Market Conditions: As Developers Flee, Some Are Stuck in Their Condos
The Chicago Tribune reported this weekend on a growing problem in many condo conversion and new construction buildings in Chicago: poor construction and developers who flee the scene.
Condo buyers are then left holding the bag while the value of their condos fall due to both market conditions and the problems in the building.
This tale begins in the summer of 2007.
She was 33. She’d staked her future, along with her earnings as an editor at a non-profit educational program, in that 800-square-foot condo on Chicago’s Northwest Side.
“It was time to have something,” she says, thinking back. “This is what you’re supposed to do: buy a small property. It gains in equity. Then you’re more secure. It totally worked for our parents.”
She had especially looked forward to painting her walls. She was so tired of “rental white.”
It seemed like a stroke of good luck when, a few days later, she got a new mortgage. She drove back to West Byron Street. The 1920s building was a typical Chicago condominium conversion, old brown brick and concrete, newly tricked out with granite countertops, hardwood floors and spa bathtubs.
The residents of the seven other finished condos were like her, in their 20s and 30s, excited to own their first homes.
There was Greg, who worked at a car rental agency. Linda, a nurse. Elliott, who would lose his insurance sales job at about the time they all realized they had a problem.
Looking back, Kallen and her neighbors can see the omens. The developers had dropped the sales prices. The oddly low assessments, they realize now, were just seduction.
Kaara’s windows stuck, Linda’s floorboards warped, the ceiling above Greg’s dryer leaked. The residents couldn’t legally form a condo association because four garden apartments sat unfinished. A letter arrived from the city citing code violations.
Not to worry. The developers were handling it.
In December 2008, the developers went broke. In the spring, they vanished, leaving bills unpaid and no cash reserves. They disconnected their phone.
The bank finally took possession of the 4 garden units that hadn’t sold from the developer. Then the city issued code violations against the building and told them to stop work on the 4 unfinished garden units.
The city sued the condo association to force repairs. The residents went to housing court hoping to make the bank pay. This summer, the judge ruled that the condo association, which included all the owners, was responsible. Kallen and her neighbors figure they now owe at least $75,000 in repairs and legal fees.
With all of the units in the building underwater there is no way for the homeowners to take out any kind of loan to pay for the repairs. They are stuck.
To try and raise money, the condo association is holding a fundraiser this Thursday, Nov 11, at the Neo-Futurist theater. Tickets are $15.
What would you do?
Stuck in a money pit, condominium owners try digging out [Chicago Tribune, Mary Schmich, November 7, 2010]
“This is what you’re supposed to do: buy a small property. It gains in equity. Then you’re more secure. It totally worked for our parents.”
This is what you’re supposed to do? This sounds like the logic of a lot of people who hit a certain age and figure it’s time to get married. I wonder how those marriages work out.
Also someone should’ve told her past returns are not a guarantee of future performance. In the ponzi RE game of musical chairs during the bubble she was the one left standing.
It sucks but she’ll learn a lot from this, including 1) not to make major life decisions on what they’re “supposed to do” and 2) that our government’s policies are partly responsible for this but the govt isn’t going to help her now.
Should the government have more oversight or less oversight? It is partially the government but also a lot of underhanded/ less than honest dealing on the part of the mortgage and loan industry/banking industry (with the government sanction perhaps) to spend our way out of the 911 recession.
It says they went to “housing court”. This is not a real court but a city agency whose decisions are unenforceable, and there is only a hearing officer, not a judge.
Talk to the inspector’s supervisor, explain the hardship, ask for a reinspection, meet with the inspector, and negotiate a solution.
How did the government make her sign the papers? The government in no way made her sign up for 30 years of payments. She made that choice on her own.
What an absolute nightmare of a story. When buying a condo you are pooling your risk with that of the other owners. It takes just one or two layoffs/bankruptcies to send a cascade of shit down the entire building.
When the developer screws a bunch of young kids buying their first place, it becomes doubly egregious. After reading this story, it almost makes sense for the entire group of residents to collectively default. Just get the hell out of that money pit. Sue the hell out of the developer, construction lender, the city, and anyone else who stands in the way.
For this reason, I would only consider multi-unit buildings for renting, and SFHs for purchase.
There were a number of red flags they ignored. Like moving in before they closed, and unfinished garden apts, and her mortgage company went bust before closing. They should have ran ran ran away from this deal. Id tell them, “renting doesn’t look too bad in retrospect, right?” They said they wanted to buy so they could paint the walls. Uh-huh.
This young woman and her neighbors were definitely victims of fraud on the part of the developer, and it is an injustice to make these people pay for sins committed by someone else, namely the builder.
Just because “nobody makes you” buy something, does not make you fair game for a seller palming off a fraudulent, defective product.
It has always been too easy for builders to escape responsibility for extremely defective products. Builders are a well-protected category of businesspeople in almost every state. A suburban subdivision built on landfill collapses because the land is “falling away” from the foundation of the houses and they become uninhabitable as a result, and the unfortunate buyers are stuck with the disaster, while the corporation that built the places dissolves and its principals set up under another name.
Almost every industry in this country labors under the requirement to assume liability for the harm done by its products- except home builders. Auto makers have shelled out billions in restitution for defective products, and everyone who makes anything at all can be bankrupted by settlements against them for defective products- except home builders, who are somehow sacred.
If this woman and her neighbors had their homes inspected by a licensed inspector before they bought, and otherwise took the customary steps to protect themselves, they should be cleared of liability for construction defects in those four vacant units, that they personally never bought and did not develop. While the corporate entity the builder operated behind may not any longer exist, its principals are most likely still walking around, and they should be on the hook for this little disaster.
“Talk to the inspector’s supervisor, explain the hardship, ask for a reinspection, meet with the inspector, and negotiate a solution.”
