Paul Oster

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Mammoth Broker’s Report, January 12, 2010––I can’t end the decade without the cursory look back and I can already hear some accusations of cynicism. But in reality there are many positives. The Mammoth real estate market is once again so aptly summarized by Intrawest’s marketing department; with them fire-selling their last remaining holdings (mainly the Westin Monache and Woodwinds) the hyperbole is now “BUY LOW. LIVE HIGH.” It’s nice of them to exit this way. The decade started with promises of “it will be amazing” and ended with buying low and living high. In the end, Intrawest probably followed that philosophy during their whole tenure––buying low and living high. But many of us who remain have the opportunity to live high, and buying low will help. And some of us will be buying low again.

What’s left after the “decade of development” are plenty of good things. I didn’t say they were all good, but we have many new in-the-ground improvements to enjoy and seize opportunities with. From a pure real estate standpoint, we now have a large inventory of modern (not perfect) properties. It will be years and maybe decades (and maybe never) before that volume of inventory is ever built again. The improvements at the Ski Area in the past decade are profound, and despite the Gondola-to-nowhere, the half-assed base lodge facilities at Eagle, and the loss of Michelin rated food, the ski experience is better than ever and is quite affordable to regular customers. The decade also brought amazing improvements in public services and amenities­­––from the hospital, public transportation, college/schools, library, airport, fire stations, road improvements, and more. And the community has voted in the commitment to the development of an advanced trail system.

So as Intrawest exits stage left, they leave us our current real estate declaration: Buy Low and Live High. Today’s authentic buyer of Mammoth real estate clearly sees the value. Add in discounted ski passes and an increasingly more efficient drive from Los Angeles, and the value increases. We all know the chances of real estate prices coming down even further are in the hands of the gods, but each segment of the market is clearly different and the fundamental lack of supply continues to confuse many market watchers. One thing has become crystal clear: for every distressed seller who is losing a property to foreclosure or is trying a short sale or is filing bankruptcy, there is another (and maybe more) holding cash and/or possess cash producing assets, and are poised as vulture-like buyers wanting a piece of Mammoth. How impatient they become depends on what segment of the market they are watching, or how many good properties they have failed to move on and lost out on, or if they don’t mind hiring a contractor to redo a junk heap. And there remains the occasional and poorly informed “cash bully” who thinks they are the only one still holding cash and think they are going to buy an A+ property at a few pennies on the dollar.

The modest trickle of foreclosure and bank-owned properties continue to set the pace of the market. The bank’s asset managers now have the luxury of favoring the cash buyers in almost all REO listings. As I’ve said before, buyers with cash aren’t getting substantial discounts, but they have the best chance at getting the deal. Some REOs continue to be listed on the high side, but sooner or later the market speaks and the price comes down. Again, there’s no seller emotion, just tons of paperwork and files that need to substantiate actions. The REOs that are listed at good prices typically see multiple offers including cash buyers. Lately, the cash buyers who offer slightly over asking price usually win. But sometimes they have to lose out on a couple of properties before they realize that. And once again it’s a game of “expect the unexpected.”

The most significant market activity remains in the sub-$500K condo market. Any agent showing potential buyers in this segment of the market is frustrated by the lack of inventory. Oh, there are properties to see but rarely good ones, only seriously overpriced ones or poorly maintained ones. And don’t let the Mammoth inventory on the Internet fool you––there are dozens of properties sitting in “active-backup” status that the public sees as available when they are actually tied up in protracted short sale negotiations. These may or may not close depending on the myriad of variables. The condo inventory is statistically low but further scrubbing is required to get a real feel. Try to find a relatively modern condo with three sleeping spaces at $400K. Good luck. And now the buyer pressure is moving into the $500-600K range. Financing in condo projects with obvious rental programs continues to be a significant issue. Oh yeah, there’s been a few loans completed, but wait until the lender has to buy the loan back, that will be the end of that. FannieMae sent back a few billion in loans last year to the four major lenders––that has them thinking twice. The lack of financing in particular projects has created opportunity for cash buyers in these projects, but again, supply is limited.

