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272-TNG Radio – Sean O’Toole 4-7-12

Friday, April 6th, 2012

Sean O'Toole


Sean O’Toole

Founder, ForeclosureRadar

(Full Bio)

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This week Bruce Norris is joined by Sean O’Toole, founder and CEO of ForeclosureRadar.com. Prior to launching ForeclosureRadar, Sean successfully purchased and flipped more than 150 residential and commercial foreclosures. He leveraged 15 years in the software industry. Sean used technology as a key competitive advantage to build his successful real estate investment track record. Now he has brought all these skills to ForeclosureRadar.

Bruce talked about how Aaron has a favorite word for websites, robust. If you say this about a person, it is not a compliment. However, if you say it about a website it is a good thing. This is how you can describe Sean O’Toole’s website. There is a lot to real estate and the real estate business, and Sean tried to make a tool that would work for all kinds of different things. They try to find new ways to use the site, go after new types of business, or have customers tell them something they had never thought of. The goal was to create something that would allow people to find a way to use it that works for them. Sean has a short sale section on his site now where the people that are actually trying to get them accomplished are able to communicate with each other and lenders who are easier to use. There was even a recording recently done that was shared with others, and this is a useful forum to which someone can have access. In their learning center they call it the short sale report; and it is free and right off their own website. They try to post information about each bank and links where you get the packages and letters as well as have a comment section where users can share information about each of those lenders, how they are to work with, and tips and tricks.

One of the general things about the internet is the nature of it is so inexpensive to access such a ridiculous amount of information. A lot of what is at the website is free of charge. When people pay for websites, they probably do not have an understanding of how much easier Sean has made the business. Bruce wondered if Sean even gets comments from people in the business or who have been in the business for a long time. Sean said he usually gets a double-edged compliment, especially from the ones who had been in the business before Sean’s existed. Half the time people are thinking they were saved a lot of time and allowed them to expand. Last year they may have brought 50 properties a month and made millions of dollars, and it is an awesome compliment that they used Sean’s primary system. However, it is also followed by people telling him he reels in the market and brings in a lot of other people. He gets both ends of it.

Bruce was never really a full-time trustee sale buyers until Greg figured a lot of it out along with a lot of the tools that were provided him. You go to a sale, and you see the same three or four people there every day. Now you go, and there are probably 50-75 people, and they change a lot. People can get up to speed a lot quicker than they used to, but they do not really have any appreciation of how much work has gone into getting them there. Sean said a lot of it was an issue of the times. People shift to where the market and the opportunities are. We went from a market where foreclosures did not matter to one at the peak where they make up the majority of the market in quite a few areas. Sean said he was looking at some stats he ran where in San Bernardino you went from 90% of the market being traditional market sales with 6% being flips and investor-run deals with 2% short sales to 46% REOs and 31% regular market sales in 2009. A lot of it was most likely out of necessity since we had a lot of builders who were pushed out of the building business and went into the foreclosure business. A lot of commercial brokers whose business was dried up also went into the foreclosure business. A lot of it was just natural, and Sean said they were fortunate to be in the right place at the right time.

Being an investor, Bruce looks at Sean’s website for these reasons, but he wondered what the government would use ForeclosureRadar for if Sean had them in his customer base. The first thing Sean said he saw them use ForeclosureRadar for was mosquito abatement. By finding properties that were not necessarily being maintained in the pools, the government was using their website to search for swimming pools in foreclosure properties so they would know to go treat them for mosquitos. Later on, a lot of cities get active to try to keep light down with code enforcements and the extension of the foreclosure process that we have seen over the last couple of years. Once somebody stopped making their payment, a lot of times they stopped making repairs too. In some ways it is great that they slowed down the foreclosure process as it has kept inventory off the market and kept people in their homes longer. However, at the same time their homes are not getting repaired, so code enforcement officers are using ForeclosureRadar to go look for these issues and try to be proactive about it.

Whether the code enforcement comes into play after the trustee sale or in the middle of the process usually depends on the county and the budget. He has seen some start off at the NOD stage. They will maybe take photos of the property at that point and continue to monitor it. If it goes downhill at any stage during the foreclosure process, they will start enforcement actions.

Bruce said something he had never seen on the website was a wholesale buyers list. One of the things Sean said he wanted to do from the beginning was they had a lot of incredible customers, the most knowledgeable foreclosure realtors and hottest investors, and they wanted to come up with a way to start connecting to those people. For all their customers, they allowed them to basically have a free advertisement out on their public website in something they called the marketplace. He wanted to connect folks and start allowing their customers to find each other and find services. They have investors who are willing to bid for others, so there is a bidding services section as well as people in property management, which some investors might be interested in. There are also a lot of realtors that are foreclosure experts and all get to advertise on this free foreclosure marketplace that is available to anyone. This section has not been updated as much since Sean said he tends to be more of a product-centric person than a market-centric person, which he said he is working on. He did say this feature has been around for a year.

Foreclosures have been a dominant player in the last five years, which is not typical California. Most typical California was the stretch from 2000 to 2006 where a trustee sale was rare. There were always a certain number of foreclosures, but Bruce wondered how radically this changes the business model that really concentrates on this. Sean said there is no question that foreclosures will play a less dominate role. It is already clear that REOs play a less dominant role now than they did even two years ago. There is no doubt that will even change and will continue to change. We went from 46% of the market being REOs in San Bernardino in 2009 to only 30% in 2011. That will most likely be lower this year. On the other hand, the motivators and players of who is in the foreclosure market changed in the timeframe from 2004-2006. You get some of the big consumer foreclosure sites, which he focuses on professionals rather than consumers. These sites had their best years in the years when there were the fewest foreclosures. They had less expense because they did not have to track as many foreclosures, and there were more people clamoring to invest in real estate and trying to find good deals. So there are really two sides to it.

Sean had mentioned how he thinks San Bernardino will have less of a percentage of REOs, and Bruce wondered if this is for natural causes or induced causes. Sean said he believes it is still largely from induced causes. You still have a lot of people underwater and lot of people in the foreclosure pipeline. However, it is becoming less and less politically correct to foreclose, so banks and looking for every other alternative possible. The latest thing is the REO to rental program. Banks all blame regulations for delaying these things and not pushing them through. At the end of the day it is all good for their bottom line to not foreclose and to delay the processes for as long as possible. We have seen this trend continue and grow. We are working through some of the problems as wells, so there are fewer people in foreclosure or underwater today than there were a few years ago. A lot of this is due to price increases.

One of the things Bruce has been studying about deleveraging debt is they are talking about the U.S. doing a really good job, but then in asterisks it said 86% of the debt reduction was just defaulting. It is improving, but it is not necessarily because we are having price increases. It is improving thanks to the strategic defaulters. Eliminating negative equity is a contrarian view.

Bruce wondered what the real estate debt was at the peak of the market. Sean said we have good numbers nationally, but not so well locally. According to the Fed funds, which the Federal Reserve publishes, we went from $4 ½ trillion in mortgage debt in 2000 to $10 ½ at the peak. We are now back down to about $9.8 trillion. This is a really good high-level gauge just to see where we are in the problem overall because if you think about debt as a percentage of income (in some cases the percentage of GDP), and you look at the number of new households and increase in household income from that time, the number should really be closer to $6 ½ trillion. This is where we should be back to if we want the same level of homeownership that we had in 2000. Unfortunately, we are a long way from being at that level, and Sean said he thinks this is the heart of the problem with the economy. Although, he realized that most economists would disagree and say it is jobs or something else. It is hard for him to see how you would have jobs when you have a consumer-driven economy where consumers are underwater in their homes. They have perhaps $3 ½ t o$4 trillion of too much debt.

What is interesting is that Bruce has talked to people who said banks have already written all this off. One of the interesting things about when banks write debt off is it does not write it off on the homeowner side. It is a one-sided write-off, so it does not improve the consumer position at all. Bruce has serious doubt that anybody has written off $1 trillion of anything, even if they put all their piles together. This is a lot of debt. The question is why you would want to model accounting that Congress put so much pressure on, specifically the Federal Accounting Standards Board. They say they have taken the write-downs, but it is the write-downs down to their fantasy values for these assets.

