Real Estate Update Feb 2013

According to Florida Realtors latest report (Feb. 21) the real estate market is improving.

According to Bloomberg, Jan 31, 2013, statewide foreclosures are up.

Robert Shiller can’t offer a clear picture.

I’m paying attention, because I’ve listed my house, and if this sounds confusing to you, join the club. Before jumping down to the end of this article to read more on what the FL Reators, Bloomberg and Shiller have to say, take a look at how some of our local realtors see it:

Mark Lunden: K2 Realty, North Palm Beach, (561) 691-1223

“Here’s my take: As always – all real estate is local. In the north county (Jupiter, Tequesta, Juno Beach, Palm Beach Gardens, and North Palm Beach – an inventory that includes roughly 100k homes) there are currently 65 properties listed for sale as REO (bank-owned). I don’t know what is considered ‘normal’ for REOs, but I can say with confidence that 6/10 of 1% is likely below average. In this area, there is no inventory – roughly 2700 properties listed for sale out of 100,000 or so. The rule-of-thumb has always been that, in a ‘healthy’ market 10% of the available inventory is for sale – we’re at 1/4 of that – less than 5 month’s supply.

“We are seeing multiple offers/competing bids on any property that is priced reasonably. What sets this apart from the boom is that prices are climbing at a reasonable, non-bubble pace. Good news for buyers. One of the toughest jobs we have now is convincing sellers that they have priced the property correctly – many are surprised how quickly they are selling and think they should hold off. One of the problems there is that there is a danger of the property not appraising. Appraisers are overly cautious and therefore artificially holding down prices. Their fear has precluded them from recalling that ‘market price’ is just that – what the market will bear.

“To sum up – the market in NPB County is white hot, and has been since the turnaround over two years ago.”

Joseph M. Quirk, Cobblestone Realty, Jupiter, (561) 427-9326, http://www.cobblestonefl.com

“The North County area has seen certain home price points prices jump 20-30% in the past year in a number of neighborhoods. Condos and single family homes in the 75-250k price points have all but disappeared off the radar.

“Investors, paying cash for income producing property, have become the day to day buyers and can’t find enough available inventory.

“In our area, the higher priced properties are next in line to be picked at as we’ll as the areas moving north, Tequesta, Hobe Sound and up through Stuart and Port St. Lucie as the inventory in the Palm Beach Gardens, Juno and Jupiter area continues to shrink.”

This Palm Beach Gardens townhome in Cielo was sold on 12/17/2010 for $236,900 and today is listed for sale through Cobblestone Realty for $310,000.

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“This Palm Beach Gardens townhome in Cielo was sold on 12/17/2010 for $236,900 and today is listed for sale through Cobblestone Realty for $310,000.” – Joseph Quirk

And how about other parts of Palm Beach County? Here’s what my realtor, Diane Duffy (with Illustrated Properties in the Manalapan office), told me the other day. “There are no metrics to work with right now. List Prices/Sale Prices are all over the place and even appraisers are having trouble pinning them down. Closed sales continue to be cash driven. Cash buyers are buying what they like– if they get a good vibe, they move on it. Because of this, the person requiring financing can’t sit on the sidelines — don’t wait, follow your gut and make an offer. At the end of the day, you won’t be disappointed that you did.” (Diane Duffy’s number is (561) 767-0860)

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122 North L Street, Lake Worth

News from Florida Realtors: According to housing data released by Florida Realtors, Florida’s housing market had increased sales, higher median prices, more pending sales and the continued shrinking of inventory levels in January. However, overly restrictive credit requirements remain an obstacle for many potential buyers, who find it difficult to access affordable financing options.

Statewide closed sales of existing single-family homes totaled 13,679 in January, up 11.7 percent compared to the year-ago figure.

Meanwhile, pending sales – contracts that are signed but not yet completed or closed – for existing single-family homes last month rose 31 percent over the previous January. The statewide median sales price for single-family existing homes last month was $145,000, up 12.4 percent from the previous year.

The inventory for single-family homes stood at a 5.6-months’ supply in January; inventory for townhouse-condos was at a 6.2-months’ supply, according to Florida Realtors.

“I’m particularly impressed with the rise in percentage of list price received by sellers,” said Florida Realtors Chief Economist Dr. John Tuccillo, referring to the January data. Sellers of single-family existing homes in January received an average of 92.2 percent of their original list price; sellers of townhome-condo units received an average of 93 percent.”

News from Bloomberg: One in every 32 Florida households received at least one notice last year, more than double the average U.S. rate of one in 72, RealtyTrac said on Jan. 17. Statewide, home repossessions increased by 16,276 over the 12-month period to 84,456, the biggest gain in the U.S. The state’s foreclosure crisis is exacerbated by a required court review of each case.

Robert Shiller: “We’re beginning to hear noises that we’ve reached a major turning point in the housing market — and that, with interest rates so low, this is a rare opportunity to buy. But are such observations on target?

It would be comforting if they were. Yet the unfortunate truth is that the tea leaves don’t clearly suggest any particular path for prices, either up or down.

“I can’t offer any clearer picture, and I don’t see a solid basis for anyone else to do so, either.”

Area vacancies still down, Rents up

Same good news as this time last year (here’s the story), some real estate statistics, where “falling” and “low” are good news – Jupiter, Tequesta, Palm Beach Gardens and North Palm Beach apartment vacancy rates are at 3.7 percent (5 percent this time last year), with 128 vacancies out of 3,485 units, according to a November 2011 through February 2012 survey compiled by L. Keith White, president of Reinhold P. Wolff Economic Research, Inc. in Ft. Lauderdale. The survey covered multi-unit apartment complexes.

Palm Beach County overall has improved,” White said. “Rents went up 4.6 percent over last year.” And according to his report, vacancy rates are now at 5 percent – they were at 6 percent this time last year, and generally 5 percent is considered normal.

Last year’s numbers were more dramatic, he notes, because competition from low-priced condos and single-family homes coming onto the market due to foreclosure has settled down. “That’s been an important factor,” he said, “but the biggest factor that has caused vacancy rates to decline and rental rates to increase is the lack of new construction and we will be seeing new construction in the next year or so.”

White  also forecasts that over the next two or three years, rental rates increases will be back to normal 4 percent or 4 percent.

According to White’s survey, average monthly rental rates for apartments in Jupiter/Tequesta/Palm Beach Gardens/North Palm Beach have increased 1.9 percent. This year, rates are at  $1,032 for a one-bedroom units, $1,257 for a two-bedroom units, and $1,467 for three-bedroom units. Last year, rates were $1,035 for a one-bedroom units, $1,235 for a two-bedroom units, and $1,457 for three-bedroom units.

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This home, listed by Virginia Gallopo and located in Tequesta Cay, has three bedrooms, two-and-a-half baths and 1,954 square feet.
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The kitchen has been updated and has granite countertops.
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This home, in the Hamptons, Jupiter, listed by Shir-Lee Rosenberg, has three bedrooms and more than 2,000 square feet. The price is $2,000 per month.

