Cash for Keys Gone Sad

I had a couple of cash-for-keys appointments today, a couple more of my listings moving up the status chain – now they’re vacant and secured and in pre-marketing, they should both be listed within the next 1-3 weeks.  Ordinarily the prospect of some good new listings coming on the market is cause for a smile, but today the joy is bittersweet.

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One of the cash-for-keys appointments was a full week past the originally agreed-upon date.  A day before the original vacate date, I rolled by the property to see how the occupant was coming:  he wasn’t coming along quickly, the house was still full.  I found him in his driveway standing amid an ocean of possessions, he was having a garage sale – not the quick way to divest yourself of a whole house full of possessions.

We talked, and he agreed he’d need some more time; he said he’d need just til Wednesday, but when I wrote to the client, I said I didn’t see him getting out of there any earlier than Friday.  The client agreed to extend the vacancy until Friday at 5 PM, which was good – because sure enough, once Wednesday rolled around, he wasn’t ready then either.

By Friday morning, he still wasn’t ready.  I drove by to see his progress – still far to go.  He said he’d be ready by Saturday morning – but come Saturday morning, he still had a few more things to do. And so it was on Saturday afternoon, when he then swore up and down he’d be ready by 9 AM on Sunday morning.

A rainy Sunday morning at 9 AM found me at the house with a contractor to change the locks.  Unfortunately, the occupant still was not ready.  Bummer, because now I’d have to pay the contractor a trip fee – which he generously waived (thanks Mike!).  I told the occupant that he should just call me when he was in fact ready, rather than saying he’d be ready on such-and-such a date and time and blow it again.

The next day, he called and said he would be ready.  I called and asked the client if he could still get all his cash for keys money, even though he was a week late.  The client said for me to go ahead and give him the check if the property was vacant and in broom-swept condition.

And so it was, the occupant had followed my instructions to the letter and the house was totally empty.  We were walking from the garage into the house, and I noticed he wasn’t behind me.  He’d stopped back in the garage, and was weeping quietly against the wall.  “Hey, are you OK?” I asked.  No answer…so I walked inside the house and gave him some time alone.

He didn’t want to let go of that house.  He said he’d never refinanced it like so many others had, he’d bought it, and put $45,000 worth of materials and his own time upgrading the property, remodeling the kitchen entirely, etc.  He was going through a divorce, had recently quit his job, and had three kids – and now he’d lost the house, and was living in a rented room.

There’s really no way around it:  that blows.  There’s no shortage of hard-luck stories in the REO business, but sometimes the emotions are just so raw and you’re right there in the thick of it – and what’s there to say?  A lot of times in this business I feel like I’m part life-coach, part therapist – which is something I really ought to put on my REO Résumé because it’s definitely part of the job description.  All in a day’s work, can’t wait to see what tomorrow brings.

Cash for Keys Lawsuit

So I was involved in a lawsuit the other day.  OK so maybe that’s a bit of hyperbolic link-baiting, but I’m trying to be a savvy blogger as well as a top-notch REO Broker, so you’ll forgive the indulgence. I sure enough was involved in a Cash for Keys Lawsuit, but it was just a small claims court case, and the future of western jurisprudence is hardly to be affected by the outcome.

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Here’s what went down:  back in July, I was assigned an REO, so I went down and did the occupancy check and met with the (former) owner.  He said he lived there, and had some tenants who were renting a room (they were a couple).  So I took down everyone’s name, and let them know the bank would probably be offering cash-for-keys and that I’d be in touch again soon.

I called back in a couple of days, once the bank had told me how much to offer and such.  The former owner told me then that one of the tenants, the male, was “no longer in the picture” and had moved out.  OK, fair enough – I didn’t ask why, it doesn’t really matter why – if he’s gone, he’s gone, more power to him.

I ended up negotiating Cash for Keys with the former owner and the other tenant.  They actually got out of there in darn near record time; within 3 days after signing their agreement, they were handing me over the keys to a very vacant and broom swept house.  They got their cash and went on their merry ways.

A couple of months later, I got a phone call from the male tenant who had vanished.  He said he felt he was owed the same Cash for Keys money that the other occupants had received, because even though he was not there when I negotiated the cash for keys or when I disbursed the cash, that he was still a legitimate tenant and should have received “financial relocation assistance” as well.

