First, sorry the site disappeared again. I’m not sure why it happened this time — supposedly my card on file was declined, but there’s no record of any transaction having been declined recently. So not sure what’s up with that yet.
Second, I’ve been working on a post about fundamentalism that has become super huge. It’s 3800 words currently and I have quite a bit left to write. I keep thinking I’m going to finish it but there’s ever more to say on the subject, which is very important to me because, as some of you already know, I was raised as a hard-core fundamentalist Christian and know much about the subject from an insider’s point of view. Because of this I see the recent anti-West Islamic movie riots, murders, etc., from a very different perspective as most people I interact with, and I’m hoping to be able to make my perspective accessible to others.
In the meantime other big things have been going on. One of the biggest is that I’ve inherited some money, not a lot mind you, but enough to do something with beyond getting my bills caught up. I’ve been looking into the possibility of purchasing a house here in Pittsburgh. And I’m discovering some things that are pretty troubling.
Everyone knows that the housing market imploded a couple of years ago and that millions upon millions of people have been foreclosed on, thanks to one of the most unbelievable frauds ever perpetrated in history. Fact is, no one actually knows how many foreclosures have occurred, but a site called Statistic Brain does its best to cull what info actually is available — and according to Statistic Brain, there have been over 21.5 million foreclosures since 2006, with approximately 6 million of those actually having been repossessed by banks. (Feel free to double-check my math.)
That leaves a gap of 15.5 million homes in limbo, or approximately 11.75% of the 132,312,404 total housing units that exist in the US (if the census statistics are to be believed). Without subtracting the homes that have been repossessed, that’s approximately 16% of the total US housing market. These statistics are crude to be sure, and I encourage anyone and everyone to correct them — the point is, this is an absolutely massive chunk of wealth. Hang on to that thought momentarily.
In my search for accessible properties — ones I could potentially buy free and clear with my comparatively small amount of cash — I’m finding that perhaps three-fourths of these are part of the 6 million foreclosures that have been repossessed and put back on the market.
These foreclosure houses tend to be in safer neighborhoods. Lots of them are somewhere in the process of renovation — it’s quite obvious that many were purchased with the intent of flipping them, but got foreclosed on before the project could be completed. Most I’ve seen so far need largely cosmetic finishing. The would-be house-flipper first took care of structural issues such as plumbing, wiring, broken porch steps and the like and then lost the property before having a chance to replace cabinets, rip up old carpet, paint, replace broken windows, etc. These properties are quite attractive to someone like me because they are cheap, structurally sound, I won’t get mugged by some tweaker redneck, and I can fix the cosmetic issues myself for the most part.
But these properties also have ugly, ugly titles. Unpaid back taxes, unpaid utilities, possibly second mortgages, stacks of fines for unmowed lawns and unshoveled snowy sidewalks, and god knows what else, would all follow the title and possibly — if not in all likelihood — result in losing the property to whatever entity has liens against it. It would mean that someone like me could purchase a house with cash and then have it seized by a bank, the county, whomever, the very next day, and I would be shit out of luck for someplace to live and the money I’d forked over.
For this reason the three real estate people with whom I’ve spoken — a sales rep for a company that buys foreclosed homes from banks in bulk and then resells them dirt cheap; a regular real estate agent; and an exclusive buyer’s agent — have all insisted that I do not, under any circumstances, try to purchase a foreclosure house. It is very possible to track down all these “encumberances,” as they’re called, and take care of them so that the house title transfers clean. It happens every day. But I’ve had very little luck getting any of these guys to educate me regarding the process of buying a foreclosure house, and it’s been a struggle to get answers to specific questions about either the process or some specific property. I told the buyer’s agent that I am fully capable of understanding a complex real estate transaction, that I am capable of doing my own research in addition to having full title searches done, and that I’m willing to pay all encumberances on a title so long as the cost of the encumberances plus the house itself don’t exceed my budget — if I have ALL the information I need, I am quite able to avoid doing anything stupid. He told me I was being, and I do quote: “dangerously naive.” Am I? Then give me the information I need to not be naive for fuck’s sake. Don’t just sit there assuming I’m a lost cause.