Mike- do you honestly think their lawyers haven’t covered all the bases by now?
Thia ia probably an 11th floor housing court case with judges and enforcable injunctions.
As an unfortunate victim of the same type of scam builder, I have learned that substandard construction, unpermitted plan changes and the dissolution of responsible parties corporate shell is rampant in beautiful Chicago. Wait till one of these buildings collapses, and then listen to the thieving alderman roar.
http://www.scribd.com/doc/33451644/Bryton-Development-4525-N-Western-Chicago-3021-3023-N-Southport-Kevin-Bryar-Tom-Staunton-Michael-J-Coleman-Construction
Unfortunately, it became way too easy for “developers” to setup shop using cheap labor and shoddy construction practices. The pickup truck developers completely took over this city during the boom. Since most people don’t know what good construction looks like versus bad, it is very hard to say that the buyers should have known. Most can’t see past the granite and stainless steel.
I know I would think long and hard about it if I were to every buy another condo. Too much of my investment is dependent upon the neighbors and there is no way to legally discriminate against future buyers. Definitely a crap shoot.
Caveat Emptor
You unfortunately can’t even depend upon the inspector you hire to “know what good construction looks like”. However, if you had your place inspected prior to purchase, you at least have some rights in the situation, limited though they may be.
Unfortunately, many purchasers were persuaded by unscrupulous agents to waive inspections on new construction, and thanks to the sleazy, sloppy lending practices of the Bubble years, their lenders did not insist on one. One fine real estate agent warned me to never ever waive inspection, no matter if the place was newly built or rehabbed. You lose too many rights when you do this.
I hope that this was not the case with these young condo purchasers. Because if they waived inspection when they bought, they’re out of luck.
This is a good time to back away from condos until the dust settles on all the foreclosures and developer defaults. It’s a good time to do really thorough due diligence on any property you’re contemplating. Look up all the units in the buildings for their ownership history, all loans and liens against them, and all complaints and lawsuits and liens against the developer. If you decide to buy, have the building as well as the unit inspected, and have a good attorney do a thorough discovery on the place.
“When the developer screws a bunch of young kids buying their first place”
Already your logic contains at least one fallacy: she is 33 now and was 30 when she bought this place. In today’s America of prolonged adolescence where they can play XBox and stay on their parent’s insurance until 26 I guess 30 is the new “kid”?
Give me a break.
$75K between 12 owners? They’ve known for at least 2 years that there was a possibility they would have to come up with this cash. They said the condos were underpriced when they bought them, maybe the prices were actually correct if you take into account the extra expense they are now having to put in.
to Ed:
government oversight doesn’t work when the money is corrupt. when money is corrupt, corruption rules.
we live in an age where the FDA is made up of past pharmaceutical executives…the SEC looks like the invite list to an investment bank Christmas party…Bernie Madoff spoke before Congress for crying out loud. i think we’ve all seen how wonderful the Department of Energy is through just what’s been uncovered from the BP spill…shall I go on?
we have unsound money in this country (in the world).
fix the money. you fix the problem.
but guess what? fix the money and you’ve got a lot less government.
guess which option the government (and the millions they support) will try and choose.
all you can do is be prepared.
“It says they went to “housing court”. This is not a real court but a city agency whose decisions are unenforceable, and there is only a hearing officer, not a judge.”
Mike has no idea what he is talking about.
@Bob, she was 33 in 2007 which would put her at 36 now.
the best part, which is where lost all empathy was…..
“”This is what you’re supposed to do: buy a small property. It gains in equity. Then you’re more secure. It totally worked for our parents.”
right there i was like dude you parents didnt buy a fricken small azz CONDO they bought a small house. plus want your parents did and got wasnt a self righteous privilege, they worked for it and it wanst something that was EXPECTED but EARNED.
i truly feel for owners that got screwed, and they did get screwed.
but suck it up we all got screwed, ALL OF US.
Maybe in danny’s world 33yr olds are just a bunch of young kids who aren’t responsible for their own decisions but in my world that’s not the case. Boo hoo cry her a river.
Condominium=Communism
“bunch of kids”
Yes, I’m laughing at myself for that one. Like I just had one of those realizations that I am truly an old fart. I have recently outlived John Lennon and am about to outlive Elvis Presley. How the hell did that happen?
“I have recently outlived John Lennon and am about to outlive Elvis Presley. How the hell did that happen?”
You aren’t famous enough to have a stalker execute you and you haven’t (yet) allowed your addictions and excesses put you at risk of a premature death?
On the subject of the government, I think an interesting cribchatter story would be on why the government has such high ownership thresholds in condominium buildings in a declining market for FHA backing because the policy can send builidings into a death spiral of declining pricies and foreclosures. This seems like simple logic.
My association is trying to set a rule that future buyers cannot rent but that only prevents the ratio from declining further. It does not fix the issue unless I am mistaken.
“You aren’t famous enough to have a stalker execute you and you haven’t (yet) allowed your addictions and excesses put you at risk of a premature death?”
Exactly. That statement is like being proud of walking up a flight of stairs–you’re SUPPOSED to be able to.
We really don’t need to be hating on these people – I am not feeling too bad for them either. It is a cautionary tale that isn’t too rare these days. I don’t think it would be appropriate to have the govt bail them out. They should enforce the contracts to their legal extent and then take the loss and move on. Or, just mail the keys back and quit whining.
@Laura,
re: recourse against inspector
I don’t believe that there is any recourse against an inspector, shotty or not. I believe that the inspection qualifies as an ‘opinion’ and the inspectors are not liable unless there was clear neglect or conspiracy with the seller.
