POSSIBLE SCAM ALERT--Housing

[Richard]

My brother and I are looking at SFR REOs to buy. All of the 5 properties we've veiwed so far have their central heating ripped out. I don't mean disconnected, I mean ripped out and sometimes laying in the back yard, other times missing from the property. Other than that, the properties are in good condition and require only the minimum cosmetic repairs.

Two RE agents and one in-house lender we've spoken with have related the same experiences.

It is speculated that one explanation is that the banks are making the properties unhabitable, thereby virtually guaranteeing an all cash purchase.

What's going on?

 

[flyersfan31]

Why look for a conspiracy, when a simple explanation will do?

Miscreants, knowing house is abandoned, strip it of valuable assets, for use in other projects, resale to unwitting customers, etc. Simple.

The bank wants a saleable asset. They want as many people as possible to qualify to purchase the asset and get it off their books. Banks are not in the real estate business; they don't want to manage these properties. There aren't many cash buyers, so why would they purposefully make the properties less attractive and limit the potential market?

 

[gkainz]

There was a story on the news a while back where current occupants, on the verge of foreclosure, were selling everything in the house, including built in cabinets, plumbing fixtures, etc ... but heating systems ripped out? That's wierd.

 

[steingar]

You have full disclosure and know what repairs are required. If the house is worth after the repairs than you have invested, you win. I don't understand the problem.

 

[Trapper John]

You have full disclosure and know what repairs are required. If the house is worth after the repairs than you have invested, you win. I don't understand the problem.

Around here anyway, you don't get a disclosure statement with REOs, since the owner is long gone and the bank certainly isn't going to make any representations as to the property's condition...

The other issue is that many mortgage lenders require a property to be in habitable condition before they will close a loan.


Trapper John

 

[Richard]

Why look for a conspiracy, when a simple explanation will do?

Miscreants, knowing house is abandoned, strip it of valuable assets, for use in other projects, resale to unwitting customers, etc. Simple.

The bank wants a saleable asset. They want as many people as possible to qualify to purchase the asset and get it off their books. Banks are not in the real estate business; they don't want to manage these properties. There aren't many cash buyers, so why would they purposefully make the properties less attractive and limit the potential market?

No. Did you see where I mentioned the unit is laying in the backyard? Nothing was missing, the only thing is pipes had been snipped and the unit ripped out.

It would be like walking up to a car up for sale, remove the headlights, snip the wires, place the lamps on the front seat. Everything else is untouched. Who would do that and why?

 

[Richard]

You have full disclosure and know what repairs are required. If the house is worth after the repairs than you have invested, you win. I don't understand the problem.

Disclosure does not apply to banks. REOs are held by the bank. Lenders won't lend on a house which is less than habitable. Banks won't let you repair any defects. So, for a REO to be sold in this situation means the buyer must come up with the monies by an alternate means. Typically this is cash. It makes a lot of sense for a bank to want an all cash sale.

Ripping out the central air renders the house uninhabitable but does not risk damage to other portions of the home or does it present a security risk. It is a very easy way of accomplishing to goal of making the house uninhabitable.

 

[SCCutler]

If it's forced-air gas, it may be that they had condemned the unit because the heat exchanger had flaws, hence a CO risk, and they simply did not want to undertake the risk.

Still, it should be hauled off in that scenario.

 

[jesse]

I've looked at a number of foreclosures over the last few months and nearly every one of them had fairly significant intentional damage. I figured ****ed off home-owners losing their house.

 

[kevin47881]

I've looked at a number of foreclosures over the last few months and nearly every one of them had fairly significant intentional damage. I figured ****ed off home-owners losing their house.

My thought exactly.

 

[Richard]

I've looked at a number of foreclosures over the last few months and nearly every one of them had fairly significant intentional damage. I figured ****ed off home-owners losing their house.

Yes, we saw some of that. But what I'm talking about is just this one thing. No other signs of vandalism or rage. And in all 5 properties it was that same exact thing.

And the RE agents, they expressed surprise...even after admitting they have seen a bunch of intentioanl damage in recent months.

Oh well, next week we'll be putting in offers...after one last look at specific properties. We'll see if the condition of the property changes between now and then.

 

[shywon]

Ambitious Heating/AC employees?

 

[Skip Miller]

How much copper was missing? When Cu prices are high, thieves will rip out copper and sell it. (I don't know if Cu prices are high these days....) But thieves certainly would not take the trouble to lug the unit outside. -Skip

 

[AuntPeggy]

Could it be that the bank wants the house uninhabitable to discourage squatters?

 

[Areeda]

Could it be that the bank wants the house uninhabitable to discourage squatters?

