As early as last October, there were reports of fraud schemes and suspicious claims as the tax credit was set to expire and was being considered for extension (see DSNews 10/20/09).   That’s not so surprising, I guess.

What’s shocking is the recent report that prison inmates were able “to apply for and receive $9.1 million in homebuyer tax credits” (see DSNews 6/24/10).  This article refers to a Treasury audit report that further shows that 241 inmates serving life sentences received a combined $1.7 million in tax credits.

This sort of begs the question: what kind of income tax liability can you earn serving a life sentence behind bars?  Is there even any point in a federal tax credit?

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The same Treasury audit also indicates that $17.6 million in claims were allowed for homes purchased before the tax credit program.  It gets better, though, with the reports of post-refund claims resulting in investigation, $785 million, or post-refund claims resulting in denial, $438 million.  The IRS seems to be catching a whole lot more fraud than they miss, but still . . .

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According to RealtyTrac, “California posted the second highest percentage, with foreclosure sales accounting for 51 percent of all sales there in the first quarter — up slightly from 50 percent in the previous quarter but down from 70 percent of all sales in the first quarter of 2009.”  Wow!  Over half of all sales were foreclosures, and that’s an improvement from the previous year.  The highest percentages were in the San Joaquin Valley, San Bernardino and Riverside areas.  Santa Clara County was relatively low by comparison.

So, are foreclosures on the decline in California? Hardly.  According to the LA Times “banks foreclosed on almost 200,000 homes in California last year, and this year’s toll is expected to be even higher”.

Sometimes the news is confusing, which is to be expected because the media seems to be generally confused.  It’s easy to misunderstand the facts.  On one hand, foreclosure activity was down in May, but bank repossessions hit a record high (CNBC, June 10).  What . . . foreclosures down, repossessions up?  Aren’t foreclosures and repos the same thing?  It depends on how the terms are used.

“Foreclosure activity” generally refers to the beginning of the process, and “bank repossessions” refers to homes that have already been foreclosed, or REO (see our earlier post).

Why did the percentage of foreclosure sales decline since a year ago?  It’s not because there were fewer foreclosed properties, it’s because fewer of them were for sale.  Doesn’t make sense, does it?   If there are more bank-owned properties, there should more of them for sale.  But according to Rick Sharga, senior VP of RealtyTrac:  “they’re managing inventory to prevent a free fall in home prices.”  See our earlier post: The Shadow Inventory.

We still have a long way to go.

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I just finished reading this article in the LA Times, recently summarized by the California Association of Realtors:

“After shopping for a home, tired buyers often make poor mortgage choices” http://www.latimes.com/business/la-fi-lew-20100606,0,1809394.story

This is so true.  Not all loans are equal, neither are they always what they seem. You should question everything, and everyone, relentlessly, and take your time. You would do as much if you were buying a car.  When you buy a home, you’re really buying a loan.  Do your homework.  Choose your loan carefully, and choose your lender carefully.

Talk to more than one lender.  Ask them to help you figure out what you can afford, and for the two best loans they recommend for your situation.  If you get the same answer from two or more lenders, then you’re getting close.  Again, question everything.  Understand your loan completely. Avoid surprise and frustration.

Finally, work with a lender that you resonate with, one that is crystal clear and easy to understand.  This is important, too. Most stressful moments in a transaction come in the last few days before close of escrow, and my experience is that these moments almost always things that were communicated poorly, or not at all.  You don’t want to find out at the last minute that you need another $10K for mortgage insurance, or that your rate is actually 5.375 instead of 5, or that your origination fee is 4% instead of 1.5%.  You need to be able to communicate clearly with your lender during escrow.

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Most residents I’ve spoken with that oppose the stadium initiative, Measure J, express concern about new taxes, traffic impact and new debt, but the more they learn about the facts, the more convinced they become, as I am that this is truly a no-lose proposition.

Measure J will involve no new city taxes or use of general fund money.  The traffic plan is brilliant.  The positive impact on the local economy is practically limitless: new job opportunities, increased local business revenues, increased property values, etc.