Buyers seeking single-family homes are frustrated too. Anything listed under $500K has major deficiencies or trade-offs and probably needs a contractor too. But there are performing buyers for these properties. This is a key support level. Decent homes are listed and selling in the $600K range. From there on up the buyers are still dictating the market. The inventory is generally stale and most seller expectations exceed buyer motivation. (That is a nice way of saying overpriced.) But the good properties do get offers. Many of these sellers either don’t have the equity to reduce their price or just lack real motivation. And short sale opportunities for million-dollar investment homes are a mystery. There are also plenty of antiquated properties with the sellers holding on to visions (and delusions) of late 2005. Then there are a host of homes built on speculation (“spec homes” in real estate lingo) that there are buyers for, but these potential buyers are vultures and are looking for deep discounts of 50% or more. And any home listed over $800K that is more than 10 years old is really compromised in the eyes of the buyers––simply dated. The potential higher-end home buyers, and there are plenty of them too, are all playing a big poker game––just watching the table to see who is faking, who folds, and who moves. So far these buyers have jumped on a handful of high-end foreclosures and bought fabulous homes at well below replacement. But again it comes down to a matter of supply, or lack thereof. And as in any poker game, there will be winners and losers.

So what else stands out? Commercial and residential income properties are coming in the foreclosure pipeline. Not a great number, but the foreclosures will give focus to what the real values in this segment are. The buyers will be cash buyers and they will command a discount. Residential rents have stabilized (40,000 ski passes hasn’t hurt) but commercial rents should continue to soften especially based on the increased expenses and risks to operate a business in Mammoth. It has been interesting to watch the capital improvements on the Clearwater/Old Mammoth Place development parcel­­––we've got Frosty's, a miniature golf course, and a re-opened (and highly upgraded) Rafters restaurant and bar. And the Sierra Nevada Inn has a beautiful new sign that almost makes you want to stay there. Just think, true redevelopment without government subsidy, no divisive contention, no lawsuits and no public vote. Expect that to continue.

2010 and beyond will be an excellent time to build or remodel in Mammoth, and more and more people are taking the opportunity. With the extensive condo remodel projects completed at Summit and 1849, some of Mammoth’s best carpenters and construction people will be looking for work. These are the very experienced and skilled. Many potential condo buyers are now seeing this as a viable option––many of the older condos have great locations and spacious floorplans and are ripe for remodel. Just in the past few months we’ve watched buyers purchase REO condos and basically have new condos in a short timeframe.

The Village continues to struggle upward. The special events are quality and well attended. But special events are only one component in moving the whole forward. The parking is critical and the lot where Starwood intended to build the “1” is working pretty well. But the powers that be should be making all of the vacant land surrounding the Village into viable parking. I’m not suggesting clear-cutting and paving, just make it usable and user friendly. And yeah, I know, let’s get everybody into the wonderful public transportation. Well, it does work well, but right now our customers want to drive, especially the ones who are likely to spend discretionary dollars. The vacant property owners better figure out that an impromptu parking lot will make their land more valuable in the future, because if this version of the Village fails the land may be worthless for a long time to come.

The sales tax and bed tax numbers and other indicators aren’t in yet, but Mammoth experienced a healthy holiday period. The good pre-Christmas week snowstorm really helped. The MVP program is an economic lifesaver for everyone involved, and right now that is everyone. I also got the impression that the recent holiday visitors were looking to expand their recreational opportunities, even if it just meant taking a walk. Many just need to chill-out.

I thank all my readers who have followed along the past 20+ years of writing about Mammoth real estate. Today’s electronic format makes it the most fun ever, but also the most challenging. Despite my deliberate attempts to keep a modest distribution and maintain a narrow focus, the numbers show the readership is high. I strive to make the content better all of the time. Now if I could just get my associates to read here.

It is a great time to “buy low and live high” in Mammoth. Of course, it’s always been a great time to live high in Mammoth. <!--EndFragment-->

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A Kick In The Mammoth Fannie

Q: We’re looking to purchase a condo in Mammoth but we’re hearing different stories about financing problems. We’ve even heard that some new financing regulations are disrupting the way some local condo projects are operating. What gives?

