All Forum Posts by: Tim Silvers

Whomever is betting on "the next rampup", or any appreciation for that matter, is going to be waiting it out for at least another few years, and if and when it does start going back the other way, it won't be enough of a return to bother. Appreciation is an obsolete notion of the last 50 years. We cannot ever depend on it again. Buying for appreciation is pure speculation, not investing. You're better off going down to the casino. It's how we all got in this mess to begin with.
If you do get it, great, it's a bonus. Your main business should be buying to flip or buying for cash flow or both. I actually believe things will get much worse and prices will drop even further - at the very least for this year and next.

The fact is there is an increasing supply of distressed property as well as unemployment, lack of financing, etc., for there to be any basis for appreciation anytime soon.

An alternate title for my post could be 'Flippers and the Law of Diminishing Spreads'!

I am in the Las Vegas market and am running up against the same issues I am repeatedly hearing for other markets in that the pricing for trustee sales and REOs are getting bid up to nearly list which wasn't the case a year or even as recent as 6 mos. ago. That being said plus the fact that short sales are also becoming increasingly difficult to buy at enough of discount makes for a non-existent market or at the very least slimmer profit margins for the active flipper. That is, unless your exit strategy is to sell at above market to unsuspecting buyers who don't care (show me where these folks are, please!).

Everywhere you look, it has become saturated with cash retail buyers and buy-and-hold investors who don't mind paying 90 cents on the dollar and just look at getting a better return than a lousy 2% CD which makes zero sense to me! Us flippers don't stand a chance competing with this segment. And as Marty Boardman has made it clear in today's blog [ (http://www.biggerpockets.com/renewsblog/2011/03/03/the-incredible-vanishing-bulk-reo-seller), bulk REOs at pricing that makes sense simply don't exist.

So what is your search criteria now? 90+ DOM? Pre-list/pocket listings? Major rehabs?

What about the public REO auctions like REDC, or are they largely a waste of time?

What other choices do we have???

I had saved this thread for a reason - and after a lengthy conversation with counsel today, felt it necessary to correct or clarify the prior responses with respect to (i) leasing while in default, and (ii) the PTAF Act.

First off, it is NOT fraud nor is it illegal for the owner of a property to have an existing lease while in default since the owner still OWNS the property and technically can cure the default anytime up until the title or ownership changes hands. There is, in fact, state law (NV) that protects the owner of record and upholds the lease and the owner can evict the tenant for breach of the lease/failure to continue to pay rent. Now, if the owner leases the property subsequent to a Notice of Default, then some states (i.e., NV) require that the tenant be disclosed in writing of the NOD. Again, the lease is upheld and perfectly legal, so long as the disclosure is made. An "assignment of rents" clause is sometimes included in the lender's note or separate document which gives the right to the lender to collect rent in the event of a default, but like the obscure due on sale clause, is rarely enforced.

Much to my surprise, the PTAF Act specifies that the lease be "entered into before the notice of foreclosure to occupy the premises" in order for it to be held valid in the context of the Act.

According to counsel, a "notice of foreclosure to occupy the premises" is clearly not the same as a NOD or "foreclosure notice", therefore, a lease entered into after the NOD is filed but before a foreclosure eviction notice, would be upheld under PTAF. I brought up the fact that this definition ambiguity is probably not yet supported by any case law given the the act is so new and hasn't been litigated enough for us to really know. Thus, the definition of it could be subejct to interpretation.

Again, according to my counsel, a litigator himself, most courts will decide in the favor of the innocent party, the tenant, since that's what the act is designed to protect.

Nonetheless, I would still advise those of you renting to tenants pending foreclosure proceedings - or buying defaulted properties from owners with tenants to confirm with competent counsel, as every state has different statutes with respect to foreclosure and tenants.

Thanks for the lightning fast response and glad you agree, B!

Although I won't name any names, I called on an ad in craigslist out of curiosity regarding their pitch and I asked the same question and got the runaround.

As I surmised: Does not work with that much negative equity.

Too bad the gurus don't put a disclaimer in their pitch: "A mortgage assignment is prohibited in instances in which the current mortgage balances exceeds the fair market value of the property by 25%" or something to that effect. Even 25% is too high. The buyer's better off doing a lease option on a property whose value is flat with the market or just doing a straight lease!

Is anyone successfully closing mortgage assignment deals in huge negative-equity markets like Las Vegas in which nearly 80% of all homeowners are underwater on their mortgages by as much as 80%?

Given such huge negative equity, I can see how a mortgage assignment would seem alluring to the underwater borrower/seller, but how it would make any sense to even the most desperate & credit-challenged buyer is beyond me.

Who in their right mind would agree to assume a note that is several times the value of the house, let alone make payments that are at the very least twice what the property would rent for?

I suppose you could put language in the purchase agreement that the sale is subject to short sale approval by the bank? But then, that defeats the purpose of doing the assignment in the first place.

Yes, it is 100% legal as long as disclosure is made to the lender. And therein lies the challenge; some banks don't care (the ones that make sense), and some banks are out to prove a point by wanting to "punish" the borrower by blacklisting them from the property via a document called an "arm's length affidavit". It is utterly ridiculous and should be banned. But that's the topic of another conversation.

This strategy definitely works and is the RIGHT thing to do as an alternative to what the banks SHOULD be doing in the first place - allowing principal reductions!

What firm are you looking into?

Thanks for the feedback on this all, it was very helpful!

Ok, so how do I expect them to pay rent if I need to re-tile the place or put in new cabinets, etc?

I'm playing devil's advocate but I believe it is definitely a valid concern. I wouldn't want to threaten eviction or or use any scare tactics as I can eventually see that backfiring with a lawsuit against the new owner when the tenants finds out he was coerced to move when he didn't have to and his rights violated under the act. An amicable settlement (cash for keys) is the best, but again, there is no guarantee they will accept unless you up the amount to the point that it doesn't make any sense to do the deal.

Bottom line is that you REALLY have to buy these deals at a deep enough discount to factor in such variables which is getting harder and harder to do in our market where the competition has tripled and the spreads have narrowed.

The new law is terrific for landlords in default and their tenants but definitely bad news for fix-n-flip investors!

As most of us saavy investors and landlords know, a foreclosure no longer wipes out a lease.

Keeping in mind the Protecting Tenants at Foreclosure Act that was signed into effect in 2009 which, assuming the lease was signed PRIOR to the NOD filing, requires the new owner to either provide a 90-day notice to vacate (only if such owner intends to occupy the property) or honor the existing lease, how can investors successfully move out tenants quickly from the properties purchased at the trustee sales, as eviction is no longer an option (unless the lease is invalid)?

Under aformentioned act, a tenant can refuse, leaving the investor holding the property, unable to commence repair work, being illiquid for longer than planned, and worse, falling victim to market value fluctuation (yes, even in 90 days, I've seen values drop 10% or more!). 90 days is much too long for our business model. 45 days is max. We need to be done with the rehab within 2 weeks.
And cash for keys is NOT a guarantee.

Solutions???