Bruce wondered when somebody wants to get into the business of trustee sales what are the typical rookie mistakes that he sees. Sean said the biggest mistake in terms of cost is to buy a second mortgage that you think is a first mortgage. The one thing Sean really encourages anybody entering this business to do is to really take the time to learn how to do title research. They regularly see their customers rely too heavily on their models. Sean said they guess what the positions are, and they give you that information. This helps with searching and the rest, but they do not intend for them to buy based on that information. They make things pretty clear with disclaimers and the rest, and nine times out of ten the models would probably work for the people. If your first deal is that 1 out of 10 where their guess is wrong or there is something strange about the title; that can be a very big loss. They will see other people who will call somebody, for example some junior customer service person, and they will ask them what they think is going on. They will usually tell them whether it looks like a first, but this is really not the way to do title research. If you cannot take the time to learn how to do it, you really should not be buying at auction. This is really not the place for somebody that is going to give it a shot and really not become good at it before they show up for the first day.

Bruce wondered what the likelihood is of somebody about to make a mistake having somebody there say not to bid on a second. With there being a lot more people down there, Sean said he sees helpful folks more often. Sean said early on in his foreclosure investing career he did this for a newbie and saved him about $150,000. He was still a relative newbie, having been down there 6 months, and the other regulars almost lynched him. They basically told him with more competition there is not really enough business to go around already, so by helping him out he saved him a lot of money. This means he was going to come back the next day. If he had lost the $150,000, they would never see him again.

Bruce said he prefers Sean’s route to the other people’s any day. Bruce actually did this intentionally one time to see if he had many friends and qualified intentionally for a second with his cashier’s check, and two other people qualified with him. However, when the opening bid came nothing was said. One of the regulars came over to Bruce and asked him what he had been doing, and Bruce said he just wanted to see if the person would tell him and see if he knew. In this way he made a really good point because you have to qualify to bid beforehand, and you will sometimes see the pros go qualify for things people might be confused about in order to try to suck them in. Sean has even seen pros knowingly bid to a point where they had a $50,000 loss against somebody trying to increase the other person’s loss because they realized the other person did not know what they were doing. Rather than letting them take the small loss, they actually took the risk of losing tens of thousands of dollars just to see that person’s loss be matured.
One of the things that has really changed is that before there was real equity, so when you are foreclosing in the ‘90s, people had older loans and there was equity. In this cycle, real equity is virtually non-existent, so you end up having something called a drop bid. If you asked somebody who attended trustee sales on a regular basis back in the 90s if they had checked out the drop bids, he would not have that vocabulary in his mind at all. Now, all of a sudden it is the entire business. Bruce wondered how somebody would find the drop bids before Sean’s site provided the service. Sean said it was largely by attending the sale or calling and checking ahead of time to find out. Pre-announcing opening bids is something that really started fairly recently. You would occasionally see it beforehand, but nobody even thought to enquire as what the opening bid was because up until 2008, the opening bid was the amount due. The years 2007 and 2008 were a terrible time to be in the auction business because everything had an opening bid that was above the market value. This was why the REOs were so overwhelming because they were taking back 95-99% of the inventory they could have sold to somebody with a cashier’s check. In the peak month, 97% went back to the bank.

One time in San Bernardino, Bruce happened to look in the MLS, and it was so ridiculous. There were 25 properties per $1,000 increment all owned by lenders. 101 had 25, 102 had 25. You had your way if you were buying through the MLS at that point. It was right at this time that we claimed the term shadow inventory and were talking about bank-owned properties. For all of those listed in the MLS, there were at least that many if not more that were not listed in the MLS. That bank-owned inventory was pretty short-lived because once the banks realized they needed the correct prices for what people could afford without the crazy financing, that shadow inventory disappeared. In a lot of places we went from 20 months of inventory to 4 months of inventory in a few month period.

Shadow inventory is still a very misunderstood term as the definition has shifted to talking about the REOs that were not being marketed to something else. Bruce was just in front of the mayor and city council in Riverside, somebody brought up shadow inventory, and his emphasis was the banks were holding onto a lot of properties. He was emphatic about it that they had not done what they were supposed to do as far as putting up for sale. It is a little hard to deal with somebody who is that emphatic with a chart, but he does make a point that there is something called shadow inventory that has changed definition.

If you want to check out Sean O’Toole’s website, visit www.foreclosureradar.com. He helps realtors, investors, and government agencies track foreclosures in California, Arizona, Nevada, Oregon, and Washington. The cost is $49.95, and there is a discount for members of the California Association of Realtors.

Tune in next week as Bruce continues his interview with Sean O’Toole.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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246-TNG Radio – Sean O’Toole 10-8-11

Friday, October 7th, 2011

Sean O'Toole


Sean O’Toole

President of ForeclosureRadar

(Full Bio)

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On October 14th, 2011, The Norris Group returns with its award-winning event I Survived Real Estate. An expert lineup of industry specialists join Bruce Norris to discuss current industry regulation, head-scratching legislation, and the opportunities emerging for savvy real estate professionals. 100% of the proceeds support the Orange County Affiliate of Susan G. Komen for the Cure. This event would not be possible without the generous help of the following platinum partners: Foreclosure Radar and Sean O’ Toole, Housing Wire, The San Diego Creative Real Estate Investors Association and President Bill Tan, Investors Workshops and President Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobbie Alexander, San Jose Real Estate Investors Association and Geraldine Berry, Real Wealth Networks, Frye Wiles Web and Branding, MVT Productions, and White House Catering, who will provide the 3-course meal for this black tie event. Visit iSurvived2011.com for more details.

Bruce is joined this week by Sean O’Toole. Sean is the founder and CEO of ForeclosureRadar.com. Prior to launching ForeclosureRadar, Sean successfully purchased and flipped more than 150 residential and commercial foreclosures. Leveraging 15 years in the software industry, Sean used technology as a key competitive advantage to build his successful real estate investment track record. Prior to that, he was involved in software startup companies.

Back in the late 80s and early 90s, Sean ran a homes and land real estate magazine in the Hawaiian Islands. He spent time taking a break from his software career to run this magazine and to buy and sell his own houses, which played a part in his real estate business career prior to buying at trustee sales. He became attracted to trustee sales after the .com bubble when he was trying to figure out what to do with his life. They were trying to take public company he had started and raised money for about the time that the bubble imploded, bringing it to an end. He was trying to figure out what he was going to do next when he was thinking of starting another software company since this was really all he had ever done. He was introduced to a friend who was buying foreclosures, and he said he should give it a try and if Sean helped him write some software to run his business, then his friend would teach him the rest of the business. At first Sean did not think this was very interesting; but then his friend showed him the kind of money he was making, and he became a lot more interested. Sean started buying at the trustee sales in 2002, which was an interesting time to be involved in something like this. During the era from 2002-2006, Sean was often surprised on the high side. He bought a property, and if it was a hassle to fix and get people out, he was bonused money along the way for the time delays.

One of Sean’s most profitable deals was where he had a gentleman fight him on the eviction for a year through multiple bankruptcy declarations to the point where the judge said he could never file bankruptcy again for the rest of his life. It seemed like a real headache until he went to sell the property, and it had gone up nearly 50%. It’s a very different world today. You would not want to have delays; if you can get to the finish line, then you would want to get there.

When Sean first started in the trust deeds business, it was tough to access information about properties and liens. There was a decent little service up in Northern California that later changed their business model and didn’t have as good of information as Sean had first used from them. After they changed their business model and stopped collecting the data directly, he had to find out how to collect the data himself. He was pulling data from the assessor’s office and the recorder’s office. The biggest thing was you would show up at the sales from everything that had been in the paper, and you would have a list of about 20 properties. They would then call 100 properties because the other 80 had been postponing for some period of time. Unless you went back years and went through all the notices, you had no idea what was still coming up for sale or not. You would have to play catch-up, which would be an awful lot of homework. People don’t realize unless they are in the business that each property entails a full-blown title search, an appraisal, and you have to determine if the pursuit is worth your time. Fortunately, from 2002-2006, there was natural equity most of the time. You wouldn’t have been following a lot of trustee sales that did not have equity; whereas now it is completely different. Back then, term “drop-bid” was unheard of at the time. It was very rare that the banks discounted the bid from the amount owed on the property and was unnecessary. The nice part about having inflation was that their loan was probably below what it was worth and therefore attractive to trustee sale buyers even though the number of trustee sales was way down compared to now. The amount of properties that had equity had to be very high in percentage.

