10 ca escassoc

It’s STILL The Economy, Stupid

With the

October 14, 2011

With your host…Gene Wunderlich

National RecessionEnded 6/09SoCal RecessionEnded 9/10

Here’s the Good News!

That’s the good news – We should stop here

Economy Housing

PoliticsFraud

Too many

&• Federal Economic Policy• Regulations• Unemployment• Foreclosures• Mortgage Interest Deduction• Strategic Foreclosures

• Lenders• Short Sales• Interest Rates• Inflation• Shadow Inventory• Global Economy

Japanese

Earthquake

&

Tsunam

i

Sovereign Debt

Crisis in EuroZone

Oil Price Spikes

2011: A Year of Economic Wild Cards

Arab Spring

Political

Change on

Capitol Hill

Debt Limit Ceiling & Downgrad

e of US Debt

Stock Market

Volatility

Economy

Government's view of the economy could be summed up in a few short phrases: If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it.

Ronald ReaganAmerican President

Gross Domestic Product: Stall Speed

2010: 2.8%; 2011 Q1: 0.4% Q2: 1.0%

-8%-7%-6%-5%-4%-3%-2%-1%0%1%2%3%4%5%6%7%8%

2000

2002

2004

2006

2008

2010

Q2-

10

Q4-

10

Q2-

11

ANNUAL QTRLY

ANNUAL PERCENT CHANGE

US Deficit Highest in Decades2010: 11% of GDP (Revenues – Expenses)

19621965

19681971

19741977

19801983

19861989

19921995

19982001

20042007

2010-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%Deficit as a % of GDP

Source: US Treasury, BEA, compiled by C.A.R.

US Debt Jumped as Government Responded to Financial Crisis

2010: 93% of GDP

19621965

19681971

19741977

19801983

19861989

19921995

19982001

20042007

20100.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

90.0%

100.0%

Debt as a % of GDP

Source: US Treasury, BEA, compiled by C.A.R.

US Dept of Commerce, Bureau of Economic Analysis

Components of GDP:Consumer Spending Weak; Gov’t Sector Down

Quarterly Percent Change

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

Consumption Fixed Nonres.Investment

Net Exports Government

Q3 2010Q4 2010Q1 2011Q2 2011

QUARTERLY PERCENT CHANGE

Consumers Pulling BackHome Equity & Reverse Wealth Effect

-4%

-2%

0%

2%

4%

6%

8%

1Q-2

000

1Q-2

001

1Q-2

002

1Q-2

003

1Q-2

004

1Q-2

005

1Q-2

006

1Q-2

007

1Q-2

008

1Q-2

009

1Q-2

010

1Q-2

011

US Dept of CommerceBureau of Economic Analysis

Consumer Spending 2011 Q1: 2.7% Q2: 0.4%

Quarterly Percent Change

Unemployment Stubbornly High September 2011

CA Employment Development Division

0%

2%

4%

6%

8%

10%

12%

14%

Jan-

00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

CA US

California (12.1%) vs. United States (9.1%)

U.S. Job Growth: Flat in August – 103,000 jobs in September

US Dept of Labor, Bureau of Labor Statistics

Recession Job Losses: 8.4 millionSince Jan’10: +1.8 million

-900,000-800,000-700,000-600,000-500,000-400,000-300,000-200,000-100,000

0100,000200,000300,000400,000500,000

Jan-

08

Apr

-08

Jul-0

8

Oct

-08

Jan-

09

Apr

-09

Jul-0

9

Oct

-09

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Total Payroll Jobs in the U.S. (same as in 2000, but with 30 million more people)

How Many Years to Get Job Market Back to Normal?

Jobs added per month Assumed new jobs needed for growing population per month

How many years?

