We have always wanted one and we always just missed out; more than once a property we wanted was sold just hours before we made our offer. The kids are grown now, we seem to have more money in our pockets these days, and the low prices beckoned.
The joys of finding that REO treasure: Becoming a Vulture.
Have you seen those tour buses in your neighborhoods? The ones with the banners that say something about buying foreclosed properties? I worried about these, wondering if the mere presence of something like that would drive down prices in the area but figured that the sooner the “dead” properties sell, the faster our property values will recover, but deep down I really wanted to dislike the type of person who would get on a tour bus of foreclosed houses. Vultures. The lot of them.
The last bus I saw was in April, but we don’t have too many dead properties here… yet. There are two within a couple of blocks of my house, and five more that I think will fail within the year, the lawns dead and weedy, and all were purchased just about two years ago. That seems to be the point when those subprime loans reset.
In late April, Mr Pie read an article in the Los Angeles Times about the falling prices in the mountains partly because of the wildfires starting in 2003, damage caused by the bark beetle infestation, and partly because of the sub prime mess. The wheels started turning.
And suddenly we realized that we knew a “vulture” and he’s a nice enough person. We equivocated: it was the bank’s fault for making these risky loans, it was the buyers’ fault for financing a recreation property this way, etc.
John, a friend at work, announced that he’d bought a four-year-old cabin in Big Bear for less than $300k, and the place was appraised at more than $600k last year. The price was that low because it was bank-owned. Repossessed. A sub-prime nightmare for Someone Else, dubbed an REO by our good friends at Countrywide. His place is gorgeous and he plans to rent it out at a high price, especially during skiing season.
John and his wife have two very nice incomes, so they can afford a second home at that price. We have one nice income so Mr Pie decided to look a little closer to home and for something a little more modest; after perusing the online real estate ads we found quite a few for less than $150k. We set that as our limit, located a realtor up the hill, and trekked up into the mountains, to Crestline, to hunt for that unpolished gem.
The first day’s search started out doubtful, with our first stop at a tiny, rat-infested cottage on three levels (the ad said one level. hmmm) that was sliding off its foundation in three different directions. We had already crossed off one of the candidates after a drive-by, because we could see that the hillside it was built on was sliding and the retaining wall that was part of the foundation was badly cracked. The next was built below the road on the downslope of a hill, and was difficult to get into. It had been trashed by the previous owners before they left, but a cleanup crew had taken care of the mess. What they couldn’t take care of was the smell of mold.
There was one for $80,000 that was a great little house in a bad neighborhood but it had a garage. The kitchen counter was mahogany and the paneling was in beautiful condition.
Then we looked in the garage.
The next was built into a hillside and had mushrooms sprouting on the hearth, inside, next to the fireplace. This one was not bank owned, and it was one of the most expensive we saw that day.
The prices were all over the map. They ranged from $60,000 to $200,000, arbitrarily set by bank officers with little knowledge of pricing in the area, only how much was owed at the time of foreclosure. On Zillow (a website thoroughly hated by most realtors) you can find out when a place was last sold and for how much. Almost all of these properties had sold two years prior, and you could see how much the default amount was because that was listed as the most recent “sale price”, within a few months of it being listed for sale.
This was the $60,000 cabin. It leans a little.
Toward the end of our first appointment, after spending the day wading through knee-high weeds, scrambling down hills and teetering on rotten porch steps, the realtor thought we were finished but we had one more print-out in our notebook. The place was listed at $75k and we knew it didn’t have a kitchen. Well, technically it did because the clean-up crew had found the sink cabinet and hooked it back up in the space that had been the kitchen. The photos online were a bit scary, but we hoped that this one might be different …. and we were right.
It was a very nice place in need of new kitchen cabinets. The old ones had just been removed in anticipation of a remodel. It had a patio at the side, the lot was huge, the neighboring properties were year-round houses and they were spread out. There were dogwoods in bloom all around it, it had that “old cabin” charm, and the only scary thing besides the 50,000 dead spiders in the tub was the deck at the rear, but Mr Pie assured me that he could repair it.
