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By Bruce Norris .

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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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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208-TNG Radio – Norris Group 1-7-11

Friday, January 7th, 2011

Greg Norris

(Full Bio)

 

Craig Hill

(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)

 

Craig Hill

(Full Bio)

The Norris Group

 streamitunesdownloadrss  

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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202-TNG Radio – R.K. Arnold 11-27-10

Wednesday, November 24th, 2010

R.K. Arnold

President and CEO of MERS


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This week Bruce is joined by R.K. Arnold. Arnold serves as the president of MERS. He joined MERS at its inception in 1996, and served as senior vice president and general counsel until his promotion to president in 1998. He is a member of the MERS board of directors. His team has built MERS into the central electronic registry for the mortgage finance industry.

Arnold just met with the Senate Banking Committee on housing. The members of that committee are very busy people, and they probably did not have time to read his testimony prior to the meeting. However, Arnold had been on capital prior to the meeting, to brief the staff of the committee. Arnold does not perceive the current housing problem to be very complicated, but he doesn’t think the committee understood it as well as he hoped.

Currently, there are over 31 million active loans in the MERS system. 66 million loans have been registered through MERS since its inception. Bruce doesn’t think that the MERS problem sneaked up on the system. MERS started in 1997, and it must have been developed because it offered a valuable service. When MERS first started, it had a flow of about 50 loans per day. That number eventually reached 36,000 loans per day.

When MERS began to grow and take on the business of major lenders, it had to go through the filters of certain legal departments.

MERS operates a nationwide database in which members can keep track of loans being serviced. To make this system accurate, MERS is labeled in the land records as the mortgagee. This means that all the legal mail involving the property is sent to MERS. You can think of it as being a trustee of a trust. MERS then turns the mail into an electronic form through high speed scanners. These scanners are then used to email the documents to the companies involved.

MERS also keeps track of who owns a loan. That part of MERS has been open to the public for 18 months now. If someone wants to negotiate a loan modification, a private individual can access MERS and discover who the last owner of the note is. That part of the MERS system is not as standardized as the servicing part. You may discover that a note is held by a trustee, or that it is in a numbered trust. Those are one in the same, except that in one way it is reflected in the name of the trust, and in the other, it is reflected in the name of the trustee. There is an additional person involved in this process known as a custodian. If someone wants to know where the note is being physically held, it is probably with the custodian. So this can become very complicated. On the other hand, the servicing is very straight forward and accurate. When a servicer changes, the old servicer does not want to receive mail anymore, because they will not be paid for it, and the new servicer will want to get that mail.

Recently, a large servicer named Taylor, Bean & Whitaker went out of business. Once the FDIC found the successor to that company, that information could be changed on the MERS system, and the mail will go to the new servicer instantly. In the past, that mail may have never gotten to the right location. MERS is a big benefit to homeowners, financial institutions and regulators.

Part of the concern relating to MERS is that there are two worlds in which things are recorded. It would be similar to having ownership records kept at the county recorders and at a company similar to MERS.

Right now, MERS has no competitors. Part of the reason why MERS has no competitor is because it would not be very useful to have competitors for this service.

When MERS is tracking who services a loan, and when the loan is sold, the system is different from what most people are accustomed to. MERS is in the land records as the common agent for all 3,000 of it’s members. On the mortgage, MERS is labeled as the mortgagee, and there is an 18 digit number with a telephone number. Using that number along with your personal identification, you can log into MERS and discover who the current servicer is. There are no assignments; MERS is always the mortgagee. Before MERS, those assignments frequently had mistakes. Some assignments were recorded in the wrong number, and sometime there was no assignment at all with no intent to record them. This was not a problem with the county recorder, it was the problem with the industry. The industry’s attempt to solve that was to put one company on the land records on behalf of all of them. MERS is the mortgagee, not the servicer. If you look at a mortgage on the MERS system, you can find a clause stating, “MERS is the mortgagee as nominee for the lender and the lender’s successor.” MERS keeps track of where a note is as well as who is servicing the note.

Title companies are involved in all foreclosure processes. Foreclosures are performed by law firms. When the mortgage is recorded in the land records, there is a legal paragraph stating that MERS can foreclose. Less than 10% of mortgages are foreclosed in MERS name. MERS has more strict rules regarding foreclosure than many states. If a loan is to be foreclosed in MERS’ name, the promissory note must be presented in the foreclosure. A last note affidavit will not provide an exception to this rule. If they do not wish to present the note, then they must sign it away from MERS. At that point, it would leave the MERS system, and there would be an assignment recorded in the county land records verifying that they are signing it to themselves.

The raw legal title is reflected in the land records. That title makes sure that no one can prime that in the land records. There is a conveyance of real property in the public land records.

Some attorneys have convinced their clients that they will win the right to a free and clear house. Arnold has not seen this happen yet.

The vast majority of all people who are currently being foreclosed on have not made their payments. People seem to have forgotten that there are rights attached to being a lender.