100,000 100,000 Treading water and never back to normal

200,000 100,000 6.3 years

300,000 100,000 3.2 years

400,000 100,000 2.1 years

California Job Growth: Faltering

CA Employment Development Division

Month-to-Month ChangesRecession Job Losses: 1.3 million

Since Jan’10: +188,100

-160000-140000-120000-100000

-80000-60000-40000-20000

020000400006000080000

100000

Jan-

08

Mar

-08

May

-08

Jul-0

8

Sep-

08

Nov

-08

Jan-

09

Mar

-09

May

-09

Jul-0

9

Sep-

09

Nov

-09

Jan-

10

Mar

-10

May

-10

Jul-1

0

Sep-

10

Nov

-10

Jan-

11

Mar

-11

May

-11

Jul-1

1

Where are California’s Jobs? Employment Trends:

Construction & Financial Biggest Losers

California Association of REALTORS®

Industry 2005 Jul-11 Year to Date

Mining and Logging 23,600 27,600 4,000Construction 905,300 567,300 -338,000Manufacturing 1,502,600 1,257,600 -245,000Trade, Transportation & Utilities 2,822,100 2,641,500 -180,600Information 473,600 455,400 -18,200Financial Activities 920,300 755,800 -164,500Professional & Business Services 2,160,700 2,136,200 -24,500Educational & Health Services 1,593,400 1,837,000 243,600Leisure & Hospitality 1,475,200 1,531,600 56,400Other Services 505,500 484,500 -21,000Government 2,420,200 2,380,200 -40,000TOTAL 14,802,500 14,074,700 -727,800

• From Jan. 1 of this year through June 16, we have had 129 disinvestment events occur, an average of 5.4 per week.

• In 2010 we saw an average of 3.9 events per week.

• In 2009 the total was 51 events.

• Our rate today is more than 5 times what it was then.

No one knows the real level of activity because smaller companies are not required to file layoff notices with the state. A conservative estimate is that only 1 out of 5 company departures becomes public knowledge, which means California may suffer more than 1,000 disinvestment events this year. The capital directed to out-of-state or out-of-country, while difficult to calculate, is nonetheless in the billions of dollars.

The top five destinations are (1) Texas, (2) Arizona, (3) Colorado, (4) Nevada and Utah tied; and (5) Virginia and North Carolina tied.

Where Are California’s Jobs Going?

Joseph VranichBusiness Relocation Coach

National Federation

of Independent Business

Crisis of Confidence: Small Business Optimism Down

Consumer Confidence SlippingLowest Since April ‘09

20

40

60

80

100

120

140

160

Jan-

00Ju

l-00

Jan-

01

Jul-0

1Ja

n-02

Jul-0

2Ja

n-03

Jul-0

3

Jan-

04Ju

l-04

Jan-

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Jul-0

6Ja

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7Ja

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Jul-0

8

Jan-

09Ju

l-09

Jan-

10Ju

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Jan-

11

Jul-1

1

August 2011: 44.5

INDEX, 100=1985

Housing Next

Housing

The housing market will get worse before it gets better.

James Wilson American Politician

(1742 – 1798)

Wall Street Journal9/21/11

“Home Forecast Calls For PAIN.”

Prices to stumble through 2015

19701973

19771980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

20100

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

US Home Sales CA Home Sales


California vs. U.S. Sales

California Sales of Existing Homes and Median PriceHousing Cycle Comparisons 1970- 2011

UNITS/MEDIAN PRICE $


0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

Sales of Existing Detached Homes Median Price

-61% -25%

-44%


California vs. U.S. Median Price

19701973

19771980

19821984

19861988

19901992

19941996

19982000

20022004

20062008

2010$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

US Median Price CA Median Price

Housing Affordability: Records Highs

California Vs. U.S.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Q1

2000

Q3

2000

Q1

2001

Q3

2001

Q1

2002

Q3

2002

Q1

2003

Q3

2003

Q1

2004

Q3

2004

Q1

2005

Q3

2005

Q1

2006

Q3

2006

Q1

2007

Q3

2007

Q1

2008

Q3

2008

Q1

2009

Q3

2009

Q1

2010

Q3

2010

Q1

2011

CA US

% OF HOUSEHOLDS THAT CAN BUY


2009

.01

2009

.03

2009

.05

2009

.07

2009

.09

2009

.11

2010

.01

2010

.03

2010

.05

2010

.07

2010

.09

2010

.11

2011

.01

2011

.03

2011

.05

2011

.07

7.28

.11

8.11

.11

8.25

.11

9.8.