Two recent studies note that Florida places second with nine markets on the top 33 list for Best 100 U.S. Markets to Invest in Rental Property authored by Local Market Monitor, Inc. This is based on the expected investment return in each market as compared with the national average expected investment return of 5.2 percent.

Also, a new Zillow report released in March, the January Zillow Rent Index (ZRI), showed year-over-year rent gains in 69.2 percent of metropolitan areas, compared to home price gains in only 7.3 percent of the metro areas.

Nationwide, median rents rose an average 3 percent January 2011 to January 2012, but home values continued to fall, declining 4.6 percent during that period.

Turning the focus to single-family home rentals, they are in demand and prices are increasing, noted Virginia Gallopo of Exit Realty Oceanside. “I have clients who buy properties and turn them back over to me to rent,” she said. “They are taking advantage of the low prices of the real estate market and low interest rates. In my 27 years in real estate, this is the first time I’ve seen both so low.

“I just sold a unit for $68,000, and considering that mortgage payments are low, you can see a major return on your investment. And then, eventually home values will go up,” she said.

In Jupiter and Palm Beach Gardens, rents depend on the area.

“I just sold a client’s house and she’s looking for a one-bedroom in Palm Beach Gardens, and I’m seeing them at $950 to $1,000, but it depends on where you are looking. On the beach in Jupiter, rents could go $3,000 to $4,000.” (Gallopo’s phone number is 561-346-8423.)

Shir-Lee Rosenberg, a realtor with 624home.com, said she also sees rental rates going up, with a big demand for single-family homes. In Jupiter and Palm Beach Gardens, prices for three bedrooms plus rental homes range from $1,500 to $2,500 a month, but she sees that there’s also a big demand for homes less that $1,500 a month, and “We don’t have them,” she said.

She attributes the demand for rental properties to the foreclosures and short sales. “People who’ve lost their homes can’t buy  for a few years, and people who rented homes that went into foreclosure also needed to find a new place to live.”

She, too, see investors recognizing this demand and buying rental properties. (Her phone number is 561-543-1181.)

Local commercial real estate first quarter report 2011

For commercial real estate, specifically office leases, the last couple of years have been difficult for north Palm Beach County, due in part to consolidation in the financial services industry and the downturn of the housing market, explained Mark Pateman, commercial broker for Cushman & Wakefield. “What used to be a bright spot with vacancy rates as low as 6 percent has softened overall to 20 percent.”

The trend he’s seen locally has been about downsizing. Now, though, starting in the last quarter of 2010 and continuing through the first quarter of 2011, existing tenants who’ve hired an employee or two are needing more space and firms are taking the opportunity to move up to a higher quality building or to a preferred submarket.

“We are starting to see some new market entrants. Because of the overall economy returning to realistic levels, some new businesses can enter our market.”

Another recent trend he’s noticed: significant headquarters or large-user takedown of space that usually goes to Boca Raton. TBC Corporate, the parent of Tire Kingdom, for example, is now headquartered in Palm Beach Gardens at 4300 TBC Way.

Last year, G4S Wackenhut moved its North American headquarters from Palm Beach Gardens to a brand new 63,000-square-foot building in Jupiter on University Drive, Abacoa.  And Nova Southeastern University, currently located in a 60,000-square-foot space at 3970 RCA Blvd., Palm Beach Gardens, will soon move to a new 75,000-square-foot facility on the corner of Military and I95 in Palm Beach Gardens.

Other than that, activity is up, he said. “I’m showing space more often. I’m optimistic. By the end of this year, we will see some real absorption, vacancy rates start to decline, and in 2012, we’ll see some rental rate growth. Landlords will start to push back on concessions by the end of 2011.

“Everyone is optimistic that Scripps and Max Planck will have a positive impact, too, but that’s going to happen in an evolutionary manner. Once those companies start to spin off new biotech firms, they’ll need lawyers, engineers, financial planners and new office space, but that’s still a long-term goal.”

Any high-quality office space is trading at very high prices, he added. “The next level down doesn’t have nearly as much interest.  It’s still too early to take positioning risk for most people because there are still too many question marks.”

A highlight noted on CB Richard Ellis’ submarket quarterly report: Chromalloy Gas Turbine LLC, an aerospace company based in New York, will be relocating its headquarters to 3999 RCA Blvd., Palm Beach Gardens into a 30,000-square-foot building and adding 70 new jobs.

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Chromalloy

The county and the city of Palm beach Gardens have approved an incentive package of approximately $270,000 and final approval from the state to provide approximately an additional $800,000 in incentives is close at hand.

“This company falls within our economic program’s targeted industries and is exactly what we are looking to bring to the City of Palm Beach Gardens,” said Natalie Wong, the city’s director of planning and zoning.  “This partnership is a result of the city’s commitment to provide financial incentives, and we are thrilled that we could be a part of helping to close this deal.”

Another interesting “development:” FPL is in the process of buying a vacant commercial property, 80 acres on the north side of PGA Boulevard between Interstate 95 and A1A, in Palm Beach Gardens. The site is zoned for 882,000 square feet of office, light industrial and retail space. In court documents that piece of property was owned by PGA North II of Florida LLC, personally guaranteed by Palm Beach Gardens builder, Dan Catalfumo.

In January, a Palm Beach County Circuit Court judge granted Seacoast National Bank a $32.6 million judgment against Catalfumo on the guarantee. In February, Seacoast moved to seize the land by filing a foreclosure lawsuit against PGA North II.

This purchase did amount to a good prospect for FPL, according to FPL spokesman Mayco Villafana. “We were not looking for property but this opportunity came up for very good price. We have no specific plans but this parcel, but it gives us several expansion options close to our headquarters.”

Reis Inc.’s recently released submarket commercial office report for North Palm Beach County shows first-quarter 2011’s vacancy rate is at 14.7 percent and the asking rent rate at $21.99 per square foot. The effective rent rate is listed as $16.13, and takes into account concessions that landlords have made to make the deal.

Compared to a year ago, these numbers were 15.1 percent vacancy rate, $22.12 asking rent rate, 16.28 percent effective rent rate.

Compared to the first quarter 2007, the numbers were seven percent vacancy rate, $22.93 asking rent rate, $18.75 effective rent rate.

Nationally, first quarter 2011, the vacancy rate is 17.5 percent, the first vacancy decline on record since the third quarter of 2007. Current quarter rent is $27.66.

While there is a relationship between how rents and vacancies change in a market, the level of rents is not set by the vacancy rate, said Ryan Severino, senior economist at Reis. “The rent level is set by supply and demand forces. How much are tenants willing to pay for space? If I look at our data, I can find a number of markets where the difference in vacancy rate is immaterial but the difference in rent level is rather large. The market is pretty efficient and competitive so it will set rents at a level that clears.”