If MERS was declared to have improperly dealt with title issues, Bruce wonders what the consequences would be. Surely that problem cannot exist. Arnold does not believe there is any question that we have secure loans. The lender and the borrower signed a mortgage or a deed of trust. The money was lent as one transaction. The deed of trust was recorded in the land records. Arnold thinks people are panicking over the idea that robo-signers are signing documents without reading them, but that doesn’t have anything to do with the security of the property.

Lenders have acknowledged that there are some flaws in the process, and that those flaws can be changed. Lawyers are hoping that foreclosures can’t be corrected, which would prevent foreclosures from occurring. If those problems couldn’t be fixed, Bruce and Arnold believe bad things would happen to lending. Lenders will not loan money without having security. Fortunately, Arnold doesn’t see any way to get around the land records.

MERS strongly believes that the note should be produced at the time of foreclosure. MERS does not make any money on a foreclosure, and the decision to foreclose is made by the servicer. Arnold is disappointed that there has been sloppiness in the process, but people are working to fix that problem.

MERS website can be found at www.mersinc.org A copy of Arnold’s testimony can be found there.

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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194-TNG Radio – I Survived Real Estate 2010 10-02-10

Friday, October 1st, 2010

I Survived Real Estate 2010

I Survived Real Estate 2010


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September 17th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The video also now available on The Norris Group website.

The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.

This week The Norris Group Real Estate Radio Show is broadcasting I Survived Real Estate 2010.

You must have 2 different criteria for Bruce’s no down payment program in order to prevent foreclosures. The reason why this program will work is because it is set up to serve 3 borrowers simultaneously. Yes, you are going to have a failure rate with a no-down mortgage, but you pick the percentage. When your payment is less than rent, is it going to be 20 percent? Bruce doubts it. But for the sake of argument, let’s say that foreclosure rates are at 20 percent under this program. If 2 million people sign up for the no-down program, and 400,000 people walk away, then let that loan get assumed by the next buyer without qualification. The likely target buyer will be the person who lost their house in foreclosure during the past 3 years. They can’t get new credit, but they might want to return to those “pride of ownership” homes. They will write a check, and save the system from 1 more foreclosure. The original intent of the program is to get first time buyers  into a house. The secondary benefit is it will get homes back to the people that lost their homes.

Have you ever noticed that if you have great financing, then you can get more for a property? You could probably get a premium for financing on Bruce’s program.

A secondary feature of this program is that when it goes to trustee sale, the opening bid would be just the back payments. Example: Lets say you have a loan amount of $150,000 at 4.5% interest. 3 months behind, people begin the foreclosure process. 4 months later, the foreclosure sale begins. You’re 7 months behind on the property’s payment, with $1,000 dollars of payment per month. If the opening bid at the trustee sale was only $9,000, how many do you think would revert to the lender? None of them. We would fight over them. At 4.5% financing, that is an amazing deal. Not a large percentage of the sales would get to that point, but they would provide financing to investors; the group that no one wants to finance. Investors would overbid on a situation as competitive as that.

What would we do with the excess money being raised from these properties? Lets not reward people who do not do what they sign up to do. Let’s build a fund for something that does good. It doesn’t even have to be a government program. Bruce frequently sees ads in the newspaper in which wealthy people are encouraged to donate their money. We should donate this money to a nonprofit company who can make this loan. Doing this will cause no losses, and it will end in a yield. Bruce cannot see this program losing money.

Over the next few weeks we will be broadcasting the speeches given by the rest of panelists. These panelists are Peter Wayman, Christopher Thornberg, Joseph Magdziarz, Sean O’Toole, Tommy Williams, Daniel Phelan, and Sarah Letts.

Peter Wayman joined Freddie Mac in January 2010 as Sr. REO Sales Director.  In this position, he oversees the design of sales strategies and how they are applied across REO portfolios.  His group oversees the retail sales process as well as auction and investor sales.  Peter is also responsible for the affordable strategies selling homes to organizations engaged in neighborhood stabilization.

Wayman came to Freddie Mac with 32 years of executive relocation experience working with various organizations including Cartus, Prudential and Citigroup.  He was recognized for a lifetime industry achievement and inducted into the Hall of Leaders by Worldwide ERC.  Peter is a graduate of Cornell University with a BS in Hotel Administration.

Christopher Thornberg is an expert in the study of regional economies, real estate dynamics, labor markets and business forecasting. In 2006 he co-founded Beacon Economics, an economic research and consulting firm that specializes in real estate markets, local economic development, and public and private policy issues.

Dr. Thornberg has established a reputation as one of the state’s leading economic forecasters. In December 2007, he was appointed to California State Controller John Chiang’s Council of Economic Advisors – the body that advises the state’s chief fiscal officer about critical economic issues facing California. Dr. Thornberg also serves on the advisory board of Paulson & Co. Inc., one of Wall Street’s most successful hedge funds. He has been involved in a number of special studies measuring the effect of important events on the economy.

