Posted by: Timothy Ellis (The Tim)

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

43 responses to “October Reporting Roundup”

  1. Ubersalad, Ph.D

    Must be tough for the guy that’s assigned to write positive one-liner.

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  2. BackToBasic

    It’s far far away from bottom. Even the recovery will be just ‘L” shaped. The appreciation rate will be in line with wage increase. So sit tight and ignore the news for a while.

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  3. Chris

    Did Aubrey Cohen use quotes from Dave and Kristine in both of his articles on buying and renting?

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  4. softwarengineer

    WELL DONE TIM, YOU”RE DEFINITELY IMPROVING WITH PRACTICE

    Don’t have much to say, you said it all.

    A massive 50% price decrease and a concurrent massive interest rate increase would really help Seattle area real estate sales right now.

    There’s lots of folks on Seattle Bubble with full cash cans waiting like vultures on the sidelines and if they could get into real estate with 50% down, they would….that way, if the price went down like another 50%, they wouldn’t be sitting on an upside down mortgage. Of course paying cash right now would be best for today’s investor in this Economic Mess territory we’re in, in my opinion.

    You should try a new poll Tim:

    How many would like the present 6-7% mortgage interest and a 10% drop in prices?

    How many would like 12-14% mortgage interest and a 50-60% drop in prices?

    How many would like 24-28% mortgage interest and a 75-85% drop in prices?

    How many like the present 6-7% interest with no home price decline?

    The results on Seattle Bubble would be interesting. I’m 55 years old and out of debt, so would love the 24-28% mortgage interest with massive real estate price plummetting…..I could plan retirement much earlier and with a much smaller 401K with like 20-22% interest in money markets and CDs. To Hades with the stock market pyramid game, its a losing roulette table favoring the elite anyway; much like the Seattle real estate bubble was.

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  5. deejayoh

    Interest rates are softening. We appear to be moving in a positive direction again!”

    this guy must be high

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  6. DaveyBoy

    I hate that the press insists on serving up these folks in the real estate business as the experts on the market. They may know a lot about the market but they aren’t going to tell you – when prices are falling the bottom is always here, and when they’re going up we’re never in a bubble. These are the same people that were on the “housing prices have never fallen across the country” mantra a couple years ago. If I want to know John McCain’s chances of winning the election, I’m not stupid enough to ask his campaign manager.

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  7. Scotsman

    I think there’s a misunderstanding on the reporter’s part. The J.Lennox Scott quote is what Mr. Scott has on his answering machine at work. He just hasn’t changed the message since 2001.

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  8. singliac

    I’d like to see somebody call Beeson on this. On second thought, it may prevent him from making further predictions. Let’s see how long he can keep this up.

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  9. EconE

    Muzzles shouldn’t just be used for dogs.

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  10. anony

    DaveyBoy,
    A large portion of newspaper’s revenues traditionally come from Real Estate advertising (Which is hurting them now that people can search homes via internet). Of course they are going to give their sponsors a little press.

    While I was researching before voting last week, I also noticed that the newspaper endorsements tended to mirror endorsements of Realtor and building industry associations. Coincidence?

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  11. David Losh

    That’s the problem of getting information second, third, and fourth hand. We hit bottom in August 2008.

    All hope was lost after that.

    You are looking at prices like they are shirts at Nordstroms. In Real Estate it’s all about negotiation.

    The listing agent can’t tell the seller to lower the price when other people are selling for about the same.

    The buyer’s agents won’t make offers because they don’t want to burn up a bunch of time. It’s an impasse.

    As a buyer you should set your sights on making the best deal you can with the idea you will pay the house off completely withing 15 years even if you get a 30 year mortgage.

    It’s a buyer’s market. Say it again, It’s a buyer’s market. Believe it, make the offers, take your time, and get with an agent who can make things happen.

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  12. Brian

    David -
    your link is incorrect in your name. The “h” at the end is an “n”.

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  13. Jillayne

    Recent excuse heard in this state and Idaho over the past two weeks: It’s the election. After the election, everything will get back to normal.

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  14. pfft

    I love it. that idiot called a bottom after prices were down 5%. here is the deal.

    1. realtors are stupid.

    2. realtors are not stupid but they think you are.

    3. realtors are garbage.

