Keys Cove is a sprawl development in the City of Homestead, formerly a sub-tropical farming community, in Florida. Tucked in between the Lis Pendens, Civil Court Papers and Releases (the various legal documents that have replaced massive deed transfers), Production Home Builder Shoma Homes records only 7 deed transfers. These 7 were in Keys Cove, a PUD (planned unit development) and were the only sales for Shoma in public records from 8/1/2008 through 9/30/2008 (two months). The previous month, July 2008, Shoma did a bulk sale of about 400 unbuilt condo units in this development to a Delaware Corporation for $1,018,883. In comparison: In 2005 during the same two month period, Shoma had about 90 deed transfers. 
The finished units on the right of the red area in the aerial view (there are 575 units in this first phase) give an idea of prices before the housing market crash. (hit on image to enlarge it). A 1,060 square foot unit owned by Citibank NA Trs., went for $190,000 4/2006. U.S Bank NA owns one which sold for $205,000 (1,182 square feet) 8/2006. Smaller units (930 Square Feet) went for $134,990 in 6/2006 and 11/2006 one (930 square foot) unit went for $143,990.
Now we are going to show you the seven sales, recorded at a 40 to 50 percent discount from the values before the crash, one recorded just two weeks ago.
No. 1
Shoma sold Unit 396 at Keys Cove for $100,000, 8/5/08 to Graciela. Folio 1079290133960. She got a first mortgage for $91,248 from J.P. Morgan Chase. She also has a Florida Housing Finance Corporation Florida Assist Program Subordinate Mortgage. This mortgage was for the same amount as the other mortgage...doesn’t make sense unless she was withdrawing cash for a property selling at a fraction of the value of surrounding properties.
No. 2
On 8/21/08 Ivan and Lizzet bought unit 348 for $100,000. They got a mortgage from J.P. Morgan Chase for $95,164. They also have a Florida Housing Finance Corporation Florida Assist Program Subordinate Mortgage for $4,200. Folio 1079290133810.
No. 3
Shoma Sold Unit 963 to Angelica for $90,000 on 8/29/08. She got a mortgage from Wells Fargo Bank for $88,817. Folio 1079290145650.
No. 4
Alberto on 8/29/08 paid $100,000 for Unit 89. He got a mortgage from Wells Fargo Bank for $98,612. Folio 1079290130890.
No. 5
Jose Alfredo and Gloria purchased Unit 133 for $100,000 on 9/4/08. He got a mortgage from Wells Fargo Bank for $98,202. Folio 1079290131330.
No. 6
Edward bought Unit No. 965 and paid $90,000 on 9/10/08. He got a mortgage from Wells Fargo Bank for $88,817. Folio 1079290145670.
No. 7
Jeanette paid $90,000 9/17/08 for Unit 957. She got a mortgage from Wells Fargo Bank for $88,381. Folio 1079290145590.
We know the markets in Miami are in a steep decline, but these numbers are mystifying: are we back to the days of 95 percent financing, or, is there some accounting slight of hand at work? It has to be the latter.
Someone is taking a loss and booking it as a profitable transaction, or, one party-- the builder-- is washing hands with the other party-- the banker-- in order to avoid Chapter 11, bankruptcy or worse. Builders are hemorrhaging cash, so it makes sense that they would make a deal with banks-- now that the meaning of contracts is anyone's guess.
It sounds foolish that this would be legal but we are fools to begin with: as the housing markets imploded we actually wondered aloud how the courts could handle all the foreclosures. Duh: they can't! So who cares how the values are re-assigned, when a very big part of our economy now obeys the rules of barter; fur pelts for tobacco or sheet metal except, now, it's houses that no one wants or can afford or can get loans to buy.
Is it possible that builders are making deals with lenders: any deal! After all, Merrill Lynch set the floor, selling troubled mortgage derivatives for pennies on the dollar. If Merrill can bust someone else's equity like that, why can't the borrower of a construction loan? Or of mezzanine financing?
So if the builders can't recoup their costs-- including land bought at speculative value-- they could be selling retail housing stock at a loss, with agreement of the banks who hold the "wholesale" business of developers like Shoma, in a transaction that allows the buyer to give cash back to the builder or to the bank, to increase their respective capital base even while declaring losses?
I had this insight today, talking with a mortgage finance entrepreneur: everything outside looks normal, people are driving on US 1 in their cars, employers are paying payrolls, the stores seem to be filled with college students filling up their cups at Starbucks-- but there is an alternate reality where debt is being sold for whatever anyone will pay.