Joseph C. Magdziarz, MAI, SRA is the President Elect of the Appraisal Institute. Magdziarz has been an active member of the Appraisal Institute for 38 years. He has served in a variety of capacities at all levels of the organization.

At the regional level, Magdziarz has served two terms as Regional Vice Chair and two terms as Region III Chair. He has also been a regional representative for many years. On the national level, Magdziarz served two terms on the Appraisal Institute’s National Board of Directors. He has served as Chair of the Education Committee for five years and has also chaired the National Audit Committee, Instructor and Faculty Committees, and Education and Publications Committees. In addition, he has served on a number of project teams.

Mr. Phelan is President and CEO, charged with the day-to-day leadership of Pacific Southwest Realty Services mortgage operations. Pacific Southwest Realty Services is an investment firm focused on commercial real estate, representing and advising both real estate clients and institutional investors in debt and equity placement, strategic planning, property sales and loan administration. Pacific Southwest Realty Services brings competence and integrity to helping Investors and Owners meet their capital needs.

Mr. Phelan joined Pacific Southwest Realty Services in September 1973 after graduating with a B.S. from Creighton University and has been working in the mortgage banking industry ever since. He is both a Certified Mortgage Banker (CMB) and a Charter Realty Investor (CRI) and has been very active and has held various positions in the Mortgage Bankers Association (MBA), California Mortgage Bankers Association (CMBA), local building industry trade groups and the CRI Society Board.

Thomas L. Williams is a graduate of Penn State University (B.S. Animal Science) and the Certified Auctioneers Institute (CAI). Representing the third generation of Williams family auctioneers dating back to the mid-1800s, Williams is also a graduate of the historic Reppert School of Auctioneering. He has over 40 years experience in real estate auctions, land development and real estate investment. He currently serves as Immediate Past President of the National Auctioneers Association.

A founding partner of Williams & Williams, Williams served as president from 1986-2000, and became board chairman in 2001. He also co-founded and served as managing partner of Lowderman & Williams Auctioneers from 1965-85. He has conducted over 10,000 auctions in all 48 of the contiguous United States and Canada, and is an advisor to auctions conducted throughout Western Europe, South Africa, Australia and New Zealand.

Sean O’Toole is Founder & CEO of ForeclosureRadar.com, the only company that tracks every foreclosure in California with daily updates on all foreclosure auctions. Prior to ForeclosureRadar Sean spent 15 years building and launching software companies before entering the foreclosure business in 2002 where he has successfully bought and sold more than 150 foreclosure properties.

Sarah Letts is responsible for implementing Fannie Mae’s neighborhood stabilization strategies including pool sales of REO to government entities, land banks, and nonprofits. She joined Fannie Mae in 1999, and prior to her current position, she specialized in debt financing and equity investments for affordable housing. Before joining Fannie Mae, Sarah developed affordable housing on behalf of community development corporations in Los Angeles and Chicago. Sarah received bachelor’s degrees from Stanford University in economics and political science and a masters degree from UCLA’s graduate school of architecture and urban planning.

Thornberg was the next speaker for the event.

Thornberg begins by disagreeing with Bruce over his zero down program. He explains that FHA loans have been spiking over the last 10 years. Bruce asks, “What about the first 35 years?” Thornberg believes that the activity over the last 5 years is the most relevant, but Bruce believes it is the pricing structure that is most important.

Paul Romer from Stanford University once said, “A crisis is a terrible thing to waste.” Thornberg believes we have wasted our most recent crisis. We keep hearing how the consumer has taken over too much debt, but this is not the case. We learned in the Great Depression that banks should not be allowed to leverage up. Leveraging up turns a small problem into a huge one.

In 1960, of all private sector debt in the U.S., 10% was from the financial sector. In 2007, the financial sector represented 43% of outstanding private sector debt. Consumers didn’t really leverage that much.

We still haven’t really addressed the problem of leveraging. After Lehman Bros fell, they created TARP, and handed money to the organizations causing the problem.

Bruce has a hard time understanding how inflation emerges when it is difficult for wages to increase, and when it is difficult for businesses to ask for product increases. Because Bruce read a book given to him by Thornberg, he now understands that inflation actually drives both of those things. Inflation occurs when the quantity of money rises more rapidly than output. This is known as real GDP. The more rapid the rise in the quantity of money per unit of output, the greater the rate of inflation.

Bruce asks, “If Milton Freedman was looking at Japan’s growth of money over the last 20 years, haven’t they created a lot of money?” Thornberg replies, “no”. Economists agree that the problem with Japan’s central bank is that they have been unwilling to poor liquidity into the economy. Japan went through a period of quantitative easing. All their cash sat in banks as a form of excess reserves. Japan’s banks refused to let money leave their reserves, and so their money supply did not expand.

In Argentina, the government prints money and they spend it directly. That is automatically inflationary, because it is instantly being put into the economy.

