patrick.net

@DennisN,

Thanks for the research --I'll have to check that out. Whether it's offically "banned" or not, squatting still exists in the homedebtor state, as anyone who has lived in the high desert, inland emprire, central valley, or any bad inner city neighborhoods can tell you. The only difference seems to be, the squatter can no longer take legal possession of the property in CA.

DennisN,

IANAL, but it sounds like the San Francisco Tenants Union disagrees with you:

http://www.sftu.org/adverse.html

California (and every state) has an adverse possession law (delineated in the California Code of Civil Procedure). Details may vary from state to state but the law is fundamentally the same everywhere and is relatively unchanged from its first inception in Europe almost 600 years ago. In California, adverse possession requires five years of continued use which is "open and notorious" and "adverse" to the owner's interest. The maintenance and upkeep and improvement of the property is required and for the five years of use the property taxes must be paid for the property being adversely possessed. Homes Not Jails has met the requirements having squatted Page Street openly since February of 1993 to early 1999 and having painted the property, remodeled interiors and generally maintaining it.

Harm,

Those squatter really must have had a lawyer all along to have paid the property tax.

G. v H. should be the right citation to the case I studied. I remember it well since the parties lived down the block from my dad at Lake of the Pines outside Auburn. Party A and B were neighbors with lakeside lots. The ownership boundaries were set from a survey, but the developer put out lot-stakes which were off 50 ft. or so. Since the parties were on a curved bay, each only had about 50 ft. of lakeside property and one built a boat dock on what he believed was his property but actually was his neighbors. Since he used the dock for more than the 5 years period he tried to argue that it was now his property, but the court said no - he didn't pay separate property tax on the sliver of land in question. All he got was a prescriptive easement.

House mortgage bill faces tougher future
By ALAN ZIBEL

A House bill aimed at protecting borrowers from abusive home loans faces a tougher future in the Senate amid opposition by the mortgage industry and criticism from the White House.

The bill, passed Thursday evening by a 291-127 vote, garnered support from 64 House Republicans. No Democrats were opposed.

Many other Republicans, though, echoed banking industry criticisms, calling the bill an overreaction to the mortgage market's woes and warning of a flood of lawsuits if it becomes law.

They also said the mortgage market has already pulled back from lax lending practices common during the tail end of the housing boom.

"Have no doubt, this bill will limit credit availability and options for thousands of Americans who want to grab their share of the American dream of homeownership.," Kieran Quinn, chairman of the Mortgage Bankers Association, said in a statement. The American Bankers Association said it has "serious concerns" with the bill, arguing that it would add more regulations for banks.

The bill would ban lenders from making loans that borrowers can't repay, create a nationwide licensing system for mortgage brokers and make Wall Street banks that package mortgage securities into investments liable for violations of lending laws.

Sen. Christopher Dodd, the Connecticut Democrat and presidential candidate who heads the Senate Banking Committee, is planning to introduce a similar bill in the coming days but is likely to face a tougher time putting together a measure that can pass the Senate. The White House is critical of the bill but has not promised a veto.

Proponents of the changes say the current mortgage market tumult could have been averted had stronger federal laws been on the books years ago.

Democrats and consumer advocates say many subprime loans made to people with weak credit were essentially predatory: containing confusing terms, generating high fees for mortgage lenders and forcing low-income borrowers into loans they can't repay.

"The mortgages we're talking about have nothing to do with home ownership," said Rep. Brad Miller, D-N.C., one of the bill's authors.

Nearly 2.3 million subprime mortgages are projected to reset at higher rates -- and often dramatically higher monthly payments -- through the end of next year. Many fear those loans will result in foreclosures that will drag down property values.

Financial markets around the world have been rocky for much of the year amid worries about the growing scope of losses in investments tied to U.S. home loans. Bear Stearns Cos. and Britain's HSBC Holdings PLC and Barclays Group PLC were the latest major banks to predict losses in the billions.

Many Republicans were critical of the bill's provision to increase banks' liability, with Rep Ed Royce, R-Calif., calling it a "trial lawyer's dream."

The bill make will it harder for borrowers to replace problem loans with new ones, said Patrick McHenry, R-N.C., arguing that it "will do nothing to fix the current mortgage crisis we're facing."

Consumer groups, however, were disappointed at modifications made to attract the support of moderate Republicans after intense lobbying by industry groups.

The Washington-based National Community Reinvestment Coalition said the bill doesn't do enough to make banks that package mortgage securities -- and the institutional investors who buy them --legally responsible for fraud committed by lenders.

"What's the point of having a bill that just doesn't get at the main perpetrator?" asked John Taylor, the group's chief executive.

