Real Estate Information

After months of financial reports that should scare anybody without a sizable nest egg into holding on to their money this holiday season, Black Friday entered like a lion.

Crowds were lined up in front of every major chain in America at earlier hours than every before. Many malls opened at 12:01 a.m. Black Friday morning.

Unlike last year when sales disappointed, American consumers were ready to buy.

The nation s retailers had a robust start to the holiday shopping season, according to results announced Saturday by a national research group that tracks sales at retail outlets across the country.

According to ShopperTrak RCT Corp., which tracks sales at more than 50,000 retail outlets, total sales rose 8.3 percent to about $10.3 billion on Friday,

the day after Thanksgiving, compared with $9.5 billion on the same day a year ago. ShopperTrak had expected an increase of no more than 4 percent to 5 percent.

“This is a really strong number. You can t have a good season unless it starts well,” said Bill Martin, co-founder of ShopperTrak, citing strength across all regions. “It s very encouraging. When you look at September and October, shoppers weren t in the stores.”

One of the arguments being made against housing is that consumers are not only unwilling to buy, but due to increased lending restrictions they are unable to buy. The bottom line is consumers will hold off buying if they don t have confidence and they don t perceive a “good deal.”

The opening holiday weekend showed to me that “good deals” were available and consumers acted on them. In some cases, products were completely sold out.

It was only half an hour into Black Friday, and a customer at the Toys R Us flagship store in Manhattan s Times Square was already yelling, “The Zunes are done!”

Heaven help you if you have a Wii on your shopping list.

“Wii!” yelled a woman into her cell phone, as she walked past a wall of Xbox remotes. Nearly half an hour after the doors opened, the Wii supply was still holding out.

“We got three walls of Wiis,” reported store employee Jose Vargas. He said the consoles had sold out a few days ago but were re-supplied in time for Black Friday.

Meanwhile, a six-foot stack of Extra Special Elmos had dwindled to a height of two or three boxes, despite the fact that this year s edition is only slightly different from the 2006 model.

The lack of innovative new products was not lost on consumers.

“The Wii was last year!” yelled a consumer with a plush Spiderman in her hand. She stood in a line that snaked, anaconda-like, through the video game section.

Retailers are willing to discount this year despite profit erosion. Wal-Mart made a campaign last year solely on attracting a higher class of customer and offered upscale lines that floundered. They ve gone back to their roots this year and are finding enormous success.

A whiff of this already showed up when the nation s largest retailer posted third-quarter earnings Tuesday of $2.86 billion, an 8 percent rise that beat Wall Street expectations.

Retail experts say Wal-Mart s flagship U.S. stores may be in the midst of a turnaround after two years of a zigzag course between upscale and discount goods that has slowed sales growth.

Tomorrow ushers in another shopping barometer known as Cyber Monday where workers returning to their jobs after a long weekend shop online for further deals. We ll know soon how this holiday shopping season will turn out, but the effects of the housing downturn have yet to be seen.

With interest rates continuing to drop and strong employment, I personally see a lot of opportunity in the housing market. As builders are following the same pattern of discounting retailers are, “good deals” are out there.

Let me conclude with a quote from Ian Plenderleith speaking to the Fort Williams Chamber of Commerce in Scotland ten days after 9/11. He said,

We may be unsure how long the process will take, but my own view is that no one should underestimate the resilience of the American people and the underlying strengths of the US economy. There remains every reason to be confident that those strengths will come through.

Another real estate scam hit the news today. This time mortgage fraud wasn t involved, but real estate was still the center of the scam.

Promising yearly returns of 18%, Kenneth K.C. Tebbs involved dozens of people for millions of dollars in a scheme he claimed was tied to legitimate real estate investments. The “investment” was backed by title to real estate, but when investors checked up, they found nothing.

KSL reported -

They thought their money would be used to purchase residential lots in booming communities in Salt Lake and Utah counties, and company notes indicate their money was secured by deeds of trust.

We asked Gomez if he has his name on a lot.

“No,” he answered. “It was never secured.” He doesn t know where the

money went.

This investment opportunity, presented by companies MNK Investments and/or Twin Peaks Financial Services, is a typical Utah based scam, based on the principles of a Ponzi scheme. The investors involved are out hundreds of thousands of dollars. The total amount lost amounts to millions of dollars.The allegations are sweeping through the south end of the Salt Lake Valley. They involve dozens of investors, millions of dollars, and a deal that sounded so good even law enforcement signed up.

