Real Estate: The Sharks Are Back Working Inside Deals With Banks

Even so the George W Bush’s Great Recession had many factors at play such as the trillion spent for the wars in Iraq and Afghanistan, the trigger effect was the burst of the US housing market bubble. From 2002 to 2007 the banks played an active role in inflating the prices and in some area of the country such as California, Florida and Nevada the real estate “value” saw a yearly increase of about 20 percent. Properties were appraised high, loans were granted on stated income and banks were pushing borrowers to use their houses as piggy banks and pulling money  out from it by selling  them countless lines of credit. This real estate “gold rush”, artificially created by the Bush administration and the banks, ended up in the 2008 massive crash and a rude awakening for financial institutions across  the world.

There is an empirical rule of thumb in how and when an economic recovery start after a major financial crisis: The trigger factor, in our case the collapse of the real estate market, is the one to recover first. Unfortunately, the current signs of the housing market are not showing such overall trends. Many Americans are still facing foreclosure, the market remains bloated with a record inventory and the banks are still putting their feet on the brake by not offering  homeowners in distress  loan restructuring options so they can keep a roof above their heads.

It seems that the few big banks still in the business of lending money for real estate purchases are just eager to cash out to clean up their portfolio from “toxic loans”, and by doing so they are putting a drag on property value preventing a real recovery. Once again the big banks such as Bank Of America, Morgan Chase and Wells Fargo are only concern with very short term strategies making their respective quarterly earning reports look good for the share holders. Of course by doing so they are not serving the public interest and even their own in the medium to long term.

I am currently in the process of selling my house in California, which give me a first hand experience of the negative impact from banks and real estate investors on the housing market. It is a regular sale, and I have quite a bit of equity on the property. However, I am still competing with countless short sales and foreclosures which stubbornly push the market down. My goal is to own a property free and clear, and to be out of the borrowing business for good. This also means that I am currently looking for some properties to buy. Unfortunately, the properties which I could afford to buy cash in Los Angeles county are snagged up in no time by investors who have an inside track with banks or REO, the shady real estate agent representing the banks.

This is how the scheme works in a nutshell. The new “shark flippers” of real estate are typically looking for distressed properties in the range of $200,000 to $250,000 ( In LA county the medium price for a single family house is $313,000). They pay cash for it, then do some work on the property, and within three to six months put the property back on the market for $400,000. In Nevada and Florida, two other states which like California can be call Ground Zero of the real estate collapse, the investors in conjunction with the banks are applying the same type of business model. For example, in Las Vegas, buyers can pick up decent properties as cheap as $120,000 or $150,000. At the pick of the market, the very same properties sold for about three to four times this amount.

At least in Los Angeles, a large proportion of the shark flippers are foreigners. They are Russians, Chinese, Armenians, Israelis, Hungarians with very little morale scruple and a lot of cash in their pockets. Some are partners in REO and represent pool of investors. Needless to say, this trend is preventing regular American families  to buy  affordable houses to call it home. The sharks have the angles with the banks, they have the cash and are attracted by the blood of homeowners in distress.

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20 Responses to Real Estate: The Sharks Are Back Working Inside Deals With Banks

  1. Myrtle Beach July 21, 2010 at 8:12 pm

    Great blog you have here – Our real estate market has been very slow – Hopefully things will start picking back up

  2. Mike July 22, 2010 at 5:34 am

    It was not Bush who created housing bubble. Barney Frank and Chris Dodd, check your facts, and go back further. 1994 to be exact. Clinton was in Office, look up “At the request of President Clinton, HUD is working with dozens of national leaders in government and the housing industry to implement the National Homeownership Strategy, an unprecedented public-private partnership to increase homeownership to a record-high level over the next 6 years.” – Urban Policy Brief Number 2, August 1995

    • Ole Ole Olson July 22, 2010 at 4:24 pm

      The Housing Bubble was not the fault of trying to make home ownership more affordable, it is the fault of greedy and unscrupulous real estate agencies who had bad business practices, and did not ensure people could actually afford what they were buying. I’ll grant you that Dodd and Frank played a role here, but they are not the easy scapegoats that conservatives try to pawn them off as.