Since Sean’s father is a logic professor, to him he needs things to make sense for him to understand them. So one of the hardest times he had with trustee sales was none of the deals sold on the courthouse steps made any sense. They had equity, and the person could have sold the house. It should not have gone to sale; they should have taken care of their problems, paid their mortgage, or refinanced. This was when he had learned that there were some basic reasons for foreclosure which had happened even in the best of times which were called the 5 D’s: drugs, divorce, death, denial, and disease. These things were not fun to talk about and made the business not feel very great on that side, but back in that period of time these were the reasons properties were foreclosed on. We still have foreclosures for those reasons, but the vast majority of foreclosures happening today are due to negative equity. We have an additional category that is really raining a lot of properties into the system. Back then when you were checking up on sales, you were on the phone and trying to get information to see if it was going to be worth going to the sale.

Sean’s website has really changed the process for someone wanting to be a trustee sale buyer and made it simpler. The person who taught him the business would take a Polaroid of each house and then write down the postponement dates. He had a shoebox organized by date of all the properties that could come up for sale, and literally each time a property came up for sale he had to put a new date on it and put it in a new spot in the shoebox. Other people would keep spreadsheets, and you really had to have somebody down at the sales every day to track everything. One of the big goals for ForeclosureRadar was to get people out of the really tedious sale tracking business. This is one of the areas where they have been very successful. Sean’s website is much more accessible and understandable, and it has made the competition greater. There are definitely new people that can go from novice to acceptable much quicker these days. Sean and his team was definitely in the right place at the right time, but he thinks the transition still would have happened if they were there or if somebody else was there. They launched in May of 2007, and it was towards the end of 2008 that banks began dropping bids and people began making a lot of money. At the same time, they had a lot of contractors and commercial real estate folks who suddenly saw their business go away and needed to find something else. Trustee sales were the right thin at the right time for a lot of people, and Sean and his team benefited from being the best tool at that time. However, he still thinks the transition and the competition would have heated regardless of whether they had been there or not.

Sean’s customer base is dominated by investors and realtors. Just in Sean’s little hometown of Discovery Bay, there is about 85 properties listed for sale; but there is 200-300 in some stage of foreclosure at any give time. If you want to call yourself a market expert, it is pretty hard to do if you don’t have a clue about the all the properties in some stage of foreclosure. If you’re listing a property, and two days later a bank-owned listing pops up next door, there is no excuse for not having known about it ahead of time. At ForeclosureRadar, they can give you months of advanced notice that is potentially coming, so you can work with your customers to be ready for it. The volume of dollars in sales as far as trustee sales in California is in the billions. Typically, the third-party investors are buying 20%, about half a billion dollars worth of property, a month. ForeclosureRadar’s peak month was around $8 billion at original loan value, not at current market value. The $8 billion encompassed the properties that would go to third party and to REO, anything for when someone has lost their house to foreclosure. The two categories combined, REOs and third-party bidders, is a resolution.

In California, there are currently 95,000 properties scheduled for sale, which is down quite a bit. A year ago, there were 120,000 properties scheduled for sale. Out of that, between homes sold back to the bank and sold to third parties, about 14-15,000 sell in a month. Last month, about 24,000 were added. If you take the 95,000 with 24,000 new added, you have 15,000 taken away. This means about 15% or more of the properties are bought by people that are investors to fix and resell. This is one of the reasons they don’t use trustee sales when talking about market sales. When NAR or CAR talks about the number of homes sold per year, they’re not including what happens at the trustee sales. The vast majority of things purchased at trustee sales are resold. Almost all the investors at trustee sales flip the property, and then the banks largely relist the properties as REOs.

Investors are the ones who tend to get rid of properties quicker. Right now in California, it takes banks on average 237 days and 131 days for third-party investors. Investors are a lot better at disposing of properties than banks. Investors are pretty motivated in terms of the fact that it is their money on the line and not a shareholder or tax payer. They also know the local markets better, and they invest in and fix up homes. The people who are fixing up properties put in new paint and carpet, and they are getting them ready for a first-time buyer or a landlord to turn them into a rental. Therefore, they usually try to make them really nice. The banks, usually because of the servicing agreements, try to do a little more than clean out the properties. You will have a lot of properties that are trashed that end up going as REO sales that first-time buyers simply can’t afford to buy, fix, and clean up. You also have some that are so trashed that you cannot get loans on them. The banks not fixing the properties is a big part of it.

When they first started talking about shadow inventory at ForeclosureRadar, it was prior to September 2008 because at that point the banks were taking on huge inventories of REOs that were not listed. Shadow inventory is described as bank-owned homes that were not listed for sale. After September 2008 when they really slowed down the foreclosure sales, at the time when the government made some changes that really slowed down the foreclosure sales, the bank-owned inventory came down to the levels where it really should be. Several folks that had been talking about shadow inventory changed the definition to now include the folks that were now in foreclosure and not-yet-bank-owned. Later, it was changed again to also include delinquent properties and not yet in foreclosure. Depending on who gives the term these days, Sean has even seen some people expand it to those who have so much negative equity they will eventually be delinquent, lose their home, and pay inventory. Sean even had someone the recently tell him that you also have to include all the people who like to sell their home, but not at the current prices. Pretty much most of the country is shadow inventory. Nationally, there are about 4.2 million properties that are between the stages of 90 days late and the bank already owns them. Of the folks that are in foreclosure, you have 134 that are at the default stage plus 94 scheduled for sale. You also have another 100 that are currently bank-owned. NODs are usually filed at the 13-month mark, although this has gone up a lot. Traditionally it was at the 90-day mark, and now it is at 13 months, which is roughly 398 days. The other 300 days, between 90 and 398 days, included defaults and delinquencies. Delinquencies in California are usually around 9%, so that is 30 or more days late. If you take 9% of homeowners with a mortgage, that is another 650,000. All combined, you have close to 1 million.

There are some problems that are going to have to be resolved one way or the other, which will be discussed with the group on the panel at I Survived Real Estate on October 14. They will be discussing possible resolutions since there seem to be conflicting goals. One document says it wants the country to save between $2 and $4 trillion so we can pay our bills, and we have an industry that almost needs more support. It will be interesting to see how the discussion comes about.

The percentage of owners that are over encumbered in California is unknown right now, but a lot of the larger properties are more over encumbered. They have not yet seen the declines in the upper end. There have certainly been declines in the Bay Area and in Newport Beach, but they have not been as traumatic as the declines in San Bernardino, Riverside, Central Valley, and Sacramento. This would most likely be attributed to the bulk of the inventory that is for sale being a foreclosure property. The other reason could be it was a different loan type that did not have the biggest problem as early as its subprime. Also, wealth plays a part. Higher end neighborhoods tend to have more wealth. In addition, data shows that the banks are taking a lot longer to foreclose on higher end homes where the losses are bigger, so part of the reason we have seen less in that area is because the banks are trying to delay losses and remain solvent.

