May 2010

ELLIOTT’S CLIENT SERVICES
 STAFF 100% USPAP CERTIFIED

All members of the ELLIOTT® & Company appraisers staff who work with clients and appraisers recently took and passed the National Uniform Standards of Professional Appraisal Practice (USPAP) Course. The 15-hour course was conducted by Joyce Pusey, SRA, a nationally certified USPAP instructor.

“I am very proud of our staff,” said Charlie Elliott, MAI, SRA, and president of ELLIOTT®. “Our company is all about appraisal quality, and we believe that having an all-USPAP-certified staff positions ELLIOTT® & Company Appraisers at the top of our industry. This positions our company to deliver the best quality control and regulatory compliant services in the industry.”

FDIC RECRUITING PRIVATE LAW FIRMS
FOR PROFESSIONAL-LIABILITY SUITS

The Federal Deposit Insurance Corp. (FDIC) appears to be on a recruitment drive to gain the services of law firms throughout the country to represent them in civil suits involving appraisals for banks that have since failed. Last month in Chicago, the FDIC held a conference for law firms that expressed interest in doing business with it. FDIC officials reportedly told these lawyers that much of this contracted legal work would involve professional liability lawsuits.

"The FDIC has taken over more than 200 banks since the beginning of the mortgage crisis,” wrote Peter Christensen of the Appraiser Law Blog in an article posted April 21 on the Internet. “When the FDIC takes over a failed bank, it usually sells off the banking assets to an existing lender but retains all of the potential legal claims against the failed lender’s directors, officers, mortgage brokers, accountants, lawyers, appraisers, AMCs, etc. The FDIC is now in the business of suing these parties, blaming them for its failed banks’ bad lending practices.”

Christensen does not appear pleased with what he is observing.

“The threat of draconian high volume litigation by the FDIC hampers the present ability of appraisers to give accurate valuations,” he wrote. “In the current state of the real estate markets, the only way an appraiser can guarantee that he or she will avoid a later FDIC claim about overvaluation is to ‘come in low’ on value. That means more loans don’t get made.”

APARTMENTS AND OFFICES AT HISTORICALLY HIGH VACANCY RATES

Surveys by Reis Inc., a real estate research company, have revealed alarmingly high vacancies in both the residential sector and the commercial sector of real estate. The research firm reported apartment vacancies in the United States at 8% during the first quarter of 2010, the highest level since 1980. The office vacancy rate was at 17.2% during the quarter, the highest it has been in that sector since 1994.

As a result of these historically high vacancies, rents for apartments and offices have, on the average, been declining during this period.

“As labor markets stabilize, we expect occupancies and rents to require another 12 to 18 months before showing signs of improvement, given typical lags in commercial real estate,” Victor Canalog, the Reis director of research, said of the office-vacancy situation. “Even as occupancy continues to deteriorate, we’re observing signs of renewed leasing activity across different metros.”

While Canalog sees signs of eventual recovery, he also sees more trouble ahead for the commercial market.
“We expect less of a bloodbath in fundamentals in 2010 versus 2009, but rents still will decline and vacancies will still continue to rise,” he said.

“This is bad news for loans supported by office properties that have to contend with at least six to eight more quarters of falling income.”

LONG RECOVERY PERIOD FORECASTED FOR SOME MARKETS

Economists at Fiserv Inc., a provider of information technology services to the financial services industry, are predicting that real estate prices in some parts of the United States will not rebound to their pre-bubble prices until 2025.

“We see several powerful forces in the market that will severely hinder the housing recoveries in many metro areas, particularly in the hard-hit states of California, Florida, Arizona and Nevada,” said David Stiff, the chief economist at Fiserv. “It will take these markets 15 or more years before home prices climb back to their peaks.”

Stiff also expects a delayed recovery in urban neighborhoods of cities, such as Chicago, Minneapolis and Memphis, where a lot of predatory lending took place. Other markets in this country, he said, “are poised for a relatively fast recovery.” As a whole, average home values will continue to drop a little longer.

“Nationally, the data points to a further 7% decline in home prices through the end of the year, with a prolonged recovery beginning early in 2011,” he said. “In many markets, the emphasis is on the word, 'prolonged.'”

