Archive for September, 2010

Short Sale Duplexes Require Strangers

said on September 30th, 2010 categorized under: Short Sales/Foreclosure


Invisible manIs it possible to sell your owner occuppied Minneapolis duplex through a short sale, and never have to move?

Many distressed duplex owners have thought of this. After all, what’s to stop you from selling it to a friend or family member, then either renting your unit back or, ultimately, buying the property back?

The bank.

It’s important to remember that banks and government sponsored entities like Fannie Mae and Freddie Mac are losing tens if not hundreds of thousands of dollars on short sales and foreclosures.

To protect themselves from losing even more money via fraud, one of the the requirements to a short sale approval is that it be an arm’s length transaction.

What’s an arm’s length transaction? One in which two strangers are involved in the sale and purchase of a duplex.

The thinking goes that buyers and sellers who are strangers are more likely to agree to a sales price close to fair market value than are two friends or relatives. That’s because, of course, the seller wants to net as much for the duplex as possible, while the buyer wants to pay as little as she can.

Friends and family are likely to give each other a discount. I suppose the same could be said of a buyer and seller who are indeed unknown to one another, but agree to the seller staying on as a tenant; theoretically anyway, the seller would be inclined to offer an incentive so as not to have to move.

Of course, when it comes to short sales between strangers, I think that’s a difficult argument. The seller doesn’t have that much negotiating power, as it’s the bank that ultimately approves or disapproves the terms of the purchase.

Who enforces these things? In real estate fraud cases, usually the FBI. And I suppose renting back would fall under that category.

Then again, this might also fall under the jurisdiction of the mattress tag removal division.

Minneapolis Duplex Sales Challenge Vocabulary

said on September 28th, 2010 categorized under: Twin Cities Real Est


wordsSometimes Minneapolis duplex numbers are difficult to write about.

In this market, that’s from both a creative perspective and an emotional one.

I’m just flat running out of metaphors, adjectives and adverbs.

The supply of residential homes on the Twin Cities MLS has grown by 9.5 percent since last year for a total of 27,408 homes on the market.

Meanwhile, the 596 signed purchase agreements for the week ending September 18 represent a drop of 42.9 percent from last year’s 1,043 signed contracts for the same week.

The duplex and small multi-family didn’t fare much better. While the number of new listings for the week was down 21.3 percent from last year, the number of pended duplex sales was also down– by 50 percent.

Just 19 percent of the week’s pended properties were negotiated by traditional sellers, while 58.3 percent of the new listings were offered without some level of bank involvement. This is a gain from last year’s 42.6 percent of traditional seller new listings.

Unfortunately, however, the abundance of market supply put downward pressure on prices. Last year’s average sold price for the week was $125,509. Meanwhile, the average off market price of a Minneapolis duplex this year was a meager $105,462; a number that’s sure to drop once those transactions actually close.

While the lower sales prices are certainly discouraging for sellers, there’s always a silver lining. In other words, if you’ve ever considered buying a duplex or adding real estate to your investment portfolio, it’s unlikely there’s ever been a better time to buy.

Homepath Duplex Financing Requires Glasses

said on September 27th, 2010 categorized under: Financing


Read the Fine Print - Magnifying GlassIf you’ve spent any time at all on the web researching the financing of investment property, odds are you’ve read Fannie Mae’s Homepath program will allow investors to purchase property for as little as 10 percent down.

This is good news, right?

Yes and no. Because every time you read that, there should be asterisks telling you to read the fine print at the bottom of the page. The teeny, tiny print that you can’t read without a magnifying glass or a great pair of cheaters.

Fannie Mae’s Homepath and Homepath Renovation financing is available on some, but not all Fannie Mae owned properties.

The perks of using these loans are many. For both owner occupants and investors, benefits include no mortgage insurance, no appraisal fees (Fannie Mae has an appraisal done before listing the property), flexible mortgage terms (fixed interest or ARMs), and a bit more leniency on FICO scores.

But what they don’t tell you is just as important.