11

0.00%

1.00%

2.00%

3.00%

4.00%

5.00%

6.00%

FRM ARM

MONTHLY

WEEKLY

Mortgage Rates @ Historical Lows

Median Price of Existing Detached Homes

P: May-07$594,530

T: Feb-09$245,230

-59% frompeak

$0

$100,000

$200,000

$300,000

$400,000

$500,000

$600,000

$700,000Ja

n-00

Jan-

01

Jan-

02

Jan-

03

Jan-

04

Jan-

05

Jan-

06

Jan-

07

Jan-

08

Jan-

09

Jan-

10

Jan-

11

California, August 2011: $297,060, Down 7.4% YTY


REOs Short Sales Distressed Sales0%

20%

40%

60%

24.7%

19.3%

44.5%

25.2%

17.5%

42.9%

24.4%

18.9%

43.7%

Aug-10 Jul-11 Aug-11

Share of Distressed Sales to Total Sales


Underwater Much?

Q4-2009

Q1-2010

Q2-2010

Q3-2010

Q4-2010

Q1-2011

Q2-2011

0%

5%

10%

15%

20%

25%

30%

35%

40%

30.2%

4.6%

Negative Equity Share in CA Near Negative Equity Share in CA

Distressed Sales: Bay Area(Percent of Total Sales)

MarinNapa

San MateoSanta Clara

SolanoSonoma

0%

20%

40%

60%

80%

100%

27%

48%

25% 31%

71%

43%

Aug-11


MaderaMerced

San BenitoSacramento

Kern

0%

20%

40%

60%

80%

100%

73%

59% 67%62%

60%

Aug-11

Distressed Sales: Central Valley

(Percent of Total Sales)


Distressed Sales: Southern CA

(Percent of Total Sales)

Los AngelesOrange

RiversideSan

Bernardino San Diego

0%

20%

40%

60%

80%

100%

44%

33%

62%64%

27%

Aug-11


1872 W. Admiral, 92801

•3 bd, 2.5 ba, built in 1982•Purchased in Sept 2005 for $594,000 with 30% down.•In April 2006, added a second for $57,000.•In Oct 2006, refinanced the second into a new second for $100,000.•Defaulted in 2010•Zestimate of current value = $364,000.

1572 W. Orangewood, 92802

•3 bd, 2 ba, 2,016 sq ft built in 1977.•Purchased in June 2003 for $455,000 with 30% down.•March 2004: added a second for $75,000; added a third for $90,500; added a fourth for $80,000. •Within one year of purchase, the property had $565,000 in debt on it!•Defaulted in 2010.•Zestimate of current value •= $442,000.

• Excessive borrowing against home equity is the untold part of the foreclosure story.

• “House Prices, Home Equity-Based Borrowing, and the U.S. Household Leverage Crisis” by Mian and Sufi: American Economic Review :

39% of new defaults from 2006 to 2008 attributable to home equity borrowing

Inevitable Conclusion…

NTS: 24,260, -16.9% YTD • NOD: 32,338, -21.5% YTD

05,000

10,00015,00020,00025,00030,00035,00040,00045,00050,00055,00060,00065,000

Jan-

07M

ar-0

7M

ay-0

7Ju

l-07

Sep-

07N

ov-0

7Ja

n-08

Mar

-08

May

-08

Jul-0

8Se

p-08

Nov

-08

Jan-

09M

ar-0

9M

ay-0

9Ju

l-09

Sep-

09N

ov-0

9Ja

n-10

Mar

-10

May

-10

Jul-1

0Se

p-10

Nov

-10

Jan-

11M

ar-1

1M

ay-1

1Ju

l-11

Notice of Trustee Sale - Counts Notice of Defaults - Counts

6 Month Average:

NTSs: 23,806

NODs: 23,625

California Foreclosure FilingsAugust 2011


1 in 3 Sellers Sold Because They Were in

Distress

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

5%

10%

15%

20%

25%

30%

35%30%Sold due to foreclosure/Short sale/Default


Sellers with a Net Cash Loss20

00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

0%

5%

10%

15%

20%

25%

30%

35%

21.8%

What was the net cash gain or net loss to the seller as a result of this sale?