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  15. S-Crow

    Jillayne,

    You want normal? Hmm. Last Friday we had a transaction blow up after we were released to record by the lender.

    For all the people who don’t understand the lingo, it means a transaction is 97% closed, the transaction is being recorded at the county and money is being wired, except for one minor detail. The lender never did fund the transaction last Friday. After no funding on Monday (after telling us funds were ordered and wired) and numerous calls to the lender who stonewalled us, delayed us and pretty much were not truthful to us, we waited until Tuesday. Nothing. In escrow, it takes some pretty sophisticated dealings to fool us. Wednesday, after discussions with senior management and AE’s who were a bunch of untruthful people, it became evident that they would not fund this transaction and that they could not pull the wool over our eyes as we called them on their untruthful BS. I’m just guessing, but they didn’t fund the loan because their lines were pulled. Just a guess. A hunch.

    I’d like to also mention to those in the real estate business that subpoenas for records are being handed out in our local market by authorities. Investigations, while quiet, are taking place. While it’s a little late, I’m very happy that this is occurring. It is very good news for consumers.

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  16. pfft

    ” hate that the press insists on serving up these folks in the real estate business as the experts on the market. They may know a lot about the market but they aren’t going to tell you ”

    Never ask your barber if you need a haircut.

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  17. Jillayne

    S Crow, what was the ultimate result of that transaction? Did the borrower find a new lender?

    Interesting news about the subpoenas.

    Did you hear about the Fidelity/Landam national merger? Now THAT is NEWS.

    There are at least 6 local title companies that make up the fidelity/landam family.

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  18. Ray Pepper

    WOW SCrow. I never had one blow up like that when released to record. Madness.

    I have a question for you. I have a client who sold 2 homes 8 years ago. There were Heloc 2nds on the homes with USB and B of A. The Escrow company never paid off the lines at close and over the last 8 years he has been using the accounts and in the last year maxed them out. His credit has deteriorated and now he simply is NOT paying anymore. Oh. One last thing. The Escrow company went out of business 3 years ago here in Tacoma that closed the loans.

    Have you ever heard of this? His properties are all in an LLC so if the banks try to retrieve from him I think they can get squat. I’m sure his credit will be shot.

    Everytime the bank calls him he says “the Loans are paid off.” Thoughts?? How does that happen? What will the banks do?

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  19. David Losh

    Thanks Brian.

    I’m in favor of the investigations.

    You may recall my complaining about a lender over the summer who put a buyer with no bank account, no job, car, money, and no right to work in the United States into a $420K loan on a property we sold short for $314K less than a year after the close.

    The loan originator is only a cell phone number. The buyer never signed the loan application because it had false information. This “buyer” was told she was cosigning for her fiance. At closing she and the fiance were told only she had to sign at that time and the fiance would sign later.

    I did talk with the Attorney General’s legal counsel about the case, but still, he told me there was nothing to be done because she did sign the closing papers.

    The loan was sold to Home Financial Network.

    It is hard to explain to people outside of the business what has happened with loans. Rather than blaming Real Estate agents I’m now pretty focused on Loan Originators.

    There has been so much fraud in the past few years it is hard to tell the good guys from the bad. Thanks for the story.

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  20. S-Crow

    Ray,

    That is a problem. If the loans were not paid off by the escrow firm the borrower (I’m just guessing due to not being privy to all the details) is still on the hook for the draws on the line(s) they had. Further, in a normal transaction where loans and HELOC’s are involved, the HELOC’s are routinely closed via lender instructions/conditions made to escrow. The 1st loan is paid off and reconveyed and the HELOC is closed in a routine transaction. It raises a lot of other transactional questions too. At first blush, it appears your client using the argument “the loans were paid off” is exceptionally weak, if they are using that to “get off the hook.” The client made draws when the line was supposed to be closed but wasn’t due to escrow not fulfilling their duties. The lender could care less until they have the payoff and written instructions to close the HELOC from the borrower. As Mrs S-Crow would say,” that is an icky situation.”

    The escrow firm you mention and the individual who closed that transaction probably have problems of their own.

    Regarding the blow up: yes, it also presents other problems to escrow firms because, for an extreme example, in a sale transaction, you’ve just “given” a new buyer title to the property and the seller (presumably on the way out to another home) has no proceeds from the sale, nor are their existing loans paid off.