The bank that doled out the cash for keys money told me they wouldn’t be paying him, since in their view he had no legitimate claim to any of the money.  The occupant ended up filing a small claims lawsuit, against the two other occupants and my real estate brokerage – but, interestingly enough, did not include the bank in the lawsuit.

Our day in court arrived; I had to spend nearly four hours there, sitting through sad case after sorry mess, listening to the judge dispense wisdom and righteous decisions in a dismal spectacle of small claims woe.  We were the last case to be called.

It turns out, the reason the tenant was “no longer in the picture” was because he had been in jail for his 4th DUI and then had a restraining order taken out against him by the other tenant.  The judge ruled that there was no obligation to pay anyone cash for keys, the banks do it to avoid an eviction (which never took place), and that unfortunately for the plaintiff, due to the choice he’d made to go drunk driving, he was not living in the property at the time CFK was offered – and it didn’t matter if he was a legitimate tenant or not, since the bank don’t have a legal requirement to give him or any occupant any money regardless.

The judge found for the defense (my brokerage, and the other occupants) and off we went, victorious before the bench.   To my mind, the outcome was a foregone conclusion and it was a frivolous lawsuit at best, but what can you do?  I don’t make the rules, I just play the game and follow them as best I can – which keeps the Silicon REO Group coming out on top.

 

Getting Your Foreclosure Rescinded

There’s a common refrain I hear from (former) owners of foreclosed houses:  they were working on a short sale, or a loan modification, they thought everything was going along fine, and all of a sudden, I show up at the door and tell them the house has been foreclosed on, and are they interested in Cash-for-Keys?

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It’s actually a pretty rare event these days when someone hasn’t been in the process of working with the bank to somehow avoid foreclosure at the time the property gets sold at the trustee’s sale.

There’s often several angst-filled days as the (former) owner makes calls to the loss mitigation department and tries to find out what happened to their short sale or loan mod.  Often times, the borrowers are able to reach the right someone with the lender and the foreclosure is reviewed – as you have perhaps read in the headlines lately, mistakes can happen.  Many (former) owners hope to put their loan mod or short sale back on track and have the foreclosure rescinded.

Does this happen?  Yes, absolutely!  It can happen.  If a mistake truly has been made, then the foreclosure often gets rescinded in fairly short order, within a week or two typically.  And then I close the book on that file and go along my merry way, waiting for my next REO assignment or, more like it, busily servicing the ones I already have.

Sometimes it can take weeks or months for a lender to finish reviewing the case however, in which case I as the REO agent will hang back and wait for further instructions from the client.  That must be fairly agonizing for the (former) owner, I imagine – after months dealing with the loss mitigation department to now stand at the precipice and wait…and wait…and wait some more, sheesh, I don’t envy these folks.

Sadly enough, in almost all cases, the loan modification or short sale was denied, however the denial was not communicated to the borrower, and the file was sent without a murmur to the trustee’s sale.  Usually the borrower is notified, but sometimes it happens that they don’t receive the notice that their home is to be sold at the trustee’s sale, and that’s why it’s often such a rude shock when I show up to do the occupancy check.

But yes, it happens – foreclosures do get rescinded when mistakes are made.  If you ask me, though, the foreclosure may not be the worst thing that could happen, particularly for people who are doing loan modifications. Loan modifications, to me, seem to be kind of a raw deal for the borrower.  Yes, the payments get lowered, but very few loan modifications result in any meaningful principal reduction.  To lower the payment, lenders will lower the interest rate, stretch out the loan term, or add a fat balloon payment.  In most cases, the mortgage payment is still going to be higher than it would be to rent a similar property – except that the borrower is still going to be stuck owing dozens or hundreds of thousands of dollars more than the property is worth.  If we were on the verge of rapid price appreciation, it might make sense to lock yourself (again) into a long-term obligation for massive debt; however, most market watchers are saying that any significant price appreciation is years away.

At least with a foreclosure, the borrower typically escapes that crushing debt, and it’s a chance to start over, live cheaper, and start saving for the future.  Getting your foreclosure rescinded and into a loan mod may seem like victory of sorts, but it’s a pyrrhic victory if you ask me.  In most cases I think folks would be better off cutting their losses and moving on.  So if you find yourself working to get your foreclosure rescinded, I invite you to think twice, since the foreclosure itself may well be a blessing in disguise.

