Got the word back from the bank on the Burdett property in Sacramento regarding the short sale.
Quick review: I bought the house a few months ago (Jan 4th, 2006) for 295 with 100% financing. So, I owe 295. At the time, the property would appraise for 315 or more. Now it’s worth 275 based on recent bank appraisal. The buyer/investor I’m working with on a short sale offered the bank 200. The negotiator at the bank said “I don’t think so!”. See the previous post: Burdett Lender is Playing Hardball for more.
After getting the initial rejection, the investor put together a net sheet, showing the bank how much they would loose if the property goes to foreclosure and becomes an REO. He tried to convince the bank that taking his 200 offer will net the bank more.
The lowest the bank would go at this point is $248,000.
The negotiator at the bank says that’s would be the opening bid at the trustee sale. So he will not take anything less. I was a bit confused by that. I though the opening bid is normally the pay-off. I guess this bank is very motivated and is willing to start the bidding at a loss. They really don’t want to take back any houses, I guess. Sign of the times or a ploy?
The investor does NOT want to buy at this price. It’s too high for his requirements. His plan B is to market the property and assign it to an end-user buyer or another investor.
I was also asked to spread the word and see if I can find a buyer. If you want it, the investor can simply assign his contract to you for an assignment fee. You can then just close on it in your name through an escrow company just like a regular purchase.
For those wondering… I will NOT be getting any cash from this deal. It’s not right for the seller to profit from the short sale when the bank is loosing a bunch of money. My goal is to just get this thing sold so I can avoid foreclosure.
My loss your gain. Any takers?
90 Comments
October 17th, 2006 at 11:25 am
You are aware that you will have a tax bill of about $12,000 for this, aren’t you ?
The IRS will consider that the $47,000 loss for the bank is effectively income for you. One of the unspoken joys of having loans written off.
And if you thought the banks played hardball…
October 17th, 2006 at 11:27 am
Just wondering. Has anyone used the tip jar?
October 17th, 2006 at 11:37 am
Casey,
See if your investor will go for $225k and present that offer to the bank. If they’re willing to go for $248, they’ll go for $225k.
See if your investor will also offer a shorter close time, say 15 days or less.
Nigel
October 17th, 2006 at 11:49 am
So how much cash-back you got on this house? Hope you disclosed your cash-back to the bank. It seems like the bank doesn’t count beans.
October 17th, 2006 at 11:52 am
What do you mean by your loss? I thought you got $47K cash-back on this house. Well, you might lose a little on closing cost and stuffs. So what did I say earlier about RE agents? You have been feeding those suckers.
October 17th, 2006 at 12:16 pm
Stupid question here: what does this mean? the bank wants 248 and the investor does not want to pay that much? where’s the deal? How does this help you?
October 17th, 2006 at 12:19 pm
More photos would help. And, of great importance to many investors, what would be a reasonable rent to expect?
In other words, could an investor yield a positive cash flow? Or perhaps a slight negative cash flow (which might be okay factoring in depreciation)?
October 17th, 2006 at 12:20 pm
“I will NOT be getting any cash from this deal.”
Artfully worded, Casey. Are you getting any other consideration or other thing of value if this goes through?
October 17th, 2006 at 12:21 pm
Why is this investor still involved then?? If he’s not closing cancell the contract. It would be easier for you to unload at $248 than it is to unload at $248 plus this guys assignment fee. What is his assignment fee the 25k to bring it back to market price??
October 17th, 2006 at 12:22 pm
Casey - for whatever its worth most institutional lenders will treat a deed-in-lieu of forclosure, a short sale, and a foreclosure as the same thing on a credit report. A short sale and/or deed-in-lieu are marginally better, but at the end of the day they affect your credit almost identically. Think of it as the difference from driving from CA to Maine and driving from CA to Massachusetts. Both stink, and at the end of the day what’s an extra hour. The bottom line is that it doesn’t much matter which of the three options you end up pursuing. Good luck.
October 17th, 2006 at 12:33 pm
Casey,
Why does this investor have any say in who buys this house. Does he have a contract/option agreement from you? If so, didn’t you charge him for that agreement?
It sounds like you made money off this deal already, by selling an option agreement.
October 17th, 2006 at 12:41 pm
good luck finding someone to buy at $248.
If you blow the banks $50 Grand, and pay taxes
on that, you are getting away lucky.
any chance you could rent the burdette property, and
generate enough cash flow an investor would buy
burdette, for a reasonable cap rate?
October 17th, 2006 at 12:47 pm
Casey,
Just visited this site for the first time. One of your reasons for creating it was to attract interested buyers for your property. Have any appeared? Any interested inquiries? From looking through the comments it seems to be pretty well the opposite but am wondering if any are contacting you via other channels. It may be that having this site is hurting you (public admissions of criminality) more than helping (attracting buyers).
October 17th, 2006 at 1:11 pm
Sorry Bird dogger,
I don’t think I would touch anything in sacramento right now. I’m going to buy for 60 cents on the dollar soon. The system will purge itself of all the speculation here soon. I will by a place in folsom at some point. that is my favorite place up there.
October 17th, 2006 at 1:18 pm
I’m thinking you know just enough to get yourself in trouble, but not anywhere near enough to know what you’re doing.
Your short sale was NOT approved, and the bank’s guy telling you the lowest they will go is not the same thing as an approval. surely by now you know the difference?
I can’t imagine anyone willing to buy this property - your track record as a basic businessman, with any reasonable understanding of reality is so poor that I don’t even want to think what you did to the house thinking you were “improving” it.
get a grip. get a lawyer. get a dictionary!
October 17th, 2006 at 1:32 pm
good luck finding someone to buy at $248.
If you blow the banks $50 Grand, and pay taxes
on that, you are getting away lucky.
any chance you could rent the burdette property, and
generate enough cash flow an investor would buy
burdette, for a reasonable cap rate?
could you rent burdette for say 1700 a month or better?
That should cover PITI.
October 17th, 2006 at 1:34 pm
So you are going to have to report some income because of the sale. How you going to pay those taxes?
October 17th, 2006 at 1:56 pm
LOL, good luck finding a sucker for that one.