Long Run Average = 11.2%


Net Cash to Sellers

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011$0

$50,000

$100,000

$150,000

$200,000

$250,000

$75,000

Median

Q. What was the net cash gain or net loss to the seller as a result of this sale?


Proportion of Sellers Planning to Repurchase

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 20110%

10%

20%

30%

40%

50%

60%

70%

80%

Q. Is the seller planning on purchasing another home?


Reasons Sellers Not Planning to Buy Another HomeSeller is a lender/bank

Seller prefers to have less financial obligation

Poor credit background

Lack of cash for down payment

Out of work/unemployment

Decide to live with family/friends

Waiting for market to bottom

Other

0% 10% 20% 30% 40% 50%

19.8%

11.4%

10.9%

5.7%

4.9%

4.7%

2.7%

40.0%

California Housing Market Outlook

• 2005 2006 2007 2008 2009 2010 2011f 2012f

SFH Resales (000s) 625.0 477.5 346.9 441.8 546.9 491.5 491.1 496.2

% Change 0.03% -23.6% -27.3% 27.3% 23.8% -10.1% -0.1% 1.0%Median Price ($000s)

$522.7 $556.4 $560.3 $348.5 $275.0 $303.1 $291.0 $296.0

% Change 16.0% 6.5% 0.7% -37.8% -21.1% 10.2% -4.0% 1.7%

30-Yr FRM 5.9% 6.4% 6.3% 6.0% 5.1% 4.7% 4.5% 4.7%

1-Yr ARM 4.5% 5.5% 5.6% 5.2% 4.7% 3.5% 3.0% 3.1%

Forecast Date: September 2011


Compelling AffordabilityMonthly Mortgage to buy a Median Priced Home

2005 Q2 2010 Q2

San Diego $ 2,833 $ 1,564

Miami $ 1,726 $ 853

Milwaukee $ 1,014 $ 797

Kansas City $ 735 $ 600

CA New Housing Permits

2009: 36,200 2010: 39,000

SOURCE: CBIA. Forecast: C.A. R.

0

50,000

100,000

150,000

200,000

250,000

300,000

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

F

Single Family Multi-Family

Average 1988-09: 138,000


Direction of Home Prices: Sellers Skeptical; Buyers Hopeful

Sellers Buyers0%

10%20%30%40%50%60%70%80%90%

100%

Down Flat Unsure Up


It’s Time To Buy Again

SOURCE: “Real estate: It’s time to buy again”Fortune Magazine’s 3/28/11 article written by Shawn Tully

“Forget stocks. Don't bet on gold. After four years of plunging home prices, the most attractive asset class in America is housing.”

Politics

If you want to understand your government, don't begin by reading the Constitution. Instead, read selected portions of the Washington telephone directory containing listings for all the organizations with titles beginning with the word National.

George WillJournalist & Author

“Just because you don’t take an interest in politics

doesn’t mean politics won’t take an

interest in you.” Pericles: 500 B.C.

If you don’t have a seat at the table…

You’ll probably be on the menu. Wunderlich Codicil: 2000 A.D.

The Realtor® Party

WE…Are a Special Interest Group.

The Realtor® Party

The Realtor® Party

NAR: The largest grassroots Political Action Group in this country.

"These groups are powers in Washington. The National Association of Realtors gave more money than any other group to candidates in the last election ($4+ million). Its 1.1 million members can do a lot of lobbying."

CAR: The most effective business advocacy group in Sacramento.

The Realtor® Party

Under all is the land…

The Realtor® PartyRed State? Blue State?

Realtor® Preamble

Challenges at the Federal Level

MortgageInterest Deduction

Challenges at the State LevelCalifornia Legislature

Challenges at the Local LevelMan, I know Anaheim is facing a $4 Trillion deficit, but they really need to do something

about all these panhandlers!