Fannie Mae requires an investor to put just 10 percent down on single family homes. However, it’s important to note that buyer can have no more than four mortgages total, including that attached to any personal residence or vacation home.

For an owner occupant of a single family home, the offer is sweeter yet.  Fannie Mae’s Homepath down payment requirement for them is a half point lower than FHA’s at 3.5 percent.

Here’s the kicker. When it comes to duplexes, the rules change for everybody.

According to Dean Schiffler of PHH Home Loans, both owner occupants and investors are required to have a 20 percent down payment when using Fannie Mae Homepath financing. Homepath triplexes and fourplexes require a 25 percent down payment.

And, if an investor owns more than four properties, he or she is required to make a 25 percent down payment.

Of course, if you intend to owner occupy your duplex, using Homepath doesn’t make any sense. After all, FHA only requires you to have 3.5 percent down.

This is a good lesson. After this lending crisis, it’s important we all remember to read the fine print.


urban housing decayIf your duplex has been sold at the sheriff’s sale in the state of Minnesota, you still have six months to redeem or short sale the property, right?

Not necessarily.

In fact, it may be as little as five weeks.

While it may seem a little Big Brother-ish, when you fall sufficiently behind in your mortgage payments, the bank has people who drive by and check on your property. Don’t worry. They aren’t spying on you and they don’t work for the FBI.

In fact, it’s highly likely your duplex is being watched by a Realtor; the one who will eventually list the property once the bank has foreclosed on it.

They aren’t watching to learn what television shows you’re watching or if you’re having an affair. They’re simply making sure the duplex hasn’t been abandoned.

What constitutes abandonment?

According to Minnesota Attorney General Lori Swanson’s office, evidence of abandonment includes:

  1. Broken, unrepaired windows or boarded up or closed off entrances or windows.
  2. Broken, unlocked or smashed in doors.
  3. No gas, electric or water service to the property.
  4. Rubbish, trash or debris has accumulated on the premises.
  5. The police or sheriff have had two or more reports of trespassers, vandals or other illegal activities on the property.
  6. The building is deteriorating and is either below or about to fall below minimum community standards for public safety and sanitation. (This can include unmowed lawns and snow that clearly hasn’t been shoveled or walked on for some time.)

The Realtor and the lender they work for document any of these criteria. And, they may even go so far as to change the locks on the duplex and, if within 10 days no one who has a legal right to the premises as asked for access, then the court may take this as further evidence of abandonment.

When the lender has established to its satisfaction the property is abandoned, the lien holder may initiate a proceeding in district court to reduce the duplex owners redemption period. Failure of the property owner to show up in court is considered further evidence of abandonment.

If the lender sufficiently proves the duplex has been abandoned, the court will allow the redemption period to be shortened to just five weeks.

I suppose if you completely don’t care about your credit or capital gains tax it doesn’t matter if the bank takes the property back.

However, if you do, abandoning the property has made it virtually impossible to successfully negotiate a short sale and minimize the damage.

I had a buyer for exactly such a property over the summer. Had the duplex owner simply taken the recycling bin full of glass bottles out to the trash, odds are he could have avoided the permanent blemish of foreclosure on his record.

Minneapolis Duplex Market Causes Realtor To Duck

said on September 21st, 2010 categorized under: Twin Cities Real Est

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Bulletproof vestShakespeare wrote, “Don’t shoot the messenger.”

So why do I think it’s still a good idea to don a bulletproof vest?

Perhaps because I don’t seem to have any good news for the Minneapolis and St Paul duplex market this week.

While this week’s statistics include the Labor Day holiday, pended sales were nonetheless down 20 percent from last year. These properties left the active inventory at an average off-market price of $105,292; a figure which once these transactions are closed, is likely to be lower yet.

Last year’s average sold price for the week was $126,631.

Of those duplexes that pended, just 10 percent were offered by traditional sellers. Last year, the week saw 24 percent of the small multi family inventory sold inventory not involve a lender in the negotiations.

