In Minneapolis, a 94 year old lady fell behind on her property taxes. Hennepin County seized her condo, sold it at auction, and collected $40,000 in proceeds. The County kept the entire $40,000 even though her debt was $25,000. The homeowner sued, claiming the excess over her debt should be returned to her. The case reached the Supreme Court and the Court fast forwarded the case.

On May 25, 2023, in a unanimous decision, the Supreme Court ruled in favor of the homeowner. Chief Justice John Roberts, writing for the Court, cited legal precedents dating back to the Magna Carta, when in 1215 the English Barons forced King John to swear that the remainder of a dead man’s property must be returned to the estate after tax debts are satisfied. Justice Roberts summed it up beautifully: “The taxpayer must render unto Caesar what is Caesar’s, but no more.”

Thankfully, justice is served.

GREAT NOTE

• commercial/industrial property
• $1.6M sales price
• $1M down payment
• 36 month term
• interest only, balloon in 36 months
• 5.00% interest rate
• 9 payments made
• buyer is LLC, no credit check, no personal guarantee
• full appraisal came in at $1.6M

GOOD NOTE

• single family home, built 1970, remodeled, good condition
• buyer was renter for 24 months
• timely rental payments, proof provided
• 10% down payment
• 12% interest rate
• 180 month term
• 1 note payment made
• credit not great, but acceptable
• owner occupied
• appraisal came in a little below sales price

BAD NOTE

• single family home, built 1962, nice neighborhood
• buyer qualified for mortgage, but wanted lower payments
• seller and buyer are work colleagues, friends
• seller wanted to “help” his friend
• 10% down payment
• 0% note interest rate
• 360 month term
• 33 payments made
• credit acceptable
• appraisal came in above sales price

We purchased these notes. The final pricing was an internal give and take, trying to offset the bad with the good. Sellers were happy.

If you have a note you are thinking of selling, let’s get you an offer, maybe some options, and you can decide.

Occasionally, we deal with a person who is less than truthful. He either omits pertinent information about his note situation or lies to us. Fortunately, our 3rd party due diligence will uncover the truth and help us avoid a potential financial loss. Let me share a story that illustrates the point.

I was talking to a man who held a note on an older home. He was pleasant and very co-operative. He answered all my questions, provided the documents I requested, and basically presented a relationship with his buyer that made purchasing his note seem attractive. We did our initial due diligence and gave him an offer which he accepted.

The buyer’s credit was acceptable. We then ordered a property appraisal to be completed by a local real estate agent. This is where the problem surfaced.

The appraisal included pictures and commentary about  significant damage and cracks to the home’s foundation. I called the seller and without sharing this information asked if we could move up the process and speak to his buyer. He agreed.

Immediately, the buyer shared that she regretted buying the home. On her initial meeting with the seller, she noticed the foundation issues and told the seller she could not purchase or move in to a home with this damage. The seller responded by lowering his asking price and said he would take care of the problem. Rather than wait, the buyer took him at his word, proceeded with the purchase without any contingency, and closed the deal.

Big mistake!

Moving in, she waited for the repairs to be done. Seller excuses followed. In time, she learned that she had other occupants in the home – 2 rats in the cellar. Incensed, she retained an attorney.

The seller revealed none of this. When I called to share this information, the seller was quite. Very quiet. I said we were withdrawing our offer but would be willing to reconsider if the damage was repaired, the rats were gone and the buyer was satisfied. I offered to follow up in a few months and he agreed.

I eventually called and emailed with no response. I have no idea how this situation was resolved.

In my 15 years, something like this has happened only a few times. 3rd party due diligence is always intended to confirm what we are being told by the parties. Questions, a lot of questions is at the heart of what we do. Why? Rats in the cellar is why.

Interesting times in the real estate world and note world. Quick look:

In residential real estate, mortgage rates are fluctuating, sales are down, prices are down overall but up in some areas. The economy is cooling. Some potential buyers are on the sideline – reluctant to get into the game. Why? Are they reluctant to sell because they do not want a new home with a mortgage at these higher rates? Are they afraid to buy in this market? Are they playing the waiting game? Are they just stifled and afraid to make a decision?

Uncertainty is a killer!

On the commercial side we can’t escape the bad news.  The pandemic caused a huge change in people’s attitudes and behavior about work. Some big city landlords have been faced with interest rate surges, office vacancies and falling property values. Analysts predict more vacancy as leases expire and tenants do not renew. They say 50,000 retail stores will close in the next 5 years. Bed, Bath & Beyond is bankrupt and will close all 360 stores.

Uncertainty reigns!

The note business may benefit from this uncertainty. Reluctant sellers and buyers may come together if the seller is willing to carry the note for what he considers to be the appropriate buyer. And, should that seller decide to sell his note, we will be ready to help by buying it and playing our proper role in the real estate economy.

Ever wonder how Zillow got started? Here is the story.

Rich Barton co-founded Zillow in 2006. He graduated from Stanford with an Engineering degree, went to work for Microsoft in 1991. A few years later he pitched an idea to Bill Gates – let travelers book their own flights and hotels on-line. Gates gave him the green light and in 1996 Barton launched Expedia. In 2003 Expedia was sold for 3.6 billion dollars.