Sean O’Toole will be on the panel for I Survived Real Estate 2011, taking place on October 14th. The Norris Group would like to thank their gold sponsors for the event: Adrenaline Athletics, Coldwell Banker Pioneer Real Estate, Conaway and Conaway, Delmae Properties, Elite Auctions, Inland Empire Investors Forum, Keller Williams of Corona, Keystone CPA, Kucan & Clark Partners, LLC, Las Brisas Escrow, Leivas Associates, Mike Cantu, Northern California Real Estate Investors Association, Northern San Diego Real Estate Investors Association, Pacific Sunrise Mortgage, Personal Real Estate Magazine, Realty 411 Magazine, Rick and LeaAnne Rossiter, Southwest Riverside County Board of Realtors, Starz Photography, uDirect IRA, Wilson Investment Properties, Tony Alvarez, Tri-Emerald Financial Group, and Westin South Coast Plaza. Visit isurvived2011.com for more details.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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221-TNG Radio – FBI – Richard Ryan 4-16-11

Friday, April 15th, 2011

FBI Mortgage Fraud

Richard Ryan

Supervisory Special Agent for the FBI


(Full Bio)

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This week Bruce is joined by Supervisory Special Agent Richard Ryan with the FBI. Ryan supervises a cadre of special agents and detectives from various law enforcement agencies throughout Southern California. Mr. Ryan oversees white collar crime in Los Angeles, which includes financial institution fraud, money laundering, and identity theft. During his career, he successfully worked major frauds, counter terrorism, gangs and criminal enterprises, and narcotics. In 2009, Ryan was deployed to Haiti for the search and rescue of U.S. citizens being held hostage for ransom.

Mortgage fraud is much more complex than a homeowner trying to get out from underneath their home, or someone looking to prey on another person’s equity.

There is a difference between fraud for ownership and fraud for profit. Mortgage and bank fraud involves profit. Homeownership or dehomeownership fraud often involves getting away from an underwater mortgage. Many people are trying to get away from their properties because of unemployment, having a bad loan, or having a fraudulently obtained loan. Many fraudulently obtained loans occurred while lenders were using no documentation loans.

Foreclosure rescue and loan modification schemes are a big problem right now. There are some companies honestly working with people to save their homes, but most of these companies are sponsored by the government. You should be cautious of foreclosure rescue companies that make you pay up front. Legitimate companies are more likely to bill you after they have completed their service.

Bruce heard a radio advertisement that said, “If you are trying to do a loan modification, without us assisting you in preparing your financial statement to look correct, you will probably not get your loan modification.” Ryan says that is completely false. That company is preying upon the emotions of people who are already desperate. They are pretending that their company is the only company that can help with loan modifications.

Many people are currently attempting to make their financial status look worse than it truly is to get a loan modification.

Fraudulently under-evaluating a property allows someone to flip it at a later point with a higher appraised value. This type of fraud involves a conspiracy of a homeowner and an appraiser. The appraiser gives an undervalued appraisal, and then encourages the bank to accept less than what it owed on the property. The property is then bought by the conspirators and sold for a price near market value.

There are many people who buy damaged properties with low values, fix them, and sell them at a higher value. The FBI encourages people to do this, because it is not manipulative, and not only does it provide a profit to the investor, but it helps raise the value of the entire neighborhood. There are perfectly legitimate reasons for buying a property at a low value and selling it at a higher one.

Sometimes there are conspirators in a short sale that are not going to receive any money. Occasionally, a homeowner will have a need to sell his home so he will personally ask a certain company to buy the property at a specific price. The conspiring homeowner will then have the opportunity to buy back the same property at a later date for a lower price. This is not considered a fair deal for the bank, and it is considered fraud.

Fraud occurs when skirting of reporting requirements occurs. Fraud occurs if you are not putting legitimate information on a loan application. It occurs if you are providing kick backs for a benefit to someone such as an appraiser or a notary.

Fraud evolves based on the conditions and environment of the day. We did not have short sales when people were making double digit profits every month in 2006. The banks were handing loans out prevalently. We are currently seeing a lot of foreclosures, short sales and vacancies. Ryan has also noticed a “squatting” trend developing in the world of fraud. Squatting is finding vacant properties, breaking into them, changing the locks, live in them without rent, and demanding the bank to give them $25,000 to leave.

Bruce says that owner occupants are not being punished when they allow their mortgage to become seriously delinquent and then destroy the property they are losing. Quite often, these people will dismantle things such as the cabinets, and decide that those cabinets should be theirs, even after they have lost the property. If someone is in bankruptcy and they strip the house for a profit they have committed fraud.

200 banks went into FDIC receivership last year. Many of these banks closed down because of their loan process. The FDIC is also a federal investigation agency that can detect loan fraud.

Insider fraud involves participants in the management of the bank who do perform certain actions to help themselves. Insider fraud can also involve a bank’s underwrite or loan processor.

The FBI has seen almost every kind of fraud. Bruce has people come to him with investment ideas, and their ideas sometimes involve fraud. Richard Ryan understands what a straw buyer is. There are some individuals who purchase homes but never make a payment. When the FBI interviews these people, the FBI discovers that these people had no idea that they were on title. They may have been told that they would receive $10,000 just to use their name to obtain a loan, and that their name would not be attached to the loan. Ryan has spoken to people who owned 30 properties without knowing it. These people are known as straw buyers.

Organized crime is very prevalent in mortgage fraud and bank fraud. Companies have purchased hundreds of homes underneath the names of the unknowing owners. Ryan met a person who owned his home outright, but had his home placed on the market without his knowledge, and had bids placed on the home. The real homeowner had no idea while the fraudulent homeowner was taking money from escrow and attempting to sell the house.

The FBI tries to conduct its investigations covertly. They do not want criminals to run and hide. The nice thing about mortgage fraud is that criminals cannot change their paper trail. You cannot unfile mortgage documents, and once those documents are filed there is a trail to follow.

The FBI has about 300 special agents dedicated to mortgage and bank fraud. Millions of schemes have been attempted, so the FBI is not well staffed to handle all these problems. However, if you do commit fraud, the FBI will come for you eventually.

There are currently around 3000 fraud investigations. California, Florida, Nevada and Arizona are the top places for mortgage fraud. The properties under investigation in California are typically much more valuable than the properties under investigation in Oklahoma.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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219-TNG Radio – Mike & Randy Grigg 4-2-11

Friday, April 1st, 2011

Randy and Mike Grigg

President and Chief Auctioneer of Elite Auctions 


 

(Full Bio)

 

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This week Bruce is joined by Randy and Mike Grigg. Randy is the President of Elite Auctions. Mike is Randy’s son, who gradually got involved in the auction business. Mike has won awards for “Best Auctioneer”. He is very involved in real estate and charity auctions. 

Randy got involved in purchasing real estate while he was in the agriculture business. He started slowly, buying 1 to 3 houses per year. He continued doing this consistently for 25 years. During those 25 years, he learned how to deal with tenants and structure deals. 

Because Randy had a career, he considered his rental properties to be a side job. He rarely had trouble with his tenants and they stayed for a long term, so purchasing houses was not a distraction for him. After a while, the number of properties he owned grew fairly large, so he had to figure out a program to manage those properties. 

When Randy first began buying real estate, the most popular trainers were Mark Harrilson, Albert Lawry, Robert Allen, John Schaub, and Pete Coronado. Randy was living in Bakersfield during this time, and he felt that gave him an advantage. He paid $27,000 for a house in Bakersfield and his rent was $350. Today, that same house would sell for $45,000 and rents for $800 per month. Randy’s first investment houses had negative cashflow, but as values increased over the years, they eventually accumulated positive cashflow. 

95% of Randy’s home purchases were bought from the owner. He attracted sellers through ads in the paper. He bought a lot of houses by taking over the sellers’ loans. 

Randy chose not to buy and sell because he already had a career, so he did not need the immediate money. Also, a lot of work and time goes into rehabbing properties for resale. There are also occasional, unfortunate surprises that come up from low appraisals, which can take 5% away from your selling price. 

Randy’s beginning instructors told him to buy and never sell. However, Randy did sell a few of them. 

Bakersfield has had almost no appreciation. In 26 years, there has been no appreciation, but you can get a 50% lower interest rate, and there have been wage increases. The payment for a 2011 home purchase in Lancaster is 31% less than the payment equivalent in 1985. 

Some builders are currently investing their money in trust deeds, because they do not have enough work. Also, the builders are not offering market rates on many of the homes they are selling. 

Randy’s life did not change much when the housing market went from boom to bust, because he chose to hold his properties. However, he does wish he had sold some of his properties, because he feels his age makes holding onto property less valuable. 

Mike worked on some of Randy’s houses when he was younger. He feels it was a good experience, because he was exposed to areas he did not want to live in, which motivated him to provide himself with a better life. 