  3. Brian H July 22, 2010 at 7:06 am

    LOL about the homes being snapped up by dirty inside jobs with the agents listing them for the banks.

    You really have zero idea of the inner workings of an REO Broker’s office. Secondly, government intervention has artificially lowered the number of bank owned homes to just about zero in SoCal. You are dealing with the effects of banks not actually foreclosing, thus there are very few bank owned homes for sale, thus the competition is through the roof for a scarce resource.

    A high demand product in extremely limited supply makes for a frustrating shopping experience. However to cast a blanket statement such as yours above about dirt bag agents and sleazy cash buyer shows your lack of understand about how the real estate market actually works.

  4. repo4sale July 22, 2010 at 7:25 am

    Very true, cash is king and only “FRUGAL” people have it!

  5. Riiiggght July 22, 2010 at 9:16 am

    This is an ‘article’? More like a Bush Rant piece. Dontcha know that this mess has its roots in the Dems more than the Reps? The Bushies even tried to change things but Pelosi’s goons and Dodd & Frank killed it.

    Who was the number one political contributor to Senator Obama before he ran for prez? Freddie/Fannie were. And he was in lockstep with Dodd in the Senate to kill anything that would keep the debt slavery fraud (a.k.a. home ‘ownership’ even though the banks owned the homes) going.

  6. andy July 22, 2010 at 9:23 am

    “They are Russians, Chinese, Armenians, Israelis, Hungarians with very little morale scruple and a lot of cash in their pockets. ” Don’t let them punch you in the vagina at the closing table.

    • AZDavidPhx July 22, 2010 at 11:08 am

      I love the “no morals” bit that’s rich. I’ll bet that Gilbert has not one moral qualm about selling his house bubble equity and all to some young family for far more than he paid himself. Oh, but he gets outbid at the auction house and by default the buyer is some cold hearted rascal with no morals and he sees black helicopters flying all over the place covering up inside jobs.

  7. Marcy July 22, 2010 at 9:38 am

    There’s a great deal of truth to what Gilbert wrote. I ran into it countless times the past 2 years, when I was hunting for a property under 250k for myself. Even on the property I eventually bought in March, there was attempted sheisty dealings by the seller’s agents – and NOT at the behest of the seller. The agents had a straw buyer and tried to coerce the seller into giving up the property (half acre flat, 100% usable horse property with a 3+1, detached garage and barn) for 50k cash without listing it on the MLS. She refused, made them list it and they proceeded to ignore every phone call that came in, telling her there was “no calls” and she needed to sell it for the 50k. I found the property on my own, had my agent bombard sellers agents with calls and made a full-price (200k) offer sight-unseen other than google maps and making my own drive-by in the evening. Seller told her agents to accept my offer – they countered HER with a 150k offer and said she should take theirs, not mine. Long story short, she accepted my offer and then her agents proceeded to do everything they could think up to try and make the deal fall out of escrow. I had 20% down, outstanding credit and a lender ready and waiting. They called and canceled scheduled appointments for inspections, were “unavailable” for all phone calls, didn’t pass along deadline sensitive information and a myriad of other borderline illegal irritations. We finally just started dealing directly with each other (seller and myself), and the problems melted away. Anecdotal evidence, to be sure – but that was just the final instance of shoddy behavior by so-called professionals in the field, not the be-all, end-all.

    Earlier the previous 12 months I repeatedly ran into agents who refused offers or back-up offers on REO properties they intended for family members and friends, hidden lock-box keys, refusals to allow tours of properties supposedly on the market and impossible deadlines for submission of offers (list and fast delist, with an accepted offer showing up on the MLS within an hour).