Many of those duped used borrowed money, mainly from equity lines, to finance their investment. Now that money s gone. I wrote extensively about this exact same scam concerning failed real estate investor Casey Serin some months ago. He too came to Salt Lake to investigate one of the dozens of companies that engage in this illegal activity.

This type of scam is nothing new. It was made famous in the 1920 s by a crook named Charles Ponzi who ultimately had this version of malfeasance named after him. Whether it s wrapped up as real estate investing, stock investing, currency investing or tulip investing the end result is the same, the investor loses their money. The brilliance in the scheme is the fact that early on, the promised returns are actually delivered. The operator of the scheme pays earlier investors with money from newer investors and gets those people to commit even more money to the scheme.

In the end, no new investors are recruited and the scam collapses with only the operator left with any money. In this instance, as with every instance, the operator says they did nothing wrong. Mr. Tebbs is so bold as to ask the judge to let him go -

But in the response to the civil lawsuit, he says he s unable to repay or refund the investors at this time and asks the judge to dismiss the claims against him.

I suggest the judge throw the book at Mr. Tebbs because he s had the money to buy nice cars, a nice home, a boat and other luxury items.

In the civil lawsuit filed recently investors did ask a judge to make sure the owner of the company can t sell his cars, his boat, his motorcycle and other items until they get a shot at getting their money back.

So how does one protect themselves from such a situation? First of all quit believing everything you hear. If it s too good to be true, it is! Ask questions. My cursory investigation of Mr. Tebbs shows he had an insurance license that lapsed in 2005. Why? I suspect it was because he was raking in “investment” dollars. He also had a mortgage license. It too lapsed. Again I ask why? And why was he conducting a real estate investing business without a license? These are the questions you ask when you invest hundreds of thousands of dollars. If you don t know to ask them, you shouldn t be investing, especially not borrowed funds.

The sad thing is there are dozens of these schemes floating around in Utah. If you currently have money in such a scheme, pull it out as fast as you can. Even if you re making money right now, you need to get it out. Eventually, the pyramid will come crashing down and you ll have nothing left.

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By now you ve probably noticed you can t escape discussion of a slowing or even crashing housing market in the United States. Rising foreclosures and tighter lending standards for mortgages are some of the reasons for this.

Housing bears and bubble bloggers argue there is no way out except for a lot of pain and severe house price drops. I submit the solution isn t so one sided and the third quarter numbers released yesterday attest to that.

The National Association of Realtors report showed -

The median single-family house price in the United States fell to $220,800, which was down 2 percent from a year ago. Condo prices showed some resiliency: At $226,900, they rose 2 percent compared with 12 months ago.

Yes, housing prices for single family homes went down on a national level

and I suspect they will continue to do so for much of the coming year as excess inventory in Florida, California and Nevada continue to work through the markets. Did you notice condo prices increased? People are still buying these types of properties and they re continuing to appreciate. To be fair, the “subprime” meltdown didn t really have a far reaching effect until August, so this data could be skewed a little. 4th quarter numbers will provide greater insight.

Another factor to be aware of is the downturn hasn t affected all areas of the country equally. In fact, the hardest hit areas are those that had excess speculation or systemic economic problems.

Most declines occurred either in once hot markets or Rust-Belt areas clobbered by economic setbacks and job losses, like Detroit and Cleveland.

In Salt Lake City, we are still enjoying house price increases, though the volume of the sales has decreased. Pat Kitano points out “market bifurcation” is happening all over the world.

In the heartland, Bismarck, N.D. prices were strongly positive with a growth rate of 15.1 percent to $161,600 compared with a year ago, . Salt Lake City also recorded a big gain, with prices up 14.1 percent to $246,700.

Even in Salt Lake some areas are doing well, while others have gluts. What to do, what to do?

We re still in wait and see mode. The depth of the subprime writedowns just became known in August. The numbers released yesterday cover only July - September. In the mean time two other factors are working into buyer s favor. Employment continues to be strong and stable, even in the construction sector where October s starts exceeded expectations. Further, the benchmark 10 year bond has dropped to 2003 levels and fixed mortgage rates are mirroring the drop. The Fed looks even more likely to provide another interest rate cut when it next meets in December.

When all these factors are considered, across the board housing price drops don t have to be the only way out, but it s still too early to tell.

It has been said about investors that those swimming naked are only revealed when the tide goes out. In essence, it s hard to get caught with your pants down when you re up to your neck in water.

During the mortgage boom, lenders were so focused on expanding business, they didn t care too much about protecting the quality of their loans. Now that things have slowed down, they are paying much closer attention to specific deals.