Every year in Sacramento:• 3,300 bills are introduced• 1,500 MAY have some real estate relevance• 1,000 may get passed – 600+ during the last week• CAR has to read each bill,

• Decide if we want to take action on it,• Monitor it all the way through until it’s passed,

is defeated or dies.

Why we’re In Trouble

AB 771 (Butler) HOA Agents and Fees Status: Signed by the Governor on September 1, 2011 (Chapter 206, 2011 Statutes)

SB 150 (Correa) CID Right-to-Rent – Status: Signed by the Governor on July 8, 2011 (Chapter 62, 2011 Statutes) SB 458 (Corbett) Anti-Deficiency – Status: Signed by the Governor on July 15, 2011 (Chapter 82, 2011 Statutes)

SB 837 (Blakeslee) Transfer Disclosure Statement Update – Status: Signed by the Governor on June 30, 2011 (Chapter 61, 2011 Statutes) SB 510 (Correa) Designated Office Managers within DRE – – Status: Signed by Governor October 2011.

AB 278 (Hill) DRE Citation and Fine Authority –Status: Senate Floor AB 392 (Alejo) Brown Act –Status: Assembly Appropriations Committee

2011 CAR Legislative Policy Agenda

2012 Preview : State Accelerated 3% withholding

4% flat tax – including services

Point of sale mandates

Mortgage interest deduction

2 weeks ago

• Conforming loan limits – back to 2008 levels. Monterey & Napa FHA $720,750 - $483,000 San Diego FHA $697,500 - $546,250 Riverside County FHA $505,000 - $355,350

• National Flood insurance program Impacts 90 closings a day in California Results in delay or cancellation of 1,300 escrows a day nationwide

Next 90 days – SuperCommittee!!!• Mortgage Interest Deduction

• GSE’s – secondary marrket liquidity

• Future of the 30 year mortgage

• Fannie & Freddie bulk rental program

• QRM

2012 Preview : Federal

2011 NAR Legislative and Regulatory Policy Agenda

As the largest professional trade association in the United States, the NATIONAL ASSOCIATION OF REALTORS® represents more than 1.1 million residential and commercial REALTORS® involved in all facets of the industry as brokers, salespeople, property managers, appraisers and counselors. NAR advocates policy initiatives that will result in the continued creation of a fundamentally sound and dynamic U.S. real estate market fostering vibrant communities in which to live and work.

TAXATION

•Mortgage Interest Deduction: NAR opposes any changes that would limit or undermine current law.Call for Action to Preserve, Protect and Defend the Mortgage Interest Deduction

•Capital Gains Exemption: NAR opposes any changes to the capital gains exemption on the sale of a home.

•Estate Tax Reform: NAR supports repeal of the estate tax but opposes the portion of the repeal that requires the use of so-called “carryover basis.” If the estate tax were to be revised, NAR supports the lowest possible rate (but in no event a rate higher than the maximum individual tax rates) and a substantial exclusion.

•Depreciation — Tenant Improvements: NAR supports efforts to establish a permanent rule that more accurately reflects the depreciable lives of buildings and to conform amortization periods for tenant improvements more closely to the term of the lease.

REAL ESTATE FINANCE

•Government-Sponsored Enterprises: NAR is recommending that Fannie Mae and Freddie Mac be converted into government-chartered, non-shareholder owned authorities that are subject to tighter regulations on product, revenue generation and usage, and retained portfolio practices in a way that ensures they accomplish their mission and protect the taxpayer.

•Mortgage Loan Limits: The mortgage loan limits for the GSEs (Freddie Mac and Fannie Mae) and for FHA are critical to providing liquidity in today's housing market. Especially as the private market has yet to return, these programs are vital to our housing recovery. The current GSE limits range from $417,000 to $729,750, depending on local area median home price. The FHA limits range from $271,050 to $729, 750, also based on 125% of local area median home price. Both of these limits are set to expire on September 30, 2011 and will reset to 115% of local area median up to $625,500. Call to Action to Make FHA, Fannie & Freddie Loan Limits Permanent

•Federal Housing Administration Programs: NAR is a strong supporter of the single- and multi-family programs administered by the Federal Housing Administration (FHA).

