Dan Melson: October 2007 Archives

I want to sell my home for sale by owner. Is 1.5% a good amount to co-broke? Or will agents avoid me?

In most of the country, this is a buyer's market right now. You need to compete more strongly for that buyer's business than anyone else in order to win the sale.

When I'm working with a buyer, the contract says that I get a certain percentage. So it doesn't matter what your co-broke (aka CBB, paid to a buyer's agent by the listing agent or seller) is to me. If you don't pay it, my buyers will. Furthermore, my contract is non-exclusive, so I have incentive to get them into whatever property is going to make them happiest, as soon as possible. If I won't (or can't) do it, somebody else will, and that's how it should be, so if your property really is the best property for that client, the low co-broke won't stop me. As I said, I get my minimum percentage from any property I help the client with. Better the minimum off yours than nothing when somebody else turns them onto yours.

Even to agents in situations comparable to mine, however, a low CBB like that is very indicative of an owner who is overly greedy, has over-priced the property, and won't negotiate it down to anything reasonable. I've seen this at least dozens of times, probably hundreds. No exceptions to this rule yet. Better I just don't waste my time or worse, that of my clients.

This is on top of the constant issues of dealing with a For Sale By Owner (FSBO), 99% plus of whom want me to act as their agent. or at least do the work of their agent and assume that liability, as well as the buyers'. Well, I don't do dual agency anyway, and I certainly don't do it unpaid, and because there's nobody with E&O insurance on the other side of the equation, I can do all of my due diligence and then some, but because the seller lies, I still end up sued by an unhappy buyer because I'm the only one involved they can get money from. FSBOs have literally 100 times the disclosure problems agent represented properties do. Trying to persuade owners who think they did everything they need to by putting a sign in the yard to fulfill the rest of their legal obligations is a painful process, and getting them to negotiate in good faith is chancy. I've had - and heard from other agents - more "chiseler" episodes from trying to buy a FSBO property. The probability of dealing with the "chiseler" goes up by at least a factor of 10 for all FSBO properties. And if you think I don't cover this with my clients, you're wrong. It's part of my job to let them know the risks of what they might be getting into, before they're in the middle of them. A good percentage of all clients comes straight out and tells me that they don't want to consider FSBOs once I've explained the facts.

Yes, a lot of this is "guilt by association" type judgments. Nonetheless, it's how you are asking people to view you. People who hang out with outlaw biker gangs are presumed to be outlaw bikers. Doesn't matter if you wear a suit and tie and a $400 haircut have a nice genteel manner. You're an outlaw biker gang member, and until and unless people get to know you as an individual, that's the perception you're going to have to live with. (Lest my meaning be mistaken, I'm pulling a hypothetical example. I don't think I've ever actually met or seen an outlaw biker gang. There was a large biker club seated next to us at a restaurant a couple weeks ago. Their clothes and haircut were a little out of the ordinary, but they were mostly like other folks. Had a great conversation about our respective kids with one couple). I'd like to have the time to individually know all of the properties available well enough to discard guilt by association, but there aren't enough hours in the day.

Finally, if my buyer's cash is a little tight in the first place, and buyer cash to close is the number one obstacle to a successful transaction, the fact that they're going to have to come up with that money out of their pocket can be a deal-killer right there. It's a "lose your license" offense for agents to attempt to negotiate a higher CBB at point of offer in my state. Agents do it anyway, but I have zero sympathy for them when they get caught. But having to come up with that extra amount of cash can drive my buyers below a breakpoint on the loan, and possibly even torpedo the loan altogether, which means it's significantly harder to convince myself your property is the best one for the client.

One more thing: For agents who get exclusive buyer's agency agreements, as opposed to the non-exclusive ones I work with, your property is not a contender. Period, end of sentence. You're making them work too hard, plus they want the highest CBB they can get, and they get paid no matter who helps the buyers buy, and they have enough control to make it very difficult for a buyer to go to a place with a low CBB. Not to mention that their usual CBB is higher and this means yet more difference between what you're paying and what their contract calls for, meaning that even if their client should somehow find your property, and love it, the cash to close issue is going to make it very difficult for them to do business with you.

So you make the call:

Buyer's market, you have to make your property look more attractive than anyone else's to even attract attention. Price, condition, location - you've got to have something that stands out above the market to attract an offer in the first place, and the others have to be competitive as well..

Add the fact that a low CBB tells experienced buyer's agents that you're someone to stay away from

Add all of the FSBO issues, and there's a lot of them. They're not minor from the agent's perspective, and they're even worse from an informed buyer's.

Then top it off with hitting the buyer's cash to close, potentially killing a viable deal, and both the buyer and their agent want to know why they should bother with your property, as opposed to the one across the street, with a CBB that pays the buyer's agent what they've got coming without the buyer having to come up with cash, with an agent on the other side who at least might know your market and price it correctly, and is unlikely to try to deceive my client by not disclosing known issues, and is going to get all of the work done in a timely fashion without me having to work them over, because they want to get paid too, and they don't want this transaction coming back to bite them any more than I do.

Which one do you think buyers and their agents are going to find more attractive? Even if they're equivalent properties priced the same?

Caveat Emptor

My husband and I are on title and loan to a piece of property with 4 homes on it. We want to add 3 people to title. Can we do this if they are not on the loan? Also, any advice as to where I can find information as to how to hold title? Each party wants their percentage to go to next of kin and not to the rest of us on title.

This is a property that my family all live on. Basically we all bought it but we couldn't put all of them on loan for various reasons. We do have a sort of "operating agreement" going for maintenance and stuff like that, so I just want to know if they can be added to title so it's all official.

There are significant perils in this, especially since you're the only one on the loan. I can envision half a dozen scenarios where you end up liable for the loan even though you no longer own the property, or end up only owning a smaller piece of the property. Nobody likes to consider ending up in court opposite a family member, but family members are much more likely a legal adversary than complete strangers. This stuff happens every day. Partition suits aren't exactly uncommon. I suspect a certain number of them may even be manufactured, because a multi-residence property may be more valuable as multiple legally separate lots.

Quitclaiming is easy, and requires no permission from anyone, but you really need to understand the consequences of what you intend to do before you do it. Furthermore, there's more than one way to hold title, each of which means different things. Joint Tenants, Tenants in Common, trust, corporation, partnership, etcetera. You need to choose a form of ownership that protects you, while still serving your needs.

I'd seriously suggest getting a partnership or corporation agreement executed first, and quitclaiming that way, but you really need to pay a real estate attorney for some advice, first, and you'll be better off following their advice than mine.

Not that I'm a big fan of lawyers. But the hour of time you pay for now will likely save you at least a million dollars down the road, from the type of property you're talking about. Ounce of prevention and all that.

Caveat Emptor

It's a well known fact that not all factors in real estate are equally important, and not all property investments perform equally well. A critical part of successfully choosing the right property, whether it's for investment or personal use, lies in realizing that some things about a given property are completely under your control once you purchase, some things are only controllable by large groups of people acting in concert, and a few things can't be changed at all.

There are graduations among the three, in fact, it's more or less a continuous spectrum from picking up a piece of trash to weather and earth movement. Just because you can't control it doesn't mean you can't take it into account before you decide on where to spend your money. Once you've bought, of course, you're stuck with what events happen to have an effect upon that given location. Just because there hasn't been an earthquake there in 6000 years of recorded history doesn't mean it's impossible for there to be an earthquake. But if the area has a history of earthquakes, fires, landslides, you name it, or even just a known susceptibility, you're wise to take it into account. This extends into human controlled areas as well. Never been so much as loitering within ten miles? Nice, but that doesn't stop the head of the local mob from buying the house next door to yours later on, or the FBI from renting it for their Witness Protection Program (and no, that's one neither you nor I am likely to find out unless and until gunfire starts, but that doesn't stop the crooks looking for those witnesses!). One of the aspects of this being a free country is that bad people are pretty much equally free to go where they want unless they're actually in confinement somewhere.

There are, however, all sorts of known factors about a property that you can consider, and a good agent can really hep you with. Sometimes it's a matter of capability (whether you can), sometimes of knowledge, sometimes of willingness, and sometimes, of visualization, whether you can really visualize the place with the changes made.

Knowing that difference is money.

Serious money, especially in a high cost area like mine. Knowing what you can change and what is beyond your control. Knowing what stuff costs, in general, is a really valuable piece of knowledge for an agent, and whether it's likely to be worth the money you spend.

Some stuff, like trash in the yard, paint on the walls, and carpet on the floors, is so easy to change it doesn't hardly register. Yes, good carpet costs thousands of dollars, but it's worth every penny at sale time. Paint is cheaper. Window coverings, All of this is superficial, and can be changed easily, but unless you're an experienced agent you would not believe how many times I've heard arguments against purchasing a property that amount to "I don't want to have to spend $4000 to save $40,000!" Then they go out and buy another property for that $40,000 more, and stillspend that $4000 - or more - changing out the already good looking stuff that was already there for other good looking stuff, when they could have saved $40,000 off the purchase price by simply realizing they were going to replace it anyway, and buying the property that was trashed. I don't care how often I've seen it. It still blows my mind, every time. And if you're looking to sell, by all that's holy, you'll make a lot more dealing with it yourself than giving Martha Stewart Jr. a carpet allowance. The idea is that you want as much of Martha's money in your pocket as possible! With an allowance, you not only pay several times over in the sales price, you're also volunteering to pay some of the money you do get right out again!

Appliances. Why in the nine billion names of god are some buyers so particular about the appliances? The vast majority of appliances are personal property and are going to go away with the current owner. Who cares if the refrigerator is avocado green now? It's going away. If the owners do leave it, I know places that will pay you money for the privilege of hauling away functional appliances, and then you can put your burnt orange one in its place. Even if the appliances are attractive, unless they're built into the property, they're going away. It's not like it's going to be hard finding a flat black or stainless steel replacement. But when you're selling, it really is a good way to sucker more money out of people, and unless you build it in or agree to leave it in the sales contract - a concession the buyers will pay dearly for - you get to take them with you! How cool is that?

Surfaces are a little harder, but I do not understand why people are willing to reward current previous owners who built in things like granite counter tops or travertine floors. Actually, I do. It's all part and parcel of that same desire that Mr. and Ms. Middle Class want to have their home be beautiful, so they'll spend $50,000 more to buy the property that's beautiful now, and then they'll come along and replace all that beautiful stuff with equally beautiful stuff that's more in line with their taste. But granite counter tops, travertine floors, etcetera aren't all that expensive to put in (why do you think they're so popular with developers now?) and they do age. If you stay in the property twenty years, you're going to want to put in new ones before you sell. But guess what? You paid all of that opportunity cost, and interest on all of that cost, all of these years, and now you're having to install new ones just to come close to breaking even on what you've already spent. Smart Investors are looking for the properties where they can get those bumps up in value themselves by putting them in and flipping the property off to Mr. and Ms. Middle Class.

Similar to all the preceding examples, lighting is a relatively cheap investment that pays off. Lots of nice bright soft lumens. Some people will pay big bucks without realizing why, not to mention that light bulbs are both cheap and easy to change and the wiring lasts basically forever, so you can fix it up after you own it, enjoy it all those years you live in it, and still get the bump up in value when you go to sell. Providing, of course, you or your agent has the presence of mind to recognize the opportunity, and you don't insist on having it already in place.

Not quite so easy are windows for natural light. It's very hard to go wrong with too many windows, or too big. Nonetheless, you have to be careful not to sabotage your structural support. And of course, you're cutting through walls. This isn't cheap; but it is often worth the money. Just like electrical lights. It'll make lots of folks willing to spend big bucks without understanding why.

This contrasts to bad or old wiring. It just won't hold the load modern dwellings need to, or doesn't have enough outlets. Back in the 1930s, one outlet per room was plenty. These days, code requires one per eight linear feet of wall in new housing. The house I grew up in had a thirty five amp master fuse. That may not be enough for a linen closet, nowadays, but those houses are still out there. It isn't cheap to upgrade their wiring, but if you've got to do it, overkill isn't much more expensive. If you're running all new wiring and putting in new breakers and new outlets, the cost differential to make it way more robust than absolutely necessary is perhaps 1%. Instead of 500 amp service, consider at least doubling that. As long as you're putting in one outlet every eight linear feet, make it a four or six plug outlet (with wiring robust enough to match). Point of fact, investors who flip rarely upgrade wiring - it doesn't pay off in sales price. But if you need to do it in order to make your family comfortable, overdo it. It doesn't cost any more per hour for an electrician to run bigger wires, install bigger breakers, or put in a bigger socket. So you spend $1 extra per outlet - if it keeps you from having to do it again. There's been a steady increase in the amount of electrical load for the average house over the last eighty years or so. I wouldn't bet on that changing any time soon, and when you go to sell in twenty or thirty years, the electrical situation will still make buyers happy. Unless that house falls down around your ears in the meantime, you'll be glad you did. Here's another thing I don't understand: People will act like it's no big deal to upgrade the electrical service, even though it's much more costly than any of the stuff you've already read about. Maybe because they don't understand what's involved, or maybe because it's not obvious on the surface, but a house where the electrical grid will handle your requirements is easily worth $30,000 or more than one that won't - because if it won't, guess who's spending that money?

Towards the high end of the subspectrum involving personal control, you're pretty much stuck with the architecture. Put another room on that doesn't match, and people will start describing the house as "ramshackle". Houses where everything matches get more than houses where there are obvious mismatches. Short of hiring a bulldozer and starting over, your architecture is your architecture. Ditto basic construction. If it started with adobe, you'd do well to stay with adobe. If you don't like adobe, don't buy adobe.

Right at the extreme of personal control is the lot you're buying. Unless you can persuade one of your neighbors to sell, it is what it is. Don't count on that happening.

Getting into things you can't control, but can influence, is the homeowner's association. If there's a homeowner's association, you can influence it by getting involved. You can't control it by yourself, and you can't make it go away, except by not buying where there's a HOA. Learn the rules, and learn the neighborhood, before you buy. If your rules aren't something you can abide by, be certain Mrs. Grundy is going to do her best to harass you into doing so. This starts at letters and goes through fines, and might even include foreclosure. If your neighbors are at war with each other before you buy, that's likely to continue indefinitely afterwards. Just because there's no war right now doesn't mean one won't start the instant you buy. The more recently it was built, and the higher end the property, the more likely it is there will be a HOA. If you buy where there's an HOA, it's more likely one of my grandfathers will give birth to triplets than that HOA will go away (FYI: if being old and male in a species where it's the female who gestates and rarely to more than one child at a time isn't enough for you, my grandfathers are dead). HOAs really are a good guardian of property values, but they sure can make an ordinary person who just wants to enjoy their property miserable.

You can't do a darned thing as an individual about the surrounding property, or the neighborhood. If all around you are 3 bedroom 1.75 bath properties that sell for $400,000, that's the mean your property will tend towards and be judged by. In some areas, $400,000 is a mansion. Around here, it's nothing nearly so grand. You may be able to get a little more if you've got a fourth bedroom, or an extra large lot, but a 6 bedroom 4 bath place will not be worth twice as much, simply because of the surroundings. In fact, it's unlikely you'll get more than 25% extra, that being a relevant appraisal standard. Even if someone agrees to pay it (they won't), lenders won't lend based upon it. That property is a misplaced improvement. It's fine if you just happen to like the neighborhood, but don't expect that your house will sell for twice as much because it's twice as big or twice as nice. Three words: Not. Gonna. Happen. Keep this in mind when you're buying or upgrading your property, also. On the flip side, this can help properties that are below that neighborhood average. Everything around them pulls them up. But it also means that there's a sharp limit to the improvements that are worthwhile.

Traffic, whether you're on a busy street or a busy corner, parks, shopping and other neighborhood amenities, you can consider to be essentially fixed characteristics. No one individual controls them. Even if you get yourself elected mayor, you'll find yourself checked by the power of the rest of the government. There's nothing you can do to advantage yourself without disadvantaging someone else, and if you want the most primal scream of most suburban dwellers, talk to them about lowering property values. It sends people completely around the bend, mental health wise. Sometimes you get lucky and something good happens. Sometimes you get unlucky and the opposite occurs. But it's not under the control of any one person. Know this ahead of time. Acknowledge it to yourself, and worship at the altar of accepting these things as they are. By the way, if I were selling, I'd make certain your prospective buyer is aware of upcoming issues that may negatively influence the neighborhood. Even if you didn't know, if they can make a case that you should have, that may be good enough to win in the courts. It depends upon the jurisdiction. Talk to a lawyer in your area to be certain.

Of course, the geography of the land you can consider as fixed. Weather also. Even if you own a large enough parcel to move your house to a better location on the lot, or even to level that hill that's threatening to slide down on top of you every time it rains, your return on that investment is not going to repay the cash it costs you. Earthquakes, wildfires, tornadoes, hurricanes, floods. You might was well consider that the price tag includes a certain probability per year of each.

Knowing, or learning, the difference between what you do and don't control, and what is and isn't profitable to upgrade, is a large part of the battle of finding a good property to invest in, whether you intend to flip in two months or whether you intend to live there for the rest of your life. A good agent, who's not dependent upon the tollbooth model of business, will be an immense help to the selection process or the sales process, and likely to make - or save - you enough money to pay their commission several times over, and more so if you include them in your planning process.

Caveat Emptor

Governor to Scammers, Looters: 'You WILL Pay'

"We are also going after the scam artists, price gougers, and shady contractors and anyone else going after anyone else who preys on people hurt by these fires," he said. "We are as serious about protecting people from cheats and criminals as we are about protecting them from fire."

"If anyone tries to exploit this tragedy I will make sure you will pay for rest of your life," added Schwarzenegger. "We will arrest them and we will prosecute them to the fullest extent of the law."

I'd be a little bit concerned if it were me the Terminator was talking about. Not that this will deter the scum of course. But, to riff another of his movies, I'd probably be wishing it was a tumor instead. Understand this about the man: when he sets goals, he keeps them. No matter what they are.

**********

We got a few minutes of rain last night where I am. It was likely more where the fires are. Combined with persistent efforts on behalf of the fire folk, that appears to have made a critical difference. Things are looking decidedly rosier than yesterday.

10-27-07 11:54 a.m. Peutz Valley Road, along with its ancillary streets, is now open to residents and the general public alike. El Monte Valley, including the entirety of both El Monte Road and Willow Road, is now open to residents and the general public alike.

10-27-07 3:48 p.m. All Evacuation Orders Are Lifted For The Harris Fire.
The following areas are newly opened:

* Carveacre Region
* Lawson Valley Region
* Jamul Region

This also includes the following previously reopened areas:
Potrero Region; Tecate Region; Dulzura Region; Barrett Junction Region; Engineer Springs Region; Deerhorn Valley Region; Indian Springs Region
All of these areas are open to residents only. The following road closures still in effect due to road work:

* Highway 94 at Barrett Smith East
* Highway 188 and Highway 94


10-27-07 4:08 p.m. The following communities impacted by the Witch Fire are now open. The area is specified by a box created by:

* Areas north of San Pasqual Valley Road and Hwy 78.
* Areas east of North Lake Wohlford Road and Valley Parkway
* Areas west of Black Canyon Road and Sutherland Road
* Areas south of Canal Road

Cleveland National Forest is still closed for recreation purposes.

6:25 p.m. According to CAL FIRE, the Poomacha Fire is the only blaze in San Diego County with active flames along the perimeter. About 2,690 residents of the Palomar Mountain and Pauma Valley area remain under an evacuation order tonight, as the fire remains active in those communities. Fire officials will re-evaluate the situation tomorrow.

7:44 p.m. The Tecate port of entry will reopen to passenger vehicle and pedestrian traffic at 5 a.m. on Monday, October 29, U.S. Customs and Border Protection officials announced today.

The port will resume its normal operating hours of 5 a.m. to 11 p.m. to process on average 2,500 passenger vehicles and over 7,000 people daily that enter the U.S. at the eastern San Diego County border facility. Due to roadway safety concerns by state officials, all cargo trucks will still be required to enter and exit the U.S. at the Otay Mesa or Calexico commercial ports of entry until the roadways leading to the port are certified safe for big, heavy vehicles.

Fire map current as of 1830 on 10/27.


Cal Fire this morning:

Harris Fire
Harris Ranch Road & Hwy 94
San Diego County

This fire has burned 90,750 acres and is 65 percent contained. The fire started October 21 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 21 civilian and 16 firefighter injuries, as well as one death on this fire. 206 homes and 247 outbuildings have been destroyed, and 252 additional structures are damaged. Damage assessments are still being conducted.

All evacuations have been lifted. Re-entry for residents only is being allowed.

Witch Fire
Witch Creek Area East of Ramona
San Diego County

This fire has burned 197,990 acres and is 90 percent contained. The Witch Fire has joined the Poomacha fire in the north. Residents are being allowed re-entry into to area.

1,040 homes and 414 outbuildings have been destroyed. 70 homes and 25 outbuildings have been damaged. Additionally, 239 vehicles have been destroyed.

Poomacha Fire
Highway 76, Pauma Valley
San Diego County

This fire started October 23 as a structure fire on the Lajolla Indian Reservation. It has burned 49,150 acres and is 50 percent contained. The Poomacha Fire has joined with the Witch Fire to the south. 136 homes and 19 outbuildings have been destroyed. 500 homes remain threatened.

Evacuations are still in place for the communities of Valley Center, Rincon, Pauma Valley, Pala Reservation, and Palomar.

Horno/Ammo Fire
Camp Pendleton
San Diego County

The Horno/Ammo Fire has burned 21,084 acres since October 23 and is now 100 percent contained.

Rice Fire
Rice Canyon
San Diego County

This fire has burned 9,000 acres in Rice Canyon in Northern San Diego County and is 100 percent contained. 206 homes, 2 commercial properties and 40 outbuildings have been destroyed. Evacuations have been lifted.


searchable database of destroyed property

I am buying a home, but the contract said they wont sell the oil rights, what does this means? should I buy

That was J Paul Getty's great contribution to real estate, and why he got so rich. He retained the mineral rights on every parcel he sold, and it has become standard practice in the industry nationwide, if not worldwide, with respect to most property. Such rights typically pass without any rights of ingress (meaning they can't enter your property), but it typically isn't difficult for the holders to buy rights of ingress from someone in the area. This means they can't sink a mine shaft on your property unless you sell them the rights to do so. It is to to be noted that you're not likely to be real happy if one of your neighbors sells them access, either, but you can't control that directly. Zoning boards and conditional use permits and all of that, not to mention the courts. I'm neither a lawyer nor any kind of elected official so I am not going there.

Odds are that the person selling you the property does not, themselves, own the mineral rights. Most developers have bought the property without mineral rights attached, or if they did buy them, they have most likely long since sold them to some speculator. Even if you buy from a developer, they probably don't own the mineral rights any more, let alone the property's post developer homeowners, who didn't buy them in the first place. Since they can't sell what they don't own, that's what the contract is going to say, period. If you want a parcel with mineral rights, look elsewhere. If you want a place to live, all it means is that the chances of you getting a mineral windfall change from remote to zero.

Caveat Emptor


9:28 a.m. The community of Deerhorn Valley has been reopened to residents only.
Residents must enter from the west side of Hwy. 94 Honey Springs Road is closed to traffic just north of Deerhorn Road.

9:41 a.m. Evacuation Orders Lifted for: Dulzura, residents only Indian Springs and Proctor Valley, residents only Engineer Springs and Barrett Junction, residents only Residents must enter from west side of Highway 94. Many areas of Highway 94 are reduced to one lane. Highway 94 at Barrett Smith East remains closed for roadwork.

Evacuation Lifted:

INCIDENT NAME: COUNTYWIDE FIRE UPDATE 156 INCIDENT DATE/TIME: October 27, 2007 REPORT DATE/TIME: 8:25 am San Diego County Operational Area EMERGENCY OPERATIONS CENTER Evacuation Order Lifted for Japatul The evacuation order for Japatul has been lifted for residents to return home. Evacuation orders REMAIN for Lawson Valley & Carveacre.

Confirmed damaged or destroyed structures in unincorporated areas 13 page .pdf. Go to city websites for lists of destroyed property within city limits.

Road Closures

Cal Fire:

Harris Fire Harris Ranch Road & Hwy 94 San Diego County

This fire has burned 85,800 acres and is 55 percent contained. The fire started October 21 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 21 civilian and 16 firefighter injuries, as well as one death on this fire. 188 homes, 1 commercial properties and 222 outbuildings have been destroyed, and 252 additional structures are damaged. Damage assessments are still being conducted. 1,500 homes are still threatened.

Evacuation orders remain in effect. Re-entry for residents only was allowed in the Thousand Trails, Potrero and Tecate neighborhoods. Residents are being allowed to re-enter parts of Jamul as well as the area from Otay Lakes Road to Pio Pico Thousand Trails. The communities of Lyons Valley, Lawson Valley, Carve Acres, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, and Jamul are threatened.

Witch Fire
Witch Creek Area East of Ramona
San Diego County

This fire has burned 197,990 acres and is 60 percent contained. The Witch Fire has joined the Poomacha fire in the north. Mandatory evacuations are in place for the community of Julian and there is still a threat to Pine Hills, Cuyamaca, Wynola, Santa Ysabel, Alpine, Mesa Grande and Harbison Canyon. Fire progression has slowed to the west, southwest, and northwest. Residents are being allowed to return to portions of Poway, Valley Center, Escondido, Rancho Santa Fe, San Diego, Ramona and Rancho Bernardo, Del Dios, and Lake Hodges areas. Re-entry of residents is also occurring in the towns of Julian, Wynola, and Cuyamaca. Wildcat Canyon is closed. Highway 67 is closed from Poway to Ramona.

911 homes, 30 commercial properties, and 175 outbuildings have been destroyed. 62 homes, 10 commercial properties and 50 outbuildings have been damaged. 1,000 residences, 100 commercial properties, and 300 outbuildings are still threatened. 239 vehicles have been destroyed.

Poomacha Fire
Highway 76, Pauma Valley
San Diego County

This fire started October 23 as a structure fire on the Lajolla Indian Reservation. It has burned 43,000 acres and is 45 percent contained. The Poomacha Fire has joined with the Witch Fire to the south. 78 homes and 19 outbuildings have been destroyed. 2,000 homes remain threatened.

Evacuations are in progress in Valley Center. The communities of Valley Center, Rincon, Pauma Valley, Pala Reservation, and Palomar are threatened. This fire has resulted in 14 firefighter injuries.

Horno/Ammo Fire
Camp Pendleton
San Diego County

The Horno/Ammo Fire has burned 21,084 acres since October 23 and is 90 percent contained.

Rice Fire
Rice Canyon
San Diego County

This fire has burned 9,000 acres in Rice Canyon in Northern San Diego County and is 80 percent contained. 206 homes, 2 commercial properties and 40 outbuildings have been destroyed. 200 homes are threatened currently. Evacuation orders are in effect for Fallbrook and outlying areas. Portions of Fallbrook have been reopened to residents.

"we're not out of the woods yet"

Partially contained fires are just that -- partially contained. And time may not be on the firefighters' side.

"Until we can get some sort of control line around these fires, it's still a major hazard," he said. "There a possibility of a new high-pressure system coming into this area in the next couple of days."

forecast for Campo (Harris Fire)

Today: A 20 percent chance of showers and thunderstorms. Areas of smoke. Partly sunny, with a high near 83. West wind 5 to 10 mph becoming south.

Tonight: Areas of smoke before 11pm. Partly cloudy, with a low around 48. South wind 5 to 10 mph becoming north.

Sunday: Sunny, with a high near 84. East wind between 5 and 15 mph, with gusts as high as 25 mph.

Sunday Night: Mostly clear, with a low around 49. East wind between 5 and 15 mph, with gusts as high as 20 mph.

Monday: Sunny, with a high near 82. North wind 5 to 15 mph becoming south. Winds could gust as high as 25 mph.

Come on, rain! Because if that doesn't happen, look what we're going to get the next couple of days. Back to Santa Ana conditions - ACK!

Julian Forecast (Poomacha/Witch)

Today: A 20 percent chance of showers and thunderstorms. Areas of smoke. Partly sunny, with a high near 77. South wind between 5 and 10 mph.

Tonight: Areas of smoke before 11pm. Partly cloudy, with a low around 54. South wind around 5 mph becoming north.

Sunday: Sunny, with a high near 80. East wind between 5 and 15 mph, with gusts as high as 20 mph.

Sunday Night: Mostly clear, with a low around 54. East wind between 5 and 10 mph.

Monday: Sunny, with a high near 78. East wind between 5 and 15 mph, with gusts as high as 20 mph.

Once again, come on rain!

A cool website for fire information that I found this morning. They've got individual webpages for all the major fires

Harris Fire

Witch Fire

Poomacha Fire

Rice Fire

The maps are at least 24 hours out of date, though.

