Thanks to a little-noticed auction sale, a South Bay couple are the proud owners of one of the most exclusive streets in San Francisco — and they’re looking for ways to make their purchase pay.
Tina Lam and Michael Cheng snatched up Presidio Terrace — the block-long, private oval street lined by 35 megamillion-dollar mansions — for $90,000 and change in a city-run auction stemming from an unpaid tax bill. They outlasted several other bidders.
Now they’re looking to cash in — maybe by charging the residents of those mansions to park on their own private street.
Those residents value their privacy — and their exclusivity. Past homeowners have included Sen. Dianne Feinstein and her financier husband, Richard Blum; House Democratic leader Nancy Pelosi; and the late Mayor Joseph Alioto. A guard is stationed round the clock at the stone-gate entrance to the street to keep the curious away.
So imagine the residents’ surprise when San Jose residents Cheng and Lam wound up with the street, its sidewalks and every other bit of “common ground” in the private development that has been managed by the homeowners since at least 1905. That includes a string of well-coiffed garden islands, palm trees and other greenery that enhance the gated and guarded community at the end of Washington Street, just off Arguello Boulevard and down the hill from the Presidio.
“We just got lucky,”said Cheng, a real estate investor.
The homeowners, however, are crying foul and want the Board of Supervisors to negate the sale.
The couple’s purchase appears to be the culmination of a comedy of errors involving a $14-a-year property tax bill that the homeowners association failed to pay for three decades. It’s something that the owners of all 181 private streets in San Francisco are obliged to do.
LITHONIA, Ga.—On a muggy morning earlier this month, Paul Fuhrman pried the screen off a window to get into a two-story house in this Atlanta suburb.
It was just another day’s work for the 43-year-old executive at private-equity firm Colony Capital LLC, based in Santa Monica, Calif. After buying the house for $120,000 in a foreclosure auction, Mr. Furhman and his colleagues wanted to check out Colony’s new investment—and broke in because they hadn’t gotten the keys yet.
Mr. Fuhrman’s sweat and dirty hands show how the business of buying foreclosed homes, renovating and renting them out is morphing from a largely mom-and-pop business into the next big thing on Wall Street. Investors who once chased only big-ticket deals now are buying houses one at a time.
“We went from hunting elephants to whacking ants with a mallet,” says Mr. Fuhrman, who found stained carpets, piles of discarded clothing, a broken door and signs of a recent living-room camp out by squatters.
Colony owns about 3,600 foreclosed homes, including 133 bought in the Atlanta area in one day, and officials hope to increase the firm’s inventory to 10,000 by next spring.
At first, many investors hoped lenders would sell foreclosed houses in bulk. But most banks prefer to sell one house at a time, figuring that approach will fetch higher prices.
As a result, the foreclosure circuit hasn’t yet produced a giant windfall for buyers like Colony, though executives say early returns are promising. Yields on rents from houses owned by the firm are 7% to 8%, higher than many other types of real estate. Purchase prices have averaged 12% less than Colony expected, which should make it easier to sell the homes or borrow against them and exit with double-digit percentage gains.
Foreclosure buyers, the trash collectors of the housing industry, have been raking it in.
An anonymous foreclosure scout recently described the “ins and outs, all the dirty tricks, blatantly illegal practices” in a thread at Reddit. In fact as the thread became popular, the source deleted his comments out of concern that his identity would get out. His answers were preserved, however, at Pastebin.com (via Patrick.net).
We’ve picked out the highlights, edited for clarity. We can’t verify the identity of the foreclosure scout, but he sounds legit to us.
1. “Before you go to auction you need to actually scout the houses. It’s common for previous owners to gut the house or completely remove the kitchen. It was my job to drive to these houses and assess them, damage, repairs cost etc… Part of this was getting into the house which were many times locked, so we would break & enter all day, every day…
“Many banks will change the locks once the previous owners have been evicted but they only use 5-6 different locks. Somebody in my company somehow obtained copies of these keys which we kept with us, allowing access to many houses that would be too secure for other people to get into.”
2. “If you could gain access, a lot of times we would try and block as many windows and secure the house as much as possible. If I could block any view of the kitchen, other competitors will have to assume another 10K in cost because they cant verify an intact kitchen…”
“I would keep a bunch of old padlocks with no keys. If the garage was unhooked from the opener I could get in, padlock it on the inside and then when I left, I could walk out a back door locked from the inside. Essentially, removing the garage door as an access point. We would also put locks on side gates as well. If the other companies were using older guys to scout, they wouldn’t bother jumping the fences.”
3. “Sometimes with the little amount of time between scouting houses and and auctions, you can’t get to the bank to get actual certified checks. Before you can bid on any house you have to show your cash or checks to the auctioneer so you can’t overbid.Certain people would develop relationships with the auctioneers where they would show fake photocopied checks. If you won the house, you would just meet up with him later to pay, as well as give them a tip.””Most high rollers would “tip” auctioneers, my company would actually write it off on taxes as a “tip”. If we won a house we would meet up later and give the auctioneer a few hundred bucks. Now nothing was ever discussed about asking the auctioneer to do anything illegal, but when it came looking past not having money on the spot or saying “going once going twice sold” really fast and maybe not listening too well, the tips came in handy.”