6801 Steiner sold last february for $249K, it actually has a garage.
6719 Steiner sold in April for $256K, bigger house than yours when you discount the garage remodel which does not add value to a sale.
6611 Prentiss sold for $264K in March, basically the same specs but again it has a garage.
Considering you bought the house in January I would say you overpaid then, and Sacramento is off 7-10% this year so those houses should have a market value of $231K, $238K, and $245K respectively assuming only 7% decline. Figure it at 10% and it looks alot uglier. Nice nose for a deal there mister aspiring investor.
Sounds to me like the bank’s estimate of $248K is a probably higher than what the market value is today for the property, which is no surprise. There are probably multiple houses in that area on the market below that amount currently.
October 17th, 2006 at 2:00 pm
You are screwed!
October 17th, 2006 at 2:16 pm
I bought the house a few months ago (Jan 4th, 2006) for 295 with 100% financing. So, I owe 295.
No. Tell the truth. Come on. You can do at least that much.
You owe at least another $6k in back payments and penalties. Probably much more. When you get the $60k 1099 where does the $15k in taxes come form?
You don’t even have a $248k offer. I told you the offer would be rejected and I told you no distress buyer could go higher. The bamk is being stupid but they won’t go to jail for being stupid. Besides they haven’t done anything wrong. See the differences?
October 17th, 2006 at 2:17 pm
Not sure what you’re losing here? Didn’t you get cash back on this sale? I think the bank is losing about $47k and you’re getting out of a sticky situation scott free … one house at a time.
PS, perhaps if you can wait until January for some of the other short sales to close… then your “income” on your 1099’s will be spread over two years so you’ll owe less tax?
What ever happened to the ideas of either (a) living in one of the Sacramento houses and trying to retain it through bankruptcy as your primary residence, and/or (b) renting them out month-to-month?
October 17th, 2006 at 2:25 pm
Confused, what price are you looking for buyers, greater then 248k? Would the new buyer have to PAY the assignment fee?
October 17th, 2006 at 2:38 pm
Why would ‘the investor’ be involved in the short sale. What value does he/she bring to the table? How can he have a contract if his offer has been refused?
October 17th, 2006 at 3:12 pm
So has the short sale gone through?
Or is the investor waiting until you find a prospective investor to buy it from him at 284k+assignment fee?
October 17th, 2006 at 3:39 pm
Hey Casey you should turn off moderation. There is NO DISCUSSION at all on this board cuz the posts stack up so no one can reply to anyone else except a day later or something.
So you end up with 100 people saying the same thing and no discussion. Translation=ZZZZZZZZZZZ
My advice - Just us a simple auto filter to filter profanity or allow all posts and go in and delete em after the fact. Isnt your goal with this blog to get blog traffic? Step it up my man! It won’t cost you anything.
Again - These comments read TERRIBLE, no discussion and all same topic from everyone due to delay.
FIX IT FIX IT FIX IT.
Otherwise great blog, very entertaining.
October 17th, 2006 at 3:47 pm
Sorry, but your loss isn’t someone elses gain. 248K for that piece of crap will still be someone else’s loss in about 2-3 years. After they realize they could have bought it for less than 200K. If it’s someone else’s gain, then why can’t your friend’s Dad, this so-called millionaire money maker during a housing downturn. Why can’t he take this off of your hands and make money with it. Come on Casey. Or have you not told him yet. Hook me up with that commission on all 5 of those properties. Tell him about those hot leads I mentioned before. Let’s see this wizard of real estate show us all how to make money.
October 17th, 2006 at 3:58 pm
Loose is not lose. Please use the correct word.
October 17th, 2006 at 4:17 pm
Like everything else you post, this fairy tale is just that, a complete work of fiction. There is no “approved” sale. You couldn’t tell the truth if your life depended on it. (Hint- it actuall does, but you don’t get it.)
October 17th, 2006 at 6:11 pm
John, I’ve used the tip jar. Not much, but it’ll feed poor Casey for one day.
October 17th, 2006 at 7:05 pm
I purchased a property at short sale last time in 1997. An $800K note for $250K, and the seller had to kick in some cash to get off the hook (commercial deal).
$295K house for $248 is crap. You have no deal there. Nobody will buy it and the bank will own it. Let it go. That POS is probably not even worth $100K.
October 17th, 2006 at 7:45 pm
Is moderation still one? If so that sucks.
October 17th, 2006 at 8:15 pm
hey Casey have you heard of Wade Cook?
October 17th, 2006 at 9:11 pm
Why are you loosers and haters critcizing an invester?
Casey is persuing the American dream. He’s not a looser like most of you.
Hes just doing what he what he was taught, to lie on loans, to doublel down on loosing investments, to consult his Rich Father to get more tips on investments.
You loosers are just envous that Casey is living the Uzbekistani, er, the American Dream!
*** spits on you loosers!
–Tim
October 17th, 2006 at 9:34 pm
As others have said, a short sale isn’t much better than a foreclosure. So I don’t understand why you’re so desperate to help this “buyer” buy below your estimated FMV.
You do realize that every dollar down you negotiate for him will be a dollar’s worth of income tax to you. You do realize there’s almost zero chance you can avoid paying taxes on this “income.” Is this guy offering you a kick back for the tax portion of what you can negotiate down?
October 17th, 2006 at 10:37 pm
Tell us about the “letters of explanation” - that’s important. I don’t think you want to talk about it. Also, did you attend Bruce Norris seminars? I think it says “Norris” on your calendar.
October 17th, 2006 at 11:04 pm
Yeah that moderation is gay. You want this PG because little kids read here or something? Let’s get some discussions going!
October 18th, 2006 at 12:06 am
Do a google groups search for casey serin and you will find him described as a “delicious twink” in soc.motss
So you got that goin for ya! Turn off moderation, it blÖws!
October 18th, 2006 at 1:16 am
I’ve tried disabling moderation and too many people were posting stupid stuff like “Casey should die!” or using too much obscenity. So i’m still tring to figure something out… maybe I will turn on a very comprehensive word filter.