Its sort of how S&P is not liable for giving AAA ratings to toxic CDOs. Its just an opinion. I think that there was actually a Supreme Court ruling to this effect. Somehow movie critics were also inlcuded. Basically a rating or review is Constitutionally protected speech and you have a right to be completely wrong.
The inspection contracts most likely had clauses explaining that the inspector was not liable in any capacity. And she would have signed agreeing to this stipulation. Right or wrong.
“I don’t think it would be appropriate to have the govt bail them out. ”
These people are a large voting bloc. So look for them to be bribed by one of the two political parties in terms of a bailout for their votes.
Similarly it appears one political party already wants to bribe student loan debtors in the form of loan forgiveness after a time. Fortunately that party’s grip on power is put on hold for two years.
‘enforce their contacts’?
– against whom, if the developer went bankrupty then they have disolved their existance. No one to sue, thats why most developers also form seperate LLCs for each developement.
Tom (tfo): then they are screwed so move on.
Walk-away.
Damn, there goes my plan for suing Roger Ebert to get back the three hours of my life I wasted on Avatar!
“Somehow movie critics were also inlcuded. Basically a rating or review is Constitutionally protected speech and you have a right to be completely wrong.”
“$75K between 12 owners? They’ve known for at least 2 years that there was a possibility they would have to come up with this cash.”
Also, the article says that this is for repairs and legal fees, and who knows how much of the latter have been rung up in that time?
Besides, it’s not like anyone in this building has a large sum of cash invested. I know, its all relative, but here are the LTV and down payment amounts for the 2007 purchases:
93% $12,600
90% $17,500
94% $11,400
100% $100
98% $3,000
95% $10,000
95% $11,000
100% $0
“100% $100”
Maybe this was more common than I’ve noticed, back in the halcyon days of easy lending, but I have to say that “ahunneddollazdown” was worth of a pretty deep laff form yours truly.
I wonder if there was a $50 closing credit involved, too.
The only solution is a City required Deceloper escrow. Every unit closed 2% (or whatever) gets put away in title company controlled escrow. Escrow is released to the developer after 2 years if nothing has been filed. Too easy for developers to build and shut down. End result has been a bunch of bad housing and stories like this.
“I wonder if there was a $50 closing credit involved, too.”
Had to be a Target (tar-jay) gift card in there somewhere.
““It says they went to “housing court”. This is not a real court but a city agency whose decisions are unenforceable, and there is only a hearing officer, not a judge.”
Mike has no idea what he is talking about.”
Oh really. I just skimmed this originally, and i’ll admit that it’s possible they were in real court, not the kangaroo operation on Superior. So they probably had a lawyer but probably didn’t have a code expert who can usually shoot down 90% of what city inspectors come up with.
Stuck window? Warped floor boards? These are not life safety issues.
“tar-jay”
-zhay.
buyer beware
“buyer beware”
Yeah, articles like that don’t do resale possibilities any good.
condominium = communism???
lol, I thought that I read every stupid comment possible on the internet.
“lol, I thought that I read every stupid comment possible on the internet.”
You have been commenting quite often lately. Perhaps time to retire your moniker.
blame everyone except the individuals who have committed fraud. Abosolutely no accountablity. Instead, just provide the victims an endless supply of bailout money. All these buyers will be looking for some form of mortgage restructuring.
“Yeah, articles like that don’t do resale possibilities any good.”
Math’s hard. Again.
i would love to know if there is some sort ofp lace where you can look up the sheer number of properties within city limits that were 100% financed. it seriously shocked me to just see G’s metrics on this building alone. i tried googling it, but nothing decent turned up – but I’m no expert on where to look.
unfortunately, i dont feel overly bad for these buyers, if you have more skin in the game aka investing more than 10% of your own money, perhaps they wouldve been more aggressive in insuring their investment was sound. unforunately they didnt and now they are left handling the consequences. i also think the whole fundraiser idea is bizarre. if i bought a house with a leaky basement and didn’t find out until after the fact, i wouldn’t hold a fundraiser to help pay for my basement repairs. it’s simply a risk that comes with being a homeowner, whether its a SFH or a condo. am i off base here?
“am i off base here?”
Asking for money costs nothing and is constitutionally protected free speech. Also many people make a very decent living off of begging.
Can’t blame them for trying their hand at one of Chicago’s most prolific professions.
“the whole fundraiser idea is bizarre”
Not in Bizarro World.
If a friend invited me to a social event where I was requested to donate money to them personally (for any purpose other than a liver transplant or something), I would avoid future social interaction with him/her.
It seems like they are burning friendships by hitting them up.
“condominium = communism???
lol, I thought that I read every stupid comment possible on the internet.”
i do what i can to please. next up my two ball juggling act with three hands.
“It seems like they are burning friendships by hitting them up.”
A friend in need is a friend indeed.
A friend with weed is better.
Tom, if you got the place inspected and defects like these emerged later, you could at least prove that you, the buyer, performed appropriate due diligence before making the purchase.
It’s not really about the inspection firm, it’s about a developer who delivered defective merchandise. If you had the place inspected and otherwise took appropriate steps to protect yourself when purchasing, you might have a reasonable claim against the developer, but if you waived inspection and otherwise failed to take steps to make sure of what you were buying, you would have no remedy.
Complaints about shoddy, defective construction have multiplied in recent years. It’s time for our lawmakers to change laws that protect contractors against their victims.
I’ve re-read the article a couple of times and it doesn’t say that she did her due dillegence and hired an inspector. But it doesn’t say that she didn’t either. Says a lot about how everyone here assumed she didn’t and ran with that assumption.
Also, they are trying to do the responsible thing and find a way to keep their condos instead without incurring additional debt by putting together a fund raiser. So do we commend them or do we call them beggers? Actually I think we recommend they walk away. Nice.