4. “Go to auctions and hang out, half the game is actually buying the house and competing for the high bid. The atmosphere is a lot like that show “Storage Wars”, but you are dealing with WAY more money, though the biding techniques and rivalries are similar. For example, if big players are avoiding a property that appears like a win, there is obviously something you have overlooked… IRS Lean? Inside is trashed? Something screwy with the banks or the loan?Knowing the actual status of the title is VERY important, nothing is worse than seeing somebody buy a 2nd loan on a house. Essentially, he bought a loan, but not a house. Another example is a random guy who showed up, paid cash for a house that we knew had major sewage problems. If he planned to sell the house he would need to do 40K in sewage lines under a major highway, the guy basically [expletive] himself but walked off smiling from ear to ear.I guess what I’m saying is, if you want to buy a house at auction then take some serious time doing homework and learning the ropes. 95% of newcomers are gone after 1 or 2 houses because they are broke or made simple mistakes. I’d just try and find a short sale from the bank.”
A ban on foreclosure auctions outside the downtown San Diego Superior Court has forced those who conduct them to two other areas that already host such transactions, a spokesman with a trade group that represents trustees said Monday.
The ban, made official in a July 1 court order, takes effect Tuesday.
People who “cry” trustee sales now conduct business at the entrance of the East County Regional Center, 250 E. Main St. in El Cajon, and outside 321 N. Nevada St., the address of Oceanside’s Housing Division offices, said Richard Meyers, executive director of the Irvine-based United Trustees Association.
It’s up to the individual companies that publish and post the sales to decide where to go, Meyers said.
The downtown San Diego venue had been used as an auction site since the 1960s. Over time, court officials said, dozens of investors, their representatives and onlookers routinely crowded around the main entrance of the downtown facility throughout the day, causing safety and security concerns.
A reader noted that yesterday was an active day for trustee sales. But unlike last month, when I got snookered into thinking something was afoot, I went right to the auction.com website.
Yep, yesterday they conducted their latest installment of ‘trustee sales by ballroom auction’ – link here.
I can relate to what they are going through. Bank of America and others are dumping some of their worst properties on them – only two of the 117 properties were over $400,000, and the majority were under $200,000. There was also plenty of postponements. Of the 117 on the list, only 30 were sold – they postponed 58, and cancelled 29.
If you are looking to pay cash for cheap properties, and don’t mind buying without title insurance and inspections plus evicting the occupants, this might be for you. At least the parking is easier, and you won’t be tripping over the bums and hobos downtown.
But it is run by the same REDC auction house that has been exposed here previously.
Overall yesterday there were 68 trustee sales conducted throughout the county, with 38 properties being purchased by 3rd parties, and 30 going back-to-bene. It brings October’s total up to 672 trustee sales, with three days to go. In September there were 754 successful trustee sales.
Hat tip to shadash for sending this along, from thenctimes.com:
San Diego County court administrators will end the decades-old practice of selling foreclosed houses on the courthouse steps in downtown San Diego on Aug. 31, administrators said Monday.
Trustee sales, in which lenders auction off foreclosed properties, grew in popularity in recent months as investors went looking for cheap houses to fix up and sell or rent. What once attracted a dozen professionals can now bring in 40 or more interested buyers on any given day.
San Diego County joins Riverside, Los Angeles and other California counties in pushing the practice off its courthouse property. Sending the auction to a new, to-be-determined site could cost trustee companies, which sell the houses, thousands of dollars in advertising costs. But the courts have no obligation to host the auctions.
“Out of tradition, these sales have been held on the steps of the courthouse from a time when such sales were conducted by the court,” Michael Roddy, court executive officer, said in a written statement. “That is no longer the case; these are commercial activities being conducted on public property. These sales not only lack proper permits for conducting business in such a manner but they impact court business.”
Most of the sales at the downtown courthouse steps are run by Fidelity ASAP. The company did not immediately respond to request for comment.
Trustee Assistance Corp., based in Santa Ana, conducts most of its San Diego County auctions at a city-owned building on Nevada Street in Oceanside. The move by the San Diego courts won’t affect their workings much, said Renee Patrick, but she expects to fight the ban along with other companies.
When location of a trustee sale changes, state law requires trustees to send new notices to borrowers and re-advertise properties that would be sold at the new site, a practice that costs from $600 to $700 per property, she said.
“If we had to re-advertise on all these files, that’s an enormous amount of money,” Patrick said.
Hat tips to Jakob and Gene for sending this along fromsfgate.com:
Investigators look into whether there is collusion among real estate speculators involved in the courthouse sales.
Foreclosure auctions take place every weekday on the steps of courthouses throughout California. Now the FBI is investigating whether some real estate speculators are illegally rigging bids for these sales.
