Friday October 19 Housing and Economic stories

Minneapolis - More than 300 homes on auction block

Of course, CFC (Countrywide) is in the middle of this mess offering to finance these auctions.
More than 300 homes on auction block

More than 300 homes on auction block. Want to purchase a house for half its price? More than 300 foreclosed homes across Minnesota will be auctioned this ...

www.startribune.com/462/story/1496691.html
More than 300 homes on auction block
Want to purchase a house for half its price? More than 300 foreclosed homes across Minnesota will be auctioned this weekend. "It's a sign of the times" and just a fraction of the fallout from the subprime mortgage meltdown.
By Chao Xiong, Star Tribune

Last update: October 20, 2007 – 12:37 AM

In the largest sell-off of its kind in Minnesota, more than 300 foreclosed homes across the state will go on the auction block this weekend.

The mass two-day sale at the Minneapolis Convention Center will unload one-bedroom condos, tiny ramblers, stately gabled Victorians and even sprawling suburban houses to the highest bidders. Repossessed after their owners didn't make payments, the properties are victims of a real estate market devastated by the subprime mortgage meltdown.

Minnesota Association of Realtors vice president Chris Galler said it's the biggest auction he's seen in his two decades in the business. Auctions normally dispose of a half-dozen to a dozen homes. "It's a sign of the times," Galler said.

For Irvine, Calif.-based Real Estate Disposition Corp., the boom in foreclosures has meant opportunity. The company has criss-crossed the country auctioning as many as 600 repossessed homes at a time. The company has stopped in about 10 cities this year and has five more scheduled after Minneapolis.

"It seems like six months ago the spigot was turned on and all of a sudden there was a lot of inventory," said Real Estate Disposition Corp. Chairman Robert Friedman.

The properties listed offer some enticing potential bargains. At a starting bid of a mere $9,000, someone could pick up a 1,072-square-foot cheery home with red shutters, hardwood floors and 1907-vintage woodwork on Upton Avenue in north Minneapolis. It was once valued at $47,900.

Across the river in southeast Minneapolis, a 1,574-square-foot unit 14 floors up in the La Rive condominiums is vacant and awaiting a new owner. It has shell-shaped his-and-her bathroom sinks, updated appliances and sweeping views of the historic riverfront. Previous valuation: $515,000. Starting bid: $229,000.

Looking for a suburban retreat? A 1978 home in Shakopee offers three bedrooms, three baths and a 1-acre lot with 150 feet of shoreline on O'Dowd Lake. Previous valuation: $710,000. Starting bid: $229,000.

Real Estate Disposition Corp. got its start with property auctions in the 1990s. Properties auctioned that decade originated with developers and, unlike this year's auctions, not from homeowners who defaulted on mortgage payments.

The number of houses being auctioned today and Sunday isn't even a notable fraction of the number of foreclosed homes in the state.

According to the foreclosure website, www.realtytrac.com, there are about 8,900 foreclosed properties in the seven-county metro area.

Last month, foreclosures in Minnesota were up 183 percent from a year ago, to 1,510. The rate was one filing for every 1,491 households.

Minding the neighborhoods
Hennepin County Commissioner Gail Dorfman may show up at the auction today but not because she's thrilled with the event. Dorfman fears that investors without a stake in the community will snap up the homes and overload already fragile neighborhoods with more rental properties.

"These neighborhoods where we've seen concentrations of foreclosed homes are neighborhoods where we've been investing in, so we feel this is undercutting our public investment in building healthier communities," Dorfman said.

Dorfman pointed out that the auction's on-site financing is provided by Countrywide, the nation's largest mortgage lender and one buffeted by defaults on subprime mortgages.

One possible reason why the large-scale auctions are booming is that lenders found themselves with a glut of properties and couldn't sell them through traditional means, said University of Minnesota associate law Prof. Prentiss Cox, a former assistant attorney general who tracks the issue.

Lenders first held onto the homes thinking they could eventually turn a profit, but with prices depressing, the "dam broke" and they finally decided to cut their losses, he said.

"To have this kind of mass public auction is really unusual," Cox said.

Friedman said he expects as many as a 1,000 bidders each day, from investors who might rent out the property or renovate and sell it -- to "end users," people who will live in the homes they buy. Many bid prices listed on the company's website start at less than half of a home's assessed value.