 

Real Estate Prices plunge 5.9% in two months

Here’s a real eye-opener for you:  Clear Capital is reporting that nationwide, real estate prices have declined 5.9% in just two months.  This perhaps comes as no surprise to anyone who follows the real estate market closely – except that a lot of people who do follow the market closely are saying that prices are stabilizing and we’re on the road to recovery, etc.  As with anything, caveat emptor, and I wonder who signs their paychecks?

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This news comes on the heels of an interesting conversation I had with a veteran broker in our area.  As it happens, I met Vince Brown over the weekend, and he’s the guy who originally started my brokerage, Thunderbird Real Estate, back in 1964.  I asked him, “So what year did you actually get started in Real Estate?” and he said 1962, which means he has been doing real estate for forty-eight years here locally.  “Wow, ” I said, “that’s a long time.  And in that time, how does today’s market compare to other markets over that time?”  Vince didn’t take but a moment to answer:  “This is, by far, the worst real estate market I have ever seen.”

Worst real estate market, by far, in 48 years.  For what it’s worth, Vince also forecasts the market will remain in its current doldrums for another couple of years, and then slowly begin to climb its way back up the appreciation ladder.

I wonder, though, how many more rungs down are we going to drop in these next two years?  Declining prices can mean only one thing:  still more defaults and foreclosures.  Analysts have long cited negative equity as the primary driver of “strategic default” – so as homeowners increasingly fall into a negative equity situation, we can expect the foreclosure pipeline to grow.  Which itself may have a further dampening effect home real estate prices.  A truly vicious cycle.

Determining Occupancy of a Foreclosed Home

Fortune has dealt me another fine REO listing, this one located comfortably enough just about 3 blocks from where I live – hey, what’s happening to the neighborhood?!  So I cruise on down there – could have walked, but brought the car in case I needed to make a fast get-away (you never know…!).  Very nicely maintained house and landscaping, so nicely maintained it seems more than likely that it is (former) owner occupied.

Since it’s the middle of the day, I hadn’t really expected to find anyone home, and nobody was.  I took a bunch of photographs, and knocked on a couple neighbors’ doors – nobody else home, either.  I left my nice REO Agent note on the door, saying I’d been by to do an occupancy check and to contact me immediately.

The hours ticked by, and no phone calls.  That evening, just around dusk, I had to go to the store for some milk, and I drove by the subject property – even though it was past the time that most people get back from work, the note was still there on the door.  By the middle of the next morning – note still on the door as I drove by on my way to grab BPO pictures and do some routine property checks.  However by late afternoon when I came back – the note was gone, and there was a car in the driveway – bonanza!

Screech go the tires, I park a couple houses down and walk up to the door – ring the bell.  Wait. No response.  Knock.  Wait.  No response.  Knock again – nothing.  I leave a business card, hop back in my car, and drive away – hmm, are they playing ostrich, what?  But a couple hours later, just after dusk, I happen to drive by again – and the car is there, but no lights are on.  Very mysterious!

Quickly determining who occupies a foreclosed property is the first and a very important task when getting an REO assignment.  Often times, it can be surprisingly difficult to determine this.  Many neighbors today literally have no idea who is living next door to them – they can usually tell you if a neighboring house is vacant or not, but who the actual resident is – pfft, a lot of folks have no clue.  And if the occupant doesn’t call you, and you can’t find him at home – what to do?

I have a lot of good luck using whitepages.com – it has a handy reverse-lookup function, you can type in the property address and do a reverse-lookup.  Probably about 40% of the time, it will come up with both a name and a phone number.  Also using whitepages.com, you can enter in the former mortgagor’s name, and the city and state, and you may find a match that way – either at the subject property address, or at some other address in the vicinity.  One of my favorites too is using pipl.com – you can type in the former mortgagor’s name and it will do a “deep web” search – pipl.com searches whitepages.com and that’s usually where the best matches come from, but sometimes you can find other ways of possibly contacting the former mortgagor – e-mail, facebook, their place of business, etc.

A lot of links from pipl.com will take you to paid searches – PeopleFinders.clom, Veromi.net, Intelius.com, etc.  I have not had a great deal of luck with these paid services.  What I am usually looking for is a phone number, and I have found typically, if the phone number does not appear in whitepages.com, it’s not going to appear on any of these paid reports, either.