Get the facts for yourself: http://www.santaclarastadiumfacts.com/

Economic stimulus?  Just look at the area of San Francisco surrounding AT&T Park.  In just 10 years since the ballpark opened, the China Basin neighborhood has grown from a barren corner of the bay to one of the most densely productive areas of the City.

This about more than just football; this is about being one of the most significant cities in the country. It’s a singular economic opportunity in the midst of a recession. It’s about jobs, revenues and property values . . . and we only get one shot at it for all time.

Join Santa Clarans For Economic Progress and Vote Yes on Measure J.

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Some of the callers had driven by the property, noticed our lawn sign, figured the spoof and called to tip us off.  One of the parties answered the ad and received a response from an “absentee owner” with elaborate instructions regarding deposit, credit check, keys, etc.

This isn’t the first time someone rent-spoofed one of our REO listings. The last time we got tipped off, one of my staff posed as a prospective renter and carried on a clever reverse spoof with the scammer by email. She filled out a long application under a celebrity name, answered by a request for a photo.  She sent a photo of another celebrity, answered by a request for a money order for the deposit.   The scammer explained how they really wanted someone who would take good care of their home while they were overseas, how they would take time out of their busy schedule to fly home and deliver the keys once the deposit had cleared.

Game on. The scammer fell for the spoof, apparently not picking up on the celebrity name or photo.  This is where it got interesting.  My assistant crafted a passable, but obviously mocked-up money order and sent it.  After a couple of days, the scammer responded furiously, all upset that the money order was a fake, going on and on about how someone would take advantage of him that way. Finally I weighed in and emailed the fellow explaining the spoof, how much fun we had, and the implications of the fraud he was attempting.  He wrote me back telling me to “go and die.”

Although we’ve been tipped off to only a couple of instances over the last three years, it’s probable that this goes on all the time. The sad part is, like all internet scams, they must work sometimes.  If people didn’t fall for them, they would stop.  Beware the Craigslist rent scam, and warn everybody you know:  don’t pay for anything you can’t verify! If you are even slightly suspicious, consult a professional.



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On one hand, there is a moral obligation to honor your contract.  If you owe more than your house is worth, one way or other you gambled on your equity and came up short.  Maybe you bought at the top of the market, or took out an equity line of credit and bought some stuff; a car or TV, or maybe even another house.  Regardless, it’s not your lender’s fault that your property value went down.  After all, if your property went up in value you wouldn’t turn around and give the bank extra, right?  If you buy gold, and it loses value, you don’t get your money back, you wait it out. If you loan money to a friend, and he loses it all, you would still expect him to pay you back, especially if he can afford it.  The value of a promise doesn’t flex due to circumstances, or whether you are the giver or the receiver.  If you can make your house payments, it’s the right thing to do.

On the other hand, are the banks responsible for some of this mess?  Should they share the burden? Didn’t they sort of tease us into all these high-risk loans and credit cards?  In the first few years of the Y2K decade, the FED, major lenders, and real estate professionals convinced us that everybody in America could buy a home.  They made you feel foolish if you didn’t.  It was like manifest destiny, your birthright, your duty. You could get a home loan if you had a pulse.  You could qualify just because you said so, no matter if you could actually afford one. Lenders didn’t seem to care if you were truthful in your loan application.  Certainly they knew they were making questionable loans, gambling on equity just like us.  Aren’t the financial institutions culpable, too?  Didn’t they practically beg us into this?

The survival of our economy depends on everybody doing the right thing.  Imagine the consequences if all borrowers that owe more than their house is worth but can afford the payments choose to walk away, or if all the lenders call in all the notes on properties that won’t appraise for the full amount.

So, who gets the free morality pass?  Who gets to choose what’s fair?  Is personal credibility negotiable?   Is the golden rule irrelevant?  Do we just step off when times get tough? Is this the new American paradigm?

Not surprisingly, real estate professionals are leading the charge in advising people to walk away.   Not ironically, real estate professionals were leading the charge 4-6 years ago advising people take on these same loans.  Whatever it takes to earn a fee.  Maybe it’s time for an industry gut check.

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