I hate to slow the conversation down and I want it to be as organic as possible.
I’m also planning to add email notification of latest comments, avatar support, formatting controls and stuff like that.
I did remove the NOFOLLOW on the URLs. Now if you post a link back to your blog, you will get some Google PR juice.
It’s all good!
October 18th, 2006 at 1:16 am
I just bought a 4-plex for $12,000. Twelve thousand dollars cash. Yes, it does need total rehab. But when I’m done I’ll get $350/month/unit. Not bad eh?
WTF is a twink anyway?
October 18th, 2006 at 1:19 am
Dude, seriously, who cares if people say stupid stuff? The first little kid will say “Casey should die” and the rest won’t think it’s cool anymore. None of the other “bubble blogs” have a delay, ya know….. but yours is still the best, because it’s about a real dude and real problems.
October 18th, 2006 at 1:27 am
@Bitz: Yes, I did go to Bruce Norris seminars. He is one of my favorite gurus. Everything he teaches is above board and he is very high on ethics / integrity. I want to be known for that myself. I wish I would not have comprised my intergrity by doing those liar loans. The letters of explanation is also somethign i’m not very proud of. I will probably tell you about it a little later. Its good for educational purposes… what NOT to do.. and also to show people what goes on in the RE lending industry. Again I wish I didn’t compromise. Now I must pay the consequences.
@Bill: haven’t heard about Wade Cook, what about him?
October 18th, 2006 at 1:27 am
To all who think i’m just lazy — if you look at how hard i’ve been working you wouldn’t be saying that. Most of my friends/family know me as a “work-a-holic”. I actually need to put boundaries on my work time - as it gets into my personal life / marriage.
I’m NOT saying that having a traditional job is BAD. It’s a good thing because it provides the financial base and stability. On top of that base a person can build a business. When you don’t know how you’re going to pay rent next month, you start making bad / desperate decisions. That’s why I need to get a stable source of income quickly - tradition employment or self-employment. Each one has trade-offs.
I may get a temp-job… or a part time job… I’m looking at possibilities right now.
October 18th, 2006 at 2:00 am
Casey, it seems to me that your tragedy is not merely that you’re in denial of your present situation, but you’re in denial of the undoubted fact (backed up with overwhelming evidence) that you’re in the wrong line of business. A successful real estate entrepreneur needs knowledge, experience and innate talent - and from what I’ve seen so far, you lack the third with a vengeance and don’t recognise that the first two are crucial too.
That said, I do sympathize, because one of the hardest things I’ve ever had to do was admit that I simply wasn’t good enough to succeed in the career I’d dreamt about for years. In my teens and early twenties, there was nothing I wanted to do more than direct movies. By my mid-twenties, having worked alongside far more talented individuals and realised they had instinctive skills that I lacked, I moved into production, and actually got a feature film off the ground. Come to think of it, the budget probably wasn’t far off your $2.2 million - though the crucial difference was that nearly all of it was put up by hundreds of small private investors, and no-one lost more than $10,000 (and that guy’s address alone made it clear that he could afford it!).
My learning curve was vertical, I made every mistake under the sun (not least assuming the writer of what I still maintain is an excellent script would be the best person to direct it), and the result was a critical and commercial disaster - and while I still maintained a smidgen of starry-eyed optimism right up to the point where the reviews came out, I honestly can’t say they were unfair.
But in order to keep the wolf from the door financially, I’d already started doing a lot of freelance writing (on top of a part-time secretarial job that at least guaranteed me a basic income), which I was eventually able to parlay into a full-time career. So I’m now a prolific film critic and historian, with several print and online outlets, and am supporting a family of four with my earnings - in a lifestyle that we’re more than happy with.
More to the point, I’ve finally found a career to which I’m ideally suited, which draws on knowledge, experience and talent that I already possess, which I love doing, and which I believe I’m good at - certainly, the number of repeat commissions I get from prestigious publications speaks for itself. And, most importantly of all, I’ve never been this totally happy with my present life and future prospects.
But I would never have achieved this if I hadn’t been brutally, self-laceratingly honest about my limitations. As with alcoholics or gamblers, coming to terms with this is the crucial first step. Unless there’s something you haven’t told us (and given this blog’s masochistic level of detail I rather doubt it) you lack the most basic skills to be a real estate developer, and don’t show any particular inclination to gain them. I’m not even sure you’re an entrepreneur, given your seeming reluctance to put in much in the way of hard graft - as someone else pointed out, you’re far more of a speculator (for which read gambler).
None of which means you can’t succeed in another field (you certainly have some kind of drive and tenacity, even if it’s badly misapplied at present) but you need to find out what it is - and then, ideally, work for someone else while learning the ropes. Because you have another fatal flaw besides your inability to recognise your limitations - which is your arrogant assumption that you know everything already (as demonstrated by your apparent refusal to listen to eminently sensible advice). Believe me, you don’t - and how will you ever learn until you admit this to yourself?
October 18th, 2006 at 2:27 am
@HungryBear: the deal may not be good for an investor but it will work for the end-user (owner occupant). It’s really not a bad home. Great for a first-time buyer.
@Randy H: “The bank is going to stick it to you, even if they could save a few bucks taking a lower bid short sale..” do you really think somebody at the bank is out on a mission to take personal revenge on the defaulted investors/flippers? I have a feeling they are just doing their job and trying to get as much back on those bad loans as they can. And, yes, I know they don’t want the property back… It’s just I was told the bidding normally starts at the pay-off… that’s why I was confused.
@Cedar Pine: thank you very much for the tip
@Basil: The short sale has not gone through yet, just approved by the bank. Yes, the investor i’m working with now is going to try to find a buyer at 248+assignment fee. You got it!
@The Wizard: The value to the investor is if they can negotiate a great deal with the bank they will (A) buy the property for their own portfolio or to flip. If the deal is not that great, they will (B) try to assign the contract to an investor who doesn’t need as deep of a discount or assign the deal to an end-user (owner occupant). So the investor is going to either pickup a property cheap or make a 5-10K assignment fee by selling the contract… So the initial offer to the bank was 200K but the bank is only willing to let it go for 248K. That’s too high for the investor so he is on to plan (B).
