Minneapolis on the Decline: A Case Study

I have been following a fraud case that the city of Minneapolis has played a major role in. To be more exact, the Minneapolis City Council has been a driving force behind it. North Minneapolis has long been considered a high crime area and that part of Minneapolis is why the city has been nick-named “Murderapolis.” The foreclosure rate in the city has been setting new foreclosure records on a monthly basis and the abandoned houses that are left behind has caused a serious epidemic for the city to contend with.

Minneapolis is losing residents…Fast. The city has been very vocal with their efforts to get owner-occupied people to buy houses there to help solidify the city and rebuild the communities there. Most of the abandoned houses there have had the windows and doors boarded up to keep squatters from claiming a temporary place to stay. Even the city has acknowledged that the “squatters” are mostly “crack users” and with them comes the crime.

To summarize…Record highs in foreclosures has caused many homeowners to abandon their house. Cities have encountered increased crime with so many boarded up, abandoned properties. The Task: Do whatever is needed to entice people to buy and move into those abandoned properties.

The Cities want people to BUY the abandoned properties…BUY.

Cities such as Minneapolis are working against themselves, even though they claim to be working towards improving their cities as a great place to live.

That IS funny though and sure does make a press release sound good.

People Buying Houses Usually Need a Lender to FUND it.

Minneapolis, Baltimore, Cleveland and Buffalo are cities that have sued lenders that have foreclosed on houses in those cities. Those cities are claiming that the lenders are at fault for the abandoned houses and the increase in crime. Many of the houses the lenders own (REO – Real Estate Owned) are in rough shape and need to be fixed up. Historically, lenders sell their REO properties “as is” and have already lost a large amount of money and are not about to put more money into a house to fix it.

That makes sense. Properties like that are attractive to investors because they can represent a good deal.

It turns out, neighborhood associations in north Minneapolis approached REO departments of the lenders who own abandoned houses in that area. According to the reports, they “were unsuccessful” in buying those houses from the lenders. What does that mean? It means the city went to the lender and gave them a low-ball offer and the lender said, “No thanks.”

Cities can’t buy at a large discount so… Sue Them!

Those cities are losing the battle against crime and rather than increase their efforts to do something about it… They are opting to invest a massive amount of money into suing the lenders that own abandoned houses because, the lenders refused to sell to them.
That sounds pretty intimidating to a lender. They might see such a situation as “You can either sell us the house at a big discount or we will sue you because we feel the increased crime and run down houses are your fault.”

That sort of thinking is about as crazy as someone saying a mother is at fault for giving birth to her son, after her grown son did something wrong. After all, if that son had never been born, then he would not have done anything wrong.

I see two issues with those cities who are suing lenders.

1. It will (or should) deter would be home buyers looking to buy in those cities. If I was out shopping for a house and found out that the city has been suing lenders and claiming they are to blame for the crime & such… I would look elsewhere because if the city can sue a lender…What is to stop them from suing me and claiming that the reason houses are not selling on my block is because of the boat I have parked in my driveway?

2. What lender is going to want to give a loan to a buyer in an area where the city could sue them if they have to foreclose on that house?

I have never really seen a modern day “Ghost Town” but, if cities like Minneapolis, Baltimore, Cleveland and Buffalo don’t stop creating new “villains” to point the finger at, the problem will continue to get worse.

Here is a thought… Maybe those cities could try to accept responsibility for conditions they face and not blame every one else.

I hope the courts will rule in favor of the lenders with these lawsuits. If the courts side with the cities…parts of Minneapolis, Baltimore, Cleveland and Buffalo will become modern day Ghost Towns.

For a sneak peek, take a tour of north Minneapolis.

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Tags: Buffalo, buying-foreclosures, city council, cleveland, foreclosure, Foreclosures, ghost town, lender, Minneapolis, mortgage

Note From the Editor: While a bit long, this story is one you’ve got to read. Wow!