The latest group to get caught up are the loan officers and mortgage brokers of Champion Mortgage. In an investigation by the Utah Department of Real Estate, these brokers were found to have falsified loan documents, forged signatures and even “modified” tax records to close more deals. According to KSL.com -

Derek Miller, director of

the Utah Division of Real Estate, said, “Looking into his business led us to a second mortgage officer, to a third, to a fourth, until we realized that pretty much all loan officers in that company were involved.”

That business, Champion Mortgage, was operated out of a house that now sits empty and up for sale.

This is “classic” mortgage fraud, the kind that consistently lands Utah on top of the nation s mortgage fraud lists. It s also the kind of fraud Utah s recently enacted mortgage licensing laws were designed to prevent. Despite being in existence for about four years now, Utah is still a top ten State for mortgage fraud and all borrowers pay a premium for this distinction.

One employee of Champion Mortgage, spoke anonymously and said -

the state is looking to blame mortgage brokers for bad loans. He says the state is running them out of business and ruining their livelihoods. They also say they were strong-armed into signing documents saying they falsified information.

The evidence presented suggests otherwise -

Those orders say Phillip Rowson and Leo Kanell, among other things, submitted fake letterheads and forged signatures. Eric Larsen is accused of inflated income information.

In addition, Miller says, “Mr. Eric Larsen gave the phone number of his assistant as the contact number when the bank would call to verify employment of the applicant.”

But it doesn t stop there. Shawn Roach is also accused of altering credit and insurance documents. The state contends Carlos Lira inflated income statements, though Lira didn t admit to any wrongdoing. Each had his mortgage license revoked, each faces fines.

I for one am thankful the DRE is doing their job. Shady mortgage brokers present unrealistic options for borrowers and give everyone in the industry a bad name. This purposeful deceit is criminal and should be prosecuted as such. For now, these former employees of Champion Mortgage simply have to find a new line of work and pay some fines which could be pretty steep. Criminal charges have not been filed. These brokers also have the possibility of a civil lawsuit should any of the loans they originated default.

The one way to never be caught with your pants down is to keep them on. We had a terrific boom over the past few years. Is it really worth it to be dishonest to get a few extra dollars? I don t think so and I sleep very well at night because of it.

No matter what your moral or religious beliefs, I think everyone has a price for which they will commit a crime. For some people that price is intangible. It may be their life, or the life of their friends or relatives. For others, it may very well be a sum of money.

Over the years, I ve seen people lose their careers, sometimes their freedom for various small sums of money. Sometimes it was a case of direct theft. Sometimes it was a matter of bending the rules. In one instance, it was a case of murder.

The loan brokers at Champion Mortgage did it for the money. Based on the fines the Division of Real Estate levied on them, I can t see the few extra thousands of dollars they made being worth it at all.

The Salt Lake Tribune reported this morning -
/>The state revoked the licenses of five loan officers at Champion: Phillip Rowson of Riverton, Leo Kanell II of Salt Lake City, Eric C. Larsen of Sandy, Shawn Roach of Draper and Carlos Lira of Riverton.

Rowson has been ordered to pay a $20,000 fine for admitting he employed unlicensed individuals to originate mortgage loans, according to the state order. He also admitted to being aware of several instances in which loans were fraudulently approved with fake documents or false information, and that in one instance he verified false employment and income information for a co-worker s brother who was trying to get a home loan.

In actions taken against his staff:

* Kanell II was ordered to pay a $20,000 fine for admitting he submitted a fraudulent document in support of a loan application and temporarily adding loan applicants to bank accounts to inflate their assets. He also admitted to submitting false employment and income information on a loan application and indicating that some properties were to be “owner-occupied,” when in fact they were being purchased as investments. Borrowers who seek money to purchase a property they plan to occupy often pay lower mortgage rates and have to put down less money than those who are buying a home as an investment. Kanell II also admitted to misrepresenting his own income on a personal loan application, according to the state order.

* Larsen was ordered to pay a $30,000 fine for admitting that he submitted fraudulent employment and inflated income information on a mortgage loan application, according to the order. He also admitted to providing his assistant s cell phone number as a person who could verify a borrower s income and that he altered an applicant s credit report.

* Roach was ordered to pay a $15,000 fine for admitting he submitted a loan application on behalf of a co-worker with false information, according to the order. He also admitted to doctoring numerous documents used to support loan applications.

