turning their cell phone off after 5pm and on weekends.
- Not very tech saavy – ie. they can’t figure out how to upload pictures to the internet.
- Listing an ad in a print publication and then not checking that the listing makes it to the online version.
- Taking the dart board approach to pricing. For example, not knowing their market and listing it too high, then incrementally lowering the price 5 or 10,000 per month.
- Not being able to answer the question: what sites will my property be listed on?
- Not being able to articulate their marketing plan.
Yes, I might be more focused on the internet and online marketing than others. But, hey wake up, it’s the way of the future! And where your prospective clients start their property search, why some agents seem to not understand that is beyond me.
10.03.08
Will the bailout bill help real estate developers?
In a stunning slap to President Bush, the original bailout bill was rejected by Congress. Now a new modified bill is making the rounds, with some sweetners (I’m watching the AMT earmark myself) that might just get everyone to vote yes.
Understand that no one wants this bill. It’s like cough medicine, you know you have to take it but it still tastes awful going down. Of course cough medicine usually helps your cough, but the country’s financial system has caught bronchitis not just a trifling cold — so it is questionable whether the bailout bill will end the financial crisis. Still everyone seems resigned to the cold hard fact that there is really not much choice.
I’m involved with two real estate development deals. Thankfully they are not condos. One of the developer wisely switched to building apartments from the original condo plan. The other is a commercial development. So what’s the problem? Like you had to ask, of course it is financing.
Recently overheard in a corporate hallway somewhere in Silicon Valley, “our stock price is so low, we are prime take over bait .. but no one can organize the financing”. Even the tech section is affected, isn’t that food for thought.
With both the real estate deals that I’m involved in, the bank providing the original construction financing went under. So the developers are scrambling to find new financing .. but to no avail. Word is, that banks are getting downgraded just for having construction loans on their balance sheets, whether performing or not, so they have the door firmly closed for new ones.
So will the bailout bill help real estate developers? Well if it helps the banks start lending again, it should.