I have said that condominiums are a case study as to why communism doesn’t work. Invariably, there will always be an owner(s) who can’t carry their share whether financially or intangibly (think small HOA where the upkeep is sometime done by the owners).
Icarus – you are totally 100% right – how ironic that the people who complain the most about owners walking away from their mortgages are the same ones recommending that these people walk away!!!
Get out of the sun, Icarus. “Everyone”?
The most obvious warning signs at the time of purchase had nothing to do with a property inspection.
On the road to everyone on here becoming preeminent real estate market experts, economists, financial advisors, decorators and urban planners, apparently some of you missed the tip that schadenfreude is unbecoming.
There needs to be something in place so that developers are personally liable even if they dissolve their LLC, corp, partner, etc. Simply shutting down the company should not absolve one of defects in workmanship, fraud, misrepresentation, etc
@ Laura
Due diligence or not, dev. went banckrupt so no one to sue.
Russ, “From each according to his ability, to each according to his need.” the owners who are able to afford to pay the HOA should be required to pay for those owners who can’t ‘carry their share.’ it’s not fair that the guy upstairs has more money than the guy below him and it’s only fair that some of that wealth be redistributed. right?
“#Russ on November 8th, 2010 at 1:54 pm
I have said that condominiums are a case study as to why communism doesn’t work. Invariably, there will always be an owner(s) who can’t carry their share whether financially or intangibly (think small HOA where the upkeep is sometime done by the owners).”
“There needs to be something in place so that developers are personally liable even if they dissolve their LLC, corp, partner, etc. Simply shutting down the company should not absolve one of defects in workmanship, fraud, misrepresentation, etc”
There also should be something in place for people who default on their mortgages. The loans should not be forgiven and should be required to be paid (even through garnishing of future pay, etc.).
“how ironic that the people who complain the most about owners walking away from their mortgages”
has that really happened much on cc? I dont really recall it, except the pure fraud cases. who has been a big complainer about this?
“I have said that condominiums are a case study as to why communism doesn’t work. Invariably, there will always be an owner(s) who can’t carry their share whether financially or intangibly (think small HOA where the upkeep is sometime done by the owners).”
Might as well call the US communist because we all have to pay taxes…
“Might as well call the US communist because we all have to pay taxes…”
What planet do you hail from, Bob 2? V2.0 land?
47% of the U.S. population pays no federal income taxes.
I think you’re guilty of extrapolating that 53% to 100% with your broad statement that “we all”.
“Might as well call the US communist because we all have to pay taxes”
communism is the cousin to socialism you maybe calling out the wrong blood relative on that one.
G, sorry shouldn’t have written everyone.
“47% of the U.S. population pays no federal income taxes.”
Federal income tax isn’t the only tax out there. Even the poorest of poor pay sales tax (and plenty sin tax on their forties).
But that’s not the point. Communism isn’t about paying your fair share, it’s about communal property instead of private property. Even the common areas in a condo building are owned privately and all issues are voted on directly by the owners. Condos have absolutely nothing in common with communism. That’s all.
“Condos have absolutely nothing in common with communism. That’s all.”
They both start with the same first two letters so those are two things in common.
Icarus, thanks. I really meant that sun part, though.
“Communism isn’t about paying your fair share, it’s about communal property instead of private property. Even the common areas in a condo building are owned privately and all issues are voted on directly by the owners. Condos have absolutely nothing in common with communism. That’s all.”
fair point,
question, i want to change the door on the entry to my condo unit and have it be a different color. oh wait i cant because i need a “vote” from all the other random yahoos in the building. and need the board “president” to let it go to vote. and the random HOA bylaws need to be…blah, blah, blah.
so really is the common space really “privately” owned?
“Even the common areas in a condo building are owned privately”
The private ownership of the common areas is not the important distinction with respect to the condo analogy, it’s the joint ownership, joint assessment (as well as right to vote, which is fair distinction as long as no de factor dominance by a handful). The majority can spend your money but they have to spend theirs too.
But, mostly, I’m afraid the Bob versus Bob 2 (Not Bob) debate will cause CC to implode. (Also notable is that Bob apparently has enough branding, aka people not wanting to be mistaken for Bob, that he doesn’t need the TFO.)
“so really is the common space really “privately” owned?”
Yes (I think legally that’s the case, the association doesn’t own anything, they just run it, but correct me if I’m wrong on this)
Problem is it’s owned by all the other people too, so you need their approval. A generous bribe to everyone would probably take care of that though…
bob 2…
That is actually my point. Some owners contribute to take care of the communal property and other don’t. For example, in a small condo building where much of the upkeep is done by the owners – cutting grass, snow removal, etc. You will find that the work often times just falls on one or two of the owners, while the others never step up to contribute.
You will find that 2 or 3 of the owners want to increase the reserves for an emergency, while another group of owners will bitch and moan that they can’t afford to raise their assessments by $50/month.
Everyone will not and cannot contribute the same, so invariably the community fails.
In many ways, living in a condo is communal property. Much of the issues that condos face come from the building as a whole, not issues with your individual unit.
“But, mostly, I’m afraid the Bob versus Bob 2 (Not Bob) debate will cause CC to implode. (Also notable is that Bob apparently has enough branding, aka people not wanting to be mistaken for Bob, that he doesn’t need the TFO.)”
Funny side story. Bob’s real name isn’t Bob (named it after Bill Murray’s Bob in “What about Bob?”) but he has a friend who does have that name.
And this friend Bob is actually getting gouged by his HOA because its a tragedy of the commons and they keep wanting to raise assessments for things that are of little use to Bob. Somebody has to pay for all of those upgrades on that “communal” property and its definitely Bob! He also likens it to quasi-socialism/communism. I then laugh and tell him no-one forced him to buy his condo.