Meanwhile, Sen. Tom Coburn, R-Okla., on Thursday blocked an effort by Senate Majority Leader Harry Reid, D-Nev., to get quick approval of a bill to expand authority for the Federal Housing Administration, a Depression-era agency that insures loans made to low-income borrowers.

A similar bill, backed by the Bush administration, passed the House in September.

It would permit the agency to insure loans at large as $417,000 -- about $54,000 more than the current limit. The government estimates it could enable more than 200,000 homeowners whose loans are excluded from federal backing to come under the agency's umbrella.

Harm, I think you are forgetting one small detail in your concession speech. Yes, one could expect a business to hold out for as long as it can before biting the bullet and answering the market, but if they could do that indefinitely they would. Obviously they can't and this is just a strong denial stage. It is a gamble that they really have enough control to stop price declines, they do not. The price decline is now in the full snap stage back to fundamentals, in other words the market value has already been determined, which is what they are calling unreasonable, and unrealistic.

I checked the Wikipedia article on adverse possesion. It is pretty thorough, but it is missing one important element necessary to gain ownership (perhaps specific to the USA). I'm not going to say what it is yet since it is fun to probe the general knowledge of other members. Who knows what the missing element is?

Ooops, just saw Harm got it. You have to pay the property taxes, good job.

Oh, it was Dennis who got it; are you a lawyer Dennis? I learned that in my lower division business law class in the early 90s.

DennisN Says:
November 15th, 2007 at 7:50 pm
Harm,
"Those squatter really must have had a lawyer all along to have paid the property tax.
G. v H. should be the right citation to the case I studied. I remember it well since the parties lived down the block from my dad at Lake of the Pines outside Auburn. Party A and B were neighbors with lakeside lots. The ownership boundaries were set from a survey, but the developer put out lot-stakes which were off 50 ft. or so. Since the parties were on a curved bay, each only had about 50 ft. of lakeside property and one built a boat dock on what he believed was his property but actually was his neighbors. Since he used the dock for more than the 5 years period he tried to argue that it was now his property, but the court said no - he didn’t pay separate property tax on the sliver of land in question. All he got was a prescriptive easement."

This is interesting, I had always thought prescriptive easment actually changed the parcel maps for things like this. In my class the example of a worn path over time adjusted the parcel under this theory. The other example is when someone has a wall or fence within their property boundary and a neighbor uses the space. So the question I have is, is it just an easment for the use or is there a change of ownership under prescriptive easement?

@Malcolm,

Actually, the Wikipedia article does mention property taxes, but only in passing. Then again, California's byzantine legal system was not the main focus.

"However, even if such action is not taken, the title is legally theirs, with most of the benefits and duties, including paying property taxes to avoid losing title to the tax collector. The effects of having a stranger to the title paying taxes on property may vary from one jurisdiction to another."

We're going off on a tangent here. Harm was making a joke about how some squatters could end up owning these surplus houses and, being a pedant, I was pointing out that it was a little bit harder than that.

Maybe Gavin Newsom could get rid of the homeless in SF by shipping busloads to Stockton and Modesto so they could obtain free housing?

I'm a retired lawyer so I don't have a Lexis or Westlaw account, which is why I'm uncertain about the cite above.

erm, isn't there something called 'holding costs' and 'cash flow' that might harm Lennar? I guess they pay subcontractors, so nothing to pay after the houses are finished, but they may have borrowed to do the development, and they have to pay themselves something while they wait...

Lennar is encountering a significant and rising number of European buyers in Sarasota - enough to resume new construction on a reduced scale and after a period of several months in which no new developments were announced.

While I know the concept of foreign buyers as saviors of the market has no currency here, this 'new' wrinkle reproduces exactly the local experience of the early 1990s when many foreigners - who generally like this area as a holiday destination - decided local real estate had become too cheap not to buy.

Does the shrinking dollar add similar luster to BA real estate? Prices may not have fallen much calculating in dollars, but they've fallen sharply this year if you're holding euros.

This reminds me of the thread regarding the allegations by hedge funds that somehow servicers renegotiating loans was somehow market manipulation. Lennar is not De Beers, meaning they are not a sole source supplier with the power to control supply. If Lennar doesn't want to sell houses at a loss, they will just lose out on the few buyers who would take some of their excess supply. Lennar wishes they had that sort of power, the reality of the situation as we've seen with the servicers renegotiating is that the market has already determined that house prices are out of line and it will take all of the builders holding out to have any impact. Even if that happens it will still take about 5 years for supply to dry up to the point that it impacts pricing.