I think Richard is in SoCal these days. The problem is heating and air-conditioning are not necessary items for squatters here.

Joe

 

[Richard]

How much copper was missing? When Cu prices are high, thieves will rip out copper and sell it. (I don't know if Cu prices are high these days....) But thieves certainly would not take the trouble to lug the unit outside. -Skip

In two of the properties, the central air unit was lying in the back yard. I was able to determine that the lines matched to what was in the house. That is, all parts were accounted for, nothing missing. The crux is that the unit had been rendered useless in it's present condition. although perhaps serviceable

 

[Richard]

How much copper was missing? When Cu prices are high, thieves will rip out copper and sell it. (I don't know if Cu prices are high these days....) But thieves certainly would not take the trouble to lug the unit outside. -Skip

Right. Especially since outside means in plain view to prying eyes whereas inside offers more concealment.

Someone with tools did these deeds. There was no sign of force.

 

[Richard]

I think Richard is in SoCal these days. The problem is heating and air-conditioning are not necessary items for squatters here.

Joe

Well, maybe Peggy is on to something. However, turning off the utility service takes care of that. The gas and water meters are locked but that doesn't mean a guy couldn't cut the lock. The utility company would notice useage but no billing and would be on that like green on grass. But the squatter wouldn't care or even know until they were kicked out.

Even still, the water heater and cooktop or range were intact.

 

[colomtnflyer]

In two of the properties, the central air unit was lying in the back yard. I was able to determine that the lines matched to what was in the house. That is, all parts were accounted for, nothing missing. The crux is that the unit had been rendered useless in it's present condition. although perhaps serviceable

Any yellow tag attached to them? Or perhaps a 337 certificate?

 

[Richard]

Any yellow tag attached to them? Or perhaps a 337 certificate?

good one

The only tag was indeed yellow and showed the date the utility service was shut off.

What I meant was other than the highly visible pinched off copper lines and cut elec cord (where it was hardwired into the wall), the rest of the unit looked good. The guts were still in place and no sign of tampering.

I am at a loss to explain why anyone would do this. I speculate it was to make the property suitable only for a cash purchase. Separate properties, all REOs.

 

[RJM62]

But why would the bank holding the REO do that? What's in it for them? What do they care, really, about where the money came from? They want to unload a non-performing asset. It's in their interest to do so as quickly as possible.

Around here, property taxes alone on an average house can cost the bank upwards of ten thousand dollars a year. When my parents retired, the property taxes on their modest 3-bedroom house in working-class western Long Island were about $14,000 a year (which is the main reason they moved, by the way). I really don't get why a bank holding a non-performing asset that's costing them that much money would care where the money came from. They just want to unload it.

Yeah, cash is king; but the bank has already lost a bunch of it on an REO, and all those non-performing assets make the bank's shareholders jittery. The bottom line is that the bank wants to sell the house. They failed to do so by short sale, and they failed to so at foreclosure. Although banks will rarely put any money into an REO to make it more saleable, I doubt they would deliberately delay the sale just for the sake of finding a cash buyer.

So who would?

The former owner is a suspect, of course. People losing their homes have been known to do spiteful things to "get even" with their banks. But why schlep the HVAC unit up the stairs when taking a sledge hammer to the sheetrock and plumbing fixtures is so much easier and more satisfying? And if you are going to schlep it all the way up the stairs, why not sell it once you get it there? So no, I don't think the former owners are the culprits here.

So again, the question is: Who would have a vested interest in preventing the home from being sold, or at least delaying it?

My prime suspect would be the broker who did the original BPO.

Real estate brokers work on commission, and these sales typically generate less money for them because the sale prices tend to be low. They also tend to require a lot more work. So the broker's looking at more work for less money -- not something too many people look forward to.

A seller's broker in this situation might be especially reluctant to share that meager commission by splitting it with a buyer's broker. The obvious way to avoid that is to sell it himself. But "pocket listing" the property will likely get him in trouble with the bank (and possibly the law) for not putting forth his best effort to find a buyer.

But if he makes the house unsaleable (probably blaming the previous owners, vandals, or thieves, any of which would be hard to disprove because he himself did the BPO), he can wait until a suitable candidate strolls into his own office looking for a great deal. That "suitable candidate" would preferably be one with cash, but could also be someone who is using an FHA 203(K) loan (which does allow extra funds for repairs to be factored into the mortgage). In either case, the broker gets to pocket the whole commission.

Follow the money.

-Rich

 

[Richard]

But why would the bank holding the REO do that? What's in it for them? What do they care, really, about where the money came from? They want to unload a non-performing asset. It's in their interest to do so as quickly as possible.