“Yes (I think legally that’s the case, the association doesn’t own anything, they just run it, but correct me if I’m wrong on this)”
That’s right. Everyone owns it, so no one does, just like in Marx’s Workers’ Paradise. Wherein everyone also gets a vote. Don’t get “communism” as implemented by Russian thugs confused with communism the poly sci/economic concept.
I really like my condo association, for what it is worth. We’re mid sized, run the budget as a surplus each year, and have been able to undertake all but two capital improvements without specials. We’ve had our share of renters and foreclosures, but immediately put liens where necessary. I like the shared responsibilities.
“That’s right. Everyone owns it”
If everyone owns it then I should be able to p_ss in the lobby plants if I so choose.
“Everyone will not and cannot contribute the same, so invariably the community fails.”
You’re right on the money that a small association is a big risk. Only takes a couple people to mess it all up, which is why I don’t consider small buildings myself. But if anything that’s a good example of a democracy failing because it’s too small and just one or two votes can seriously skew things for the worse.
“its a tragedy of the commons and they keep wanting to raise assessments for things that are of little use to Bob”
Not tragedy of commons. Tragedy of commons is when there’s a commons without restrictions on use, so that commons is overused and has no value, or something like that.
“Not tragedy of commons. Tragedy of commons is when there’s a commons without restrictions on use, so that commons is overused and has no value, or something like that.”
Don’t try to correct anyone on their misunderstanding of quasi-economics here. You’ve facing a group that disdains Sveriges Riksbank Prize winners for their poor understanding of academic economics.
“I like the shared responsibilities.”
really wicker even if you have to share them with this?…….
“If everyone owns it then I should be able to p_ss in the lobby plants if I so choose.”
“or something like that.”
Whatever. He gets scr_wed because other people on more fixed income streams keep voting for stupid projects to get done and other crap and he has to foot a bill in excess of what his personal marginal propensity to consume would be if he weren’t tied at the financial hip with the other owners. Make sense now?
totally off topic but here’s a link to a modern day renovation next door to don draper’s 1960’s fictional bachelor pad in greenwich village. only $18,000,000, if you’re interested.
http://www.observer.com/2010/real-estate/contemporary-makeover-don-drapers-neighbors-109-waverly-place
“Everyone owns it, so no one does, just like in Marx’s Workers’ Paradise.”
Some people own it more than others however. If you own the awesome 4 bed room your share might be 20%, while the peon with the 1 bed only owns 5%. So there’s still a class divide and money buying you power.
(at least in the places I lived it was never split up equally)
“Some people own it more than others however. If you own the awesome 4 bed room your share might be 20%, while the peon with the 1 bed only owns 5%. So there’s still a class divide and money buying you power. ”
All animals are equal, but some animals are more equal than others
“All animals are equal, but some animals are more equal than others”
Owners of the 2-bdrms could band together and pass an HOA rule prohibiting 1-bdrom owners from renting out their units. Sounds like communism to me.
“Owners of the 2-bdrms could band together and pass an HOA rule prohibiting 1-bdrom owners from renting out their units. Sounds like communism to me.”
and then the 1 bedroom owners can sue each of the 2 bedroom owners AND condo association for various reasons
…oh forgot the punch line: sounds like democracy to me!
““Owners of the 2-bdrms could band together and pass an HOA rule prohibiting 1-bdrom owners from renting out their units. Sounds like communism to me.”
and then the 1 bedroom owners can sue each of the 2 bedroom owners AND condo association for various reasons”
all the headaches and you could have just RENTED the condo unit and when things got bad moved!
yep buying is so much better than renting! say it three times and it will come true, then you can paint your white walls now.
Groove77: Generally wouldn’t be a big fan of one of my neighbors pissing in the lobby plants. Though as an association we have a better shot at modifying such behavior through fining / rules. Only takes one Bob to ruin a basket.
And actually we’ve had to deal with a decent amount of frat house situations, all easily remedied. And cleaned up much faster than say in an apartment building.
Your implied point, that if I was in a SFH, I wouldn’t have had it in the first place is quite valid. I so far have liked the pooled communal responsibilities.
“all the headaches and you could have just RENTED the condo unit and when things got bad moved!”
Agreed. Buuut, few have made money w/o a headache or two..
“I should be able to p_ss in the lobby plants if I so choose”
That’s just how little DZ feels. Well, he loves to pee on trees but I bet he would on lobby plants too.
I am a bit surprised that no one taken a shot on the appraisers who gave the bank “their word or opinion” that the place was worthy of the loans on these unfinished sub par units.
I believe that they are the true culprits that often get overlooked for this bubble mess as they let it all happen and justified the crazy lending by encouraging the wave of ridiculous year over year equity increases on product that did not have any reason to appreciate.
Bob (and all) please comment on how they did not have a major effect on creating this dramatic bubble.
I don’t understand how appraisers are to blame. Their appraisals are based on similar sales – in 2004-2006, units such as this were selling for 400k+ so the appraisers would not be mistaken in stating that the unit was also worth this much.
An appraiser is basically a monkey’s job. They are brought in as a necessity to find some comps to justify the deal, not to be the snag that sinks the deal.
During the boom if an appraiser got a reputation as a snagger who sunk deals its not likely they’d be getting too many calls after awhile. Remember this was before the new laws went into effect forcing the appraisers from being selected by the realtors or others facilitating the deal.
So you had a bunch of monkeys with a rubber stamp. Doesn’t absolve them of their responsibility but it certainly explains why they stamped far too many deals they maybe shouldn’t have–they were incentivized to do so.
and don’t forget that it never hurts to get MORE THAN ONE APPRAISAL!
“Your implied point, that if I was in a SFH, I wouldn’t have had it in the first place is quite valid. I so far have liked the pooled communal responsibilities”
oddly my point wasnt pro SFH (this time) it was pro Rent the unit.