Then of course, there’s a good old-fashioned Google Search. When you are search via Google, remember to put the occupants’ full name together in quotation marks for most accurate search results.  So for example if I was looking for a Joe Smith in San Jose, CA – I would type this into the Google search:  “Joe Smith” + “San Jose, CA”.  This kind of search will usually result in some very concise search results, maybe just a page or two of results, versus the dozens or hundreds of pages if you were to search just for “Joe Smith San Jose, CA”.

I hope this information is useful to you dear readers, if you have any other ideas about how best to determine occupancy of a foreclosed home, please leave a comment!

REOMAC Is Back! Fall Education Summit

The leaves are changing colors and the air is getting crisp – so it must be time once again for the REOMAC Fall Education Summit.  Not surprisingly, the summit this year is being held in Hollywood, Florida.  Many of the default servicing industry’s best and brightest will be there to schmooze, network, gossip, and actually disseminate information about the recent events and trends in the REO industry.

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As I said, the best and brightest will be there – so naturally you’re expecting you’ll be able to find me roaming the halls and plying the hotel bars.  Alas, you’d be wrong about that.  As it turns out, things have been very busy here at the Silicon REO Group, and I didn’t feel I could take the time away from my business at the moment to go larking on down to Florida.

However, in a burst of inspiration, I decided to send one of my team members down there in my stead.  If you’re attending the REOMAC Fall Education Summit, please be sure to look out for one John Brown.  He’s hard to miss – he’s quite the tall fellow, head and shoulders above the rest in more ways than one!  So if you see John, be sure to say hi and grab one of my business cards off him.

I’ll admit, I’m not sending John just to schmooze and booze it up with my colleagues and charm the asset management – although I have no doubt he’ll be very good at that. What I’m really after is the session audio.  John’s going to be packing a digital audio recorder, and I’m going to have him record all the trainings and sessions he attends.  When he gets back, I’ll copy the audio files on to my computer and listen to the MP3 files of the sessions.  I’m very curious to know what’s going on in the foreclosure industry from the perspective of lenders, servicers, outsourcers, and economists.  If I hear anything eye-opening or noteworthy, I’ll be sure to pass it along to you here on the blog.

Texas Attorney General Halts Foreclosures

Can you hear it?  I’m hearing it.  It’s the sound of a drum beating, and it’s getting louder.  Now the Texas Attorney General has got in on the act, and he’s ordered a halt to foreclosures in Texas.

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via BizJournals.com:

Texas Attorney General Greg Abbott has asked 30 lenders to stop foreclosures and sales of foreclosures, while regulators investigate the legality of the process.

Read more: Texas attorney general halts foreclosures – Austin Business Journal

I still think this is all likely to blow over.  And, for the record, I’m not really against putting a temporary halt to foreclosure proceedings while this gets straightened out.  After all, we’ve gone through months of moratoria already, what’s another 60 days while the processes are reviewed and tightened up?

There’s definitely a silver lining on this dark cloud – the banks will help out the nation’s unemployment rate by hiring people to review all these foreclosure documents rather than leaving it to a couple-few robo-signers.  Likely as not they’ll just be contracted/temporary hires, but from the looks of it, many of them will be needed for some years to come.

And it’s also good new for me and other professional REO brokers – fewer assignments getting pulled or canceled due to mistaken or improper foreclosures.  Not that it happens very often – but it does happen, and the less of it the better.

REO Flood, Now an REO drought?

There’s no shortage of prognosticators telling us of a coming flood of REO homes on the market.  OK, a lot of those soothsayers have something to sell you – be it the likes of Lamco Network, REO Vendor Manager, REO Network, numerous REO consultancies and coaches like REO Renegades, SuperStarREO etc. – their message is all the same – join our network, pay the fee, you need to be in all the right places when the flood gates open and the REOs start pouring on the market.