    When a scenario like I mention plays out, it circulates quickly and memo’s are given out to title co’s and escrow firms to not record transactions by “x” lender until you actually have funds. It can also be detrimental to the lender because if you think agents are competitive and cut-throat, the culture of lending is probably worse. If news of a lender not funding a loan circulates in loan officer circles, it would be vewy vewy bad publicity for that lender.

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  21. S-Crow

    Jillayne,

    Dead deal. Sign of the times. And yes, no payment for us and expenses paid by us to unwind the recordings etc…

    Yes, I know of the Fidelity deal. Just more consolidating.

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  22. Ray Pepper

    Thanks S-Crow. My final question and I’m not sure you know. When an individual has all their assets (properties) tied up in an LLC and they choose to not pay helocs on sold homes(as in this case), not pay credit cards, and other non secured debt what can the creditors come after. I know its all based on how much were talking about and if its worth the banks time but the way I understand all this unsecured debt is that people can walk, suffer the credit hits, protect their assets in an LLC (providing it was done awhile back), and the client can just walk away? Bankruptcy would not be an option for him because of all the secured assets in the LLC. Am I missing something? Anyone? Sounds to easy but this is what he is telling me he is doing. He has 50k and 70k on the helocs, 20k on credit cards, some medical (18k) and probably a few other unsecured bills hes not paying. Thoughts?

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  23. S-Crow

    Ray,

    WAG….nothing prevents the lender from going after the asset (property). If a borrower is an LLC, Corporation, or whatever, collateral was pledged and in this case is it property. Obviously, this is a question for our closet bubble head Attorneys to chime in about.

    It really is a good question because a lot of people assume right or wrong that just placing a home into a LLC or Corp. or Trust will automatically insulate you from some claim, whether self-inflicted or not. I’m really uncertain.

    Credit is trashed and the home could be lost or as you mention, the borrower just walk away. I guess I would ask myself in this scenario, what was all the fuss about to go LLC in the first place? Seems moot when you lose property and credit worthiness.

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  24. Ray Pepper

    In his case he has some properties that have alot of equity. Those are being “protected” by the LLC while he lets all the non secured assets go including the old helocs. It just seems to easy for a person who has an LLC protecting his properties and the assets , to choose not to pay the unsecured loans . Thanks for your input. Anyone else?

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  25. jonness

    Ray:

    Obviously he needs to talk to an attorney experienced in the area to be certain.

    I believe a LLC is a legal “person” distinct from its members. However, if the guy failed to keep his personal finances 100% separate from his entity’s, things could fair poorly on his behalf.

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  26. shawn

    The press and RE industry thinks people are still listening to them, still trusting them, still believing in the bubble. But hey, they can still dream can’t they?

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  27. jonness

    Ray:

    I did some reading on this. Now I’m not sure. If the LLC can be dissolved upon his filing for bankruptcy, why can’t it be viewed as an asset if he doesn’t pay his personal bills? It seems to me he is attempting a reverse form of protection which the LLC is not set up to protect him from. Thoughts?

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  28. jon

    I think an irrevocable trust would be beyond a creditor, but not an LLC. In that case he would be paying corporate income tax.

    This case sounds like conversion to me, same as knowingly taking money out of a bank account that was there only because a mistake on the part of the bank.

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  29. buyStocks

    here’s an article that starts off well even with predictions by Roubini, but then resorts to realtor spin at the end:
    http://finance.yahoo.com/real-estate/article/106107/Forecast-2009:-Your-Home

    There was a ridiculus statement:”Lawrence Yun, chief economist of the perpetually optimistic National Association of Realtors, says he expects prices to rise 2.8% in 2009″

    Very funny, because somebody has basically created a anti-”Lawrence Yun” blog here:
    http://lawrenceyunwatch.blogspot.com/

    It would be nice to catalog and publish all these ridiculus statements.

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  30. David Losh

    It’s Saturday morning. A lot happened here on the Seattle Bubble this week, at the http://www.seattlebubble.com

    For all the internet web 2.0 Real Estate business models in the world today no one that I have found showed any real interest in transparency except this Tim guy who just asked questions.

