Short-sale flopping scams: when will it stop?

[SD Realtor]

Very well said bg.

[NotCranky]

Flippers also very often do not pull permits where they are required. Hide serious flaws. Make poor quality construction alterations that look good, sometimes even knocking out important structural components to do so. They also sometimes put in landscaping with very superficial prep so that the plant or even lawn, will stay alive for a while but has no decent soil to move into. The plants are doomed eventually.

They need starstruck FHA buyers who won’t have the nerve to ask any hard questions about the flip work.
The FHA inspector doesn’t really do the buyers a great service.

[CA renter]

Exactly right, Russ. Our gardener and some of his friends have been working for some of the large Chinese flipping outfits who’ve been infesting our housing market as of late. He said they paper over all of the serious flaws, and even want the workers to reuse the nails and screws. These “improvements” are cheap and possibly dangerous, and they are charging extremely high prices for “upgrades” that will end up causing problems down the road.

I’d much rather encourage the use of the FHA’s 203(k) program for owner occupants.

———–

BG, it would be far better to have affordable housing available to owner-occupants than artificially fancied-up houses with cheap granite counter tops and a coat of paint. Our concern should not be for the hopeful sellers, but for those who are looking to buy an affordable roof over their heads. The notion that your primary residence is an “investment” needs to go. It is a consumption item, and there is no guarantee that a buyer will make money on a home purchase. Maybe, if we teach young people to think logically about housing, they might be less inclined to eagerly overpay and cause the bubbles that are so prolific in California (and other places).

[bearishgurl]

[quote=CA renter]. . . BG, it would be far better to have affordable housing available to owner-occupants than artificially fancied-up houses with cheap granite counter tops and a coat of paint. Our concern should not be for the hopeful sellers, but for those who are looking to buy an affordable roof over their heads. The notion that your primary residence is an “investment” needs to go. It is a consumption item, and there is no guarantee that a buyer will make money on a home purchase. Maybe, if we teach young people to think logically about housing, they might be less inclined to eagerly overpay and cause the bubbles that are so prolific in California (and other places).[/quote]

CAR, “affordable housing” IS available to purchase in the form of all the distressed “starter” and “lower-mid-grade” homes in the SD County SFR market. But “short sellers” or institutional sellers of these types of properties can rarely get a serious offer from a FTB (usually Gen Y or youngest Gen X). Why is this? Because, today’s typical FTB can’t envision themselves using THAT kitchen or THOSE bathrooms. The “curb appeal” sucks (due to weeds, trash, broken concrete, wildly overgrown gardens, etc). And the WORST part is … there’s a HOLE where the dishwasher is supposed to be! (“Is that a mousetrap under there?”) They just can’t see the forest for the trees … and can’t POSSIBLY imagine what the property would look like cleaned up, with the needed repairs and replacements. And they have NO IDEA how much it would all cost and CAN’T IMAGINE doing any of the manual labor themselves. It’s completely overwhelming, that is, for the prospective buyers that ACTUALLY MAKE AN APPT to see the inside. If it is tenant occupied, the problems with the listing are all the more daunting for them. And the bigger the lot (for their kids/dog to play), the MORE BACKBREAKING WORK the property appears to need.

There has been a “sea change” in the values of the “=<38 yo homebuyer" since about 2000. This buyer is a typical a FT buyer or is still shopping in that market or slightly above (the typical "flipper" market) due to having to deed away or sell their former property in a divorce action. Even if just ONE of two buyers (wanting to take title as joint tenants or tenants in common) can't stomach the distressed "fixer listing," the couple WON'T BUY IT.

It didn't used to be like this in SD. It wasn't uncommon at all for buyers aged 21-35 to buy even heavy fixers, move mattresses in on the floor, a portable radio with speakers, a portable TV with a dairy crate to sit in on, a ladder and all kinds of tools (and baby/child stuff if they had kids)! If they had more stuff than that, they stored it in the garage or in outbuilding(s) in the backyard for a few months and got to work ... yes females and new moms, too 🙂 The lucky ones called in relatives to help.

These talented and deep-pocketed flipper-teams are providing buyers inventory to consider and are helping to raise potential nearby sellers' property values which have been unfairly undervalued in recent years (so they will eventually be more inclined to list). Without them, these properties would continue to be eyesores, even if all the Joe6p-buyers in the county bought them all up.

There is a fmr REO near me, bought over two years ago by a family of 5 (for half the price it sold for in 2006). The new owners have since managed to replace just half of the leaky windows (and half of the window frames of the ones they did replace), put sheets in all of them, douse the front yard several times with gasoline (in attempt to clean up the straggling bermuda, lol), stack all their broken concrete on the side of the driveway, plant two 3′ (now dead) trees (“growing” in gasoline, lol), perform half the needed stucco repair, contract half the needed concrete work, paint half the house (currently, 2 sides are one color and 2 sides are another color). I can’t even list here all the stuff that still needs to be done to it … and this is only on the outside!