@Charles: yes the buyer will have to pay 248K + assignment fee (typically 5-10K). You will have to negotiate the fee with the investor.
@Jim: I got no cash-back on this deal. And I don’t want to rent out a house that is going to foreclosure. I don’t think that’s right! Would YOU want to rent from me knowing that you may have to move out at any moment. Or should I lie and not tell the tenants about my situation? I *am* trying to sell this house - it’s hard to show it with tenants inside… LIVING in the house myself - same story. I’m going to move into it only to move out when it sells or goes back to the bank. I will spend time and money on the move twice and live with uncertainty. My current rent is pretty cheap. So i’m already living pretty frugally.
@Robert Coté: You’re right, besides my principal balance you have to also add all the back-payments and fees to get the full payout. I was just throwing the principal amount there for simplicity. The 1099 issue is a valid one. I will be talking with my CPA to see if I have enough losses to offest the gains.
@Don: Thanks for telling me that I’m screwed. That makes my day.
@Rick: you’re throwing out those comps… but have you driven by them to see if they are really comps?
@Ken: again the 1099/tax issue - thanks for pointing out that i will probably have tax liability on the short sale. I know about it and will be talking to my CPA to see if I have enough business losses. I may not have to worry about it.
@dcguy: $1700 rent is NOT going to cover my PITI of 2400 on this loan and I can’t refi with my current credit… plus I have to catchup the loan first to even think about renting it out at a loss.
@Leigh: the short sale WAS approved. At least that’s what the investor is telling me. They got a written statement from the bank… The repairs I did on that property are actually pretty good. I used my brother in law and he is very handy. There is a nice new kitchen in there for some first-time buyer family to enjoy.
@arizonadude: Folsom is a good place to buy, expensive homes though, NOT first-time buyer material, so it will be harder to flip, but may be good for long term hold. I’m also waiting for the days when I will buy at 60 cents on the dollar. Those days area coming. I need to regroup my business and get some private money lined up.
@John: You’re right. This blog and the controversial content and and the negative comments are probably hurting my sales. That’s why for my Modesto property I am marketing using a different website - the target there is end-users - they don’t need to see all this stuff. However, I’m still sending investors to this site, I think it’s beneficial for an investor to see my situation. And yes, buyers ARE contacting me via email so you don’t see that conversation in the comments.
@Kevin L: there is no option and I did not collect any money from the investor. The investor tied me up with a contract where the price is contingent on bank approval. This basically allows the investor to negotiate directly with the bank and try to get it as cheap as possible. I am not getting anything out of this deal. I do not think it’s ethical for a seller to receive money from short sale of their property.
@Credit info: thanks for the tips. So you are saying that a short sale does NOT help your credit by avoiding a foreclosure mark? Then why did the RE Gurus teach us to use this as a negotiating tactic for buying pre-foreclosures? If the short sale is not any better then foreclosure, as far as the credit is concerned, then WHY BOTHER? I need to look into that… maybe you’re right.
@RentalCashflow: the investor is still involved because the bank approved a sale of 248 to the investor, not to ME. Now, MAYBE, I *can* cut the investor out and just go back to the bank and say “Hey, why don’t you let ME find a buyer at the same price”. I will probably do that if the investor bails on me. I just want to respect the contract I have with him for now. The property is still tied up.
@kpom: you caught me! The investor is actually giving me a brand new car, buying me a new house, and a rolex watch. On a serious note, I am struggling to pay rent right now. Would it be OK with you if I have the investor pay a couple of months of my rent in advance? Maybe buy me some groceries? Or would you consider that wrong? Of course, technically that IS compensation. So if I’m saying “I’m not getting anything out of this deal” I should be applying that to non-monetary benefits too. I don’t know, what do you think?
@Free advice: I will get some photos and rent info soon for ya
@Deep sigh: Investor wanted the house at 200K. The bank will only go down to 248. So now investor will try to market the property to somebody who WILL pay 248 and get an assignment fee for the right to the deal. Make sense? Or did I loose you?
@HN: I did NOT get any cash-back on this house. I actually spent 10K+ on repairs and have been carrying a negative 1000/month while renting it for a few months. Most of that money was borrowed though from credit cards. So I guess I am not loosing that much. The the bank IS loosing the most. I know, it’s not right. But that’s my reality right now. I’m trying to deal with it and not get over-leveraged again like this
@Nigel Swaby: apparently the investor has already been negotiating as much as they could from every angle (as is, cash offer, fast close, etc)… the bank will not budge below 248 at this point. They MAY get more motivated later… we’ll see
@Siggy: thank you too for bringing up the the tax implication. That is a reminder for me to check with my CPA.
October 18th, 2006 at 4:24 am
THIS IS NOT LEGAL OR TAX ADVICE!
Casey, you really do need a good CPA and a good attorney.
Those who are saying that you will owe taxes on the difference between what you owe and what the bank gets from a short sale may or may not be right because it is fact dependant.
You will owe taxes on it ONLY if you borrowed more than your basis in the property. If you only borrowed to purchase and repair and can prove the money was used for that and that only then there shouldn’t be any tax obligation. However, if you borrowed more than it cost to purchase and repair you will get a 1099 and the IRS will get their money. Bankruptcy does not wipe out taxes owed.
Don’t believe me or them, consult your CPA.
On the credit issue. Yes, a short sale will show up on your credit and yes, lenders will consider it just as bad as a foreclosure. The reason an investor and bank will agree to it is because it saves both of them money. Future lenders don’t care how much a lender lost on you, only that you are a higher risk than others. The bank still loses money on a short sale and you will still carry it on your credit report for ten years.
AND unless you intend to lie on future loan applications you will forever have to answer yes if asked if you were ever foreclosed or surrendered a deed in lieu of foreclosure.
If the investor is giving you any kind of consderation that has any kind of value and the bank does not know about it then you and the investor will have committed another act of fraud.
You are treading into very dangerous waters, you need a good attorney, now.
October 18th, 2006 at 5:16 am
Jagshemash!!!!
Casey, you Uzbekstani-type person!