A: The financing of Mammoth condominiums is a completely different ball game from three or four years ago, almost laughingly so. We’re now paying the price for all those people who were allowed to borrow that shouldn’t have been allowed to borrow. And I’m sure nobody in the general public has any sympathy for real estate agents who are struggling to close the financing and purchases on local condos. But the root problem is trickling down and around and is impacting property owners, business owners and a variety of workers in Mammoth Lakes.

The whole problem is clearly tied to our present national economic mess, and it manifests in little ways in our alpine microcosm. Unfortunately, it is one more thing cutting the cash flow of both the private and public sectors in town. The devil in the details this time is FannieMae. Because this secondary mortgage market giant was so well run in the past decade––and is now controlled by the Federal government––the pendulum has swung on the way they scrutinize loans. And they have become especially stubborn about lending on properties that resemble hotels. The true condo hotel properties that proliferated here in Mammoth and all over the world are simply not what they want as collateral for loans. Most of the mortgage brokers and loan officers feel it is an arbitrary redlining, but it is what it is. The bigger problem here in Mammoth is FannieMae applying these condo hotel-like restrictions on many of Mammoth’s regular old condo projects.

First, let’s look at why FannieMae is probably shunning condo hotel properties. It’s all about risk, and at some point in the last two years condo hotels were deemed at the top of the risk heap. I could argue that today most of the risk has been dissipated with the 50-60% reductions from peak values (but how low will they go?). Condo hotel properties were overbuilt and over-hyped worldwide. (Here in Mammoth we may not be overbuilt, but that is another column for another day.) The oversupply pertains to potential owners and potential renters too. And many of these owners were relying on rental demand to pay the mortgage. All of this coincided with the glorious era of speculation and easy money. This segment of the market is also tarnished by some of real estate’s most “enthusiastic” salesmanship including many of the salespeople becoming buyers themselves––much to their chagrin today.

Another portion of the risk consideration has got to be the overall expenses tied to these condo hotel properties. Regular old common area fees (including most utilities) are on the high side especially for newer properties, and then subtract the higher rental management fees and expenses charged to rentals. Any hotel operator will tell you it costs plenty of money to keep up a happy face. Throw in property taxes at high valuations and the return on investment crumbles fast. That is why today’s condo hotel buyer is more rationally purchasing at huge discounts, paying cash and can probably make it work. And certainly those assessing the risk know there are more defaults and other stresses coming.

In the past few months FannieMae’s risk policy now includes many of Mammoth’s old-guard condo projects with active on-site rentals programs. Loans have been rejected at the very end of an escrow because someone in underwriting googled the name of the project and found flashy websites promoting nightly rentals, Expedia-type reviews, etc. The big red flag is “on-site” rentals. FannieMae now equates that to “condo hotel” and the loan is rejected. The downstream effect––cash buyers only in these projects. And guess what, cash buyers want a discount. The irony: the “excellent on-site rental program” that added value for the average condo owner in the past is now slamming his values because of compromised financing. All of this is now being facilitated by the required scrutiny by local appraisers (and re-appraisals), closer review of the Homeowners Association’s documents and HOA certification, etc. (One appraiser recently said his required photo of the condo project’s sign clearly included the words “Rentals” with an arrow pointing directly at the manager’s office.) Oh, and those nosy underwriters continue doing Google searches.

So how long will this last? People are scurrying all over the place. The mortgage industry is trying to work things out with FannieMae. But FannieMae is in such hot water, nobody is likely to even care. Local lenders are trying to get project approvals one-by-one––projects that don’t have open and notorious on-site rental programs. And some of the big rental projects of the past (Summit, Chamonix, etc.) have already done away with the presence of their on-site rental programs. They now have “project approval” and available financing. Entities that were once operating as on-site rental programs are moving to off-site locations and continuing business. Webmasters are busy altering verbiage and presentations on sites (but ever notice how things linger on the web?). The condo projects that don’t take this seriously may see an erosion of value, at least as long as lenders want to sell their loans to the secondary mortgage market and these policies remain in place. And I can assure you that the asset managers handling bank-owned properties are in tune to all of this because they are looking more favorably upon cash buyers in the condo market. Nobody dealing with this problem believes it will go away soon.