“Agreed. Buuut, few have made money w/o a headache or two”
yes and A-fed you are talking another fruit in the discussion of Beef. and in even in that fruit discourse, todays current housing market would make your view a bit sour.
and yes a-fed i did think i would have made a profit on my place and am a bit disgruntled that sadly it wont happen for many moons from now, so my view is a bit crooked.
“disgruntled that sadly it wont happen for many moons from now, so my view is a bit crooked.”
I’m sorry that your ROI is “delayed” and I am well aware of the housing situation. But at least you have a chance to return a profit…
You just hit the nail on the head though, that people were thinking to return large profits in short periods of time w/o weighing the alternative of great loss. Now disgruntled, their views are crooked.
I realize that the appraiser was just acting as a reporter and trying to keep his lead sources happy but in the end should that part of the industry truly get an ethics pass for reporting that the average $250K 2 bedroom property was worth 15%+ more each year from 2002 to 2007? They clearly did not do their job as a neutral observer trying to protect the bank and the borrower from overpaying and/or overvaluing the loan on the property.
groove,
Have you bought something in Norwood Park yet? I know of a really nice place on an extra wide lot in Sauganash that may be coming on the market. Still needs some interior finishing but the home is in solid shape.
“You just hit the nail on the head though, that people were thinking to return large profits in short periods of time w/o weighing the alternative of great loss. Now disgruntled, their views are crooked.”
yep that was the promise of the realtors during the recent flurry of bubbly.
many renters bought to early because of this promise and this above Trib story shows it.
as for me i almost been in my home for 10 years and didnt expect 10-25% growth that was “promised” but i didnt expect competing with foreclosures and the worst part is competing with my own brain on what i think its worth to what its actually worth
Appraisals are based on comparable units. If all the units are selling at $400k, the appraiser is going to base their opinion off the market. Just like now, if short sales and foreclosures are the predominate units being sold at $175k, the appraiser is going to base his opinion off those comps.
There were a lot of systematic failures in real estate and you can’t just point to one particular part in the process.
Many appraisers were paid off or “encouraged” to inflate values. However, underwriters also were letting appraisals slide through too. Right now, if an appraiser even remotely tries to inflate value of a property, it will get shot down in a heartbeat by the underwriter. We actually have an issue now of properties being undervalued in many cases since no one is every prosecuted for being too low.
“groove,
Have you bought something in Norwood Park yet? I know of a really nice place on an extra wide lot in Sauganash that may be coming on the market. Still needs some interior finishing but the home is in solid shape.”
whats available right now in norwood in our price range is not what we would like. but a few in edgebrook look promising and all north of peterson in saug we are priced out.
shoot me a email groove77cc at yahooooooooo dotz commy
Russ (or anyone)
what is your opinion on the future of mortgage companies? Because of the ridiculous laws and gun-shy underwriters/lenders it seems that it is next to impossible to get a mortgage now. Isn’t that how these companies make money? Won’t they go out of business?
Appraisals are based on comparable units. If all the units are selling at $400k, the appraiser is going to base their opinion off the market
Yes I fully agree but there was always the theory that if all of them are selling at $xxx,xxx.oo and this unit has crown moulding and a jacuzzi in the master that it is clearly worth the extra $25K over the others. That happened over and over and over pushing the growth every month. It takes a leader to break thru the next plateau and to set the new norm for all others as you have suggested. None of them ever slowed the process down.
Sure the pendulum has now swung to an overcorrected state that is the sure sign that there is hope again for stabilization of the market. The new owners will be solvent and better suited to the property and price they are buying!
Everyone keeps talking about “whats available”…
You all act like if something isn’t currently listed on the MLS you cant buy it.
Start calling banks and try to become a saavy investor instead of a lazy one.
“They clearly did not do their job as a neutral observer trying to protect the bank and the borrower from overpaying and/or overvaluing the loan on the property.”
Why is why they’ve already changed the laws to make appraisers more independent. Now, iirc, the people doing the deal don’t get to pick their appraiser so it doesn’t matter if its a tough appraiser–now they won’t care about sinking the deal.
more and more of this will be happening,as these crappily built places start falling apart.should help the construction people as they spend the next 10 years fixing these places as they continue to erode.
Clio:
Even with the tighter guidelines there is still plenty of business going around. A lot of banks and mortgage brokers/loan officers are having a blockbuster year due to the refinancing activity even with the relatively high fallout of deals due to underwriting/appraisals. A lot less competition, so more than enough business for those of us that still remain. Two classes of lenders these days… those that are killing it and those that are getting killed.
If refis dry up along with purchases, then yes, there will be quite a few mortgage companies going out of business.
Bob:
It is now illegal for loan officers/realtors to have any contact with an appraiser to discuss value. LOs can no longer order appraisals. They have to be procured through an appraisal management company. Appraisers are no longer beholden to the loan officer to get assignments so there is no pressure for them to over inflate values. Unfortunately, the system also effectively made appraisers government monkeys with no accountability too, so the quality of the appraisal work is in the toilet. Same work, half the pay.
“Start calling banks and try to become a saavy investor instead of a lazy one.”
Didn’t Clio say he tried this with a house in the suburbs? And the bank blew him off even though he was willing to pay cash or something like that. They didn’t even return his phone calls- if I recall correctly.
Sabrina,
It completely depends on the bank and how you approach them. Also, what the situation with the property is. But yes, expect this to happen often. Again, don’t be lazy and don’t take it personally. Try and try again. Different channels at the bank – even if you have to start inquiring about a mortgage then ask them if they have a property so you can use that mortgage. It sounds silly but what is the difference if there is nothing appealing on the MLS and you want a good deal?
Bob on November 8th, 2010 at 12:24 pm
“I wonder if there was a $50 closing credit involved, too.”