Pay the bank or feel the wrath of our Kazakhstani catapults!
October 18th, 2006 at 6:33 am
NPR’s “Morning Edition” is doing a story on “‘Flippers” tomorrow (Thursday) morning and will include this site and this guy’s story in the report.
October 18th, 2006 at 9:06 am
Casey said: do you really think somebody at the bank is out on a mission to take personal revenge on the defaulted investors/flippers? I have a feeling they are just doing their job and trying to get as much back on those bad loans as they can. And, yes, I know they don’t want the property back… It’s just I was told the bidding normally starts at the pay-off… that’s why I was confused.
You are confused because you are:
a) inexperienced
b) uneducated
c) stubborn
d) arrogant
I don’t know if your lender is an independent bank, part of a network, or a subsidiary of one of the majors. Regardless, all the banks cooperate as strongly as they compete.
If word gets out that a particular lender is rolling over on their outstanding debts then at least two things will happen:
1. More debtors in marginal situations will also unload their loans on the bank at a loss to the bank.
2. The *bank’s* credit rating will go down. That means they’ll have a harder time selling their newly written loans in the secondary market.
These will spiral in a feedback loop, causing much more loss damage over time than they would have saved taking the “smaller losses” with lower short sales.
And possible, there’s a third risk to the bank:
3. The bank will end up owning a bunch of homes which are decreasing in value as the market corrects. That means the bank will have to take *two* losses, one on the short and another when they sell the home below book value.
October 18th, 2006 at 9:10 am
That’s great, just what Casey needs - more light on his soon-to-be legal and financial woes! Welcome to Dick Cheney’s America!!
October 18th, 2006 at 9:27 am
Try this:
http://sacramento.craigslist.org/
Then go to Job and click on what appropriate, etc. There are many openings for all kinds of employments: tem, per, con, part/full, etc.
October 18th, 2006 at 11:10 am
I wasn’t too worried for you when I first started reading this, but then I read some of the articles on:
http://www.mortgagefraudblog.com/
Does the scenario below sound familiar?? You may yet find yourself in serious legal jeopardy. The deeper you get into this the more I think moving to New Zealand is a great idea for you!
Prison Term in $300K Nebraska Mortgage Fraud
Mary C. Larsen, 49, Nehawka, Nebraska, was sentenced to 21 months imprisonment to be followed by a three-year term of supervised after pleading guilty on March 23, 2006 to an Information alleging one count of mail fraud.
Larsen, a former real estate agent, acquired or assisted in the acquisition of seven residential properties in and near Omaha, Nebraska. The properties were obtained by means of false statements to various mortgage companies. The false statements included: false W-2s, which significantly inflated income; false employment verification forms reflecting employment when the purchaser was unemployed; falsely inflating the existing cash in various bank accounts; and representing that the homes were acquired as primary residences when in fact neither Larsen nor the purchaser had any intent to reside in the residence. Larsen also created a false cashier’s check and a false letter purporting to be from the Internal Revenue Service purporting to release tax liens. Each of the homes has been foreclosed upon resulting in a loss of almost $300,000.00.
October 18th, 2006 at 12:35 pm
@An NPR Listener: What are ‘Flippers’? Ok, I might sound stupid, but I’m not earning enough to have to deal with them yet, consequently not knowing what they are.
I can gather that this guy, Casey, is quite, quite deep in some s***, though, and will probably end up being arrested and jailed for fraud and various other crimes.
Just because you say you regret it, Casey, doesn’t make it any better - shouldn’t have bothered with this line of work in the first place, man. Doesn’t sound like you’re any good at it.
October 18th, 2006 at 12:35 pm
@Rick: you’re throwing out those comps… but have you driven by them to see if they are really comps?
Let me see, all within 2-3 blocks of your house…all with similar specs…all built at the same time…all on similar lots…all sold at around the same time you bought your house.
Appraisal is appraisal man, comps are comps. You don’t need to drive by to see if the house you are selling is in the right price range. The appraiser won’t do that, he just looks at the public records. That’s what the bank did, and if this “investor” you have lined up is not as clueless as you have been that’s what he should be doing to.
Bottom line…the house is overpriced to sell in a declining market at $248K. Add the “assignment” fee on top of that and you had better find yourself a real good sucker to go for that deal.
I doubt the house would appraise at $248K in any case, so nobody is going to be able to get financing. Unfortunately the bank won’t let you off the hook so easy, but that thing would not sell in this market for a dime over $225K.
October 18th, 2006 at 1:32 pm
Casey,
(Following up on your “$3,000″ thread:)
“The realtor on the Dallas closing refused to get paid through escrow. So that’s where the first $650 is going. I overnighted it to him today. He promises to fax me a cancellation as soon as he gets the money (on Monday). This will allow the NYC buyer to close. I should get 2-3K from that deal. “
Did you get your cancellation letter Monday? When’s the closing and when do you expect to get your money?
Good luck
October 18th, 2006 at 1:45 pm
Mr. Serin has a good thing going on here. He’s got a large group of informed and experienced folks at his disposal who are making a concerted effort to communiciate their wisdom to him (motivated because they see him not heeding it). Casey will eventually get the message both because he’s a smart guy (not wise, but smart) and because the school of hard knocks will drive a few of those points home for him.
In a few years, I don’t doubt Casey Serin will be real-estate consultant of some kind. Probably a very good one, too.
October 18th, 2006 at 2:21 pm
I’m sort of confused about the $1700/mo income in rent isn’t going to pay $2400/mo. Doesn’t that leave $700/mo rather than $2400? It would seem if you rented the rentable properties in the short-term you’d have less to pay once you do sell them. And if you’re selling them to investors anyway and $1700/mo is a reasonable amount of rent, is there a downside for the investor?
I know you’ve said the total amount you owe, but what’s just the amount you’ve defaulted? Can you make some sort of a deal with “Rich Dad” to buy you out of default so these properties don’t foreclose and he can sell them with you? You probably will still lose a lot of money, but the education plus NOT having to declare bankruptcy would be worth it for you. Then maybe you can proceed with flipping more conservatively…if that’s what you still want to do when you get to the other side of this…
October 18th, 2006 at 2:49 pm
I guess I don’t get why you wouldn’t try to move into one of the properties in your area. You can work on it and live in it - as others have pointed out, it will allow you to save that house if you have to file for BK and it will make one less loan that you’ve lied on. And if you manage to hold onto it until the the market goes up again, then you’re that much better off.