However, traditional sellers did dominate the new inventory, bringing 51.5 percent of the week’s new listings to the market. This is up from last year, when 67.4 percent of the new listings required lender participation.

In the single family market, sales dipped with the holiday to 519 signed purchase agreements for the week. This represents a year-over-year decline of 38.2 percent.

There are currently 27,601 homes on the market in the Twin Cities; an increase of 9.5 percent from last year.

That’s an 8 month supply of inventory, representing a market heavily skewed in the buyer’s favor.


Water tap dripping dollar bills, Water waste conceptI was reading through some old topic threads on a real estate web site the other day and saw a Realtor comment that, “Duplexes are hard to cash flow”.

The post was from 2008.

Back then, and in the years before, it was true.

Funny how things change.

Last weekend I showed clients duplexes and fouplexes in sought-after neighborhoods that had 14-18 percent rates of cash on cash returns.

That was before I calculated the other benefits of income property ownership; like principal pay down, tax benefits, and rates of return on investment without appreciation.

Whether you’re an experienced investor or just thinking of dipping your toe into the pool for the first time, there has never been a better time to buy property.

Interest rates are low, and sadly, the short sales and foreclosures seem to keep coming as unemployment begins to cause duplex owners to default on their mortgages.

I’ve been out trying to help duplex owners who are in trouble, and the caliber of inventory that may hit the market in the near future is very different from what we’ve already seen; higher end, more popular neighborhoods, and often in better condition.

And remember, this is Minnesota. If you shop over the winter, you won’t have a lot of competition.


running out of timeI had a phone call today from a duplex owner in distress, wondering whether he still could do a short sale even though the sheriff’s sale had already taken place.

Of course, in Minnesota, the answer was yes.

This gentleman has six months before his redemption period ends; which is a long time in many respects. However, when it comes to short sales, it really isn’t.

Before a short sale can close successfully, several things need to happen as quickly as possible.

First, if the duplex is located in the cities of Minneapolis, St Paul, or any of the 12 metro suburbs that require a city housing inspection at or before the time the property goes on the market, that needs to be completed. Sorry, if your property is located in any of the cities where an inspection is a requirement, we can’t sell the place without it.

Next, the property needs to go on the market. And, as quickly as possible, we need to get an offer on it. That means pricing it to sell.  While it would be easy to simply put it on the MLS for a dollar, the bank does want to see we made an effort to get it sold for something closer to market value. We can reduce the price from there.

Once we have an offer, we have to submit it, along with a whole ream of paper documenting the seller’s financial condition, including two years of tax statements, recent pay stubs and bank statements, or documentation that those things don’t exist.

Of course, since the banks are getting thousands of these short sales a month, they usually lose the three pounds of paperwork once or twice before finally acknowledging it’s all there.

Keep in mind if there’s one mortgage on the place, we only have to do this once. If there are two, we get to do it all twice.

Then we wait while the bank gets various real estate broker’s price opinions (BPOs) on the value of the duplex, as well as an appraisal, until finally, the bank assigns us a negotiator who will tell us whether or not they’ll accept the price the property’s under contract for.

If there’s a second mortgage involved, the negotiator for the first will also tell us how much, if any of the proceeds they’re willing to share with the second lien holder.

Once everything’s in order, we move toward closing on the property. If the buyer is paying in cash, this can happen in a matter of days. However, if he or she is getting a new mortgage, this can take another 30-45 days.

If you’re in that window of time after the sheriff’s sale and this sounds virtually impossible, don’t despair. Banks are aware that on average, they net tens of thousands of dollars more on a short sale than they do in a foreclosure.

And through persistent effort on our part, we may be able to get it done.

Remember, keeping a foreclosure off your record benefits you in so many ways that it’s absolutely worth the effort.


Rick-ShargaI had the opportunity to participate in a webinar with RealtyTrac’s Senior Vice President Rick Sharga the other day.