Lyon's Peak webcam shows the smoke around Barrett reservoir being a lot less intense.


Cuyamaca North Peak would probably help for the Poomacha/Witch Fire if it were pointed north rather than east.

I was really hoping to get some new satellite photos, but nothing of that nature seems to be available.

Lenders and Insurance Proceeds

|

The question that inspired this was



can a mortgage company use the flood insurance claim money towards homeowners mortgage loans?



This is equally applicable to every other form of insurance on your home - earthquake, regular homeowner's insurance, and any others that you may have or require.



The short answer is yes.



The reason that the lender requires being added to every policy of insurance you have on your home is so they have a claim on the policy proceeds. Let's say you buy a $500,000 home for nothing down, and the value of the structure is $150,000 while the value of the land is $350,000. Let's say the house burns down next week. If they weren't on there as beneficiary, you could theoretically take that check for $150,000 and split, leaving them with a $500,000 loan that they're maybe going to net $270,000 for by selling the property that secured it - after all the time for foreclosure, et al, which means they're out all those costs plus thousands of dollars in interest. If you're a lender, you're going to suffer this loss once at most before you decide not to trust anybody.



On the other hand, the lender doesn't want the property or a partial repayment. They want the loan repaid in full. What they're going to do is sit on any funds they get and make certain they're used to rebuild, unless they have some reason to believe that rebuilding is a bad risk. Banks don't throw good money after bad, so if this is the case, they're going to keep the money. On the other hand, if you've been keeping your payments up, they're going to want you to rebuild. Their taking custody of the money is a way to make certain that you do.



Caveat Emptor.

(I will be making occasional updates over the day. Questions or information, email danmelson (at) the domain name or comment)


Dale Franks of Q and O went to see results of the Witch Fire up close and personal on Wednesday (the 24th)

2 a.m. Only 350 people remain at the shelter at Qualcomm Stadium and the City of San Diego is planning to close the shelter at noon today, Oct. 26. 3:56 a.m. Residents at the Qualcomm Stadium shelter will be relocated to the Del Mar Fairgrounds around noon today, Oct. 26.

Can't have them taking up parking spots at the Charger game without paying, can we? (Sometimes a little snark is called for)

4:15 a.m. Bottled water is available for Ramona residents at the Ramona Rodeo Grounds at 434 Aqua Lane. Water from the Ramona Municipal Water District is currently unsafe, and residents have been advised not to drink or use the water in their homes and businesses until further notified.

Cal Fire update:

Harris Fire
Harris Ranch Road & Hwy 94
San Diego County

This fire has burned 84,300 acres and is 20 percent contained. The fire started October 21 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 21 civilian and 12 firefighter injuries, as well as one death on this fire. 97 homes, 2 commercial properties and 17 outbuildings have been destroyed, and 250 additional structures are damaged. Damage assessments are still being conducted. 1,500 homes are still threatened.

Evacuation orders remain in effect. Re-entry for residents only was allowed in the Thousand Trails, Potrero and Tecate neighborhoods. Today residents only will be allowed to re-enter Jamul. The communities of Lyons Valley, Lawson Valley, Carveacre, San Miguel, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, and homes along Millar Ranch Road are threatened

Witch Fire
Witch Creek Area East of Ramona
San Diego County

This fire has burned 197,990 acres and is 45 percent contained. The Witch Fire has joined the Poomacha fire in the north. Mandatory evacuations are in place for the community of Julian and there is still a threat to Pine Hills, Cuyamaca, Wynola, Santa Ysabel, Alpine, Mesa Grande and Harbison Canyon. Fire progression has slowed to the west, southwest, and northwest. Residents are being allowed to return to portions of Poway, Valley Center, Escondido, Rancho Santa Fe, San Diego, Ramona and Rancho Bernardo. Wildcat Canyon is closed. Highway 67 is closed from Poway to Ramona.

1,061 homes, 30 commercial properties, and 175 outbuildings have been destroyed. 62 homes, 10 commercial properties and 50 outbuildings have been damaged. 1,000 residences, 100 commercial properties, and 300 outbuildings are still threatened. 239 vehicles have been destroyed.

(It appears to me from the map that the actual Witch Fire flames are basically out - it's the Poomacha fire flames that appear to be going now)

Poomacha Fire Highway 76, Pauma Valley San Diego County

This fire started October 23 as a structure fire on the Lajolla Indian Reservation. It has burned 39,000 acres and is 35 percent contained. The Poomacha Fire has joined with the Witch Fire to the south. 60 homes and 19 outbuildings have been destroyed. 2,000 homes remain threatened.

Evacuations are in progress in Valley Center. The communities of Valley Center, Rincon, Pauma Valley, Hidden Meadows, Deer Springs, Vista and Palomar are threatened. This fire has resulted in 12 firefighter injuries.

Horno/Ammo Fire
Camp Pendleton
San Diego County

The Horno/Ammo Fire has burned 19,353 acres since October 23 and is 80 percent contained. The Horno Fire has two heads, one north bound tied into Basilone Road and the other south bound tied into Aliso Canyon Road. Firing Operations are being conducted on the northern head from San Onofre to Camp Horno and along Canyon Road to Bailone Road.

So my concerns last night about it getting into Oceanside have largely been abated.

Rice Fire Rice Canyon San Diego County

This fire has burned 9,000 acres in Rice Canyon in Northern San Diego County and is 40 percent contained. 206 homes, 2 commercial properties and 40 outbuildings have been destroyed. 200 homes are threatened currently. Evacuation orders are in effect for Fallbrook and outlying areas. Portions of Fallbrook have been reopened to residents. Three firefighters injuries have been reported.

Damage assessments from unincorporated areas 9 pages of addresses.

a Google based map

more fire maps, a little more useful to me, even if they've got Rancho Bernardo on the wrong side of the 15 (yes, there's some on the west side, but the vast majority is on the east)

mapping 2003 and 2007 burns (bottom of page). Notice that the area north of Barrett Reservoir, where the Harris Fire is currently burning, has been untouched for longer than that. Let the Harris Fire get into well-overgrown areas, particularly if the Santa Ana starts back up, and we could have a lot more burned.

A map of available fuel for fires, and an overview of fire activity the last few days. What did I say about how the Harris Fire is still dangerous?

Most of the media folk seem to live in the areas the Witch Fire hit early in the week. With that no longer so much of a factor, they've gone to coverage of aftermath, but the Harris and Poomacha fires are still dangerous.

Update 1 (12:30)

Driving around the city, this could be any day with merely bad smog. News services want to pretend it's over and don't want to report anything but aftermath, which is as predictable as gravity. People are tired of fire news, but there are two very dangerous ones still out there.

Lyon's Peak Webcam is back up and showing some pretty intense fire in the vicinity of Barrett Reservoir.

Evacuation Lifted

Evacuation Order Lifted for Western Jamul
Residents from the western Jamul communities are allowed to return home. The area will be open to residents and IDs will be checked.

Residents will have access via Highway 94.

Road closures will remain at Lions Valley Road and the Skyline Truck Trail; Highway 94 at Honey Springs Road; and Highway 94 at Otay Lakes Road.

Evacuation Order Lifted for Areas of Valley Center
The Rincon and San Pasqual Reservations and areas north of Lake Wohlford are now open to residents and businesses only.

The approximate area is represented by the following Thomas Brother Map Coordinates:
MP 1071: C-2 to C-7; D-1 to D-7; E-1 to E-7; F-1 to F-4
MP 1091: A-5 to A-7; B-2 to B-7; C-2 to C-7; D-1 to D-5; E-1 to E-4
MP 1110: G-1 to G-3; H-1 to H-3; J-1
MP 1111: A-1, A-2, B-1, C-1

The following areas will remain closed:
Paradise Mountain/Skyline Ranch
Palomar Mountain (Highway 76 corridor from the Pala area to Highway 79)
Pala Reservation
Pauma Reservation
La Jolla Reservation
Rancho Heights (Areas south of Lake Wohlford, including « Bear Valley » and « Guejito
Ranch areas)

Evacuation lifted:

Evacuation Order Lifted for Highway 67 Corridor
Residents living on the Highway 67 corridor from the Poway City limits to Maple View Street are now allowed to return home.

Evacuation Order Lifted for Areas of Wildcat Canyon
Areas in and around Wildcat Canyon Road south of the Barona Reservation are now open for repopulation.

Harris Fire update (.pdf)

Incident Start Date & Report Time: October 21, 2007 @ 9:30 a.m.
Incident Type: Wildland Fire Acres: 84,300 Acres Cause: Under Investigation
% Containment: 20% Estimated Containment: 10/31/07 Cost to Date: $5,800,000
Fatalities: 5 civilian Injuries: 7 firefighters, 21 civilians Vehicles/Equipment Destroyed: 1 Fire Engine
Structures Destroyed: 155 Residences; 2 Commercial Properties; 17 Outbuildings/Other
Structures Damaged: 250
Structures Threatened: 1,500
Resources: Hand Crews 28 Dozers 4 Engines 149 Air Tankers 3 Helicopters 9
Water Tenders 20 Overhead Personnel 169 Total Personnel: 1,341
Significant events: The fire jumped a portion of Lake Barrett posing an immediate threat to life and property
in the communities of Lawson Valley and Carveacre forcing evacuation orders for these communities.
Yesterday evacuation orders were lifted for the Western Jamul region as well as the area from Otay Lakes Road
to Pio Pico Thousand Trails, allowing residents to return home.
Major problems and concerns: Fire behavior remains active in old and extremely dry fuels. Heavy fuels and
steep terrain on the northern edge of the fire will present few control opportunities. Structure protection will
continue in Lyons Valley. Many resource orders will remain unfilled due to competing incidents in the Southern
part of the state. Fire commanders will continue with contingency planning which could include secondary
dozer lines as well as potential evacuations in threatened communities until containment is obtained.

Road Closures:
Highway 94 at SR-188 Highway 94 at Honey Springs Road
Highway 94 at Otay Lakes Road Jamul Drive at Fowler Canyon Road
Highway 94 at Melody Lane Skyline and Lawson Valley
Highway 94 at Steele Canyon Road Skyline and Lyons Valley Road
Highway 94 at Millar Ranch Road Lyons Valley at Japatul Valley
Highway 94 at Rancho Miguel Lyons Valley at Honey Springs Road
Highway 94 at Highway 54 Melody Lane and Proctor Valley Road
Highway 94 2 miles east of Harris Ranch Road
Evacuations: The following areas are currently under an "Evacuation Order": Lawson Valley, Carveacre,
Potrero, Barrett Junction, Engineer Springs, Dulzura, Deerhorn Valley, Indian Springs and North Jamul.
Evacuations Lifted: The "Point" in Spring Valley. Otay Lakes Road to the Pio Pico Thousand Trails and the
Western Jamul region.

(bolding in the quote above is mine) Remember that fuel map I showed you in the initial post this morning? This is not good for Campo, Lake Morena, and Pine Valley. These may be comparatively small communities and not that affluent, but I guarantee you the people who live there are every bit as important as the ones in the main city. Of course, living out there they've got "defensible space" engraved upon their thinking, so most should be okay even if the fire heads their way, but that doesn't change the pucker factor while it's going on.

11:18 a.m. - According to the Mayor's Office, the Chargers will play Sunday's game at Qualcomm Stadium. The Chargers will face the Houston Texans Sunday, October 28 at Qualcomm Stadium at 1:05 p.m.
What did I tell you about nobody gets free parking at a Charger's game?

new satellite photos

As a reminder, City Schools will reopen Tuesday the 30th, not Monday. County Schools will be re-opened on an individual basis (some of them are still threatened)

UPDATE 2 (17:10)

1:39 p.m. The Del Dios Highway was reopened at 1:30 p.m. Drivers still need to be cautious as there may be some downed power lines across side roads within the community of Del Dios that utility crews are still working on.
2:30 p.m. The following areas of the Dehesa-Harbison area are open for reentry:

* All areas north of Willow Glen Drive
* All areas east of El Cajon
* All areas west of South Grade Road and Tavern Road
* All areas south of Interstate 8

2:55 p.m. Residents from the De Luz area and the Oak Crest Estates Mobile Home Park can now return to their homes.
The following areas of San Vincente are open for reentry. The area is specified by a box created by:

* Areas north of Interstate 8
* Areas east of Poway
* Areas west of San Diego Country Estates
* Areas south of Highway 67

Carveacre is still under a mandatory evacuation order. Japatul Road is still closed at Dehesa/Tavern Road. Japatul Valley Road south of Interstate 8 is closed.

3:17 p.m. All of Spring Valley and Jamacha are open for reentry.

Evacuation notices partially lifted for Bonita and Sunnyside. The following areas of Bonita-Sunnyside are open for reentry. The area is specified by a box created by:

* Areas north of Chula Vista
* Areas east of Chula Vista and San Diego
* Areas west of Hwy 125
* Areas south of Jamacha Blvd

4:12 p.m. Further partial lift of Fallbrook evacuation order. Rainbow Glen Road in Fallbrook is now open to residents with I.D., along with the following ancillary roads:

* Ranchbrook Road
* Aspen Road
* Sumac Summit
* Rosa Rancho Lane
* Lookout Mountain

Maps as of 2 pm
Note the burn areas near Highway 76 in north county and near Barrett Reservoir in east county. Still pretty intense.

local assistance centers

Lyon's Peak Webcam showing intense black smoke from the vicinity of Barrett reservoir to the east. Looks like flames got right up to the lookout post!

I can't find much else new. The news services have turned away and I don't want to go risk getting in the fire fighters way. So barring future developments like that flare up I'm worried about north of Barrett Reservoir, this will be the last update.


Scapegoating, anyone?Brian Brady notes Barney Frank's misplaced quest for one.

1- Prohibition of "yield spread premium" as compensation to originators.

2- Mandatory licensing of mortgage originators by a Federal registry or state regulator. This Bill does direct the Office of Thrift Supervision to establish a registry for bank employees who originate loans.

3- Ability to repay the loan must be established. Limits on cash-out refinances and a determination of a net tangible benefit to the borrower will apply.

4- Mandatory "pre-funding counseling" for certain "high-cost" loans by a certified HUD counselor.

All of these are severely brain damaged. In Zero Cost Real Estate Loans, I talk about what a good idea for the average consumer that using yield spread to pay your loan costs can be. Yes, you end up with a higher rate. But if you refinance every two years, the money you spend in interest doesn't even approach the money you don't spend on loan costs. Provision 2 is just a sop to the big lenders, to make brokers lives more difficult, while allowing them to scapegoat their bottom level employees who also take loan applications. I talk more a couple paragraphs down about the first part of provision 3, but the second part is another sop to big banking. If someone owns an asset, they should be able to manage their mortgage as they see fit. I can tell a prospective client that they don't appear to be able to afford something and advise them of such, but they're supposedly competent adults and my proper role, like that of an accountant, is advisory, not compulsory. But these sorts of loans lose a lot of money for lenders who over-compete for business in order to attract customers, whom they can hope to retain while selling them to marketers.

I went over the problems with the fourth proposal in Is This Supposed to be Helpful Legislation?, along with links to what others were saying.

Just this morning, Barry Campbell over at enrevanche pointed me to a new Business Week article that says North Carolina's infamous predatory lending laws may travel.

I don't do business in North Carolina and never have. But they have a 6% aggregate limit on total fees for a loan. When, even with negotiated discounts, it takes just over $3000 to get a loan done (closing costs), you tell me how many $50,000 loans are going to get done, with a 6% aggregate limit. Oh, and I I wasn't aware of this, but "The North Carolina Home Loan Protection Act bans penalties for borrowers who pay off their mortgages early," so that can't be used to cover the costs either, as I go over in Keeping Pre-payment Penalties Legal. One more factor: I believe North Carolina is a survey state, which adds something like $400 more to loan fees. I also believe it's a mortgage tax state, levying a tax on mortgages and refinancing. I don't know what that runs but I doubt it's less than hundreds of dollars.

I have to admit, the idea of nothing but full documentation loans has a certain appeal. Keeps me from having to compete with people who'd do every loan stated income, and sell everyone a house too expensive for them to afford. Furthermore, I'll bet that the entire difference between North Carolina and the national average in foreclosures would be due to this one difference. But self-employed people (with large amounts of deductions) and real estate investors (only get credit for 3/4 of rent, among other issues), both of which have problems qualifying under full documentation lending standards, might disagree with me.

So what's the issue? As I go over in Manufactured, Modular, and Site-Built Homes: How Lending Practices Drive the Sales Market, constricting the availability of loans constricts the price of housing. Were these practices to be mandatory elsewhere in the nation, that 25-30% deflation we've had in California would be just the beginning, and all of the other high cost areas as well (as what drives the cost of living up, except in DC and NYC, seems to be an abundance of successful entrepreneurs). Furthermore, real estate becomes a much less attractive capital investment, so it would have to become more of a "cash flow" investment, putting increased upwards pressure on rents just when some rental markets (like southern California) are set to explode upwards anyway.

Here's the REAL issue that politicians keep tap-dancing around, because they don't want to offend wealthy, campaign contributing lenders and real estate brokerages: There is no substitute for due diligence on an individual level. People have got to take the time to understand what they're getting into. They are legal adults, theoretically competent to manage their own affairs. If they're not capable of being responsible, why are they permitted to vote, drive cars, and sign loan Notes for hundreds of thousands of dollars? But there is no real financial education in the United States, except for those who make a career out of it, and all too often, that license is a cover for activities that would make any self-respecting shark shudder.

I read a posting just a few days ago on how one real estate practitioner built a very successful career at least partially upon a point he seemed inordinately proud of: Not asking people what their plans were. People don't like discussing their plans with folks. But it is precisely discussing future plans that enables a real professional to know what he or she should recommend to the client. Without that, even the most conscientious of us isn't much more than a sales person. You just want me to shut up and get you a million dollar home, I'm cool with that - but I am entitled to protect myself by asking you to agree that I have furnished you with no false promises of you being able to afford it, or that it's really worth what you paid in comparison to other properties at the time.

There is no substitute for real loan disclosure at the time of application, something the legislative branch has been expanding loopholes for for the last thirty years that I'm aware of, all in the name of "helping the consumer" but really in aid of campaign contributions from big chain brokerages and large mortgage lenders. Quite frankly, of the major household names in both, there's really only one that I haven't seen evidence of pervasive unethical practices that would amount to systematic fraud in any other industry, but legal loopholes, lax supervision requirements, and unwillingness to go for the real perpetrators keep these folks in business, occasionally sacrificing a few low echelon goats while those higher up make millions to hundreds of millions per year. That's why I finally got disgusted enough to start this website.

But it seems that comparatively few politicians really understood the lessons of Economics 101, or at least, they understand the benefits of campaign contributions more, and that's why you can't seem to keep a bad idea down.

Caveat Emptor

making updates to this post today, same as yesterday Scroll down. If you have something to tell me, comment or email danmelson (at) the domain name).

Wildfires spread but 'we've turned the corner'

No homes were lost Wednesday in San Diego, and fires within the city had no new flare-ups, San Diego Fire-Rescue Department spokesman Maurice Luque said.

327,000 total acres burned. That's 510 square miles. But only 27,000 more than end of day yesterday, a difference of only 9 percent.

I've always given Aguirre the benefit of the doubt until now. But he;s proven himself both an idiot and a busybody today

In separate interviews with The San Diego Union-Tribune yesterday, the police chief, fire chief and mayor's office said Aguirre urged them to consider such an exodus after the wildfires began Sunday. A spokesman for Gov. Arnold Schwarzenegger said the administration also was aware of the request.

1) First off, this is a free country. Anybody has the right to voluntarily decide to leave, forever or for a while. Some friends of mine in the neighborhood had done precisely that. Yeah. the air quality doesn't make life easy. But we're not threatened where I am. The Harris Fire got within about 8 miles - 8 miles filled with concrete and asphalt - before they stopped it outside Spring Valley. Not close.

2) Officials urging evacuation of the city sends entirely the wrong message. The blow to morale of the firefighters quite frankly would be severe. They might think, quite reasonably, that you don't trust them to do the job, and if there's nobody coming back anyway, why work so hard to save their house? Not to mention the morale of the citizens.

3) Except as the worst case of over-CYA in recorded history, it's just not his business. It's outside his job description. He's putting his ignorant nose in where he has no business having an official opinion.

Coming on top of this:

On Oct. 3, Aguirre rushed to the scene of the Mount Soledad landslide, wondering whether water-main breaks could have contributed to the problem. His actions, which included two forums for residents, angered the mayor.

Does he have qualifications as a civil engineer? Surveyor? Geologist? Any allied discipline? This is politics for personal gain, plain and simple. Anyone want to bet me he's on the ballot for something at the earliest opportunity? When it happens, I hope the citizens have the sense to get rid of him before he messes anything else up.

Updated map, road closures, properties confirmed destroyed by ZIP, etcetera

Cal Fire

Poomacha Fire Highway 76, Pauma Valley San Diego County

This fire started October 23 as a structure fire on the Lajolla Indian Reservation. It has burned 35,000 acres and is 10 percent contained. 50 homes have been destroyed and 2,000 homes are threatened. Evacuations are in progress along the Highway 76 corridor. The communities of Valley Center, Rincon, Pauma Valley, Hidden Meadows, Deer Springs, Vista and Palomar are threatened. This fire has resulted in 12 firefighter injuries. 719 firefighters are currently assigned to this fire under unified command with CAL FIRE and the Cleveland National Forest. The estimated cost of this fire to date is $750,000. Poomacha Fire Information Line (619) 590-3160.

Horno/Ammo Fire
Camp Pendleton
San Diego County

The Horno/Ammo Fire has burned 10,000 acres since October 23. It is currently 40-50 percent contained. Sections of that fire have threatened Interstate 5, causing its closure from Highway 76 to San Onofre. The Horno Fire has two heads, one north toward San Onofre and one south toward Pulgas Rd. Camp Pendleton authorities have relocated the residents of one housing area, San Onofre 1 and 2, to San Mateo. That relocation, which affected approximately 800 family members, was a precautionary measure in light of the proximity of the Horno fire. Horno/Ammo Fire Information Line (866) 430-2764.

Camp Pendleton fire officials have announced they are fighting a new fire in southeastern Camp Pendleton near the San Luis Rey Gate. Residents of Serra Mesa Housing have been instructed to relocate to the 22 Area Parade Deck as a precautionary measure due to their proximity to the fire. Military police are on the scene assisting in relocating military members and their families to a safe location on base. Air assets are being utilized to assist in fighting the fire. The San Luis Rey Gate is closed to in bound an doutbound traffic. For more information, military members and their families are encouraged to visit the base Web site at www.pendleton.usmc.mil or call the main information line at (866) 430-2764.

Harris Fire
Harris Ranch Road & Hwy 94
San Diego County

This fire has burned 75,000 acres and is 10 percent contained. The fire started October 21 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 25 civilian injuries and one death as well as seven firefighter injuries on this fire. 155 homes, 2 commercial properties and 17 outbuildings have been destroyed in this fire and 250 additional homes have been damaged. 1,500 homes are still threatened. 4500 people have been evacuated and additional evacuations are being ordered. The communities of Chula Vista, San Diego, San Miguel, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, Lawson Valley, Jamul, Lyons Valley and homes along Millar Ranch Road are threatened. 1,341 firefighters are assigned under unified command. The estimated cost of this fire to date is $3.4 million. Harris Fire Information Line (619) 590-3160.

Rice Fire
Rice Canyon
San Diego County

This fire has burned 9,000 acres in Rice Canyon in Northern San Diego County and is 20 percent contained. 206 homes, 2 commercial properties and 40 outbuildings have been destroyed. 1,500 homes are threatened currently. 35,000 people have been evacuated from the communities of Fallbrook and Deluz Canyon. Camp Pendleton and Oceanside are threatened. One firefighter injury has been reported. 1,095 firefighters are assigned to this fire under unified command. The estimated cost of this fire is $1.2 million. Rice Fire Information Line (619) 590-3160.

Witch Fire
Witch Creek Area East of Ramona
San Diego County

This fire has burned 196,240 acres and is 20 percent contained. Mandatory evacuations are in place for the community of Julian and there is still a threat to Pine Hills. 645 homes, 30 commercial properties, and 50 outbuildings have been destroyed. 250 homes, 10 commercial properties and 50 outbuildings have been damaged. 5,000 residences, 1,500 commercial properties, and 300 outbuildings are currently threatened. 12 firefighters have been injured on this fire. CAL FIRE Incident Command Team #10 is in command of this incident with 2,331 firefighters assigned. Wildcat Canyon is closed. Highway 67 is closed from Poway to Ramona. The estimated cost of this fire to date is $5 million. Witch Fire Information Line (619) 590-3160.

.pdf Fire Map, as of 3:30 Looks like Harris is currently burning the most area,

8:31 p.m. - According to Mayor Jerry Sanders, West Rancho Bernardo, Rancho Penasquitos, 4-S Ranch (city part only, not county area) and Santa Luz have been reopened. Area open is south of Rancho Bernardo Road, west of I-15, east of Rancho Santa Fe Farms Road and north of Highway 56.

Just an FYI reminder, President Bush will be visiting the area today.

With the Santa Ana gone, I'm hoping that today is what really breaks the fires' back. There are still endangered communities, but when you haven't got hot dry 50 mph winds pushing the flame, that makes a real difference in how fast it can move, which means their actions have a lot less reaction to them, and a lot more action.

UPDATE 1 (1150) Updates are going to be fewer and farther between today.

10:00 a.m. Evacuation Notice Lifted for Escondido. All areas within the City of Escondido previously evacuated have been re-opened to residents.

Evacuation Notice Lifted for County's Portion of 4S Ranch
The County of San Diego has lifted the evacuation order its portion of 4S Ranch. All of 4S Ranch is now re-opened to residents.

These are mid county to northerly areas that were under threat from the Witch Fire. Things are getting back to something resembling normal. All residential areas of the City of San Diego are also able to return home.

Cal Fire:

Harris Fire
Harris Ranch Road & Hwy 94
San Diego County

This fire has burned 81,100 acres and is 10 percent contained. The fire started October 21 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 25 civilian injuries and one death as well as seven firefighter injuries on this fire. An estimated 200 homes have been destroyed or damaged. 1,500 homes are still threatened.

4500 people have been evacuated and additional evacuations are being ordered. The communities of Chula Vista, San Diego, San Miguel, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, Lawson Valley, Jamul, Lyons Valley and homes along Millar Ranch Road are threatened. 1,611 firefighters are assigned under unified command. The estimated cost of this fire to date is $3.4 million. Harris Fire Information Line (619) 590-3160.


fact sheet (.pdf)

Harris Fire Evacuation Order Lifted for Residents in the Otay Lakes and Thousand Trails Area 10/25/07


Witch Fire
Witch Creek Area East of Ramona
San Diego County

This fire has burned 197,990 acres and is 20 percent contained. Mandatory evacuations are in place for the community of Julian and there is still a threat to Pine Hills, Cuyamaca, Wynola, Santa Ysabel, Alpine, and Harbison Canyon. Fire progression has slowed to the west, southwest, and northwest. Residents are being allowed to return to portions of the communities of Poway, Escondido, Rancho Santa Fe, San Diego and Rancho Bernardo. Wildcat Canyon is closed. Highway 67 is closed from Poway to Ramona.

645 homes, 30 commercial properties, and 50 outbuildings have been destroyed. 250 homes, 10 commercial properties and 50 outbuildings have been damaged. 5,000 residences, 1,500 commercial properties, and 300 outbuildings are currently threatened. 22 firefighters have been injured on this fire. 2,619 firefighters are assigned to this incident under unified command. The estimated cost of this fire to date is $5.3 million.

Poomacha Fire Highway 76, Pauma Valley San Diego County

This fire started October 23 as a structure fire on the Lajolla Indian Reservation. It has burned 35,000 acres and is 20 percent contained. 50 homes have been destroyed and 2,000 homes are threatened currently.

Evacuations are in progress in Valley Center. The communities of Valley Center, Rincon, Pauma Valley, Hidden Meadows, Deer Springs, Vista and Palomar are threatened. This fire has resulted in 12 firefighter injuries. 859 firefighters are currently assigned to this fire under unified command with CAL FIRE and the Cleveland National Forest. The estimated cost of this fire to date is $950,000. Poomacha Fire

Horno/Ammo Fire Camp Pendleton San Diego County

The Horno/Ammo Fire has burned 17,000 acres since October 23. It is currently 40-50 percent contained. The Horno Fire has two heads, one north bound tied into Basilone Road and the other south bound tied into Aliso Canyon Road. Firing Operations are being conducted on the northern head from San Onofre to Camp Horno and along Canyon Road to Bailone Road.

