Real Estate Information

President Bush gave struggling homeowners a gift on the 20th when he signed the Mortgage Forgiveness Debt Relief Act into law.

The act will remove tax liability from homeowners that complete short sales or foreclosures. Under current law, forgiven debt is treated as income and taxed accordingly. This is true unless the debtor can show they are financially insolvent.

Replacing the revenue earned from these types of taxes is an exclusion on 2nd homes that fall into the current primary residence exemption.

I see the new law as a mixed bag of sorts. It s a lot like white elephant gift swapping during the holiday time where good gifts are mixed with gag gifts and someone ends up with the short end of the stick. Struggling homeowners are encouraged to get rid of

their homes by any means, people with two homes suddenly earn a tax burden if they sell, while real estate investors now have additional incentive to complete short sales.

While I think Congress has done a good job getting the law passed quickly, it only encourages more foreclosures and short sales, further driving down home prices. The unintended consequences may be staggering.

I wrote earlier that I didn t think the law would pass with the change in taxation for 2nd home sellers, but the President has proven me wrong. The opportunity with this law is placed squarely on real estate investors and they should act accordingly.

If you read the headlines this year, you might think the housing Grinch stole Christmas this year. Did he?

Black Friday sales came out stronger than expected and November retail sales far exceeded expectations, yet today s business stories pointed out weakness in the retail sector this holiday.

I enjoyed the holidays this year and for the sake of market research and helping out an old friend I joined the ranks of retail workers, part-time, for the first time in over a decade.

What did I see this year? Business as usual for the most part. Shoppers were looking for deals, but when supply ran low, they bought what was available. The spirit of Christmas trumps the economy I suppose. People of limited means waited till the last minute, but shopped nonetheless.

Maybe it was different here in Utah because we haven t seen the sharp downturns other markets have. The national retailer I worked for didn t have any fire sales and when I went shopping I didn t see huge discounts. Was it different for you?

Please leave a comment with your observations of this holiday shopping season. I wish you and yours the best for the coming year.

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Lately, I’ve seen more and more comments coming into the lab and my other RE sites there were obvious to me the post hadn’t been read at all.

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I had a hard decision deciding what image to use for this post representing the volatility on Wall Street a roller coaster or a bouncing ball. Either one is accurate and Tuesday s activity on Wall Street provided an excellent example.

While a Fed rate cut was widely anticipated, the fact that it wasn t as big as Wall Street hoped sent markets shooting off in all directions. The Fed cut the overnight lending rate .25% as expected, but Wall Street seemed to be hoping for a half point decrease. Like a spoiled child that didn t get what they wanted for Christmas, the stock markets sold off quickly after the announcement, sending the Dow plummeting nearly 300 points. Other indexes shed similar percentage losses.

Meanwhile, the gains that piled onto bonds late last week and

early this week made a sudden change of direction with the benchmark 10 year bond yield dropping 19 basis points. This recent change will likely leave mortgage rates flat for the week when numbers are reported tomorrow. This kind of market volatility is virtually unprecedented this decade and has everyone wondering what s going to happen next.

Like I said yesterday, it hardly matters when it comes to mortgages. Truly prime borrowers will see their rates improve, while all others, save for FHA borrowers, can only see their rates increase as lender s losses get passed squarely onto them. I ve been optimistic about housing and the mortgage markets for some time, but now, even I, can t see too much hope. Lenders are tightening up and higher rates mean smaller loan amounts. Few exits are available for the current situation.

This was the last FOMC meeting of the year and the accompanying statement showed that concern for the economy after the housing fallout is a top priority.

The Fed acknowledged that “economic growth is slowing, reflecting the intensification of the housing correction and some softening in business and consumer spending.” It also said that “strains in financial markets have increased in recent weeks.”

I m eager to see how the mortgage markets straighten out. Though the news seems dire now, far worse situations have been overcome in the past. 2008 is going to be a real interesting year for real estate.

Additional details about the Provo Riverbottoms scandal has come to light. Yesterday s Daily Herald provided some additional details that help this case make a little more sense.

One of the challenges of this case is ringleader Bradley Kitchen has been described as being a home flipper. Over the past few years “flipping” has taken on a meaning different than the one Utah has made illegal. Brad Kitchen wasn t buying homes, fixing them and selling them for a profit. He was involved with the illegal kind of flipping which means putting a home under contract and selling it to someone else for a substantially higher price during a simultaneous closing. The simple test for a three way deal like that is to ask if the deal would close should the final buyer back out. If the middle buyer requires the final buyer to close in order to complete their part of the transaction, the deal is against Utah law.