And hey – it’s legit!  I believe it, that explains the copious quantity of dollars flowing from my bank account to some of the above-mentioned outfits.  A lot of folks will point to data provided by our friends at RealtyTrac (who, coincidentally, also have a product to sell you), which, if you believe them, say there are…jeez, I forget how many, 4-5, 7+?… million homes across the United States at some point in the foreclosure process right now.  Of course, they are quick to point out, not all of these properties will go REO – some will be sold via short sale, some will get loan modifications, etc. – but that no matter how you slice it, there’s a lot of REO coming down the pike, although it’s likely to come more as a steady stream rather than an outright flood as many of my colleagues in the REO Brokerage business seem to be hoping for.

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Well, that was then.  Now, klaxon bells are sounding and the blogosphere is in an uproar – they’re pulling the plug on foreclosures!  It started with Ally/GMAC but quickly spread to JPMorgan Chase, Bank of America – and now others.  The New York Times has a couple good articles on the subject (Foreclosure Furor Rises, The Gathering Storm over Foreclosures), that old salty dog Bloomberg weighs in on it (Hydra of Foreclosure Probes).  A lot of states’ Attorneys General area getting in on the act, including our own Jerry Brown and the attorney general of Connecticut has ordered a halt to all foreclosures – while at the moment the foreclosures have ground to a halt only in judicial foreclosure states, it seems likely that it own’t be long before it spreads to non-judicial states like California.  And of course there’s no shortage of grandstanding politicians at the national level, either.  This could get messy (not that it isn’t already – foreclosure is a somewhat messy business).

Perhaps not surprisingly, all of this hubbub has actually reached its way down from on high and touched our business here at the Silicon REO Group.  Two days ago, I received via RES.NET a task to list one of the properties I had in pre-marketing.  Awesome!  I fired off the tasks to the appropriate people on the team – flyer design, MLS entry, ordering the sign up, filing the paperwork with my brokerage, posting on Craigslist, etc. Hours after seeing the RES.NET task, the property was listed.

And then, yesterday – kaboom!  An email from the asset manager arrived saying that the property needs to be pulled of the market, any marketing be discontinued, and that no offers/contracts would be negotiated on it at this point.  Of course, I’m expected to maintain the property and continue doing MSRs (monthly status reports) BPOs and whatnot while we wait to see if the property is to be re-listed, or…or what?  Give the property back to the former owner because there was an error in the foreclosure process?

Somehow…I don’t see that happening.  All this hue and cry about the MERS system and flawed titles, by the way – much todo about nothing if you ask me.  But people have advertising to sell to eyeballs looking to see the banks get theirs and hapless underwater homedebtors hoping and searching for how they can get relief for overextending themselves in the easy money mania of a few years back.  And I get that, and it’s fine, do what you gotta do, it’s a free country, right?

Although I’m no sage, and I’m the farthest thing from a legal or financing expert – I predict that all this will be just water under the bridge in a few months’ time.  For all the social tumult and government inquiries and TARP, HAMP, HAFA, HARP and a whole alphabet soup of other catchy acronyms – the foreclosure train rolls on, and I think it’s going to keep on rolling until the root causes of the crisis are behind us (negative equity, unsustainably high home prices, unemployment).  From the sound of it, we’re still some years away from working through it all.  So I’m prepared for lots of foreclosure drama in the headlines for some time to come – and you should be too.

REO Inventory on the Rise

A few weeks ago, I posted a blog entry about it looked as though lenders were stepping up foreclosure.  Since that time, I’ve continued to see a steady stream of REO assignments – kind of like in the good old days (all of 2008 and much of 2009).  That explains a bit about why it’s been a while since my last blog post – I’ve been busy doing occupancy checks, re-keys, negotiating cash-for-keys, overseeing trash-outs and initial services, all that fun stuff.

Housing Flood

Yesterday, the venerable and still-somewhat-respected Wall Street Journal chimed in a piece informing us that housing inventory climbed again in September – for the ninth straight month!  It’s a pretty nifty article and it gives stats from 26 metro areas throughout the United States.  In California, they provide data for Los Angeles, San Francisco, Orange County, and San Diego.  For San Francisco, the chart they provide shows that the available inventory increased by 5.4% at the end of September compared to the previous month.  Their interactive chart also has a cool feature where you can see the inventory level rise and fall for any of the metro areas over the past 18 months – and looking back, you can see that from January 2009 through December 2009 the inventory in the San Francisco area slowly declined – but it’s been rising ever since, and is now back at about the same level.