Cushman & Wakefield’s statistics for the first quarter 2011:

Palm Beach Gardens / North Palm Beach:

2,848,931 square feet of inventory

20 percent overall vacancy rate

43,611 square feet leasing activity year to date

(69,843) square feet direct absorption year to date

$27.83 overall weighted gross rental rate.

Jupiter/Tequesta/Juno:

781,100 square feet of inventory

18.3 percent overall vacancy rate

2,187 square feet leasing activity year to date

73,038 square feet direct absorption year to date

$23.26 overall weighted gross rental rate

written for palm 2 jupiter

Area vacancies down Rents up

Some real estate statistics, where “falling” and “low” are good news – Jupiter, Tequesta, Palm Beach Gardens and North Palm Beach apartment vacancy rates are at five percent, with 182 vacancies out of 3,608 units, according to a November 2010 through February 2011 survey compiled by L. Keith White, president of Reinhold P. Wolff Economic Research, Inc. in Ft. Lauderdale. The survey covered multi-unit apartment complexes.

“South Florida vacancy rates are as low as they have been in three years,” White said. “There’s demand for rentals, with the overall average rents up 3.3 percent from February 2010.

That rental rate increase followed two-percent declines in 2008 ad 2009, he said. “So, we’ve reversed that trend and it’s back to fairly normal now.”

The reason for the low vacancy rates and the rise in rental price are due to a “tremendous lack of new apartment construction as well as the apartment-to-condo-conversions that took place between 2002 and 2006,” he explained. “We lost thousands of units to conversions.”

Contributing to the demand for rentals are families who’ve lost their homes through foreclosure and short sales and can’t buy, as well as prospective homebuyers who’ve had difficulty in getting a loan, he said.

Another factor, investors buying homes and renting them, impacts the rental market, too, he said. “In Palm Beach County, February 2010, the vacancy rate was 5.1 percent. This year it’s at 5.3 percent.

“It’s a little bit of an increase, and if we didn’t have those single-family homes offered for rent, we would be near zero percent vacancy rate for apartments.”

Concerning leases, White forecasts that over the next two years, increases will be back to normal, “three percent, or four percent if new apartments are not built,” he said.

The days of incentives have declined, but are not over, he added. “When a new rental project is finished, it’s typical to offer one month off for the apartment to try to fill the project up quickly. But, when you are looking at existing projects that have been on the market for a while –no question that the incentives they offer have declined over the last year. And even though there are still some here or there, like offering two months rent, incentives are offered only on vacant units.”

According to White’s survey, average monthly rental rates for apartments in Jupiter/Tequesta/Palm Beach Gardens/North Palm Beach are $1,035 for a one-bedroom units, $1,235 for a two-bedroom units, and $1,467 for three-bedroom units.

Turning the focus to home rentals, Thomas Copeland, of Rental Plus and Camlet Copeland Realty in Jupiter, said, in the last six months, the demand is getting stronger, low inventory has held steady, and price is creeping up a little.

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This three bedroom, two-bath home, at 151 Wandering Trail in Jupiter, has tile throughout, an eat-in kitchen, family room, screened patio and a garage. The community, Indian Creek, features a pool, tennis and a park next door. Rent is $1,500 per month, unfurnished and it’s offered by Realtor Thomas Copeland of Rental Plus and Camlet Copeland Realty in Jupiter

“If the price is right, it’s gone within 30 days,” he said.

More than half of the people looking for rentals are looking in the low range, he noted. “Rentals in the $1,000-to-$1,200 range will get them a 900-to-1,000 square-foot apartment in Jupiter Village or Chasewood. About 20 percent of prospective renters are looking in the $1,500-to-$1,800 price range, which will get them about 1,200-square-foot apartment In Indian Creek. Abacoa has some units that start in that price range,” he said. Rule-of-thumb, you can expect to pay $1 per square foot for an unfurnished annual rental,” he added.

He hasn’t seen a flood of investor-owned rentals come on the market, but investors buying up good deals that can be used as rentals do help the market, he added.  “Investors can make money, with 10-to 20-percent down. Properties will carry themselves or give a short return of the capital investment. The cap rate is close to 10percent and you haven’t had that opportunity since the early 1990s.”

Concerning leases, he forecasts they will go up a little – up to five percent — in the next six months to a year. “It won’t be drastic,” he said. “But they’ve been stagnant for two years.”

Waterfront Properties agent Dan Uzzi Dan Uzzi said competition for rentals is “unbelievable.”

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Realtor Dan Uzzi with Waterfront Properties offers this three-story, three-bedroom townhome at 2411 San Pietro in gated Harbour Oaks, Palm Beach Gardens. It’s within walking distance to Downtown at the Gardens and local restaurants. The lease is $2,000 a month.

“I just rented a home. On Friday, there were nine properties that we had scheduled to see. By Monday, that number dropped to six.”

Most popular are unfurnished two- or three-bedroom homes in Abacoa or the Bluffs, or townhouses in Palm Beach Gardens running from $1,200 to $2,500 a month, he noted.

The typical renters are “families who’ve gone through foreclosure, young people not in the position to buy yet, or people who are scared of the market.”

Joe Quirk of Cobblestone Realty, LLC, said in areas he works with (Jupiter, North Palm Beach and Juno Beach), he continues to see a strong demand for rental properties, especially in Jupiter, north of Donald Ross Road, Abacoa and homes in the Jupiter High School district.

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This home at 182 Hampton Circle, Jupiter, has three bedrooms, two baths and a family room. It features tile and wood floors. The house is listed for $2,200 with Thomas Quirk, a realtor with Cobblestone Realty, LLC.

“There’s a good increase of families relocating because of Florida Atlantic University and companies like Scripps and G4S, which used to be Wackenhut. Its new headquarters in Abacoa opened in February and the company has 250 employees. That’s bringing into the area an increase of renters as well as new homebuyer prospects.”

Continued activities relating to foreclosures and short sales also impact rentals, as people with families leave their homes but rent in the same area because they want their children to stay in the same school districts, he added.

And “although rent prices have not changed much since last fall, they’ve maintained,” he noted.

“Spring Training brought in an exceptionally high demand for short-term, furnished, one- and two-bedroom units in Abacoa,” he said. “We were getting inundated with calls by Marlin players and administrative staff as well as fans. There weren’t enough rentals and people were going all the way north to Tequesta and south to West Palm Beach for rentals for February and March. Rates were $4,000 to $6,000 per unit, according to proximity to the stadium, and people have already locked up units for next year.”

Investors, meanwhile, are not flooding the market with rental units, he said. “I don’t anticipate that. Foreign investors, many of them Canadians, are buying foreclosures and fixing them up as second homes. They are not renting them out.”

written for palm2jupiter

New Construction in North Palm Beach County

New homes are being planned and projects are moving forward in the Palm Beach Gardens and Jupiter areas. How come?

At Frenchman’s Harbor in Juno Beach, heavy equipment is clearing land to make way for new home sites. On the Intracoastal Waterway and geared to boating enthusiasts, the community’s lots are being staked out, in preparation for single-family homes and carriage homes that will have a dock. Some of the larger homes will have docks up to a hundred feet to accommodate larger yachts.

