Just Blame It on Ray

My life has taken major twists and turns in the last few months and it is all Ray’s fault. Who is Ray? Ray is a reader of the is blog, who have become an intermittent e-mail penpal. If you search for Paris or Nice, France within the blog, you will find Ray. The topsy-turvey started when Ray mentioned that after selling their Nice apartment, he and his partner bought a place in Fort Lauderdale. Note that Ray owns a B and B in New Orleans. Their apartment purchase started my gears to working. When the economic meltdown happened in the US, we thought of buying a place in Boston. Ron even contacted a number of real estate agents checking on what was available. Not one had the courtesy of responding, so it went by the wayside. 

When Ray mentioned their acquisition, it started me thinking again. We have no real permanent address in the US. We use my father’s address, but now that he is in a nursing home, that address is not going to be any use to us any longer. Neither of us have a driver’s license any longer. After extending our CA license through the mail as many times as possible, we finally let it go. Ron tried to get an Iowa license when visiting last year, but it required too much documentation to make it happen. 

Each winter, we take off for a warmer climate for a month and have for the last twelve years, so thoughts of potentially living in a warm climate when we do decide to return to the US seemed like a no-brainer. Ray just happened to mention that there was another apartment for sale in the same building that they bought theirs and sent me the link. Just from looking at the pictures, I knew this was something we should pursue, so I made a list of pros and cons and presented it to Ron. With the pros far outnumbering the cons, we were in agreement. 

As it turned out, the real estate agent for the property was not as responsive to my e-mails and I have little patience with what I perceive as poor service. I also wanted to learn more about the area and Google is my friend. I found a number of social organizations where we could easily fit in and have the opportunity to create a sense of community quickly when we chose to make the States our home again.

Wanting someone on the ground with their finger on the pulse of things, I sent an e-mail to two of the organizations I found. After explaining where we lived, what we were looking at and looking for, I asked if anyone would be willing to correspond and give some direction as we moved forward. 

Two very nice men wrote back. One was Mike Golan who also referred me to a Realtor and the second gentleman, was Istvan Belucz, a Hungarian who was now living in Florida for the last six years. He too referred me to a Realtor. Using Mike’s referral first, because he was the first to respond, his Realtor told me that the property Ray has put me on the scent of was a short sale property and then gave me this real estate lesson:

Now, there is an arena permeating throughout Southeast FL: the Short-Sale and Foreclosure syndrome (actually across the USA to which you must have heard about it in the news abroad).  This is quite an education and I will try to give you a crash course on it.

A Short-Sale is when a person bought a property about 3 to 5 years ago at the highest price of the market (say a condo at $300K) and the buyer took an exotic balloon mortgage at 1% interest for the first 2  or 5 years then the interest balloons up to 8, 9 and even 10% afterwards.  The intent was for those people to fix the property and flip it but, what happened is the market began to tank and those people missed the market.  Now their balloons have exploded and their loan payments jumped from $600K per month to $3,600 per month.  So, now they bought a house at $300K, owe about $240K but the present market value for their property is now only $175K.   So, if they sell their properties at present market value, they will need to come up with $65K cash, which, of course, they don’t have.  At that point, you ask the lender(s) to forgive the difference and close the property.  Some other people need to make a move, for whatever reasons (a job transfer or the house is too small because they have a new addition to the family) so they are also in the same financial predicament and need to do a Short-Sale.  However, in a Short-Sale situation, the lender does not own the property, so an offer has to be accepted between the buyer and the present owner.  Then, the contract is submitted to the proper lender(s) (often time there are a first and a 2nd lender).  The contract will sit at the primary lender’s desk for an undetermined amount of time (usually 2 months) until they get to it.  If there is a second lender, that will lengthen the process because the second lender will try to get something back to recuperate some losses – the battle between them begins.  After 4 to 5 months, they will give us an answer saying that they probably want more or else.  Again, usually the buyer will not go up and walks away from the deal.

A foreclosure is quite different:  In a foreclosure instance, the primary lender is now the bona fide owner of the property after having been awarded the right of ownership by a foreclosure judge.  The second and/or 3rd lenders are completely out without a penny.  This allows the lender to hire a real estate agent, place the property for sale and entertain offers.  But the catch to that is that the lenders have been inundated by so many foreclosures in the past three years that they have finally figured out how to sell those properties.  They have created what I call a “blind auction” which means you make an offer at the full asking price, then the lenders respond back in a few days saying “we have had multiple offers and you need to came back with you best and final offer” (there is no way for anyone to verify that.)  People tend to bid up and often times, they may be bidding against themselves.  Right now, the proof of that is when they close; we can see what the asking price was and how much they closed for.  Don’t get me wrong, there are foreclosures that take forever to sell or that will be sold at substantially less than the asking price but there is a reason for that: everything is relative to location and aesthetic.  Those properties that are sold at much less than the lenders asking prices are because they are dumps and no-one wants them.

Doing short-sales is quite tedious a process and it takes time. Often times, one can find quite a treasure in a foreclosure but, you kinda have to be here for that and when it strikes you, you need to make an offer immediately without flinging and be prepared to go higher than the asking price.

Forewarned is forearmed as the saying goes. I was getting an education in a whole new area.