Rice Fire
Rice Canyon
San Diego County

This fire has burned 9,000 acres in Rice Canyon in Northern San Diego County and is 30 percent contained. 206 homes, 2 commercial properties and 40 outbuildings have been destroyed. 400 homes are threatened currently. Evacuation orders are in effect for Fallbrook and outlying areas affecting 35,000 residents. One firefighter injury has been reported. Fire spread has slowed due to decreased winds, however, the fire has potential for increased growth. 1,095 firefighters are assigned to this fire under unified command. The estimated cost of this fire is $1.2 million.

No one hurt in Ramona chopper crash

The helicopter that crashed in the Ramona area less than an hour ago was carrying three SDG&E employees who were surveying areas for energy restoration, SDG&E spokeswoman Jenny Redmond said.

Those folks do hard dangerous work in the best of times. Glad to know they're not hurt.

What I consider to be one of the best signs the worst is behind us:

11:12 a.m. Potrero residents will be allowed to reenter today at 12:00 pm.
Highway 94 will remain closed west of Potrero.
The Tecate Border Crossing will reopen to passenger traffic today at 12:00 pm.

Still a lot of threat to various east county areas from the Harris Fire, but this was the area that started it.

8:18 a.m. - Evacuation Notice Lifted for Olive Hill Area of Fallbrook. The County of San Diego has lifted the evacuation order for parts of the Olive Hill area in Fallbrook. They include: All residents that have access to their homes from Highway 76 to Burma Road. IDs will be checked All other areas in Bonsall, south of Highway 76 are open and require no check-in.
5:35 a.m. - FEMA has announced that residents who have sustained losses in the wildfires can begin applying Thursday, October 25 for assistance. You can apply by calling 1-800-621-FEMA. You can also register online by visiting www.fema.gov. The toll free number will operate from 8 a.m. to 6 p.m. Monday through Sunday.

Here's that link: http://www.fema.gov/

Whole bunch of county webcams

UPDATE 2 (1430)

Mini-air force, weather unite to wage war on fires

11:51 a.m. Rancho Santa Fe evacuation order partially lifted. Residents of Rancho Santa Fe can reenter their homes with the exception of the following: Del Dios Highway Community of Del Dios

Reentry access will be limited to residents only on the following streets:
Las Colinas
El Mirador
La Valle Plateada
El Vuelo
Zumaque
El Sicomoro Street

1:12 p.m. Correction on Tecate border crossing. The point of entry will remain closed until further notice.

Satellite Map of Fires

Current Road Closures in San Diego County

Pauma SR 76 -- Pauma Reservation Road to SR 79 Closed
Rancho San Diego SR 94 -- Steele Canyon to Forest Gate Closed
Santa Ysabel SR 79 -- SR 78 Bear Valley Parkway Closed
Valley Center SR 76 -- Cole Grade to SR 79 Closed
Valley Center SR 76 -- Mission to Old Hwy 395 Closed
Ramona SR 67 -- NB Scripps/Poway Parkway to Highland Valley Closed
Jamul Lawson Valley -- entire length Closed
Jamul Skyline Truck Trail -- entire length Closed
Jamul Honed Springs -- SR 94 to Lyons Valley
Otay Otay Lakes -- Wueste to SR 94 Closed
Fallbrook I-15 off ramps to Mission Closed
Lakeside Wildcat Canyon -- Willow to San Vicente Closed
Valley Center Couser Canyon -- SR 76 to Lilac Closed
Valley Center Lilac -- SR 76 to Couser Canyon Closed
Escondido Via Rancho Pkwy -- I-15 to Del Dios Hwy Closed
Escondido Via Loma Vista -- Via Rancho Pkwy to end Closed
Escondido Quit Hills -- Felicita to Via Rancho Pkwy

Fire summary as of 2:12 pm today

Witch Fire (southern North County): 198,000 acres, 20% contained, Mandatory evacuations are in place for the community of Julian and there is still a threat to Pine Hills, Cuyamaca, Wynola, Santa Ysabel, Alpine, and Harbison Canyon. Fire progression has slowed to the west, southwest, and northwest.

645 homes, 30 commercial properties, and 50 outbuildings have been destroyed. 250 homes, 10 commercial properties and 50 outbuildings have been damaged. 5,000 residences, 1,500 commercial properties, and 300 outbuildings are currently threatened.

Harris Fire (East County): 81,000 acres, 10% contained. 4500 people have been evacuated and additional evacuations are being ordered. The communities of Chula Vista, San Diego, San Miguel, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, Lawson Valley, Jamul, Lyons Valley and homes along Millar Ranch Road are threatened.

Poomacha Fire (Northeast portion of the county): 35,000 acres, 20% contained. Evacuations are in progress in Valley Center. The communities of Valley Center, Rincon, Pauma Valley, Hidden Meadows, Deer Springs, Vista and Palomar are threatened.

50 homes have been destroyed and 2,000 homes are threatened currently.

Rice Fire (north county, west of I-15): 9000 acres, 30% contained. Evacuation orders are in effect for Fallbrook and outlying areas affecting 35,000 residents.

206 homes, 2 commercial properties and 40 outbuildings have been destroyed. 400 homes are threatened currently.

Horno/Ammo Fire (Camp Pendleton, northwest corner of county): 17,000 acres, 40-50% contained.

UPDATE 3 (1650)

2:07 p.m. Mandatory evacuation ordered for Lawson Valley and Carveacre. The communities of Lawson Valley and Carveacre have been ordered to evacuate. Residents can take shelter at Qualcomm Stadium or Faith Chapel at 9400 Campo Road in Spring Valley.

AMENDED 3:22 p.m. Correction: Lawson Valley and Carveacre Evacuation Shelters. It was previously reported that Lawson Valley and Carveacre evacuees could find shelter at Qualcomm Stadium; however, these residents should instead report to Del Mar Fairgrounds.

Further Clarification: Lawson Valley and Carveacre Evacuation Areas. Carveacres residents must evacuate in the areas:
North of Wilson Creek
South of Pearson Canyon
East of Kearchoffer Flat
West of Horsethief Canyon

Lawson Valley residents must evacuate in the areas:
South of Loveland Resevoir
North of the Community of Lyons Valley
East of Beaver Hollow
West of Kearchoffer Flats

2:54 p.m. Evacuation order partially lifted for Valley Center. Valley Center residents and businesses may reenter the following areas of Valley Center (according to Thomas Brothers maps): MP 1029: B-7, C-7, D-7, D-6, D-5, E-5, F-4, G-4, H-4, J-4 MP 1030: A-4, B-4, C-4, D-5, E-5, F-6, F-7, G-7, H-7 MP 1049: A-1, B-1 MP 1050: H-1, H-2, J-2, J-3, H-4, G-4, F-5, G-5, G-6, F-6 MP 1051: A-4, B-5, C-6, C-7. D-7 MP 1071: E-1, E-2, E-3, E-4, C-4, D-5, D-6, D-7 MP 1091: D-1, C-2

The following areas will remain closed: Paradise Mountain/Skyline Ranch; Palomar Mountain; the Highway 76 corridor from the Pala area to Highway 79; the Rincon, Pala, La Jolla, Pauma and San Pasqual Reservations; the Lake Wohlford area.

Updated road closure and opening information
Lake Wohlford Road will remain open.
Cole Grade Road south of McNalley Road will be opened.
Lilac Road south of McNalley Road will be opened.
Highway 76 from just east of Highway 15 to highway 79 will remain closed.

Why it took so long to get most of the firefighting planes into action

So what if people and animals are dying! It's not important that hundreds of homes were burning! They had bureaucratic turf to defend!

Preliminary evidence seems to indicate quite a bit of arson involved in setting several of the fires.

Barrett Junction Mobile Home Park Destroyed

SAN DIEGO UNIFIED SCHOOL DISTRICT SCHEDULED TO REOPEN TUESDAY, OCT. 30. 3:20 p.m. - San Diego Unified School District to reopen to students Tues, Oct. 30th. Regular hours in effect; Staff to report on Mon, Oct 29th.

Palomar Outdoor School, the district's sixth grade camp, will remain closed until further notice. All field trips requiring bus transportation will be canceled through Fri, Nov. 2.

For more information, check the district's web site at www.sandi.net. A special information line is open from 7 a.m. to 5 p.m., Mon-Fri, at (619) 725-8140.

Fire Map as of 1530 10/25

Appears as if the worst current activity is the Poomacha fire along the 76 corridor near Palomar Mountain.and the Harris Fire north of Potrero. Harris fire also appears to have active arms east of Jamul and a smaller one near the 188 between Jamul and Dulzura. Next on the hit list appears to be the Horno fire on Camp Pendleton in the northwest portion of the county, which the onshore breeze might push in Oceanside if it freshens. Rice Canyon appears much diminished, and I don't see any evidence of the original parts of the Witch Fire, although the Poomacha fire has now burned into the same area the Witch Fire went through previously.

Rice Canyon fire confirmed: downed power lines.

4:24 p.m. Citizens residing on Otay Lakes Road to Thousand Trails may return to their homes. Citizens residing in the community of Tecate may return to their homes; the Tecate Border Crossing remains closed.

Probably only one more update tonight.

UPDATE 4 (2010 Final tonight unless something major happens)

Pomerado Hospital, including its emergency department has reopened

NEW EVACUATION (probably due to the Poomacha Fire)

5:17 p.m. The Emergency Alert System (EAS) has been activated. Mandatory evacuation of Lake Henshaw, Mesa Grande, and La Jolla Indian Reservation The EAS message advises that "due to a fire from south and west, residents in the area

* west of Hellhole Canyon
* north of Palomar Mountain to Warner Springs
* south of Bear Valley and Rancho Santa Ysabel and
* east of Montezuma Valley

are under a mandatory evacuation notice. Please take the following route Route 79 to S-2 to S-22 to Borrego High School."

5:38 p.m. 2007 Wildfire Fatalities Update Fourteen fire-related deaths of San Diego County residents have occurred during the 2007 Wildfires. This includes seven deaths directly related to the fires, three that occurred during evacuation activities and four that happened after the decedents were evacuated. The most recent fatalities included in these statistics are:

* Two sets of unidentified charred remains were reported earlier today. This update includes the positive identification of those two individuals, husband and wife who were found in the rubble of a completely destroyed house on Highland Valley Road in unincorporated Poway during the evening hours of October 24. Victoria Katherine Fox, a 55-year-old female, and John Christopher Bain, a 58-year-old male, were identified via dental records as burn victims.
* Four sets of unidentified charred remains were reported found today in the Potrero area. Medical Examiner's Office Investigators are currently en route; no further information known at this time.

5:58 p.m. Boil Water Orders. The County of San Diego, Department of Environmental Health (DEH) has issued Boil Water Orders and Public Notifications for the following public water systems effective immediately:

* Dulzura Café, 17023 Highway 94, Dulzura, CA 91917
* Skyline Ranch Campground,17120 Skyline Truck Trail, Jamul, CA 91935
* Potrero General Store, 25125 Highway 94, Potrero, CA 91963
* Set Free Ministries, 18985 Highway 94, Dulzura, CA 91917

Due to the fires these water systems lost pressure in the water distribution system. As a precaution, a Boil Water Order is being issued until laboratory results show the water is free from bacterial contamination. The Boil Water Order will remain in effect until the distribution system has been disinfected and samples confirm the absence of bacteria in the water supply

Fire Map as of 1830. Compared to three hours ago, the Horno Fire is moving significantly towards Oceanside, southeast through Camp Pendleton, and the Harris Fire near Barrett Reservoir has intensified. The Poomacha Fire isn't exactly dying in place, either, in the northeast part of the county. We aren't out of this yet. Let the Horno fire get into north Oceanside and base housing on Pendleton, and we could easily see a doubling of the damage done so far. Not that the Harris Fire and Poomacha Fire are any less concerning to those in their path, but that number is much fewer.

Cal Fire update 7:20

Harris Fire
Harris Ranch Road & Hwy 94
San Diego County

This fire has burned 84,000 acres and is 20 percent contained. The fire started October 21 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 21 civilian and 12 firefighter injuries, as well as one death on this fire. 97 homes, 2 commercial properties and 17 outbuildings have been destroyed, and 250 additional structures are damaged. Damage assessments are still being conducted. 1,500 homes are still threatened.

Evacuation orders remain in effect. Re-entry for residents only was allowed in the Thousand Trails, Potrero and Tecate neighborhoods. The communities of San Miguel, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, Lawson Valley, Jamul, Lyons Valley and homes along Millar Ranch Road are threatened.

Witch Fire
Witch Creek Area East of Ramona
San Diego County

This fire has burned 197,990 acres and is 30 percent contained. Mandatory evacuations are in place for the community of Julian and there is still a threat to Pine Hills, Cuyamaca, Wynola, Santa Ysabel, Alpine, and Harbison Canyon. Fire progression has slowed to the west, southwest, and northwest. Residents are being allowed to return to portions of Poway, Escondido, Rancho Santa Fe, San Diego and Rancho Bernardo. Wildcat Canyon is closed. Highway 67 is closed from Poway to Ramona.

1,061 homes, 30 commercial properties, and 175 outbuildings have been destroyed. 62 homes, 10 commercial properties and 50 outbuildings have been damaged. 1,000 residences, 100 commercial properties, and 300 outbuildings are still threatened.

Poomacha Fire
Highway 76, Pauma Valley
San Diego County

This fire started October 23 as a structure fire on the Lajolla Indian Reservation. It has burned 38,500 acres and is 30 percent contained. 60 homes and 19 outbuildings have been destroyed. 2,000 homes remain threatened.

Evacuations are in progress in Valley Center. The communities of Valley Center, Rincon, Pauma Valley, Hidden Meadows, Deer Springs, Vista and Palomar are threatened. This fire has resulted in 12 firefighter injuries.

Horno/Ammo Fire
Camp Pendleton
San Diego County

The Horno/Ammo Fire has burned 17,000 acres since October 23. It is currently 50 percent contained. The Horno Fire has two heads, one north bound tied into Basilone Road and the other south bound tied into Aliso Canyon Road. Firing Operations are being conducted on the northern head from San Onofre to Camp Horno and along Canyon Road to Bailone Road.

Rice Fire
Rice Canyon
San Diego County

This fire has burned 9,000 acres in Rice Canyon in Northern San Diego County and is 40 percent contained. 206 homes, 2 commercial properties and 40 outbuildings have been destroyed. 200 homes are threatened currently. Evacuation orders are in effect for Fallbrook and outlying areas. Portions of Fallbrook have been reopened to residents. Three firefighters injuries have been reported.

Fall brook evacuation partially lifted

County supervisor Dianne Jacob announced at a press conference tonight that residents of Ramona are allowed back into the community. Ramona Municipal Water District customers, however, still cannot use water.

Not even once it's boiled, from an earlier report. Bring drinking, cooking, and washing water with you if you're going back to Ramona.

Morena Village on standby for evacuation

Hauser Wilderness is an 8,000-acre mountainous area that ranges from 2,000-4,000 feet in elevation. It's loaded with old growth of chamise, chaparral and scrub oak. It is a rich, riparian area with woodlands, all fuel for a fire like the Harris Fire.

Pine Creek Wilderness is a 13,100-acre area similar to Hauser, only bigger.

But the Hauser Wilderness stretches right up to the Morena Dam, where Cottonwood Creek still runs thanks to a leak in the dam. That small creek, which feeds to Hauser Creek, has created a green belt that goes all the way to Barrett Lake.

Which is where the Harris Fire is burning now. Let Hauser Wilderness catch, and it could go to Lake Morena very easily, and if Pine Creek catches from there, there's nothing but I-8 in the way.

NASA photos of Barrett Lake, which is where Harris Fire is burning now. The Thermal sensor image really helps.

Once again, we're not out of this by any means. Looking at the forecast, the Santa Anas could return tomorrow and Saturday. Julian's Forecast says the same thing. Palomar Mountain forecast says south to southeast winds. Oceanside says slack west winds, which is a blessing. We'll see what happens.

(I'll be making updates to this post today, same as yesterday Scroll down. If you have something to tell me, comment or email danmelson (at) the domain name).

Got an email from a friend of mine. His sister and her husband had already been cut off east of Ramona by the time the evacuation order came, so having no choice, they stayed and fought the fire and saved their house. It caught three times, but they managed to save it - and themselves. They described the fire as a swarm of glowing bumblebees. One small victory, and two larger ones. I'm very happy they didn't become statistics.

Pendleton Fire Cuts I-5 This is north of Oceanside, and only a few miles south of San Onofre. Train Service has been discontinued. Now called the Horno Fire.

Harris Fire shifts course and is now threateng Jamul, east of Chula Vista and South of Rancho San Diego. There's also an evacutation point in that area, at Steele Canyon High School on CA 94. Rancho San Diego (southeast El Cajon) is also under evacuation order and threatened. This fire appears to be more of a threat to Crest and Harbison Canyon now than the Witch Creek Fire.

another list of addresses known to be destroyed

Firefighters making stand high up Palomar Mountain

The top of Palomar has not burned in recorded history, and much of the densely forested mountain has not burned in about 50 years. Although crews have been clearing trees killed by the bark beetle for years, in many places it remains thick with brush and wood debris, and has substantial stands of old-growth forest.

This includes the Palomar Observatory, which for many years was the most powerful telescope in the world. This is Northeast of Escondido, Southeast of Temecula.

The Rice fire in the Fallbrook area was 10% contained as of last night, and they're now saying it has destroyed 200 homes rather than 500. Not precisely good news, but I'll take it, happily.

5:26 a.m. BIRCH HILL EVACUATIONS: Mandatory evacuation Reverse 9-1-1 calls have been sent to 167 residents in Birch Hill near Palomar Mountain . Residents should go to the Temecula Community Recreation Center at 30875 Rancho Vista Road in Temecula

3:51 a.m. DE LUZ EVACUATIONS: The Sheriff's Department has activated reverse 9-1-1 calls to alert the residents of De Luz of a mandatory evacuation. De Luz is north of Camp Pendleton . Residents are advised to evacuate on De Luz / Murrieta Road north or Sandia Creek Drive north toward Riverside County .

The Horno Fire at Camp Pendleton has burned 6000 acres and is moving north and west between Las Pulgas Road and the Border Patrol Checkpoint. Camp Pendleton requested the closure of train service, and Metrolink has confirmed that service is shut down from Oceanside to San Clemente

EXPANDED I-5 CLOSURE : The California Highway Patrol has expanded the Interstate 5 closure. The freeway is closed in both directions between Highway 76 and Cristianitos Road due to the fire at Camp Pendleton . Traffic at the south end of the closure is being diverted to Camino del Rey to Old Highway 395 to Interstate 15.

1 a.m. I-5 Closure: California Highway Patrol reports that Interstate 5 is closed in both directions between Las Pulgas Road and Basilone Road in the area of Camp Pendleton due to heavy smoke.

12:28 a.m. FALLBROOK EVACUATIONS : Reverse 9-1-1 was used to issue mandatory evacuations in the communities of Bonsall, San Luis Rey Heights and Winterwarm on the north side of Highway 76. Residents should use Highway 76 heading west away from the fires. SHELTER UPDATE IN OCEANSIDE: The Oceanside Police Department reports that the shelter at El Camino High School is full and evacuees should to go to MiraCosta College at 1 Barnard Drive off of College Avenue, north of Highway 78 in Oceanside .

I said the Bonsall evacuations were coming yesterday, San Luis Rey Heights and Winterwarm are in the same area. These are north of 76 and west of I 15, which appears to be open.

According to CalFire, containment of the Harris Fire is not expected until the 31st! This is largely a function of how rugged the terrain is east of Jamul, where large parts of it are.

I linked this webcam yesterday on Lyon's Peak. At 7AM, I can see flames very close both east and west! East was practically black with smoke. It also gives you an idea of how rugged the terrain is!

Looks like National Weather Service is predicting an end to the Santa Ana As I said yesterday, windshift is a dangerous time because it drives fire in a different direction, where the fighters may not be ready to fight it, but having moist 5 to 10 mph winds is a lot better than dry 50 knot winds.

JULIAN EVACUATED 5:00 a.m. - Approximately 1600 residents and 700 homes have been evacuated. The town has no power or water. Mandatory evacuations will be in effect through Thursday due to the possibility of winds shifting back into town.

Thank the universe for at least one small favor:

11:30 p.m. - California Department of Forestry officials report that a fire that started near El Capitan tonight has burned itself out.

This is just north of I-8, near Alpine, where it could hit any of several large semi-rural communities.

Quotes from CAL FIRE

Poomacha Fire
Highway 76, Pauma Valley
San Diego County

This fire started October 23 as a structure fire on the Lajolla Indian Reservation. It has burned 20,000 acres and is uncontained. 50 homes have been destroyed and 2,000 homes are threatened. Evacuations are in progress along the Highway 76 cxorridor. The communities of Valley Center, Rincon Hidden Meadows and Deer Springs are threatened. This fire has resulted in 10 firefighter injuries. 218 firefighters are currently assigned to this fire. Poomacha Fire Information Line (619) 590-3160.

Harris Fire
Harris Ranch Road & Hwy 94
San Diego County

This fire has burned 72,000 acres and is 10 percent contained. The fire started October 22 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 21 civilian injuries and one death as well as five firefighter injuries on this fire. 200 homes have been destroyed in this fire. 2000 homes and 500 commercial properties are threatened currently. 4500 people have been evacuated. The communities of Chula Vista, San Diego, San Miguel, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, Lawson Valley, Jamul, Lyons Valley and homes along Millar Ranch Road are threatened. 1211 firefighters are assigned under unified command. The estimated cost of this fire to date is $2.1 million.

Rice Fire
Rice Canyon
San Diego County

This fire has burned 7,500 acres in Rice Canyon in Northern San Diego County and is 10 percent contained. 206 homes have been destroyed. 1,500 homes are threatened. Evacuations are ongoing in the communities of Fallbrook Rainbow Glen and Deluz Canyon. Camp Pendleton and Oceanside are threatened. One firefighter injury has been reported. 723 firefighters are assigned to this fire under unified command including 387 CAL FIRE staff.

Witch Fire
Witch Creek Area East of Ramona
San Diego County

This fire has burned 196,420 acres and is one percent contained. 500 homes, 100 commercial properties, and 50 outbuildings have been destroyed. 250 homes, 75 commercial properties and 50 outbuildings have been damaged. 5,000 residences, 1,500 commercial properties, and 300 outbuildings are currently threatened. Mandatory evacuations are in place for the communities of Scripps Ranch, Poway, Rancho Bernardo, Valley Center, San Marcos, and Rancho Santa Fe. Twelve firefighters have been injured on this fire. A CAL FIRE Incident Command Team is in command of this incident with 1,492 firefighters assigned. Wildcat Canyon is closed. Highway 67 is closed from Poway to Ramona.

I had an unconfirmed report that Poomacha had merged with Witch, which would have been bad, but I'm not finding anything official on it, and they do still appear to be separate. Not that I'm within miles of either.

Fire maps updated by channel 8. If you'll notice, the southeast "hook" of the Witch Fire includes an area around a vaguely T or cross shaped lake. That's El Capitan Reservoir, the area of the new fire which had burned itself out last night.

Channel 8
also has another partial list of destroyed homes, and a very few saved. Let's all be happy for those last folks. The way the last three days have gone, I'll take any victory I can get.

UPDATE 1 (0850)
Road Closures

Camp Pendleton I-5 north and south bound Smoke across freeway--closed
Otay Otay Lakes Road from Wueste to SR 94 Closed
Poway/Ramona SR 67 from Slaughter House Canyon to Highland Valley Road Closed
Jamul Skyline Truck Trail (entire length) Closed
Jamul Lawson Valley Road (entire length) Closed
Jamul Blacksmith Road Country Trails east end Closed
Rancho
San Diego Steele Canyon Rd from Willow Glen to Jamul Dr Closed
Lakeside Wildcat Canyon from Willow to San Vicente Closed

Wildcat Canyon has the Barona Casino and a wildlife sanctuary, as well as a fair number of people with only Wildcat Canyon Road going out (both directions). If you've never been on it, it's pretty twisty, and scary in a couple of places.

Skyline Truck Trail in Jamul is their largest "community road".
here's a map of the area

For that matter, here's a map of Wildcat Canyon Road Most of the twists and turns are too small to show on the map!

To debunk a rumor that there's no evac order for Jamul
CALFIRE Website

Harris Fire Harris Ranch Road & Hwy 94 San Diego County

This fire has burned 73,000 acres and is 10 percent contained. The fire started October 22 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 21 civilian injuries and one death as well as seven firefighter injuries on this fire. 200 homes have been destroyed in this fire and 250 additional homes have been damaged. 1,500 homes are threatened. 4500 people have been evacuated. The communities of Chula Vista, San Diego, San Miguel, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, Lawson Valley, Jamul, Lyons Valley and homes along Millar Ranch Road are threatened. 1211 firefighters are assigned under unified command. The estimated cost of this fire to date is $2.5 million.

more info and a couple cool photos here

Channel 8 is now reporting

7:41 a.m. - Interstate 5 South in the Camp Pendleton area is now OPEN, according to the CHP.
NEW: MORE EVACUATION ORDERS LIFTED
7:00 a.m. - The Otay Mesa Voluntary Evacuation has been lifted.

Del Mar Heights and Carmel Valley can be re-populated. This encompasses the following grid: south of the city limits, west of Rancho Santa Fe Farms, east of Interstate 5, north of Highway 56.

Since my wife went back to work in Sorrento Mesa this morning, that makes me feel better, as those areas are within a few miles of there.

Looks like the weather service has changed its mind about the Santa Ana ending. Exit, cursing. Wind shift is dangerous, but we're going to have to get past it to beat the fires, so I'd rather have sooner than later. Plus, there was a breeze from the west this morning that's likely offset the fires just enough so that they are in fresh fuel areas again. Blast!

I'm going to shut down for a while, planning to head to the office. If it is safe, I'll get some more pictures from the same place I did yesterday on the way.

UPDATE 2 1130

Photos:
tecatepeak.jpg

This is looking ESE from Mt. Helix, that same 1400 foot molehill I went up for yesterday's pictures. Tecate Peak is mostly obscured. Smoke looks like it's coming from Lyon's Peak Area, and further east as well.

sanmiguel.jpg

This is looking south towards San Miguel Mountain, the same as yesterday's photos. Couldn't see any flames, but two sources of smoke vaguely in the Jamul area, just left of center, and about 80% of the way towards the left. Radio reports were saying that a lot of the area had been spared, and the fire was bypassing a lot of stuff.

cajonvalley.jpg

This was looking NE towards El Cajon Mountain and El Capitan Reservoir. El Cajon city in foreground. Didn't spot any sources of smoke, but they're there - but further out. The smoke here is much more distant that the previous pictures, although it's not obvious from the photo. The sky was actually quite a bit clearer than it was yesterday, which made it reasonable.

cowlesmtn.jpg

This is looking north past Cowles Mountain, which at roughly 1600 feet is the highest point in San Diego. The smoke sources are all at least ten miles past that. For those who are curious, there's a rust colored watertower with aluminum clouds on it to the right of Cowles. My office is about two miles past that, between there and the next ridge.

maincity.jpg

This is looking west into the main portion of the city. Not endangered by fire, but the smoke is obscuring pretty much everything. The I-8/CA 125 interchange is in the foreground.

UPDATE 3 (1240)

10:01 a.m. President Bush has declared a federal disaster in San Diego County. The President's signature triggers the availability of Federal aid to supplement local recovery efforts. Assistance can include grants for temporary housing and home repairs, low-cost loans to cover uninsured property losses, and other programs to help individuals and business owners recover from the effects of the disaster. FEMA said that those who sustained losses can begin applying for assistance tomorrow by registering online at http://www.fema.gov or by calling 1-800-621-FEMA (3362) or 1-800-462-7585 (TTY) for the hearing and speech impaired. The toll-free telephone numbers will operate from 8 a.m. to 6 p.m. PST Monday through Sunday.
11:39 City of Poway partially reopened. City of Poway assessment teams have determined that the entire city except for the High Valley area is safe for residents to return to their homes.
10:54 a.m. Escondido re-entry hotline. Evacuated Escondido residents only can call (760) 839-6262 to find out if they are now being allowed to return to their homes.

updated road closures, mostly in the north county:

More action maps The first few seem updated; the others are older.

Fires update from CAL FIRE: The Harris Fire is now 73,000 acres, suppression costs are at $2.5 million. There have been 7 injuries. 759 Firefighters assigned. The fire was held at the edge of Chula Vista and Spring Valley. The returning onshore flow has moved the fire to the northeast threatening structures along Highway 94 from Jamul to the east and Jamacha to the west. Lyons Peak was burned and the fire jumped perimeter control lines in the area.

The wind seemed to be pretty calm when I was up on Helix. Maybe the Santa Ana is over.

