Greedy real estate agents cashing in on US foreclosure property misery
They were guzzling pomegranate martinis, playing golf and indulging in spa therapies while eagerly discussing how much money is to be made from foreclosed properties that fail to sell and are taken back by the banks.They are the new breed of estate agents in the US who are cashing in on the REO boom, a kind of reverse American dream. They sell the REO (Real Estate Owned) properties that don't sell at auctions or sheriffs sales of which there are in increasing number.
But the revelation in US newspapers that 3,000 of them recently attended a conference in California, one of the worse hit foreclosure states, and lived the high life is prompting a backlash.
The Spring 2009 Reomac conference took place last weekend in Palm Desert, a luxury resort where the Marriott hotel bar reportedly did more business in one night than it did during the whole of the New Year holiday.
'Things are going tremendously. It has never been this good,' Darren Johnson, an REO agent from the Detroit area who has handled about 180 bank property sales in the last year, was reported as saying.
But many point out that behind every REO sale is a cash strapped property owner that has lost a home and say that cashing in on such misery is wrong.
'I was saddened by the report. How can these people live it up in a fancy resort when there are so many people in difficult circumstances because of the property crisis,' said Jayne Dow, an agent from New York. 'We all have to deal with the misery of foreclosure but this amounts to gloating,' she added.
Jon Downdale, a property consultant in Los Angeles said he was also appalled by the reports. 'Property owners go through months of excruciating financial distress and then lose everything. It is not something that should be welcomed in this way,' he said.
Sherry Waite, who serves an affluent community in southern California near San Diego, told the New York Times that she is eagerly awaiting the foreclosure of some of her neighborhood's high priced homes. 'Three dozen REO listings between $1.8 and $8 million are coming up. Those are big numbers,' she said.
The report described how Benny Nassiri, who with a partner handles REO sales in California, Kansas and Louisiana, was sitting by the swimming pool on a chaise longue in a red, white and blue bikini, Dior sunglasses and Bebe sandals, sipping a beer and asking her assistant about the party planned that night in between taking calls on her mobile phone relating to deals.
One subject that was not on the conference agenda was foreclosure moratoriums and homeowner rescue plans. For REO agents that would be nothing to celebrate as they strive to turn a profit from someone else's dream gone bad.
But it is the real heartache behind the US property crisis that is beginning to exercise the minds of those with a conscience amid calls for the Obama government to do more to stamp out the perfectly legal but morally unjust practices that are creeping into the sector.
Those who are trying to help say that offering aid is not the answer as an increasing number of foreclosed properties are lived in by tenants rather than owners. More than 20% of properties in the US facing foreclosure are rentals, according to official figures.
There is also a feeling that lenders are far too quick to sell a foreclosed property and should consider continuing to rent it out instead, especially when there is a sitting tenant.
Laura Hecox was baffled when an officer from the San Diego County sheriff's department came to her home in February and said she was being evicted. She hadn't missed a rent payment on her four bedroom house since moving there a year and a half earlier.
'They told me to leave, to get a few things together. I got booted out just like that,' said Hecox, 37, who lives with and supports her four children and mother. Hecox didn't know the home she was renting in Chula Vista, California, about 10 miles north of the Mexican border, was in foreclosure because her landlord was a year behind on mortgage payments. The new owner was a group of investors led by JPMorgan Chase & Co, the third biggest US home lender.
In California, home to the most foreclosures in the country last year and about 5 million renter households, residents who are up to date on payments still face eviction by banks unwilling to be landlords. At least one-third of the state's 267,000 foreclosure sales in 2008 were rental units, according to Dean Preston, executive director of Tenants Together, a San Francisco-based non-profit group for renters' rights.
While thousands of tenants search for places to live, banks are losing out on the potential to collect monthly rent checks and flooding the market with empty houses that are declining in value. That's because they don't have the infrastructure or staff to deal with rental buildings, according to William Acheson, an analyst at Benchmark in New York.
'Banks are notoriously bad property managers. If they can sell them at a 60% discount, they will,' said Acheson. It is an issue that lenders don't like talking about. When asked why they would rather sell a foreclosed property at a massive discount than continue to rent it to someone with a good rental record a spokesman for JP Morgan replied: 'We don't have the capacity to be long term landlords'.
In California more than 225,000 people in rental units lived in properties that went through foreclosure last year, according to a report from Tenants Together. The group estimates they occupied about 81,500 units. Were banks to rent all those properties they could collect more than $1 billion in annual rent, based on the median California rent in 2007, according to the US Census Bureau.
While Fannie Mae and Freddie Mac, the government controlled mortgage lenders have gone out of their way to help tenants stay on in foreclosed properties, few other lenders are following their example.
Bank of America said, however, it was looking at the policies adopted by Fannie and Freddie to see if the model could work although no decision is expected in the near future.
The law regarding how much notice should be given before an eviction varies from state to state. But these laws are regularly ignored by lenders, according to Tenants Together. Lenders, grappling with surging defaults, are either ignoring or are unaware of the laws and are punishing renters who have done nothing wrong, Preston points out.
It is no wonder that real estate agents are talking about the REO tsunami. 'What we have seen so far is just a hint of what is coming down the pike in the next three years,' said Marty Higgins, a San Francisco real estate broker who specializes in apartment buildings.
Even if more lenders offer moratoriums to cash strapped property owners and more strive to keep on properties that are rented out, the number of REO properties isn't going to fall much, delegates at the conference were told. The message from a series of seminars was that a giant wave of foreclosed commercial properties will sweep in when the residential tide ebbs.