What, pray tell, could this mean?  I think it’s clear that given the overall anemic demand from buyers for most types of residential real estate that we are going to be seeing a lot of price pressure over the coming months – it could be a very cold and dreary winter for a lot of people trying to sell their houses.  And they’ll have to compete with REO sellers, who are often in great competition with each other, who absolutely-positively-gotta-sell-it and will mercilessly reduce the asking price until the right buyer comes along, although this process can take months (they don’t just give away these REOs you know – not usually, anyway).

Interestingly enough, the Wall Street Journal’s chart also provides one other interesting piece of data:  the percentage of homes that have had a price reduction as of the end of September.  In the SF Bay Area, the figure stands at 44% – which may seem high, but compared to the other 25 metro areas surveyed, it’s probably a little bit below average.  I wonder, though – will we be seeing that number pick up over the coming months?  With the way things are going, I don’t see any way around it.

Bad Real Estate News is Good News for You

I’m a Realtor, but i’m also a big fan of Patrick.net, which is loaded with anti-Realtor diatribe and invective.  In my copious experience, there’s all kinds of Realtors, from excellent to abysmal, from Realtors who will actually save or help make money for their clients, and Realtors who will cost their clients tens or even hundreds of thousands (millions, even?) of dollars through sheer incompetence in pricing, marketing, and negotiation.

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Aside from all the fear and loathing of Realtors exhibited on Patrick.net, they do provide a daily e-mail blast of housing news – and it is universally negative, or so many would view it.  There’s article after article explaining how in most parts of the country real estate is still over-valued with more declines to come, it’s better to rent regardless, that government interference in the mortgage market is largely to blame for this whole “crisis.”  Here is a selection of choice articles they linked to in today’s e-mail:

U.S. House Prices Face 3-Year Drop as Inventory Surge Looms

Bank Repossessions of Homes Hits New Record in August

Home Price Double-Dip Begins

My anecdotal evidence from the field do indicate that in fact, inventory is surging, more homes are reverting back to lenders as REO foreclosures, and that in many areas here locally, prices do indeed seem to be on their way down again.

While many in America might read those headlines and see bad news, I see the opposite.  I see a long-overdue and very necessary correction in the housing market.  At least here in my slice of gorgeous Northern California, housing affordability has been so poor for so many years, it seems logical in retrospect that housing prices had nowhere to go but down.

And that’s a good thing.  Unless of course you bought some real estate at the peak, or re-financed your home and sucked out a lot of vapor-equity and blew it on travertine tile, granite slab counters, a Mercedes and a few lavish trips to Mexico and Thailand.

I got a new REO assignment yesterday, and I took my assistant along with me to go and do the occupancy check, and so we could chat and talk about the business, what’s going on in REO, and real estate in general.  My assistant is also my buyer’s agent, and we got to chatting about how one of his clients had bought a home in the area last year, and was loving being a home owner.

His client had, of course, purchased an REO – a big (2000+ square feet, that’s “big” here) house with plenty of space for his growing family.  He’d bought it for about $250,000 – which was about 50% less than the peak price of $500,000 for that same house.  His housing payment is around $1300 a month, which is much, much less than it would cost him that very same house, and of course about 50% less than if he had to pay twice as much for the same property.

The net result of that is this homeowner has a lot of extra money in his pocket than he otherwise might.  This is money that he is very likely to spend in the local economy – going out to eat, buying clothes for his kids and movie tickets and home maintenance and improvement supplies from the local hardware store, etc. – instead of seeing this money funneled un-productively out of the local economy and into the hands of out-of-state or extra-national mortgage bond investors.

So I welcome further home price declines.  I see low prices as opportunity, I see them as engendering stability and solvency – and I think this is really important if we want strong families, neighborhoods, schools, and society.  So even if you are one of the unfortunate people who bought at the peak and are paying through the nose on your mortgage and the government hasn’t given you a loan modification or a principal reduction because, ironically, you’re a good borrower and make your payments and therefore don’t deserve a reward – be at peace.  These are transformative times, and better days are maybe not on the horizon, but they’re at least over the horizon and we’ll get there some day.

Meanwhile, bring on the correction and let’s set the economy right, and we’ll see the housing values rise organically when the time is truly nigh.  But that time isn’t now.  Now, it’s time for me to get cracking on those 3 BPOs I have for my pre-marketing listings.  I’ll write again soon.