At the same time all of this is going on, general economics is making many Association board of directors look at their expenses and management structures. I’ve been reading more and more association documents as a byproduct of handling bank-owned properties in these projects (and receiving the information). An increasing number of local property management companies are also emphasizing the need for associations to separate the actual property management away from the rental functions. Much of it has to do with allocation and delineation of costs and responsibilities, and the muddling of the two. And for years there have been claims of favoritism by management to owners who have their units on rental programs over those who don’t. Nothing like a sour economy to affect change. It will be good for some and not so good for others.

Meanwhile, if you’re looking to buy or sell a lower-end condo (within the conforming loan limits of FannieMae) in Mammoth it is probably a good thing to understand where any potential project stands as far as lend-ability. It is affecting values on a case-by-case scenario. More “expect the un-expected” in this economy. Just because a mortgage broker/lender says they can do the loan, be careful. A “no problem” response is the first sign that there is a problem. If there is an obvious on-site rental program then that is the first red flag that warrants further investigation and questioning.

But this too may pass, especially if our Congress and President decide everyone should have a tax credit for purchasing an investment-style second home, even if it walks and talks like hotel room. But I wouldn’t count on it. But the way things are going….

Happy Thanksgiving!! Despite all of it, we still have plenty to be thankful for.<!--EndFragment-->

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The Mammoth REO rodeo continues to ebb and flow. Sometimes we feel on top of things and other times we feel a little buried. My mantra of “expect the unexpected” is worth repeating for buyers, brokers, and casual observers too. The foremost wild card in the mix remains the asset managers who are handling the bank’s portfolios. Not only are they running the show but they are also mired in “policy” that is sometimes arbitrary or unexplainable and may or may not be followed. They’re watching their own performance levels, especially close to the end of the month. And don’t think they aren’t focused on where they plan to cocktail and chill for the weekend. Meanwhile, buyers are chasing these bank owned properties, and they too, based on their behavior, are a cast of characters.

The national media is full of stories about banks delaying the foreclosure process on delinquent borrowers. Some of that may be true and beneficial to the stabilizing some markets, but the beginning-to-end process for just one property is labor intensive and involves all sorts of “specialists.” And even in this electronic age the pile of paperwork is enormous. All the digital files including time and date stamped photos of everything and the scanned multiple offers (and their addendums) have got to be clogging up the web somewhere. And there is no consistency whatsoever. Nobody does anything the same way. Some properties can be turned over from foreclosure to on-the-market in just a few days, while others take months and months. (Some of that is due to bitter and belligerent previous owners.)

“How long is this going to last?” is becoming a question I hear daily. Serious buyers are weighing the deals of today against the possibility of lower prices tomorrow driven by additional foreclosures. I can only respond, “Who knows?” But the facts are this: First, there will be more foreclosures. The pipeline is continually moving properties of all sorts, from 70’s built dumpy one-bedroom condos to new or near new luxury homes and condos. There is no indication of any slowing of properties entering the pipeline. An equal number of properties are exiting the pipeline (via sale). It ebbs and flows, but it all remains fairly consistent. The second fact: We’re finding price support in almost all segments of the market. And much of the price support is at 50 to 60% off of the peak of the market. Now, buyers shouldn’t try to apply any strict rules here because every segment is a little different. And every property scenario is different. Some segments are actually seeing multiple offers and prices bid up.

So at what price levels is this support? The most impressive price support is in the condo market between $250K and $350K. Typically the classic early 80’s built townhomes––properties with more than one sleeping area, most of the projects and Associations are in respectable financial and physical shape, units usable by families in all seasons and rentable for some modest returns. But the non bank-owned inventory in this segment is thin too. The other impressive segment is the $2M home. Most of these were $4-5M in the heyday. The buyers for these have cash, and currently there are more of these potential buyers coming out of the woodwork and availability is scarce. The bank owned properties have also helped the local market find the bottom of the single-family home market––about $470K and up. Absent of any serious defects, this is a consistent price support level. And as for those 70’s built one-bedroom condos, about $100K, give or take.