Hence …. the flipper teams you’re seeing today … who promptly grind all the dead stumps the day after closing and then throw up plastic picket fences and “substandard” sod the next weekend. When they are done ~30 days later, the property looks “charming,” clean and useful enough for today’s FTB (without much cash) to buy and begin living in right away.

[NotCranky]

There is a lot of validity to what you are saying BG, but when flippers come out looking like civic minded saints that’s too much! Average people with average business ethics AT BEST. That’s all I’m saying. No need for extremes.

I have never looked down on my neighbors who don’t have the means, or maybe just don’t prioritize to make and keep a property looking “turnkey”. That sounds like lets play “Ken and Barbie” with our shelter. I don’t get that? It’s not my business as long as they aren’t robbing me,or disturbing the peace or something. If you want someone to play God that’s what gated/HOA communities are for. Our neighbors don’t owe us anything but to let us live and let live.

[bearishgurl]

[quote=Blogstar]There is a lot of validity to what you are saying BG, but when flippers come out looking like civic minded saints that’s too much! Average people with average business ethics AT BEST. That’s all I’m saying. No need for extremes.

I have never looked down on my neighbors who don’t have the means, or maybe just don’t prioritize to make and keep a property looking “turnkey”. That sounds like lets play “Ken and Barbie” with our shelter. I don’t get that? It’s not my business as long as they aren’t robbing me,or disturbing the peace or something. If you want someone to play God that’s what gated/HOA communities are for. Our neighbors don’t owe us anything but to let us live and let live.[/quote]

Russ, I don’t think flippers are “saints.” But they ARE improving property values street by street and so in my mind are providing a “community service” at the same time they are making a profit. Why should they NOT make a profit? A lot of the work they typically do is neither “cheap” nor for the fainthearted.

I agree with you about individual property rights and the right of quiet enjoyment. But the joe6p family of five I just described isn’t helping their surrounding values …. not any moreso than before they became the owners … when their property was a scraggly REO. With six or more of these properties on a long block, it DOES affect the neighbors’ values (who keep their properties maintained) and causes potential buyers who go through the area to drive by ANY listing to ultimately decide they don’t want to make an appointment to see it due to the “overall feel” of the neighborhood.

These properties are VERY detrimental to the values of of adjoining neighbors.

Out where you are, you don’t have to worry about such things. Your property will sell based on its land mass and zoning alone and its value is less influenced by what your neighbors do or don’t do because the dwellings in your area aren’t ~8` apart.

Simply put, the people who buy these “flippers” today for a personal residence (whether not yet flipped or already flipped) are doing so because it is all they can afford at the time. So since, in any case, they’re typically “broke” at the time of closing (and possibly lacking in wherewithal/skills to make the needed repairs), it is better for ALL concerned if the property is already flipped at the time of sale to joe6p..

[NotCranky]

“But the joe6p family of five I just described isn’t helping their surrounding values”

That’s it, it is not their problem to help surrounding values. I don’t have any such responsibility either unless I live in an HOA. I lived in Normal Heights and owned two houses there, both purchased as fixers. The people who couldn’t fix their houses up, and there were plenty, never had anything but sympathy from me as long as they were nice people, which very many of them were. Mine were always very tidy, but that did not change my views. I always figured that they were doing the best they could.

If people didn’t let their houses go down hill what would fixer flippers buy? Or fixer rental owners? It all works together.

[bearishgurl]

[quote=Blogstar]”But the joe6p family of five I just described isn’t helping their surrounding values”

That’s it, it is not there problem to help surrounding values. I lived in Normal Heights and owned two houses there, both purchased as fixers. The people who couldn’t fix their houses up and there were plenty, never had anything but sympathy from me as long as they were nice people, which very many of them were. Mine were always very tidy but that did not change my views.[/quote]

I have many senior citizen neighbors on fixed incomes who cannot do major repairs but are nevertheless, “tidy.” This isn’t who I am referring to.

I’m referring to the new FTB “joe6p” who has attempted many projects on his property visible from the street and many months later has appeared to have given up on them. It’s not always about money. If one has painted half of his/her house, they already have the paint. Stucco patch, ESP the kind you mix yourself, is CHEAP. Digging out bermuda by the root if you don’t want it is FREE. This particular property is just a comedy of errors …. typical with a resident FTB who doesn’t really know what they’re doing … and isn’t very motivated to complete the many projects they started.

There are more out there just like him.