A Home With Serious Promise

In July of 2001, I got a call from a homeowner that got one of my flyers that I left on their door. They were very interested in speaking to me, as I try to help the homeowners stay in their house. I was with my cousin Dave that day so we headed over to the house. On the way, we looked over the foreclosure report on the house and we found it was worth around $250,000 and the estimated payoff was under $150,000. With those figures, it was about a $0.60 on the dollar deal or 40% equity. It was in a very nice part of Plano (Northern suburb of Dallas) and in a subdivision that was under 10 years old. We got fairly excited.

We pulled up to the house and we both grinned while looking at the landscape and the exterior. It was in great shape! It was clear that someone had taken a lot of time to maintain the exterior like they had. The problem was, just because a house looks good on the outside does not mean it will look good on the inside. We rang the doorbell and the husband answered the door.

He was in his early 40’s and wasn’t exactly dressed to impress. Big baggy shorts, “muscle” tank top t-shirt and bare feet. When we stepped inside the house, it was just like one of those cartoons where someone is walking and it is bright and sunny and when they cross a street it suddenly becomes dark, cloudy and starts to rain and storm. It was awful inside! No…Worse than awful.

Just Because it Looks Good From the Outside . . .

All the windows had been covered with bed sheets and it was fairly dimly lit everywhere. There was trash literally piled up all around the main part of the house. We looked down at the carpet and we saw stains all over it. In fact, we couldn’t walk anywhere without a stain within a few inches from another.

The owner just acted like this was very normal and said things like, “Oh that. Yeah, the kids haven’t mastered drinking out of a cup just yet.” When I saw yellowish stains, I didn’t ask him if the dogs had mastered going to the bathroom outside.
As the owner walked around the main part of the house, we noticed he was sweating to no end. He kept pulling a towel from his pocket and wiped his forehead. Dave and I were wearing typical summer clothes and we had just been outside but, neither of us felt hot at all. Why would we? The house we were in was FREEZING. The thermostat was set at 60 degrees yet, the owner was sweating profusely. I looked over at my cousin and he flung his finger across the bottom of his nose and looked ahead at the owner. (I was pretty naïve then but later Dave told me he was probably on cocaine or some sort of speed)

We asked to see the master bedroom and he walked towards the bedroom. The door to the bedroom was not like a typical bedroom door. No, this door was a commercial grade security door. The top half had glass with the security wire running across the glass. The owner pulled out a big key ring that was attached to a retractable belt clip. He unlocked the door knob lock, the top dead bolt and the bottom dead bolt! Keep in mind now that this was a MASTER BEDROOM he was unlocking. I got a real sarcastic look on my face and asked, “So, who are you trying to keep out exactly?” His reply was, “Oh, the kids are always messing around and I don’t need them goofing off in here.” I asked, “Where are the kids?” He pointed behind me. We turned around, looked down to see two small kids behind us. When I say they were small, it’s because they appeared to be about 4 and 6 years old! I turned back to the owner and said, “Oh yeah. They sure look like they could unleash some hurt onto any room.”

Walking into the bedroom, we stopped dead in our tracks and stood with our mouths hung open. The room was gone! Well not missing really but the owners had gutted it along with the bathroom suite and the walk in closet. The carpet was gone and only concrete remained. All the drywall had been pulled from the ceiling and walls, to the point that you could see all the framing and the exterior brick. The toilet, bath tub, shower, sinks and cabinets had been removed. You could see a few water lines that had been capped off and the toilet flange was uncovered on the floor.

Dave asked what exactly he was doing to the room and the owner told us he took everything out because…He was operating an actual simulcast radio show from the house and all the things in the room had the potential to create interference. He was standing in front of a massive DJ station that was at least six feet wide, 5 feet long and 4-5 feet tall. He acted as casual as he could while we were still in shock. I said, “You actually run a radio show out of here?” He said he does a radio show that is picked up by over 100 stations across the USA & Canada.