Channel 8 has more updated maps

Unconfirmed report:

11:28 a.m. - Interstate 5 Northbound is now open in the Camp Pendleton area.
I'm seeing this from multiple sources, but it's not showing on the official websites.

ESCONDIDO RE-ENTRY Call (760) 839-6262 to see if you will be allowed back to your area.

scalable Fire Incident map. It does appear as if the Poomacha and Witch fires have merged.

Insurance Claim Numbers
AllState Insurance: (800) 547-8676
Auto Club: (800) 672-5246
Farmers Insurance: (800) 435-7764
Fireman's Fund (866) 456-3108
Mercury Insurance: (888) 313-6372
Safeco: (800) 332-3226
State Farm: (800) 732-5246
Travelers: (800) 252-4633

Wild Animal Park reporting only 2 animals killed; and it plans to re-open tomorrow.

Palomar Mountain in north county and Barrett Reservoir in east county appear to be the worst hotspots right now.

UPDATE 4 (1720)

Map resources from SDSU

u\more updated fire perimeter info (from SD County - Firefox users be aware it's a 'pdf!)

From the Union-Tribupdated list of structures burned, and a satellite photo from 2:40 pm

The California Department of Transportation (Caltrans) has announced that Interstate 5 is now open in both directions. All other closures remain the same:


I-15 NORTHBOUND & SOUTHBOUND OFF-RAMPS TO MISSION RD CLOSED

I-15 NORTHBOUND & SOUTHBOUND OFF-RAMPS TO WEST BERNARDO/POMERADO RD

SR-67 CLOSED FROM POWAY RD TO HIGHLAND VALLEY RD

SR-76 CLOSED FROM MISSION RD TO OLD HIGHWAY 395

SR-76 CLOSED FROM COLE GRADE TO SR-79

SR-78 CLOSED FROM BEAR VALLEY PARKWAY TO SANTA YSABEL/SR-79

SR-79 CLOSED FROM SR-78 TO SR-76

SR-94 CLOSED FROM STEELE CANYON TO FOREST GATE

SR-94 EASTBOUND CLOSED AT SR-54

SR-94 EASTBOUND CLOSED JUST EAST OF POTRERO VALLEY RD

SR-94 WESTBOUND CLOSED JUST WEST OF POTRERO VALLEY RD

PLEASE NOTE: RESTRICTIONS REMAIN IN PLACE FOR HIGH-PROFILE VEHICLES ON INTERSTATE 8 FROM ALPINE TO IMPERIAL COUNTY LINE.

NC Times has a list of destroyed properties that seems to include more North County Residences.

It does seem like the fires are far less destructive today, now that the Santa Ana is mostly over. It furthermore seems like most of the areas that are still in active danger are less populated than yesterday, when the Witch and Harris Fire were both threatening solidly built up areas. We still have four major fires burning uncontained, but today's reports of additional acreage burned are relatively small this far.

KPBS has a map they're updating with twitter. They're saying Julian and Pine Hills are being threatened.

4A

The Lyon's Peak Webcam is back up!

Every silver cloud has a dark lining:

5:07 p.m. Evacuation Alert for Residents along Highway 94. Residents living along the Highway 94 corridor from Jamul to the east and to the Jamacha community to the west should prepare to evacuate. The returning onshore flow has moved the Harris Fire to the northeast threatening structures.

UPDATE 5 (1950)

Cal Fire

Poomacha Fire Highway 76, Pauma Valley San Diego County

This fire started October 23 as a structure fire on the Lajolla Indian Reservation. It has burned 25,000 acres and is uncontained. 50 homes have been destroyed and 2,000 homes are threatened. Evacuations are in progress along the Highway 76 cxorridor. The communities of Valley Center, Rincon, Pauma Valley, Hidden Meadows, Deer Springs, Vista and Palomar are threatened. This fire has resulted in 10 firefighter injuries. 659 firefighters are currently assigned to this fire under unified command with CAL FIRE and the Cleveland National Forest. Poomacha Fire Information Line (619) 590-3160.

Horno/Ammo Fire
Camp Pendleton
San Diego County

The Horno/Ammo Fire has burned 10,000 acres since October 23. It is currently 40-50 percent contained. Sections of that fire have threatened Interstate 5, causing its closure from Highway 76 to San Onofre. The Horno Fire has two heads, one north toward San Onofre and one south toward Pulgas Rd. Camp Pendleton authorities have relocated the residents of one housing area, San Onofre 1 and 2, to San Mateo. That relocation, which affected approximately 800 family members, was a precautionary measure in light of the proximity of the Horno fire. Horno/Ammo Fire Information Line (866) 430-2764.

Camp Pendleton fire officials have announced they are fighting a new fire in southeastern Camp Pendleton near the San Luis Rey Gate. Residents of Serra Mesa Housing have been instructed to relocate to the 22 Area Parade Deck as a precautionary measure due to their proximity to the fire. Military police are on the scene assisting in relocating military members and their families to a safe location on base. Air assets are being utilized to assist in fighting the fire. The San Luis Rey Gate is closed to in bound an doutbound traffic. For more information, military members and their families are encouraged to visit the base Web site at www.pendleton.usmc.mil or call the main information line at (866) 430-2764.

Harris Fire
Harris Ranch Road & Hwy 94
San Diego County

This fire has burned 73,000 acres and is 10 percent contained. The fire started October 21 and is burning at Harris Ranch Road and both sides of Highway 94 in Portrero in San Diego County. There have been 25 civilian injuries and one death as well as seven firefighter injuries on this fire. 200 homes have been destroyed in this fire and 250 additional homes have been damaged. 1,500 homes are threatened. 4500 people have been evacuated. The communities of Chula Vista, San Diego, San Miguel, Portrero, Barrett Junction, Barett Lake area, Engineer Springs, Dulzura, Deerhorn Valley, Lawson Valley, Jamul, Lyons Valley and homes along Millar Ranch Road are threatened. 1211 firefighters are assigned under unified command. The estimated cost of this fire to date is $2.5 million. Harris Fire Information Line (619) 590-3160.

Rice Fire
Rice Canyon
San Diego County

This fire has burned 7,500 acres in Rice Canyon in Northern San Diego County and is 10 percent contained. 206 homes, 2 commercial properties and 40 outbuildings have been destroyed. 1,500 homes are threatened currently. 35,000 people have been evacuated from the communities of Fallbrook and Deluz Canyon. Camp Pendleton and Oceanside are threatened. One firefighter injury has been reported. 723 firefighters are assigned to this fire under unified command including 723 CAL FIRE staff. Rice Fire Information Line (619) 590-3160.

Evacuation Orders Lifted

6:15 p.m. Hidden Meadows evacuation notice lifted. Evacuation notice for the community of Hidden Meadows has been lifted. Residents who have evacuated the area are allowed to return to their homes.

Mountain Meadows evacuation notice lifted. Evacuation notice for the community of Mountain Meadows has been lifted. Residents who have evacuated the area are allowed to return to their homes.

Most of tiny Del Dios safe after tense fight

6:55 p.m. - Camp Pendleton officials say the San Luis Rey fire is no longer a threat to the southeastern region of Camp Pendleton, and Serra Mesa residents can return to their homes.
7:20 p.m. - Residents of the Oak Tree Ranch community in Ramona who would like information on their homes are being asked to call (760) 789-1382. Approximately 54 homes have been destroyed there.

NASA satellite images

More fire updates

Shifting wind patterns prompted a 73,000-acre wildfire in southern San Diego County to focus its destructive energies in new directions today, authorities said.

As onshore air currents replaced a protracted period of bone-dry Santa Ana winds, the Harris Fire began moving to the northeast, toward Campo, Hauser Canyon, Jamul, Lake Morena and Lyons Valley, according to Cal Fire.

Road Closures

I-5 TRUCK SCALES CLOSED (Scale station only)

I-15 NORTHBOUND & SOUTHBOUND OFF-RAMPS TO MISSION RD CLOSED

I-15 NORTHBOUND & SOUTHBOUND OFF-RAMPS TO WEST BERNARDO/POMERADO RD

SR-67 CLOSED FROM SLAUGHTERHOUSE CANYON ROAD TO SR-78/SR-79

SR-76 CLOSED FROM PANKEY RD TO SR-79

SR-78 CLOSED FROM SAN PASQUAL VALLEY RD TO SANTA YSABEL/SR-79

SR-79 CLOSED FROM SR-78 TO SR-76

SR-94 CLOSED FROM STEELE CANYON TO FORREST GATE

SR-94 EASTBOUND CLOSED JUST EAST OF POTRERO VALLEY RD

SR-94 WESTBOUND CLOSED JUST WEST OF POTRERO VALLEY RD

SR-188 TECATE PORT OF ENTRY IS CLOSED

PLEASE NOTE: RESTRICTIONS REMAIN IN PLACE FOR HIGH-PROFILE VEHICLES ON INTERSTATE 8 FROM ALPINE TO IMPERIAL COUNTY LINE.

I think things are dramatically better than yesterday, except for those folks unfortunate enough to be placed in the path of the Harris Fire by windshift.

This will be the last update tonight. Back tomorrow, starting a new article, if things don't improve drastically.

(I'll be making updates to this post today, same as yesterday Scroll down. If you have something to tell me, comment or email danmelson (at) the domain name).

10-23-07 3:12 a.m. Mandatory reverse 911 calls have been issued for North Jamul and Indian Springs. The fire is located near Hwy 94. The evacuation center for this area is Qualcomm Stadium. Reverse 911 calls have been made to 1,549 residents.

These areas are east of Otay Lakes. Probably part of the same burn area I observed there yesterday afternoon.

The Sheriff's Dept. is reporting that in Fallbrook the fire is moving east towards De Luz Rd. and fire crews continue to evacuate homes ahead of the fire.

This is in North County west of i-15

10-23-07, 2:45 a.m. Reverse 911 calls are being sent out at the request of Lakeside Fire for all of Wildcat Canyon and Muth Valley south to Willow Road. Evacuations are mandatory and there are 3,780 calls being sent out. Evacuees are being directed to Santana High School.

1:57 a.m. CHP says there is a fire at 3-mile marker of Wildcat Canyon Road . They are describing the fire as 300 yards wide and the "whole side of mountain." Units on scene right now. Also, there are reports of fire coming down the mountain into San Miguel area. Flare-ups at the following locations:
Honey Springs and Deerhorn Valley, Dulzura,
Aqua Tivia and fire crews are evacuating Point Parkway Map 1291, F2

This is close to my specialty area, but east of highway 67 heading up towards Ramona and San Diego Country Estates. Wildcat Canyon is where Barona Casino is.

San Miguel Mountain is about 12 miles south of there, and it relates more to the Jamul area information above. Honey Springs, Deerhorn Valley, Dulzura and Agua Tivia are much further east, along Highway 94.

NEW FIRE

According to CALFIRE, a new fire is burning in the area of the La Jolla Indian Reservation. The fire was reported at 4:10 a.m. Several structures are burning. At least 150 acres involved. The reservation has been closed, and people are being evacuated to the Palomar Observatory. CALFIRE and U.S. Forest Service crews are battling the blaze.

This is along Interstate 8 past Pine Valley, near the Golden Acorn Casino if you've driven the area.

FIRE MAPS here

Just got an advisory on TV that reverse 911 calls are going out to Spring Valley. This would be the area around Sweetwater Reservoir. I'm seeing pictures of a long burn line, at least a mile long. Looks like theres an evacuation for the Casa De Oro neighborhood as well, just South of CA 94 East of 125. (just found area definition for the first area:

Mandatory evacuations have been announced for the area of Highway 125 and San Miguel Road south of Sweetwater Reservoir. Evacuated residents are being told to go to the Chula Vista High School Youth Center (campus of Chula Vista High School, 465 L Street).
)

Witch Fire Evacuation Area (burning in the area of I-15) now goes all the way to the ocean south of CA 78, and I just heard on TV that they'd evacuating parts of Camp Pendleton as well.

DOD planes being brought in

KFMB Website:
Road Closures South County:

SR-94 is closed between Otay Lakes Road and Forest Gate Road.

Honey Springs road at Lyons Valley Road.
(This is the San Miguel/Jamul Area)

Campo: (Far east Couty)
All roads west of Forrest Gate Road and East of Otay Lakes Road.

Viejas: (Alpine to Guatay)
Eastbound I-8 is closed at Willows Road, Westbound I-8 is closed at SR 79.

Alpine:
East Victoria between Otto & Overland Passage Road.

Buckman Springs: (Far Eat County)
Eastbound I-8 at Buckman Springs Rest Area.

Otay:
SR 94 at Melody

(This isn't Otay, it's Jamul, where Proctor Valley Road goes up the hill)

Chula Vista:
Proctor Valley Road within the City of Chula Vista.

Ramona: (this is north and east of me)
SR 78 at Magnolia Avenue.
Wildcat Canyon Rd, Willow Road to Ramona.

Julian: (folks outside the county, look at the intersections of CA 78 and CA 79, Zip 92036)
Fire is burning on Eagle Peak at 7MM, west of Pine Hills Road.
Tree down at Detrich Way between Oak Grove Drive and Blue Jay.

Lakeside: (This is all the way to downtown Lakeside, such as it is, within about 5 miles of my office)
SR 67 is closed to Northbound traffic @ Mapleview.
Ashwood and Mapelview Closed

San Pasqual: (East of I-15 and Escondido. This is where the Wild Animal Park is, which I've heard is safe, but can't find a link)
Eastbound SR 78 at Bear Valley Parkway.
San Pasqual Valley Road, Joe Bandy Canyon Road & 78/Weekend Villa.

Rancho San Diego: (This wasn't near any fires I saw, but is on the edge of urban area in southeast El Cajon)
Large Tree is down on Willow Glen at Hillsdale due to winds.

Elfin Forest: (East of 15, south of 78, north of Del Dios)
A power pole with live wires is down at Country Club Lane.

Valley Center: (northeast of Escondido)
There is a tree in the roadway on SR-76 at Red Gate.

Rancho Santa Fe: (West of I-15)
El Montevideo at Paseo Delicias.

Fallbrook: (near the northern end of the county, west of I-15. A separate fire is threatening)
Old 395 at Hwy 76 and East Mission - both ends.
Reche Road from Gird to Old 395.

Just to reiterate ALL CITY AND COUNTY SCHOOLS ARE CLOSED

At least 500 homes destroyed by the Witch Creek (Witch) Fire, and 250 damaged

The head of the fire, blown west from Poway by savage Santa Ana winds, had been headed for Fairbanks Ranch but took a turn southwest toward Del Mar Heights and Solana Beach, where residents also were told to evacuate. Carmel Mountain Ranch and 4-S Ranch also are considered threatened.

The south end of the fire has been pushing toward Lakeside, western Alpine, Peutz Valley and Harbison Canyon, but has not reached any of those communities, said Capt. Don Camp of the California Department of Forestry and Fire Protection, or Cal Fire.

I'll probably go up one of the hills in my area to see what I can see on the way to the office a little later. My home area (San Diego/La Mesa Border, near SDSU) is not threatened, nor does any of the areas on the way to the office appear to be.

UPDATE 1 (0745) National Weather Service appears to be calling for the Santa Ana to be gone, and a more normal wind pattern.

As I said yesterday, this is both the beginning of the end for the fire, and a VERY tricky time. Just because the fire appears to have passed now, does not mean the danger is gone. Windshift is a very nasty time for firefighters, and aircraft as well. It's what killed firefighters four years ago. Furthermore, it'll be being driven back up towards higher ground.

The newer and smaller fires that haven't burned so much of what's going to be their backtrail will likely be more dangerous now than the two huge ones (Harris and Witch Creek), but with moister Pacific winds as well as much slower, if we can get past the windshift things will likely get a lot better, faster, than if it wasn't shifting.

UPDATE 2 (1045) I went up on Mt Helix (a 1400 foot molehill, but it's close and offers a good view south and east). Took several pictures, chose the best two. The first is looking almost straight south, towards Mt. San Miguel It appears that the Harris Fire has crested the ridge and started down towards Spring Valley.

View image
The second is from a few feet away, looking ESE towards Lyon's Peak, you can see the plume of the eastern arm of this fire. It's spread out in two arms over at least twenty miles.

View image

(If demand slows my servers too much, I'll remove these)

I drove up onto the flank of Cowles Mountain as well, but I couldn't see anything significant to the north. The smoke obscured everything. Being completely unwilling to get in the way of those fighting the blaze, these are as close as I'm going to get.

updated Map of Witch Creek Burn

There are reports that the fire was moving towards Bonita, which I warned of last night.

I heard a news report on the radio that the 15 is open, but they are evacuating Valley Center and Lawrence Welk Village. All roads into Valley Center are closed unless you're an emergency vehicle, but you can get out. This has to do with the new fire, which evidently I misunderstood the location of. It's in North County, near the 76 east of 15.

From the county emergency site, which took a long time to load, so I'm porting it verbatim:

10-23-07 9:12 a.m. Del Mar Evacuations. A mandatory evacuation is ordered for the following areas within the City of Del Mar; All areas east of Crest Road; San Dieguito Road; Oribia Road; Avenida Primavera (along Crest Road); Serpentine Drive; Gatun Street; Balboa Avenue; Zapo Street

Other areas of the city have not been issued a mandatory evacuation order. However, it is strongly suggested that all residents pack necessary belongings and be prepared to evacuate if a mandatory order is issued. Del Mar residents who are unable to self-evacuate should call 858-704-3694.

Solana Beach Evacuations: A voluntary evacuation is strongly recommended for the following areas within the City of Solana Beach: All areas east of Interstate 5 (I-5); Areas along the north border of the city, between I-5 and Highway 101

10-23-07 9:30 a.m. All areas west of the active fires in San Diego County will be impacted by the smoke. Air quality will be the worst in and around the fires and will also be very poor downwind of the fires. The air quality levels of particulate pollution in these areas will be in the unhealthy to hazardous range. In areas that are not directly downwind of the fires, air quality levels will range from moderate to unhealthy. People living or working in these areas should take caution and attempt to protect themselves as much as possible. Air quality will be significantly better in areas east of the fires, with levels ranging from good to moderate.

10-23-07 9:13 a.m. Fiesta Island has room for horses accompanied by their owners. No corrals are available at this time, but the San Diego County Department of Animal Services has made food and water available for the animals. Owners wishing to utilize this safe location must be prepared to stay with their horses.


Del Mar and Solana Beach are coastal North County (Zip 92014 for Del Mar). Fiesta Island is in the middle of Mission Bay.

UPDATE 3 (1130)

Overview:

The forecast from this morning for shifting winds does not appear to be happening inland.

Crest, Harbison Canyon and Alpine (east of me) and some areas on the eastern edge of Chula Vista are now being subjected to mandatory evacuation

Witch Creek Fire: 165,000 acres burned, threatening Rancho Bernardo, Poway, Escondido, Lakeside, Valley Center San Marcos and Rancho Santa Fe. Wide and deep - Lakeside at the south end is thrity miles from Valley Center at the north end, and Rancho Santa Fe is probably 15 miles further west than either one of those., and San Marcos is north of that. 1500 fighters on the job, and while I-15 is supposed to be open, it's a crawl by all reports. CA 67 is closed from Poway to Ramona. 500 homes destroyed, 250 damaged (numbers unchanged from earlier) 100 commercial structures gone.

Harris Fire: 70,000 acres burned, threatening Jamul, Spring Valley, Chula Vista and Bonita, as well as numerous small communities in east county, as far out as Tecate and Cameron Corners, a distance of about 30 miles east west. 200 homes destroyed, 275 fighters. CA 94 seems to be closed, from Steele Canyon to Harris Ranch.

Rice Fire: 6100 Acres burned near Fallbrook in north county west of I-15. They're saying an additional 500 homes have been destroyed there. 170 fighters. Threatening Camp Pendleton and Fallbrook, perhaps Bonsall as well.

Poomacha Fire: Started in a structure in the La Jolla Indian Reservation, off 76 east of I-15 This morning. 1000 acres burned, no data on structures destroyed,

I'm also getting information that another fire may have started on the western end of Camp Pendleton, north of Oceanside, on Las Pulgas Road on the base.

Total area reported burned: 242,000 acres, and we're not seeing much containment. That's over 375 square miles.

They're also reporting that a major power transmission line coming in from the east has been disconnected by the fire. Please don't use any energy you don't have a real need for.

UPDATE 4 (1215)
Poway allowing some residents to return

San Diego County Emergency (slow load, so verbatim transcript below)

10-23-07 11:21 a.m. Overall evacuation update. A total of 349,915 Reverse 9-1-1 and AlertSanDiego phone calls have been issued between the County of San Diego and the City of San Diego, informing residents of both advisory and mandatory evacuation orders. Based on 2000 census data, approximately 513,000 people in San Diego County have received a mandatory evacuation order and an additional 12,000 people have been advised to leave their homes.

10-23-07 10:57 a.m. Mandatory evacuation of De Luz area (Fallbrook). Reverse 9-1-1 is being used to issue mandatory evacuation orders to the Fallbrook area. The area boreders are the northern portion of Camp Pendelton on the south, the Riverside County border on the north and includes the community of Rainbow on the east.

Mandatory evacuation of Chula Vista. The police and fire departments are starting mandatory evacuations in the area of Paseo Los Gatos & Paseo Vera Cruz

Fairbanks ranch now under mandatory evacuation as well. There was a rumor that Scripps Ranch residents were being permitted back, but that's evidently false. The county emergency site says that Rancho Bernardo residents can get police escorts to retrieve medicine ONLY.

The Witch fire has evidently reached the Del Dios area, west of I-15, in the vicinity of Lake Hodges

Entire CA 76 Corridor under mandatory evacuation.

a new satellite photo of the Southern California area

No Room At the Inn evidently all available hotel rooms have been filled

UPDATE 5 (1400)

All City Schools are officially closed tomorrow. I expect an announcement about the county schools any time.

2 evacuation areas lifted

San Diego officials are allowing residents to return to parts of Scripps Ranch and Del Mar.

The areas:

-- South of Via de la Valle, west of Interstate 5, and north of Torrey Pines State Beach

-- South of Beeler Canyon Road, west of Sycamore Canyon Road, east of Interstate 15 and north of MCAS Miramar

So the Scripps Ranch rumor that was false earlier is now true.

updated Road Closures

The California Department of Transportation (Caltrans) has announced the following road closures as of 10/23/07 12:00 PM:


15 NB & SB OFF RAMPS TO MISSION RD CLOSED / PM 50.58

78 HAVERFORD / PM 33.79 - SANTA YSABEL/JCT RTE 79 / PM 51.108

79 78 / PM 20.22 - 76 / PM 27.37

76 MISSION RD / PM 12.472 - OLD 395 / PM 17.012

76 PAUMA RESERVATION / 28.99 - JCT RTE 79 / PM 52.318

67 SCRIPPS POWAY / PM 13.36 - HIGHLAND VALLEY RD / PM 21.348

94 STEELE CANYON / PM 17.352 - FOREST GATE / PM 50.556


The following intersections are closed due to the mandatory evacuation of the San Miguel Ranch neighborhood in eastern Chula Vista:

• Paseo Veracruz and Mt. Miguel Road

• Calle La Quinta and Mt. Miguel Road

Approximately 270 homes are affected.

Chula Vista residents who want updates on the current fire situation can call (619) 397-6399 to hear recorded messages.

The following San Diego County roads were closed today due to the wildfires, according to the California Highway Patrol.

* Northbound I-15 between state Route 78 and the Riverside County line
* State Route 67 at Vigilante Road
* State Route 94 between Steele Canyon Road and Harris Ranch Road
* San Miguel Road at Bonita Road
* Otay Lakes Road at Weste Road.

Here's an official Weather Service Announcement: The Santa Ana is staying today

STRONG AND DAMAGING SANTA ANA WINDS TO CONTINUE... STRONG...HOT...AND DRY SANTA ANA WINDS WILL CONTINUE TODAY ACROSS MUCH OF EXTREME SOUTHWEST CALIFORNIA. WIND GUSTS UP TO 65 CAN BE EXPECTED BELOW AND THROUGH FAVORED PASSES AND CANYONS IN THE MOUNTAINS AND VALLEYS. THE OFFSHORE WINDS ARE EXPECTED TO DIMINISH GRADUALLY LATE THIS AFTERNOON THROUGH WEDNESDAY. THE SANTA ANA WINDS WILL CONTINUE TO BRING HOT AND DRY CONDITIONS TO THE REGION THROUGH WEDNESDAY...WITH A RED FLAG WARNING IN EFFECT FOR MUCH OF THE REGION. HAZARDOUS DRIVING CONDITIONS WILL PERSIST FOR HIGH PROFILE VEHICLES DUE TO THE STRONG WINDS. IN ADDITION...AREAS OF SMOKE...AND BLOWING DUST AND SAND WILL REDUCE VISIBILITIES BELOW ONE QUARTER MILE AT TIMES.

Cool and interesting: A webcam on Lyon's Peak

Olivenhain evacuated:

Encinitas city officials have ordered the mandatory evacuation of Olivenhain east of Rancho Santa Fe Road and north of El Camino Del Norte, although there are no fires inside the city.

No other evacuations are necessary at this time, city officials said.

Residents will be notified by telephone if the city feels they should leave their homes.

The Encinitas Senior and Community Center, 1140 Oakcrest Park Drive, is open as a shelter. It offers food, drinks and restroom facilities. Residents are advised to bring bedding.

Mandatory evacuation for La Jolla Indian Reservation They're saying go to Borrego Springs, not Palomar Observatory!

10-23-07 1:20 p.m. A mandatory evacuation notice has been issued for people in the La Jolla Reservation area. People should go to Borrego Springs. People SHOULD NOT go to the Palomar Mountain Evacuation center. This fire, which was spotted across Highway 76 and established on the south face of Palomar Mountain at the base of Palomar Mountain, is now being referred to as the "POOMACHO FIRE" by CalFire. It is currently 20,000+ acres.
10-23-07 1:03 p.m. Evacuations in Harmony Grove. Reverse 9-1-1 is being used to issue evacuation orders to 1,095 Harmony Grove households

COUNTY SCHOOLS NOW CLOSED ALL WEEK

I'm getting a report of a mandatory evacuation of Julian, up in the northeastern area of the county, but no link.

UPDATE 6 (1520)
All Schools Closed for the rest of the week

From the County Emergency Site:

10-23-07 2:17 p.m. Evacuation of Rancho San Diego. Reverse 9-1-1 is being used to issue mandatory evacuation orders to Rancho San Diego households. Residents should evacuate to Qualcomm Stadium.
Evacuation of Pine Hills Road and Wynola Road in Julian. Reverse 9-1-1 is being used to issue evacuation orders to residents of Pine Hills Road and Wynola Road in Julian. Residents should evacuate to Borrego Springs High School.

I'm leaving the office, headed home. Probably a couple more updates. Most of the good useful information I'm getting is from various websites, including, to be fair, Channel 8 and Channel 6. I've gotten so tired of listening to talking heads chasing their tails I've turned the radio off.

UPDATE 7 (1730)

10-23-07 3:26 p.m. Mandatory Evacuation Ramona to Lakeside. A mandatory evacuation notice has been issued for the Hwy 67 Corridor from Ramona to Lakeside.

Evacuation Order North Jamul.10-23-07 5:07 p.m. CORRECTION on Evacuation of Some Areas of Rancho San Diego. In Rancho San Diego, the following areas are under mandatory evacuation:
From Del Rio Road EAST to Steele Canyon Road.
From Fury Lane SOUTH to Millar Ranch Road and Millar Anita Road.
Residents should evacuate to Qualcomm Stadium.

Shelter for horses. Rohr Park in Chula Vista has plenty of room for horses. It is a large community ring in Rohr Park, located at the intersection of 4600 block of Sweetwater Road, near Winnetka Dr. They can handle 50-60 horses and have plenty of water. Evacuees with horses can call Dave Braithwaite. 619-203-1640..

Ramona and Lakeside are north and east of my office. Jamul is about twelve miles south.


Some Good News:

10-23-07 4:17 p.m. All Chula Vista evacuation notices lifted. The City of Chula Vista has lifted all evacuation notices within the city. Residents who evacuated are allowed to return to their homes.

All Solana Beach evacuation notices lifted. The City of Solana Beach has lifted all evacuation notices within the city. Residents who evacuated are allowed to return to their homes.

So the Harris Fire has been stopped there

10-23-07 3:33 p.m. Large Animal Shelter. San Diego County Animal Services has opened a shelter for large animals near Gillespie Field, 1960 Joe Crosson Dr. in El Cajon. Directions: Take East on Hwy 67; exit at Bradley Avenue and turn left; right on Cuyamaca; and left on Weld Blvd. The animal evacuation shelter will be on the right hand side of the road.

updated evacuation and burn maps Note some area outside of the evacuation area of the Harris Fire has actually burned.