The condo-hotel properties remain a challenging segment of the market. The buyers are predominantly cash buyers with a few of the big down/high interest rate types getting loans. But there are buyers. Most of these are selling at 60% off of the peak. And the pipeline is seeing more of these units coming. There are Westin Monache units that closed less than two years ago in the pipeline. Today, it is not unusual for owners to go 12 months or more without making payments before anybody even notices. So how many of these will end up in default is anybody’s guesstimate. The developer continues to try to unload units before it gets any worse. Meanwhile, the coming foreclosures in the balance of the Village and Juniper Springs will probably be good buying opportunities.

The buyers for these bank-owned properties are coming in all flavors. Many are new season pass MVP holders (New Woolys?). Many are cash buyers and their all-cash offers are looked upon more favorably by the asset managers. After all, there is no loan contingency or appraisal contingency (usually not an issue) and most all-cash buyers can close more quickly. And we’re seeing an increasing amount of “cash bullies” in the market. The cash bully typically lets you (and everybody else) know he has cash. They also expect their cash to get them really huge discounts, but it doesn’t. We see many low cash offers beaten out by qualified buyers with higher offers. Typically banks and investors aren’t ready to jump on low offers in the first 30-60 days. So cash bullies get lots of disappointment, but most like attention more than the buying.

Other buyers looking to low-ball bank owned properties are experiencing what is known as “the market educating them.” After losing out two or three times on popular properties they learn that making offers at 20-30% less than asking isn’t going to cut it. For a while we had an out-of-town broker who made the same $100K all-cash offer on every REO that came to the market. I’m still not sure if he was just a bully or became educated. Ultimately, the time to consider making a lowball offer is after a property has sat on the market for 90 days or more, but in this market these aren’t the properties most buyers are looking for.

Many negotiations are ending up in a “give us your highest and best” response from the asset manager. Potential buyers respond in many ways. Some just stay with their original offer, some go a thousand more, others go ten thousand more. And then there’s always the “I would have gone higher” response from a buyer who lost out. We’ve even had mad buyers who lost out insist that we give them the name and phone number of the asset manager so they can re-enter negotiations. (Not going to happen, it violates the confidentiality agreement we have with them and it is a sure way we will never to do business with them again.)

The buyer, and his strategy, who “wins” the negotiation is not always the same. This is where the asset manager wildcard plays out. Sometimes it is a horse race––the first one in with a reasonable offer. Sometimes it is a simple bidding war, but the clock still ticks. Sometimes the buyer and buyer’s agent who are the nicest (and follow the instructions) get the deal. Lately, we are seeing more properties priced aggressively but with “cooling off periods” of five to ten days, meaning the seller won’t respond until the property has had significant exposure to the market. But buyers can’t assume they should wait, we’ve seen asset managers accept an offer during the cooling off period. (Again, expect the unexpected.)

Then there is the buyer (or their agent) who actually does get to escrow and doesn’t under the concept of “as-is, where-is” in an REO transaction. Asset managers don’t like nit-picking buyers. They like buyers who move towards closing. Oh, there are rare instances when they will approve some repairs, but again it can really depend on arbitrary variables. And most times buyers just acquiesce anyway.

The latest scam in the REO industry (not Mammoth) are crooks taking the photos and details from a bank-owned listing on the Internet and posting them on Craigslist as an available rental. Potential tenants are forwarding fees and deposits only to find out they’ve been scammed. I wonder how long before this starts happening in Mammoth. Think about it, anybody could take the photos and descriptions off any listing and rent the property to unsuspecting vacationers. Talk about expecting the unexpected. So much for happy holidays.

Okay, so what is the current take-away from the present Mammoth real estate market and foreclosed properties? Buyers are buying and getting great deals relative to just a few years ago. The bank-owned properties are some of the best deals and are definitely setting the pace of the market, especially in the sub-$400K condo market and a handful of high-end homes. Buyers looking to buy will be rewarded with patience and persistence. Right now the demand is solid and consistent. But we need to move through the holiday and post-holiday (decompression) period. That is historically a slower sales periods in this market. Somewhere in spring we’ll have a better idea of how firm the market is. I’m thinking this interim period will be a good time to pay attention. A little luck and good timing never hurt a real estate transaction. And coming to look at a few new listings is the perfect excuse to get in a couple of days of skiing. Who knows, you might even get the unexpected perfect ski day.<!--EndFragment-->

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Some things just torture me. And a recent article in the Mammoth Times about a new business for sale just irked me. I just really have to ask myself how this came about? This was a gross disservice to these owners and potential sellers. What were the editors thinking? I’m criticized for being candid to a fault, but this was abusive. And where was the broker who represents them? Why didn’t he take control? In a small town, this is almost irresponsible journalism. In the era of Wally Hofmann this article would have been re-written because the flaws so glaring.