To pull off a scheme like Kitchen and Dr. David Bolick are accused of, you need to have quite a few transactional players on your side. First of all, you ll need an appraiser who will value the home for sale for a substantially higher price than it s currently being sold for. Enter Steve Cloward who acted as the appraiser for the Riverbottoms transactions. He is a former mortgage broker whose license expired in 2003. He is currently licensed as an appraiser with his own company Cloward and Cloward Appraisal Services. Cloward faces a 20 year prison sentence, $250,000 fine and an additional $7.5 million asset forfeiture.

Other necessary ingredients for this scam are a willing mortgage broker to get the borrower qualified. I ve heard Kitchen was a mortgage broker, but no records exist that he had a license. None of the people named in the indictment have a current mortgage broker s license. If Kitchen did indeed originate these loans, he ll face additional charges from the Division of Real Estate.

A real estate agent in the know is another component. That role was filled by Ron Clarke, principal broker of Riverbrook Properties. Clarke s license is active and has been in place for four years. He s never had any previous disciplinary action and is facing the same penalties as Cloward.

At the end of the real estate trough is the title company. They are necessary to provide the simultaneous close required for these kinds of scams to work. Rebecca Hadlock of GT Title Services filled that role. She s had her escrow license since 2002 and has never faced disciplinary charges. She is now looking at 20 years in prison, a $250,000 fine and asset forfeiture of $4 million.

Another person indicted is Jeffery Garrett. His involvement is unknown at this time, but he holds an insurance license with Utah Community Credit Union and previously held an escrow license. Since banks and credit unions hold FDIC credentials, their mortgage officers are exempt from being licensed by the DRE. Garrett could be the crucial financier involved in the scam. We ll find out when it goes to trial. He is also facing the same charges, with asset forfeiture of $6 million. He too has no previous disciplinary action and his insurance license is active.

The masterminds behind this scam have been presented as Brad Kitchen and David Bolick. Bolick is a licensed doctor and owned two companies related to the scam Home Owners Group and Paragon Investment Group. Neither business has a current license, though the doctor s medical license is still active. Dr. Bolick works as chief medical director for Grant Life Sciences.

It s interesting that everyone involved with this scheme seemed to be upstanding members of society, holding professional licenses in good standing. The only exception is Brad Kitchen. Five years ago Kitchen was convicted of unlawful sexual conduct with a minor 16-17, a class A misdemeanor. Kitchen was 35 years old at the time. He has no professional real estate or insurance licenses, but his business license for Sequoia Capital is still active and in good standing.

As more details emerge in this case, I ll post them here. The five are slated for a court appearance in January.

Brad Kitchen, accused ringleader of the Provo Riverbottoms fraud scam, is no stranger to the Utah County jail. As I did further research on Kitchen, I found his trouble with the law is no infrequent affair.

Kitchen was arrested (bottom photo) and charged for his complicity with the mortgage scam on February 28th of this year. He was charged with Communications Fraud, Conspiracy and Theft. Kitchen left the jail in slightly over 24 hours.

Prior to that, Kitchen was arrested (middle photo) in 2003 for Assault and was out of jail in 52 minutes according to the Sheriff s records.

Other records show Brad Kitchen was convicted of Unlawful Sexual Conduct with a minor in December of 2002. Those charges were filed on May 1st, 2002. Kitchen entered a plea in abeyance later that month for a Zoning Violation.

In 2000, Brad Kitchen (top photo) was arrested for Domestic Violence and Emergency Phone Abuse. He spent a little over an hour in jail during that incident.

How Kitchen ended up being the ringleader of this group of fraudsters I don t know. I ve been told that sometimes in business, large men use their size to their advantage. Kitchen is 6′ 4″ and according to the jail records currently weighs 400 lbs up from 210 in 2002. Regardless of this man s size, his run ins with the law speak for themselves. A little due diligence could have saved many people a lot of time, money and trouble.

The FHA reform bill that passed the House of Representatives in September has been approved by the Senate. However, the Senate s version of this legislation differs significantly from House Resolution 1852.

Key components of the FHA reform bill allow homeowners in subprime loans to refinance through the FHA. Lower down payments and risk based mortgage insurance are also part of the plan. The legislation will also make it easier to become an FHA lender.

Perhaps the most important part of the bill is an increase of loan limits to match the conforming limit at $417,000 for higher priced parts of the country. This is where the challenge lays. The next step is for the Senate and the House to present a version for President Bush to sign into law, but the loan limit differ significantly.