Although it is light hearted humor, the property tax issue is quite relevant. Remember that the builders have to pay property taxes on the houses they are mothballing. They don't just pay the tax on the land basis. Some might not realize it but the builders have to pay the taxes on the full market value of the finished construction. Basically each year that goes by is equivalent to the builder having to write off the cost of an entire house for each 90 or so houses that the builder is holding. Another way to look at it is that it is bad business to hold out given the current slim margins, it doesn't take very long in holding out to go into the negative just on the taxes and the debt service.

Bruce, it is true that a falling dollar makes houses cheaper to foreigners. It is still a bad deal especially if the dollar will fall more. It becomes compounded by leverage. It would be like trading euros for dollars to have those dollars lose even more value. Any rents of course will be paid in dollars not euros, like everyone else foreigners will just sit and wait for either prices or the dollar to bottom out. It is not normally not a sound investment to invest in something that is declining; foreigners are currently dumping US currency.

Peering into Lennar's crystal ball I see:
1. Something Bruce stated. With the on-going destruction of the dollar those properties are rapidly becoming more affordable to foreign buyers. They would still be bad investments, but as second homes they can be pretty good.
2. I wonder what Lennar's lobbiests know. Some bizzare legislation may prop up prices. That would make this a 'wait-for-a-while' approach and not a 'wait-forever' approach.
3. Maybe Lenna has some legal maneuver coming? Restructure their debt? Argue the value of the home to the city for tax relief? Anything to reduce the holding costs.
4. Insurance? Maybe they want the homes to have squatters? A few, "Gee I am cold, lets have a barrel fire in the living room" and Lennar gets full insurnace claims?

I just can't buy the wait for spring idea unless its spring in conjunction with some other external force - like tax relief.

Ha ha, like when a white guy who owes too much on his car just parks it in a poor neighborhood with the keys still in it. That gave me a little laugh.

Here is the latest spin I got in an email from a realtwhore - basically "Buy now before the buyers rush back in Spring!" I wonder how much they paid the Mercury News' Sue McAllistwhore to fluff up the buyers:

I have a number of clients who think waiting till Spring '08 to buy is a good idea. My reaction is don't give up now! This is the time of the year for the best deals for buyers; especially this year. So you can imagine I was glad to see that the real estate writer for the Mercury News agreed with me. I have included her thoughts below from the Mercury's great real estate blog. By the way, if you are serious about buying or selling, this blog is a great resource.

Best regards,

I sent the realwhore a reply saying that if she can personally add 5% discount on the asking price, in addition to the agency's 20% rebate off the asking price, then I may be interested enough to think about fixin' to get started. In 2009. :-)

SP

SP,

Write back and say "Are you willing to write up offers for 40-60% under asking? If not, go f**k a lipsticked pig!"

@SP,

Yeah, it's interesting comparing the SF Chronicle vs. Mercury News spin on the DQ data. SFGate's link is, "Bay Area Home Sales Tank", while the Merc has, "Area House Prices Jump."

McAllister is a complete REIC shill and whore. Her articles are completely useless. RE agents might as well cut-and-paste her drivel directly into their ads.

And it's not like the Chronicle is some haven for RE bears. They are plenty shill-ish. They just pale in comparison to the crap that passes for journalism at the Merc.

sfbubblebuyer Says:
Write back and say “Are you willing to write up offers for 40-60% under asking?

I love the way realtwhore's eyes light up when they find out I am thinking about making an all-cash offer... :evil:

... at 40% below asking price. Yeah, verily what the large print giveth, the fine print taketh away.

SP

They will call you unreasonable and unrealistic; that is, until 5 months from now when they call you back to see if you are still interested.

Data point: I saw a sign-twirler offering "free rent" in Mountain View this week. It might not have been the most prestigious neighborhood, but still.

Here is something I saw in the SFChronicle:
Larry St. John bought a home for more than $900,000 early this year in a new development on [Vacaville's]’s northwest side. This weekend, the builder is planning an auction of more than a dozen similar homes, with starting bids about $300,000 less than what recent buyers paid.

Christ on a stick - who the f*ck pays 900K in Cacaville?

And some more wisdom from clown Larry:

“As a homeowner in the Bay Area, ‘every couple of years you have an opportunity to refinance and do some improvements and still have equity,’ St. John added. ‘If you’re starting off from a position of negative $300,000, that takes more than a few years to rectify.’”

By the time this blows over, dear Larry, there will be plenty of fools in the Bay Area in your position - bent over with a $300,000 shaft permanently lodged in their sphincter.

SP

the property tax angle is a significant holding cost -- property development is a short-term cash flow business, developers want to get in and get out and minimise their holding costs, not wear this sort of hurt -- what sort of money are we talking about per year, a couple of thousand presumably?

