Archive for November, 2007

I’m sure that you have seen the news reports out of Ohio during the last week. First one, then a second Federal Judge dismissed foreclosure proceedings because the lenders “failed to prove that they owned the properties they were trying to seize”.

That’s a complicated way of saying that the paperwork is screwed up. (If you’ve ever worked at a big company, you know that this is the rule not the exception.)

More importantly though, neither judge passed any judgment whatsoever on the validity of the actual facts in the case – that the homeowners had defaulted on their payments and were therefore in material breach of their promissory notes and therefore subject to losing their homes. So basically these homeowners got off on a technicality.

But not just a technicality. A technicality that is totally, completely, and 100% irrelevant to the case.

A technicality that is tantamount to a murder suspect caught red-handed getting off because the coroner spelled the dead guy’s name wrong on the death certificate.

That irrelevant.

And as usual, the self-proclaimed “Victims Rights Groups” are having a field day with this, and you can imagine the fervor that this has spawned in the office of every ambulance chasing trial attorney in the nation. But contrary to the claims of all the spammy marketing that my colleagues are directing at these borrowers, it IS their fault, they ARE responsible, and they SHOULD face the consequences of their actions. And these borrowers should stop considering themselves “victims”.

What’s interesting, though, is the implication that this might have for the real estate investor, at least in the short-term, because I’m betting that this gets overturned on appeal in pretty short order.

When I first read about this I made a mental note to revisit it and think about how it might be used in my investing activities, and in particular in my short sale negotiations. I hadn’t had a chance to do that when I visited a real estate discussion forum that I frequent on a regular basis. (Hmmm. That sounds redundant.)

I saw a very interesting post on exactly this topic – leveraging this situation in Ohio in short sale negotiations. The post was long, considered, and very well written by an experienced investor. It also hit the nail on the head in describing how you might add this to your negotiating repertoire. As with most forums, 98% of the posts in this forum are from people that have never done anything giving advice to others that aren’t going to do anything. So it’s mostly harmless drivel. But this post was a brilliant analysis of the situation and an equally brilliant discussion on how you would implement it today, and in no way suggested coaching the homeowner to use this as a way to delay the foreclosure.

Bravo I said.

But I was shocked when I visited the forum later that same day. There were now a number of posters that had come out strongly against using this tactic in any way. One in particular caught my eye (and my ire).

This clown climbed up on his moral high horse and started lecturing everyone about how “wrong” it was to use tactic because it was “unethical” to help someone avoid foreclosure due to a technicality. Which of course it would be. But he was on a roll, and therefore, in several pontificating posts, he conveniently kept overlooking the fact that the original poster had specifically stated that this was merely a short sale negotiating tactic and not something that you would even talk to the homeowner about.

But in all of his moral superiority he wrote one thing that made me laugh out loud.

He said that in his business “everyone wins”.

And not only that, but he also said that in a short-sale, you’re trying to make the best deal for both the homeowner and the bank. He even went on to say that if it’s not a win for the bank then it wouldn’t be a win for him.

Huh???  Perhaps I’m missing something here, but I always try to make the best deal for ME. In a short sale the homeowner is irrelevant and the bank is an adversary.

But more to the point – since when has real estate – or LIFE – ever been a “Win-Win” situation?

I know that the namby-pamby, never-got-picked-for-kickball-in-the-third-grade crowd loves to believe that business is all about kumbaya hugs and everybody succeeding, but that’s just not the way it is in real life.

The answer, as hard as it may be to swallow, is that neither business, nor life, ever has been, nor will it ever be “Win-Win”.

And the reason is plain and simple – because real estate, and life, are both zero-sum games. What that means in simple terms is that if you and I participate in a transaction as buyer and seller, you can’t make a dollar unless I lose one. And I can’t make a dollar unless you lose one. It’s that simple. Somebody wins. Somebody loses. That’s capitalism.

That’s life.

When you think about it, it is pretty harsh, isn’t it? Cold reality usually is. And unfortunately I think that’s why most of us now choose the college route rather than the entrepreneur route, because going to college and getting a job lets us appear to be “successful” while we hide from the bare-knuckle competition that is the marketplace.

On one hand that’s a shame. On the other, it leaves the playing field wide open for those willing to take a risk.

This is the performance of your retirement account while you have been investing in the stock market over the last six months. Look familiar? 

Take a closer look at the chart – over the last six months the market has been down – despite those huge peaks that you see. That means a negative ROI – and the fact that you probably lost money – and lost ground. Is this going to impact when you can retire? 

Now take a look at the chart below. This is the annual ROI that my private investors have earned since the beginning of the year. Notice any difference? The chart below kind of looks like the tortoise, doesn’t it? And the one above the hare?