Had a “flipper” purchased this place instead, it would have been brought up to “neighborhood standards” (and even perhaps a bit beyond) within 60 days of closing and promptly listed for ~170K more than they paid for it.

That’s the difference.

[bearishgurl]

[quote=Blogstar]….If people didn’t let their houses go down hill what would fixer flippers buy? Or fixer rental owners? It all works together.[/quote]

Absolutely true, Russ. But joe6P FHA buyer who will move into the place after closing is NOT THE SAME ANIMAL as “fixer flippers” and “fixer rental owners.”

The latter two types of owners frequently bought much cheaper than the surrounding owners who bought in the last ~9 years. They immediately improve the property to sell or rent out, thus IMPROVING surrounding values.

Joe6p may have bought at a little higher price than Buyer FF and Buyer FRO because he likely did not pay all cash. But his property was likely in no better condition upon closing those that BFF and BFRO bought. However, joe6p and his family, who moved in with all of their things (they can’t afford a storage unit), will need to live in the property “as is” for awhile and fix as they can afford to. Whether or not they actually know what they have really gotten into and/or have the skills and motivation to even complete the most simple chores after move in (ex: tidy up landscaping) is anyone’s guess. Years later, it is still in same or similar condition and isn’t worth more (and might be worth less) than he actually paid for it.

If the joe6P FTBs of today were as hardworking and motivated as the FTBs of yesteryear who bought “fixers,” then I wouldn’t be discussing them here.

[NotCranky]

Sorry bg, it’s their business. I have a neighbor who inherited his mothers house.It is ramshackle to say the least. He admits to me that if he were half as ambitious as his parents or me his property would be nice.He pays very low property taxes ;). None of my business.He is one of my favorite neighbors. Same if I lived in Chula Vista, North Park, or Del Mar.

I understand feeling like it is unfortunate when it goes one way and fortunate when something nice looking gets done.

Agree to disagree.

[bearishgurl]

[quote=Blogstar]Sorry bg, it’s their business. I have a neighbor who inherited his mothers house.It is ramshackle to say the least. He admits to me that if he were half as ambitious as his parents or me his property would be nice.He pays very low property taxes ;). None of my business.He is one of my favorite neighbors. Same if I lived in Chula Vista, North Park, or Del Mar.

I understand feeling like it is unfortunate when it goes one way and fortunate when something nice looking gets done.

Agree to disagree.[/quote]

I understand, Russ. I have several of those similarly-situated “heir” neighbors. In a couple of cases, their parent died since I have lived here and the property’s condition has gone significantly downhill since the “heir” took it over.

Ask yourself how it is that an 86-yo can maintain their property (occasional gardening with the weekly help of a gardener) when their survivor, a presumably “able bodied” 60-something can do absolutely NOTHING for years … not even pick up their pennysavers from the driveway!

It’s not like they have HUGE property tax bills, HOA and MR to pay and thus can’t afford to make any repairs. They SHOULD be able to take care of the property but are just too lazy and also often packrats. These people have NO IDEA how fortunate they are! Most of them live very close to FREE except for utilities yet can’t even paint their peeling fence.

My experience with this subset of owners is that they act like entitled losers.

[NotCranky]

[quote=bearishgurl][quote=Blogstar]Sorry bg, it’s their business. I have a neighbor who inherited his mothers house.It is ramshackle to say the least. He admits to me that if he were half as ambitious as his parents or me his property would be nice.He pays very low property taxes ;). None of my business.He is one of my favorite neighbors. Same if I lived in Chula Vista, North Park, or Del Mar.

I understand feeling like it is unfortunate when it goes one way and fortunate when something nice looking gets done.

Agree to disagree.[/quote]

I understand, Russ. I have several of those similarly-situated “heir” neighbors. In a couple of cases, their parent died since I have lived here and the property’s condition has gone significantly downhill since the “heir” took it over.

Ask yourself how it is that an 86-yo can maintain their property (occasional gardening with the weekly help of a gardener) when their survivor, a presumably “able bodied” 60-something can do absolutely NOTHING for years … not even pick up their pennysavers from the driveway!

It’s not like they have HUGE property tax bills, HOA and MR to pay and thus can’t afford to make any repairs. They SHOULD be able to take care of the property but are just too lazy and also often packrats. These people have NO IDEA how fortunate they are! Most of them live very close to FREE except for utilities yet can’t even paint their peeling fence.

My experience with this subset of owners is that they act like entitled losers.[/quote]
Different strokes for different people…not my business.

[CA renter]

BG,

Haven’t you noticed that many of the people who buy those flips let them go once they move in? I’ve lived in working class neighborhoods before, and the typical FHA 3.5% buyer does not maintain the house once they move in, whether it was flipped or not. Within 3 years or so, it’s back to the overgrown landscaping or dirt lot with 5 cars parked in the yard, trash everywhere, dirty, falling fences, etc. These flipped homes are often the first to be foreclosed on, too.