Toll Brothers, a company that develops high-end homes, purchased the 77-acre track from WCI in June 2010 for $20 million. When the community is built out in two-year’s time, its 30 carriage houses will be priced from mid $600,000s and its 48 single family homes, priced from more than $1.5 million to a little less that $3.3 million.

Nearby, Toll Brothers has already developed Frenchman’s Reserve in Palm Beach Gardens, Jupiter Country Club and Ocean’s Edge at Singer Island — all still have available offerings. So, why did the company chose to develop this site.

“This is a prime location and there’s limited availability of homes backing up onto the Intracoastal,” explained Jason Snyder, assistant vice president of Toll Brothers. “We started accepting offers mid September 2010, and we already have five sales and two deposits. We are very happy with our progress and interest level.”

Although, nationally, builder confidence is low (the National Association of Home Builders’ Housing Market Index is 16. In the South, it’s 17 and HMI can range up to 100) some “pockets of optimism” do seem to be emerging, said National Association of Home Builders chief economist, David Crowe.

But according to February’s Commerce Department start numbers, those pockets are not very deep. Last year, builders broke ground on a total of 586,600 homes, just a tad better than in 2009 (554,000), making these two years the worse on record dating back to 1959.

Nationally, in January 2011,  permits dipped to 562,000, down 10.4 percent below the December rate, and 10.7 percent below January 2010.

In the county, though, one can catch glimpses of those pockets. According to MetroStudy, a Palm Beach Gardens research firm, home starts rose to 1,110 in 2010 from 941 in 2009 (But, that’s way down from its peak in 2003 with more than 10,000 starts).

Jupiter’s building department reports that it issued 229 building permits for single-family homes and townhomes between October 1, 2009 and Sept 30, 2010. During that time the previous year, they issued 164 permits.

In Palm Beach Gardens, 86 builders applied for permits to build single-family homes in 2010, over 77 in 2009 (That’s down from its heyday in 2005, when 313 permits were applied for in an eight-month period). If 2011 shapes up based on permits through February, it looks like 2011 will be busier, said the city’s building manager, Steven Kennedy. Based on 16 permits issued through February, he’s estimating maybe 90 to 100 permits will be issued by year’s end.

Although Brad Hunter of MetroStudy doesn’t see a V-shaped recovery, he does acknowledge that there’s been “a little more activity” in the Palm Beach Gardens and Jupiter area, and he sees “a gradual shape up.”

“You’ll see projects like Frenchman’s Harbor because it has a unique selling proposition, with all the properties having Intracoastal access,” he said, confirming Snyder’s explanation.

“Marisol is winding down – it’s running out of lots and Old Palm has new life with its new owners and properties are selling pretty well there. It will have more starts, but prices are high, so it won’t boost absolute sales and unit volume that much.

“I expect Abacoa will be the strongest producer in that area because it’s a successful master-plan community,” he said.

Old Palm Golf Club is platted for 302 residences on quarter- to one-acre lots on its 650 acres. About 140 families live in the community with 144 home-sites still available. Four builders’ homes and about 20 homes for resale are also available. Prices range from $1.5 million to $15 million.

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New home at Old Palm

The community’s selling points, according to Connie McGinnis, Old Palm’s director of sales, include low density as well as a private golf club that offers a high level of concierge services to its members as well as no waits for tee time.

DiVosta Homes is currently developing Abacoa Mallory Creek. When it’s finished it will have 263 single-family homes. So far, 159 homes are occupied. Fourteen homes are under construction and three are finished and vacant. The price range for single-family homes is $360,000-$600,000. Of the 326 town homes it will have when the community is completed, already 161 are occupied, 20 are under construction, and five are finished and vacant. Prices range from 230,000-$300,000.  Windsor Park, the final Abacoa community, will start in 2012 with 380 units planned.

“The overall land plan is brilliant,” said DiVosta director of sales Christopher Leimbach. “Jupiter and northern Palm Beach County are unique locations and the whole idea of Abacoa is based on New Urbanism with its interconnectivity to a downtown. It’s close to sports fields, spring training, and a golf course. People appreciate the sense of community and that friends and schools are in their back yards.”

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Jupiter’s Top Five

Homes for sale

Things appear to be getting better, at least in the luxury end (which surprised me). To illustrate, according to Martin County Tax Assessors, the number of homes sold on Jupiter Island, Hobe Sound did increase year over year, with 22 homes sold in 2010, as compared to 17 homes sold in 2009. Prices, ranging up to $8 million, appeared consistent. Also, though, a home at 25 N Beach was bank-owned, showing that even the top strata of real estate properties are not immune to problems caused by the real estate bubble.

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Greg Norman’s house – – Be it ever so humble, there’s no place like home.

The Corcoran Group’s agent, Suzanne Frisbie, has listed one of the most expensive houses in the country. Priced at $65 million, Tranquility, owned by golfer Greg Norman, is at 382 South Beach Road on Jupiter Island. The eight-acre parcel has 370 feet of lake front and 172 feet of direct ocean frontage. The property is comprised of seven buildings, including a main house, grilling pavilion, two guest houses, office and gym, along with a 17-car garage. All together, there are nine bedrooms, 12 bathrooms and five half-baths. Other amenities include 140-foot deep-water dock with lifts, a tennis court, media room, game room, wine room and kennel.

According to Frisbie: “Golf lovers will appreciate the potential on the sprawling west lawn for reestablishing the 5,500-square-foot putting green, with one bunker and one tee set up for 80 yard-yard pitch shots.”

Total square footage is hard to say, Frisbie said, because there have been a number of restorations and expansions to the home’s core, which was originally built in 1902. According to the MLS, there are 17,825 total square feet and 15,826-square-feet under air conditioning.

The property is valued by the Martin County Property Appraiser at $20,761,840. Norman bought the property in 1991 for $4.9 million.

Next up is a home at 254 SE Beach Road on Jupiter Island, which was listed for $19 million on August 10, 2010. It is offered for sale by Allan Meyerson, of Admirals Cove Realty Co Inc.

“This is basically a land deal,” Meyerson said. “The existing house is the former caretaker’s home, but it’s 6.2 acres and has 320 feet on the Intracoastal Waterway. It’s Jupiter Island, and they are not creating more land, or more waterfront on the Intracoastal. There are very few parcels available.”

This Jupiter Island property is owned by an Admiral’s Cove resident, said Meyerson who specializes in Admiral’s Cove real estate sales, which have “definitely improved,” he said. “It just feels very exciting. Our December was terrific compared to the previous five years, and traffic is strong, as far as prospects. In large measure, this has got to go to the sellers, who recognize that it’s 2011, not 2007.”

The third most expensive home on the list is 416 South Beach Road, Jupiter Island. It is listed for $17.8 million by Adrian Reed, a realtor with Fenton Lang Bruner & Associates. This ocean-to-river 6,540-total-square-foot home has six bedrooms and 6.5 bathrooms and was built in 1959.