•NAR Credit Policy/QRM: NAR has forged the broad-based Coalition for Sensible Housing Policy, which includes 44 organizations focused on drawing attention to the proposed regulation’s onerous 20 percent down payment requirement. The coalition asked for and recently received an extension of the comment period until August 1, 2011. NAR and its coalition partners have also gathered the support of 44 U.S. Senators, who recently wrote to regulators expressing their intent on QRM and opposing the imposition of a sizable down payment; 282 House members signed a similar letter.Call to Action on the Qualified Residential Mortgage

•Short Sales: NAR continues to push the lending industry to expedite short sales.

•Real Estate Settlement Procedures Act (RESPA): NAR supports HUD’s new RESPA rule in general. NAR supports transparency in the home buying process and clear disclosures to consumers of loan terms and the fees charged by settlement service providers. NAR supports better guidance from HUD but specifically rejects HUD’s contention that the marketing of home warranties is a mere referral.ENERGY AND THE ENVIRONMENT

•National Flood Insurance Program: NAR is recommending renewing and strengthening the long-term viability of the federal flood insurance program including comprehensive coverage for non-primary residences (e.g., rental properties and second homes) and reforms to provide “full risk” premiums for most repetitive loss structures in many states. NAR also supports funding to update and improve the accuracy of flood maps, which are the cornerstone of NFIP and are used to determine which properties require flood insurance.Take Action and Tell Congress to Reauthorize the National Flood Insurance Program

•Natural Disaster Policy: NAR supports a federal program that promotes the availability and affordability of property insurance nationwide and coordinates the mitigation of property against natural disasters, as well as post-disaster assistance.

•Energy Efficiency and Climate Change NAR Supports: Improving energy efficiency through voluntary incentives in lieu of individual building mandates.

Commercially reasonable approaches that advance market and smart-growth principles of protecting private property rights and maintaining real estate affordability and availability. Additionally, NAR supports educating property owners and consumers about the benefits of energy efficiency.

NAR Opposes: Requirements that impose undue economic burdens on property owners or managers; triggering such provisions at the time when real property is sold; and expanded application of existing laws/regulations that are not suited to address climate change.

• Changes in ownership• Social Security Numbers• Private Transfer Taxes (fees)• Independent Escrow Companies• Notaries• RESPA

YOU… Are a Special Interest Group.

Strategic Alliances

Fraud

California is the hands-down leader in real estate fraud, leading the nation with 6 of the top 7 fraud markets in the country.

U.S. TreasuryFinancial Crimes

Enforcement Network (FinCEN)

Top 20 metros for mortgage fraud1. San Jose-Sunnyvale-Santa Clara, Calif.2. San Francisco-Oakland-Fremont, Calif.

3. Los Angeles-Long Beach-Santa Ana, Calif.4. Riverside-San Bernardino-Ontario, Calif.

5. Sacramento-Arden-Arcade-Roseville, Calif.6. Miami-Fort Lauderdale-Pompano Beach, Fla.

7. San Diego-Carlsbad-San Marcos, Calif.8. Las Vegas-Paradise, Nev.

9. Atlanta-Sandy Springs-Marietta, Ga.10. Salt Lake City, Utah

11. Chicago-Naperville-Joliet, Ill.12. Washington, D.C.-Arlington-Alexandria, Va.-Md.-W.Va.

13. Tampa-St. Petersburg-Clearwater, Fla.14. New York-Northern N.J.-Long Island, N.Y.-N.J.-Pa.

15. Orlando-Kissimmee, Fla.16. St. Louis, Mo.-Ill.

17. Seattle-Tacoma-Bellevue, Wash.18. Phoenix-Mesa-Scottsdale, Ariz.

19. Richmond, Va.20. Denver-Aurora-Broomfield, Colo.

Fraud can be defined as: "deceit, trickery, sharp practice, or breach of confidence, perpetrated for profit or to gain some unfair or dishonest advantage“. The snake oil peddler and confidence man of Old West fame are alive & well today.