“Last week, the FBI conducted interviews and executed search warrants through the entire Bay Area as part of a long-term investigation of anti-competitive practices at trustee sales of foreclosed homes,” said bureau spokeswoman Julie Sohn.
The probe is shaking up the tight-knit world of investors who bid at these auctions. The issue, sources say, is that some participants allegedly pay others to refrain from bidding on certain properties to keep their prices low.
Such bid-rigging violates the federal Sherman Antitrust Act and can carry a maximum penalty of 10 years in prison and a $1 million fine.
That maximum can be increased to twice the perpetrator’s gain or twice the victim’s loss.
“There have always been rumors of collusion at the courthouse steps,” said Sean O’Toole of ForeclosureRadar.com, a Discovery Bay company that provides detailed information on properties sold at the auctions. At a typical auction, many investors clutch clipboards with printouts from his website.
“If you have a small crowd of guys that talk to each other every day, it’s natural for them to say, ‘Why are we bidding each other up? Let’s just buy this and work it out afterward.’ ” O’Toole said. But when he speaks to real estate clubs and others, O’Toole said, “I am very clear. I say: ‘This is illegal. Don’t do it.’ “
Most properties revert to lenders at courthouse-step auctions, which are the final step in California’s foreclosure process, but about 20 percent get sold to outside investors.
Rules of the game
Bids are all cash; properties are sold as is, subject to existing liens and with no guarantees as to condition, so only deep-pocketed, experienced investors generally make bids, seeking properties that still have some equity that they can fix and flip, or hold onto for the long term.
A real estate agent who attended some San Francisco auctions in hopes of buying investment property described what he witnessed.
“If you start to bid, there are about five guys who work together and who box you in,” said the man, who asked not to be named for fear of retribution. “One guy came up to bid who clearly was not part of that crew. The guys were bidding. At some point, (their ringleader) turned to (the outsider) and said, ‘You must really like this property. It must be really important to you.’ He had a piece of paper in his hand; he showed it to the guy. The guy nodded OK and then disappeared into the building.”
The man said he was positive that the outsider was being paid off not to bid, although he did not witness money changing hands.
At Alameda County’s auction Wednesday, most investors declined to discuss the issue, but some said they welcomed the FBI’s interest.
“This has been going on for many years,” said one man who declined to give his name. “It’s a closed group that doesn’t always allow the properties to go up to their true value.”
Thin margins
O’Toole and others said the margins at the auctions are pretty thin.
In general, he said,“the opening bid is only 20 percent below market, and the average sale is only bid up 12 percent. It’s hard to make a living in this business – by the time you pay repairs and sales costs, you’re looking at about a 5 percent net return.”
In a case that resembles the current probe’s focus, in April a Stockton real estate agent pleaded guilty to bid rigging.
Anthony B. Ghio admitted “that he conspired with a group of real estate speculators who agreed not to bid against each other at certain public real estate foreclosure auctions in San Joaquin County,” according to a news release from the U.S. Department of Justice. “The primary purpose of the conspiracy was to suppress and restrain competition and obtain selected real estate … at non-competitive prices.”
The release said that after a “designated bidder” bought a piece of property at the public sale, the co-conspirators would hold a second private auction to determine who in their group ended up with the property. The difference between the two auction prices “was the group’s illicit profit, and it was divided among the conspirators in payoffs,” the release said.
The FBI encourages anyone with knowledge of anti-competitive practices at foreclosure auctions to call its tip line at (415) 553-7400.
Hat tip to SM who sent this along from Marilyn at theocregister.com:
A two-story house on the Seacliff Golf Course in Huntington Beach is the worst example of “malicious vandalism” of a foreclosed home that a top Realtor for bank-owned properties says he’s ever seen in Orange County.
The home, at 6581 Racliffe Circle in the guard-gated The Peninsula at Seacliff community, went back to the bank at $1,782,214 at a foreclosure auction last August after no one bid on it.
The roughly 3,000-square foot house now is undergoing about $250,000 in repairs, says broker Tom Moon of Pacific Moon Real Estate, who has the listing.
Among the destruction: Chemicals and cement were poured down drains, a Jacuzzi was left running for what may have been months, with most walls in the house splattered in mold, and a floor caved in from the weight of a huge pile of wet clothes and other junk.
The day I went by, workers in special bodysuits and masks doing mold remediation would not allow us into the house for safety reasons. As is typical with some foreclosed homes that are found stripped and trashed, the Realtor and the bank cannot prove who did the damage. And with a lack of eyewitness accounts in these cases, police rarely get involved.
Sean, our Los Angeles correspondent, files this report:
Jim,
Up here in LA it looks like BofA/Countrywide just threw the foreclosure machine switch back to the “on” position. The number of Recontrust properties with opening bids set for tomorrow’s trustee sale auctions just spiked, so it looks like whatever self imposed delays or moratoria they had put in place during the past few months just came to an end. Let’s cross our fingers and hope that maybe last year’s misbegotten prediction that they would crank out 65k foreclosures is about to come true a year later.