Ben Bernanke was once known as “Helicopter Ben”, because he had an interesting proposition. If you quantitave ease with the banks, they may not lend it out. If they don’t lend it out, you can give the money to the government to spend, or you can fly around in helicopters and throw the money out in bags. Thornberg does not think that this is a bad idea. One might even argue that this is a better idea than giving the money to the banks or letting the government spend it.

Right now, we are going through a period of quantitative easing. Our government poured money into the banks, and most of it is sitting in the reserves. However, some of the money has gotten into the money supply. As a result, we are staying in the 1 to 2 percent growth range, which is not deflationary.

Thornberg believes price levels can be effectively controlled by policy, if you are willing to go far enough. Ben Bernanke has stood in front of congress, and has announced that he will go far enough. If he sees any hint of deflation, he will pour more money into the system. If he has to go up in a helicopter and throw it out, he will. Ben Bernanke has an incredible amount of control over the price level. The biggest potential problem is that if he fights it too dramatically, then he could set off inflation. At this point in time, Thornberg thinks Bernanke has done a great job with keeping things balanced. Inflation might be a little too low, but we haven’t gone into an unhealthy range of inflation or deflation.

If Bernanke had not poured trillions of dollars into the system, we may have gone into a deflationary situation. That would have lead to deeper problems inside the economy. Bruce worries that we may be mortgaging our future, but Thornberg is not concerned about this, so long as Bernanke is willing to pull the money out at the right time.

Thornberg is not concerned about what Bernanke is doing with the Fed’s cash, but he is concerned about the fiscal problems that may develop. Fiscal changes occur when congress chooses to spend $4 trillion, but only tax $2.7 trillion. In this case, they would have to borrow the extra $1.3 trillion from the rest of the world. That $1.3 trillion must be paid back. When Bernanke moves money around, he doesn’t cause any future liabilities, because he can withdraw that money.

When Bernanke chooses to withdraw that money, it will have a significant effect on the real estate business and the entire economy. Bruce owns a book named An Antique Book of Interest Rates, which was made in 1955. The lowest interest rate in the book is 4.5%. This is not as low as the rates we have right now. This is what Thornberg is most worried about right now. We are in a bond bubble.

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.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Adrenaline Athletics, Benton Investment Group, Community RE-Invest Group, Delmae Properties, Elite Auctions, Entrust California, Everlast Photography, Inland Empire Investors Forum, Keystone CPA, Landwood Title, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Rick and LeeAnne Rossiter, San Jose Real Estate Investor Association, Starz Photography, Summit Solutions, Tony Alvarez, Wealth Point, and Westin South Coast Plaza.

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191-TNG Radio – Mike Novak-Smith 9-11-10

Monday, September 13th, 2010

Mike-Novak-Smith

Mike Novak-Smith

REO Agent


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September 17th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate Investors Association and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, Claudia Buys Houses, The Business Press, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Mike Novak-Smith. Mike has been a household name in the REO business since the 90s. He has gained national recognition for his work in the REO industry.

The first REO Mike ever closed was in January of 1991. RT Resolution Trust Corporation was the first REO client he ever had. That company took care of the failed savings and loans assets from the 80s. He thought using that company was a good idea because he sensed a changed in the market at that time. Resolution Trust called and offered him listings that no one else was interested in, and Mike believed he could handle them.

Mike reads a lot and he pays attention to the market. He viewed REOs as a way to survive every month. He knew that if he got 2.5 percent of the deals on the market, then he could make the house and car payment. Once he started doing it, he liked it, because it was more like a business than chasing deals. The audition for the business was hard, but once you have experience, its much less stressful.

There are a few surprises for agents wanting to get into the REO business. First, you have to do a lot of work. Second, you have to put out a lot of money to get properties sold. Third, you get treated rather harshly, because the people you work with are busy and they don’t have time to sugar coat their messages to you. A lot of people can’t wait to be an REO agent, until they become one. You have to be a superior skill level to do REO work in comparison to retail work. It is a very competitive business. If you make a mistake, there are 100 people who want your place.

In the 90s, the peak years for Mike were from 96 to 98. Mike had been in the business for a few years prior to 91 doing retail jobs. All the way through January, 2004, he had a lot of REO deals. From 04 to 05, he did not have any REO deals.

In 2003, Mike closed 110 REO deals. When the REO deals started drying up, Mike was one of the last people his clients were using. When the REO deals came back in 2005, he had 3 REOs within the first month.

Most of the people that Mike knew from the 90s have moved onto bigger things. If they did well during that time period, then they probably moved up to corporate positions.

In the 90s, much of Mike’s inventory consisted of new 4 bedroom, 3 bath houses. Mike gets a lot of new homes as well. He even gets homes that haven’t finished construction.

Currently, Mike’s business is somewhat unpredictable. He might have a several week period where he gets a large number of REO deals, but then the following week he will get zero. This could be a function of the trustee sales changing their bid prices.