I will never forget right then when he told us to hang on and turned around. He turned the volume up and we heard Lynrd Skynrd playing Sweet Home Alabama. The song ended and he puts on his headphones and leans over to turn on the microphone. He flipped switch and the “On Air” light comes on that was hanging on the wall. He started talking and said “All right! That was Lynrd Skynrd there, singing Sweet Home Alabama. Coming up next, we have AC/DC in line and stay tuned after that as Deep Purple will be in line after that.”

He flipped the switch, took the headphones off and turned back to us and said, “Ok, sorry about that. Where were we?” Dave replied, “Umm c-c-can you maybe j-just show us the rest of the house?” He nodded and we walked out of the radio room and across the living room to where there was a big curtain hanging from the wall.

He pulled it to the side and we saw the entrance to another room. The door that used to be there was gone and the hole was widened. There used to be a three car garage there but he had converted it into a fully operational…MOVIE Theater! And I am not talking about an elaborate home theater system. No, this was an actual movie theater! It was done pretty nicely too. The walls had been covered to resemble a theater, box speakers mounted on the walls, rope lights outlined the walkways, and he had installed (bolted down) over fifty movie theater-style seats!

In the back of the room, there was a 35mm projector behind a glass barrier, which projected the image onto a full size screen that had to have been at least 25 feet long and 15 feet high.

I remember saying to Dave that it would be pretty cool to have a movie theater in your house. He laughed at me and said, “You’re an idiot! Yeah it sounds cool to say you have your own theater but, who is going to want one in their house? Blockbuster Video doesn’t exactly rent out 35mm movies!”

Along the walkway there were many framed pictures of local celebrities on the wall. We saw Chuck Norris posing with him and Leanne Rhymes in another. There were several pictures that had a rather pretty Dallas Cowboy Cheerleader in them. We asked who it was. He told us that the woman was his wife. We both perked up and asked (while looking around) if she was here.
Right then a woman walked into the room and we looked over at her, said hello and told her who we were. She said hello and introduced herself. The husband then said “This is my wife.”

Our faces went blank as we glanced at the pictures and then at her. There was no way that either of us would have ever thought that she was the person in the pictures. His wife was wearing an oversized hooded sweatshirt, shorts and no shoes. Her skin on her face was so pale and dry that she honestly resembled a dried out gray raisin. Her face was grayish with noticeable cracks. The thing that was most noticeable was her nose. Let’s just say that, if Rudolph the Red Nosed Reindeer ever got sick, this woman could have easily stepped in to replace him. Her nose was very red and she rubbed at it almost constantly. She didn’t talk like she had a cold either.

The floor in that room had obviously been where their two St. Bernard’s slept. Or at least that is where they went to the bathroom. It was really sad to see. Both Dave and I ended up stepping in dog crap three times each because the dogs had literally covered most of the walk-able floor area. I looked at the owner with a “what the hell is this?” look on my face and he waved his hands and said, “Oh that’s nothing. It cleans up fine.” Our attitudes had gone from excited to stunned, to shocked, and at that point we were pretty much disgusted by how these people lived.

We all went upstairs and two of the three bedrooms were totally empty and we looked in the third to see the wife sitting in the middle of a full size mattress, no sheets or blanket, on top of a box spring with no bed frame. Both kids were also sitting with her. They were just staring at the doorway. It was creepy because there was literally nothing else in the room. The two kids got up and came over to us in the hallway that was lit up. It was sad to look at them. They weren’t smiling at all. They just looked at us without saying anything. They were covered in dirt and the clothes they had on were covered with stains and spots of food. I don’t think they had changed clothes in two weeks and it had to have been just as long since they had had a bath.
We both looked at the owners with a “what is your problem?” look. The husband just whisked them away and told them to let the adults be.