Google Incident Map. Appears to be missing the Poomacha fire altogether, which last I heard, was up to 23,000 acres.

Road Closures current as of just before 5pm

Witch Creek Fire has now burned 200000 acres, and is expected to join the 23,000 acre Poomacha fire. They're still saying the Harris Fire is 70,000 acres, but they've been saying that since this morning. No updated figures for the Rice fire west of I-15 north of CA 76.

Poomacha fire burning up Palomar Mountain


UPDATE 8 (1955) road closures page (updated). Looks like the heavy action is all in Jamul and West of 15 areound Lake Hodges

6:44 p.m. Mandatory Evacuation For Eagle Peak and Cuyamaca. A mandatory evacuation notice has been issued for Cuyamaca, just north of State Route 79 and Eagle Peak in the Engineers Road area.

This is in east county, along CA 79 north of I-8.

partial report of destroyed homes

Indian Reservations hit hard (San Diego County has 18 reservations).

Into the breach again for insurers

I'll wager under-insurance isn't the problem it was in 2003. People need to keep their policies updated to within 20% of the value of the structure in order to get full replacement, and the market has been down, as you know if you're a regular reader, and the insurance companies have been a lot more diligent after the bad publicity of 2003.

an official list of some destroyed homes, So far, only Escondido and Rancho Bernardo.

more fire maps (lot of good stuff.)

Images of the fire today (Witch Fire and Harris Fire) They were right up against where the dense and solidly built up areas in Chula Vista are.

Some good news:

As of 8pm 72,000 acres burned. No homes lost in Eastlake, Spring Valley, Bonita, Sunnyside and Jamul

I think this is likely to be the last update tonight. Figures indicate approximately 300,000 acres burned in San Diego County thus far. That's about 470 square miles. Somewhere in the range of 2000-3000 homes destroyed. Poomacha fire is in a fresh zone with lots of fuel, Harris Fire also except where it's been stopped east of Chula Vista. If the wind shifts tomorrow, both of those could be big trouble. I haven't been able to find out anything about the Rice fire since early this afternoon, so I suspect a large degree of containment. Witch Creek, burning through Rancho Santa Fe is likely to mostly shoot its bolt, because all of the areas around there are more densely populated - less brush, more concrete and asphalt. We'll see tomorrow. Same Bat Time. Same Bat Station. New post. Consumer Oriented Carnival of Real Estate will be here tomorrow, but it's going to be very basic.

My husband and I bought a golf course-view house in DELETED. We closed 5 days ago; moved-in 4 days ago; and 2 days ago found out that the golf course is scheduled to close. It was announced by the golf course management 2 years ago at the home-owners' association meeting, and the seller and her realtor most likely knew. But they did not disclose it to us, even though they had ample opportunity to do so. They had advertised the house everywhere as golf course view. We definitely would not have bought the house if we had known that the view is there only for 2 more months. We paid for the view and know that homes without a view like that go for a lot less.

Now a school or more homes are scheduled to be constructed in its place. What are our legal rights? Can we "return" the sale of the house?

Please advise. Thanks.

First off, get an attorney who specializes in real estate in your state, and ask them. Each state has its own law.

Here in California, agents and sellers are liable for disclosing not only what they knew, but what they reasonably should have known. They are required to disclose all such information that a reasonable person might consider in their decision on whether to buy a particular property, and by well precedented legal extension, whether to pay a particular price. Cases have been decided based upon an increased water bill, that the court ruled should have tipped the owner off to the fact that there was a leak somewhere, and water is notorious for its erosional capability, among other things. Were you in California, it appears as if you might have a very strong case. I have no idea whatsoever about whether it's worth pursuing, even if the law in your state is similar. For that, you need to talk to a local attorney.

The first question that attorney is likely to ask you is what evidence you have that the former owner knew, or should have known, that the golf course was closing. Announced at homeowner's meeting is good. In the minutes is better. HOA informing all of the residents directly would be better yet. Neighborhood vows to get together and fight the closure? Probably best, especially if your home's former owners were somehow listed as being members or directors. That's the evidence they knew part.

Evidence that a reasonable person might not have bought that property at that price is pretty easy to come by in this case. Golf courses are highly desired, highly sought after neighbors on the part of many people, and golf course views are valued. Schools, not so much. People want good ones close, but they don't want to deal with playground noise, or high school football stadium noise for that matter. Advertisements of the property as being next to a golf course, or looking out over a golf course, would likely be good evidence to have, because it would show that the owners knew that golf course view was a part of their value, and they were committing this deception maliciously.

Then we get to the real crux of the matter: How certain are you that they didn't slip one piece of paper that says, "The golf course is closing so they can put a new school in" into that ream or four of paper you signed at closing? Or a few sentences on one of the standard disclosures? Not only whether they informed you, but also when and in what manner can be important. If they had a marching band blowing a fanfare to attract your attention to this fact before you had come to a final agreement, that likely blows any case you might have out of the water. If they slipped it into your stack of papers at closing, that might be a horse of a different color. Talk to your lawyer about that.

Now as to remedy. No matter how egregious it was, you're unlikely to get a free house out of it. Possibly, if the agent knowingly misrepresented the situation and you can prove it. Less likely if all you can show is that the seller know, but the agent may have been acting in good faith accordance with the seller's wishes. They shouldn't do this, but let's stipulate nobody is perfect, and maybe they weren't being paid for that part of a listing agent's services. You may also be able to sue your agent, if you had one, for failure to protect you from these scalawags and perform their due diligence. Then again, if you didn't have a full service buyer's agent, you're not likely to be able to sue them successfully. If you're stuck with the former owner as your only legal target, you may still be able to get not only damages, but legal fees and possibly punitive damages out of it. Alternatively, you might also be able to force them to buy the property back, if you so desire, instead of the other remedies. Talk to your lawyer.

Caveat Emptor

(Updates below. you can email me at danmelson (at) the domain name. I am at the office working on some client files, so I might not get it and respond right away, but I will get to it as quick as I can)

In case you hadn't heard, San Diego county is experiencing a rash of wildfires. My home is safe, and so is my office, for now, but a lot of folks aren't so lucky. At least one person was killed by the Potrero fire, in a very rugged area of East County (to get there quick, you don't drive CA 94 - you drive I-8 and then go south 10 miles on a county road, and come back. It amounts to twenty extra miles, and twenty minutes saved. Other fires threaten Ramona, where I have some friends, San Marcos, Fallbrook, and Escondido. Here's a list of evacuations and evactuation sites, and there's even a graphic there for where the fires are. Evidently a couple of fires merged earlier today.

here's a list of road closures.

The 14,000 acres that one of the fires has burned as of the last report is 22 square miles.

This has already eclipsed the 2003 fires as the worst fire in recent memory. It's even starting to look like 1970 all over again. More than one family I know lost their homes then. Ashes were falling all over the county, and the sky was grey and brown from smoke for 2 weeks. San Diego didn't have nearly so many people then, and other than those threatened by fire, life went on pretty much normally. In one famous incident, the football team was playing a home game and the blimp panned the area with the cameras - and switchboards lit up as everyone in the country called their friends in San Diego.

Most of the burned area is in wilderness areas, intentionally set aside with building either prohibited or strictly curtailed. There's going to be a lot of breast beating about this, but fire is a normal part of the California ecosystem. Evidence says it was far more regular before the advent of civilization. Many plant seeds don't germinate until they've been through a fire. One hopes you get the idea. Civilization has actually had the effect of limiting all but the worst fires, with the unfortunate dark lining that once things do get out of control, they tend to get worse than they might have because of all the brush that burns that would have otherwise burned in lesser fires.

The fires are being driven by hot dry Santa Ana winds from the northeast, pretty much directly opposite the predominant wind direction here, which is west to southwest. If the winds change, things will likely settle down fairly quickly, but there will be an extremely interesting few hours (in the chinese curse sense). The wind change is what killed at least one firefighter four years ago.
I'll make updates as I get them. In the meantime, here's the Local dog target's main news page.

here's their blog on the fire. It appears that Pomerado Hospital has been evacutated, and Palomar Hospital may become threatened. That's both of the hospitals in the region close to the north county inland fires. Tri City (near the Vista-Oceanside border) and especially Grossmont Hospital near me in La Mesa are likely to pick up a lot of the load. In 1970, there were actually more hospitals, if smaller, but lots of them have closed. And Air-Evacs are likely to have to go all the way to Sharp or UCSD Medical Center.

One more thing: If the Ramona area in particular wasn't threatened, they'd probably open a temporary control tower at the Ramona Airport. Look for it to happen if it looks like the Ramona area has become safe enough.

UPDATE: Upscale Rancho Santa Fe has been ordered evacuated. Furthermore, the San Diego Wild Animal Park is threatened, and in case it wasn't obvious, is closed.
UPDATE 2:San Diego makes national news. I'd rather that didn't happen.

UPDATE 3: (1120 local) Radio coverage on 87.7

Parts of Lakeside and Olivenhain (about 30 miles apart as the crow flies) have been added to the evacuation list. Penasquitos also (about halfway between, likely from the same fire that's threatening Olivenhain.

San Diego Police are putting their detectives in uniform and calling them in.

Afterthought: hope the Bergs are okay. As I recall, they live in one of the newly threatened areas.

UPDATE 4: (1200) Dulzura annd Barrett Junction have been added to the evacuation list in the 94 fire.

parts of Poway and Rancho Bernardo were evacuated earlier (I'm behind the curve on this one)

some pictures here. I know folks who live in most of these neighborhoods.

Looks like the evacuation area has been extended from CA 56 to Del Dios Highway, between I-5 and I-15. That fire that crossed I-15 could burn all the way to the ocean.

UPDATE 5: (13:00) Solana Beach residents are being advised to prepare for mandatory evacuations, with the strong suggestion it might be good to get out now. Valley Center and eastern Fallbrook, too.

Up to 30,000 acres burned now. That's roughly 47 square miles. The good news is that a couple of the fires have lessened in intensity (but they're not out).

UPDATE 6: (14:00) Personally, just got a call to pick my oldest daughter up. San Diego City Schools are canceling classes both today and tomorrow. Her school is nowhere near any of the fires, but I'd be surprised if none of the teachers had some urgent personal business to attend to, and there's also the issue that fire is threatening parts of the district.

AAA is apparently getting out in front of what they need to do on this one. I have to say, I don't think I've ever had a client who got mad at them for failure to cover damage. In the fire four years ago, they treated coverage limits as being a failure in their underwriting.

UPDATE 7: (14:45) New report I just found has the County saying over 100,000 acres burned, as well as some satellite imagery. 100k acres is over 150 square miles. Some video accompanies, slow loading so I didn't play it.

Recorded wind speeds (from the article):


* Whitaker Peak: 108 mph
* Malibu Peak: 101 mph
* Laguna Peak: 96 mph
* Warm Springs: 91 mph
* Fremont Canyon: 85 mph
* Rancho Cucamonga: 74 mph

From what I can find, the Laguna fire of 1970 burned 175000 acres all by itself (and was one of several), and they're saying that the Cedar Fire of 2003 burned 280,000 acres (and was one of two). But neither of them went through areas quite so densely populated as what they're calling the Witch Fire has already done.


UPDATE 8: (15:30) And Still I persist is in Escondido, with a good diagram and some pictures of what's been going on with the Witch Fire.

I'm trying to dig up more on the east county Harris Fire, which has supposedly burned almost as far west as Otay Lakes, but I'm not getting much. Until it gets past the lakes, it's still pretty sparsely populated area, but a whole bunch of newer developments as well as the Olympic Training Center are just the other side. Now here's a link with news on the Harris Fire, which is evidently approaching settled area.

Looks like they're also evacuating Scripps Ranch (Zip 92131, east of I-15 in the central county, for those following on maps), which was hard-hit four years ago, there's a Fire in San Ysidro (Zip 92173, down near the mexican border) and military offers route through Camp Pendleton (in the northwest end of the county), which except for I-5 is the only way to or from Orange County.

No Kidding Deparment: Air Quality is getting worse, despite winds up to 70 mph. Don't exert yourself if you don't have to. Take care if you've got respiratory problems, like I do.

That's Nice of Them Department: U-Haul is offering 30 days free storage for evacuees

here's another smoke plume map that gives you an idea as to where fires are burning now.

confirmation that all San Diego Unified School Districts will remain closed tomorrow


UPDATE 9: (1630) Just drove home. From Grossmont Summit (8 and 125), I could see two plumes of smoke from the Harris Fire, one the other side of Lyon's Peak, maybe 20 miles or so east-southeast, and the other just south of Mt. San Miguel. That's maybe 10 miles or so straight south. The thing is HUGE. The smoke from the Witch Fire to the north is just too diffuse to make anything out directly. I thought about driving up onto Mt Helix or Eastridge, just to see what I could see, but decided against it.

Also, the La Mesa Police had the Fletcher Parkway offramp from 125 blocked off. Evidently, some flaming material from the Harris fire was blown all the way to La Mesa touched down and set off a fire at Fletcher Parkway and Amaya, quickly contained but they were waiting an official all clear.

Alpine, Crest, and Harbison Canyon have now joined the list of evacuated areas. I expect that's from a wing of the Witch Fire. Alpine has its own Zip (91901), and Harbison Canyon runs south from there on between Alpine and El Cajon, while Crest is a hill community just a little further west. Crest was burned out in 2003, and Harbison Canyon aslo, to a lesser degree.

Here are some newly reported animal care and boarding options, as Lakeside Rodeo Grounds has filled.

Updated Shelter Information (for humans). Ones that are full and ones that still have some room:


Shelters that still have capacity
Qualcomm Stadium
Santana High School
Poway Community Park
Poway Girls & Boys Club
Campo Community Center
Mission Hills High School
Escondido High School - 1535 North Broadway
Santana High School - 9915 Magnolia Avenue (in Santee)
Ramona High School

Full Shelters
Del Mar Fairgrounds
Steele Canyon High School - 12440 Campo Road in Spring Valley
Escondido High School
Mira Mesa High School - 10510 Reagan Road (off Mira Mesa Boulevard)
San Marcos High School (temporary shelter).


UPDATE 10: (1715) Here's a State Map of the Fires, expandable.

More state of California information.

Smaller Area maps, all on one page.

I'm getting a headline saying "flames in east Chula Vista" but the link gives a 404 error. From the maps in the previous link, it looks like the fires are in western Jamul (Zip 91935), or just south of there - probably one set of smoke plumes I saw on the way home.

Witch Creek Fire Burn Area, from the North County TImes.

NEW: NORTH COUNTY EVACUATIONS LIFTED: Mandatory Evacuations have been LIFTED in San Marcos for San Elijo Hills and Coronado Hills. NEW: FIESTA ISLAND SHELTER OPENED: As of 4 p.m. on October 22, 2007, Fiesta Island has been opened to accept up to 500 owners and animals (livestock). This location will be staffed by Park and Recreation employees and Park Rangers. NEW: SOUTH SHORES SHELTERS OPENED: South Shores and Ski Beach are open for individuals with motorhomes. Park and recreation employees along with lifeguards will be staffing these areas. NEW: SOUTH BAY VOLUNTARY EVACUATIONS: Voluntary Evacuations are underway in the following Chula Vista neighborhoods: All of Bellalago, all of the Woods at Eastlake, areas of San Miguel Ranch and areas of Rolling Hills Ranch. Information Hotline for Chula Vista and Bonita area: (619) 397-6399. Evacuation center is located at Chula Vista High School.

Older news, but just found it: Animals Moved At Wild Animal Park

According to the California Department of Transportation, the closure of Interstate 15 south of SR-56 has been canceled. However, Interstate 15 remains closed from SR-56 to lower SR-79 in both directions. Click here for additional road closures:

* Please also be advised of these additional closures throughout the county:
* SR-67 northbound and southbound from Vigilante Road to Highland Valley Road
* SR-76 eastbound and westbound from East Vista Way
* SR-78 eastbound and westbound from SR-79 in Santa Ysabel to Haverford Road in Ramona
* SR-79 northbound and southbound from SR-78 to SR-76
* SR-94 eastbound and westbound from Steele Canyon to two miles east of Harris Ranch Road

Thus far, where I am is fairly clear. There's a thin layer of particles on the pool. North and South, though, are very smoky. South and east seems denser than north, but more wealthy people live where the Witch Creek Fire is going to hit, not to mention more news anchors. It's going to start getting dark in about an hour, so this is likely the last good visual check for tonight.
UPDATE 11: (2030) buildings destroyed: (thus far)

Escondido: 70
Poway 50
Rancho Santa Fe: 6
Rancho Bernardo: Unknown but "dozens"
Fallbrook: 50 destroyed, 30 damaged
East County I saw one report that said 130 destroyed, 500 threatened

Advisory evacuations have been ordered for five neighborhoods in DelMar: the east side of Crest Road, Oribia Road, San Dieguito Road, Avenida Primavera and Serpentine Drive, a county official announced about 6:20 p.m.

Residents in all other neighborhoods within Del Mar are encouraged to prepare to evacuate to Qualcomm Stadium.Residents in areas where firefighting helicopters and air tankers are working are asked to stay indoors, to avoid being in the way when huge amounts of water or retardant are dropped.

(later) Looks like some of those orders have become mandatory

DEL MAR MANDATORY EVACUATIONS
Evacuations have been ordered for the following areas: South of Del Dios Highway, north of Sorrento Valley Road and west of Black Mountain Road to the ocean. Evacuees are being advised to go to centers at Carlsbad High School, Encinitas Senior and Community Center and Qualcomm Stadium.

I suppose any time there's opportunity, there will be scams

Governor Calls Up Guard, Asks Bush For Military Support

He's also asked President Bush to authorize San Diego-area military forces to work with local officials to provide cots, first-aid equipment and possibly personnel to aid evacuees and firefighters.

another fire map (updated), and another (multiple maps)

Updated evacuation help in El Cajon As a sub note, looks like instead of trying to establish a temporary tower at Ramona, they're bringing the fire-fighting planes and their logistic support to Gillespie Field, which already has one, and is easier logistically to work with.

http://www.sdcaa.com/ is asking landlords to list their available rentals for emergency housing, but I'm not seeing anything about fees being waived. We'll see how it shakes out.

The Harris Fire has now jumped Proctor Valley Road in Chula Vista/Bonita. I'm not certain there's another good line of defense shy of the 54 and 805. Should be somewhat sheltered from the wind by San Miguel Mountain, but I'd seriously consider exiting that whole area, even though I'm not finding any kind of evacuation order. I'm also thinking it's going to stay south of Sweetwater Reservoir.

Harris Fire at 22,000 acres and Witch Fire at 145,000. That's 260 square miles, just for the two of them, and they're saying both could easily burn to the ocean. I'm having trouble running down information on the Descanso Fire, the Fallbrook Fire, and a couple of others.

Finally, Road Closures (It was a busy link, so in the interests of public information I'm printing the entire list)

Interstate 15 closed in both directions from state Route 56 to state Route 78

Interstate 8 closed to big-rig trucks and other high-profile vehicles from Alpine to Ocotillo in Imperial County

State Route 94 between Harris Ranch Road and state Route 188

State Routes 78 and 79 from Julian to Ramona

State Route 79 from Ramona to Sutherland Dam Road

State Route 94 between Otay Lakes Road and Forest Gate Road

State Route 67 closed to northbound traffic at Mapleview Dr. in Lakeside

Other closures:

All Campo roads west of Forest Gate Road and east of Otay Lakes Road

Honey Springs Road in Jamul at Lyons Valley Road

East of Victoria Drive in Alpine between Otto Road and Overland Passage Road

Buckman Springs Road at eastbound Interstate 8.

El Montevideo at Paseo Delicias in Rancho Santa Fe

Proctor Valley Road in Chula Vista

Among the roads reported affected Monday by fallen trees, downed power lines and other debris:

State Route 67 just south of Vigilante Road

Engineers Road at state Route 79

State Route 76 at Red Gate

La Bajada at Rancho Santa Fe Road

Santa Margarita Road at Calle de Luz Road

State Route 78 at Wynola Road

Southbound lanes of Valley Center Road at north Lake Wohlford Road

West Bernardo Drive south of Rancho Bernardo Road

Country Club Lane in Elfin Forest

Willow Glen Drive at Hillsdale Road in Rancho San Diego

For more information on freeway closures call Caltrans at (619) 688-6670 or (800) 427-7623 or check www.dot.ca.gov/dist11. County road closures are posted on www.co.san-diego.ca.us.{ATTR:1}

Status Report from the state of California, and about the only information on the smaller fires I've found.

This is going to be the last update for this post and for tonight. Assuming I'm still here (No known reason why I wouldn't be), I'll start another post tomorrow.

Over the last couple of decades, there's been a rising movement, mostly on the part of those who want a piece of real estate agents business, to sell agents as a toll booth. Tollbooths sit there, guarding the entry to the road you want to travel on. Once you've paid, you get access to the wonderful world of MLS and making offers on real estate - or having offers made upon your real estate. This movement has accelerated in the last ten years or so, with the universal advent of broadband internet connections and ungated sites with all of the listings for sale in a particular area.

Even a large number of allegedly "full service" agents and brokerages have sold themselves based upon the tollbooth model. "Sign up with me, and you get access to all of these wonderful things along this road to where you want to go."

Unfortunately for these agents, there's always someone willing to provide a cheaper tollbooth.

The bar to get into the real estate business, when you really look at it, is absurdly low. I've seen good arguments with valid points for either making it much more difficult or eliminating licensing requirements altogether. Score seventy percent or above on a multiple choice test that doesn't have math any more complex than multiplication and without any practical applications whatsoever, pay a toll of $100 or so to the state of your choice for licensing, and another $100 or so for MLS access, and you're in business! They even let you use a four function calculator for the math!

It shouldn't be any great surprise that we have large numbers of agents who think that's all there is, let alone members of the general public. Therefore, agents who pretend to be agents - and look like they might be, on paper - can cut the toll to access MLS and the world of making and receiving offers on real estate. They pretend that they do something important, sitting in their offices with a fax machine and WINForms. It even looks impressive enough, on the surface. "I went into this lady's office, and she fired up a computer and it spit out this contract for me to sign, and she faxed it off to the other agent and now I'm in escrow! Best of all, she's going to give me 2% of the purchase price for doing business with her!" So all of the friends and relatives, who according to the way they think are making $5000 or $10,000 by using this person, drop by, and she makes $2500 to $5000 on every single one of them, by pretending to do something valuable, that can really be done by any high school graduate capable of using a word processor. Alternatively, "I went to this guy's office, signed a listing contract that pays him 1% up front instead of 6% when it sells, to put my house on the MLS, He even let me pick the price I wanted to sell it for!" Now every agent worth their license knows what's wrong with both of these scenarios (and if you don't, you should learn), but the average person who doesn't know what they're getting into. They don't even know what they don't know, and they think they're getting a real bargain.

Lest it be said that I'm being all holier-than-thou, I'm perfectly willing to make $2500 to $5000 acting like a high school graduate with a word processor and fax machine. And a license, can't forget that license! I'm even happy to do this work! And if all you need is someone to grant you that access, like paying toll to access that road, I'm perfectly happy to collect my little toll and send you on your way. Instead of one double to triple size toll that takes me dozens to hundreds of hours to earn, I can earn one of these single size tolls every couple hours. People who come to me for this level of service may wonder why I never try to "upsell" them on the more expensive package, or at least the majority who don't understand what's really going on do. Furthermore, the probability of such tolls coming back to bite me, legally, is practically non-existent. I made no representations as to the state of the property - I didn't even go visit! I advised them of their responsibilities ("get an inspection!", "fill out this TDS!") and have their signature on documents that say I did. And I never promised their property would sell, or that the property they're buying was worth what they were offering. Whether or not they realized that's what they were doing, they were saying they were perfectly capable of handling all those aspects for themselves, and they signed that piece of paper that says what I am and am not going to do for them.

But once again, there's always someone who's willing to build a cheaper tollbooth. That's not the future of a successful real estate agent, to get paid less and less for doing nothing, anymore than that's the future of a successful software company, a successful health insurance plan, or a successful anything. And for those people who think they're getting a some kind of bargain, would you be happy paying a word processor that kind of money for a couple of hours of work? There's always someone willing to operate a cheaper tollbooth, but unless you really understand what you're up to, a tollbooth is not what what you are really looking for.

What's going on, of course, is people who don't understand what they're not getting are just thinking in terms of cost. If you don't understand what you need to, if you don't even understand that there is more to what a good agent does than MLS access, a word processor and a fax machine, if you've dealt with agents who expected full pay for being MLS access, a word processor and a fax machine, then you think you're getting a deal when someone offers you a discount. But if you're an agent, you have to ask yourself why people should be willing to pay you that much money when people are willing to take less. If you're one of those discounters, you should be asking yourself why people should continue to be willing to pay you 1% when there are people who will do it for 1/2%. And if you're one of the latest wave of internet based super discounters, making money hand over fist, you should be wondering why they should continue to pay your half a percent when someone starts offering it for 4 tenths of a percent, 3 tenths, or less than one tenth. They can still make money at that level, but anyone can do nothing just as well as anyone else, and with a little more time, we get down to the economically stable point where you have people in a sweatshop in Bangladesh typing on a telephone line for $10 per transaction, all working on one license that the owner of the company got 15 years ago, even though they haven't been inside a listing since. Or completely automated, without human interface at all. No service, no knowledge, no liability, and no protection for the consumer, but they certainly are cheap. That's the endpoint of the tollbooth model of business, and it's visible from here.

If you want to know how this shortchanges the consumers, check out any one of dozens to hundreds of domestic real estate forums. Every day, you see people talking about having already made a mistake that is going to cost them a dozen times what a good agent would. These people generally want to know how to get out of the situation unscathed, but you know and I know that's not likely to happen. You've got to be ahead of the curve and not make the mistake in the first place. There are sharks out there for whom such people are nothing more than their lawful prey. Some of them are the agent sitting on the other side of the transaction. Others are investors, hoping to snare someone who doesn't understand everything they're doing. It's a beautiful house, they love it - what could go wrong? The list of tricks that get played on sellers is, I believe, probably longer than the list that gets played on buyers. More tricks, smaller market shares.

One of the things I keep harping on is the fact that real estate deals are for large amounts of money. Numbers big enough so that 10% is more than a lot of people make in a year, and I've seen at least a gross of 10% coups - or bigger - pulled off in properties I have actually been in and compared to others on the market within the last year. What does this mean? If you're a shark who can pull off one 10% coup per month, you're in Fat City. You've got the Manhattan Penthouse, the private jet, and the rock star lifestyle - more and more so as your deals get bigger and more frequent. If you pull off one 10% coup per year, instead of making $60,000 per year, you're making $100,000 per year immediately, and with just a few years like that, you're living the rock star lifestyle also! And you know the best part of all? Most of the suckers think they got a bargain! I went and talked to the guy that got taken worse than anyone else I was sure of a while back, who paid over 40% more than he could have had a basically identical property for a quarter mile up the road, and he's happy as a clam, because he likes the property and he got 2% of that 40% back in the form of cash! Even if you can consistently pull off 5% coups, or 2%, you're in the money.

When I'm acting for buyers, my business model is that of a big game hunting guide. For this, you need to know the lay of the land (market), where the most desirable game is, the tricks to spotting its trail, the ruses it may use to escape, etcetera, etcetera - and all before some other big game guide leads their client to bag my client's trophy. My goal is to make a 10% net difference to my client's final position, Either 10% cheaper, or a property comparable to one that might legitimately fetch 10% more. Buddha forbid my clients don't end up with anything, but that's preferable to shooting some farmer's prize cow, or the farmer themselves! Meanwhile, the people who don't understand this are singing Tom Lehrer's Hunting Song (here's a third party performance), whether they realize it or not. Considering appraised value, the lowest difference I've made thus far this year was a little over 15%, and that's just negotiating capability and market knowledge. I've got a couple of strictly honest appraisers, and not one of those purchase appraisals came in lower than 115% of purchase price. To change the independent element (me negotiating purchase prices for the right property), those same appraisers have torpedoed almost 30% of the refinances I was hoping to do. Add the number of traps I've kept those same clients out of by spotting problems before we made on offer, and it adds up to quite a chunk of change they've got in their pocket, or that they don't owe some lender, because I my job as an agent, not the least of which is that I take responsibility for not selling them something they can't really afford.