A few years later, Barton and Lloyd Frink, also a Microsoft and Expedia alum, were looking for homes for their families. Since both were tech and internet geeks, they found it frustrating that they had to use a professional to get information about any home they were interested in. They felt the process was too hard, and since the internet had been around for a while, it had to be easier to get basic marketplace information.

The seed for Zillow was planted.

Barton thought: “How would it be to strap on Oculus virtual reality goggles and take a spin around apartments and homes? Can we develop this kind of technology? Can we change the basic mechanics of home shopping? We believe we can, and we will be leading the way on all of it.”

Zillow launched in 2006. By 2022, Zillow had over 5000 employees and had been accessed on line over 10 billion times.

Barton became a billionaire.

On April 6, Freddie Mac reported the following:

• The standard 30 year mortgage rate fell to 6.28% as of April 4
• This is the lowest level in 6 weeks
• One week ago the rate was 6.32%
• This time last year the rate was 4.67%

Sam Khater, Freddie Mac Chief Economist, says “borrowers are coming back to the market, but as spring homebuying season begins, low inventory remains a key problem.”

Remember, properties need to be sold, and homeowners will be more willing to carry a note when folks can’t or won’t obtain a conventional mortgage. Call me if you want guidance on creating note terms for your property sale.

Reported by housingwire.com on April 6, 2023

Website www.balancingeverything.com recently published an extensive study on the 2023 housing market. Here are their top 10 cities to be flipping this year:

1. West Valley City, Utah
2. Greensboro, North Carolina
3. Pittsburgh
4. New Orleans
5. Denver
6. Boston
7. San Diego
8. Memphis
9. Atlantic City
10. Virginia Beach

Why these cities? The many variables included positives on median home value, average listing price, average sell price, average days on the market, number of realtors in the area, remodeling costs, rental vacancy rate and homeownership rate.

Since the Pandemic, many businesses have changed the way they conduct business. Flexible employee hours, work from home, Zoom meetings, etc. One of the things I have always admired about our note business is our flexibility and willingness to adapt in order to get things done – pandemic or no pandemic.

Here is an example – pre-pandemic:

I was talking to a note holder who was carrying a note on a property located on the East Coast. The negatives were we had no down payment and the property was a rental – not owner occupied. The positives were strong credit, strong note terms and very good seasoning. We made an aggressive offer to buy the note and the seller accepted.

Then, he threw us a curveball. He and his wife had purchased a property out West and would be heading there in the next few days. They had shipped many belongings to their new home and would be driving with a trailer attached. They had planned their trip with several stops and would take approximately 30 days to get to their destination. Could we close under these circumstances?

We said yes. We quickly ordered the property appraisal and asked if we could talk to his borrower up front. The appraisal came in above the sales price and the interview with the buyer went well. The sellers retrieved their documents and managed to email our requests when they arrived at one of their pre-determined destinations. As we got closer to finalizing the transaction, we were able to identify a notary at one of their upcoming stops and he agreed to receive our overnight package of closing documents. When the sellers arrived at this location, the notary was prepared, the docs were signed and overnighted to us, and we released the funds. We closed in 28 calendar days.

This was one of the most fun transactions I have been involved with. Everyone co-operated and did their part on a timely basis.

We can do the same for you. Call me with your questions or to get some pricing for your note.

The U.S. Census Bureau recently reported some interesting data for those of us in the real estate industry. Over the past 5 years, there has been a tremendous spike in the number of rental households, with folks making $150, 000 or more jumping by 87%. Over 44 million households are now renting with a median income approaching $71, 000.

The biggest increase was in Austin, Texas. Folks making $150, 000 or more who are renters increased 154% over the past 5 years. Many moved here and to other parts of the South and Southwest after the pandemic.

Why are they renting? Higher home prices and mortgage rates play a big factor. Some people can’t find what they want. And others just want to experience the lay of the land before they commit. The result is that rents will remain high and lower and middle income earners will be squeezed. Builders are targeting high earners with buildings that have pools, fire pits and huge fitness centers.

At some point, some of these folks will be ready to buy. If you have developments in your area that cater to these renters, you may want to make some of them your friend.  When they are ready and you have an attractive property, you may have a cash buyer or someone you can come to terms with on an owner carry note. And, when YOU are ready to sell that note, we are here to buy it from you.

In 1965, the Mamas and the Papas had a huge hit with the song California Dreamin’.

“I’d be safe and warm if I was in LA, California Dreamin’ on such a winter’s day.”

The song was written 2 years earlier by John Phillips, who was living in New York City and enduring a particularly cold winter. The song became a symbol of a lifestyle that identified California. Millions of young people from the East Coast and Mid-West flocked to California as a result. I was one of them.

Guess what the average home price was in 1965?

$20,000 !

These thoughts filled my mind as I read a recent study on the California Housing Market and 2023 predictions:

• San Francisco Bay area median price is $1,000,000.
• Southern California median price is $738, 250.
• Central Coast median price is $894, 500.
• Central Valley median price is $425, 000.
• The Far North median price is $367, 000.

The study suggests that after a cold winter, the spring homebuying season will see some “thawing” and gradual price improvement.

For new – and old – homebuyers, let’s hope so.

Read the full report at noradarealestate.com, California Housing Market, Prices, Trends and Forecast 2023.