The very WORST were the absentee landlords who would literally let the homes rot.

I’d still rather have affordable housing for owner occupants. That should be the priority. Of course, I agree that people should at least maintain their properties — and the standard for that varies from person to person, of course. You and I both like neighborhoods without HOAs specifically because the Nazi HOA rulers cannot tell us what plants to plant, or what color paints to use, etc.; but that also means we have to put up with some neighbors whose homes will be eyesores. I don’t like it either, but still prefer it to flippers infesting the neighborhood and pushing up prices beyond what owner-occupiers can truly and easily afford.

[bearishgurl]

[quote=CA renter]BG,

Haven’t you noticed that many of the people who buy those flips let them go once they move in? I’ve lived in working class neighborhoods before, and the typical FHA 3.5% buyer does not maintain the house once they move in, whether it was flipped or not. Within 3 years or so, it’s back to the overgrown landscaping or dirt lot with 5 cars parked in the yard, trash everywhere, dirty, falling fences, etc. These flipped homes are often the first to be foreclosed on, too.

The very WORST were the absentee landlords who would literally let the homes rot.

I’d still rather have affordable housing for owner occupants. That should be the priority. Of course, I agree that people should at least maintain their properties — and the standard for that varies from person to person, of course. You and I both like neighborhoods without HOAs specifically because the Nazi HOA rulers cannot tell us what plants to plant, or what color paints to use, etc.; but that also means we have to put up with some neighbors whose homes will be eyesores. I don’t like it either, but still prefer it to flippers infesting the neighborhood and pushing up prices beyond what owner-occupiers can truly and easily afford.[/quote]

CAR, the “flips” in my area haven’t been resold for quite three years, so I don’t know the outcome yet. But I do feel it is not worth it to take out an owner-occupied FHA loan today. Most FHA buyers (usually first-timers) are ignorant of all the commitment that homeownership entails and most of their DP is now applied to up-front MIP and is NOT used to reduce the mortgage they will take out. Due to the now VERY high MIP, a prospective FHA buyer would be better off renting, IMHO, while they save more $ to purchase conventional. Honestly, I don’t think the FHA 203(b) program is viable anymore and I think it should be abolished. The agency screwed itself royally in recent years by insuring mortgages over ~$300K. Even that amount is high for its target borrower in SD and VERY HIGH for other, inland locales. Back in the 80’s, there were even weekly lists published in the SD Union of local FHA foreclosures being offered to the public through a sealed-bid system (avg of about $77K back then). Now, FHA’s default rate is SO MUCH HIGHER than it was back then at FAR higher loan amounts.

The typical FHA borrower (then and now) can barely score a used lawnmower after closing without quickly running up their CC debt to an unsustainable level, making it impossible to pay their new mortgage AND service their CC debt.

The only people who should be buying “fixers” should be those putting 20%-100% down with liquid cash reserves of at least $80K (in case something goes wrong with the rehab). That brings us back to the flipper teams, gen’l contractors and VERY experienced carpenters/handymen.

I have come to the conclusion that a typical 40-hr per wk “wage earner” with a family who is taking out a >80% mortgage is a bad buying candidate for a “fixer property.” It will likely take this type of owner-occupant buyer too long to complete the needed repairs without additional help, causing them to have to carry the mortgage without use of all or part of the property for many months or even years. And unless they have purchased for a VERY low price on cash terms, the potential “equity” isn’t usually there to contract out all the needed repairs and replacements.

There are no doubt thousands of first-time FHA homeowners who never should have been homeowners to begin with as they’re not (fiscally or psychologically) prepared to regularly maintain real property.

I believe “affordable housing” should be strictly rentals to the extent that local laws and local funding provides for them. If some locales (more desirable and/or coastal) don’t have enough of this type of housing to offer all the residents who want it and can qualify for it, that’s the way life is. The most desirable portions of coastal counties have never been “set up” to house the masses of poor and working poor. I realize that every locale needs its service workers and they have to live somewhere but everyone has to live where they can afford to. For San Diego County, if that is TJ, a long commute inland from their coastal job, a subsidized apt, living with parents/other relatives or renting a room close to work, so be it.

[UCGal]

All I can say is on the Russ V BG discussion – I’m in the Russ camp.

And I’m glad BG isn’t in my neighborhood – since we have several partially completed projects. After contractors burned us we are strictly DIY and stuff gets done as we have time. Progress is being made – but not on the pace it would be made if we’d hired someone.

Thankfully – we have neighbors who like us and are fine with our pace of progress. Even if we are DIY – even for stucco.

[Author]

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