As a listing agent, the process has a lot more lead time. I can interview buyers in the morning, and if they're as ready to buy as they think they are, get an understanding of their situation in an hour or so, be looking at properties myself that afternoon and showing the ones that pass my muster to them the next day. Listings are tougher, and more like a fishing expedition. First, you have to know what kind of fish you're able to catch with the bait you have available. You're not going to hook a sperm whale with krill. You've got to know where these target fish hang out. Then you've got to figure out how to make the bait look attractive to the target fish, how to get them to notice this bait, how to get them to hit it hard enough that you can set the hook and haul them in. Among the factors you have to understand is how much patience the client has. Just like in fishing it doesn't do any good for the fishermen to keep hauling the line out of the water before the right fish is willing to hit it. Sometimes the situation isn't right - usually because the bait won't catch what the fisherman wants, no matter how much you do. A lot of the people I counsel to wait, or who don't like the asking price I want to set on a property will go sign up with someone else who's willing to promise the moon to get that signature on the listing agreement. I've never had one of them call me up to gloat that I was wrong.

You may have noticed that both of these analogies are pretty violent, and the better known activities they emulate tend to end up very badly for the big game, or the fish, at least on a successful mission. Nor is there any kind of "catch and release" program. Whether you realize it or not, that's the way the game is played. The language is normally civil, not something out of pro wrestling trash talk, but it's no less deadly for being played with offers and contracts instead of rifles and gaffes. Military men who intend to kill the enemy if they can are very careful and very respectful of capable opponents - they live longer that way. They know somebody's going home in a body bag, and they don't want it to be them. With the amount of money at stake in real estate, the incentives are there. Look at some of the reality shows on TV, and what the contestants go through for much smaller prizes. The tollbooth model of agency seems to be producing an ever larger number of willing fish and game. Actually, they're eager!

Real estate may be the largest transaction of most people's lives, but most people don't do it very often, particularly not in the same area. People will move cross country to a new city they've never been in before, and expect to buy real estate within a month. They'll expect the rules for sellers now are the same as the rules for buyers ten years ago when they bought - if they even understood the market then. They have been led so far astray by the popularly pushed tollbooth model of real estate, that they have no idea what they're doing wrong - or what they're not doing that they should be.

There's not only marketing to consider on the listing side, and search on the buyer's. There's knowledge of laws, of procedures. There's negotiating tricks that put you into a better position, or prevent someone from disadvantaging you. There's sucker bait, and being able to recognize it - or far more than someone who doesn't do this for a living can. There's buyer qualification issues and property maintenance issues. Do you know how to spot them? Here's a couple free hints: The answer to the first has nothing to do with prequalification letters, and the answer to the second should not be, "Get an inspection!" The former are a waste of paper and the latter is leaving an issue to be resolved at the final point of no return and hoping it gets caught there, and hoping the other side is willing to renegotiate the agreement in accordance with your views as to what reasonable is. There are location issues, condition issues, amenities issues, price issues, market issues, financing issues, and issues that mix several of these.

There Ain't No Such Thing As A Free Lunch in the real world or in real estate. You can be careful, do your own due diligence, pay the fees for superior service, and get someone who acts as an effective guide to big game, or an effective charter sportfisher, or you can pay your little toll and likely end up as the fish or venison on the table. Yes, it's work. No, it's not easy. If it was, anyone could do it just as well as anyone else. Since that is not the case, then we need to consider alternative hypotheses, and using the one that best fits the facts.

The people who habitually dine well on fish and big game? Either they buy and sell enough real estate in that area that they are effectively agents themselves, or they've learned what a fantastic investment paying a good guide is. Yes, the good guides can also eat very well off their profession. That doesn't change the fact that you end up with a better dinner, even considering the chunk of meat you paid them, and if it keeps you from being the meat on the table, well, you make your own call how much not having your financial antlers nailed to a wall somewhere is worth to you. Think of it as financial evolution in action.

Caveat Emptor


Read your article on negative arm loans, and for the person who only owns a residence and most real estate investors it will not work. I own several properties, and the parcel to be refinanced is ocean front...so is going up in value more than the negative arm would be when refinanced after prepay penalty period. Cash out would be used to pay off other mortgages, thereby increasing my cash flow for a few years. Does your advice against negative arms apply in my situation?


I believe he's referring to this article.

This is actually an excellent question, and the answer is ... maybe. At least it is not a clear "no", unlike so much of what the Negative Amortization loan is misused for. This largely goes beyond the scope of what I'm trying to do with this site, but I'll take a swing at it.

The fact is that I can construct a scenario that goes either way, and the implicitly high appreciation rate you mention has surprisingly little to do with it.

The positive is that your other loans are paid off! To use Orwell-speak, this is maximum plusgood.

The negative is that this loan now includes every dollar you previously owed. Furthermore, there may be negative tax connotations to the fact that all of your interest expense now comes from one property, as opposed to being able to directly match it against individual properties with individual incomes. If interest against one property is greater than the income for that one property, you may not be able to take it all. I'm not clear on the implications of the tax code here (and I'd like to be educated), so consult with a CPA or Enrolled Agent.

Furthermore, your new loan won't magically create any "lake" of dollars. In order to pay off the other loans, it's going to have to be the size of all of them combined, plus any prepayment penalties, plus all costs of doing the loan, plus potential pre-payment penalties for the Negative Amortization loan.

Now consider:
If you make payment option one (the "nominal" or "as if your rate was 1 percent" payment), you are allowing compound interest to work against you. This is the force Einstein described as "the most powerful force in the universe", and it's working on the whole dollar amount of every single one of your current loans and then some.

Ouch.

No matter which payment you're making, the rate you are being charged, (aka "what the money is costing you") is not fixed, but variable month to month. As far as most commercial property loans are concerned, this is no big deal. They're pretty much variable at "prime plus" anyway. However, I expect the MTA and COFI (upon which Negative Amortization loans are based) to continue rising as government borrowing increases, whereas I'm not so certain about prime, which for most banks is comparatively high by real and historical standards.

Now with all this said, it's still very possible to construct winning scenarios, depending upon a variety of factors. You mention short-term cash flow, and that is certainly one possible justification. If short-term cash flow is all you're looking for, and the money it will cost you later on is no big deal because you're planning to buy down the prepayment penalty and sell in a short period of time. Yeah, you've added to your balance but you've got plenty of equity and you'd rather have a few hundred per month now than multiple thousands later. Think of it as a cash advance.

One of the things that negative amortization loans can do for you is make it easier for you to qualify for more loans on more properties. Because in loan qualification, the bank will only give you credit for 75 percent of prospective rents while dinging you for the full value of payments, taxes, fees, maintenance, etcetera, this can make it much harder to qualify than is realistic, given that in many markets the vacancy factor is less than five percent. You actually pay more, but you're not obligated to. Particularly because many people own investment properties for the capital gain rather than the income potential (i.e. price speculation, rather than monthly income). On the other hand, just because a property has been appreciating rapidly does not mean it will continue to do so, beachfront or not. The market nationwide is entering a very different mode than it's been in for the last few years. I can point to beachfront property here locally that's lost a lot of value since early 2005. Price speculation is great when it works (which is most of the time), but is really scary when it doesn't. It's a reward for risk-taking, so don't lose sight of the fact that it is a risk.

One other factor of doing this is that it can cause taxes on a sale to exceed net proceeds. Suppose you intend to sell the beachfront property in a couple of years, and it doesn't gain any more ground from where it is right now. Many properties were bought for less than 10% of their current value. Let's say you bought for ten percent of current value. If your loan is for eighty percent, and you pay six to seven percent in sale costs, you're getting ninety-three to ninety four percent of value, leaving a net of thirteen or fourteen. But you owe long term capital gains of eighty-three or eighty-four times twenty percent - almost seventeen percent! This can force you to take another loan out, against one of those "free and clear" properties lest you owe the IRS penalties. Yes, 1031 and even a potential personal residence exclusion can modify or nullify this, but so can all the depreciation you may have taken over the years, and if you intended to 1031 the property that would tend to contra-indicate any reasons you had for the negative amortization loan.

Now, to be honest, my experience with commercial loans is limited, and I've never done a negative amortization commercial loan. What few clients I've had in that market have had different goals in mind, and being as I'm a sustainability type loan officer, I tend to attract sustainability type clients, where Negative Amortization loans are more indicative of a speculative ("risk taker") type. I understand what's going on, but it isn't my primary approach to the issues. There are circumstances on investment properties where, unlike your primary residence, it can be very appropriate. Unfortunately, without full specifics, including time schedules, goals, reasons for holding investments, other investments, risk tolerances, etcetera, it's difficult to tell if yours is one of them. My experience in dealing with people is telling me one thing, my sense of ledger evaluation is hinting at a different answer. But I hope I've given you a clear idea of the kinds of issues you need to look at with professional help.

Older Home in Great Area - Beautiful Inside!



General: Urban East County, 3 bedroom 2 bath, and two extra rooms. Asking Price between $400,000 and $425,000. Worth every penny and then some. I think $380,000 net might get it sold!



Why you should be interested: 1) It's gorgeous 2) Quiet Neighborhood 3) Large back yard 4) Great Schools 5) It's close to just about everything.



Selling Points: Throughly modernized kitchen and bathrooms, water efficient front yard, back yard is large enough for kids to play. You could put a pool in and never miss the space. The ceiling is a little low on the extra rooms for them to be legally bedrooms, but people have obviously used them for that.




Why I think it's a potential bargain: Actually, it's a steal, and in any less fearful a market, this one would be long gone. This is one of those wonderful surprises you find every once in a while if you look at enough properties.



Obvious caveats: I do want to slap whoever it was that put pergo down on top of hardwood in the front section of the house. As I said earlier, I don't think the ceiling is high enough for the extra rooms to be legally called bedrooms. Other than that, I just didn't see anything wrong with it.



Why it hasn't sold already: The listing agent is basically acting like a bump on a log.



Monthly Income to Qualify: (assuming no down payment and average credit on a thirty year fixed rate mortgage, full documentation, one total point or less) $6520 gross with zero down. If you have 20% down, monthly gross income to qualify will be $6020



If you keep it ten years and it averages only 5% annual average appreciation per year: Based upon a purchase price of $380,000 the property would be worth approximately $620,000. If you held it those ten years before selling, you would net about $290,000 in your pocket (not including increased value from updates!), assuming zero down payment. As opposed to renting the $2300 per month most comparable currently available rental and investing the difference at 10% per year tax free, you would be approximately $260,000 ahead of the renter, after the expenses of selling.



Fact you should be aware of: Evidently, school buses use the street in the morning.



Obvious way to enhance value or appeal of property: Other than get the pergo off the hardwood, not much.



This property does not appear to be eligible for a first time buyer Mortgage Credit Certificate provided your family income is not more than $82,800 or $96,600. Ask me for more details, on this or any other property.



I'm a buyer's Realtor®. I am looking to represent buyers, so I find places like this that can be gotten at bargain prices. I save you money while getting paid out of the listing agent's commission, not costing you a penny. Nor are these the only bargains I find. In order to protect everyone's best interests, I require a Non-Exclusive Buyer's Agent Agreement. This is a standard California Association of Realtors form that leaves you are free to work with other agents, but if I find the property you want, I'm the agent you'll use. That's fair, and there is no reason not to sign such an agreement unless you're an agent yourself. If your current agent was finding properties like this, you wouldn't be interested.



Contact me: Action Realty 619-449-0723, ask for Dan or email danmelson (at) danmelson (dot) com. Ask me to find a bargain that fits you!


I saw your article on about exclusive buyers agents and I have a couple follow up questions pertaining to my own situation that I am hoping you could shed some light on.

I don't have any buyers agent (currently). However I have spotted 2 houses in an area that I think I would like to make an offer on. Both of these houses are listed by real estate agents. I am obviously eager to save as much money as I can and think it would be great to try and save on the agent undefined if at all possible (I have bought FSBO before, so I am familiar with the process and I don't see much value add with an agent since I have already found the properties).

However I just don't get it - if I make an offer on the property by working with the sellers agent then the sellers agent gets both commissions? Is there a way to just take the buyers agent commission off the sales price? If there isn't then I guess there is no reason not to go and find a buyers agent to assist me? Seems like a waste of money.

I have found an buyers agent that who said he will give me 50% of the commission if I sign an exclusive buyers agent contract with him however I am worried that my hands are tied if I don't end up purchasing one of these properties I have already identified (ie I could end up paying 1/2 his typical commission if I found a FSBO).

Any insight you could provide would be of great help - I love reading your stuff.

Thanks,

The first thing I need to clear up here is the nature of listing agreements. The standard listing contract form gives the listing agent the full commission for both buying and selling, and if someone other than them represents the buyer, then they agree to pay the buyer's agent a portion of that. If there is no buyer's agent, they keep it. Since you have to make your offer through the listing agent, the listing agent is get that commission, and that is as it should be. Note that I believe it is stupid to act as agent for both parties in the same transaction because seller's interests and buyer's interests are often at impasse, and when you're acting as agent for both sides, there are many potential issues which, if they happen, are lawsuit material one way or the other no matter what the agent does. If I find a buyer for my own listing, I'll find another agent I trust to do a good job, and that way there is no conflict of interest. But greed is a powerful motivator, as you yourself are illustrating. The fact is that if the listing agent wants the full commission, they will probably end up with it, and justifiably so, as they found the owner a buyer, didn't they? That's what the contract says the seller's commission is for. You saw their sign, you saw the house they listed, you made an offer through them, the house got sold through their efforts. According to the terms of the listing contract, they found you, whether you realized it before now or not. The buyer's agent commission is for an agent who has a buyer who sells them that property, as opposed to the one down the street.

Many agents make side agreements to rebate part of their commission in certain circumstances. But that potential rebate contract in this case is with the seller, not you, and is none of your business. Unless the agent has a release to discuss it with you in writing, they are violating confidentiality to do so. The seller may sell to you cheaper because of such a clause, but they are under no obligation to do so.

Now before you dismiss this with, "That's Stupid!" or something worse, because it appears that things are stacked to cost you money, consider that this has evolved over many years as the best and cheapest way to preserve everybody's best interests. Without these forms, there would be a lot more lawsuits filed over commissions, with the side effect that the lawyers get rich, and the money ends up getting paid anyway on top of that. The listing agent commission is partially a hold over from the old single listing days of half a century ago. Over time, the buyer's agent commission evolved as a way to open the system up, so that homes sold faster and those agents and offices without a large, pre-built client base could break into the business. But it's still intentionally structured that way as a way to motivate that listing agent to advertise the property far and wide and especially in all of the most effective venues. It costs money for that sign in the yard. It costs money for MLS access. It costs money for advertisements in the paper. It costs money for all the trappings that enabled someone to go find that agent and list the property in the first place. It costs that agent money just to stay in business whether they have any clients or not. It costs the agent money for the advertising to attract clients in the first place. And chances are, if they hadn't spent that money, you wouldn't have found that property, and the owner wouldn't have sold it. Consider also the liability issue, which is huge and real. Are you volunteering to give up any legal rights for a complaint? Didn't think so. Which means they have to go through all of the disclosures, and they're still liable if they make a mistake. How many people do you know that do major work in their occupation for free, even though they're still going to be liable for potentially hundreds of thousands of dollars if something isn't perfect?

People think agents are making money hand over fist, when the reality is that unless they're putting in the long hours and hard work to make multiple transactions happen every month, they're just barely scraping by. Most of the successful agents I know put in sixty hours or more per week, and if they are putting in less than forty, I'll bet money on no other data that they'll be out of business in a year. This is not a cheap business to be in, or an easy one. I don't blame you for wanting to economize - it is a lot of money. If you don't think about what it's getting you, and what you're getting, and what agents are giving you, and the liability they're assuming, and what they have to spend to stay in business, and you just look at the check the brokerage is getting, it seems like a lot of money.

Put yourself in the shoes of a seller. You have a property, but you want cash. Real estate is not liquid, a property interchangeable with billions of other shares in planet earth that you can call a broker and sell over the phone because there's a ready market for shares in planet earth which are all interchangeable. Instead, each and every property is unique. This means it is bought and sold on the basis of those unique individual characteristics. You want results, you want your property sold for the highest possible price, you don't want it coming back to haunt you if there was something wrong you didn't know about, and it costs money and it takes work to make buyers want to buy your property.

Sometimes the agent gets lucky, and it sells quick. Sometimes the agent works hard - and they really do work - for months with no offers despite all of it. We're coming off of a market where a monkey could have sold a residential property within a week for more than the asking price, and entering a difficult period. This requires an adjustment in thinking if you're going to do well. Average total commission paid is up locally in the last few months, from five to six percent. Particularly in a rough market, if the seller tries to sell it themselves, it will statistically take longer, and they will statistically net less money from the sale, not to mention what they spent on the property in the meantime. Some few get lucky. People win lotteries and casino jackpots, too. Betting that you'll be one of them is a sucker's game. Any number of studies and statistics show this fact, and many brokers make a good living buying FSBOs to then resell for a hefty profit. The last broker I worked for is one example. In one month, we sold four properties he bought from FSBOs, all for a substantial profit, even in a down market. Sellers tried to think like you do, and it cost them over $150,000 net of commissions, and these were all fairly quick sales. Had we tried harder to get maximum value for his money, we could likely have gotten more, but he's not complaining.

Now, with that said, let's look at your current situation. I've already covered the fact that the listing agent is entitled to that commission. Now let's put you on the other side of the table from a guy whose responsibility it is to get the best possible price for the property, and his commission depends upon how good a job he does. He does this constantly, for a living. He's set up with information to ensure that he gets the highest price. It's cost effective for him, in a way that it isn't if you aren't doing it constantly. Betting that you're better at his profession than he is would be like him betting he's better at your profession than you are. My money is on "you end up paying more than you have to."

Here's a dead giveaway that an agent's job is trickier than you think it is: That you're even talking about an exclusive buyer's agent contract in this situation. So long as you already have the property in mind, there is comparatively little risk and a lesser amount of work for him in the situation. He's not going to have to drive you around to four million properties over the next twelve months to maybe find one you want. This is a buyer's agent's dream situation - cut straight to the bargaining, no preliminary work. If this one falls through, he can either look for more or blow you off, depending upon what he has time for. Offer him a general non-exclusive buyer's agent agreement with a fifty percent rebate if you find the property yourself, as you did in this situation. This motivates him to do his best bargaining and looking out for your interests without sabotaging the transaction. If this one falls apart, he's still got motivation to find you something on your terms, and you're not bound to him unless he introduces you to the property or you use him for negotiations, etcetera. You get a negotiator who knows your market and should know most of the tricks and is working on your behalf, and if this one falls through you have someone who's motivated to find your something with better tools and more relevant skills at his disposal than you have. He gets a commission which, if smaller, is also easier and walked its own self in the door rather than him having to go out and spend time and money to drag it in. Everybody wins. If he won't do it, find someone else in your area who will.

(Before anybody asks, I don't propose client contracts that I wouldn't accept)

Caveat Emptor

No, I'm not turning into a country western singer. Just got a search for "no closing costs no points loan cheapest rates loan". The visit (to this article) lasted less than a full second. The obvious implication was that it wasn't what that person was looking for.



As I have said before on many occasions, cheapest rates or lowest rates do not go with no points or no closing costs loans. Period. One of these things does not go with the others. Rate and total cost of the loan are always a tradeoff.



This is not to say that one loan with no closing costs may not be cheaper than another loan with no closing costs. The point is that there will be lower rates available with some closing costs, progressively more as you get higher closing costs. Then if you start paying points, there will be still lower rates available. There is a reason why they are paying all of your closing costs - you're choosing a loan with a higher rate than you otherwise could have gotten.



No cost loans can be and often are the smart thing to do. Because they are the only loans where there are no costs to recover, they are the only loan that can possibly put you ahead from day one. Consider the zero cost loan as a baseline, and compute what lower rates will cost you in closing costs. Consider: If the zero cost loan is 6.75 percent at $270,000, your new balance should be $270,000. If you can get 6.5 at par with closing costs of $3500, your new balance is $273,500. Your monthly interest in the first instance is $1518.75 to start. Your interest charges in the second case are 1481.46. The lower rate cost you $3500, but saves you 37.29 per month. Divide the cost by the savings, and you break even in the ninety-fourth month - not quite eight years. So in this example, if you think you're likely to refinance or sell within eight years, you'll be ahead with the zero cost loan.



If the loan has a fixed period of less than the breakeven time, you also know that the costs are not a good investment. If this loan were only fixed for five or seven years, well even if you decide to hang onto the loan after it adjusts, the rates go to precisely the same rate after adjustment. If you haven't broken even by then, you never will.



So whereas a true zero cost is often the best and smartest way to go, it will never be the lowest rate available.



Caveat Emptor.


Cosmetic Fixer in Good Area!



General: Urban East County, 3 bedroom 2.5 bath. Asking price between $350,000 and $375,000. I think $300,000 net might get it sold!



Why you should be interested: The property has very good basics, but the surfaces are old. Consequently, it should be possible to talk them down off the asking price



Selling Points: 2 car garage with storage and inside access! 2 full baths upstairs, vaulted ceiling!



Why I think it's a potential bargain: A Three Bedroom home in a nicer area, with great schools for this kind of price isn't enough?



Obvious caveats: This is a PUD.



Why it hasn't sold already: Most people just look inside and they see old. They don't see what a small amount of work could bring it up to!



Monthly Income to Qualify: (assuming no down payment and average credit on a thirty year fixed rate mortgage, full documentation, one total point or less) $5270 gross with zero down. If you have 20% down, monthly gross income to qualify will be $4020



If you keep it ten years and it averages only 5% annual average appreciation per year: Based upon a purchase price of $300,000 the property would be worth approximately $480,000. If you held it those ten years before selling, you would net about $230,000 in your pocket (not including increased value from updates!), assuming zero down payment. As opposed to renting the $2200 per month most comparable currently available rental and investing the difference at 10% per year tax free, you would be approximately $240,000 ahead of the renter, after the expenses of selling.



Fact you should be aware of: Most of the furnishings are original, but solid



Obvious way to enhance value or appeal of property: Paint and new carpet. Update the kitchen and bathrooms.



This property does not appear to be eligible for a first time buyer Mortgage Credit Certificate provided your family income is not more than $82,800 or $96,600. Ask me for more details, on this or any other property.



I'm a buyer's Realtor®. I am looking to represent buyers, so I find places like this that can be gotten at bargain prices. I save you money while getting paid out of the listing agent's commission, not costing you a penny. Nor are these the only bargains I find. In order to protect everyone's best interests, I require a Non-Exclusive Buyer's Agent Agreement. This is a standard California Association of Realtors form that leaves you are free to work with other agents, but if I find the property you want, I'm the agent you'll use. That's fair, and there is no reason not to sign such an agreement unless you're an agent yourself. If your current agent was finding properties like this, you wouldn't be interested.



Contact me: Action Realty 619-449-0723, ask for Dan or email danmelson (at) danmelson (dot) com. Ask me to find a bargain that fits you!

if our house is being foreclosed, can they take our retirement or make us sell our cars?

we both have 2006 cars that are paid off. Can they take our cars or make us sell them to pay them some money?
Can they place a judgment to take our retirement 401k?

Depends upon the law in your state, and whether the loans you have are subject to recourse.

Here in California, purchase money loans are not subject to recourse. Providing you don't commit fraud or any of the other things that void this protection, once they take the property, that's it. If your loan was purchase money, used to buy the property, they shouldn't be able to win a deficiency judgment after foreclosure.

However, this isn't likely to be as innocent a situation as all that. Can't make the mortgage payment, but have two vehicles less than two years old which are all paid off? That says "cash out loan" to me!

I am unaware of any circumstance under which a "cash out" loan is not full recourse. It's not like you did it by accident. Now, if as I suspect may also have been the case, false promises were made to you as to your payment, interest rate, etcetera, that's a matter to take up with the people who did your loan. Actually, probably better to have your lawyer take it up with their lawyer. But that doesn't mean the current holder of that loan isn't entitled to their money.

If, as I suspect, you "cashed out" to pay for those cars, then you've got a full recourse loan, and they can pursue a deficiency judgment. Once they've got that, talk to a lawyer about whether they can get court approval to take your vehicles. But they're going to get the deficiency judgment if they try. That one is pretty cut and dried. Unless there's something reasonably unusual going on, for which consult a lawyer, you're likely to be better off agreeing to it in the first place, rather than forcing them to pay attorney's fees and having the judgment say you've got to pay their attorney fees as well as your own, in addition to the base deficiency. My understanding is that safe harbors for assets in this case are intentionally as few as the legislature can make them.

One of those few safe harbors, though, though, is likely to be retirement accounts. Retirement accounts are a protected asset class, and while I suppose it's possible for a creditor to get at them, I've never heard of a case of them being successful, at least not until you start withdrawing from those accounts. Once it gets withdrawn, of course, the money you withdraw is ordinary income, and therefore, fair game. This can lead to the sort of situation computer programmers call a deadly embrace. They can't get at the retirement account as long as the money is in there, you can keep the money in the retirement account, but if you try and withdraw it for use, they can then get at it. They can't get it until you try to use it, but they can get it if you do. Usually, people in this situation negotiate a settlement

Caveat Emptor

4 Bedroom Home in a Nice Community!



General: Urban East County, 4 bedroom 1.75 bath. Asking price between $350,000 and $375,000. I think $320,000 net might get it sold!



Why you should be interested: Well kept property, good to excellent public schools, nice place to raise a family!



Selling Points: One bedroom and 3/4 bath downstairs, vaulted ceiling, master has own balcony!



Why I think it's a potential bargain: A Four Bedroom home in a nicer area, with great schools for this kind of price isn't enough?



Obvious caveats: Some traffic noise outside, noticeable when it's quiet.



Why it hasn't sold already: It's hard to find in MLS.



Monthly Income to Qualify: (assuming no down payment and average credit on a thirty year fixed rate mortgage, full documentation, one total point or less) $5620 gross with zero down. If you have 20% down, monthly gross income to qualify will be $4300



If you keep it ten years and it averages only 5% annual average appreciation per year: Based upon a purchase price of $320,000 the property would be worth approximately $520,000. If you held it those ten years before selling, you would net about $240,000 in your pocket (not including increased value from updates!), assuming zero down payment. As opposed to renting the $2200 per month most comparable currently available rental and investing the difference at 10% per year tax free, you would be approximately $230,000 ahead of the renter, after the expenses of selling.



Fact you should be aware of: Most of the furnishings are original, but solid



Obvious way to enhance value or appeal of property: Just update the kitchen and bathrooms.



This property does not appear to be eligible for a first time buyer Mortgage Credit Certificate provided your family income is not more than $82,800 or $96,600. Ask me for more details, on this or any other property.



I'm a buyer's Realtor®. I am looking to represent buyers, so I find places like this that can be gotten at bargain prices. I save you money while getting paid out of the listing agent's commission, not costing you a penny. Nor are these the only bargains I find. In order to protect everyone's best interests, I require a Non-Exclusive Buyer's Agent Agreement. This is a standard California Association of Realtors form that leaves you are free to work with other agents, but if I find the property you want, I'm the agent you'll use. That's fair, and there is no reason not to sign such an agreement unless you're an agent yourself. If your current agent was finding properties like this, you wouldn't be interested.



Contact me: Action Realty 619-449-0723, ask for Dan or email danmelson (at) danmelson (dot) com. Ask me to find a bargain that fits you!

I am about to close on a condo unit. At the last minute, we received the resale document from the management company. All units are being assessed a one time charge of $3000 due in full Nov. 1 for roof repairs needed. I have not closed yet, but we are in contract. Who is responsible to pay this assessment? The current owners (sellers) or me, the buyer? I do not want to pay for this assessment as I am not the unit owner at the time this special assessment was placed.


This is a good question, and applies not only to HOA assessments, but property taxes, etcetera. The owner of record as of the assessment date is responsible.

However, assessments of this size generally have to approved by the association at large, so there was almost certainly a vote of the owners, so they knew about the assessment, and it should have been disclosed to you. Even if the owners at large didn't vote, it shows up in the minutes of the board, which the board is required to inform the owners of. The current owner knew, or should have known, and kept it to themselves in violation of the law. Most states treat this as fraud on the current owner's part (talk to a lawyer in yours). One more issue is why did the condo certification not show this assessment?

As for you reaping the benefits, that would be the case if they paid it now and you bought the day after. Tough cookies for them. It's part of owning communal property.

If they had disclosed this like they should have, it's likely you would have negotiated something as part of the purchase contract. As it is, you now have them in a hammerlock, because even if the assessment is due after the contracted closing date, their failure to disclose does mean that a reasonable person might not have entered into the contract you did. Even if it's not criminal fraud, it is a legal tort, and you're likely to recover legal fees and maybe damages if you sue (again, talk to a lawyer before you draw any lines in the sand). If they're smart, they'll pay the assessment out of sale proceeds and save themselves all that. On the other hand, if they were smart, they wouldn't be in this predicament, would they?