In the broadest sense, a Fraud is an intentional deception made for personal gain or to damage another individual; the related adjective is fraudulent. The specific legal definition varies by jurisdiction.

Fraud is a crime, and also a civil law violation.

Short Sales Fraud is a term loosely used to describe fraud, deceit or trickery in a short sale transaction. It is currently among the most pervasive and fast-growing practices of real estate fraud replacing mortgage fraud, reverse mortgage fraud & loan modification fraud.

What is Fraud?

As of 2010, the FBI devotes over 350 of its 13,000 agents to mortgage fraud.

On the state level, the Department of Real Estate (DRE) has reportedly revoked, suspended, or accepted the surrender of 886 real estate licenses from July 2009 to June 2010, which is a 60 percent jump over the preceding three years.

As of August 2010, the DRE reportedly had about 5,400 open investigations, including more than 100 scams involving short sales. Since 2006, the DRE has issued about 600 desist and refrain orders to unlicensed people.

Our new District Attorney has indicated a definite interest in taking a much more proactive role than his predecessor.

Our new Attorney General is continuing the perseverance of her predecessor in pursuing financial and real estate fraud.

Are the authorities aware?

What is it?As background, a short sale is a sales transaction where: the sales price is less than the seller’s existing mortgage loan balance,

other liens, and costs; and the existing creditors agree to a payoff of less than what’s owed. Short sales help homeowners to avoid the stress and stigma of foreclosure.

Short sales also help mortgage lenders by avoiding the costs of foreclosure, including the burden of maintaining and reselling properties acquired through the foreclosure process.

Like other types of scams, short sale fraud can take many forms. At one end of the spectrum, a short sale scam can be part of large, well-organized fraud ring, and at the other end, it can be one isolated incident.

Examples of short sale fraud include, but are not limited to, the following: Fraudulent short sale flips / flops Short sale negotiator scams Short Sale Package Scams Improper payments

Source: CAR Legal

A “short sale flop” or an “AB-BC transaction” usually involves a resale of a property either simultaneously or soon after a short sale. First, for the AB transaction, Seller A sells the property to Buyer B, subject to the approval of Seller A’s short sale lender. Second, for the BC transaction, Buyer B resells that same property to Buyer C, typically for more money.

With full disclosure, among other things, a short sale flip is not necessarily illegal. However, in practice, scam artists often use various illegal and improper tactics to close these types of transactions. These schemes typically involve attempting to dupe Seller A’s short sale lender into believing a property is worth less than it is, and yet, simultaneously selling the property for a higher price and pocketing the difference. The scammers use the time waiting for the short sale approval to look for a new Buyer C to buy from Buyer B at the higher price.

At times, Seller A, Buyer B, and Buyer C, among others, are aware of the property flip but the scammers convince them that the plan is legal, or give them money for their cooperation.

Buyer B, in particular, could be, among other things, a trust, a limited liability company (LLC), or a straw buyer, who could be in cahoots or a victim of identity theft.

Source: CAR Legal

What’s a Flop?

Up-front fees/improper paymentsUnlicensed NegotiatorsTransfer through TrustTransfer deed to 3rd partyLLC’sNo disclosure to lenderConcurrent escrowSame agent representing both

* Disclaimer:

Your most obvious Red Flags

Wholesale, Rampant FraudImpacts the Economy

A few million here, a few billion there,

Bernie MadoffRobo-signingCountrywideSub-Prime

An industry out of work

Economy Housing

PoliticsFraud

Understanding the Financial Crisis

Thank You.

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Any questions?

Commercial?• Lags residential trends by 2+ years• More heavily dependent on short-term financing

Typically 3 – 5 year cycles• Retail commercial tied to consumer confidence/ability

Restaurants, automobiles, electronics• Industrial commercial tied to job growth/demand

144 companies left CA last year/other states aggressively pursuing• Vacancy rate still rising in most areas• Foreclosures just starting in many areas

• Banks really don’t want to take back big empty boxes• Many jobs lost will not come back – new technology• Some lenders are increasing business lending

Esp. smaller local commercial banks• Administration finally focusing on promoting business