(you don't pay property tax in most parts of oz, although there is a land tax on investment property in NSW, not PPOR, which is probably similar in magnitude)

So, when are the buses full of homeless going to start pulling in?

Then they'll have residences, addresses, 4-5 per place fixed up with Welfare benefits could pay the tax on the places just fine.

That would open it to eventual adverse posession, and a bunch of homeless folks have a roof over their heads.

A win-win deal!

ex-sunnyvale-renter Says:
So, when are the buses full of homeless going to start pulling in?

A win-win deal!

Gosh, that sounds like some sort of socialized gummint affordable housing solution! Decent affordable housing for all! Non-institutionalised housing for the mentally ill! From each according to their ability, to each according to their need! Who would've thunk it...

Malcolm Says:

> This reminds me of the thread regarding the allegations by hedge
> funds that somehow servicers renegotiating loans was somehow
> market manipulation. Lennar is not De Beers, meaning they are
> not a sole source supplier with the power to control supply. If
> Lennar doesn’t want to sell houses at a loss, they will just lose
> out on the few buyers who would take some of their excess supply.

With 259 homes that cost $600K each to develop it will cost a lot to hang on to them.

Property Taxes will be about $1.8mm a year and the construction loan debt service will be about $12mm a year.

Add in security and maintenance and will cost about $1.2mm a MONTH to “mothball” the development.

It sounds like Lennar is doing what many flippers did holding a bunch of real estate and “hoping” that the value goes up by more than their carry cost of $50K per home per year…

DS, it is quite significant. Here in California the builders have to pay 1 to 1.3% depending on the county, on the current market value of their improved properties. If the average house is $500,000 roughly then it is more than $5,000 per year per vacant home.

Like you said before though, it is a short term business, and there are even more significant costs which ruin the whole profit model. I actually invest in construction loans and it is doubtful that any of them can borrow for less than 10%. Certainly not the smaller ones who can easily pay 12-15% on hard money construction loans. Hold a house for a year and basically that is the whole margin....gone.

FormerApt,
It is funny how the psychology is the same whether it is an individual or a giant corporation. I can't be too judgemental, it is a bad decision but it is like a gambler who is down. As long as you keep playing there is a chance, but as soon as you call it quits, that's it, reality hits them in the face, it is a REAL loss.

In case anyone missed the news yesterday, Starbucks reported a 1 percent drop in traffic at U.S. stores open at least 13 months, the first such decline in the company's history. Leading economic indicators are not looking good. Is anyone handicapping "Black Friday"? One last Merry Christmas, or is it all downhill from here?

FormerApt,
Using your numbers it is fun to flip the problem around. Say that they hold them for a year, it is indisputable that they will have a hard cost of 25 million or more. Now let's see what they need to do to dig them out of the hole.

Assume that they are right and they will get full price in a year. (yeah right). Assume a 10% margin on each 600K full price house. That is $60K. Given this best case scenario they would have to sell 417 houses just to walk away, ooops they are only mothballing 259. Uh oh.

I guess they better get started building the extra 158 houses and hopefully the market will have picked up by the time they are all built.

This is a classic "let's lose a little on each one and make it up in volume" model. Oh man, that is so painful just to simulate.

EB, do you think it is a real decline or could the stores open for less time be cannibalizing their existing base?

EB, do you think it is a real decline or could the stores open for less time be cannibalizing their existing base?
You are asking the wrong person... because, as a Peets shareholder, I know in my heart-of-hearts that their high end customers are defecting :-)

St. John added. ‘If you’re starting off from a position of negative $300,000, that takes more than a few years to rectify.’”

St. John was martyred, impaled upon a golden pike. He remains patron saint of diseases of the lower colon and nether regions. He is often prayed to in cases of multiple annual rectification.

now that I think about it .....

They could've burned 'em a few weeks ago.

I worried about arson here before.....

If a house burns down, on what basis does the insurance company pay out? Original sales price? Comps and square footage? Stated value by the developers? Will they pay out less now that prices are falling? And then of course the land doesn't burn.

EBguy I hear you on Peet's.

Starbucks is a level lower in quality than Peet's. The coffee the same price but better, the little snackies are equally sugary and annoying at both places, the people are nicer at Peet's, and Peet's has a higher grade of coffee cups etc - less made in china stuff and the stuff doesn't have the "K-mart chic" feel to it.

So overall Peet's wins.

I got my awesome Chemex coffee maker at Peet's too, great gadget.

BTW .... WTF?

http://www.click2houston.com/news/14615114/detail.html

Oh, fuck, Pasadena TEXAS.

Sometimes I read things too quick.

And now we return to our scheduled bubble coverage .....