Had to be a Target (tar-jay) gift card in there somewhere.
It was late 2007/early 2008. It had to be a gas card.
Anybody remember the ‘buy a condo – get a car’ banner on the new construction building on Diversey overlooking I-90/94 a few years back?
“It is now illegal for loan officers/realtors to have any contact with an appraiser to discuss value. ”
Is it actually illegal? I thought it was a fannie/freddie guideline (adopted within the last year or so), but that it didn’t have the force of law.
It’s impossible for me to keep track of how many people in that age cohort that I’ve met that have bought into sketchy buildings during the boom. The fallout from this is huge and will shape city housing for at least the next decade or two. No need to kid ourselves, a lot of the condos out there are not worth much more than an automobile. In lots of cases they committed to pay hundreds of thousands of dollars for something that was a working class apartment for most of the past century. This story is but a peek into what’s unfolding right now.
Johnny–
Totally agree, over the years I have been blown away to see what my cohorts plunked down and signed away on single incomes. It is going to be interesting to see what will happen. I know I never bought a condo because I knew at some point I would have a wife and kid and need to find something bigger. I know at least 2 couples that have found themselves house poor now and unable to get rid of their properties. Not a fun place to be. And with the economy in the toilet, I wonder how that is effecting the yearly arrival of new college graduates?? I know there are a boat load of rentals available in my neighborhood and if jobs are not coming to Chicago we may not be seeing anyone moving into the city.
You guys are looking ahead a decade while im looking ahead a week. This last month has been one of the slowest months I’ve seen in a while. Little going under contract and barely any new listings. I know this is a slow time of years but this is near paralysis.
A decade now from? A much poorer gen x and gen y, see japan’s lost generation today. My 30 something cohort is largely job insecure and 30% of them STILL live at home.
“I know this is a slow time of years but this is near paralysis.”
I would agree with this. Almost nothing being listed and not much is selling- even on “deals” that would have been bought in a week just 6 months ago. Just sitting and sitting and sitting. As if there are NO buyers whatsoever.
But- there is one segment that has apparently picked up: the luxury upper bracket. There have been several sales in the $5 million+ category in just the last 3 months which hasn’t happened for years. That includes the Dimon house as well as a $5 million unit in the Palmolive. Several $3 million LP houses have also sold recently.
I attribute the pick up in that bracket to the Dow being at 2 year highs.
For everyone else- not much is selling (the under $1.5 million bracket.)
rich get richer, poor get poorer
“rich get richer, poor get poorer”
…and whiners keep whining
And clio keeps accidental landlording.
““rich get richer, poor get poorer”
…and whiners keep whining”
and guess who will be whining when the middle class becomes extinct and the burden will be on the “haves”? gold star if you guess correctly
I think Sabrina is absolutely correct in saying that the markets (not just the DJIA though) is the spark here….and low jumbo mortgage rates.
“and guess who will be whining when the middle class becomes extinct and the burden will be on the “haves”?”
I seem to remember something about a mouse … seemed like whining to me.
“low jumbo mortgage rates”
can you really borrow $2mm at the same rate as $750k? I mean, if you bank/broker at NT and pledge an account, too, you’ve always been able to get close to lowest-available rates, but assume you are getting a stand alone $2mm mortgage–no premium?
“I seem to remember something about a mouse … seemed like whining to me”
..no – more like complete enragement at the ridiculous behavior of some renters
“I attribute the pick up in that bracket to the Dow being at 2 year highs.
For everyone else- not much is selling (the under $1.5 million bracket.)”
Honestly, I think it goes lower than that. Let’s not forget that in addition to personal wealth, many people have income and jobs closely tied to market activity, even in Chicago.
Our neighbor had an open house and there was a continuous stream of young families in and out on Sunday. Good weather sure, but I would guess its young bankers, traders, lawyers who are anticipating a quite good year end (profit per partner is up, wall street bonuses are up, etc.). These are families in their 30’s with one or two young children. Lexus cross over or BMW X5 types. Home is priced between 1-1.5M and is move in ready.
I guess one rule is: never under estimate peoples desire to trade up — materialistically, socially, etc. They will do it any chance they get.
I’d bet country club waiting lists will have a few new names come January too.
“I’d bet country club waiting lists will have a few new names come January too.”
Easy on the country clubs…if anything JMM, these extraneous expenses are going to be limited due “better” $$$ allocation
ahem….HILLCREST COUNTRY CLUB
Ok maybe the CC call was a bit premature. I’m just saying, a bunch of new lil master o universes are minted every year.
REGULATIONS PROTECT THE BUSINESS because the business pay $$$ to those who make the regulations
yes we do call them bribes
LAWS PROTECT THE PEOPLE
LEARN THE DIFFERENCE BETWEEN THE 2
To the owners of the condos, I am very sorry to hear that some pos stuck you
Capitalism “forces” everything out in the open
Socialism is what loves regulations
I have been teaching that for years but the Media and schools teach that capitalism is evil and that socialism is the utopia
As usual, the government screws the people
Anon(tfo)… closing a $3 million dollar mortgage ($7 mill house) at 4% in the next week (7/1 ARM). So yeah, money is cheap.
I agree with JMM. A large portion of my clients are in that demographic he mentions and many are having a good year. Quite a few are refinancing their places and paying off large portions of their mortgages with their bonuses. I still think many on CC are really clueless to the high paying industries that are in Chicago and exactly how many folks there are in that group.
Quite a few are looking to move up and will. Some will be stuck, some won’t.
Purchases are slow, but people are getting off the fence. If confidence picks up, we just may get through this mess.
Yes, yes. Bankers, lawyers, traders, all having a good year. That means everything is on it’s way to OK. Of course, of course. Those are the only people that matter, correct? bankers, traders, lawyers. Especially the young ones. They ALL want to trade up. Ahem.