Mike wants to buy and hold properties and he thinks right now is the best time to do it. Bruce believes he can still wait a couple years if he feels the need to. Bruce believes it is good for people to gradually work their way into property buying, because there can be big consequences if you do not. Sometimes people come to Bruce asking for a $1 million investment loan, and when Bruce looks at their profit estimates, he finds they are completely wrong. 

Randy does not often buy and then rehab for resale. Most of his properties involve very little rehabbing. Most of the people that Randy puts into his houses have good income and poor credit, and most of them have a strong desire for homeownership. Randy puts these sorts of people into his homes, because they rent with the hope of eventually buying the home, and Randy is willing to sell the home to them should they wish to. 

Randy has had a few tenants for over 20 years, but the average tenant length is 6 years. It is John Schaub’s philosophy that you will not make money on a rental for the first two years. Vacancy is the biggest expense in land-lording, because you then have to re-prepare the home for a new tenant. 

Randy will finance any repairs his renters wish to do on his houses, but the cost of the repairs is probably market value. 

Many of Randy’s current purchases are made for other investors. Those properties come out of the MLS. The rest of his properties come from ball room auctions in Bakersfield. Occasionally, Randy has the chance to bid against the lender in an online auction. Many online auctions have almost zero competition. 

Randy’s website is www.sellwithauction.com 

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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216-TNG Radio – Sean O’Toole 3-12-11

Friday, March 11th, 2011


Sean O’Toole

Founder, ForeclosureRadar

(Full Bio)

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This week Bruce is joined by Sean O’Toole. Sean is president and founder of ForeclosureRadar. He has successfully purchased and flipped over 150 commercial and residential properties in foreclosure. He has leveraged the software industry for 15 years to make a successful trustee sale business.

Sean does not believe we will see a growth in REOs in 2011. He believes we should see a growth in REOS, but we won’t. Since September 2008, when the financial world drastically changed, foreclosures have just been trickling out. He thinks this fact is due to bank and financial institution solvency.

Sean tracks the amount of time a property remains in the foreclosure process. In California, that time period is now up to 285 days, but it should only take 120 days. The average delinquency period for homes before reaching the foreclosure process is 334 days. If you add 334 days on top of the 285 days for the foreclosure process, it is a long period of time.

Some bills are being suggested right now to end the HAMP program and the Neighborhood Stabilization program. Sean believes those programs have been largely irrelevant from the beginning. In California, the total amount of money given to neighborhood stabilization was equivalent to one week of foreclosures. The billions of dollars spent on these programs seems like a lot of money, but when you look at the big picture, it really is not.

Sean’s company created a short sale tool because he wanted to give realtors and homeowners a way to see if certain lenders are approving short sales or not. Sean believes this is a very important resource, and he will be promoting it a lot this year. Wachovia was very good at approving short sales last year, and realtors that focused on Wachovia deals were able to perform more deals than other realtors.

ForeclosureRadar has also added multiple title related services. These services are primarily for auction investors who are interested in the state of a property. ForeclosureRadar offers links to county indexes, and webinars to train investors on how to look up title issues and figure out whether or not you are buying a first or second. Knowing the position of your loan is critical, because if you buy a second then you still have to pay for the first.

The average opening bid at the end of January 2011 was $254,000, and at the beginning it was $261,000. At the end of January average, about 80% go back to the bank, so that price range is still too high for most buyers. The average debt of a foreclosure by the end of January 2011 was $397,000, and at the beginning of the year it was $385,000. We have not seen a big change in the kind of inventory being foreclosed on.

The average opening bid for a foreclosure property is 15% above market value. Properties purchased by third parties are typically 25% below market value. If a lender successfully sells at a trustee sale, they typically take a 43% hit. Sean still sees properties going for sale at 50% of what they are worth. This is why programs like HAMP have been so ineffective in high equity states like California and Florida, because the problem is not payment affordability, the problem is the fact that they are 50% under water. When their payment adjusts back to a full rate, they will still not have the income level necessary to pay off their house. Also, unemployment and job transfers can occur which severely dampens a family’s ability to pay.

Lenders have not discovered whether or not drop bids, short sales, or REO sales make the maximum profit, and Sean does not think they are too concerned about that. Many things are controlled by servicers who do not suffer a loss from the losses they help cause.

FHA is developing a program for short refis. Obama is supportive of these programs to keep people in their homes, but on the other hand, Fannie Mae and Freddie Mac are concerned with maintaining equity.

A 30 page document just came out which discussed the future of financing. The goal of the document was to tell people that Fannie Mae and Freddie Mac will not exist. Sean believes this would be a good thing. He does not like our current 0% interest rate policy. We have baby boomers close to retirement, and they cannot make a decent living on fixed income in a zero interest rate environment. You could have saved a million dollars, but if you put it into something with nearly zero risk, such as a T Bill, you would be living off of $30,000 per year.

The U.S. has $14 trillion in debt right now. We have 115 million households, but only half of those households pay taxes. Of those tax payers, the top 20% pay about 80% of all taxes.

Currently, banks are being incentivized to push commercial foreclosures into the future, rather than deal with them now. The FDIC would be insolvent if they had to get rid of foreclosures in a timely matter. We have changed the accounting rules from mark-to-market to mark-to-model. The mark-to-model philosophy is driven by the idea that certain assets will increase in the future, which encourages businesses to set aside less for loan loss reserves.

As a nation, we went from a 45% debt to equity ratio, so we had 4.5 trillion dollars worth of residential mortgage debt on 10 trillion dollars of real estate. At the peak, we went to 10.5 trillion dollars worth of mortgage debt on a false market value of 20 trillion dollars. That market value was fictitious, and our market value is down to 13$ trillion, but we still have about $10 trillion in debt. We created about $4 trillion in excess debt, which we fundamentally do not have the proper level of household income to afford. In California, we have 2.8 million homeowners who either have negative equity or don’t have enough equity to sell their house and pay commissions. In Nevada, the loan to value ratio is 123%. They owe 23% more in their mortgages than what their real estate is worth.

The next big pile of REOs will probably come from HUD. FHA has a program to perform short sale refis. It required the lender to take at least a 10% hit, and a loan to value rate of at least 115%. FHA would provide government insurance on a loan up to 115% of the house’s value for the purpose of refinancing, so long as the lender would take a 10% principal loss. They have had difficulty getting this program off the ground, and now they are talking about ending the program.

Sean believes real estate prices will decline this year. However, Sean is a believer in holding real estate. He also believes the only way out of our debt problem is inflation, and real estate is a good investment during inflationary times.

Sean’s website is www.ForeclosureRadar.com

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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215-TNG Radio – Sean O’Toole 3-5-11

Friday, March 4th, 2011


Sean O’Toole

Founder, ForeclosureRadar

(Full Bio)

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This week Bruce is joined by Sean O’Toole. Sean is president and founder of ForeclosureRadar. He has successfully purchased and flipped over 150 commercial and residential properties in foreclosure. He has leveraged the software industry for 15 years to make a trustee sale business.

The Mission of ForeclosureRadar is “to bring transparency, efficiency and honesty to the foreclosure market place.” Trustee sales have a notorious reputation. Sean believes they are generally honest, but there are always a few bad apples. The Norris Group bids on trustee sales every day, and there are some people accused of bid rigging. However, it would be difficult to rig a bid in Riverside because there are often 50 people bidding at a time.

The foreclosure process has not changed since the Great Depression. Most market places for goods and services have gone online. Online bidding is much more efficient than requiring investors to stand outside the court steps for property sales.

Sean is uncertain of whether or not a national foreclosure law may be implemented in the future. Because we are a republic, each state has its own rights, and many of those rights involved property. Sean believes a national foreclosure law may not be helpful.

Sean was recently elected one of the top 100 most influential real estate leaders, and Bruce feels his election was well deserved.