Rather than help me understand anything, they all repeat the same mantra: leave this type of purchase to investors. Investors can lose money on a house here and there and it’s of little consequence to them. But since I can’t afford to gamble like that I shouldn’t even attempt preliminary research, apparently.
Needless to say this has been extremely off-putting. Hardly anything in life irritates me more than when people assume I’m a dolt (or just a girl perhaps) and treat me as such. But the more I thought about it, the more I realized: there’s a serious fucking problem here.
This is where that 16% comes in: if real estate people are unwilling to help lower-income people like me safely purchase a foreclosure house for cash, let alone with a new mortgage, it means 16% of the entire US housing market has effectively been handed to the investor class, for pennies on the dollar, and protected from normal market competition. Surely there are millions upon millions of people like me who would love to buy just one cheap foreclosure house to fix up & live in happily ever after. But we are evidently unworthy even of speaking with because we can buy only one house, not one hundred houses at a pop.
An investor can now buy a structurally sound house in a safe neighborhood for $16,000, put $10,000 worth of work into it, and resell it for $80,000 — to someone who requires a mortgage to buy it. I’m supposed to borrow $54,000+ at interest so I can hand it over to someone else free and clear? When I too could have had that property for $26,000 to begin with, and no debt — except I’ve been cut out? Are you fucking kidding me?
Moreover, those investors are getting a significant chunk of many, many houses’ rehabs for free. Someone else has already put $30,000 of $40,000 worth of improvements into a place and then had it ripped away from them — that person might as well have simply handed $30,000 to the investor and spared himself the manual labor.
This all constitutes a two-phase transfer of wealth from the lower classes to the filthy rich (as have all the imploded financial bubbles since the 1980s been such wealth transfers). The first phase occurs as the investor class snaps up a nearly incomprehensible amount of assets for pennies on the dollar without having to compete for those assets — in other words, all those people who got fucked by the housing collapse have, in effect, been robbed of their homes’ value by the investor class. It would not be robbery if those people were allowed to try to buy their homes back at the same pennies-on-the-dollar rate that investors can have them. It would be the housing market functioning normally. Housing prices will remain low as long as non-investors are denied access to all those foreclosure houses, and investors will go around grubbing them all up at everybody else’s expense.
The second phase occurs once the investor class owns all those assets — remember, we’re talking about something like 16% of the entire US housing market — and begins reselling them to the people who got fucked the first time around. These people will have to, once again, take out mortgages at interest and then hand that money over to the investor class. So everybody pays the investors full price, twice, for the same 21.5 million houses — and goes into debt to the same investor class for the privilege.
(That’s if the investors decide to sell. Maybe they just keep 16% of the US housing market for themselves, and make the rest of us pay rent and/or fight overseas oil wars on their behalf. Cause, you know, feudalism is all the rage these days.)
To reiterate: this is a very serious problem. Investors once priced millions of people out of the housing market; investors now benefit from the gatekeepers’ refusal to allow those same people access to price-crashed homes. This holds housing prices at artificially low levels: housing prices cannot recover so long as real estate agents — the investor class’ gatekeepers — actively prevent possibly millions of people with cash in hand from participating in the foreclosure market, because there is not enough demand to drive prices back up to reasonable levels. This in turn allows investors to continue sucking up properties for themselves in order to sell them back to everybody else, effectively forcing us all to pay for the same houses twice. Lining their own pockets with this double payment means that money doesn’t go toward other things, stifling economic recovery.
Not to mention that if the investor class ends up with anywhere near all of those 21.5 million foreclosed homes, municipalities all over the country will be plagued by absentee owners who don’t give a rat’s ass about the communities their properties affect.
Am I the only one who’s noticed this? Surely someone, somewhere is thinking about how this is all shaking out. Not only was the housing crash an unprecedented wealth transfer from the middle and lower classes to the ultra rich, the so-called “recovery” is shaping up to be a wealth transfer, too.
If you can manage to keep pushing and eventually get the expertise to do this, you could start to help others to do the same.
I doubt you are the only one who has noticed this situation, probably all of the people who are benefiting have known this for a long time.