    The list of bad behavior going on is endless…and not at all unexpected. The lower end of the market in southern California is infested with groups of investors aided by agents who are in on the deal, snapping up poorly maintained homes and flipping them. Gilbert is right. All one need do to see it, is follow the MLS daily and keep an eye on the dealings.

    • Gilbert Mercier
      Gilbert Mercier July 22, 2010 at 10:27 am

      Thanks for your testimony, Marcy. Obviously your experience has been similar to countless other potential regular buyers with no inside track into the shady business of REO.

  8. SarasotaFL1 July 22, 2010 at 10:02 am

    Correction!
    Bush came into the presidency with the economy in a deflationary mode, yet with a surplus deficit. It did not take long to reverse the trend.
    With WARS to support, the Internet and/or Telecom industry in saturation mode, high tech jobs evaporating, he turned to Real Estate as his option to inflate, and create jobs for the American people. Although, most of the jobs created under his administration were and currently under Obama, continue to be low paying jobs (service).
    Remember this…invest in RE when a Republican President is in office, invest on Wall Street when a Dem in office.
    Bush and his buddies sold this country off a long time ago in his quest for oil control. We are in a band-aid economy state that will last for years to come. We have been here before, and we will get thru this. Do not expect miracles overnight!

    I don’t see any wrongdoing with foreign investors scooping up properties in cash transactions. It is part of the business, and one where anyone would hope to benefit from.
    Contrary to this article, Banks with the agreement of government policy, failing to list all their toxic RE holdings into the marketplace is actually helping to maintain property values high. In other words, it is helping the author list his property and potentially sell for higher value.

  9. Rk July 22, 2010 at 10:15 am

    What will be really ironic is when the second leg of the housing crash starts to mentally set in, the properties that seem a bargain today will be deemed overpriced down the road.

    The best time to buy a home at rock bottom prices is when no one want them .

    Thats the time to buy with cash. and we are not there yet.

    • AZDavidPhx July 22, 2010 at 11:15 am

      The current market is a sucker’s market anyway. You would have to be a brain damaged moron to buy a house right now anyway. Gilbert should be glad that regular families can’t buy these houses because they won’t be hosed when interest rates go back up to 8% or 9% and these suckers buying today are left holding the bag and begin to default en masse.

  10. AZDavidPhx July 22, 2010 at 10:46 am

    “medium price”?

    “market pick”?

  11. AZDavidPhx July 22, 2010 at 10:55 am

    You do realize that you are talking out both sides of your mouth, I hope. You accuse the banks of causing your property values to decline with all their relentless short sales. You then amazingly state that you want to buy up some properties but are all bent out shape because the boogey man is beating you to the punch and harming the regular families. It makes me wonder why someone championing morals and regular families and already has their own house is looking to purchase multiple properties. It wouldn’t for speculative purposes I hope – that would make you one big hypocrite.

    • andy July 22, 2010 at 11:16 am

      He doesn’t realize it, otherwise he would not have published this article. Politics is like religion. You lose your mind when you get attached.

    • Gilbert Mercier
      Gilbert Mercier July 22, 2010 at 7:25 pm

      The banks are dragging the real estate market down. Any short sale or foreclosure sale in your zip code bring the value of properties for regular sellers down. Now, it was never and never will be my intention to buy a short sale or a foreclosure even if I could have a shot at it (which I can’t because the deals are rigged). I find it despicable to take advantage of the misery of other human beings. As far as I am concerned; ethic comes first, not greed.

  12. Ole Ole Olson July 22, 2010 at 4:41 pm

    Editor’s note – personal advertising is prohibited on this discussion board.

  13. Brian July 22, 2010 at 10:31 pm

    Gilbert,
    I want to buy a property in LA in the next year. What advice can you give to someone looking to buy a foreclosure BEFORE some shark doubles the price?
    Thanks

    • Gilbert Mercier
      Gilbert Mercier July 23, 2010 at 8:15 am

      Keep trying. The best way is probably to hire an LA real estate agent if you are not already located in Los Angeles.

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