The House version calls for limits to go as high as $729,750 in high cost areas and the President has already indicated he would veto such a law.

Of all the “foreclosure help” out there, I believe this law makes the most sense. During the housing boom, FHA lending was virtually replaced by subprime. FHA loans are highly insured and don t have exposure to non-owner occupied houses. Of any entity in the country to help with the foreclosure crisis, FHA is the one. Indeed, the FHA Secure program is already helping.

As the subprime meltdown continues to play out, FHA is going to have a key role in helping first time buyers and borrowers with troubled credit purchase homes. The fallout of subprime has affected prime borrowers as well. Plummeting home values are going to have a negative affect on everyone. Denver has been named a declining market by Fannie Mae, meaning everyone buying a house in the area will have to pony up an extra five percent down to make a conforming purchase. The declining market designation will also cap HELOCs and accelerate repayment schedules on Option ARMs. Other markets will soon follow.

All signs point to big trouble in the housing and mortgage markets and the FHA is the only institution equipped to mitigate the down side. We ll have to see if the FHA reform bill is amended well enough between the two legislative chambers to earn the President s signature and to be effective in stemming the crisis.

It s been a busy week for the courts system as another real estate fraud indictment was handed out, this time to Wayne Reed Ogden. Unlike some of the other fraudsters profiled on this site who were first timers, Ogden has a history of this sort of thing.

In the 90 s Ogden made headlines for bilking investors out of $7 million dollars in a real estate investment scheme. He was convicted of the crime in 1998 and paroled in 2000. Most of his victims were friends and neighbors of the former Eagle Scout.

In 2002, Ogden solicited investment funds to buy a property in Colorado called Kiowa. The property was purchased as planned, but Ogden continued to solicit investors. The Deseret News reports -

By October 2002, Ogden allegedly had convinced enough investors with

promises of returns of 12 percent up to 100 percent on their investments. According to the indictment, Ogden had failed to disclose that quit claim deeds issued to investors as security for their money were pledged to multiple investors.

The indictment states Ogden then transferred millions of dollars from investor accounts and a trust account to his own control to be used for separate business and personal interests. Prosecutors say Ogden did this by submitting fake “investor instructions” to a local title company, which controlled the trust account.New investors paid old investors until the money ran out. Disgruntled investors began suing Ogden in 2003 for up to $9 million. The scheme is reported to have taken $1.7 million in funds.

Since beginning this new scam in 2002, Wayne Ogden has been in and out of prison for parole violations multiple times. He is currently in the Washington County Jail for passing a bad check in the amount of $27,000.

It s hard to believe people continue to fall for these investment scams. I would suggest the Ogden case is another example of “fool me once, shame on you fool me twice, shame on me,” but he concealed his identity in documents in case anybody checked up on him. He used names Reed Ogden and Wayne Reed as well as two companies: Empire Investment Group and Rocky Mountain Properties to perpetrate this fraud.

I fear we ve just hit the tip of the iceberg when it comes to real estate fraud schemes in Utah. Our state has always been on the top of the list when it comes to this sort of crime and I believe rising home values have masked a lot of schemes. Regardless of who you re dealing with in an investment, you have to perform your own due diligence. If somebody is offering you unbelievable returns on investment, you d better look very closely.

More details emerged today about the K. C. Tebbs real estate related ponzi scheme. As you may recall, it was reported that Tebbs is being sued by jilted investors for failing to deliver on high promised returns.

Tebbs is not yet facing criminal charges, but details revealed today by KSL show Tebbs falsified real estate documents to help pull off his schemes. Over 100 people have lost money for real estate investments through Tebbs.

Like dozens of others, Merkley s cash was supposed to buy residential lots in booming areas of the Salt Lake Valley. He thought his investment was safe when he got deeds of trust for the properties.

But when Merkley tried to verify the deeds, his heart sank. We found out why when we took two of his deeds to the

Salt Lake County recorder, where they track property ownership. All it took was a quick computer check.

Salt Lake County recorder Gary Ott told us the deeds were, “ way fake. There s a multitude of things that are wrong here, but there s some blatant thing here, like the wrong type of document for what was recorded for this transaction.”

Turns out, the documents Merkely got don t even match what s on file. A lot numbers are different and dates and recording codes are off. The properties Merkley thought he owned officially belong to other people.

Ott concluded the documents were cut, pasted, and copied. “This document was manufactured outside this office after we put a stamp on another document,” he said.The injured party mentioned in the article, Ray Merkely, has filed formal complaints against Tebbs which will bring law enforcement into the picture. Both Tebbs insurance and mortgage licenses lapsed several years ago. KSL reports the FBI is now investigating.