Every couple of years the subject of business and businesses for sale in mammoth is a worthy topic for a column. I’ve had my share of business listings over the years and thankfully my professional insurance (known as Errors & Omissions) now prohibits me from listing them unless there is real estate involved. That makes me happy for my sake, and the sake of my associates. Quite frankly, small business listings are a pain in the ass for many reasons. But trying to help someone who is miserable is an honorable duty, at least for the first year.

So now to the subject. A couple of weeks ago the aforementioned publication runs an article about a new business for sale. I had seen the sign in the window and received a flyer from the broker (who isn’t a member of the local MLS). The event was no surprise and actually quite predictable. How many times have I seen this before and eventually been part of it? But here comes the obligatory press release in the local paper. The seller boldly announces, “I’ve had enough” immediately after the who, what, when and where paragraph. Reminds me of Roberto Duran uttering “no mas” in the boxing ring with Sugar Ray. The beating has obviously been had.

Now I can just imagine marketing a piece of property for one of my sellers this way. For Sale, this nice 3 bedroom and 2 bath home. The seller has “had enough” of frozen and broken pipes, the leaking roof and the bear invasions. But you Mr. Buyer should take great interest in it, and in fact should grossly overpay for it.

The article says the current owners hope the new owners (by-the-way, hope is not a good business strategy) keep the business “much as it is.”

“We’re going to encourage whomever buys it to not really change it. Because it’s not broken, it doesn’t need fixing…” Damn, I’m going to use that strategy with my buyers. Look Mr. Buyer, the current owner has “had enough” with all the problems but you should buy the property, and even better, you really shouldn’t even bother fixing any of these concerns because you can live with it until you’ve “had enough.”

The article goes even further to extol the features and benefits of owning this business: “In the past…she has been challenged in finding employees who are willing to work, and thus has experienced frustrating turnover…and quote ‘they don’t want to work for their paycheck.’”

And even more appealing, everyone was recently laid off because there is no money to “pay employee salaries and pay the lease, the utilities, taxes, worker’s compensation, the liability­­––all the things that go with owning a business.”

Further the owner states that these aren’t the real reason for wanting to sell, it’s now about “restructuring her life to create more free time and not work six or seven days a week.” Wow, these are just more great selling points. I’m surprised there isn’t a long line of ready, willing, and able buyers just fighting with one another to buy this business.

I feel really bad for these owners/sellers. The Mammoth Times really kicked them to the gutter. Hopefully the article is not online where some potential buyer gets a look at it. This is not the way to start the marketing campaign. The article is a classic WTF moment. Did anybody have a clue here? I wonder if anybody thought it was a good idea to make re-prints of the article for marketing purposes? I hope not. Time, and the market, will speak to whether there is a buyer and at what price––and how motivated the seller becomes to walk away. After all, she’s “had enough.” When I first moved to Mammoth I was told there was an 11^th Commandment in Mammoth: Don’t Set Yourself Up For Disappointment. True for life in general, but a very important one when trying to sell a business.

Sometimes I’ve had to tell people their business has no value, or close to no value. In the early 90’s I marketed a very popular restaurant here in Mammoth and after enough time and effort the seller settled for a price around the cost of a new Honda Accord. The buyer changed the whole concept and became a seller just two years later and eventually just folded. There isn’t even a restaurant in that lease space today. In 2003 I was fired from the listing of a famous sports bar. I was telling the owner the asking price was far too high. He told me that he needed another broker, one “who could think outside the box.” The for sale sign is still out in front and I’m reminded every day when I drive by. And over 20 years ago I had a firewood company listed for sale. The work was too hard according to the owner. Well, now the company is bigger than ever and he’s married to one of my real estate competitors.