My question to you is – which ROI do you think is going to come out ahead at the end of the year?

Which chart would you rather have associated with your retirement accounts?

www.MPSG-LLC.com 

I have received some interesting responses to my “10 Things” post. When I wrote it my personal feeling was that there would be a massive “piling on” because things seem to be so bad here, and that I would be taken to task because I went so easy on the area.

To my surprise quite the opposite occurred.

The responses were overwhelmingly positive. Not only that, but they were upbeat and optimistic about the future of the area, which I think is a tremendous (albeit an anecdotal) indicator of future. And this got me to thinking about this area a little differently, and definitely validated my belief that this area will mount a strong resurgence soon. (as it always does)

My personal perspective is obviously shaped by my experiences, and my experiences have included traveling extensively around this country, to the extent that I have visited 45 states by car over the years. Now I can’t say that I spent a great deal of time in many of the places because I was just driving through, so in turn I can’t say that I have truly experienced the way of life in each of the places that I have visited.

But all of this driving around did give me some basis for comparing them to Michigan; and I have to say that this area stacks up quite nicely. In fact, I would say that life here is even superior to that in the other places that I have lived and traveled to.

To illustrate this point, I’d like to quote part of a letter to the editor to the Detroit Free Press from this past Sunday:

 . . . reminded me of things Michiganders often take for granted. We’ve been beaten down with so much bad news and criticism that it doesn’t hurt to remind ourselves why we love this state.

Have you tasted Florida water lately? We have an abundance of “sweet” water that is the envy of the world.

How about the Phoenix furnace in the summer? Our summers feature benign days, cool nights, plenty of sun, and usually ample rain.

Our spectacular wilderness can be enjoyed without the hordes of people that inundate places like Yosemite and Yellowstone.

Even though our infrastructure needs repair, much of it is already in place; we’re not starting from scratch.

One-season or two-season (warm and hot) states are boring; we have four distinct seasons, each with its own beauty and charm.

We touch four Great Lakes and thousands of others, with no sharks, alligators or poisonous snakes to beat back.

We have a wealth of institutions of higher learning: U-M, MSU, Michigan Tech, Hillsdale, and so many others.

We have four pro sports teams and many competitive college teams in a diversity of sports.

As for pests, I prefer our mosquitoes and flies to Florida’s black widows, Arizona’s scorpions, and the Carolinas’ cottonmouths.

And while we encounter the occasional tornado and snowstorm, hurricanes, earthquakes, catastrophic floods and drought-driven wildfires are absent.

I think the real key to all of this is that we get most everything in moderation here. Weather, traffic, food and gas prices, housing prices, cost of living, and most importantly, economic growth. Since we operate in a relatively narrow range in all of these areas, though, a change or impact that might be minor in another area, like say California, ends up having a major impact here

So, like the last time, and the time before, and the time before, we’ll deal with it and move forward. Yes you hear the wailing and gnashing of teeth from the empty heads in the media about the coming of the apocalypse. But is it really any different this time? I don’t think so. In fact, I don’t think that this is even the worst that this area has been hit, and quite frankly I remember the days when this state would have killed for an unemployment rate as low as the 7.5% that we have now.

What it boils down to is that the one thing that this downturn has in common with the last one and the one before is that it’s temporary. Sure people will leave the state. Yes, jobs will be lost, yes foreclosures will rise, and yes, the city of Detroit will continue to function as the same mismanaged kindergarten.

But this area will bounce back. It always does. And that’s why I like it here.

You see, I lived in Lake Tahoe for two years, Los Angeles for another two during grad school at USC, and the San Francisco Bay Area for almost eight more. And there’s no amount of money nor any opportunity that could get me to go back. None.

And that is no indictment on California. Far from it actually. Lake Tahoe is one of the most singularly beautiful places that I have seen in this country or out; Los Angeles, aside from the traffic and smog, is a vibrant and alive place, and the Bay Area, as I mentioned before, has Silicon Valley. California is called the land of opportunity for good reason.

But there’s something that most people don’t realize, including a lot that live here. They don’t realize that this is another land of opportunity. It’s all around us and the funny thing is, you don’t have to look too far to find it. And do you know something else? There are less people looking for it here than there are in California.

That’s why I wouldn’t trade it.

And what about the sunsets on Mackinac Island, sledding in your back yard on a snow day, camping by a river with the cub scouts, knowing 80% of the people in your neighborhood, your kids living a block away from their best friends, and donuts and cider at the Franklin Cider Mill every fall?

Just icing on the cake.

Life here is truly extraordinary.