The people REO brokers work with do not entirely know the policies of their employees. You hear a lot of rumors, but the only people who really know, are the ones working at the top of the business. Mike occasionally receives calls from corporate leaders in which they ask for his opinion on certain policy changes. Mike does not believe that anyone has complete control over policy changes, because the government makes frequent policy changes as well.

At the peak of this cycle, Mike had over 900 files, and maybe 600 active files in the MLS. Currently, properties spend months in preparation before being listed. Once they are listed, they usually sell fairly quickly.

Properties now require a bit of time before they become vacant. Occupants understand now that they can get money to move out. The magic number for convincing an occupant to move out tends to be between $2,000 to $4,000. Some of these occupants have severe financial problems, but for many of them, its just a game.

The length of time it takes for a property to become an REO after delinquency is 15-18 months. When the property actually goes into foreclosure, the renting tenants are often surprised. Mike advises renters to get their rental property from a broker who manages rentals. Don’t try to just rent a house off of CraigsList. Quite frequently, people will begin renting a house and end up in foreclosure two months later. Bruce was once personally asked by his own potential tenants if he had a loan on the rental house and if it was current. These renters had obviously had this experience in the past.

Most asset managers now communicate through proprietary websites. Offers come in electronically through email. There is not a lot of verbal communication, and fax machines aren’t being used either.

Asset managers have the power to take offers when the asking price is normal, but when an offer is unusual, then the offer must be taken to the next level.

When Mike gets a listing, he often gets the property directly from the lender, but there are also many properties that are outsourced to other companies. Some lenders have received too many REOs for their own labor force, so they have to outsource their work. Outsourcers typically use the same system as the lender.

Mike gets paid back 99 percent of the time if he follows the lenders standards. You cannot do all the work yourself. You must have staff to take on the work load of an REO agent. As an REO broker, you wear many hats, and accountant is one of them.

In 2007, lenders were openly admitting that they would list their properties with the highest broker opinion. Bruce believed that was the perfect system to fail. Lenders have now become more willing to listen to reasonable BPOs, and they often ask for multiple price opinions. Many BPOs today are being performed by inexperienced brokers who will do the work for cheap. Mike thinks this is unwise. When BPOs are done by experienced brokers, the price opinions usually come out fairly similar.

Short sales are becoming more popular right now. Mike closed a couple short sales last year, and he is doing more right now.  He does not prefer short sale deals, because those deals can often take more time than they are worth. Bruce is confounded by the length of time required to do a short sale. Short sales should not take six months to finish. The last short sale Mike finished took six weeks to close. Many short sales involve PMI companies, loan investors, servicers, and possibly an HOA law suit. You have to get all the people involved in the deal to take a loss, and that negotiation takes some time.

There is no compensation for an REO broker until he finishes the short sale. Someone getting into the short sale business could be six months away from a check for every deal they work with. If the broker cannot get someone to help with the paper work, then that short sale is not worth the time.

Mike sees REO levels increasing in 2011. These REOs will come from failed loan modifications and state programs. Short sales will probably increase as well. In the 90s, short sales were very popular, but loan servicers and investors eventually realized that it was easier just to foreclose, because then they could control the process.

Right now, if an inexperience broker attempts to perform a short sale, they often take up to six months to get the deal done. When this happens, the loan servicer will choose to have an REO.

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.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Adrenaline Athletics, Benton Investment Group, Community RE-Invest Group, Delmae Properties, Elite Auctions, Entrust California, Everlast Photography, Inland Empire Investors Forum, Keystone CPA, Landwood Title, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Rick and LeeAnne Rossiter, San Jose Real Estate Investor Association, Starz Photography, Summit Solutions, Tony Alvarez, Wealth Point, and Westin South Coast Plaza.

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187-TNG Radio – Sean O’Toole 8-14-10

Friday, August 13th, 2010


Sean O’Toole

Founder, ForeclosureRadar

(Full Bio)

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September 17th, 2010, The Norris Group returns with its award winning event I Survived Real Estate 2010. The Norris Group has assembled an incredible line up of industry experts to discuss the state of REO from the inside. Topics will include regulatory intervention and aftermath, bulk buying, myths and facts, and opportunities emerging for real estate professionals. 100 percent of the proceeds support the Orange County affiliate of Susan G. Komen for the Cure. This event would not be possible without generous help from the following platinum partners: Foreclosure Radar and Sean O’Toole, the San Diego Creative Real Estate InvestorsAssociation and Bill Tan, Investors Workshops and Shawn Watkins and Angel Bronsgeest, Invest Club for Women and Iris Veneracion and Bobby Alexander, San Jose Real Estate Investors Association and Geraldine Barry, Claudia Buys Houses, Frye Wiles, MVT Productions, and White House Catering.

This week Bruce is joined by Sean O’Toole. Sean is the Founder and CEO of ForeclosureRadar.com. ForeclosureRadar is the only company that tracks every foreclosure in California, Arizona, Nevada, Washington and Oregon. It makes updates daily on all foreclosure auctions. Prior to ForeclosureRadar, Sean spent 15 years building and launching software companies. In 2002, Sean entered the foreclosure business, and bought and sold over 150 properties.