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Celine Dion’s previous home

An Admiral’s Cove estate at 370 Eagle Drive is next on the list. Corcoran Group realtor Lynn Feuerman represents the sellers. This home has 17,761 total square feet, eight bedrooms, ten bathrooms and four half-baths. It also has five fireplaces. Other features include two winding staircases, tiered-seating theater room and performance stage, exercise room, covered terraces and third-floor sundeck.

Meyerson knows some details concerning the Eagle Drive residence. “That was originally Celine Dion’s house and then it was sold to Richard Santulli, the founder of NetJets (fractional program), a company he sold to Warren Buffet.”

Finally, the home at 148 Bears Club was just listed January 10 for $11.95 million by Mark Griffin of The Bear’s Club Sotheby’s International Realty. This 13,000-square-foot-home-under-air custom estate home on the 14th hole, offers nine bedrooms, 10 bathrooms, two half-baths, a library, theater, game room,
gym and expansive resort style pool.

“I see a real stabilization of our markets,” said Griffin. “I’m extremely optimistic about 2011, based primarily on the activity we’ve seen in the fourth quarter of 2010.”

dribble about michael jordan’s house

For Palm2Jupiter…

Jeff and Cary Lichtenstein, realtors with Illustrated Properties and Christies Great Estate provided these aerial shots of Michael Jordan’s estate in the Bear’s Club, which is presently under construction.

michael jordan elevations sm
Michael Jordan house elevations – courtesy Carey and Jeff Lichtenstein

“I was having some aerials done of the Bear’s Club and got this shot. It came out nice,” Jeff Lichtenstein said.

Lichtenstein has been interested in Michael Jordan since he was a teenager.

“I’m from Chicago and Michael lived in my hometown of Highland Park, Illinois, when I was in high school and he had been drafted by the Bulls. He bought a small house and lived there a long time. I was always surprised that he didn’t move to a big house.”

Jordan did, though eventually, Lichtenstein said. “He moved outside Highland Park to Bannockburn on Half Day Road and built a gargantuan house there. It had a three or four-hole golf course and the number 23 was on the gate – that was his number and everybody in Chicago knew that house.”

Michael and Juanita divorced in 2007, and “probably she still lives over there,” Lichtenstein said. “Their two boys (Jeffrey Michael and Marcus James) both play college basketball (the Jordans also have a daughter, Jasmine). I’m wondering if he’ll get the gates with #23 transferred down here.”

So, Lichtenstein’s aerials and comments got the Michael Jordan ball rolling (or dribbling), so to speak, and the following was gleaned from public records.

According to a warranty deed and a special warranty deed both dated February 2008, Bull & Bear LLC, an Illinois limited liability company whose post office address is Attn: Curtis Polk, 5335 Wisconsin NW, Suite 580, Washington DC purchased two parcels of land in the Bears Club: lot 28, from Michael W. Lane, whose address is 4908 Rosewood Lane, Melbourne, Florida for $2.4 million, and lot 27 from GCC Realty Company, LLC, a Delaware liability company (successor by merger to GCC Franklin Holding Co., LLC) whose post office address is care of Prism Venture Partners, LLC, 675 West Indiantown Road, Jupiter for $2.403 million.

Curtis Polk manages the business and investment interests of Jordon and his related companies. Prior to forming his own consulting business in 2001, Polk, an attorney and CPA, negotiated player contracts for the SFX Basketball Group and managed the firm’s operations in Washington DC. He also served as the group’s executive vice president and was president of its related financial services affiliate, SFX Financial Advisory Management Enterprises.

In July 2008, lots 27 and 28 were replotted and according to public records, the physical address is now 172 Bears Club Drive.

On June 16, 2009, for Bull & Bear LLC, Lavelle Construction and Development Corporation submitted a building permit application naming Z.W. Jarosz of Coconut Grove as the architect. It stated that the value of the new construction, which will have 26,033 square feet under air and 37,943 total square feet, will be $7,627,669. On June 25, 2009, Lavelle Construction of Jupiter filed a notice of commencement with an expiration date of May 1, 2012.

Could construction be ahead of schedule, Jeff Lichtenstein wonders? “They have the first coat of stucco on it. There’s lots to be done yet, but, from what can be seen from the aerial shot, it looks like completion is three to six months away.”

At least…

Besides the price of the land and estimated construction costs, adding up to around $12.4 million, “this mansion probably the most expensive non-waterfront home in the Palm Beaches,” Lichtenstein said. “MJ’s total commitment when the house is finished with all the custom finishes and decorating will probably exceed $20 million, It would be interesting to see what the Jordan home resells for, being that its location, while great for MJ’s privacy, is not ideal for resale to the trophy and yacht buyer.”

Looking at the architectural drawings for the stucco-and-stone main house, covered with a slate roof, there is a grand entry foyer that is flanked by two ponds. Straight on from the foyer are a gallery and the great room. According to the permit information supplied by Lavelle Construction, the great room will have an 11-foot fireplace. A covered lanai stretches across most of the back of the home.

In the east wing, from the foyer is a stair vestibule, elevator, and the main circular staircase. The cigar room with a bar and humidor, an office and a library lounge are also in this part of the house.

Just adjacent to the family room, in the west wing are the dining room and an island kitchen. Other rooms in this area of the house include a back staircase, bedroom suite 2, a mud room, laundry, golf room, golf garage and fitness room. An auto court and bridge lead to the porte cochere. Opposite the auto court are the six-car garage and utility rooms.

Upstairs, in the east section of the house is the master bedroom suite, which includes a large closet, Nike room, watch room and bar. The large bathroom features a Jacuzzi.

In the west wing are bedroom suites 5, 6 and 7 along with an upstairs sitting room.

Over the porte cochere is bedroom suite #9.

In the north part of the property, connected to the main house by a bridge is a cottage. On the first floor are a sitting room, kitchenette, bedroom suites 3 and 4, along with a pavilion. A stairway leads to bedroom suite #8.

Also in the north end of the property are a storage facility and a two-story cabana tower.

Concerning the pool and a possible gym / basketball court, additional permits would have to be pulled, noted Juan Diaz, plans inspector for the Town of Jupiter, and, so far, nothing has been filed. Staff at Lavelle Construction did not comment, stating that they had signed a confidentiality agreement.

Looks like Lichetenstein will have to do another fly-by when the house is completed to get a look at those features…

home modifications revisited p2j unedited

37 smiley faces.  27 unhappy faces.  Five undecided.

That’s the official result of a random survey taken by Delray Beach realtor, Mary Lou Ciambriello, as she stood in line all day Tuesday, Nov. 16 with a thousand other homeowners at the 46th Making Home Affordable workshop. Held at the convention center, homeowners had the opportunity for face-to-face consultations with their loan servicers.

Her unofficial take on the mood of the crowd: “It’s a very scary situation. I had no idea of the magnitude.”

The workshop was put on by the Obama administration’s Making Home Affordable program, the HOPE NOW Alliance and NeighborWorks America.