    Ray, Title Insurance will now persue any and all legal recourse, or did they just insure the title on the properties with the Helocs.

    No, the guy had lines of credit that were tied to his name and secured by the the property. He chose to move the lines of credit personally. LLC is a waste of time for the vast majority of people who are not crooks. The crooks know how to use the entity and in some cases badly.

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  31. Sniglet

    For weeks, mortgage banker Ben Marsh has been swamped with questions from clients worried about losing their homes in this bad economy.

    “What should I do? What should I do?” they have asked Marsh, who has offered up several options, including renting out a room to help cover the mortgage.

    “Now I’m following my own advice. I figure an ounce of prevention is better than a pound of cure.”

    Marsh is looking for a boarder to rent a bedroom that has a plasma TV and stereo surround sound in his spacious three-story home in the hillsides above Woodland Hills and Calabasas; the home includes a baby grand piano and other musical instruments, a Jacuzzi and a gym. All for $1,000 a month.

    “Times are tough, and I’m not closing the 12 to 15 loans a month I used to,” said the single man in his 30s. “So I figured that before things get too bad, I’d take some steps to keep them from getting bad.”

    As the financial crisis worsens, Marsh is like more and more middle-class homeowners around the country who never thought of taking in boarders but are now quietly doing so, hoping to use the extra money to help pay mortgages or other debts.

    http://www.dailynews.com/realestate/ci_10870937

    Here is more evidence that a declining housing market will put increasing downward pressure on rents. As I’ve mentioned in our numerous discussions on rents, both supply and demand are MUCH more elastic than generally supposed. In times of economic uncertainty supply increases as home-owners look for creative ways to make money (i.e. renting rooms in their homes). Demand is further curtailed by some individuals choosing to either live with less house (e.g. a family of 4 deciding it is ok for kids to share a bedroom) or move to shared accomodation scenarios (i.e. roommates, living with parents, etc).

    I’ve seen this very phenomena happen in the Bellevue area. I know people who have started renting rooms in their homes as well as single colleagues who decided to move in with roommates than pay for an apartment of their own.

    I am that someone will say that all the people who aren’t buying have to live “somewhere”, and that it isn’t feasible for a family to live in a room someone is renting in their home. All this is true. But all these various market segments are related. When individual renters decide to rent out a room in a home rather than an apartment, those apartment rents will take a hit, which may be attractive to some smaller families who would have otherwise looked for a detached homes.

    Life is about to get VERY rough for Seattle area landlords.

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  32. Ray Pepper

    Thanks everyone for your input. I will watch how it all works out and then report it back to you. I still find it quite odd how anyone can sell a home without having a Heloc paid off at escrow. I have sold personally and professionally over 500 properties in different states that I had interestes in. Each and everyone had to have the 1st, 2nds, taxes, and any other bills linked to them paid at close. No buyer would have taken them and none of the banks would have allowed to have the lines remain open. I truly wonder what will happen to him. Its over 125k on the 2 lines. I understand credit cards, liens, and other debts but I cannot get how this can occur.

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  33. Ray Pepper

    oops. typo. I didn’t mean I had interests in 500 properties. Between my own, partners, friends, and customers. That would be easily over 500.

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  34. Ben

    Ray,

    I am not an accountant or lawyer, but my guess would be that if you use a property as an asset to back a loan then it has to be in your name, not the name of the LLC.

    The person signing the loan papers has to own the property being mortgaged. If the LLC owns the property how is the loan in this person’s name?

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  35. Ray Pepper

    Ben all his properties were bought many years ago. Some good ones and some dogs. 8 years ago 2 of his properties sold that were in his name. They both had heloc 2nd’s. 3 years ago he put all his properties in an LLC. Now zoom forward to 6 months ago. He was making the payments on the helocs and all his bills in good standing for years. Now times are bad and he has decided to let some of the dogs in his portfolio, the 2 heloc homes that he was paying on, credit cards, and other bills just go (stop paying on them). What he states he will end up with his bad credit for 7-10 years, but he will be able to hold all his “GEMS” because they were protected by the LLC. For him foreclosure is not an option because of the value of his “GEMS”. He has went to two Attorneys and they asked him why did you pay so many years on the Helocs? He stated because he was using them. I never understood how he was able to keep them open and how he can walkaway from all his unsecured debts unscathed other then poor credit.