The company's 11-page terms-and-conditions document and Friedman strongly urge bidders to inspect properties that they're interested in buying (open houses were held earlier this month) and research housing prices. Homes come with no guarantees or warranties and penalties are levied against buyers who back out of a sale.

Friedman said the bidding process is simple, but Galler cautioned first-time home buyers with little experience from jumping into the fray.

Unlike a home purchased through a real estate agent, the seller at an auction doesn't have to tell the buyer anything about the property, such as possible structural problems or upcoming nearby street construction that a seller might know about.

"This is not an auction for amateurs," Galler said. "If the deal looks too good to be true, it is."
Staff writer Lora Pabst contributed to this report. Chao Xiong • 612-673-4391

Chao Xiong • cxiong@startribune.com


House auction gives good news to North Side

Photo by Joey Mcleister, Star Tribune
Amy Anderkay of Brooklyn Park began signing papers after her bid won a house in north Minneapolis
The head of a nonprofit group bought 8 foreclosed houses in north Minneapolis as bidders vied for 300 properties in Minnesota.

By Neal St. Anthony, Star Tribune
Last update: October 20, 2007 – 9:18 PM


A savvy inner-city housing investor with $11 million in her pocket emerged as the leading buyer Saturday for north Minneapolis homes that are part of a two-day auction of 300 bank-foreclosed Minnesota houses at the Minneapolis Convention Center.

This is good for North Side neighbors, who have been disproportionately affected by vacant houses, thanks to loan scams and adjustable-rate mortgages that proved too much for former homeowners when rates rose.

Carolyn Olson, who runs a venerable organization, Greater Metropolitan Housing Corp., works with neighborhood groups and developers to educate aspiring home buyers and stabilize communities.

Since 1970, Olson's organization has constructed or renovated about 1,500 homes for working-class folks. She planned to bid on about 15 of 80 north Minneapolis houses, which were among 150 auctioned Saturday. She got eight. The auction ends today.

"I was pleased to see that Carolyn was there and there were other people who were looking for good deals on homes to live in," said Hennepin County Commissioner Gail Dorfman, who attended the auction. "We've already had one cycle of overpriced housing and people ending up with mortgage products that they couldn't sustain, and now at least we have an opportunity to get these homes rehabbed and get families back in them."

Olson's opportunistic buying was staked by an $11 million loan from the Minnesota Housing Finance Agency. The money is to be used to buy and renovate foreclosed properties and sell them to families that have household incomes of less than $85,200, slightly more than the metropolitan area's median household income.

Two tuxedo-clad auctioneers, assisted by several deputies who each worked a section of the huge room to fire up the crowd and implore bidders to go higher, barked out opening prices and raced rapid-fire through each property, concluding with a passionate "Sold!"

Olson paid:
• $62,500 on a three-bedroom house at 3519 Emerson Av. N. that last sold for $114,900
• $35,000 for a house at 3906 Colfax Av. N. that last sold for $94,900
• $60,000 for a house at 3910 Dupont Av. N. that last sold for $157,000

Others got bargains, too.
There seemed to be about seven investors, who planned to rent or rehab and sell a property, for every person who showed up to bid on a house in which to live. Several hundred people showed up.

Dave Flatum, a general contractor from Osceola, Wis., paid $97,500 for a Ham Lake house that last sold for $147,500. He said he would put in up to $20,000 and his own sweat to make repairs.

Amy Anderkay, a chemical engineer, was the winning bidder at $67,500 on a three bedroom house at 3323 Girard Av. N. that had sold for $265,500 a few years ago.

"I don't know whether I'll live in it or not," said Anderkay, who lives in Brooklyn Park and works in Savage. "It would be closer to work. If I don't live in it, I'll fix it up and rent it or sell it."

The 150 houses auctioned on Saturday ranged in price from $40,000 for a two- bedroom, 1,200-square-foot house at 3431 Emerson Av. N. to $715,000 for a four-bedroom, 4.5-bath home on six acres in Cedar, Minn.

Buyers had to bring down payments and were allowed to arrange financing.

The auction was one of several put together around the country to deal with the glut of foreclosed properties after the subprime mortgage meltdown. Thousands of Americans with checkered credit couldn't handle higher adjustable-rate payments when rates starting rising last year and walked away from their houses or were forced out by foreclosure.