“closing a $3 million dollar mortgage ($7 mill house) at 4% in the next week (7/1 ARM). So yeah, money is cheap. ”
Russ: I know I can find it somewhere, but it’s easier to ask:
email address? Or email me at anon_tfo at hot mail.
Not that I’m looking for a $3mm mortgage, but still.
Hi Russ –
Do you have an e-mail address where we can contact you for mortgages?
russ at smartmortgageadvice dot com
Russ,
Out of pure curiosity WTF does a guy buying a $7 million dollar home with $4M down do for a living? I’m confident that you will say business owner but what business? That is big time coin to be tossing around. Was it a 10, 15, or 30 year mortgage?
“Yes, yes. Bankers, lawyers, traders, all having a good year.”
The fact that handful of wannabes bought houses they could not afford in the bubble does not eliminiate the earning power and spending habits of wealthy individuals for the rest of eternity.
“Out of pure curiosity WTF does a guy buying a $7 million dollar home with $4M down do for a living?”
Russ is smooth in dropping that tidbit too. I bet a $4M origination pays pretty well these days.
And where is said $7M house? Beyond Lake Forest and the occasional oddball property, that is rare air.
Even my childhood home isn’t listed for more than that (not that houses in Chicago were anywhere near this expensive back then).
HD… many of the people I see with some pretty decent incomes actually work at relatively unknown companies in rather boring professions. Not all of them are biglaw, strat consulting, PE types. Plenty of earning power still out there.
jp3… manufacturing business owner. The property isn’t in IL. It is a second home on the ocean.
jmm… russ will have a good Christmas.
Assuming sole shareholder, it is interesting to see a small business owner taking a $4M mortgage out versus dividending or recaping the business. L+175 on the business looks a lot better than 4% mortgage interest, most of which is not tax deductible. Taxation of income through business is the same or better if structured through a dividend recap.
I guess every companmy culture is unique. That sort of spending would never fly in my world, regardless of how much people have.
Russ,
Somehow I had a feeling that it was a second home for a low profile business owner. Damn that is big time cash for their “other place.” Merry Christmas to you….and I hope that the commissions are well spent on the family.
JMM – are you married? If you are looking for the reason this guy spent this type of coin on a 2nd place, look no further than his wife – company culture probably has nothing to do with it!!!
JMM can you explain? Why wouldn’t a dividend distribution be taxed as income before plowing it into the home? In the other case, does a sole shareholder have the right to use company assets for personal use without incurring additional imputed taxable income?
“JMM can you explain? Why wouldn’t a dividend distribution be taxed as income before plowing it into the home? In the other case, does a sole shareholder have the right to use company assets for personal use without incurring additional imputed taxable income?”
He’s got to make payments on the personal mortgage, presumably out of post-tax income. If he has to take $$ out of the business anyway, better (from a tax perspective) to take it out as part of a recap (and reduce future draws somewhat), than to dribble it out to service the debt.
A timely article from Diana Olick at CNBC about our discussion of sales being “paralyzed” recently.
She provides national data- but even sales at the higher price points have fallen off a cliff when they were doing better in the first 6 months of the year.
Clear Capital is reporting a 5% decline in overall prices for the three months ending Oct 31 (nationally.)
http://www.cnbc.com/id/40094168
Sabrina, I read your link to Diana Olick analyzing the move up market. I’ve always thought the entire concept of the move-up was pretty absurd in the first place – buy a condo/small house, wait for the price to appreciate; sell and use that money to buy a new house, etc. That only makes sense to do that when the house you really want to buy is appreciating faster than you can save. Otherwise you would just buy the house you really wanted in the first place. Many older people in my parent’s suburb did just that. They bought a place in the 50’s or 60’s and have lived there the entire time. The home was paid off years ago, they have plenty of disposable income, only have to pay taxes and upkeep. I met someone today in their 50’s who has a $3,000 a month mortgage (piti), a $350k mortgage, no savings and a substantial drop in household income due to the economy. What were they thinking? Did they really plan to pay $3,000 amonth until their 80’s? Or did they think they would flip it in a few years and pay for retirement….oh this bust is going to last for years and years…
“Did they really plan to pay $3,000 amonth until their 80’s? Or did they think they would flip it in a few years and pay for retirement….oh this bust is going to last for years and years…”
Yep- they certainly did.
Another layer to this problem you outline is the older homeowner who has been in their house for 20 years, but due to HELOCs (especially in some states like California), now owes more than the house is worth. Instead of heading into retirement nearly debt free, they are screwed and some will lose their houses altogether. Sad stories, actually.
“I’ve always thought the entire concept of the move-up was pretty absurd in the first place – buy a condo/small house, wait for the price to appreciate; sell and use that money to buy a new house, etc. That only makes sense to do that when the house you really want to buy is appreciating faster than you can save.”
It is (1) an inflation hedge, (2) investment diversification and (3) someplace to live until you need/want/can afford a larger place; and it’s not just “wait for it to appreciate” it’s forced savings/rent-“saving”, plus inflation, plus income growth, plus tax advantages–the appreciation is a bonus that became treated as base expectation.
Now, buying an apartment in that situation in most of the USA is sort of a bad idea, imo, but the buy a small house, then tradeup to a bigger one is basically the same thing farmers have done for centuries.
“Now, buying an apartment in that situation in most of the USA is sort of a bad idea, imo, but the buy a small house, then tradeup to a bigger one is basically the same thing farmers have done for centuries.”
In the business world, it is also how a lot of large fortune 500 companies have become what they are. Buy and build.
Granted, their investment returns cash flow, unlike a personal residence, but the concept of trading up to grow ones balance sheet is fairly well ingrained in history.