We went home and thought about it, perused the photos Mr Pie took, considered the condition of the foundation, of the deck, of the neighborhood, figured out exactly what the new kitchen would cost, and made a full-price offer the next day. Once more, we were a day too late; the cabin had sold the day before. Our offer was in 1st backup position and the escrow was supposed to be very fast, 20 days, so we got pre-approval from a lender who laughed when she told us she had never written a mortgage for under $60,000 before. She’s young, she doesn’t remember when that was a high price for a regular house.
A Cabin In Crestline
While we were in backup position we continued to look at cabins in case the buyers did not drop out. Our realtor signed us up to receive emails regarding any new listings or reduced prices and we scoured several realty sites daily. Two weeks into non-escrow, we got an email about a cabin that had been at the top of our price range. The price had dropped to $125,000, and the first cabin was about to close escrow with the first buyers, so we decided to have a look.
This was a “short sale”, not an REO, and the owner still lived in it but the bank had started foreclosure proceedings against him. He planned to move in with an adult child. There was evidence of a small child who comes to visit quite often and who is adored.
The cabin had a lot of potential and most of what it needed was cosmetic, paint, new carpet, a few boards in the deck replaced, so we made a full price offer which was accepted immediately by the seller….
the bank was still thinking about it.
In the meantime we wondered how this guy had gotten himself into such a jam that he was about to lose his house to the bank. He had taken out a loan but hadn’t put any of that money into the cabin. To us it didn’t seem big enough to sink most people. We noticed the difference in the furniture and condition of the cabin in the photos on the realtor’s website: two photos of the same room with different furniture in the two shots; in one the room is tidy, in the other the carpet is badly stained and the pictures on the wall are different. We looked at our own photos and noticed a half-empty bottle of vodka beside the bed. There was evidence in the cabin that someone had broken a leg; he’s an older guy, and old bones take longer to heal than young bones. Did his workman’s comp run out long before he healed?
From the photos that seemed to be from a different life we thought there must have been a wife that lived in this cabin. We imagined all sorts of scenarios, but I kept coming back to wondering if the wife had gotten sick and died. Maybe the loan had gone to cover her medical bills.
In short, we felt a little guilty about this even though we knew that a short sale would prevent total destruction of the owner’s credit rating, or so we had been told. Now I’m not so sure he wouldn;’t be better off just declaring bankruptcy and walking away.
Waiting six weeks, not knowing if the bank will make us wait another six weeks and then just say “no” was not a lot of fun, although it did give us a lot of time to plan what we would do with the cabin to make it nice. Below is a sketch of the window seat/bed that I thought we should build in the rear bedroom:
Last week we decided to check out a few more that we had noticed online, and just for fun we included one that was just above our price limit.
This was the first one, for $71,900. Kind of cute, huh?
The photo below shows what it really looks like, a tiny house crammed onto a tiny lot. The living room was 8 feet wide, but what really made this place memorable was the smell.
The place had been inhabited by an incontinent tom cat, who must have stood on furniture or boxes in order to pee on the mirrors, the sliding glass doors, even the windows. The carpet had been torn out but the smell was still there, so we figured the subfloor would have to come out, and even that might not get rid of the smell.
There’s a huge drainage channel just to the left of the house. The water must come roaring through there in the spring.
This was the only one we saw that really bothered us. I told Mr Pie not to touch anything, especially in that kitchen, but you can see our tape measure on the counter. I didn’t want to handle it after that.
We looked at one other cabin in the area, which looked good at first but had some serious issues that we couldn’t fix ourselves.
Then we headed off to see the slightly more expensive cabin, in Blue Jay.
Cabin in Blue Jay
This photo is from the ad we found online:
And that is what it really looks like.
It’s not owned by a bank, it’s not in foreclosure, it’s not a short sale.
Below is my photo of the place.
The carpet needs to come up, it’s old and not very attractive. If there is a decent wood floor underneath, oak or pine, we’ll sand it and seal it.
So, we are failures as vultures. We are now in escrow on this place, buying from real people rather than a bank.