You probably have the option of bailing out, as well, even if the contingencies have all expired. Of course, all of the standard warnings about your deposit apply. Just because it falls out of escrow doesn't mean the escrow company will return the deposit. The other side has to agree, or you've got to get a judgment. Again, they're likely to end up responsible for your legal fees as well as their own and not getting the deposit anyway, so it would be smart for them to just agree. Unfortunately, all too many people aren't smart - they're hoping to scam something. The vast majority of the time, it costs them more than they might possibly have scammed even if they were successful.

One more thing: Your buyer's agent should have covered all this. If you decide to bail out of this transaction, fire them. If you've been using the listing agent as a Dual agent handling both sides of the transaction, you've just had a practical demonstration in one of the hundreds of reasons why that is a very bad idea. Go get yourself a Buyer's Agent that is going to work on your behalf.

Caveat Emptor

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Lender Owned Condo - Great Intrinsics!



General: Urban East County, 2 bedroom 2 full baths. Asking price between $180,000 and $200,000. I think $175,000 net might get it sold!



Why you should be interested: Well designed buildings, very little deferred maintenance. Well kept unit even if it is older inside. Very close to one of the best area high schools!



Selling Points: This property would be great for a starter home, or for single parents!



Why I think it's a potential bargain: Less than $200k for a solid 2 bedroom condo in good neighborhood!



Obvious caveats: Roof has leaked at some point since last painted. Furnishings and surfaces are clean and solid, but not new.



Why it hasn't sold already: Most people want brand new and already beautiful. They end up paying for it. That's not this property.



Monthly Income to Qualify: (assuming no down payment and average credit on a thirty year fixed rate mortgage, full documentation, one total point or less) $3342 gross with zero down. If you have 20% down, monthly gross income to qualify will be $2619



If you keep it ten years and it averages only 5% annual average appreciation per year: Based upon a purchase price of $175,000 the property would be worth approximately $285,000. If you held it those ten years before selling, you would net about $135,000 in your pocket (not including increased value from updates!), assuming zero down payment. As opposed to renting the $1200 per month most comparable currently available rental and investing the difference at 10% per year tax free, you would be approximately $92,000 ahead of the renter, after the expenses of selling.



Fact you should be aware of: There's nothing new here. But everything I could see looked sold.



Obvious way to enhance value or appeal of property: Just update the kitchen and bathrooms.



This property does not appear to be eligible for a first time buyer Mortgage Credit Certificate provided your family income is not more than $82,800 or $96,600. Ask me for more details, on this or any other property.



I'm a buyer's Realtor®. I am looking to represent buyers, so I find places like this that can be gotten at bargain prices. I save you money while getting paid out of the listing agent's commission, not costing you a penny. Nor are these the only bargains I find. In order to protect everyone's best interests, I require a Non-Exclusive Buyer's Agent Agreement. This is a standard California Association of Realtors form that leaves you are free to work with other agents, but if I find the property you want, I'm the agent you'll use. That's fair, and there is no reason not to sign such an agreement unless you're an agent yourself. If your current agent was finding properties like this, you wouldn't be interested.



Contact me: Action Realty 619-449-0723, ask for Dan or email danmelson (at) danmelson (dot) com. Ask me to find a bargain that fits you!

What do the mortgage companies mean when they say they can not insure your house loan.? What is the danger to the homeowner?

I have been in the new home for over a year now and they just now told me that they could not insure my loan. They said they made a mistake and overlooked something in my credit. I do not know what dangers I face now because of this.

You say you've been in the property a year, so I'm going to presume you're talking about an existing loan, rather than a new loan. The loan you used to buy the property, and what they're talking about is that the PMI company rejected the application to insure your loan, and they just now realized the problem.

That Note is a contract binding to both sides. They accepted that loan contract with you. Once it's funded and recorded, they can't back out. Unless the contract has a call "feature" they can't pull your loan just because they feel like it after it's recorded, so the loan you've got now should be fine for you. It's no coincidence lenders are adding call features to more and more loans, to give them a bail out clause should they decide to. But if you don't have such a clause, as long as you keep making all your payments on time, keep the insurance and property taxes up, and all that, they can't force you to do anything. The lender can offer you incentives, as lenders did back in the late seventies and early eighties, such as offering you a reduced payoff if you'll refinance or sell, but they can't force you to do anything as long as you continue to hold up your end of the bargain. The time for them to talk about qualifications is before the loan is funded and recorded. Afterwards, they can't do anything about it, any more than they can do something if values drop (which they have, another reason why they want you to find another lender), if you lose your job, if you decide to change lines of work, etcetera. The qualification process is not open-ended.

There is one more way they can get out of it. If you committed fraud or perjury or something else during the loan qualification process, and they gave you the loan based upon those false representations. Having a loan called is no fun. There's a reason I keep telling people to tell the truth, and nothing but the truth in loan paperwork. In addition to possible criminal charges, you'll have between 7 and 30 days to get the money somewhere when your loan is called for this reason. If the rate is higher, if the closing costs are huge, even if you can't get that loan, it's not the lender's problem. They are within their rights if you misrepresented yourself in a material way.

What they're likely trying to do in this case, where you haven't told me of such a reason, is stampede you into refinancing, since without PMI they can't sell your loan on the secondary market. Unfortunately for them, they're stuck at this point unless you let them off the hook, and they'll have to hold your loan themselves and hope you don't default.

There's a fair amount of this sort of thing going on right now, as the lenders that gave out 'warm body' loans suddenly realize the consequences. Don't draw any lines in the sand without talking to a lawyer first, but if I understand your situation, they can't force you to refinance or anything. It's more than a little slimy of them to do this, of course. But a certain percentage of borrowers will panic and do something they don't need to.

Caveat Emptor

This has been knocking around my head for a while, and I've written on closely related subjects before. But the idea behind this essay really just gelled in my mind within the past couple days.

Here are the facts of the situation, whether you're talking about San Diego or Manhattan, the Bay Area, Los Angeles, or any of the other densely packed, high cost areas where all the employment and career opportunities are.

Fact 1: Land is expensive. The cheapest unimproved little 8000 square foot irregular lots in the area I work most - no tests done, no utilities on the lot, even though they may be close, no permits whatsoever and zoning R1 at best - run just under $200,000. Matter of fact, I consider that one basically unsuitable for housing due to the freeway that runs through where the back yard would be. Here's the worse news: Prices are going to get higher. They're not making any more land. Demand is increasing. More people want to live in those high density areas every year. More businesses want to open. Not far from my office, there's a 9500 square foot R1 lot someone is buying for about $250,000 with a condemned residence on it. He's going to have to scrape it himself, and assume all risk of the city issuing the permits for new construction, and he was glad to get it, even though he knows the soil needs to be repacked also. (Manhattanites may jeer at the low price if they'd like - for now). Land is a scarce good in high density areas - the very places where everyone wants to live, needs to live, because they have to live within commuting distance of their career. Lots like this are where we're going to get buildable lots in the future, and usually, those purchasing them are going to pay for the single family residence that happens to sit on it now. There. Is. No. More. Dirt.

Land with residential structures, specifically, 8000 square foot lots that happen to have one residential structure are equally costly, in and of themselves, as the 8000 square foot lot next door which happens to have six residential structures, Or a commercial warehouse, manufacturing facility, office building, etcetera. They use the same amount of area on the earth's surface. With the exception of location and the soil that happens to be there, everything else that's been done to that land is completely artificial. This starts with the utilities that may or may not be there, extends through zoning and conditional use permits, and arrives at specific structures that may be in existence. All artificial. Absolutely nothing to do with any natural virtue of one parcel over another.

The first statistic I find says that cost of construction per square foot is roughly $150, while commercial buildings sell for roughly $300 per square foot locally. So, you can pay $200,000 for that lot, build one fifteen hundred square foot building, and sell for roughly $450,000, having made $25,000 net (450-225-200), and that's providing there's no existing structure. Or you can build six twelve hundred square foot two story buildings (or six one story units, three upstairs and three down), still have space for some kind of communal outdoor area, sell for $360,000 each, and make $2,160,000, leaving $880,000 net, still maybe $600,000 if you had to pay for the single family residence that used to be on it as well. I'm intentionally neglecting transaction costs, by the way, which swing the figures even more decisively in favor of the high density alternative. Question: Under which of these two scenarios is it more likely that they'll cut the price? Under which is it more likely they'll raise it? Question: Even if the price isn't cut, which of these two alternatives can more people afford? Which is a more efficient use of the land? Which ends up giving the better return on investment, indicating that more of them will be built? There's hardly an infinite supply of either, but which is likely to remain more affordable, as builders build more and more of them in relation to the alternative? Shared lots, particularly when paired with communal outdoor areas, make a whole lot more economic sense than single family residences, they will always be more plentifully available, and the more demand is placed upon a given amount of land, in the form of people wanting to live, work, and play there, the more strongly the economics will favor shared lots. New Yorkers have been used to this for decades. Now, some other areas of the country are becoming just as solidly built upon, if not yet nearly to the depth Manhattan has seen. In fact, by the standards of most cities worldwide, Manhattan isn't particularly dense. Many affluent old world cities have it beat like an dirty old rug when it comes to density per square mile. It's just that it seems dense by comparison with the rest of the US, where we have long been accustomed to lebensraum.

Corollary: The closer to commercial and recreational opportunities a particular parcel is, the more desirable it is. For those skimming this in their sleep, this means the price of that land is raised by people competing more strongly for it. This is one of those things everybody knows (ask people whether the lot by the beach is more expensive than the one twenty miles inland), but few people stop to think about all of the implications. The closer you want to live to the commercial zones, the closer you need to live to all the commercial zones, the more valuable the underlying land is and the more likely it will have some sort of communal lot arrangement. It doesn't matter if you don't drive, can't afford a car, or what, any more than nature cares how badly you want to fly in applying the force of gravity to you. It's nothing personal, any more than the saber tooth picking out one of our ancestors for dinner was after payback, movies or no. It's just a fact of the universe, and the fact that it's economics, measured in dollars, does not make it any more mutable than if we were talking about the thrust of the rocket, measured in Newtons.

For those reading this whose response to the above is governmental in nature, you cannot mandate the building of more affordable detached single family residences. The economics is not there to support it. Developers will build what can make them a profit. They won't build what won't make them a profit. Putting up regulatory hurdles only makes the affordability threshold rise further. You can have the city, the state, the federal government subsidize people into them, but that amounts to giving a band-aid to a decapitated body, economically, because the number of people who can be thusly accommodated is microscopic as compared to the number of people there are who can't afford where prices are now, let alone where they are going if you try this route. Furthermore, limitations on the benefits when these people sell such units short-circuits all of the economic reasons why people should get into home-ownership. It amounts to creating, not a class of homeowners, but a class of privileged renters! It's not even permanently privileged renters. Those of these I've been involved in have clauses where if the bureaucratic or political masters can manufacture a reason, you can be dispossessed. If there are no such restrictions on the sale of the unit, then the lucky recipients get a windfall at the expense of taxpayers and/or everyone else who buys within the development! Kind of like forcing taxpayers to buy hundreds or thousands of dollars worth of lottery tickets per year at the point of a gun, with the suckers getting about their current fifty cents per dollar back, only in the form of real estate rather than cash to those few lucky winners. Except, such winners won't be random. It's like if the bureaucrats and politicians could pick the lottery winners. But I digress.

My point is this: in high density areas, single family detached homes are going to get less and less affordable from this point on. So, for that matter, is everything else. Go back to supply and demand. Demand, which is to say, population of people who want to live there, is increasing. Supply is constant. If I have three apples to sell, and there's only two people who want one, the price is very low. If I have three apples to sell, and there's three hundred people who want one, I set up an auction and the three people willing and able to pay the highest prices get apples, while I get a lot more money than the first case. Same principle with real estate. It doesn't matter that the other 297 people can't afford it. It matters only at which point that 297th person drops out of bidding, leaving the remaining three winners.

(Some people are going to note that we have to put those 297 people somewhere, which is true, but that's not the concern I'm addressing here, although I will state we can plan to do so in a way that's economically logical, or it will happen anyway, no matter what the law and the planning commissions may say. The first way will be a lot more pleasant for everybody.)

If you're in a high density area, you can leave or stay. If you are able to leave, as for instance, retirees can, you're not who I'm planning for here. If you're one of those few who are sufficiently affluent to be able to afford whatever the economic costs are, you don't really care. Real Estate is still going to be every bit as fantastic an investment as it has always been. In fact, the higher the demand goes, the better the investment it's going to be. Real Estate does not increase, over the long term, at the same rate as wages. It increases at that rate plus an additional factor to reflect increasing demand in a constant supply market.

Suppose in my previous example, that I have some magical way to convert one apple into ten oranges? Persons 288 through 297 get together and outbid number 298. They can't have an apple. They decide, however, that it they can't have an apple, they do want an orange and are willing to pay for it. Between them, they outbid person number 298 for that third apple, and have me convert it into ten oranges so that they each can have one. I make more money, and persons 288 through 297 are happy, also. The only person who's unhappy is person 298, who then decides that if he can't have that apple, either, he at least wants an orange, and so he goes and trades some of his money to person number 288, who, if he doesn't have an orange after he makes the deal, does have more money than he started with, assuming it's a willing sale. So now I'm not the only person who has made a profit. Person 288 has also made one. Similarly, person 299, who observed person 298's experience, and still has his apple, voluntarily decides he wants to convert his apple into ten oranges, and offers me something I want in exchange for doing so (remember, I'm the one with the magic trick, aka the construction industry). Person 299 now has ten oranges, and proceeds to sell them to persons 279 to 288. This nets him enough to buy the remaining apple from person 300, who goes and buys person 279's orange with some of the proceeds, while person 299 decides that at this point he's happy and wants to keep this apple for themselves. Look at all of the people who made a profit and came out ahead because I could convert one apple (detached single family residence) into ten oranges (condominiums). Every single choice of every participant here was purely voluntary, and would not have been made if the recipient had not been made happier thereby. Note also, that there's eighteen people who have a place to live, where they would have been homeless if I (the construction industry) couldn't convert apples into oranges. These are all cold hard facts.

Like it or not, Manhattan and the surrounding area represent the way that other high density areas in this country are going to go. Let's leave all the non-essential stuff out of this, and consider only the economics. When the cost of land is high because there's a fixed amount, the only way you can create more space is along the vertical axis. You can go down, or you can go up. You can put multiple units on the same space where there was one. You can stack them fifty high or more. In any of these cases, it's no longer single family detached housing. The better you plan for your city's density, the more of your citizens have a home and the fewer that go homeless or have to relocate. My transform apples into oranges ability in the example above raised the number of people who are able to afford housing by a factor of 7, but that's hardly the maximum possible.

If you don't have the money for an apple - single family residence - now, it's going to take some kind of major change in your circumstances to enable you to afford one. Get your law license, your medical license, win the lottery, make several million dollars in business, get a professional sports contract, something. Your circumstances are not going to change by magic. If you're a shoe salesman, even if you're making $20 per hour, and you're not doing something to change that, it's not likely to happen on its own. Matter of fact, it's going to keep getting more difficult. Right now there's 300 people who want to live in your area. What happens to the price when there's 500? A thousand? Ten thousand? This is an easy answer, straight from the pages of your first economics lesson. The price goes up, and not just in relative but in absolute terms.

If you don't have the money for an apple - single family residence - now, you can choose one of two options. You can decide not to play. Stay a renter forever, or at least until you realize what a mistake it is. Rents go up, and landlords have to pay mortgages and property taxes also. They can also decide to stop playing the landlord game and sell for what they can get at any time. I've heard from a lot of bitter renters who were displaced when their former landlords decided to take the money and run when the market was hot. Furthermore, the rental market is going to keep getting more expensive as the population, and therefore demand, increases also. Right at this moment, there's even more upwards pressure on the rental market as people who lost their properties through foreclosure need a place to stay. The vacancy rate locally was 2.6% in the middle of last month. There is no way around one cold hard truth: Renting leaves decisions about your future in the hands of others, and of random fate.

Your second alternative is that you can decide to buy an orange - a condominium. Condominiums are going to see every bit of the long term gain single family detached housing will, at least proportionally. So you've only made $300,000 when your $300,000 condo doubles in price, as opposed to your $500,000 house doubling in price. Actually, I'll bet you that from this point on, in areas like San Diego, they see just a little bit more appreciation than single family detached homes. Right now, there's still a very large proportion of renters telling themselves they're going to own a house someday, but they're not interested in a condo. As that becomes more and more out of reach for them the majority of them - all of the rational ones - are going to switch their goal to the closest practical equivalent. Condos are never going to be as expensive as single family detached homes, but more people can afford them, and they're going to be more expensive per square foot of living space. Why? Because of the implicit cost of all that land that the single family detached home is not using for living space, which isn't taken into account. Because so many more people can afford a tenth of the lot than can afford the entire thing. When you've got the last single family residence on its own quarter acre lot on Manhattan, someone who sees the profit to be made in higher density construction is going to make you an offer you won't want to refuse, and eventually, you will sell voluntarily. Maybe that person will even be the owner, themselves.

This doesn't happen all at once. It happens piecemeal, over time, but it does happen. Already, I can take you back to the neighborhood I grew up in and the surrounding area. I can show you all of the buildings that weren't there thirty or thirty five years ago, and San Diego hasn't been completely built up anywhere near that length of time. Some of them were vacant land then. Most, however, have been converted from lower density to higher density. I cannot point to a single place that's gone from higher density to lower. People who are middle aged now or older have watched it happen in slow motion, so slow that all of the implications haven't sunk in to most of us, yet. Indeed, the slowness has allowed a lot of people to keep pretending it isn't happening. This doesn't change the fact that it is happening.

Some people don't like oranges (condos). For that matter, some people don't like apples (single unit detached housing). The ones who can afford single unit detached housing but prefer condos don't have a problem. The ones who can afford condos but prefer single unit detached housing do. I've gone over the most obvious solution to this problem before, in Part 2 of Save For A Down Payment or Buy Now?. There are others, but they all involve similar principles of solution.

The bubble everyone (including me) was talking about two years ago is gone. In fact, it's more than gone. San Diego is experiencing a strictly temporary depression in prices, caused by psychological factors, just like 9/11 hurt the stock market for a while, and for precisely equivalent reasons. Mass media always paints things as being better than they are when they're good, and worse than it is when they're bad, causing people who believe mass media to over-react. This means opportunity, while it lasts, until a critical mass of people figure out that things aren't so catastrophic as they have been painted. Some people will see this article, and instantly decide to try to time the market. Don't. You'll mis-time it, with results worse than if you just acted. There are any number of studies that confirm this. I've debated, in person and via email, three bubble advocates in the last week. Every single one of them has tried to start moving the goalposts on me, citing prices of college for the kids, prices of cars and this and that. These extraneous factors have been there for decades. They've never been absent. They're been living in the equation so long that people forget they've already been taken into account, even thouth they've been there all along. But that's the only way these folks with so much emotional investment in the bubble can pretend that prices are going to keep going down.

The condominium market, in particular, has been hit hard for several years. Stuff that was legitimately worth $300,000 several years ago declined in price to where $225,000 was a good offer, and that was before this year's shock to the financial system. There are condo owners who wanted to sell four and five years ago who still have their units, but no one's been making offers. Part of this was "too much, too fast" - converting apartments to condominiums and building new condominiums, in the hope of cashing in on the rush, but the rate got above the current market requirements to a certain extent.

The larger part, however, at least in my estimation, has been "elephant hunting." This is a well known phenomenon in just about any sales occupation, but real estate has been rewarding turning squirrels into elephants these last few years. The hardest part of making money as a loan officer or as an agent is getting clients to work with you, and it takes about the same amount of effort. When you've got a set of buyers (or borrowers) in front of you, the temptation is there to sell them the a larger home with a larger loan than they can really afford, so you get a larger commission. The sort of warm body loans that were available the last few years facilitated this practice. The people want to buy, but can't afford what they want? Instead of trying to talk them into limiting their budget to what they can afford, which risks them leaving your office and going to your competitor, sell them what they really want, with a stated income loan. If you need to lower the payment, make it a 2/28, spread it out over forty or fifty years, add an interest only period at the beginning, or just scrap all that and put them in a negative amortization loan from the get-go, further inflating your loan commission. I've seen estimates that over eighty percent of the sales locally in the last two years used one or more of these tricks in support of it. Like I said, turning squirrels into elephants so you can hunt elephants. These people should almost certainly have been buying condos, but weren't. Given the state and shape of the socio economic pyramid locally, there should have been more condominiums bought and sold than single family detached housing, by a factor of about 3 to 2. That was not the case. The ratio was over 2 to 1 the other way. And if that's not quite a sufficient indictment of the ineffective regulation of the real estate profession to measure up to Emile Zola's "J'accuse!", it'll nonetheless have to do.

In case you haven't been paying attention to the financial news lately, the loans that enabled these tricks are now gone. History, and they're not coming back for years at least, until the lenders develop collective amnesia again. Meanwhile, agents and loan officers who are used to hunting elephants are complaining that they're all gone. Well, they weren't really elephants in the first place, but the lax loan standards made it possible to get an elephant's worth of meat off them, at least for the agents, the loan officer, and the seller. The buyer and the lender, of course, ended up holding the sack. My sympathy for the lenders is non-existent. They knew better. My sympathy for these buyers, on the other hand, is great.

So the condo market has been dead due to the loans situation, while agents and loan officers hunted elephants who were really squirrels. Now that it's rectified, agents won't have a choice. If folks can only afford the price of a condo, It's condo or nothing. Every single one of my A paper sources still has 100% financing for full documentation loans. If any of you don't understand what that means, it means you still don't need a down payment if you can document enough income to afford the loan. For that matter, most of my sub-prime lenders are still offering 100% financing through bank statement qualification. Lack of down payment is not an issue. Ability to afford the payments on the loan is.

Let's hypothetically consider a $225,000 loan on a $225,000 condominium with homeowner's association dues of $250 per month. As I sit here and type this, for one point total retail, I've got a thirty year fixed rate loan at 6.125%, with PMI of just under 1%, which I'll round to 1%. I would prefer to split the loan into two in order to save money for my clients, but as I said here, that simply is not on the list of alternatives right now. Payment on the loan is $1367.12, of which $1148 is tax deductible. PMI is $187.50, and will go away as soon as the buyer has 20% equity, which will likely be sooner than you think. Property taxes, at 1.25% (mine are lower), add $234.38 per month and are also deductible. Total: $2039.00 per month, and most buyers are going to get a significant amount of that back from lowered income taxes (married: roughly $150 per month, single, roughly $250 because the standard deduction is lower). Income needed, $4078 to $4531 gross salary per month, or from just under $49,000 to just over $54,000 gross per year, at most. This is well below area median income for 2006 of $64,900, and it's done with a sustainable loan, without any stated income tricks, without any government programs for first time buyers, or anyone else, no MCC, nothing. These buyers are doing it completely on their own, without a down payment. If they have a down payment, it gets a lot more affordable than this, fast.

Tell me you don't want a condominium, and I'll tell you that's fine. Come up with 10% down, and I can get you that stated income loan you need in order to buy the single family detached property that's all you're willing to buy - but I'm not going to let you pretend I didn't warn you about the consequences. Don't have the down payment? The fastest way to get it is to buy that condo, and I can prove it!

I've been aware for some time that I'm probably going to sell more condominiums than single family detached houses for the rest of my career. No, I don't have any objection to hunting elephants and in fact, yes, I would rather do so. It's just that there's more people who are going to be buying and selling condos out there than there are single family detached from now on, and I'd rather have the money from helping them than not have it, so I might as well hunt squirrels along with elephants. Not only will I make more money, those of my clients who do what is necessary to become elephants will likely come back with more business. And the fact that they listened to me about how to do it (and that this advice worked!) will be the obvious primary reason behind their ability to buy something bigger and more expensive later, making it even more likely they'll come back to me. Not that a 3% commission on that $225,000 condo is squirrel feed, but when it leads to 2.5% of $600,000 to sell it in a few years as well as 3% of $1,000,000 when they can afford to buy that property they can't afford right now, my clients won't be the only ones smiling from ear to ear.

Caveat Emptor

Games Lenders Play, Part V

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Hello, I've been reading your website for awhile now, and have found it very helpful as I'm learning to navigate this crazy loan process! I had a question I was wondering if you could write about/answer.

We currently have a mortgage and a secondary line of credit on our condo (we didn't have a down payment, so we had to do it like this). We have been here one year, and the home values in our complex have gone up about $70,000 - $100,000 in that time period. (We live in Southern California.)

Recently we got a notice in the mail telling us that they can reduce our monthly payments ("by as much as $1,500!)" if we refinance with them. Frankly, it sounds way too good to be true, and I have a feeling they're not really telling us the truth in this notice. But it did raise a question in my mind: would it be wise to attempt to refinance, in the hopes that our higher valued home would allow us to refinance with only one mortgage, instead of two? I'm not even sure if that's possible...I'm having a hard time understanding how refinancing works. I should mention that we are currently in an interest-only loan, with no prepayment penalties. Our first loan is 4.75%, and our secondary line of credit is 6.375%.

Any help would be greatly appreciated.


Your feelings that they aren't telling the whole truth are justified.

Refinancing is the process of replacing one loan for another on the same piece of property. The idea is that the terms of the new loan are more advantageous to you than the terms of the existing loan. There are three main issues that you need to be aware of, however. The first is that there are always costs associated with doing the new loan. The second is that there may be a prepayment penalty to get out of the existing loan. The third is to make certain the terms you are moving to are enough better, for your purposes, than the existing terms to justify the costs associated with the first and second issues.

You state that you're in California, which is where I work. Realistic costs of doing the loan are about $3500 with everything that is necessary. This doesn't include origination, to pay the loan provider for the work they do on the loan, or discount, to pay for a rate the lender might otherwise not offer. I explain those costs, the difference between them, and many of the games lenders play in my article on The California Mortgage Loan Disclosure Statement (MLDS) Part I. There will also be the possibility of you having to come up with some prepaid items, explained in The California Mortgage Loan Disclosure Statement (MLDS) Part II.

Note that not every loan has points. I actually think that, given most client's refinancing habits, it's usually better to pay for a loan's cost, and the loan provider's compensation, through Yield Spread. Yield spread can be thought of as negative discount points, and discount points can be thought of as negative yield spread. Discount points are a fee charged by the lender to give you a rate lower than you would otherwise have gotten. Yield Spread is a premium paid by the lender for accepting a rate higher that you would otherwise have gotten, and can be used to pay the loan provider and/or loan costs. Each situation must be considered upon its own merits, of course.

Now, let's take a look at your specific situation. Your current first mortgage is at 4.75% interest only. You don't mention what sort of loan this is (updated via email: it's a 5/1 Interest Only ARM), but there is no such thing as a thirty year fixed rate interest only loan. At most they are interest only for a certain period, usually five years, before they begin to amortize over the remaining twenty-five. On the other hand, you said you bought one year ago, and that rate didn't exist on thirty year fixed rate loans then and it doesn't exist now. (Via later email, the first mortgage is a 5/1 Interest Only ARM). Your second loan is a line of credit at 6.375. I'm also guessing that either you, or the person who sold to you, paid a good chunk of change in discount points to buy the rate down, and I'm hoping it wasn't you.

Now, there's no way that this is a loan that's going to serve you indefinitely at that rate. There hasn't been a 30 year fixed rate loan comparable to that available since Spring of 2004, with any lender I know of, no matter how many points you paid. So what you have is at most a hybrid ARM (Yes, 5/1 Interest Only). No worries; I love hybrid ARMs. They are the only loans I consider for my own property in most circumstances. But they do have one weakness. There is likely to come a time when it is in your best interest to refinance, because after the fixed period the rate on them adjusts every so often, based upon a stated index plus a contractual margin, and the sum of these two is likely to be significantly higher than the rate for refinancing into another hybrid ARM.

Now what are they offering you? They're talking about cutting your payment by $1500 or more. But there just aren't any rates that much lower than yours available. Nothing even vaguely close. I don't think I could get you a 4.75% rate, even fully amortized, right now. So how are they going to cut your payment?

The only hypothesis I can come up with that is not contradicted by available evidence is that they are offering you a loan with a negative amortization payment. I explain those in these articles:

Option ARM and Pick a Pay - Negative Amortization Loans and Negative Amortization Loans - More Unfortunate Details

There is more information on marketing games with this loan type in these articles: Games Lenders Play (Part II) and Games Lenders Play (Part IV).