Of the line of people waiting, Carol Lambert, spokesperson for the U.S. Department of Treasury on hand that day, said, “I am glad they are here, rather than being taken advantage of by the scam artists,” who, by the way, were actually lurking around or in the parking lot.

Said Ciambriello: “Someone solicited me while I was standing in line.”

Were there some bright spots this day, other than these homeowners will finally get to sit across the table from their servicers?

In the area of West Palm Beach to Miami, more than 21,000 homeowners have received permanent modifications, Lambert said, and while the nation’s median savings per month have been $520, in this area it’s closer to $600.

And, there’s the new program, the Principal Reduction Alternative, but that just started mid October so it’s too early to tell how effective it will be. (That alternative allows for those who qualify under the HAMP program to receive a principal reduction rather than a discounted interest rate.)

But there is something new about that program: although the program is voluntary for servicers, “we do ask them to look at the cost benefit, with and without a principle reduction. We are requiring them to do this evaluation,” Lambert said.

And, no. Ciambriello did not receive the interest reduction she was looking for. “I don’t qualify,” she said. “They told me, ‘Shop around. You pay. Someone will want you.’”

INTERVIEW with Shari Olefson, of Ft. Lauderdale, Florida real estate and foreclosure attorney and  Florida Supreme Court Certified Circuit Civil Court Mediator. She is the author of Foreclosure Nation: Mortgaging the American Dream; Florida Foreclosure Defense Strategies, Saving the American Dream; and What Lawyers Need to Know Now; The Commercial Real Estate Market Between a Rock and a Hard Place.

1. Concerning the Making Home Affordable program (MHA), following are numbers listed in the HUD scorecard. Is it referring to permanent or temporary modifications?

Since April 2009, low rates have helped 7.1 million homeowners to refinance

3.15 million modification arrangements through June 2010 (1.3 million HAMP; 472 FHA loss mitigation and early interventions; 1.4 million through HOPE Now)

A. These are the numbers for temporary modifications. There are only about 500,000 permanent modifications. The good news about MHA’s HAMP (Home Affordable Modification Program) is that it did succeed in laying down a foundation for banks to do their own modifications. To see how successful the main banks are in doing these modifications, check out the bank’s websites.

Here are a couple samples:

Sept. 21: Bank of America has provided mortgage modification assistance to more than 680,000 homeowners, including an industry-leading 79,859 completed modifications through the government’s HAMP program through August and more than 600,000 through the bank’s proprietary programs since January 2008.

October 25: Wells Fargo & Co. said that of modifications started since the beginning of 2009, the company had 556,868 active trial and completed modifications in place as of Sept. 30, 2010. Included in that total were 495,026 of its own modifications and 61,842 modifications through the federal government’s Home Affordable Modification Program (HAMP).

In the second quarter of 2010, about 92 percent of Wells Fargo’s mortgage customers remained current on their loan payments, according to the Sept. 10 edition of Inside Mortgage Finance, and the company’s delinquency and foreclosure rates were less than three-fourths that of the industry. As a result, fewer than 2 percent of the loans secured by owner-occupied homes and serviced by Wells Fargo proceeded to a foreclosure sale in the last 12 months.

The government keeps lowering the numbers and adjusting MHA’s goals. 500,000 have received permanent modifications. The report card is a little misleading; it doesn’t show re-default and now they are seeing redefaults.

2. What about the Home Affordable Refinance Program (HARP)? For this program, people must have the mortgage with Freddie or Fannie and the banks must agree to write off 10 percent. FHA claims that this program will help 500,000 to 1.5 million homeowners. Will that be effective?

A. Concerning the refinance HARP alternative, negative equity makes these deals impossible to do. It’s not about unaffordability anymore. The problem is unemployment, and these programs are not going to help you if you are unemployed.  We shouldn’t be bailing people out beyond a certain level. It’s not realistic and what the lenders get paid isn’t enough.

I think that, like HAMP, it’s not about the actual number of people it will help. Like HAMP, I think HARP will provide a model for banks to set up their own refinance programs.

3. How will the robo-signing problem, leading to a holdup on processing foreclosures, affect home values?

A. Here are my thoughts on the issue in general. Fannie Mae and the banks set deadlines that flat-rates foreclosure mills had to meet, which everyone knew would be impossible to meet, especially with the volume and securitization issues.  Pretty much everyone knew shortcuts were being taken (This does not make it right to file false affidavits, etc.). Every regulator either missed this or knew it was going on.

A quick, cheap residential-foreclosure process benefits everyone: Borrowers in recourse states, who will eventually have to pay the legal fees, etc.; neighbors, who look at abandoned homes for months; local governments, who pay to maintain them; banks and Fannie Mae (which translates to taxpayers), who take the bulk of the losses, etc.

The real problem is the foreclosure system has not kept up with mortgage industry practices and the volume.  Procedures vary by state and even circuit.

Now everyone’s got an agenda: Politicians to get votes, banks to keep shareholders happy and profits up, borrower defense counsel to get more business, judges to get caseloads off their desks.  Even the Attorney Generals with their ongoing investigation, they want to raise money for their states and save face with big settlements – particularly those who were not re-elected and have only another few months in office.

Example; Bank of America came out with a press release when it resumed foreclosures that read something like: “We’ve found no foreclosures were wrongly filed,” and  “We stopped for a while to show our customers we’re concerned about their concerns,” and “Our investors have given us permission to resume the foreclosures.”  Well, the issue was never whether foreclosures were wrongly filed – it was that ONCE they were filed, these false affidavits, etc. were used.

And what exactly have they done to show customers they’re concerned?  And of course their investors want the foreclosures to proceed.  How did that address the problem? And does this mean no authority told them it was OK to proceed…just their investors?

The impact on home values will be (1) causing more delays, and (2) causing more uncertainty. Both result in dragging the problem out when, in truth, we need to get through this inventory as quickly as we can.  And it will also result in reducing the prices folks will pay – the homes will deteriorate more and people may pay less because of their uncertainty – there’s more risk – of title issues.

4. Concerning solutions, is there anything coming down the pipeline?

A. If you read between the lines in many Federal Government press releases, you will see the mention of affordable rentals. That’s the direction I think we’re going.  But the Administration won’t come right out and say MHA failed. They’ll start setting other little goals – distracters from MHA if you will – and then come out and make a big deal about how they’re achieving those other goals. MHA will just disappear into the sunset.

In terms of the foreclosure process, here are a few ideas, also off the top of my head:

Require borrowers to escrow some sort of payment in contested foreclosure proceeding to avoid folks trying to live for free.

• Allow buyers in short sales to assume the mortgage at an attractive rate – keeping original homeowners on the hook at least for some amount of time – this will generate more sales and higher prices.

• Expand lease for deed program and include a right of first refusal to buy back to encourage more folks to use that program

• Tax break for underwater people who pay down their mortgage

Strategic Default, finally

Story as it ran in Palm2Jupiter:

Three years ago, when sales rep India Haass, 62, moved from Tequesta into her new Lake Worth vacation rental compound, it was a dream come true. Living in one of the cottages, she could get rental income from the other three units, and she thought it a perfect retirement plan.