Many big lenders and investors in such mortgages lost millions or went out of business.
Neal St. Anthony • 612-673-7144
Neal ST. Anthony • nstanthony@startribune.com



Fort Lauderdale-based Levitt and Sons halts all work on houses
From the Mish housing blog....
I had a brief conversation with Mike Morgan on Saturday about what might happen should Levitt declare bankruptcy.

Here is the background story...Fort Lauderdale-based Levitt and Sons halts all work on houses.

Levitt and Sons, the cash-strapped Fort Lauderdale company trying to survive the housing slump, said Thursday it has temporarily stopped building houses as it tries to restructure its debt.The action is an inconvenience for consumers who plan to move into Levitt homes and now are in limbo.

My Comment: Inconvenience?! Putting down 10%-20% on a house and having the builder walk away in bankruptcy is merely "inconvenient"?

"I'm up in the air," said Angelo Palermo, 69, who's renting an apartment in Pembroke Pines while waiting for his $380,000 house in Port St. Lucie to be finished. "This is a very bad situation."The builder's parent, Levitt Corp., said last Friday the subsidiary faces an uncertain future if it can't work out a deal with lenders.

My comment: "An uncertain future"? What's with these wimpy comments from Levitt? The future is very certain. If Levitt cannot work out a deal with lenders, the future is guaranteed. That future is called bankruptcy. Even IF lenders are willing to throw more money into this sinkhole, Levitt is still may go bankrupt. What new buyers would make a down payment on a house with Levitt with all this uncertainty over things?

"We realize that there are a number of questions from customers," said Michael Freitag, a spokesman for Levitt Corp. "But until the matter of financing is resolved, we don't have answers to those questions." Levitt home buyers can call 877-538-4889 for information about the status of their homes.

My Comment: Levitt does not have any answers so if you call them that is all you will hear. But there's the number to call in case you want an actual voice to tell you just that. By the way, I called the number and talked to "Loretta" who was very pleasant but could not answer media questions. No one answered the media phone number she gave me.

Bob Oblas of New York was scheduled to close on his two-bedroom house in Seasons at Tradition on Oct. 31, but said a company representative told him Thursday that it was not likely to happen. He wonders about a clubhouse and other amenities that have yet to be built. "I'm very concerned about the viability of the community," said Oblas, 66.

My comment: "Clubhouse"? Sheeesh That should be the least of your worries. People seem worried over the wrong things here. "Viability of the community" is certainly a more valid concern. There are a host of other pitfalls to be worried about as well which we will get to in a moment.

Joel Dramis, assistant building official for the city of Port St. Lucie, said his office has received no complaints about Levitt and Sons. But he said a contractor has filed nine liens against the builder.Last month, Levitt Corp. said it was laying off as many as 200 of its 573 employees because of the housing downturn. Most of the cuts were planned at Levitt and Sons.The builder did not pay $2.6 million of interest payments due last week to its five primary lenders. Levitt Corp. said it has loaned $84 million to Levitt and Sons through Sept. 30 but is unwilling to loan more money unless the builder can negotiate better financial terms with the lenders.Levitt Corp. said it doesn't expect to recover the money it loaned to the builder.

Q&A With Mike Morgan

Mish: What happens in Florida if a builder goes bankrupt before the buyer closes?
Morgan: It depends. Most builder contracts request that deposits go into a general fund. You can opt out of the general fund, and your deposit will go into an escrow account, but this usually means you give up builder incentives. I've never had a single buyer opt out of the general fund for the escrow fund. It simply means giving up too much in incentives. So if the builder goes bankrupt, and your money is in the general fund, you are nothing more than an unsecured creditor. Even if your money goes into an escrow account, it depends how viable that escrow account actually is.

Mish: Who has first rights to the houses or partial houses?
Morgan: In each case I advise buyers to take their contracts to an attorney licensed in the state they purchased the home in as well as an attorney in the state they are in, if that is where they signed the contract and it is different than the state where the home is being built. Each state has different laws for contracts.

Mish: Should someone actually get to closing in these situations, what is the likelihood they will immediately be upside down on the loan.
Morgan: It's nearly guaranteed.Mish: If someone decides to go ahead with a purchase shortly before or after a builder goes bankrupt are there any other potential pitfalls?Morgan: Yes. It is quite possible that subcontractors who were not paid by the developer or only partially paid by the developer decide to slap mechanics liens on the house after closing. Another possibility is builder defects caused by rushed completions or builders cutting corners to save money. Both of these can be very expensive problems for the buyer sometime down the road.