    I’m hearing stories like this elsewhere but this one is a real life person that I talk to every week. It just doesn’t seem to me to be that EASY for him. There MUST be a glitch that will come back to bite him. BTW he opened the LLC to service his rentals and he has been keeping meticulous books. Won’t B of A and USB go after his LLC. Hes the sole person on the LLC. Where is all the Bubble Attorney’s? I talked to the 500 Realty attorneys and they state the LLC is 99% effective, however they may (may not) come after the LLC. But, the cost to “de-shroud” the corporate veil of the LLC is not cost effective. If you owe vast somes of money then the incentive to recapture increases.

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  36. Alan

    Completely off topic, but I just noticed that Redfin added Google street view to their site. No longer do you have to settle for the funny angle that makes the outside look better (or not look as bad) or the back of the house because the front is a huge parking lot. Now you can see what it would look like if you drove by. You can also see if the neighbor’s look decent or if the house is in a kind of slummy neighborhood.

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  37. jonness

    Ray:

    I did a fair amount of research on this, and everything I read indicates a member’s financial stake in an LLC is like any other financial asset, so it would be available to satisfy the claims of the member’s creditors.

    The LLC is meant to protect the member should the LLC file bankruptcy–not vice versa. IMO, your friend has defaulted on too much money for his creditors to simply shrug their shoulders and forget about–especially considering he has assets that can be liened in order to fully satisfy their judgments. I believe he’s going to get roasted on this one. Then again, I could be wrong.

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  38. economist

    Those are being “protected” by the LLC while he lets all the non secured assets go including the old helocs.

    I think you guys might be getting it backwards.

    An individual is protected from debts incurred by a LLC of which the individual is a shareholder. For example if I’m a GM shareholder, GM’s creditors cannot come after me for GM’s debts.

    But ownership of an LLC is just another asset of the individual which the individual’s creditors can go after for his personal debts. For example, if I owe money, my creditors can go after my GM shares (assuming they’re worth anything LOL).

    However very few lenders will loan money to a private LLC without also getting the owner to guarantee the loan personally. Private LLC’s are really just a liability shield, not a way to avoid paying back debts.

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  39. Ray Pepper

    Yes, I believe you are both correct but the amounts owed to all the creditors(which are all different banks ) add up to alot of money but individually they are not too much. So the incentive to pursue is thereby diminshed when you factor in Attorney fees. As I figured it will not be that easy on him. Thanks. I will give you the conclusion when he reports it to me.

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  40. Agent

    Attorney’s fees would be recoverable, and the different creditors would force the sale of whatever assets this person has at his expense. As for Deeds of Trust not being recorded on a house for HELOC’s, that is more common especially when 2nd mortgages are handled “in house” by a lending institution. Anecdotally I know of 2 cases, one from US Bank and the other from WAMU. In the case of WAMU my girlfriend/life partner is still fighting her ex husband on paying a $35k creditline that was a 2nd but never recorded and thus never paid off at the time of their home sale.

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  41. David Losh

    Holy Cow!

    I have had a line of credit that has followed me. It is paid off. I know other people with lines of credit that are tied to properties or projects. You can secure a line by more than one property.

    These are lines of credit, personal lines of credit. The rate may float or be better if it is recorded to a specific property.

    Investors with good track records can move a line of credit from one project to the next. It’s for the same amount and can be placed in a position of high equity. Ah, those were the days.

    In the world of lending anything is possible. That’s why when a lender or loan originator starts talking about putting 20% down on a property, especially when prices are declining, I get suspicious.

    If you think about loan programs there are 125% loans, 40 year loans, interest only, 20% seconds, or loans for 24% to 29% secured by your car.

    There are no rules in Real Estate.

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  42. Ask the Industry Insiders Why “It’s a Great Time to Buy” | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] Dick Beeson, Windermere broker and NWMLS director [...]

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  43. November Reporting Roundup | Seattle Bubble — News & discussion about real estate & the housing bubble in the Seattle area.

    [...] at the end. I don’t really see what Mr. Beeson is so worried about anyway though, because just last month he told us that “I think we’re as close to bottoming out in pricing as I expected.” Oh, and for [...]

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