As trillions of dollars of housing assets are being re-priced at whatever any agreement can be worked out by insiders, don't you think that investors in the derivative debt-- those MBS, and CDo's and CDS-- are gagging? So let's just pay everyone off: the foreign banks, the holders of derivatives, everyone gets a pass except the poor suckers who lived within their means and paid off their debt one month at a time.
Let me put it to you this way: we are not bankers, we are not developers, and we are not lawyers; but we do know that the credit crisis ($700 billion is just a start) has obliterated contracts. It has created a new concept of lawful ownership that would make our grandfathers cringe.
It used to be you could look at the public record of real estate transactions and more or less understand who owed who: but at this point with finance markets in total disarray, with financial regulations so eviscerated -- all we can say is that it is a complete clusterfuck out there and if we are even within eyesight of the truth, it is not long before we experience something quite unique in economic history: asset deflation combined with price inflation. In other words, a world of shit.
Where is the Department of Justice or the FBI to explain these deed transfers to the public; it is not an unreasonable request since the Wall Street bailout makes us all shareholders of these transactions? The mainstream media doesn't seem to have a clue as to what is going on.
8 comments:
So much for the new rules of a minimum 20% down on a new mortgage.
Hey gang,
Could this possibly be the banks and builders colluding to keep the sales as close to their new ask price?
In other words, did the builder (with lender approval) take the units off the MLS rolls, then turn around a few weeks later, add them to the rolls again, at a new reduced price, to show no reductions in price; hence, they are covering up their tracks to show how bad the market has really cratered?
Also, please notice that the VA will still get any veteran into an approved project for less than 3% down.
And then maybe some of these sales were outright short sales, with the lender rolling the dice at newly priced units, with the lenders benefitting by not having to sit on the properties forever paying taxes, maintenance fees and insurance.
Perhaps the lenders are not booking their losses (short sales) until it is absolutely possible that the builder comes in and gives them a downpayment (incentive) to take the crap off their books?
I don't know. Just asking. But something is definitely not passing the smell test here. As Simply Red once sang in the Reagan Years, "Money's Too Tight To Mention".
Gimleteye writes:
All good points and questions: maybe someone from the banking or development industries reading this post can give us the answer. And I agree with your final point: this doesn't pass the smell test. None of it.
You know Gimleteye, I also wonder if some "non profit" down payment from an entitity like "Nehemiah" is also involved. It would not show up in public records. See my July 15th Post: Can you get a mortgage with a 480 Credit Score?
I think these people didn't really put anything down if they used a Nehemiah
type entity.
What irks me is LENDERS ARE STILL DOING THESE BAD LOANS (too little down, bad credit risks). ARE THEY NUTS??? Some of these deals were as recent as just a few weeks ago. Wells Fargo, you should be ashamed.
If you don't put much down it is too easy to choose foreclosure as an option. and these deals are ripe for foreclosure.
Look out kid,
they keep it all hid"
"In a Dow Jones column, Michael Rapoport points out the obvious: Wachovia went out with a book value of $75 billion. Citi paid $2 billion. Could it be that asset values are overstated, not understated?"
Subterranean Homesick Blues
Could someone explain this to me more fully? So you have these units. They're not selling. The developer drops the price about 50% and then gets almost 95% mortgages for whoever.
then the other option the blog said was that some shady deal is happening? What would that look like? I don't understand what the second option is.
thanks!
Gimleteye writes:
There are more than two questionable aspects to these transactions, which we deserve clarity and explanation on since we are now going to be owners of this debt. The developer drops the price: is he walking away from a legal contract with the bank to repay his debt? Is the bank walking away from a legal contract, when the bank sold off that loan in a package of similarly "pooled" loans to an investor; is the investor walking away from money he borrowed to purchase that pool of loans or a contract to purchase insurance on that pool of loans; is the insurance agency walking away from its obligation to pay the insured, who may or may not be foreign investors or sovereign governments?
This is the problem with the "bailout": it is going to take care of the insiders who badly misjudged risk (and plowed subdivisions in farmland and wetlands) but the $700 billion does not begin to resolve the confidence along the credit "chain" of investors, many of whom balanced risk with insurance that is not going to get paid off, either.
It's interesting: Warren Buffet did call derivatives "weapons of mass financial destruction". I thought he was right, when he said it, and he is right now; we are facing an "economic Pearl Harbor". But I prefer the weapons of mass financial destruction metaphor, because with Pearl Harbor we knew we could fight our way out. With this chain of irresponsibility and fiduciary recklessness, I really don't know how we clean up the mess.
If you think that we are getting the whole story from our government, think again-- or, explain to us why the price of gold is not already through the roof?
Tax avoidance, declare a loss based on your original price point. Sell it cheap to get it off your tax responsibility and onto the poor sucker who bought it at the assessed price, which won't be the sales price, clever.
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