RealtyTrac is a firm that tracks foreclosure trends in 2500 counties across the country. Sharga shared unbelievable statistics; the most remarkable of which was that 70-80 percent of all foreclosures are NOT listed on the MLS.

In fact, of the 900,000 bank owned properties (REOs) in this country, just one third are listed on the MLS.

Two thirds are not.

That’s 600,000 properties of shadow inventory; an average of 12,000 per state.

RealtyTrac estimates 1.2 million homeowners are in the foreclosure process right now. Of these, just 20 percent have their properties listed for sale.

More stunning yet is that somewhere between 5 – 5.5 million property owners are seriosuly delinquent on their loans.  While some will manage to get current, RealtyTrac estimates that 4 million more foreclosures will hit the market within the next three to three and a half years.

While this is catastrophic to home and duplex owners, it also represents an unprecedented opportunity.  And both seasoned and first time investors are recognizing just that.

But guess what?

Even though it’s a slow real estate market, the great deals are still tougher to find and, typically, attract multiple offers.

Unless, of course, your Realtor knows where they are before they hit the market.

Last week I had a client who’s been looking for a duplex in an outer suburb write an offer on an REO that isn’t listed yet.

I have other clients doing the same. Several are watching duplexes already in the foreclosure process where the  owner has refused to sell; waiting for the moment the bank gains control so they can submit an offer.

In fact, right now I am tracking over 100 duplexes, triplexes and small multi family properties in sought after Minneapolis and St Paul locations that are somewhere in the foreclosure process.

If you’re thinking about investing, there’s never been a better time. But if you’re working with an agent who can’t find you property before everyone else knows about it, you’re working with the wrong agent.

Call me. I’d be happy to help.

Minneapolis Duplex Market Something To Sing About

said on September 14th, 2010 categorized under: Twin Cities Real Est


[youtube][/youtube]Mary Poppins said, “A spoon full of sugar helps the medicine go down.”  Since she was generally a pretty happy chick, I’ll go with her advice.

For the week ending September 4, 2010, 45.2 percent of the new duplex listings in the Minneapolis market were offered by traditional sellers. This is a healthy gain of market share over the 15.62 percent of sellers with human names for the same week last year.

The average off market list price of $136,725 is well ahead of last year’s sold price of $122,187. Of course, the price a property is listed at isn’t usually the price it sells at these days.

Now for the medicine. Of the 16 duplexes and small multi family properties that received acceptable purchase agreements, just 6.25 percent, or 1, was offered by a traditional seller. Last year, 20.7 percent of the 29 that pended did not involve a lender in the negotiations.

There was some sugar in the single family home market as well. The number of new listings was down 12.8 percent compared to last year at the same time. However, there were more properties that came on the market Labor Day week than had the week before.

Pending sales didn’t experience as much of a decline, but are nonetheless trailing last year’s by 35.9 percent.

Maybe if we all learn to spell supercalifragilisticexpealidocious, things will get better.


minneapolisIf you’re a duplex owner facing foreclosure and aren’t sure of your rights, where to find help, or the process, you can get answers at three free upcoming workshops offered by the Minnesota Home Ownership Center.

The Minnesota Home Ownership Center is a counseling agency that provides foreclosure prevention education in conjunction with Hennepin County Taxpayer Services and the Hennepin County Library.

People who attend can not only get their questions answered, but also get free, confidential advice from foreclosure counselors.

The workshops are:

  • Saturday, Sept. 18, 10:30 a.m.– Hennepin County Library, Brooklyn Park, 8600 Zane Ave. N, Brooklyn Park. (952)847-5325
  • Tuesday, Sept. 28, 6:30 p.m.- Hennepin County Library, Rockford Road, 6401 42nd Ave. N., Crystal. (952)847-5875.
  • Thursday, Oct. 7, 6:30 p.m. – Hennepin County Library, Maple Grove, 8001 Main St. N., Maple Grove. (952)847-5550.

Or, if you prefer, you can also watch a previously recorded workshop online.

As always, remember, short sales are a wonderful alternative to foreclosures. Call me if you need help.

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