Even if you had to get a regular job and rent out these properties while for less than your payment, you’re still bleeding less cash than you are now. There are a couple right in your back yard!
October 18th, 2006 at 3:14 pm
Your right about NOT getting any cash from this deal. There isn’t going to be a deal. There is going to be a reposession.
October 18th, 2006 at 3:36 pm
“Would it be OK with you if I have the investor pay a couple of months of my rent in advance? Maybe buy me some groceries? Or would you consider that wrong? Of course, technically that IS compensation. So if I’m saying “I’m not getting anything out of this deal” I should be applying that to non-monetary benefits too. I don’t know, what do you think?”
Oh, in addition to the taxable 1099, the IRS is going to spend months looking for additional ill-gotten gains (oh, I mean taxable benefits) too?
Casey, why don’t you go out and register a non-profit corporation (charity) and begin buying homes under the charity? Maybe structure the charity in such a way that these homes are for homeless children. Maybe keep 25% revenue for yourself for “administration”. Then you could practice your ‘art’ and when the banks come knocking you can blame it on the mean old banks and bad lenders like in your first few posts. And… maybe hold a fundraiser!
You’re in soo deep, and we really need some new OMG entertainment factor. Your blog isn’t as interesting as you spiral into bankruptcy.
October 18th, 2006 at 4:42 pm
Casey,
The numbers just came up for California foreclosures. There has been an increase of 111% since last year. That is correct, a near doubling of foreclosures. Many on this blog have provided very solid advice regarding your situation. If you can sell right now even at a minimal loss, do it! But the caveat here is that it seems that you are unwilling to sell at a loss.
I can understand that feeling. Many of us had made mistakes, rather large one’s at that too. For example buying hyped up technology stocks in early 2000, holding on to them with clinched fist, and riding them down all the way to the valley of doom. The lesson is learned after the fact. Sometimes the tuition we pay for the university of life is rather expensive. Many on here that are trying to understand your situation need to be sympathetic that you are holding on to these falling stars. The market is done. Not only done but well-done. This is going to be a costly lesson but it doesn’t mean that in the future you will not be successful. You have the tenacity to go forward; misguided in its current state but there is something there.
Until you can admit that you are in a world of hurt because of fraud, bad business decisions, and continuing to not work you will only dig yourself deeper into the ground. When you find yourself in that hole, seeing the light getting dimmer and dimmer, put the shovel down and climb out!
October 18th, 2006 at 5:46 pm
You write:
“The 1099 issue is a valid one. I will be talking with my CPA to see if I have enough losses to offest the gains.”
You need to start using the Web for research, not just “snowplowing” all these legal/financial/tax issues until you can talk to a CPA or attorney.
For example, just Google on these two strings: “capital losses” “ordinary income”. You will find numerous articles spelling out the situation I described in my other post:
– your ordinary income will include the 1099 income imputed to you by cancellation of debts to lenders (if they choose to cancel the debts)
– any capital losses can be used to offset any capital gains up to the amount of the capital gains. If capital losses exceed capital gains, as seems certain in your case, only $3000 of the difference may be used in any one year to offset other income (such as from the 1099s).
In later years, you may apply $3000 each year (unless the amount is changed in future tax codes) as a “carry forward.”
Here’s an example:
Suppose that in this tax year (2006) just two of your 5-6 properties (I’ve lost count) are foreclosed on or you otherwise have debts cancelled to the tune of about $120,000. These will show up on 1099s you will receive and the the IRS will receive copies of.
(I’m taking the estimates in some of the media articls, such as the SF Gate/Chronicle one, that your actual “underwater” amount is about $400K.)
Suppose your capital losses on these two disposed-of properties run about $120,000. You have capital gains on one property of about $30,000, say.
Your capital losses exceed your capital gains by $90,000. You will owe no capital gains tax on your $30,000 capital gain. However, only $3000 of the net capital loss may be subtracted from your ordinary income.
Assuming you file jointly, take the usual deductions, etc.
(Your mortgage interest may also be limited in what you can deduct, beyond your primary residence (whoops!) and one additional residence (normally a vacation home, for example).
Anyway, you will likely owe about 45% in Federal and California income taxes on the $117,000 ordinary income ($120K minus the $3K capital losses allowed amount). With some usual deductions, etc., probably something like 45% of 110K, or about $50,000.
And the IRS will be watching for any 2007 gains, so even a reduced repayment plan is not in the cards until all properties are disposed of and the final tax bill is figured out.
And if the rest of the properties are written-off in 2007, a similar tax bill.
In other words, you’re looking at about a $100,000 tax bill.
The good news is that this is survivable.
Which is why so many of us think your disdain for working a real job, or even your disdain of renting out these properties (with silly logic like “but rent payments won’t cover what I owe”–so? income is income, and can be used to offset other debts), is so dangerous.
You need to stop falling for the “lure of easy money,” as Glenn Frey put it, and buckle down to working your butt off in real jobs for the next 10 years. Only then should you think about real estate.
–Tim
October 18th, 2006 at 8:28 pm
Banks don’t want REOs because if they hold too many, it endangers their FDIC status, meaning they lose their ability to insure the money in their vaults.
October 18th, 2006 at 9:48 pm
No Tim, not quite so.
When you run a business — even as a sole proprietor — your losses from that activity can offset income beyond the $3,000 limit.
October 18th, 2006 at 10:23 pm
“No Tim, not quite so.
When you run a business — even as a sole proprietor — your losses from that activity can offset income beyond the $3,000 limit.”
Casey told he is NOT running this as a business–he said at one point he regretted not looking into this approach. Too late now, of course. No incorporation, no LLC, not even a partnership. Just a series of asset purchases, just as if any other person bought a basket of stocks, or houses, or coins.