Around here, property taxes alone on an average house can cost the bank upwards of ten thousand dollars a year. When my parents retired, the property taxes on their modest 3-bedroom house in working-class western Long Island were about $14,000 a year (which is the main reason they moved, by the way). I really don't get why a bank holding a non-performing asset that's costing them that much money would care where the money came from. They just want to unload it.

Yeah, cash is king; but the bank has already lost a bunch of it on an REO, and all those non-performing assets make the bank's shareholders jittery. The bottom line is that the bank wants to sell the house. They failed to do so by short sale, and they failed to so at foreclosure. Although banks will rarely put any money into an REO to make it more saleable, I doubt they would deliberately delay the sale just for the sake of finding a cash buyer.

So who would?

The former owner is a suspect, of course. People losing their homes have been known to do spiteful things to "get even" with their banks. But why schlep the HVAC unit up the stairs when taking a sledge hammer to the sheetrock and plumbing fixtures is so much easier and more satisfying? And if you are going to schlep it all the way up the stairs, why not sell it once you get it there? So no, I don't think the former owners are the culprits here.

So again, the question is: Who would have a vested interest in preventing the home from being sold, or at least delaying it?

My prime suspect would be the broker who did the original BPO.

Real estate brokers work on commission, and these sales typically generate less money for them because the sale prices tend to be low. They also tend to require a lot more work. So the broker's looking at more work for less money -- not something too many people look forward to.

A seller's broker in this situation might be especially reluctant to share that meager commission by splitting it with a buyer's broker. The obvious way to avoid that is to sell it himself. But "pocket listing" the property will likely get him in trouble with the bank (and possibly the law) for not putting forth his best effort to find a buyer.

But if he makes the house unsaleable (probably blaming the previous owners, vandals, or thieves, any of which would be hard to disprove because he himself did the BPO), he can wait until a suitable candidate strolls into his own office looking for a great deal. That "suitable candidate" would preferably be one with cash, but could also be someone who is using an FHA 203(K) loan (which does allow extra funds for repairs to be factored into the mortgage). In either case, the broker gets to pocket the whole commission.

Follow the money.

-Rich

Excellent, Rich.

I do have my suspicions of the agents doing this. And for exactly as you mention. In the area we are looking there are over 2,000 REOs as active listings although only 3 (three) owner listings. (It's a heck of a time to sell because an owner would be competing with the REOs and it is a losing position.) And the asking prices are $50K-115K for typical 3/2 on half acre parcel. (If we include >$115K-$200K, over 4,000 REOs pop up.) $80-100K will fetch a very nice 3/2; 4/3, etc in a good neighborhood but on 3-5,000 sf lots.

That's not a lot of coin for the agent and broker. Although I do understand their reason, I've been dismayed by several agents trying their darndest to keep it in house by showing only their listings.

There is another reason in play here. TARP monies have created a condition where banks are not so quick as pre-TARP to unload toxic assets. This isn't only my suspicions but is shared by agents and lenders alike. Banks are dragging their heels like never before. I've had discussions with several lenders and 3 were forthcoming enough to admit they see this too. This is why I suspected the banks more than the RE brokerages. Yet both have their incentives.

EDIT: I've noticed a dramatic increase in the work farmed out by the banks to property mgmt companies. Notably, this work is to maintain the bank-owned properties for an undetermined length of time. So much so that the market requires these upstart companies which provide only regular maintenance much like a lawn service. These companies sub out from the regular property mgmt companies. In fact, their only customers are those property mgmt companies. There are full dockets of residential properties which require monthly maintenance services. All bank owned, all being maintained for months yet cross reference reveals no active listing. This is a growth industry and has resulted in a decrease of gen'l contractors available for handyman services to private owners. (A requirement to provide these services is licensed contractor w/ bond.)

I add this to point that these guys are doing the grunt work for the banks. And this significant upswing did not occur until very recently, ie, post-TARP.

 

[Richard]

BTW:

But why schlep the HVAC unit up the stairs....

Rarely will you find a basement in CA. Or the utilities a floor below access to the exterior. And they may schlep in Hollywood but in the real world, not much schlepping is done in CA.

 

[RJM62]

....

I've noticed a dramatic increase in the work farmed out by the banks to property mgmt companies. Notably, this work is to maintain the bank-owned properties for an undetermined length of time. So much so that the market requires these upstart companies which provide only regular maintenance much like a lawn service. These companies sub out from the regular property mgmt companies.

....

One of my my brothers is a licensed contractor in multiple jurisdictions in (I think) three states, and he's starting to get that sort of work. He says most of the houses he's asked to maintain are in jurisdictions where the bank is fined for things like raggy lawns or broken windows on vacant houses. The banks seem concerned only about (1) the exteriors, and (2) things that make the houses structurally unsound, such as sledgehammer damage to bearing walls.