SHORT SALE HANDLERS ARE ON LOOKOUT FOR FRAUD

With last month’s action by the federal government making it easier to conduct short sales on distressed property, this type of real estate transaction should increase dramatically, at least for the time being. Unfortunately, fraud built around short sales could also increase. Banks and other mortgage servicing institutions are working diligently to prevent as much short-sale fraud as possible.

Home Affordable Foreclosure Alternatives, the federal program initiated on April 5, bans house flipping within 90 days of the closing of the short sale.

“My staff puts a lot of focus on making sure [the short sale] is an arm’s-length transaction,” said Jon Meade, Fifth Third Bank’s vice president of loss mitigation. “We’re not looking to take a short sale so your brother can buy it and ultimately give it back to you.”

CHURCHES NOT EXEMPT FROM FORECLOSURE

Churches, for many years considered to be among the most reliable of mortgage-loan borrowers, have been going through the foreclosure process at an alarming rate. Research of the database of Thomson Reuters Westlaw, done by a Reuters writer, led to the conclusion that foreclosure activity involving churches in the United States is almost three times as high as it was in December 2007. More than 100 churches have declared bankruptcy in the past 12 months, and that figure is also expected to escalate.

“You build it, and they will come,” said Brad Hampton, executive pastor of Faith Center in Rockford, Ill. “It really was true through the years. [The younger churchgoers] like newness.”

This was particularly true with nondenominational churches, which were among the fastest growing in recent years. From 1995 to 1999, spending on religious-building construction jumped 70%. It continued to increase until 2003. Regional banks, community banks and specialty lenders courted the church business for construction loans. When the real estate bubble burst, some of the specialty lenders, such as Church Mortgage and Loan, went bankrupt. The combination of fewer available lenders, downturn in investment portfolios and decrease in donations has led to the crisis so many churches are in today.

“It’s devastating,” said Rev. Jesse Jackson, who is trying to put a stop to church foreclosures. “Demands for services is on the rise and the ability to provide services is decreasing.”

CELEBRITY PROPERTY FOLLOW-UPS

• The house, located next to the Chicago home of President Barack Obama and his family, sold on April 6 for $1.4 million. The property at 5040 South Greenwood Avenue, had originally been listed for $1.95 million.
   

• Al Kahn, CEO of 4Kids Entertainment Inc., has purchased imprisoned swindler Bernie Madoff’s Upper East Side Manhattan penthouse, according to an April 7 AP report. The infamous property was listed at $8.9 million. Kahn has played roles in the success of Pokemon, Cabbage Patch dolls, Teenage Mutant Ninja Turtles and other famous names that commanded interest from children and their parents.
   

• The Bel-Air mansion of Nicholas Cage failed to sell at auction on April 8 at the steps of the Los Angeles County Courthouse. Cage, who has other homes in foreclosure, tried to get $35 million for the house that formerly belonged to Dean Martin and also Tom Jones. The bidding opened at $10.4 million, but there were no takers.

ASK MARTITIA

QUESTION:  Can an appraiser perform a USPAP-compliant desk review of an appraisal of property in a state where he or she has never been?

MARTITIA:  Yes, geographic competence is not typically relevant in determining whether or not an appraisal meets the guidelines of the Uniform Standards of Professional Appraisal Practice. Appraisal reviews that include evaluation of the selection and adjustment of comparable sales, however, usually require familiarity with the area.

Martitia Mortimer, Elliott’s executive vice president, answers appraisal questions on a regular basis in Elliott Real Estate News.

QUOTES  

“We trample the grass and prize the flowers of May, yet the grass is green while the flower fades away.” – Robert Southwell

“All of the things I really like to do are either immoral, illegal or fattening.” – Alexander Woollcott

“Aviation is proof that, given the will, we have the capacity to achieve the impossible.”
                                                                                                       – Eddie Rickenbocker

“Someone just back of you while you are fishing is as bad as someone looking over your shoulder while you write a letter to your girl.” – Ernest Hemingway

“To love is to admire with the heart; to admire is to love with the mind.” – Theophile Gautier
 

Newsletter Editor: kevin@elliottco.com
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