He obviously is filing as a married individual, as he has told us he is.
I’ve been investing for more than 30 years. Calling my investing a “business” or a “sole proprietorship” does not make it one.
–Tim
October 19th, 2006 at 4:38 am
“@Deep sigh: Investor wanted the house at 200K. The bank will only go down to 248. So now investor will try to market the property to somebody who WILL pay 248 and get an assignment fee for the right to the deal. Make sense? Or did I loose you?”
My point exactly. There’s no deal until someone comes up and pays the 248K. Until then, nothing to shout about.
October 19th, 2006 at 6:57 am
Learn how to spell lose, it is not loose it is L O S E
October 19th, 2006 at 8:25 am
Tim:
If you are “investing,” you’re right.
Casey, however, said he quit his job to make real estate his full time occupation.
If your business IS a business, and you conduct it as such, then you can call it one. If it’s NOT a business, then you can’t.
Doesn’t matter whether you file individually (jointly or separately) or not.
Read up at irs.gov
October 19th, 2006 at 10:25 am
“If your business IS a business, and you conduct it as such, then you can call it one. If it’s NOT a business, then you can’t.”
Did Casey provide a business name to his lenders, to the mortgage holders, to the buyers? Did he provide either S class or C class or other licenses and whatnot?
Or did he present himself as the _occupier_ of the house, and apply as “married man”? Yes, he did.
Has he conducted his accounting according to legal entity or sole proprietor rules, such as “mark to market” accounting?
This advice is to the point:
“As a trader, your livelihood could hinge upon your ability to prove to the IRS that your trading enterprise is a legitimate business. Fail that and you risk a domino effect whereby your trader tax status is denied, your mark-to-market accounting method is disallowed, and your ordinary losses suddenly loom catastrophic thanks to the $3,000 capital loss limit.
“Yes, you can legally conduct your trading business as a sole proprietorship. But with so many cards stacked against you not the least being the IRS’ vague and ever-changing definition of what constitutes a trader for tax purposes the far more prudent course is to conduct your trading through a more formal legal entity.”
http://www.traderslog.com/business.htm
Inasmuch as Casey presented himself on the loan docs we have seen posted (here and on the bubble blogs) as a married man intending to occupy the properties, with no mention of any corporate or LLC or sole proprietorship status, and inasmuch as he has repeadedly talked about “investments” and “investors,” and inasmuch as he is clearly too new to accounting rules to be using “mark to market” methods of accounting, I’d say the chances of the IRS treating his purchases differently from the way they treat my purchases (full time stock investment since I retired in 1986) are zero.
And going back in time to refile his paperwork is not possible.
Maybe he can find a lawyer who will argue that he can use his capital losses to offset his ordinary income, beyond the $3000 limit. I’m dubious. Partly because of the many warnings from knowledgeable folks that it isn’t easy to finesse taxes this way, and mainly because Casey’s deals stink to high heaven.
(As a “bird dogger,” he seems to not have a knack for finding good deals. Just the opposite.)
–Tim
October 19th, 2006 at 2:14 pm
Tim:
You’re missing my point. I’m not saying Casey is a “trader,” but that he may have conducted a business activity. Of course, his “trades” aren’t going to be marked to the market at the end of the year. All I’m suggesting is that any income generated from a business activity (not “trading”) may have relevant expenses that offset it.
You could be an investor buying and selling hundreds of thousands of shares of companies every day, but if you don’t participate materially in what those companies actually do, then, yes, you’d have a very tough time convincing the IRS that you’re not subject to the $3,000/per year limit.
But there’s no advance notice required to conduct a business activity. You can have a business name if you want one, but you don’t need one. You don’t even have to select an accounting method in advance, although when you finally do, you need to follow that accounting method accordingly.
Let me be clear. I don’t KNOW whether Casey’s situation falls under the purview of material participation in a business activity or whether it would be deemed a passive investment.
All I’m saying is that it would be silly not to gather up all his records and see a tax advisor.
October 19th, 2006 at 7:07 pm
to start, if this is a hoax its a clever one and perfectly harmless. i’d say that Casey is a smart fella.how many of you all had accumulated what he has by age 24, assuming you all read the economic tea leaves as he did. i see allot of monday morning qb’s out there. Casey your predicament is rather simple. like any transaction-bids and offers and more reading of the tea leaves. you have heard it all about where the market is headed.make a stand young man-pick a direction and stick with it.you have done an excellent job of marketing on-line.hell,i heard your website on npr or msnbc. bravo nice job.what about some local hoopla marketing.once you have done your best then its over.i took the mother of all beatings in the mother of all re bear whip saws and lived to tell about. you have way more going for you than the average young man at your age .just keep pluggin along you’ll be fine.
October 19th, 2006 at 11:54 pm
Casey:
Put up a sign, For Sale, Seller Finance, easy terms, below market % rate, No Closing Costs.
Sell the house on a private note, I will fund the note, and at the same time negotiate with the bank for the final, payoff that will match the discount on the private note. This way, you have a buyer on the one hand, a funding source to cash everyone out, and means to please the bank NOW with the deal about to close in 2 weeks. You close the deal and walk with no funds in your pocket.
I just see a way out for you, not a way out to make some money at the same time. Good luck
October 20th, 2006 at 8:53 am
Casey,
I am a banker specializing in the restructuring, turnaround and/or liquidation of commercial business based on their future profitability outlook. I have had to place bids at auction for commercial and residential (used to secure commercial debt) properties.
Although we would like to credit bid our debt level, that is not always possible. We do a complete analysis of the property which includes holding costs such as gas for heat so the pipes don’t freeze, security, insurance and real estate taxes as well as looking at the market value of the property, the holding period of the property and the likely amount we will receive at a sheriff’s sale (always about 15% or more less than appraised value). Therefore, it is common in deals where the loan amount is near or above the “realizable value” (estimated sales value less costs), that we bid under our “legal” balance.
The bank is not trying to get you in a ploy. They just want a value out of the place that they can reasonably expect to collect in a 6 to 18 month holding period. If we feel we can reasonablydo better in that time frame than a cash now offer, we wait. Don’t try to blame the banks for your issues. The banks are just trying to protect their customer’s (all depositors, CD buyers, etc) money.