Being concerned about tall-grass fines seems odd to me, seeing as how the fines are trivial compared to what the bank already is paying in taxes on these houses.

There also was an article in one of the local papers a few months ago about moonlighting cops who are hired by banks to chase squatters out of vacant homes and make sure they stay out. Apparently there's a subculture of squatters who know the lockbox combinations used by all the major real estate companies, and who simply move into vacant REOs and stay until they're chased out.

Because some of the municipalities here require that landlords maintain utility service to vacant dwellings, these squatters can live pretty well. The article even mentioned some squatters who actually cleaned up the places a bit while they were there, both for their own comfort and to make their presence more welcome by the neighbors (who presumably would be less likely to report them if they mowed the lawns). It made me wonder why the banks didn't "hire" people to live in the houses and tidy them up in return for free rent.

-Rich

 

[Geico266]

Who would do that and why?

I have been buying foreclosures for 25 years, RE for 30 years. I stopped asking that question about 25 years ago. Rather than concentrate on why someone ripped the furnace out concentrate on how you can make a profit on the house. Unless you are writing a book on stupid human behavior it is a waste of time and mental energy. There are a 1,001 reasons why people do stupid things with their homes. Keeping track of the stupid things is even dummer than the stupid things the home owners did.

Focus. Lazer focus on your objective and business plan. If you have neither you are in the wrong business.

I'm not trying to be a smart butt, and I rarely try and help my competition. Just passing along advice from decades of experience.

 

[Lawreston]

SOLD on July 05, 2006, one of the first houses built(1988) in its subdivision in North Scottsdale. It was on the market for 7 months, during which time there were 2900+ properties listed in just Scottsdale(not including Phoenix). Unaware of the economy tanking which was to later befall the area, did I "get out" at the right time? [ ) thinking what could have happened]

HR

 

[Skip Miller]

It made me wonder why the banks didn't "hire" people to live in the houses and tidy them up in return for free rent.

-Rich

I don't know for sure, but I'll guess it is because of the legal difficulties in evicting them if they choose not to leave when the banks want them to leave.

I am familiar with landlord-tenant court in NYC and it is completely tenant-centric. Landlords get hosed regularly there.... There are a lot more tenants than landlords. And tenants vote!

-Skip

 

[Richard]

I have been buying foreclosures for 25 years, RE for 30 years. I stopped asking that question about 25 years ago. Rather than concentrate on why someone ripped the furnace out concentrate on how you can make a profit on the house. Unless you are writing a book on stupid human behavior it is a waste of time and mental energy. There are a 1,001 reasons why people do stupid things with their homes. Keeping track of the stupid things is even dummer than the stupid things the home owners did.

Focus. Lazer focus on your objective and business plan. If you have neither you are in the wrong business.

I'm not trying to be a smart butt, and I rarely try and help my competition. Just passing along advice from decades of experience.

Um, yeah, ok.

 

[flyersfan31]

No. Did you see where I mentioned the unit is laying in the backyard? Nothing was missing, the only thing is pipes had been snipped and the unit ripped out.

No, I missed the back yard part. That's plain weird.

I still don't suspect the bank. They want to get rid of these things. The last thing a banker wants is to get tossed the keys of an asset, whether a house or a combined-cycle gas turbine power plant (ask me how I know ).

I think it's still a "follow-the-money" issue. HVAC contractors looking for work? That's my guess. I've run into several shady HVAC guys and I've only owned two houses.

 

[TangoWhiskey]

Similar situation just happened to my Uncle. While in Arizona this past weekend, he and his wife found a nice house, REO, that they wanted to buy. Put down $1000 earnest money, made an offer, which was accepted.

Bank rejected it once they realized my uncle intended to pay CASH. They were only interested in selling at that price if it was financed.

Can they do that?!

 

[Skip Miller]

Similar situation just happened to my Uncle. While in Arizona this past weekend, he and his wife found a nice house, REO, that they wanted to buy. Put down $1000 earnest money, made an offer, which was accepted.

Bank rejected it once they realized my uncle intended to pay CASH. They were only interested in selling at that price if it was financed.

Can they do that?!

Yes. Or no. It all depends on what the contract says.

-Skip

 

[flyersfan31]

Similar situation just happened to my Uncle. While in Arizona this past weekend, he and his wife found a nice house, REO, that they wanted to buy. Put down $1000 earnest money, made an offer, which was accepted.

Bank rejected it once they realized my uncle intended to pay CASH. They were only interested in selling at that price if it was financed.

Can they do that?!

Did they explicitly state that, or is your uncle assuming that?

 

[kkoran]

Getting back to the original post, how would this be scam?