By the time we saw the kitchen we didn’t think we could see any worse . . . We saw worse. The vaulted kitchen had gorgeous granite countertops and expensive floor tile. The cabinets were also very expensive. It’s too bad they had all but been ruined by the wife. She was behind us and explained that she was in the process of giving the room a new look. We don’t know what look exactly she was going for though. She had taken a 3” paintbrush and slapped paint all over the cabinets. The paint she used was black and when you looked at it from another angle, it changed to a black with sparkly gold tint. There was paint drippings all over the countertops as it had run down the cabinets and dripped onto the counters. Most of the 12” floor tiles had noticeable cracks in them or were missing pieces due to them being broken up.

I will never forget the voice she used when she said, “I know it’s not much to look at right now but, when it’s done, its gonna look awesome!” Her voice reminded me of Roseanne Arnold’s but with a lot more nasal sound to it.

We told the owners we will call them the next day as we had to run some figures to see if we could work anything out with them. As we were walking to the car, there were four adults walking up with maybe 4 kids behind them. All of the adults were each carrying two 24-packs of beer. That’s eight cases of beer for 6 adults to drink. We just shook our heads and got in the car.
We sat silent for a few minutes while looking at the house. Dave then said, “That is seriously messed up!” I replied, “Yeah it is. Those lucky kids probably go unnoticed by the parents for days.”

We called them the next day and told them that we wouldn’t be able to help them. Looking back on it, had I been smarter and realized what may have really been going on in that house…

I know that I should have called Child Protection Services.

The house never made it to the auction though. I later heard that the wife’s father had reinstated the loan.
As I have said many, many times in classes… This isn’t a business about houses. It’s really a business about people and the homes they live in. This is one house I wish I had never seen. Ever since then I sometimes wonder what ended up happening to the house, the owners and more importantly… Their two kids.

-Jim Watkins

Tags: buying-foreclosures, child protective services, foreclose, foreclosure, parenting, parents, trash home

First off, let me clear up one thing that continues to confuse the masses…

There is a difference between “Pre-Foreclosure” and “Foreclosure.”

I am sure all of you have seen the advertising on various sites. “See a list of foreclosures in your area!” Over 90% of the time, they are technically a foreclosure but really they are what are known as an “R.E.O.” or Real Estate Owned. What that means is that a particular property has gone through the legal process of a lender foreclosing on a property. If a property does not get purchased by a 3rd party investor at the foreclosure auction, the lender becomes the new owner. If the loan was not FHA or VA, the property goes to the R.E.O. department of the lender that foreclosed. The majority of those properties are then listed on MLS by a Realtor that has been retained by the lender.

THAT…Is what most of those advertisements are talking about when they offer lists of foreclosure properties.

A “Pre-Foreclosure” is a property that is still legally owned by the individual(s) that the mortgage was given to. The pre-foreclosure market is one of the more difficult areas of investment real estate to get into and succeed with.

The “3 shots” I refer to in the title are actually chances that an investor has to obtain ownership of the property before it becomes an REO.

How many of you reading this has always thought that the only way to obtain a pre-foreclosure was to pay cash at the auction? That is one of the three ways. It is also the most dangerous of the three. Why? Because in this scenario, the winning bidder is required to pay the balance right then & there… With Cash (please check the laws of the state you are interested in bidding at to make sure of the procedure as all states have similar but different methods). Not literally cash mind you but certified funds.

Most people who buy at the auction have not had the opportunity to see the inside of the house. They are playing a game of Hit or Miss with themselves. If an investor pays more than $0.70 on the dollar at the auction, two out of three will end up losing money.

Why don’t we ever hear about those people? That is easy to answer. Because when an investor loses money after buying at the auction, they generally don’t show up to bid on another. Bidding and buying houses at the foreclosure auctions is not what I would call entry level investing. It takes skill, savvy, lots of cash and more times than not…Luck.

Buying at the auction is to me, the last ditch effort to obtain a house that is in pre-foreclosure.