* Lira, who the order said neither confirmed nor denied the allegations against him, was ordered to pay a $2,500 fine. State officials allege that he submitted false loan data, including an income statement claiming than an applicant earned $12,000 per month. Investigators confirmed he made only half that amount.

It appears the DRE is sending a message with this action to all the State s mortgage brokers. It s a good thing too, because Utah is still in the top ten for mortgage fraud despite an aggressive licensing campaign.

I ll admit I too have a price. The number is $10,000,000. If you leave me in charge of that kind of money, I ll find a way to abscond with it. Other than that, you are safe with me.

Despite the downturn in real estate, projections for Utah s economy are still quite positive. A report released this morning shows Utah s economic future is till quite bright.

In September, Utah led the nation in job creation -

Pointing to September s job growth figures, Matthews said Utah was the top state with a 4.4 percent increase.

“We were way above everyone in the country,” he said, noting that Wyoming and Montana came in second and third with 3.3 percent increases while Arizona was fourth with a 2.6 percent jump in the number of new jobs created.

Higher fuel prices and the real estate slow down are expected to have little effect on Utah s economy during the projected period.

Even the prospect that the price of gasoline might remain

above $3 a gallon in Utah and that the pace of home construction will continue to slacken, doesn t significantly diminish Utah s economic outlook for next year, he said.

“If you look at total construction employment [commercial and residential] in September we were still nearly 12 percent ahead of a year ago,” Matthews said. “Total construction employment [in Utah] should remain pretty solid.”

I had a discussion with a real estate investor and foreclosure expert the other day who pointed out the problems we re having in the real estate sector are quite unique. He reiterated that real estate is local, but the lending problems are national. Unless drastic changes are made in the lending marketplace, fringe buyers that were able to get loans in the recent past will be excluded in the future. House prices are sticky on the way down meaning the downward trend takes much longer to play out than the upswing.

Utah s promising economic future assures house prices will take longer to go down if at all. It s important to note that Utah s strong economy can t outweigh the lending policy decisions created by the Federal Reserve Board and Congress.

Mark Knold, senior economist at the Utah Department of Workforce Services, said while there may be subtle changes in Utah s economy during the first half of 2008, overall the state will experience strong growth, a tight labor market and low unemployment.

As other state s economies slow down, Utah should draw a strong in migration and that will help support home prices though sales activity is expected to drop sharply.

Richard Culbertson, a mayoral candidate for Eagle Mountain, lost his bid for office in yesterday s election by a landslide. Culbertson, recently investigated for mortgage fraud had his real estate license revoked for among other things forging the signature of his own son-in-law on real estate documents.

The fraud investigation was revealed just weeks before the election. Further, an inflammatory ad ran last week that poked at Culbertson s marital history. Culbertson s opponents discovered through a digital “fingerprint” the ad actually came from Culbertson s camp. The Salt Lake Tribune got the Culbertson volunteer responsible to confess after previous denials -

An anonymous advertisement published in a community newspaper, the Crossroads Journal, encouraged residents

to vote for Jackson because of her “great marriage.” It criticized Richard Culbertson s divorce, asking, “If he can t even keep a marriage together, how can he bring the city together?”

Jackson, worried she would be blamed for the ad, decried the claims, alongside fellow Councilman David Lifferth who traced the ad to Michael Karr, a volunteer with Culbertson s campaign.

Karr, who earlier denied on KSL-TV that he ran the ad, told The Tribune Wednesday that he - and he alone - did it. He said he wanted to parody a chart, published in an earlier issue of the paper, that enumerated Culbertson s divorces, along with bankruptcy filings and traffic tickets.

“It wasn t intended to hurt anybody,” Karr said. “And I apologize for anyone who was hurt.”

Culbertson lost the election 25% to 75%.

25 real estate markets poised to fall read the headline on CNNMoney this morning. I was curious to see if Salt Lake was on the list. Sure enough, it was. When I examined the “criteria” displayed for making the list, I was a little disappointed again with the reporting. The photo article showed three data points: the 15 year average price/rent ratio, the current ratio and a five year projected forecast. For Salt Lake, the forecast is -22.5%. (Is that a 22.5% decline per year or 22.5% at the end of five years which is 4.5% per year?)

Initially I was pretty peeved, until I saw this companion piece which explained things a little better. Still the negative skew on the whole has me irked. The “decline” could be avoided by an increase in rents, increased demand for housing or any other combination of unpredictable events. The pretentiousness of presenting projections as facts is misleading and tiring.