But problems arose quickly. The economy turned, and with it, the summer vacationers she had hoped to attract failed to materialize. Then her partner in the venture was forced to take pay cuts, and, later, decided he wanted out of the deal altogether.

That left Haass doing all the work and making all the payments on an apartment complex in the $400,000 range with a loan balance of $525,000 – an impossible commitment based on her salary, as well as a losing business proposition.

It’s not that she hadn’t tried to make it work. “We had already put our place on the market for more than a year, but we didn’t receive any offers,” she said. So, a short sale was out of the question.

“We had already worked out one loan modification when my partner took his first pay cut, but then, when he wanted out of the deal, I had to go back to the bank.

“They asked me if I wanted another modification. I said, no, because I couldn’t carry the house alone.”

In July, she told the bank she wanted a deed in lieu and a guarantee that it would forgive the deficiency.

On October 1, still waiting to hear from the bank, she packed up, moved back to Tequesta, and stopped making payments.

“It depresses me,” she said, her eyes filling with tears. “I’d have liked to make it work, but a person can’t keep flushing money down the toilet when there’s no end to it.”

Strategic Default
Haass is not alone. A number of underwater homeowners take the steps to walk away. While some, like Haass, are undergoing hardship, others are strategic defaulters, with the financial means to continue making their payments.

“There’s nothing illegal about defaulting on your mortgage. People have been doing it for years,” said Matt Englett of KEL Attorneys, a law firm with statewide foreclosure and bankruptcy cases.

“Strategic default means that the person involved considers the home to be a formal investment and has chosen to default because it’s an unwise business decision to continue to owe the bank.”

Mortgage broker Jim Sahnger, of Palm Beach Financial Network in Jupiter, describes the dilemma facing one of his underwater clients, who owes $900,000 for his home, and who spent another $500,000 for improvements. Because of foreclosures in the neighboring community, the home now is valued at $600,000.

“Should he stay or should he go?” Sahnger asked. ”It’s not like he can take two aspirins, and feel better in the morning.

“Sometimes it’s better to walk sooner than later.”

Higher Number of Strategic Defaults with Loan Balances Greater Than $1 Million.

According to CoreLogic’s most recent negative equity report (2Q 2010), when the loan-to-value ratio rises more than 125 percent, default rates rise dramatically.

There are about 4.8 million homeowners in that group, and, of that group, 27.58 percent of Florida homeowners with loan balances greater than $1 million are defaulting (more than 90 days late), as compared to 17.29 percent of the homeowners with loan balance less than $1 million.

And although Florida’s numbers are one of the highest, this trend is national — 13.13 percent (for $1 million-plus) as compared to 7.8 percent (of less $1 million).

CoreLogic can’t analyze how many of those are actually strategic defaulters. “We don’t have data that specifically differentiates what is and isn’t a strategic default, because to do so, we would essentially have to read the minds of those who default and determine why they defaulted,” said Sam Khater, CoreLogic’s senior economist.

“It’s important to note that not all of those are strategic defaulters, but many more within this bucket (LTV ratio greater than 125 percent) will be, as compared to those with more equity.”

An Experian – Oliver Wyman Market Intelligence report from June 2010 does pin down the number of strategic defaulters. Nearly one in five, or 19 percent, of mortgage delinquencies were strategic defaults in the 2009 time period they studied. And in Florida, strategic defaults ran 53 times higher than they did in the 2008 time period.

Like CoreLogic, it found strategic defaulters had higher mortgage balances. They had higher credit scores, too – 28 percent of delinquent borrowers with a VantageScore (the credit score compiled by Equifax, Experian and TransUnion) between 901 and 990 became strategic defaulters, a 50 percent higher rate than in the overall delinquent population.

KEL attorney Matt Englett estimates that 10 to 20 percent of his firm’s 7,000 open cases are strategic defaults – a hefty number, he points out.

His “average” strategic default client has a six-figure income, has a good retirement account, and has some assets, he said. “On average, they owe about $400,000 and their home is worth half of that right now and they can be looking at a loss of $200,000 or more.”

For these clients, attorneys at his firm analyze the clients’ assets and create a strategy for asset protection. Then they develop the defenses for the foreclosure litigation.

These services cost around $3,500 to $4,500 to handle the whole case. In addition, his clients do end up paying the bank between 10 and 70 percent of the loss, depending on the client’s financial situation and how well his or her assets are protected.

There are legal ways to protect assets and there are good fraud and inducement defenses that will help defaulting homeowners, he said. “There are no absolutes, but by-and-large, if the clients don’t have millions, I can minimize drastically what they lose on these properties.”

Moral Issue or Business Decision?
Issues of morality about this do come up, he admits, but, in his opinion, they shouldn’t.

“These kinds of complaints should not play into making a financial decision. Businesses and investors don’t do that.

“These are collateralized loans and the home should have been appraised properly, with the borrower making a down payment. If the banks had done that, they would get the home back, and that’s the way it works.

“In the majority of states (not including Florida), banks don’t have the option to sue you personally if you default on your mortgage.”

The problem is, the banks often lent 100 to 110 percent of the purchase price, and they are already doing it again, he said. “They are lending 100 to 104 percent of the purchase price – even Fannie and Freddie – and that’s a recipe for disaster.”

Jack McCabe of McCabe Research and Consulting believes more people who can pay will choose to walk away. And he doesn’t see why they shouldn’t.

“American corporate businesses say they should walk away from a bad investment,” he said. “Simon Property Group just let five of its properties go into foreclosure when it could have paid, so how can you tell the American consumer that he or she is grievously wrong?

Barbara Cohen, Illustrated Properties, director of distressed property sales, also sees this trend continuing. “There are definitely more people saying, ‘It’s upside down and it’s not a good investment for me and I want to get rid of it.’

“We are seeing a number of higher priced homes going into default. People of means have more alternatives at their disposal and they have attorneys.”

On the other hand, Shari Olefson, a Miami attorney, mediator and author, said if you do the math for strategic default, it doesn’t work out. “Talk to a credit counselor. How your credit will be affected has to do with your particular case, how many payments you are late on, and so forth. The more you are screwed up, the more your credit will be affected.”

Fanny Mae just issued a statement, she said: “If you do a short sale, you can buy a home in two years. Deed in lieu, four years. Strategic default, seven years.

“So, how much rent are you going to pay over the course of those years? Is it worth it?” she asks.

Englett’s firm, though, does consider those credit issues. “Although a client’s credit score will go down by 100 to 200 points, it will recover in 12 months, maybe less if you do some credit repair,” Englett said. “However, you cannot get another home mortgage for four years. This is why many strategic default clients who want to own a home will buy their new home before they default on the current one.”

Those defaulters fall into the category Olefson calls “Buy and Bail.”