Bruce thinks everyone who is a trustee sale buyer should be a member of ForeclosureRadar. When Sean started Foreclosure Radar, there were only about 40 trustee sale buyers who bought the majority of the deals within the state, but now there are thousands. The invention of the lower bid has created activity. We wish they would drop their opening bids even lower.

5 to 10 billion dollars worth in properties go to the courthouse steps every month. 80 percent of those properties go back to the bank as REOs. The number of REOs have decreased 50 percent from July 2008. However, there are still a huge number of properties being taken back by banks. From a historical perspective, we still have an outrageously high number of REOs.

People tend to have this mentality that nothing bad can happen from here on out, because they don’t think the lenders will unload a bunch of inventory into the market. However, in 2007 and 2008, that is exactly what they did. Up until the end of 2008, regulations required you to file a notice of default after 60 to 90 days of delinquency. In September of 2008, Paulson changed the rules, and since then, they have changed the rules to mark to market. Lenders now have this mentality that discourages them from foreclosing so long as there is some hope of receiving payment at some point in the future.

People are wondering when all the shadow inventory is going to show up and ruin everyone’s day. Shadow inventory has a few different holding tanks. The banks are holding it and not releasing it. In 2008, there was growing evidence that banks had inventory that were not being listed. In 2009, banks started selling more foreclosures than they were taking back. In the mean time, we had delinquencies that were over 90 days delinquent and were not going into foreclosure. Some properties are as much as 180 days delinquent. We have 1 million homeowners in California that are not making payment, but only 200,000 in foreclosure, and only 15,000 to 20,000 being foreclosed on per month.

There is a report claiming that “once a person is behind, the odds of them making that payment current again without a loan modification is 1%”. Sean thinks that may be true historically, but right now, the situation is worse than that. In the past, people went delinquent because of job problems, but this time, they are going late because we had a massive credit bubble that doubled home prices fictitiously. We have now corrected those prices, but we have 4 trillion dollars in excess mortgage debt. People are realizing that they are never going to get that money back, and paying the interest doesn’t help them.

ForeclosureRadar noticed an increase in investor activity in 2009. Subscriptions increased slightly around that time. Right now, people are concerned that the economy and housing might double-dip. Bruce thinks that a double-dip will probably occur.

A lot of ForeclosureRadar’s growth has come from builders and commercial real estate brokers. The court house steps have become much more competitive because of these two groups. They can’t just stop working because their niche isn’t doing well.

From 2002 to 2006, good investors could get a 50 to 75 percent return on capital. In 2007, the market went away because the banks weren’t dropping the bids. In 2008 and 2009, Sean heard plenty of stories about investors getting an 80 percent return on capital. It got really good for a little while, but over the past six months, the market got a lot more competitive. There are plenty of risks with buying at auctions. Bruce believes that someone makes a mistake every day at the courthouse that alters their financial life for a while.

The government has decided that it is better to avoid taking a property back to the lender. ForeclosureRadar is tracking the lenders who are willing to work problems out. Investor short sales concern Sean, especially if the deal is being bought to be flipped. Some people are claiming you can make a lot of money by doing a short sale through a double escrow. Sean thinks people who do that are going to get themselves into trouble. Bruce interviewed the FBI on this subject, and the FBI described the people who do double escrows as perpetrators. There are short sale opportunities out there, but there is a lot of risk involved. It can be difficult to convince lenders that you have added a significant amount of value to a recent short sale.

Lenders understand that auctioned properties are being sold at a discount. On a short sale, lenders believe that a market sale is being made, and they will not like the idea of selling a short sale at $100,000 below market.

Deutsche Bank recently made a report on mortgage servicers and how long it takes to do a short sale. With prime mortgages, GMAC took six months on average, CitiGroup took 7.5 months, Wells Fargo took 8 months, and Countrywide took 13 months. There is a buyer attached to the end of these deals, and no one is going to wait 13 months.

People involved with HAFA brag about their ability to sell within six months, and Bruce thinks that is ridiculous. The problem is that people are not coming to terms with the losses they are going to take. The government also has a few policies that are affecting speed. If Bruce was attached to that business, he would be very frustrated.

Mortgage insurance companies know they will have a better income and have less of a loss with a short sale, but if they have that loss right now, then they’ve got a payout to make. If they do not approve a short sale, and force a property into foreclosure, they may not have to payout for 8 or 9 months.

Sean believes that companies are moving away from principal reductions. Freddie claimed that they are not going to do principal reductions, because they have been tasked with protecting tax payer funds and they cannot just give out principal. If GSEs, who hold a lot of the mortgage debt, start giving out principal reductions, then that comes directly at the cost of the taxpayers. Freddie has a deed-in-lieu lease back program with a lease option. If someone does a deed-in-lieu under this program, they have a two year waiting period before they get to buy a property, and Bruce has the feeling that the property they will buy is that same property they were previously in. That would cause less volatility in the market, because it would discourage buyers from moving around.

