Why Throw Good Money After Bad?

That is the question of the day, as many underwater home owners are deciding to walk away rather than continue to pay their mortgages.

Case in point, Richard ''Rick'' Rochon's Boca Raton estate is scheduled to go on the auction block next month after failing to sell for $21.9 million. A lender started foreclosure proceedings in December on the 25,000-square-foot estate in Boca Raton's Royal Palm Yacht & Country Club community. The mansion features six bedrooms, seven bathrooms and three half-baths.

In an interview with The Miami Herald in April, Rochon conceded he stopped paying on the mortgage loan because the house is worth less than the loan. The lender claims it's owed about $12.5 million. Rochon insisted the foreclosure action was not a sign of personal financial problems.

''My position is, you know what, why throw good money after bad?'' he said. ''I'm treating this as an investment. This is not my house.''

Miami Proves Again It's a Banana Republic

A Miami-Dade Circuit Court judge discovered more than 15,000 foreclosure cases filed this year haven’t been served.

You read that right- 15,000.

The reason this is so alarming (other than the obvious) is that cases where homeowners haven’t been served within four months are subject to dismissal.

Civil Division Administrative Judge Jennifer D. Bailey made the discovery last month as she was taking stock of the circuit’s foreclosure load. She noticed 15,219 cases with no letters of correspondence, no answers and no motions to dismiss. “In other words, no service,” she said.

The circuit is scrambling to find the root of the problem, which could jeopardize most of this year’s 17,000 foreclosure filings. Most of the cases still fall within the four-month window, but no program is in place to speed things up. If a foreclosure proceeds to a default judgment with no service on the defendants, it could lead to a title dispute down the road.

For now, the Court is in full panic mode. "Let’s assume a third of these are subject to dismissal. In my spare time, I’ve got to figure out ways to generate orders in 5,000 cases and pay for 5,000 stamps and serve everyone,” Bailey said. “Are we going to do that? Yes. Am I trying to figure it out? Yes.” “It all starts with service. If people don’t get served, all we’re doing is buying ourselves a bunch of title cases in six years,” the judge said.

The system is beginning to break down under the sheer case load and cutbacks due to the economy and loss of revenue.

A Picture is Worth a Thousand Words.........

Any questions?

Baghdad Bob Makes a Comeback

Back in 2006, I suggested to a fellow blogger that the then Chief Economist of the NAR was akin to "Baghdad Bob", would say anything to perpetuate the real estate bubble regardless of the facts. We both made some posts on our blog about the similarity, and the name caught like wildfire. We know know by his own admission, that David Lereah didn't believe what he was telling the public. But he was paid by the NAR and he had to talk their book to the public. In essence, he was a company shill. A charlatan. For those of you that might not know Mr. Lereah, he authored the following two books.



This book on the left written in February 2005, right before the bubble burst. The one on the right (hard to tell the difference, isn't it?) was written in February 2006. Right at the top of the bubble. Lereah was famous for calling us non believers as "Chicken Littles".



One his more famous quotes was, "With sales stabilizing, we should go back to positive price growth early next year" —Lereah, NAR August 2006 existing home sales press release, September 25, 2006 .

Not to be outdone by his predecessor, current National Association of Realtors Chief Economist Lawrence Yun addressed his fellow Realtors in Coral Gables at the 2009 Real Estate Congress last week. Much like Lereah, Yun's predictions have been also completely wrong. Yet that doesn't seem to deter him from telling the faithful followers of the NAR what they want to hear. Good times are ahead! Yun, who never saw a housing market he didn't like, made the following observations.

On the current residential housing market, Yun continues to dispense with the Kool-Aid: “It looks like we’re now in a recovery process, particularly in boom-and-bust markets.” Sound familiar to Lereah in 2006?

How he can come up with that conclusion given the following statement he made at the same conference is any one's guess: “Unfortunately, foreclosures will continue to increase.”

Asked about his predictions of the past, Yun replied:“I didn’t think there could be a housing bubble. In hindsight, I was clearly wrong.”

So, Mr. Yun, you admit to not seeing the housing bubble despite the obvious warning signs, despite a number of other highly respected economists, bloggers, and media personalities warning about it? But now we should believe you because?

When a man has been dead wrong as much as Yun has been yet continues to talk the same nonsense, he earns the name "Baghdad Bob".

Congratulations Mr. Yun, you've earned it!

Build it and they will come.......

Used to be the mantra during the housing bubble. Thousands of unsold, unoccupied and often unneeded condos were built or proposed to be built. I remember seeing a report that there were some 50,000 condos either under construction or planned. That is about the same amount built over the past decade. Frequent visitors to Miami have witnessed the skyline littered with cranes and scaffolds. If you take a drive up A1A at night, you will see the thousands of empty, dark condos and unfinished projects.

What will happen to all of these?


An indication might be this example.

"A year after taking over a struggling condo project from Boca Developers, mezzanine lender Momentis Property Group is walking away from The Oaks I at Biscayne Landing in North Miami. Momentis, which seized the 373-unit property from Boca Developers in July after the developer defaulted on a construction loan, has agreed to hand the project over to iStar Financial, the senior lender."

According to the developers, the project had become “uneconomical” for it to own, meaning they can't turn a profit. iStar, acquired Fremont Investment & Loan in 2007, which loaned $123 million to Boca Developers in October 2005. Madeleine then lent an additional $275 million to cover Phase 1 of Biscayne Landing and other projects.

The Oaks is the first phase of Biscayne Landing. It was approved at the peak of the housing bubble in 2007. The developer planned 6,000 residential units, 180,000 square feet of office space, a 200-room hotel, 300,000 square feet of retail space and an Olympic training facility. In reality, Boca Developers built two towers with 373 condos.

Now, with the project a bust, iStar will take back 160 unsold condos at The Oaks. It will has to begin construction on the pool and other amenities promised in 2007, but they face the challenge of having to negotiate with the city and Boca Developers to acquire more space for those facilities. Plus, they are are responsible for paying down the construction loan and paying the condo assessments, taxes and insurance on the unsold units.

Building like these are common in Miami and other major metropolitan areas. They are a testament to the absurdity of the speculation that ran rampant during the last decade.These nightmares are now half empty, and will add to the foreclosure problem. The values have dropped more than 50%, and a high percentage of buyers never closed.

Much like the Tech bubble of 2000, the 'build it and they will come' scenario never came to be.

Leading by Example

Treasury Secretary Timothy Geithner bought this house on the left in 2004 for just over $1.6 million dollars. Now that he's living in D.C., he put the house up for sale. Bad timing Mr. Secretary. After reducing the price on his house to less than he paid for it, Geithner still couldn't find the next greater fool to buy it. Originally listed at $1.635 million in February of 2009, Geithner dropped the price to a mere $1.575 million. Unable to sell the house- even at a loss- the Secretary of the Treasury is reported to have rented out the house, for $7,500 a month.


But it gets better. Mr. Geithner has two mortgages on the property, totalling $1.25 million, plus a $27,000 annual property tax bill, plus home owner's insurance. I highly suspect he is cash flow negative.


Now I would have hoped that the person in charge of the Treasury, and a key figure in solving the housing crisis, would not become part of the problem himself. Unable to sell with two mortgages, cash flow negative, and an absentee landlord. What's going to happen when he owes more on the mortgages than it's worth?


Did I forget to mention Zillow.com estimates the house is worth $1.366 million and AOL Real Estate values it at ............$1.185 million?


Can he apply for a bailout?