I hate to tell these new “sellers” of Mammoth Times infamy that just because they put the for sale sign in the window doesn’t mean there is a buyer, and definitely not with such a great marketing strategy. I think somebody has given them false hope. My bet is that if someone were looking, they simply plan to negotiate with the landlord. They’re called vultures, and vultures don’t pay for blue sky.

As a sidebar, recent property tax appeal hearings here in Mono County have highlighted the taxing cost of improvements, especially interior improvements, on a business. These can impact both owner occupied and leasehold properties. These taxes can rapidly erode a profit margin and few business owners consider them in a business planning. For example, one restaurant and bar in the Village has almost two million dollars in interior improvements. The personal property tax on those improvements runs about $1500 per month. That is above and beyond rent, common area charges, utilities, etc. My junky old office furniture that depreciated out years ago looks better all the time.

The precipitation of the last 36 hours here in Mammoth bodes for a wonderful winter ahead. So when you come to Mammoth this winter, please spend a little money in town at your favorite spot. It will be a small insurance payment that it will still be business the next time you come to town. Now back to business.<!--EndFragment-->

Mammoth Foreclosures 4.0––Walk-Aways and Weasels This column has been delayed several times by work duties, showing property, great ski conditions, and my ongoing attempt to understand how the Stimulus and Housing Bills and foreclosure intervention by the government will ultimately affect the Mammoth real estate market. My summation at present: the artificial delay of many foreclosures that began early last fall will now only further postpone the inevitable and will prolong and flatten the downward slide of real estate values. Many can argue the virtue in these actions, but I’m more of the Tea Party mindset. But all these delays are much to the chagrin of many would-be buyers in the local market who are regularly scrutinizing the inventory online and are trying to somewhat time the bottom and who are getting impatient because they want to “set themselves up” before they’re too old. Maybe the Ski Area can bring back the senior citizen pass especially for them. Very little of the Washington salvation packages directly apply to Mammoth. We have a small percentage of owner-occupied properties. Conforming loan limits eliminate another large percentage. And those owner-occupied locals that are in trouble can’t qualify for much because they already have late payments and few, if any, can meet the “affordable” criteria (that is unless they already live in “affordable” housing). Even the Ski Area appears to be having they’re own stimulus epiphany (like every other local resident, at least those not lost in denial, has been experiencing for at least the past year.) The revelation is that survival now means discounting EVERYTHING, getting volume up, cutting costs, and becoming more humble and proficient at what you do. The good news: air service is working and we’ll have water this summer. Despite the government intervention efforts, Mammoth foreclosures continue at a slow but steady pace. My projection is that we’ll be at a similar pace for 2009 as we were in 2008, or maybe a little more. (One reader suggests that based today’s economic environment that I shouldn’t predict things beyond a few months, but I’m trying to plan fishing trips.) There is no flood of distressed property in the pipeline, no alarming concentrations of stress, and no apparent rush to exits (but that is one of the underlying rationales for the intervention.) But the foreclosures will continue to set the pace for prices in the market. So far they are driving prices down, but they are also finding the levels where there are ready, willing and able buyers. Price support is a good thing and we are clearly seeing it in the low-end of the market. (The foreclosures we are handling in the Bishop area are definitely finding solid price support.) However, I see an insidious hidden indicator in the Mammoth MLS and it is growing. They are called short sale listings, and every agent in town (not me) seems to be taking them on. Regular readers know how I feel about short sales in this market. (My office did recently complete a short sale, but it met the two most important criteria: an owner occupied property and provable hardship.) The volume of new short sale listings could be telling, or maybe not. Stressed owners are thinking it could be the easy way out instead of foreclosure or enduring the pain. “Short sale experts” are popping up all over the place (don’t pre-pay any fees!!) Increasingly desperate (and inexperienced) agents are taking them on not knowing the work and uncertainty involved. The process can take many months and while it is going on an REO (or other real seller) can pop up and make the short sale deal not look so appealing to the buyer (now happening with frequency). And banks are now playing new games with non-hardship short sellers like demanding cash, or cash from credit card cash advance lines, or going after anything of value the seller has before finalizing the transaction. (The short seller is going to have to expose their full financial picture