“An owner applies for a loan for a home priced at $450,000 next door to his home,” she explained. “Then, he walks away from his home that he bought for $600,000. You think the loan officer for the second house didn’t know that he was going to default? The guy’s house was just next door to the one he was buying!”

Key findings on Fannie Mae National Housing Survey released Sept. 16, 2010:

Nearly two in ten consumers know someone who has strategically defaulted, or stopped making mortgage payments even when he or she could afford to make them.

Delinquent mortgage borrowers and those in the general mortgage borrower population both are more likely to have seriously considered stopping their mortgage payments if they know someone who has already defaulted – almost twice as likely among delinquent borrowers (40 percent among those who know a defaulter, versus 21 percent among those who do not) and more than three times as likely among mortgage borrowers in general (7 percent versus 2 percent, respectively).

Eighty-five percent of Americans do not believe it is acceptable for people to stop making payments on an underwater mortgage, while 10 percent believe it is acceptable. But 19 percent of delinquent borrowers think it is acceptable to walk away from a mortgage. And 38 percent of delinquent borrowers think financial distress makes stopping payments acceptable.

Strategic Default, Florida

Interview with Matt Englitt, KEL Attorneys, Florida, September 28, 2010

Define a strategic default:

There’s nothing illegal about defaulting on your mortgage. People have been doing it for years. This is nothing new.

Strategic default means that the person involved considers the home to be a formal investment and has chosen to default because it’s an unwise business decision to continue to owe the bank.

My firm is a full service private law firm working throughout Florida. We can do everything, but in this economy a lot of our caseload is foreclosure and bankruptcy.

Profile of someone who decides to pursue a strategic default:

Maybe ten percent to 20 percent of my foreclosure cases are strategic defaults. We have thousands of clients, about 7,000 open cases, and between 700 and 1,400 are strategic defaults, and that’s a good number.

My average strategic default client has a six-figure income, has a good retirement account, and has some assets. On average, they owe about 400,000 and it’s worth half of that right now and they can be looking at a loss of 200,000 or more.

What is the procedure for a strategic default?

First part of what we do is create a strategy for asset protection, so we have an in-house attorney, who will sit down and advise the homeowners on protecting their assets.

Second, we develop the defenses to the inevitable foreclosure litigation.

There are lots of defenses on behalf of homeowners that will let them out of their mortgage, minimizing their losses. They will have to bear some of the losses, but they will be able to minimize their loss on the property.

Lets say that the bank takes the house back and there’s a loss of $100,000. My client will not have to bear the whole loss, the bank will take some, and my client will take some, too.

What about short sales and deed in lieu?

Sometimes, as resolutions to our cases, our clients can do a short sale or deed in lieu, these are alternatives to strategic defaults. A short sale is just one way we may resolve that case and the bank might want us to do that. The bank may say list the house. A short sale does not have to be a hardship case.

With a short sale, the key component is that the borrower is responsible for the deficiency. The bank could let you out, or it could reserve the right to sue you down the road. We negotiate that with every client.

Banks don’t look at hardship when doing a short sale. Early on, a year and a half to two years ago, when it was at the height of foreclosures, banks wouldn’t put up with a fight for a deficiency. Now, it’s difficult to get them to waive the deficiency.

In those cases, I advise the client against doing the short sale.

What is the defense?

If you don’t do a short sale, and then go into the litigation of the case, the lender will file a foreclosure, and that’s when we will do all of our legal maneuvering right there. The lender realizes it will be a heck of a fight and realizes it may not be able to get the house back for any number of reasons.

For example, we have a good fraud and inducement defense — that the bank lied about the terms of the loan. Or some banks did appraisal shopping, to get the high number that they wanted so that they could get a big loan.

These are some of the defenses that the banks see we can prevail on and puts pressure on the banks not go the distance in the case.

What are the consequences to the homeowner who decided to pursue a strategic default?

Normal outcome: I hate to just throw a number at it. A typical resolution depends on the client’s financial position. If the client has money, he has to come up with a portion, and cover 10 to 70 percent of the loss.

If client doesn’t have much money, or if their assets are protected, then I can get them an even better deal. It depends on what the bank can get from the client. That’s why we do the asset protection before the client defaults.

Asset protection all depends on how your assets are titled. Oftentimes, we have a husband and wife come to us and the note is in one of the spouse’s names and all the other assets are held as a married couple. So the bank can’t go after joint assets of the husband and wife, because only one signed on the note.

So, they need to get assets into being held by husband and the wife. 401Ks are completely exempt from creditors, and, in Florida, your homestead is completely protected from the creditors, so the couple can go out and buy a home with cash and that would be protected. They can go buy a house for a bargain, now, and put a good chunk of cash on it and it would be completely protected from their creditors.

How much does it cost?

For strategic default, we start at $3,500 for coming up with strategy and doing the litigation until its resolved, but coming up with a strategy could cost a couple thousand more, but usually $3,500 to $4,500 will handle us doing the entire case.

What about the morality issue?

We do see complaints of issue of morality with strategic defaults, but we don’t think that should play into making a financial decision. Businesses and investors don’t do that.

These are collateralized loans. The bank should get your property and your property only. In many states, the banks don’t have the deficiency option — the legal right to sue you. They get the property back and sell it. The bank is supposed to lend a certain amount of a property’s value, so if the property goes into default, they get the property back. In a majority of states, they don’t have the option to sue you personally if you default in your mortgage.

Sure, the banks didn’t know that property values would drop so much, but they shouldn’t have risked so much money thinking that it wouldn’t drop, and they should not lend such a high ratio – they’ve loaned 100 to 110 percent of the purchase price — they should lend only a potion. That way, the owner has to make an investment. That’s suppose to be the way it’s done, but the banks make so much money off lending money.

And as a side note, the banks are already back doing it again. They are already back to lending 100 percent of the purchase price, and they are back to the same whole thing, including Fannie and Freddie – they are not making homeowners come up with down payment. Now, when a default happens, the money comes out of the taxpayers’ pocket. The banks are loaning 100 to 104 percent of the purchase price and that’s a recipe for disaster.

I think you’ll see more and more people strategically defaulting. Because, if you see the financial analysis that we sit down and do, if the homeowners bought in the bubble at the height of the boom, they won’t be able to pay off their loan for 15 to 20 years.

And, that doesn’t include renting a house that’s very similar to their current home, for half of what they are paying every month to own their home. So, if you combine those two numbers, they are losing well over $100,000, sometimes $200 to 300,000, and it doesn’t make sense to keep it.

Develop a strategy and do the asset protection, listen I’m not going to minimize. There’s a lot I can do for you.  Sometimes, some people have so much money, there’s not much I can do for them. But sometimes I can do something. For example, they might be able to take the money, put it in a trust. They’d have to wait two years before they can default. Sometimes with asset protection, you have to wait until you fall behind; otherwise it’s a fraudulent transfer. There are no absolutes. Always a risk, but by and large, clients that don’t have millions, can minimize drastically what they lose on these properties.