It s become apparent that K. C. Tebbs was much more crafty in pulling off this scam and it would have been more difficult for his victims to protect themselves than I originally thought. Still, when it comes to investing, the old adage, “if it seems too good to be true, it probably is,” should remain top of mind.

Disclaimer: My intended audience for this article is Realtors/real estate agents who blog. Please don t be offended if you read this and are not in this group.

It s been a year and a half since I started blogging about real estate and the promise of Web 2.0 revealed itself to agents across the nation. It was also about the same time symptoms of the housing downturn presented themselves and Bubble bloggers gained large audiences.

For a while real estate professionals, myself included, denied things would be as bad as the housing bears made them out to be. The test of time has spoken and the bears have been proven correct. Due to a number of circumstances, faith in the U.S. credit markets have been shaken and lenders are very cautious about originating new loans and the risks associated with such lending.

Last year there were a number of real estate bloggers that took the promise of Web 2.0 and the bubble bloggers to task. As the realities of the marketplace have revealed themselves, I turn to the Web 2.0 real estate pioneers and find myself disappointed.

I m not writing this article to throw stones. I ve been guilty of making a number of misjudgments, so if you re one of the people pointed out here, please take this criticism with the constructiveness that is intended.

This week it became painfully obvious the U.S. credit markets are headed for big trouble. The Fed has made some bad moves and the GSEs have made changes that will impact everyone, even prime borrowers. So I turned to one of the great real estate blog sites, Bloodhound blog to get some perspective. I have my own thoughts, but I like to hear what other people are thinking. Greg Swann provoked the ire of the bubble blog Housing Panic last year and they re still talking about him. His blog has changed from a collection of real estate perspectives to a collection of Web 2.0 perspectives. That s great if that s the direction he wants to go, but in my estimation it helps prove the cynical point that Realtors aren t really that talented, especially in a down market.

So I started searching some of the other Realtor blogs I like. BlueRoof in Salt Lake has also developed a Web 2.0 spin. Greg Tracy recently talked about six word stories. If I were a home seller now, I d be wondering how to sell in a challenging market. This is where Web 2.0 Realtors can make a difference. I kept searching.

Pittsburgh Homes Daily nothing since July about a month before the true nature of this downturn really became apparent. How about 360Digest in Seattle? Fluff! Do you know where I m finding some good perspective on the real estate market? From a Web 2.0 blogger. Though Pat Kitano is in real estate, he s not an agent. He s on the title and technology side. He pointed out last month that real estate bloggers aren t covering the looming foreclosure crisis. He s also provided some very balanced stories showing the other side of the downturn. Pat s real estate agent friend in the Bay Area has followed this model as well.

The promise of real estate blogging is readers will get an idea of the talent, thoughts and capability of a real estate agent by reading what they write. Please don t take this the wrong way, but ignoring the downturn makes you look like you re clueless or inexperienced in dealing with that kind of market. Either way, it s not good.

As a community, we need to come to terms that a downturn has taken place. Credit standards have changed for the worse and real estate professionals who are not skilled are going to be finding new jobs. The fact of the matter is credit standards are always changing and real estate markets are indeed cyclical. Right now it s tough to get a loan under certain circumstances and declining market designations are going to make things worse. Now is the time Web 2.0 real estate professionals can really distinguish themselves. While some are ignoring the challenges that clearly exist, others will grab the brass ring and distinguish themselves from the crowd.

The mortgage and real estate markets are changing. Fannie Mae is making it more costly for even the slightly marginal buyer to get a loan. Guess who isn t? That s right, FHA. What s a good option for people wanting to buy, but afraid to? A lease option. If lenders won t loan to buyers, who can? Sellers. The high interest rates of the late 70 s and early 80 s sparked a lot of seller financed wrap around contracts. By the time rates adjusted down in the mid 80 s, wrap arounds were curtailed by the lenders, but levels of home ownership increased as did housing values. This type of seller financing did a fine job in stabilizing home prices and ownership rates. Just because things are different than they have been, doesn t mean everything is over.

Again, I say these things with utmost respect. I think real estate professionals who blog are headed down the right track and I see this downturn as a fantastic opportunity for Realtor 2.0 to take off. Let s take this challenge by the horns and really provide readers what they want to know - how to buy/sell/invest in a down market.

Editorial Note: The company logo used in this post is here. I guess their vision didn t really work out.