Sean bought most of his trustee properties from 2002 to 2005. He bought a few properties in 2006, but he eventually sold everything that same year because he thought the bubble was about to burst. When Sean sold his properties, he noticed the affordability levels were unsustainable, many buyers were unfit for purchasing property, and builders were discounting. People would pay $370,000 for a house, with no money down, and poor credit. Later that house would be selling for $350,000 with a swimming pool. Its not likely that the buyer, who thought property values would continue to increase, is going to keep making his payments.

Sean has met multiple investors who have told him that Bruce Norris’ predictions helped them leave the market before the bubble burst. Sean wishes he had known Bruce Norris during the bubble, because it was tough for him to leave the market while his partners were disagreeing with him.

Sean bought his first house when he was 18. Later, Sean’s father persuaded Sean to run a business for him in Hawaii. The business was a homes and land magazine. Later, Hawaii’s real estate market fell severely, and it became hard to sell real estate magazines during that time. Also, Sean’s house in his home town lost a lot of value, and he had to perform a short sale.

An event in another country can have an impact on our shores. The debt bubble in Japan had a strong impact on Hawaii’s market.

Sean once found a house that looked really nice on the outside and it had been boarded up. This lead Sean to believe that the inside was probably also well kept, so he bought the house. Unfortunately, Sean discovered the neighbors had been keeping the house clean, but they had also been using the inside of the house as a trash dump to avoid paying their trash bills. The house had 8 feet of trash and 30 dead animals. When Sean attempted to hire people to take the trash out, they came out of the house throwing up and quit.

Bruce does not believe you can have the kind of website that helps people in the business unless you have experienced the business for yourself. Sean has experienced the problems that come with being in this business, which is why he has been able to build such a helpful website. Sean believes that if half the people in Silicon Valley were willing to experience the problems they are trying to fix, then we would be building much better solutions for many problems.

When Sean first began investing in trustee sales, he had to watch the notice of trustee sales coming through the county records and the newspaper. The records would only tell you what is scheduled for the first time. You would go to the trustee sales and hear the auctioneer mentioning many other properties that were not in the records, because they were being postponed. It took months to compile a complete database of when certain sales were scheduled. This gave Sean a significant disadvantage over other buyers who had been in the business longer. There were some properties that you could get information on through calling, but for most of the properties you had to stand at the court steps.

Sean’s website has leveled the playing field, and it has hastened the time it takes to go from being a novice to being fully functional. Sean believes ForeclosureRadar has significantly helped the data aspect of foreclosure sales. However, there are still other inefficiencies, such as being required to show up with cash, and not having title insurance. As the market becomes more efficient, the discounts will become smaller, and that will decrease profitability.

“Get Rich Quick” gurus and disreputable list peddlers have thrived on the industry’s darkness, and Bruce believes ForeclosureRadar has brought transparency and understandability to the business. If you are looking to get rich quick, you should probably seek another venue, but you can still make a great living in the foreclosure business. Sean does not believe in “get rich quick” ideas.

2007 was an awful year to be in the foreclosure business, because the banks were not discounting anything. During that time, he started focusing more on his software business.

Sean is always anxious after wining a foreclosure bid, because he worries that his competitors may know something he doesn’t. Bruce feels most anxious when he is the only bidder on a property. In Southern California, no one will come to your rescue if you are making a mistake. Sean once stopped a man from purchasing a second which would have resulted in a minimum $150,000 loss. After stopping the man, the other investors were furious with Sean, because they were hoping the man would destroy his ability to compete against them. Bruce understands the desire to beat out the competition, but he is glad that he was able to help someone else in a similar situation. Bruce once attempted to test the kindness of his competition by purposely qualifying for a bad sale. Once he had qualified, 4 other investors decided to qualify with him, but no one made a bid. After the foreclosure sales ended, one of the competing investors asked Bruce, “Why did you do that?” Bruce responded, “I wanted to see if you would tell me it was a second.” What the 4 investors did was worse than just letting Bruce bid on the property. The reason why they qualified for the property along side him was because they wanted to make him feel comfortable about making a bad choice. Sean has even seen an investor bid an inexperienced investor up on a bad deal in an attempt to increase the inexperienced investor’s losses.

In Sean’s hometown, he has 4 times as many properties in foreclosure as he has listed for sale. If you want to claim to be a market expert, you have to be able to understand the foreclosures in your area.

Sean’s website is www.foreclosureradar.com

We will be doing a second interview with Sean next week.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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The Norris Group Real Estate News Roundup 2/23/11

Wednesday, February 23rd, 2011

Today’s News Synopsis:

The NAR said existing home sales rose 2.7% in January. The FHA’s REO inventory has increased 47% year over year.  A California judge upheld the rights of the Mortgage Electronic Registration Systems to the trust deed, granting MERS the right to foreclose. A Federal Reserve economist predicts the government will soon provide an alternative to the national homebuyer tax credit

In The News:

NAR - “Existing-Home Sales Rise Again in January” (2-23-11)

“Existing-home sales1, which are completed transactions that include single-family, townhomes, condominiums and co-ops, increased 2.7 percent to a seasonally adjusted annual rate of 5.36 million in January from a downwardly revised 5.22 million in December, and are 5.3 percent above the 5.09 million level in January 2010.”

Mortgage Bankers Association – “Mortgage Applications Increase in Latest MBA Weekly Survey” (2-23-11)

“mortgage loan application volume, increased 13.2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 14.8 percent compared with the previous week. The Refinance Index increased 17.8 percent from the previous week. The seasonally adjusted Purchase Index increased 5.1 percent from one week earlier.”

Inman - “New CoreLogic market reports incorporate MLS data” (2-23-11)

“CoreLogic’s Listing and Market Activity Report — the first in a series of new products the company is developing to generate revenue from the data it receives from cooperating MLSs — provides key information including updated listings, comparable sales, property valuations, days on market, price trends and inventory.”

Housing Wire – “FHA REO inventory up 47% from one year ago” (2-23-11)

“The Federal Housing Administration held 60,739 properties repossessed through foreclosure on its books as of December 2010, up 47% from the year before.”

Housing Wire – “Freddie Mac finalizing major revamp of mortgage servicers” (2-23-11)

“Freddie Mac is in the final stages of changing how its 1,400 mortgage servicing companies handle its loans, and will implement a new scorecard measuring their performance. Furthermore, the government-sponsored enterprise is announcing that it will case review the way servicers treat delinquent borrowers, in order to ensure quality control.”

Housing Wire – “Bank failures hit 18-year high in 2010″ (2-23-11)

“The Federal Deposit Insurance Corp. held 884 financial institutions on its ‘Problem List’ as of the end of 2010, and the 157 insured banks that failed was the highest amount since 1992.”

Housing Wire – “MERS rights upheld in largest foreclosure state” (2-23-11)

“An appellate judge in California last week upheld the rights of the Mortgage Electronic Registration Systems to the deed of trust, giving MERS the right to foreclose, according to court documents.”

Housing Wire – “Fannie Mae to start grading mortgage servicers” (2-23-11)

“Fannie Mae will launch a new program for evaluating the performance of its mortgage servicers over the next 30 days. The Servicer Total Achievement and Rewards (STAR) program will gauge how servicers support the housing recovery and keep homeowners out of foreclosure.”

Housing Wire – “Fed economist pushes homebuyer tax credit alternative” (2-23-11)

“A Federal Reserve Bank of Cleveland research economist predicted Wednesday that the government would soon provide an alternative to the national homebuyer tax credit that expired in April.”

Bloomberg - “Existing Home Sales in U.S. Probably Fell in January From Seven-Month High” (2-22-11)

“Sales of U.S. previously owned homes probably dropped in January from a seven-month high, showing any recovery will take time to develop, economists said before a report today. Purchases decreased 1.1 percent from December to a 5.22 million annual rate, according to the median forecast of 73 economists surveyed by Bloomberg News.”

Looking Back:

The NAR predicts that the commercial real estate market will not recover until after 2011. In California, single family home sales decreased by 3 percent during January. The Standard & Poor’s index shows that national home prices increased slightly during December. 702 banks made the ‘Problem List’ for the FDIC in 2009.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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208-TNG Radio – Norris Group 1-7-11

Friday, January 7th, 2011
Greg Norris

(Full Bio)

(Full Bio)

The Norris Group

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This week Bruce is joined again by Greg Norris and Craig Hill. Greg is the vice president of TNG Auctions. He buys properties and resells them. Craig has been working with Bruce for 15 years, and is responsible for speaking to all potential borrowers for The Norris Group.