The other two shots an investor has at buying a pre-foreclosure is going directly to the owner of the house and asking if they are interested in selling. The strategies and methods one can use to do that is the subject of one of my four-hour classes. In other words, there is a lot involved in how to contact an owner of a pre-foreclosure. It is a difficult task and unfortunately most investors approach them with a business attitude when really they need to be approached more from a personal standpoint. Think about it. Yes, real estate investing is a business about buying and selling distressed real estate. But who is it that lives in these houses? It’s people. In my opinion, when it gets right down to it, this is a business about people. People…Who are attached to their homes.

Wait! You can’t tell me that EVERYONE is attached to their home or that everyone is emotional about their home. That is correct, I can’t. This leads me to the 3rd shot at obtaining a pre-foreclosure.

The 3rd shot or, method I am talking about is one market that is largely forgotten by most investors or not even known about. That would be the “Abandoned Pre-Foreclosure.” It is also the subject of one of my other classes that I wrote and teach. “How to Find Abandoned and Distressed Properties.”

The entire Country is buzzing because of the record number of foreclosures. Most of the public and even most of the real estate investors don’t know that approximately 15% of ALL pre-foreclosures are actually abandoned! To put it into simple terms, out of every 100 houses that are in pre-foreclosure, 15 of them are abandoned. That is an incredible statistic. (Source: Foreclosure Listing Service, Inc. Addison, Texas)

Why is this a great market to pursue? There are a few reasons.

1. It takes the personal or emotional element out of the equation. When someone leaves their home, it becomes just a house to them. There is a huge difference between a home and a house to someone living in it.
2. Once the owner of the abandoned house is located, they are generally very easy to deal with. These owners can be approached with a business mindset versus a personal one.
3. They have left! What do they expect? The point I am making here is when an owner has left, they know the house will be foreclosed sooner or later. When I reach one of these owners, it is rare that I have to compensate them with more than $500. That is $500 more than they were going to get if the house went to the auction and back to the lender. Besides, if I buy the house directly from them, it prevents a foreclosure from being added to their credit report AND it shows as a paid mortgage. That is an attractive proposition to an owner no matter what. At the same time, it is always better to buy directly from the owner than have to roll the dice bidding against others at the auction.
4. A lot of the times you are able to see the inside so if you can’t locate the owner, now you can go to the auction knowing more facts than anyone else bidding. You will know exactly what repairs are needed and are able to attend the auction with a realistic budget for all the repairs, etc. Knowledge is power.
5. No Eviction! In some states it can take months to legally evict a tenant. What scares me even more is any tenant can cause thousands and thousands of dollars of damage in minutes. I don’t understand the mentality of a person that destroys property because they are being kicked out. But it does happen. So obviously when you buy an abandoned house either from the owner or at the auction, there is no eviction. That opens up a lot more opportunity for deciding what to do with the property. Keep it and rehab it? Flip it as a wholesaler? Etc.

There are more advantages than the five listed but those are the main ones.

To recap the 3 shots at buying a pre-foreclosure:

1. Obtain a pre-foreclosure list and contact the owner(s) directly. The best bet is to buy the house from the owner versus having to bid on the house at the auction.
2. Pursue the abandoned pre-foreclosures. They represent the best chance at buying a pre-foreclosure. If you can’t locate the owner, then over 90% of the time those properties will go to the auction. Just because a house is posted for foreclosure, does not mean it will reach the auction. The homeowner can reinstate the loan, they can file bankruptcy, they can sell the house, etc.
3. Bid and buy at the auction. Only now the investors that have also done 1 & 2 stand a much better chance of landing a good deal at the auction because they are simply more educated on both the property and the people that own it.

Disclaimer: As stated in the article, every state has different laws concerning foreclosure. I am not an attorney nor do I condone anyone pursuing any foreclosure property based upon the information provided. The methods listed are ones that I have personal experience with in the state of Texas. Please consult an attorney with specific knowledge in the state you are interested in pursuing a foreclosure property.

Tags: buying-foreclosures, distressed-property, find-foreclosures, Foreclosures, pre-foreclosures, real-estate-owned, REO