First off, I am doing this on my phone and the spell check seems to have taken a powder, so excuse any egregious spelling errors or glaring typos.
The older I get the more I realize Marx was right, all of human history is the story of class struggle. The ruling class has us down and is not content to leave well enough alone, but wishes to grind us to a fine powder beneath its ample boot heel. Many moons ago I dated a very wealthy girl. The experience opened up the eyes of this proletariat kid. The number one lesson I took away was this, never trust the rich. They got wealthy by breaking rules, and will not hesitate to run you over if it means another dirty dollar. My thoughts are simple as the bumper sticker I had made for the back of my car, “They only call it class warfare when we fight back.”
Travis
Yes, I’ve certainly noticed this and it will make us all serfs. Controlling all the housing means charging any price for rents. Maybe they’ll dream up new financial instruments to fully exploit the potential of this insane plan. I think housing is stilll too high and that’s another reason they keep this shadow inventory off the books.
Well, I hope you find a house.
About the details of buying out of foreclosure; it is complicated. First, if as you say it was flippers who got foreclosed, they are part of the investor class, just the lower tier that couldn’t compete, so you can sooth your conscience.
For the practical matters of leins, etc – I will only speak about my experience buying a foreclosed property here in Kansas, because the rules differ widely depending on where you are. The first step is foreclosure. This is notice given to the owner that they are in default – usually to a mortgage holder for lack of payment, but a municipality can also foreclose (or condemn) a property for other reasons. The owner then has a certain time period to catch up with payments, usually 60 – 90 days. After that is repossession, where the owner is told that they no longer have title to the property, and the property will be sold at sherrif’s auction to the highest bidder. The first bid at the auction will be the amount owing on the mortgage plus expenses. If no one bids higher than that, the house becomes property of the forecloser. In Kansas, the defaulting owner then has 90 days to come up with the cash to redeem the title of the house, by paying the mortgage company the amount of the winning auction bid. There are people who buy the rights to redeem those titles from the defaulted owner, if the price spread is good enough. After the redemption period expires the title will be transferred to the winner of the auction. The title should then be free and clear of all leins and encumbrances. Any leinholder would have needed to bid at the auction, or file a claim with the court before this point to retain their claim.
What happened in my case was this whole process played out, and the mortgage company ended up with the house, then listed it for sale with a real estate agency that handles these cases for them. Interestingly, the sale price they were asking was lower than their bid at the auction, and when no one bought it in 2 weeks, they lowered it even more – then I bought it. The transaction had to be all cash with no contingencies, but the title was clear, and they provided title insurance to back that up. I couldn’t figure out why they’d be in such a hurry to sell at a loss, until I realized that they would get paid for all their costs no matter what, because they had mortgage insurance! Paid for by the defaulted owner too.
So yes, it is a racket and deeply wrong on many levels, but it is possible to safely get a house this way if you have cash, and you are clear about the process and who you are talking to. In my case, dealing with the realtor who sold the properties for the mortgage company was really helpful. And remember, realty fees are paid by the seller, so get a good expensive agent that you can trust.
Good luck.
check out the blog naked capitalism for sound reporting on the mortgage and housing massive, multilevel, multi-perpetrator ripoff.
1. In this market, you are in the driver’s seat when it comes to real estate agents, who are a dime a dozen. Find yourself one who will help you accomplish your objectives, rather than their objectives.
2. Use title insurance to offload the risk of encumbrances.
You want something for nothing. You want someone else, who has gone through the hard work of figuring out how the foreclosure business works, to give away their hard-earned knowledge to you for free. Worst of all, you really are dangerously naive. Even for professionals who know what they are doing, there are occasional problems. Someone buying 100 houses/year and making 20% profit on the winners but losing 50% on the losers comes out ahead even if 5% are problematic losers. You are buying a single property and can’t afford a loser. Paying extra to avoid problems is like the fire insurance premiums you’ll have to pay after you buy the house. Rich people can self-insure whereas the poor must buy insurance (from insurance companies owned by the rich) because they cannot afford big losses. This is why poverty is a trap and always has been and always will be. Nothing new here folks.