TNG gets many calls from new investors who tend to have some misconceptions. One of the biggest misconceptions these investors have is that they don’t need to use personal cash when using hard money loans. Craig suggests that borrowers have $30,000 for every $100,000 you desire to borrow. Also, many people believe that having credit issues will disqualify them, but credit issues can be ignored if they have an appropriate amount of cash. On the other hand, there are some investors with 800 credit scores and minimal cash reserves who will probably be disqualified.

If a house is worth $100,000, $75,000 should be the total between the purchase price and repairs. People do not understand that you cannot effectively invest in a house with very little money.

There are many lenders who will make a loan regardless of whether or not it will be profitable for the investor. The Norris Group offers investors another level of protection, because we have an appraiser with an investor background. Craig estimates that TNG’s appraiser prevents 2 to 3 investors every week from getting a bad deal. Once someone gets a deal, Craig prefers that the investor send him the property info immediately. There are many people who overlook details like “year built” or “lot size”. People treat investing in real estate like people who gamble in Vegas; they believe they cannot lose.

Sometimes investors start with something that is above their level of experience. In Bruce’s bootcamp, he takes his students to a home that is above their experience level, and asks them to estimate repairs, so they can learn to stay away from those homes. Craig has noticed that many investors tend to undervalue the cost of repairs and overvalue the sale price. People have come to Craig with an interest in buying property, but he can easily tell whether or not those properties are profitable by seeing who is selling them. If Craig notices that the seller is an experienced investor, that gives him a clue the property is not selling undervalued.

Relying on other people to give you all your buying, repairing and selling numbers is probably not a good idea, especially if those people are on commission. If an agent claims he can sell a property for a certain price which is contrary to Craig’s judgment, Craig suggests the realtor should not charge for the purchase of the property, and only take commission after the sale.

Appraisals have gotten better, in Greg’s opinion. This is partly because of a more stable market. Many short sales are pristine. To determine whether or not a property’s value is accurate, you need to look at all the properties sold within the last 3 months and pending sales. Sometimes you will see houses pending at a high number, but are also short sales; that is obviously not the right number. Sometimes the sold properties in the MLS are not actually sold. You need to know when to speak to a Realist about whether or not a sale occurred.

One of Greg’s most difficult jobs is to appraise a property for the future. He has to take into account which season he will be selling in. This winter has been odd for TNG, because half our properties are pending. Usually properties take longer to sell in the winter. Greg attributes this to the lack of inventory. There are not an overwhelming number of REOs on the market, so sellers still have some power. Also, TNG probably has the only fully repaired product. Greg has gotten better at pricing as well.

It is still hard to know what an appraiser will appraise a TNG house for. Currently, Greg’s least likeable appraisers work for VA, and FHA appraisers are now better to deal with, because FHA allows Greg to use appraisers that understand how to properly appraise a fully repaired house. Appraisers have recently taken a cut in their pay, so they may not look closely at your property unless you get their attention.

Getting a hard money loan is very costly. Craig has received calls from investors who hung up immediately after hearing his hard money interest rates. However, using hard money over a regular, cheaper loan gives you more freedom to do more and make more. One benefit of using hard money loans is that you don’t have to fear not finding necessary cash. When you have a business relationship with someone who is counting on your closing, you cannot go knocking around the neighborhood to find a quick $100,000.

There are some occasions where people receive a “yes” from a lender, but later get cancelled on. If TNG says yes to a deal, the deal is done and funded. TNG only gives borrowers a hard time during the initial process, so that we can know the deal is going to be profitable. This is why agents and escrows like working with TNG, because they know that if TNG gives a commitment, then the deal is going to work.

People might think that TNG’s business model is very simple and easy to replicate, but it isn’t. We have built good relationships with our business partners, which allows us to do business with ease. TNG even passes on a few deals just to maintain respect from its partners. Building a team that trusts you can take years.

When Bruce and Craig first met, the common idea of value was what someone paid for it. If a piece of property was said to be worth $90,000 but was sold for $60,000, then the value was believed to be $60,000. Bruce and Craig disproved this idea, but it was very difficult for Craig to approve Bruce’s loan.

All of Bruce’s seminars make it easier for Craig to do business, because many of TNG’s new clients know a lot about the company. Many of TNG’s clients have had the opportunity to hear Bruce speak, and they’ve researched TNG through our website. This helps Craig as a lender because not only do his clients know how TNG conducts its business, but they also know that we are trustworthy. Some of Craig’s clients trust TNG’s decision making ability more than their own, and that is why they work with him.

Greg’s favorite type of inventory are standard track homes. Greg does not like properties on large lots. Anything over 20,000 square feet is usually bad inventory. Also, he does not like areas that are poorly planned. For example, there are some neighborhoods where there may be one property built in 1960 next to another property built in the 1970s. There are exceptions to this, but Greg prefers to buy safer inventory with more mass appeal. Newer homes are typically more attractive, and they require fewer repairs. Greg has been surprised by how many people are still more attracted to larger homes. He does not mind buying properties on small lots so long as that kind of inventory is selling well in its area.

When Greg is estimating a property’s value, he tries to think of what a property’s resale value will be after 30 days. He has to consider what it will take to attract a buyer within 30 days. There are occasions when he must cut his values, because 5 REOs drop into the market at one time. Greg reviews his asking price once a week for every property TNG owns.

Greg has had a lot of trouble with pool homes. He has spent $25,000 on pool repairs, which wiped out his profit. However, pool homes are not always problematic, and Greg has profited from buying them.

Greg prefers to rely on his own knowledge at a trustee sale. Sometimes he receives friendly advice from other people, but not often.

For m ore information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 170 podcasts in our free investor radio archive.

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207-TNG Radio – Norris Group 1-1-11

Friday, December 31st, 2010
Greg Norris

(Full Bio)

(Full Bio)

The Norris Group

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This week Bruce is joined by Greg Norris and Craig Hill. Greg is the vice president of TNG Auctions. He buys properties and resells them. Craig has been working with Bruce for 15 years, and is responsible for speaking to all potential borrowers for The Norris Group.

Craig’s business was extremely busy during the first part of the year, but it became even busier toward the end as inventory decreased.  Inventory is down 75% for REO buyers.

When Bruce and Craig first met, most of the business revolved around doing seconds for owner occupants in financial trouble. At this point, most of Craig’s business involves doing short term loans for investors who buy fixer properties and long term loans for investors who hold rental properties. This business works well for TNG, because banks do not want to loan money out to investors. Banks have stopped making common sense loans. The TNG hard money program allows investors to own property at 9.9% interest. These properties often cash flow well, and the monthly payment is often cheaper than rent.

Greg has discovered that most homes found at trustee sales involve smaller rehabs, newer homes and bidder areas. Trustee sales have made Greg’s job simpler, because the best deals for REOs usually involve heavier REOs. Discounts on trustee sales are smaller than on REO sales, and trustee sales are much more competitive.

The number of people who attend trustee sales depends on the amount of inventory and the kind of inventory. The largest number of people Greg has ever seen at a trustee sale is 50 to 70, but out of that group only about 8 to 10 were big investors.

10 years ago, trustee sales did not involve drop-bids, people had equity, and the investors involved in the business had been doing it for a long time. In some ways, Greg thinks the changes that have occurred in the trustee sales have made it more difficult for individual investors, but in other ways, it has become easier. Some of the individual investors are using their own money, so they don’t have another investor they need to repay, and they do smaller volumes. Sometimes you cannot compete with those people, because they are doing their own rehabs and they only buy a few properties every year. Some of them will buy properties for $20,000 over what Greg would be willing to pay. Because those buyers have limited research ability, Greg prefers to simply wait for those buyers to leave.

Greg’s typical day begins by doing research on properties with open bids, and other properties that may potentially drop into open bid. At 9AM, he attends the sales. After he attends the sales, he deals with real estate and repair contracts, and then prepares for the next day’s sales.