Mish: Could a bankruptcy by Levitt be a blessing in disguise for those who have not yet closed on their homes?Morgan: Absolutely. The smaller the original down payment, the bigger the potential blessing might be. This is true for any potential bankruptcy, not just Levitt. Depending on how contracts were written and whether any "outs" are present for the buyer, many potential headaches such as being upside down on a loan, amenities promised not being delivered, and the possibility of mechanics liens placed on homes for those who do manage to close, walking away can easily be the best option. Once again, I would advise talking to a real estate attorney over this matter. Contracts can vary for different buyers even with the same developer.

Contact information for Mike Morgan about this article or for Ground Zero Consulting Services to Wall Street and Retail BuyersEmail: Mike Morgan

Mike Shedlock / Mishhttp://globaleconomicanalysis.blogspot.com/
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management. Visit http://www.sitkapacific.com to learn more about wealth management for investors seeking strong performance with low volatility.


Fort Lauderdale-based Levitt and Sons halts all work on houses
Besieged Levitt and Sons scrambles to restructure debt
By Paul Owers South Florida Sun-Sentinel
October 19, 2007

Levitt and Sons, the cash-strapped Fort Lauderdale company trying to survive the housing slump, said Thursday it has temporarily stopped building houses as it tries to restructure its debt.The action is an inconvenience for consumers who plan to move into Levitt homes and now are in limbo."I'm up in the air," said Angelo Palermo, 69, who's renting an apartment in Pembroke Pines while waiting for his $380,000 house in Port St. Lucie to be finished. "This is a very bad situation."

The builder's parent, Levitt Corp., said last Friday the subsidiary faces an uncertain future if it can't work out a deal with lenders.Levitt Corp. plans to take pretax charges of $160 million to $170 million as a result of losses on Levitt and Sons' home-building inventory. That's in addition to $99 million of charges and write-offs in prior periods. The historic builder is roughly $430 million in debt, according to a Securities and Exchange Commission filing by Levitt Corp.Builders in Florida and across the nation are struggling as the once-vibrant housing market keeps deteriorating.Levitt and Sons does not have any developments in Palm Beach or Broward counties. The closest under construction is Seasons at Tradition in Port St. Lucie. Elsewhere in Florida, it has projects on the west coast, in Orlando and in Jacksonville. It also builds in Georgia, South Carolina and Tennessee."We realize that there are a number of questions from customers," said Michael Freitag, a spokesman for Levitt Corp. "But until the matter of financing is resolved, we don't have answers to those questions." Levitt home buyers can call 877-538-4889 for information about the status of their homes.Bob Oblas of New York was scheduled to close on his two-bedroom house in Seasons at Tradition on Oct. 31, but said a company representative told him Thursday that it was not likely to happen. He wonders about a clubhouse and other amenities that have yet to be built."I'm very concerned about the viability of the community," said Oblas, 66.The Port St. Lucie housing development is part of a massive residential and retail project called Tradition.Joel Dramis, assistant building official for the city of Port St. Lucie, said his office has received no complaints about Levitt and Sons. But he said a contractor has filed nine liens against the builder.Last month, Levitt Corp. said it was laying off as many as 200 of its 573 employees because of the housing downturn. Most of the cuts were planned at Levitt and Sons.The builder did not pay $2.6 million of interest payments due last week to its five primary lenders. Levitt Corp. said it has loaned $84 million to Levitt and Sons through Sept. 30 but is unwilling to loan more money unless the builder can negotiate better financial terms with the lenders.Levitt Corp. said it doesn't expect to recover the money it loaned to the builder.Levitt Corp. also is the parent of master-planned developer Core Communities and owns a stake in Bluegreen Corp., a developer of vacation resorts. Alan Levan, head of Levitt Corp., also is the chairman of a big regional bank, BankAtlantic Bancorp.Levitt and Sons has built about 200,000 homes over the past 78 years. Its signature project came in 1947 when it built New York's Levittown on Long Island, mostly for World War II soldiers returning home.The builder began to lose momentum starting in the 1970s, said Wayne Archer, director of the Bergstrom Center for Real Estate Studies at the University of Florida."In the last two or three years, they've been trying to come back to being one of the major players [in the industry]," Archer said. "But it's not a good time to be a big builder."