I m not saying there s no reason for concern out there. The American economy is at a turning point and certainly not booming, but is it really that bad? My friend Mark Alder feels the same way. He recently wrote on his new blog -

Number of homes sold in October up 30 units from 10 years ago.

893 units sold in sold in Salt Lake County for October 2007. That is 30 more than the 863 sold ten years ago for October 1997 in Salt Lake County. Mark Alder, a local realtor, says "more homes sold in October 2007 than October 1997 " Despite pressures from newspapers and television and tighter lending standards, homes continue to sell. This really shows how resilient our housing market is.

(actual data taken from the WFRMLS on Nov 2, 2007)

Now before you get to thinking we re disgruntled real estate professionals, consider what Stanley Bing had to say today on his blog. He s not part of the “REIC” and he s tired of all the negativity too -

Anyhow, I read a really stupid thing the other day and it made me think how close we all are to crushing ourselves in a real honest-to-God panic the way those soccer maniacs do to each other every couple of years. One person gets spooked, then another, and pretty soon people are trampling over each other like lemmings eager to hurl themselves over the nearest cliff.

People like Mark and I are not bitter, we re simply offering another viewpoint to combat the poor reporting by the mainstream media. (Not to say the MSM wasn t reporting incorrectly during the boom.)

Mr. Bing has another suggestion to all the doomsayers -

You know what? I have a reasonable, sane suggestion for the FT, the analysts, boozy brokers, et. al. Here it is: Shut: up. Please. I'm begging you. Let me put it another way. Go home, all of you. And don't talk to anybody or write anything at all for the next three or four days. You don't know anything anyhow, so it should be easy.

Look at it this way: It's nearly Friday. You've had a busy week, moving the markets down, scaring everybody with all the horrendous words that make people run on banks, sell stocks, start stashing cash under their mattresses. Inflation. Stagflation. Recession. Depression. Recession. All of the above! Aieeee!

Take tomorrow off. Go pet your dog or something. You guys are going to create all the things that you're frothing about if you're not careful.

I m not telling the media to shut up. I m just telling them to be realistic. Check your facts and stop scaring people. Do you really want your exaggerated headlines to come true? I think not.

I saw an interesting article in the Salt Lake Tribune yesterday about the rise of lease options being used in the Valley. A lease option is a type of seller financing I think will become very popular for first time home buyers and people with bad credit who want to buy homes.

The Tribune writes -

Home sales are down in many areas locally, in great part because some buyers are having difficulty qualifying for loans under tighter lending criteria put in place after the nation s subprime lending meltdown.

Enter the lease-option or lease-to-own agreement. Through such arrangements, a buyer with credit blemishes can sign an agreement to lease a home for a specified period of time (typically two or three years), and then gain the right to purchase the property outright. In some cases, part of the rent payment goes toward a down payment on the property.

The lease option tends to favor the seller because the buyer doesn t actually get their name on title. Additionally, the vast majority of lease options end up not becoming purchases. Lease option buyers are subject to being scammed because they don t understand these four critical steps to having the best exit strategy on a lease option.

1. Negotiate the final sales price up front and have it written in the lease agreement. The best way for the buyer to cash out the seller should they execute the agreement is through a refinance, not a purchase. The amount of equity between the “purchase” price and the appraised value gets calculated in the loan to value ratio. Structuring the lease option up front favors the buyer and makes it easier for the purchase to be closed.

2. Record the lease option with the County recorder. This step is reassuring for the lender and officially shows there is another party involved in the home.

Troy Sample and his former landlord are still haggling over the terms of a lease-option agreement they entered into three years ago. Sample said this summer, when his option to buy the home arrived, he couldn t track down the property owner. “We were fully approved, but we couldn t close,” Sample said. The property s owner, Abraham Fox, declined to comment because Sample has taken legal action against him.

Sample said he made one crucial mistake: He failed to officially file the lease-option agreement with the county.

3. Record a Notice of Interest on the property when the lease option is recorded. This legal document will show you have an interest in the property and must be notified of and sign off any change in ownership of the property. An owner can t sell the property to another buyer without your knowledge.

4. Have a third party record your lease payments. Lenders are really cracking down on nontraditional borrowers. It is easy to fake a payment history on lease options so have a third party do it. Some payment services will even report to the credit bureaus. A suitable alternative is to pay using cashier s checks. A lender will question personal checks because they don t prove the payer had the money. A cashier s check does.

A lease option is one of several forms of “creative financing” or “seller financing” available today. Lease options have different advantages and disadvantages from other methods like “wrap around” contracts. As a buyer, make sure you plan ahead to get the best result from your lease option.