TNG’s loan clients have an unmatched level of experience in the industry, and Craig truly appreciates this. Craig’s phone is nearly constantly ringing. Many people discover TNG’s program through the internet, referrals, and from Bruce’s many speeches. TNG has gained a lot of respect for being a Southern California only real estate business and for being in the investment business for a long time. The most rewarding referrals come from people who have heard about TNG from multiple people, and decide to talk to us out of curiosity. Sometimes investors in the field are referred to TNG from agents who tell the investors, “If you can get a preapproval letter from The Norris Group, I will accept the offer.” That speaks more than any referral, because it means people know that TNG only approves of deals that are closable.

This year, Craig was surprised by how much volume picked up on long-term financing. There is a huge demand for this. Bruce believes TNG’s long term financing will perform at a very high level, because a lot of inventory will come out. This kind of financing will not work as often with an owner occupant as it will with an investor. A lot of rehabs and lower priced properties are turning into buy and holds, rather than flips. Craig believes it is challenging for investors to flip $100,000 to $150,000 homes in this market, because there are many investors willing to buy and hold. An investor who can buy and hold can probably pay more, because they will receive a cash flowing property that will give them a profit for 10 more years.

Bruce believes the 203K FHA loan program will probably return next summer. The problem with that program is that it probably takes 45 days to fund it. That makes the loan hard to sell, because a deal can be closed much quicker than that. In some cases, TNG will do a deal in 7 days or less. The speed of the deal makes a big difference in an investor’s willingness to buy.

The automation of TNG’s website has helped Craig tremendously, because it allows him to handle phone calls and it has automated TNG’s loan process. TNG’s loan business has doubled over the last 12 months, and the time to fund those loans has gone down.

Greg only gets to see the inside of his potential property purchases about 5-10% of the time. Only 10-15% of those properties are unoccupied.

Two of Greg’s employers, Joe and Kenneth, are responsible for going to every house, evaluating repairs, and talking to the owners to determine whether or not they are difficult to deal with. When Joe and Kenneth are not viewing houses, they are doing construction contracts.

Guessing the cost of a rehab when you cannot see inside requires a lot of experience. Greg often guesses based on the age of the home. For example, a house built in the 80s will probably require more cabinets than a house in the 1990s or the 2000s. You can learn a lot more about this if you come to a TNG bootcamp.

Realtors are very pleased with TNG homes, because they are in great condition and they are standard sales. Realtors get tired of wasting their time with REO and short sales. Also, TNG is easy to deal with so long as they do their job. Bruce Norris once attended a Realtor group meeting in which an agent stood up and said, “We wish The Norris Group would buy every REO in town, because of how they deal with properties, and how they turn out.”

Finding a reliable contractor can be tough. TNG has improved its business because of the relationships it has built with contractors over an extended period of time. If you keep your rehabs consistent, then your rehabs will get easier for your contractors, and they will have your same mentality. When a contractor has done enough repetitive jobs with you, they can advise you on how to best rehab your properties based on previous jobs.

It takes a while to build a good investment team, and your team doesn’t just involve your contractor; you need to have lenders and escrow partners. All those people will help you get to the finish line faster, and if you aren’t going to get to the finish line, then you will be notified sooner, so you don’t waste time on the market. Dishonest lenders do not want their deals to fall out, and will lie with the hope that some money might show up. Greg tries to make sure that he is working with a serious buyer by making them spend money to finish the deal.

When Greg first started doing trustee sales, a lot of people were using all cash and conventional loans. A lot of people got fooled into feeling that they had to buy because of the government incentive. If they had waited 6 months, they would have gotten more than $10,000 back, because the market adjusted down. Right now, Greg is seeing a lot of VA and FHA offers, and very few conventional offers. Only 1 out of every 10 of Greg’s deals fall out. Greg does a good job of weeding out bad buyers before escrow. Bruce feels that Greg has made a wise decision to force potential buyers to put effort into the property before it goes to escrow.

Every year or two, trends change in the loan business. In 2009, TNG dealt almost exclusively with REO. In 2010, we got more trustee sale buyer refinances. Those were people like Greg who would attend trustee sales, and then refinance to leverage the property. In the last six months, Craig has noticed an increase in people buying short sales. The short sale process is no longer a half year long process. Some short sales can be completed in less than 60 days. The bulk of TNG’s business is still REOs. This is probably due to the fact that TNG’s clients are experienced, and they have relationships with REO agents.

Short sale agents do repetitive business with buyers they are comfortable with, so developing a relationship with an agent can lead to repetitive purchases. The nice thing about a short sale is that you get to see the inside of the property, title insurance, and it is less likely to be in bad condition.

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The Norris Group Real Estate News Roundup 12/09/10

Thursday, December 9th, 2010

Today’s News Synopsis:

According to Freddie Mac, 30-year mortgage rates increased to 4.61%. The Labor Department reports jobless claims decreased 4% last week. Clear Capital claims national home prices dropped 5.8% in November. Fitch Ratings forecasts a 10% decline in home prices during 2011.

In The News:

NAHB - “NAHB’S Multifamily Production and Vacancy Indices Show Increased Confidence” (12-9-10)

“Serving as leading indicators for the sector, two composite multifamily indices produced from NAHB’s survey of multifamily builders and property managers showed improvement in the third quarter of 2010. The NAHB Multifamily Production Index (MPI) increased to a value of 35.6, up from the 26.6 level reported for the second quarter. This is the highest the MPI has been since 2007.”

Mercury News – “Mortgage rate for 30-year fixed loans hits 4.61 percent” (12-9-10)

“Freddie Mac said Thursday that the average rate on a 30-year fixed loan increased sharply from last week’s rate. And it is well above the 4.17 percent rate hit a month ago — the lowest level on records dating back to 1971.”

Housing Wire – “Jobless claims fell nearly 4% last week” (12-9-10)

“Initial jobless claims fell nearly 4% last week to 421,000 after coming in at the lowest level in two years a few weeks ago. The Labor Department said the seasonally adjusted figure of actual initial claims for the week ended Dec. 4 decreased by 17,000 from the previous week’s upwardly revised figure of 438,000.”

Housing Wire – “Zillow: Home values crater by $1.7 trillion in 2010″ (12-9-10)

“U.S. homes are expected to lose more than $1.7 trillion in value this year, 63% more than the estimated $1 trillion lost in 2009, according to Zillow.”

Housing Wire – “Double dip in some markets drag home prices down 5.8%: Clear Capital” (12-9-10)

“Home prices in November dropped 5.8% over the previous three months and are down 2.7% from a year ago, according to real estate analytics firm Clear Capital.”

Housing Wire – “Fannie Mae survey finds traditional homeownership changing” (12-9-10)

“51% of survey respondents said the housing crisis has not affected their overall willingness to buy a home, 33% said they would be more likely to rent their next home than buy. In January, 30% of Americans surveyed said they would rent a home the next time around.”

Housing Wire – “Fitch sees 10% drop in home prices in 2011, negative outlook for MBS” (12-9-10)

“Fitch Ratings expects another 10% decline in home prices in 2011, as the supply of distressed properties continues to weigh down the housing market. Accordingly, analysts maintained the agency’s negative outlook for the residential mortgage-backed securities space and said 53% of all investment-grade RMBS rated by Fitch have a negative outlook.”

Looking Back:

One year ago, Gov. Schwarzenegger signed a bill which ensured that consumers could choose their own real estate service provider when purchasing a foreclosure. According to Zillow, Bay Area properties lost 3 percent of their value during the first 11 months of 2009. 18 percent of FHA loans were either delinquent or in foreclosure. Statistics from Freddie Mac showed that national home prices increased by .9 percent during the second quarter of 2009.

For more information about The Norris Group’s California hard money loans or our California Trust Deed investments, visit the website or call our office at 951-780-5856 for more information. For upcoming California real estate investor training and events, visit The Norris Group website and our California investor event calendar. You’ll also find our award-winning real estate radio show on KTIE 590am at 6pm on Saturdays or you can listen to over 200 podcasts in our free investor radio archive.

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