to qualify for the short sale—no more “stated income” shenanigans.) Further, the “bank” may just be servicing the loan for an investor (a non-portfolio loan) and the investor may be distracted or not care for a short sale. But I digress. The REAL issue is how many of these proliferating short sale MLS offerings are future foreclosures. The trend is already clear. Many short sale listings end up as foreclosures. Savvy buyers are beginning to see and understand this trend. But again, the real issue is how many of these new and growing short sale listings will end up as foreclosures. Although there has been some signal from the lenders that they have some appetite for short sales, I see no indication they are moving strongly in this direction. (Part of it is they are overwhelmed.) Which brings me to the title of this column––Walk-Aways and Weasels. That seems to summarize the attitudes I’m observing of these distressed sellers. They seem to fit into one of these two categories. Many of these new aspiring short sellers would like to be Walk-Aways but they don’t want to destroy their credit. But many don’t want to put forth the effort (and disclosure) to facilitate the short sale. Or they don’t want to put anything in (like cash) to make it happen. They want their cake and eat it too. In the Mammoth foreclosure market there have already been many true Walk-Aways. They rolled the dice and lost. They’re not asking the casino for their money back. They’re not whining about being victims. They politely walk away with their dignity (or the appearance thereof). They don’t rob the property. And some of the owners who might even qualify for a short sale don’t even try. We were recently assigned a new REO listing in the Village and you never know what you’re going to find when you walk in the door the first time. So there it was: clean, everything in order outside of a little wear and tear, almost like you would find it if you were a paying guest, except a bit dusty. When we went to put the electricity on we discovered that the service had been off for a year. The owner knew it was over a long time ago and didn’t abuse it, didn’t even use it, didn’t rent it, nothing. Just used their last freebie buffet coupon and left quietly. On the other hand are the Weasels. Here’s the opposite experience––one foreclosed Village owner was still renting (and taking money from renters) a month after he had been foreclosed on. (There’s a nice resort experience for one of our visitors, “ah, well sir, the unit you rented was foreclosed on a month ago and the bank isn’t renting it out and you’ll have to get your money back from the previous owner, but we have some similar units available at $$$ a night.”) While the Walk-Aways are pretty easy to deal with, the Weasels are always something else, and sometimes disgusting and entertaining as well. The banks have a way to keep the Weasels at bay for the most part, it’s called “cash–for-keys.” It’s right out of the old landlord’s handbook––paying undesirable tenants to leave, leave the place in good shape, and sign their rights away. Foreclosed on owners, or their tenants, can get a check for being nice Walk-Aways. And then there’s the weaseliest of the Weasels, and I just can’t help telling you about him because if you met him you just might think he’s a nice guy. But he is a small but prime example of why we are in this global economic pickle today that will cost us for decades to come. I refer to him as Bugs Bunny. See Bugs was a “real estate investor” and he always let you know it. He was a client of one of my former associates. We have subsequently ended up handling a property he was foreclosed on. As all the paperwork flows through my office, the financial damage he created becomes apparent. He bought a small 70’s built condo about 10 years ago. By 2007 he was able to put about $250,000 in his pocket via cash-out refinances. Shortly after putting the biggest loan possible on the property he stopped making payments to everybody––the bank, the Homeowner’s Association that was in the midst of a major (and costly) renovation project, the County (the State), and God only knows who else (little guys often get stiffed by these people). All the while he kept renting the property and generating revenue. Ultimately he gets foreclosed on. So now the bank pays him to remove his personal items and legally abandon the property. Today, we have the property in escrow and my calculations are the bank will lose about another $250,000 by the time they pay off the HOA liens, the taxes and other expenses to liquidate the property. So one little condo puts a $250k in cash in his pocket and the bank will realize about $500K in total loss. Oh, and this bank got bailout money from the Feds. And if that doesn’t put Bugs the Weasel on my poop list, he starts claiming (after he gets his move-out check and signs away his rights) that a couple of Home Depot light fixtures (that were attached to the property) have “sentimental value” and we “stole” them from him. He thinks this is so important that it warrants regular, whiny voice mail messages. Then he tells me that he wants to “pick them up while he’s up in Mammoth skiing next weekend” and that if I don’t he’s going to file a police report. He was “greatly offended” when I called him a Weasel. Man, this is a great country. And we wonder why we’re in such deep doo doo.