Actually, no, I am not trying to get something for nothing. Any licensed real estate agent who helps me buy a house gets their pound of commission flesh in the end. The problem is that foreclosed homes transactions require more work and, in the case of a one-off foreclosure sale, results in a smaller commission than a non-foreclosure, full-priced house sale. The only way real estate agents are going to make the commissions they want off foreclosures is to sell them in multiple-property blocks.
Poverty can only be a trap if someone sets that trap. In this case, the trap is set by commission-based incentives that steer the real estate market gatekeepers away from one-off foreclosure sales. If my own experience represents what’s going on generally, this is a severe market distortion because millions of would-be participants with potentially billions of free-and-clear, unforeclosable cash dollars are locked out. It is a structural defect in the housing market that insulates the investor class from free-market competition of non-investor owner-occupiers. The result is that people like me cannot get our hands on a couple of pie crumbs — even though we can pay the money! — that would go a long way toward getting us out of poverty.
And no, I am not dangerously naive. I have no illusions that I could lose everything. What I am is ignorant — I do not (yet!) have the information I need to decide whether or not it is safe to fork over my money on any given property. It is supposed to be the real estate agent’s job to give me a property’s information so I can decide for myself whether or not to enter into a contract. Withholding information about a property from me while simultaneously directing me to properties that are clearly unsafe — as investments, because the floorboards are rotted out, or because they’re in the heart of the city’s meth district — is straight up lazy, as well as unconscionable. On a property like that I would for sure lose everything; a cheap, half-rehabbed foreclosure in a safe neighborhood offers the likelihood of coming out ahead, if I have the information I need to make a sound decision. What would be “dangerously naive” is if I blindly trusted these fuckers.
greetings,
I purchased a forclousure in pittsburgh without an agent. It is not as difficult as your agent is telling you. Based on your post, you already have most of the important information. Just be aware that your agent will discourage you because it is extra trouble for him and a lower commission. Also, the seller agent will usually be on a bank payroll and not commission. This causes them to be very unmotivated as well. Email me if you have any questions and I will do my best to answer them.
Hi Paula,
The property I bought was owned by HSBC, and sold through a realtor they contracted with for those cases. The HSBC web page will link to a list of properties they own, but they don’t make it easy to find. I searched for ‘properties’ and submitted ‘PA’ for location to get this link:
http://www.us.hsbc.com/1/2/!ut/p/c1/04_SB8K8xLLM9MSSzPy8xBz9CP0os3gTI29vXyMzIwMD71BDA09LL18PLy9fQwsvM6B8pFm8gXtYkJ-Xs4efq4GjYbC5hamxARQQ0O3nkZ-bql-QG1EOAH3PRAM!/dl2/d1/L0lDU0lKSWdrbUNTUS9JUFJBQUlpQ2dBek15cXpHWUEhIS9ZQkpKMU5BMU5JNTAtNUY4OXchIS83XzQyS0tNMjYyME9ITjAwSTVWVUpMRjgyNDM1LzFfX19fNi9zYS4!/
Sometimes searching for ‘Real Estate Owned’ works.
I concur with Mark above as to the motivation level; it’s all just churning cash for them, no real money. I disagree with revelo; in my opinion you are just playing an insider’s game from a different angle, so you need to watch out.
With my purchase which I described above, the main thing I had going for me was that HSBC wanted to get the house off their books, and they wouldn’t get paid by the mortgage insurance until all the papers were done & filed. So some of them were motivated a little bit, but there was no reason to expect to be treated like anything but a number.
http://www.zerohedge.com/contributed/2012-10-26/modern-day-feudal-system-real-estate
related link
I suggest that you go to the court house and go through the records for the
areas of Pittsburg you are interested in. The sale info is public info, available to anyone.
You can also pressure the realtor by declaring that you need a new profession anyway, and selling foreclosed properties to underclass people with cash sounds as good as anything else, and the community college just happens to have a realestate course, for gratis, that gets you your broker’s license, so you hope he doesn’t mind you going into the business in direct competition with him, since you have to learn it anyway to get yourself a house.
INDY