Sean recently did some research for American Banker Magazine on jumbo loans. Loans under $417,000 are the fastest to be foreclosed on. Mini jumbos, which range from $417,000 to $729,000, take 30 days longer to foreclose on, and it takes even longer to foreclose on big jumbos. If lenders are struggling to deal with reality anywhere, it is at the high end of the market. Lenders sometimes try to aggressively foreclose with the hope of scaring the borrower into paying, but when they don’t get scared, the borrowers will simply vacate and move, and then the foreclosure gets cancelled. When lenders do not foreclose because they do not want the house, they are usually cancelling foreclosure by the masses. These lenders are often working to get people into the HAFA program, so that they can get a short sale or deed-in-lieu. Sean thinks the HAFA program is just like HAMP last year. It is not meant to conclude a bunch of short sales, it is meant to put people through another six months of delay only to tell them that they do not qualify.

Sean O’Toole’s website is www.foreclosureradar.com

Sean will be on the I Survived Real Estate 2010 panel in September.

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.

Thank you for being a Gold Sponsor for I Survived Real Estate 2010: Delmae Properties, Elite Auctions, Entrust California, Inland Empire Investors Forum, Keystone CPA, Las Brisas Escrow, Leivas Financial Services, Mike Cantu, North San Diego Real Estate Investors Association, Northern California Real Estate Investors Association, Personal Real Estate Investor Magazine, Realty 411 Magazine, San Jose Real Estate Investor Association, Tony Alvarez, and Westin South Coast Plaza.

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The Norris Group Real Estate News Roundup 6/16/10

Wednesday, June 16th, 2010

Today’s News Synopsis:

The Commerce Department reports housing starts fell 10% from April. According to the MBA, mortgage application volume increased 17.7 percent from last week. Fitch Ratings Ltd. forecasts that most borrowers who get lower mortgage payments under a federal government program will default within 12 months. New home sales were down 27% in May, according to a John Burns Real Estate Consulting builder survey.

In The News:

CNN - “New home construction sinks 10%” (6-16-10)

“Housing starts fell 10% from April to a seasonally-adjusted annual rate of 593,000 last month, the Commerce Department said. Economists were expecting housing starts to fall to only 655,000. On a year-over-year basis, starts rose 7.8% from May 2009.”

Mortgage Bankers Association – “MBA Report Shows Economic Weakness Continues to Weigh on Commercial Mortgage Performance” (6-16-10)

“The delinquency rate for loans held in CMBS is the highest since the series began in 1997.  Delinquency rates for other groups remain below levels seen in the early 1990’s, some by large margins. Delinquency rates continued to increase in the first quarter for all commercial/multifamily mortgage investor groups, according to the Mortgage Bankers Association’s (MBA) Commercial/Multifamily Delinquency Report.”

Mortgage Bankers Association – “Mortgage Applications Increase in Latest MBA Weekly Survey” (6-16-10)

“The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending June 11, 2010.  The Market Composite Index, a measure of mortgage loan application volume, increased 17.7 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 29.7 percent compared with the previous week, which was a shortened week due to the Memorial Day holiday.”

Wall Street Journal – “High Default Rate Seen for Modified Mortgages” (6-16-10)

“Fitch Ratings Ltd. forecasts that most borrowers who get lower mortgage payments under a federal government program will default within 12 months. Among those with loans that aren’t backed by any federal agency, the redefault rate within a year is likely to be 65% to 75% under the Obama administration’s Home Affordable Modification Program, or HAMP, according to a report to be released Wednesday by Fitch, a New York-based credit-rating firm. Almost all of those who got loan modifications have already defaulted once.”

Housing Wire – “Builder Survey Reports New Home Sales Down 27% in May” (6-16-10)

“New home sales were down 27% in May, according to a John Burns Real Estate Consulting (JBREC) survey of builders. According to the monthly report, net sales per community were 1.35 units per community, down from last month’s 1.84 units per community. Builders also reported a decline in new housing starts in eight of 10 regions, as builders felt little hurry to start more homes. This echoes the results of a government report that showed the seasonally adjusted annual rate of housing starts declined 10% in May.”

Housing Wire – “Mortgage Defaults, Foreclosures Drop Across California: ForeclosureRadar” (6-16-10)

“Mortgage defaults and foreclosure activity decreased in California from April to May, according to ForeclosureRadar, which tracks filings across the state. Notices of default fell 17% from April to May, and 43% from May 2009. Notices of trustee sale dropped 11% in May and decreased 35% from last year. Past foreclosures, the amount of properties banks repossessed, dropped 5% in May and 13% from a year ago.”

Housing Wire – “Reid Urges 3-Month Extension of Homebuyer Tax Credit” (6-16-10)

“Under the tax credit’s current deadline, qualifying purchases that were under contract by April 30 must close by June 30. Under the proposed amendment introduced by Reid, Isakson and Dodd, that closing deadline would be pushed to Sept. 30, 2010 in an effort to ensure the qualifying sales can close.”