October 20th, 2006 at 8:58 am
Hey Casey,
I stumbled across your site and I have to recommend Dave Ramsey if it hasn’t been mentioned before. The guy played the real estate game and lost it big time by doing exactly what you are doing. You need to pick up his book Total Money Makeover. It has saved my life. I was tired of paying bills and not knowing where the money was going to come from. The American way should be CASH instead of CREDIT! We need to quit borrowing and start SAVING to buy things! www.daveramsey.org I wish you the best of luck.
October 20th, 2006 at 2:09 pm
Andy:
If Dave Ramsey did, or is, helping you out, great. I’m happy for you. Admittedly, I haven’t read his book, researched his teachings, nor intend to. But I did visit his site. My reaction?
WARNING! WARNING! GURU ALERT!
He sells his book, of course, but also his $139 Financial Peace University Membership Kit, his Financial Peace Home Study Kit for $249, Debt Buster’s Pack for $69.99, etc. And to top it all off, he’s selling his Deluxe Envelope System for $19.95, but you can always upgrade to the Designer Envelope System for $25.99. You can even get a Financial Peace stainless steel coffee mug for $11.99.
Of course these are all on “special.” The “MSRP” is actually higher. Except for the coffee mug. That’s not on special.
MSRP? Give me a break.
I do, however, have to give the guy credit where it is due (no pun intended). He does NOT accept credit cards.
October 21st, 2006 at 10:51 am
Hey Free Advice,
I actually used Dave Ramsey’s stuff…I pnly bought his total makeover book though..and let’s see, in the last 6 months, I have paid off about 30 thousand in debt.
That was 17k for a personal loan, 10K in credit cards, and 3k on what was remaining on my 2004 Jeep wrangler which I paid off completely in 2 years. I also have a emergency fund of 10k. Yeah he is guruish..and I don’t think you need to buy all his other wares…but it did make me focus on getting my debt down and watching what I spend.
October 21st, 2006 at 7:50 pm
Legion:
That’s great. Getting rid of $5000 of debt per month is admirable. As I said, I didn’t look at his stuff in detail and probably won’t.
I think lots of times these authors start out with good intentions but just go way over the top with their kits, accessories, and DVDs, etc.
October 22nd, 2006 at 10:01 am
Free Advice
Lol yeah I have to agree, all his other books pretty much say the same thing..kind of like the automatic millionaire series. Do I really need a copy of the book on cd’s as well…dvd’s to watch a seminar?
However I gotta say..it sure is nice not having to worry about bills on a credit card or a car payment. Now I just gotta chink away the freakin’ mortgage and student loans…ahhhhhhhhhhhh!!!!
October 23rd, 2006 at 10:39 am
You do know that you are liable to the IRS for the “gain” in the short sale?
295-245=50K in taxable income for you.
IRS doens’t accept IOU’s.
October 24th, 2006 at 1:25 pm
Zek….
He may not have a IRS “gain” (aka phantom income) if the following is true:
A) If original “purchase money loans” and he never refinanced they are probably non-recourse on the first only- must look at notes / deeds.
b) He may qualify under IRS “insolvency” exemption
November 14th, 2006 at 1:32 pm
IRS are hard to forgive, but they do do it every so ofter if the person shows real hardship paying back the amount.
The IRS NEVER forgives when FRAUD is involved. Why? Becaue it would open up the flood gates and encourage fradulant activities.
Banks / lenders who lost money also dont like FRAUD for the same reasons. If the Bank sold the note to a hard a** lender and the new lender finds out that FRAUD was committed in the process of securing that note, oh boy!
November 26th, 2006 at 1:47 pm
Ok. This gets stinkier as each day passes. He says he didn’t run a business, he just aquired these properties as an individual. Hello? Casey, this is another part of the fraud. You signed a document, while trying to obtain funding, verifying employment as self employed, LLC. The banks do not lend if you have no job. Another lie to your Fraud predicament. Anyone care to keep track of how many COUNTS of Fraud there WILL BE?
It matters very little what happens to all this property and taxes at this point. Sounds like you ruined your life. You are a shining example of WHAT NOT TO DO…but you are still scamming and being scammed. Hell, even your rich dad is scamming you to work for free and you are scamming him to help you appear ambitious, which you are not. You are a workaholic you say. Yes, working around the clock thinking of how to scam out of this one.
There is so much more to this story than what we are hearing here. I’ll put it together in a later post.
November 30th, 2006 at 12:28 pm
On October 19th, 2006 at 2:14 pm, Free advice said ”
Tim:
You’re missing my point. I’m not saying Casey is a “trader,” but that he may have conducted a business activity. Of course, his “trades” aren’t going to be marked to the market at the end of the year. All I’m suggesting is that any income generated from a business activity (not “trading”) may have relevant expenses that offset it.
You could be an investor buying and selling hundreds of thousands of shares of companies every day, but if you don’t participate materially in what those companies actually do, then, yes, you’d have a very tough time convincing the IRS that you’re not subject to the $3,000/per year limit.”
— My Response —
If Casey didn’t have the mortage loans placed into a business entity prior to this horrendous amount of trouble he’s gotten himself into, then he didn’t operate a business. Now, if he could get Johnny Cochran as a lawyer, maybe he can get off.
————————————————————–
As for Dave Ramsey, I believe in what he says. It’s very basic. “Spend less than you earn”. We don’t always use cash (that’s what cash-back reward cards are for), but our credit cards are always paid-in-full every month, unless we can let the money sit in the bank for a while until it has to be paid.
Example:
Home Depot often gives us $0 payment, 0% for 1 year offers on whatever we spend. If we were going to replace items in our house, we make use of that, and have the money sit in our Emmigrant Direct savings account, until it has to be paid in full.
Also, we charge everything we possibly can on our Chase Perfectcard. Why? We get 3% back on ALL gas purchases, and 1% back on everything else. So groceries, cable TV, gas, dining, Life/Home insurance payments, etc. all get paid on this card, and we pay it in full when the bill comes.