Realty Times – “Should I Buy Older Construction?” (6-16-10)

“Without a full renovation, older homes usually come with a certain level of necessary repair. The electrical wiring may be dated, ungrounded, or made of undesirable material no longer in use. The telephone wiring may not accommodate highspeed data demands. Underground materials used for plumbing may have eroded, compromising the safety of water, or the structural integrity of the foundation. The foundation itself may not be as thick or rigid as newer structures. After all, the specifications for tension, and cement composition have advanced in the last several decades. Although many older homes have had their roofs repaired or replaced, some have gone decades without any care or maintenance. Air Conditioning units, water heaters, air ducts, and household appliances can all be dated and in need of substantial repair or replacement.”

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 11/11/09

Wednesday, November 11th, 2009

Today’s News Synopsis:

The CBIA report shows that September sales for new-home communities have decreased by 11 percent from 2008. Foreclosure activity increased by 5 percent from August to September. According to Trulia, nearly 26 percent of homes were decreased in price from the previous month, and the total value of those price reductions is $28.1 billion.

In The News:

CBIA - “California New-Home Sales Down Again in September, CBIA Announces” (11-11-09)

“The monthly CBIA/Hanley Wood Market Intelligence (HWMI) New-Home Sales and Pricing Report showed that sales in new-home communities of 10 units or more were 11 percent below September 2008, an improvement from the 13 percent year-over-year decline last month and the much higher declines in previous months. During September, 2,310 new homes and condominiums were sold in the subdivisions tracked by Costa Mesa-based HWMI, compared to 2,580 in September 2008. Sales of single-family homes were down by 17 percent, while sales of townhomes and ‘plexes’ – duplexes, triplexes, etc. – were down 11 percent and sales of condominiums were 12 percent higher than a year ago.”

Orange County Register – “Foreclosure notices hit record 8,800″ (11-11-09)

“September’s total was up 5% from August and 90% from a year ago. The chart (click for larger image) shows outstanding auction notices going back to January 2007. Auction notices, also known as notices of trustee’s sale, are a warning that a property will be offered for sale, usually at a local courthouse.”

Los Angeles Times – “Existing-home prices slide in most metropolitan areas” (11-11-09)

“The U.S. median sale price for an existing single-family home was $177,900, an 11.2% drop from the same period a year earlier, according to the National Assn. of Realtors in Washington. Distressed sales continued to weigh on prices despite a popular tax credit fueling the volume of deals. Still, the median was higher than in the second quarter of this year, when it was $174,200.”

Housing Wire – “CMBS TALF May Bring New Issue in November: Sources” (11-11-09)

“Industry reports indicate a number of firms are gearing up to sell the first round of debt under the Fed’s CMBS TALF program for new issuance. The firms include Developers Diversified Realty Corp. (DDR: 9.02 +5.99%), which in October said it obtained new first mortgage financing of $400m from Goldman Sachs Commercial Mortgage Capital, an affiliate of Goldman Sachs & Co.”

Housing Wire – “Loss Severity May Reverse Recent Stability: Amherst” (11-11-09)

“the firm sees ‘temporary’ stabilization of house prices, as 7.5m units or 13.5% of US homeowners are in non-payment status. Amherst previously explained its reasoning for calculating 7m of those are ‘destined’ to liquidate, which hangs a shadow of distressed inventory over the positive signs seen in the US housing market.”

Housing Wire – “Refinancing Interest Boosts MBA’s Weekly Mortgage Apps” (11-11-09)

“MBA’s refinance index increased 14.5% from the previous week. The association’s purchase index decreased 1.8%. Refinance applications took a 66.1% share of all applications, up from 62.3% in the previous week. The adjustable-rate mortgage (ARM) share of all applications decreased to 6.1% from 6.9%.”

Bloomberg - “U.S. Home Sellers Slash Prices by $28.1 Billion, Trulia Says” (11-11-09)

“The average discount was 10 percent, little changed from a month earlier, the San Francisco-based real estate data provider said today. Almost 26 percent of homes for sale were reduced at least once. Luxury properties — those costing $2 million or more — accounted for 25 percent of the dollar value of reductions and less than 2 percent of listings, Trulia said. ”

Inman - “Realogy in the black for Q3″ (11-11-09)

“Real estate franchisor and brokerage Realogy Corp. said it turned a $58 million profit in the third quarter, thanks in part to a debt restructuring that allowed the company to claim a $75 million gain and stay in compliance with agreements governing nearly $3 billion in loans.”

Inman - “GMAC Real Estate unites with Real Living” (11-11-09)

“A major real estate brokerage company merger gives GMAC Real Estate a new name while expanding the Real Living real estate brand and growing the U.S. operations of Canada-based Brookfield Residential Property Services. The merger of GMAC Real Estate and Real Living, which will operate under the Real Living name and under parent company Brookfield, represents the second sizable U.S. expansion of Brookfield operations in the past two years.”

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