Finally, there are a few more issues that may not be relevant to everyone in these articles: Regulators Toughen Negative Amortization Loans? and Negative Amortization Loan Issues on Investment Property

One thing to understand is that when lenders are sending out advertising, they are not looking for Truth, Justice, and the American Way. They're looking to get paid for doing a loan, and most lenders will do anything to get you to call, and then to get you start a loan. The Creative Fiction on many Good Faith Estimates and Mortgage Loan Disclosure Statements is only the start of this. If you find a loan provider who will pass up loans that they could otherwise talk you into because it doesn't put you into a better situation, keep their contact information in a very safe place, because you've found a treasure more valuable than anything Indiana Jones ever discovered. A valuable treasure that you can and should nonetheless share with friends, family, and anybody you come into contact with because you want them to stay in business for the next time you need them. Most lenders and loan providers could care less if they are killing you financially - what they care about is that they get paid. A negative amortization loan pays between three and four points of yield spread. Assuming your loan is $300,000, they would be paid between $9000 and $12000 not counting any other fees they charge you for putting you into a loan where the real rate is at least 1.5 percent higher than the rate you're paying now, and month to month variable. Warms the cockles of your heart, right? Didn't think so.

In short, they're offering you a teaser no better than a Nigerian 419 scam for most people in your situation. My advice is not to do anything unless you're coming up on the end of your fixed period, in which case you need to talk with someone else, who might have your interests somewhere closer to their heart than the Andromeda Galaxy.

Caveat Emptor

Games Lenders Play (Part IV)

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I was approached by these folks a few weeks ago via email.



I attempted to get them to write up the experience themselves (and I would still like you to if you're reading this), but I wanted to write something about this before I completely forgot about it. This whole exchange is indicative of games loan providers play in order to make money.



I'm going to sketch this out chronological to the extent possible. What happened was Mr. and Ms. A got a postcard in the mail quoting low payments for their loan amount. They thought it looked great, and called the loan provider. The loan provider talked about these great payments on a loan that looked fairly real, and quoted an APR of 6.18. He told them that this was a great loan, and compared it to a 5/1 ARM in such a way that that was what they thought they were getting. No worries, because they were going to be transferred by his company in two to three years.



They asked my opinion about another item having to do with the loan, and something about what they said sounded funky to me.





Well, i believe what I'm getting is called a 5/1 ARM. Each month i have the 4 options of minimum payment, interest only payment, 30 yr payment, or 15 yr payment. (payments respectively would be either $A, $B, $C, or $D)



The minimum payment stays the same for every 12 months, then increases by about $90 each subsequent yr. I know minimum is not ideal, but i live in an area with high appreciation, and because of the ridiculous value of property in the area, & the school system in this county, it continues to appreciate regardless of trends elsewhere.



I'm told the loan comes standard with 3 yr prepay. I can pay the points I mentioned to make it a 1 yr, but it doesn't affect my interest rate coming down. That's at about 6.18%




Well, the part about property appreciating regardless of trends elsewhere is just plain wishful thinking. There is nowhere that is insulated from economic conditions. Nonetheless, it's not what we're talking about here. Does this loan sound like something I keep writing about?



Here's what I sent back:



That particular loan is actually a Negative amortization loan. I explain those here (same link as last paragraph - ed).



They are not wholly without redeeming qualities, but they are something to be done with a trembling hand and much looking over your shoulder. At the current rate, expect $725 to get added to your balance the first month - and rates are rising, so this is likely to accelerate, and your underlying rate is completely variable on a month to month basis. Even if they don't rise and you make the minimum payments, you will owe approximately $X after two years - an increase of $18,620 in your balance! Will it be an issue if you owe $18,600 more when you go to sell it? I think it likely that the answer is yes, but it's your call.



A 5/1 is something entirely different. It is a "A Paper" Thirty year loan with the interest rate fixed for the first five years, then adjusting once per year based upon either LIBOR or US Treasury rates, not COFI or MTA. As A paper, there is not an embedded pre-payment penalty. Right now, in California, I have them at about 6.25 no cost no points no prepay, or 6.5 interest only, and truly fixed for five years.




Furthermore, there was another issue with the loan quote:



If I do the math, the first payment gives a principal balance of $X+2000, the second payment gives a principal balance of $X, The third gets $X+500 and the fourth $X+1300. If these are the numbers your loan provider gave you, which of these numbers is correct? Any of them? Unless you're paying the 1.5 points out of pocket, your loan provider should give you a quote which adds them to the amount you are borrowing. Did they do this, or did they pretend it was going away by magic?




They responded:



oooh. sounding scary. So i left them a mssg asking which it was, a negative amortization loan, or a 5/1 ARM. I also asked for more info as I was sent spreadsheet which is missing some info. I am fwding the spreadsheet if you don't mind the attachment.




Well the loan provider had named the spreadsheet "2005_Pay_Option_Work_Sheet.xls" Pay Option is one of those "friendly sounding" names for a negative amortization loan. Well, I knew before what kind of scum bucket this loan provider was before I opened it, but doing so was confirmation, good enough to convict in court except that what he did isn't illegal, only immoral and unethical. Yep, it had all of the characteristics of a negative amortization loan as prepared by the worst kind of financial predator. Three or four payment options, including minimum, interest only, and 30 year amortized? Check. Prepayment penalty if you made any other payments (The so-called "one extra dollar" prepayment penalty I talk about here, which is not necessarily characteristic of negative amortization loans but certainly seems to occur there more than anywhere else). Check. Yearly minimum payment increases of about 7.5 of base minimum payment%? Check. Complete lack of disclosure that if you make the minimum payment your balance increases by hundreds of dollars per month? Check. About a 5 percentage point absolute spread between nominal rate and APR? Check. Complete failure to disclose payment based upon a "nominal" (in name only) rate of 1%? Check. Failure to disclose that the real rate was month to month variable from day one? Check. Failure to disclose that the index it was based on had risen in recent months and that unless said index went back down, the real rate would be rising? Check. Failure to include real and known closing costs in your loan quote? Check. That last is kind of minor as compared to everything else, but I'd be upset in a major way if it was the only thing wrong he did.



I sent Ms. A an email which said, in part:



"Option ARM" is a common, friendly sounding name for what is still a negative amortization loan. Everything about this loan, from the fact that it has a "payment cap" which is unrelated to a rate cap, screams negative amortization loan.



The 5/1 is a different loan provided for comparison, as the sheet tells you, and is a better loan for almost all purposes, as the second column of the comparison tells you. A 3/1 might have a slightly lower rate, or it might not. Ditto any of the 2 or three year subprime variants.



Intro period is telling you the period it is fixed rate for.



MTA loans are based upon a moving average of the treasury rate over the last twelve months. Since they've been going up, your real rate is likely to increase as some older and lower rates drop out of the computation in upcoming months.



Pay attention to the two footnotes on the payment options. "deferred interest" is characteristic of negative amortization.



(Name redacted for publication). They are not the only such company, but the translation into real english of their name must be "watch out for our piranha"



These loans are very commonly pushed because most people "buy" loans based upon payment, making them very easy loans to sell because unless you understand the drawbacks, you will think this is the greatest loan since sliced bread. These are up to forty percent of all new loans in the last year in some areas (including here), and are likely to contribute to a crash in housing values soon.




There are sharks and wolves out there, as this illustrates. Why people who would never buy a toaster oven without checking at least two vendors will sign up for a mortgage without shopping around is beyond me, but people do it. This is a trap that can be very hard to avoid unless you know what's going on, but if you talk to a few loan officers, and and go back and forth, chances become much better that you'll be saved by one of Jaws' competitors telling you what's really going on. Other, competing loan providers deal with this stuff every day. After a very short time, we get to the point where we can recognize it in our sleep. But we can't alert you to these kind of issues if you don't give us the chance.



Luckily, these folks gave me the chance.



They were in another state, and so I didn't get any business out of my good deed, but that's okay. I got this article. And now, you folks can read about it, and be forewarned.



Caveat Emptor






Lender Owned in Good Shape!



General: Urban East County, 2 bedroom + 1 optional, 1 bath. Asking price between $325,000 and $350,000. I think $300,000 net might get it sold!



Why you should be interested: Large well kept lot, white picket fence front and back, with alley access. Close to the freeway!



Selling Points: This cottage like home would make a great starter, and is in very good shape considering the age. Detached garage!



Why I think it's a potential bargain:Nice pleasant place in an area that most people wouldn't even look for a residence in, on a large lot!



Obvious caveats: Facade needs paint



Why it hasn't sold already: Most people won't look for a home in this sort of area. But it's still nice!



Monthly Income to Qualify: (assuming no down payment and average credit on a thirty year fixed rate mortgage, full documentation, one total point or less) $4940 gross. If you have a down payment or want to buy the rate down more, it will be less.



If you keep it ten years and it averages only 5% annual average appreciation per year: Based upon a purchase price of $300,000 the property would be worth approximately $480,000. If you held it those ten years before selling, you would net about $230,000 in your pocket (not including increased value from updates!), assuming zero down payment. As opposed to renting the $1650 per month most comparable currently available rental and investing the difference at 10% per year tax free, you would be approximately $150,000 ahead of the renter, after the expenses of selling.



Fact you should be aware of: This is the sort of home most children grew up in a generation ago!



Obvious way to enhance value or appeal of property: Just update the kitchen and bathroom. If you're feeling ambitious, add another bathroom or expand the garage



This property does appear to be eligible for a first time buyer Mortgage Credit Certificate provided your family income is not more than $82,800 or $96,600. Ask me for more details, on this or any other property.



I'm a buyer's Realtor®. I am looking to represent buyers, so I find places like this that can be gotten at bargain prices. I save you money while getting paid out of the listing agent's commission, not costing you a penny. Nor are these the only bargains I find. In order to protect everyone's best interests, I require a Non-Exclusive Buyer's Agent Agreement. This is a standard California Association of Realtors form that leaves you are free to work with other agents, but if I find the property you want, I'm the agent you'll use. That's fair, and there is no reason not to sign such an agreement unless you're an agent yourself. If your current agent was finding properties like this, you wouldn't be interested.



Contact me: Action Realty 619-449-0723, ask for Dan or email danmelson (at) danmelson (dot) com. Ask me to find a bargain that fits you!

How do I keep my home after filing bankruptcy. The Mortgage company wants to foreclose?

I want to know if there is anyway to keep the home even after filing chapter 7 bankruptcy. I want to know if there is any program that can assist me.

Bankruptcy does not effect your current mortgage. The only thing that will cause you to go into foreclosure is not keeping up your mortgage payments, period.

You don't have to include your mortgage in chapter 7, and it's not usually a good idea to do so if you have significant equity. Leave it out, and you even have a mechanism to restore your credit already in place, while limiting the damage the bankruptcy does. The larger the percentage of your lines of credit you include, the worse the hit is. Furthermore, if you have an open mortgage when your bankruptcy concludes, you're establishing post bankruptcy credit history, the best way to rebuild your credit. The poor folks who have to go get a new credit card get dinged even harder for each turndown, so that each successive application lowers the probability their next one will be accepted. Positive feedback to a negative end. Vicious cycle.

Talk with a real lawyer in your state to be certain. I'm not a lawyer, and I don't even play one on TV. However, my understanding is that Mortgages are debt secured by a specific asset - the property. Keep up the payments on that (or bring it current if you haven't) and general creditors with unsecured debt cannot touch that asset in most states and most situations. There are exceptions, but owner occupied residential real estate is one of the most protected assets there is. The fact that it is a loan secured by a specific asset can also be used to avoid compromising the mortgage holder's interest.

The upshot is that if you make your payments on the property, and keep them current, quite often it can sail through a bankruptcy untouched. People will often let everything else go to keep making the payments on their mortgage - one of the reasons why mortgage rates are so favorable, compared to unsecured credit. Another issue I should mention is that while A paper does care about non-mortgage late payments, subprime generally doesn't. As long as you keep your mortgage payments current, you can often secure a loan on surprisingly good terms, even though it'll likely have a prepayment penalty. So keep your mortgage current if you can.

Caveat Emptor

Lender Owned in Good Shape!



General: Urban East County, 3 bedroom 1 optional, 2.5 bath (one full, 2x3/4). Asking price between $375,000 and $400,000. I think $350,000 net might get it sold!



Why you should be interested: Lush yard, light and bright inside! Easy to get around in, not cramped!



Selling Points: The optional room apparently lacks only a door to make a legal bedroom, and has it's own bathroom! Good home for entertaining in a quiet neighborhood!



Why I think it's a potential bargain:Nice pleasant place that doesn't look like much from the outside



Obvious caveats: Most of the furnishings are older, but clean. May be permit issues with converted garage.



Why it hasn't sold already: That is a good question. Even a few months ago something like this would have been snapped up in a hurry



Monthly Income to Qualify: (assuming no down payment and average credit on a thirty year fixed rate mortgage, full documentation, one total point or less) $5730 gross. If you have a down payment or want to buy the rate down more, it will be less.



If you keep it ten years and it averages only 5% annual average appreciation per year: Based upon a purchase price of $350,000 the property would be worth approximately $570,000. If you held it those ten years before selling, you would net about $270,000 in your pocket (not including increased value from updates!), assuming zero down payment. As opposed to renting the $2200 per month most comparable currently available rental and investing the difference at 10% per year tax free, you would be approximately $250,000 ahead of the renter, after the expenses of selling.



Fact you should be aware of: Probably more suitable for older children. Roof looks like it needs replacing



Obvious way to enhance value or appeal of property: Put a door on the optional room and resolve the permit issues. Update the kitchen and bathrooms



This property does appear to be eligible for a first time buyer Mortgage Credit Certificate provided your family income is not more than $82,800 or $96,600. Ask me for more details, on this or any other property.



I'm a buyer's Realtor®. I am looking to represent buyers, so I find places like this that can be gotten at bargain prices. I save you money while getting paid out of the listing agent's commission, not costing you a penny. Nor are these the only bargains I find. In order to protect everyone's best interests, I require a Non-Exclusive Buyer's Agent Agreement. This is a standard California Association of Realtors form that leaves you are free to work with other agents, but if I find the property you want, I'm the agent you'll use. That's fair, and there is no reason not to sign such an agreement unless you're an agent yourself. If your current agent was finding properties like this, you wouldn't be interested.



Contact me: Action Realty 619-449-0723, ask for Dan or email danmelson (at) danmelson (dot) com. Ask me to find a bargain that fits you!

The Best Loans Right NOW

6.25% 30 Year fixed rate loan, with one point total and NO PREPAYMENT PENALTIES!. Assuming a $400,000 loan, Payment $2463, APR 6.389! This is a thirty year fixed rate loan. The payment and interest rate will stay the same on this loan until it is paid off! 30 year fixed rate loans as low as 5.25%!

Best 5/1 hybrid ARM: 5.75% Fixed for five years, paid off over thirty (if you want to keep it) 1.8 total points retail. This is a real loan with a real payment that reduces your loan balance every month, and NO PREPAYMENT PENALTIES!. Assuming a $400,000 loan, Payment $2334, APR 5.960! 5/1 ARMs as low as 5.125%!

10 and 15 year Interest only payments available on 30 year fixed rate loans!

Great Rates on jumbo and super-jumbo loans also available!

Zero closing costs loans also available!

Yes, I still have 100% financing and stated income loans!

Interest only, No points and zero cost loans also available!

These are actual retail rates at actual costs available to real people with average credit scores! I always guarantee the loan type, rate, and total cost as soon as I have enough information from you to lock the loan (subject to underwriting approval of the loan). I pay any difference, not you. If your loan provider doesn't do this, you need a new loan provider!

All of the above loans are on approved credit, not all borrowers will qualify, based upon an 80% loan to value and a median credit score on a full documentation loan. Rates subject to change until rate lock.

Interest only, stated income, bad credit and other options also available. If you need a mortgage, chances are I can do it faster and on better terms than you'll actually get from anyone else in the business.

100% financing a specialty.

Please ask me about first time buyer programs, including the Mortgage Credit Certificate, which gives you a tax credit for mortgage interest, and can be combined with any of the above loans!

Call me. EZ Home Loans at 619-449-0070, ask for Dan. Or email me: danmelson (at) danmelson (dot) com

Be prepared for trouble before it happens, know how strong your position is or isn't, and don't ever overplay your hand.

Real estate transactions are the largest transactions most folks get involved in. Even small percentages of $500,000 or more are lots of money. A 1% difference in the purchase price, or cost of repairs, means more money than a lot of folks take home in a month. People will lie, cheat, and steal for much smaller amounts that that. It's a bad bet in general, and a worse one in real estate, but people do it. The new siding that hides the clues that say cracked foundation. The new paint that hides the water stained ceiling. New, well padded carpet over old wood where rot has set in. These are just the tip of the iceberg.

The most common game, though, I call the chiseler. Someone who comes into the transaction and may actually negotiate the initial contract reasonably, then proceeds to demand more than is reasonable every time there's the least little item for possible concern. There's another agent in my office has one for a client right now. I've told that agent that I'd drop that client at least half a dozen times. Even if the transaction gets finalized, this chiseler is going to come after this agent as soon as there's anything he can manufacture a complaint about. The other side is a desperate seller, or they'd have told this guy to get lost long since. The chiseler is getting a screaming deal just from the basic contract, and he's wanting hundreds of dollars in concessions to fix stuff that costs a dollar nineteen. My opinion is that before the transaction closes, he's going to ask for one thing too many and they're going to tell him no, and the transaction will be off, no matter how desperate they are.

"If you want peace, be prepared for war." Ancient wisdom. I'm not advocating it for real estate. Wars are expensive and usually a net loss, whether they're waged with bullets and bombs or lawyers and contracts. There's always another property for sale, always another buyer. You never have any more power over the other side in the transaction than they choose to grant you. It may be intelligent for them to grant it, but you can't make them. Similarly, they never have any more power over you.

A quick lesson from the annals of real warfare. In 279 BC, Pyrrhus of Epirus fought the Roman legions at Ausculum. He won the battle, but when congratulated upon doing so, replied "One more such victory, and we shall be undone." The Romans could afford the losses much more easily than his army. It set the scene for the Battle of Beneventum, after which he gave up fighting the Romans. From the experience of Pyrrhus comes the term, Pyrrhic victory. He was supposedly a brilliant general, but if he was so brilliant why couldn't he win a battle without catastrophic casualties?

Any time lawyers get involved in a transaction, it's a reasonable bet it has become a Pyrrhic victory at best. Chances of recovering actual money in your pocket greater than your legal fees are slim, no matter how rotten their case or how much worse off than you they end up. You still don't have a transaction, and meantime, you've likely scared off other buyers or missed opportunities at other properties.

Knowing when a transaction is broken and being willing to counsel a client to get out of it are two of the hallmarks of a good agent. Recognizing it before it has become undeniable is crucial. Precisely when the transaction is broken is itself a function of the market. The current market certainly allows buyers to drive much harder bargains than has been the case any time in the previous decade, but there is a point at which even the most desperate seller should tell them, "No," to further demands. Of course, a really good listing agent won't let it get that far, any more than a good buyer's agent will. I'm perfectly willing to tell my clients in private that they're on the verge of messing up a contract that gets them the best deal they can reasonably expect, all because they tell themselves they want a little bit more. But if that messes up a good transaction, nobody ends up with what they wanted. See the chiseler, above. In order to know what's broken and what's not, you have to really understand the market.

None of this is to say that capitulation is the first order of business, any more than scorched earth. Both are the province of the agent that needs to get fired. What is necessary is judgment and market knowledge and an understanding of what a good compromise really is. A good agent has contingency plans for everything in negotiating, and throughout the transaction. If they do X, we'll do Y. If they want A, we want B. If they don't want to go for that, we'll offer D for C instead. The other side does not necessarily have to lose for your client to win. Indeed, it's the good agent that knows how to substitute other things for money, and the good agent who knows how much of the clients agenda to reveal. Information is always power, but sometimes knowledge of the other side's agenda enables us to craft a compromise that makes both sides happy.

Right now, if a given seller won't recognize that desperation is the only valid reason for marketing a property when there are 40 plus sellers per buyer, a good buyer's agent doesn't need much reason to abandon a property. Just the fact that this seller is trying to act like it's still the seller's market of a few years ago is enough, and the sooner the idiots doing anything to get listings including misrepresentation of the market realize this, the sooner this will change. My most important questions at every listing presentation have been and will continue to be concerning their need to sell and what possible alternative plans there might be. When things are this bad for sellers (and this wonderful for buyers), the only reason for a property to be on the market is if there is no other reasonable alternative. I've told several people, everyone who had a reasonable alternative, "I'd love to sell your property, but given the state of the market right now, the kind of sale you want is not going to happen. I can list your property for sale, but it's not going to sell in this market unless you outcompete all the similar properties that are already for sale. All it would do is frustrate both of us, and get you angry at me, and for good reason. Here's my card, and if you decide you need to do what it's going to take, please call me. Otherwise, I'll check back in a few months and we'll discuss the state of the market again. I'm confident that waiting will get you more than enough extra money to be worth it."

There are currently over 20,900 properties for sale in San Diego County, and only 269 went Pending in the last week. Never mind an allowance for fall-out, that's a 77:1 ratio. Other things being equal, it would be a year and a half before you could expect to get an accepted offer. Other things aren't equal, of course. The longer a property is on the market the less appealing it becomes, and the more you have to do to make it sell. Only 163 sales actually went through, a ratio of 128 to one, and we're still dealing with contracts reached during the tail end of the busy season. If you need to sell, you can do what it takes now, or you can do what it takes later. You will have to give up more later, even if the market recovers next summer, because by then your property will have been on the market nine more months.

This is great for buyers, by the way, but for sellers it's horrible. Unfortunately, a lot of sellers and a lot of listing agents still think it's 2003 from the way they're acting. Nobody can force them to come to grips with reality, so if they're not going to listen to reason, it may be the listing agent's fault but the owner is the one who's going to suffer the consequences.

You can't learn this stuff on the fly, by the way, nor can you prepare retroactively - you have to be ready when the offer comes in. If the owner doesn't understand the state of the market before the offer arrives, nobody ends up happy. It's like the exact opposite of 2003, where if the buyer didn't understand what it was going to take to be successful before they started looking at properties, they were going to end up homeless and frustrated, or rooked. If you don't hire a sharp enough agent, you can't go get them when it drops in the pot. First off, you won't be able to recognize that it has dropped in the pot, and you're now roast. Second, because the reason it doesn't drop in the pot with a sharp agent is because they're prepared, and they never let it get that far.

Don't ever confuse "sharp" with "experienced," or "high producer." Yes, a certain amount of experience is helpful and I learned a lot on my first few transactions. But the only times I've ever heard anybody say, "I've been in the business for three geologic eras" is when they were trying to defend something indefensible. The last time it was a woman who I found out didn't have a valid listing agreement (and it wasn't a small technicality, either!) bragging about her forty years in the business. And often the reason that someone is a high producer is the willingness to throw their client under the bus in pursuit of a commission check. Ask what problems they've dealt with lately and how they handled them. There are always problems to be dealt with; it's the nature of the business. Sometimes it's the property, more often it's the people. Not every transaction, but if they don't have a certain proportion, it's more indicative of inability to recognize a problem than it is of not having any. On the loan side, I've done more loans than 99 percent of the loan officers out there, and I deal with problems by recognizing them and fixing them before the underwriter sees the file. It's not my experience - there are plenty of loan officers who've been in the business thirty years who still insist upon doing it the hard way. It's not the fact that I've done X number of loans in a month. I've learned more since the month I did 100 loans than I knew then, by an order of magnitude. As a matter of fact, high volume is incompatible with significant problem solving, either in loans or in sales. There's only so much time in the day. It's that I've learned how to recognize this stuff and deal with it before it bites my client, even if I have to work much harder or do more work or wait a little longer than I originally thought I would. That's what makes a good agent or a good loan officer.

Caveat Emptor

Ken Harney has a column I found in the local rag yesterday. It seems that there is (finally!) concern amongst the regulators for this risky loan which begs for trouble for consumer, lender, and the system as a whole when there are too many of them out there.



First off, Mr. Harney is wrong, or his editor really screwed up what he did write (The Washington Post? <sarcasm>Say it isn't so!</sarcasm>). Read the contract. The attraction of negative amortization loans has nothing to do with the actual rate. Zero. Zip. Zilch. Nada. It has everything to do with lower permitted payments. There is not one day, not one hour, not one second where the actual rate being charged is reduced even by a miniscule amount. But for a certain amount of time, the minimum payment is calculated as if the rate is lower than it actually is. This is why they are easy sells - because the average real estate consumer "buys" a loan based upon the payment. So when someone tells the average consumer that they can get a "$170,000 mortgage for $850 per month!", it sounds attractive and the majority of people won't investigate any further. A large portion will actively avoid anybody who tries to tell them what's really going on, as if the loan will somehow magically be alright if they manage not to hear about all the bad stuff.



Furthermore, the real rate on these loans is variable from day one. There literally is not one month where you can truly predict what the next month's payment will be. I have, and always have had, lower interest rate loans that are hybrid ARMS with truly fixed interest rate for five years or more, have lower costs to obtain them, and no hidden gotchas. Heck, from my first day in the business I've always had loans that fit all of the forgoing criteria and require interest payments only. If you cannot make a payment of at least the full amount of the monthly interest, it is quite likely you shouldn't make the purchase.



These loans do have a niche. But I can't think of a case where they should ever be the purchase money loan for a property. Even on refinances, they should be no more than one percent of total refinances - not the forty percent share of San Diego's purchase money market the last figures I saw had them having. Investment property, the rules should be somewhat looser, but still nowhere near 40 percent of the market is appropriate. If this were the securities or accounting industries, the regulators would be throwing people into jail over this, and shutting down offending companies completely and permanently. There's a world of hurt coming down the pike, and the prevalence of these pieces of garbage is going to greatly exacerbate the problems, particularly in high cost markets. Let's say, hypothetically, someone put 5% into a $500,000 home here in San Diego at the beginning of the year, at a nominal rate of 1%. They had one $400,000 mortgage and one $75,000 mortgage. Assuming the nominal rate on the first is 1% and that the second is "interest only" as is common, they would now owe $10,000 more on a home that is worth about $30,000 less. After three years, they owe a total of $505,000 even if the rates don't rise any more, which I can promise you they will. If values hold steady right now, their home is worth maybe $470,000, of which they would get about $440,000 if they sold without paying any closing costs for the buyer, which isn't happening right now. So under perfect theoretical conditions, they've gone from having $25,000 in the bank to having to come up with $65,000 just to get out from under. Since they likely can't, their credit is going to be ruined for ten years at least, plus they're going to get a love note from the IRS saying they owe taxes on $65,000 more income (which incidentally slides most folks into higher marginal brackets).



You can survive being "upside down", owing more on your mortgage than your house is worth, for a long time if you have the right loan. These are not the right loan for market conditions I see happening in the next few years. They are always risky, and mortgage lenders and brokers who do them do not have, in the aggregate, an even vaguely acceptable track record of disclosing their risks. Not that it's any great shakes of a prediction, but I predict that lawyers will be prosecuting a lot of these as civil cases in the next few years, and winning large judgments that are not going to be covered by insurance because it's neither an error nor an omission, but an intentional misrepresentation.



Under the right conditions, these can be useful loans. But the right conditions are rare, and when you have them, the lenders are not likely to approve the loan because the prospective borrower is not a good credit risk. In short, if you're approved for one of these, you almost certainly had better much options available to you. If negative amortization loans are actually appropriate for you, I'll bet a nickel your loan won't be approved. This is the kind of marketing strategy which has gotten many industries in serious trouble, and the lenders who are involved in this are likely to be hurting anyway when the house of cards they've been supporting comes tumbling down. Expect corporate bankruptcies, also.



Caveat Emptor.



P.S. If you haven't read anything on these previously, you might want to check out Option ARM and Pick a Pay - Negative Amortization Loans as well as Negative Amortization Loans - More Unfortunate Details one.

This is one of the biggest issues with my local real estate market. Because the San Diego market has very high demand and limited supply of property, prices are high. A reasonable two bedroom condo runs around $300,000. A 1200 square foot three bedroom, two bath detached home in decent shape on a 7000 square foot lot costs around $500,000. There are areas that are less expensive, and buyers have a lot of leverage right now, but those are real ballpark numbers. These numbers are sustainable, because even though a relatively small fraction of the population can afford such numbers, that fraction is enough to absorb the properties that come onto the market for sale. It doesn't matter if minimum wage people can't afford your property. All you need is one willing buyer who can. We're not the most expensive area of the country, but we're up there,

When you put people into this sort of environment, a certain number of them are going to want more expensive property than they can really afford. Most of them have what they believe are really excellent reasons for it. "My kids need a yard to play in!", "I've got two kids who need their own room!", and "I've got to live where the schools are the best!" are three of the most common. Other people will say they've got to live within so much distance of the ocean, they've got to have so much space, or they've got to live in a "safe" neighborhood. What they all have in common is that they're rationalizations.

There's nothing wrong with wanting a better property. I want lots of things I can't have right now. There's a car company called Morgan. They make cars that may not be the fastest or the most luxurious, but they are an absolute blast to drive. They've got a waiting list two years long. If I ever actually buy one, then in my own mind I will officially have more money than sense. I can think of roughly an infinite number of charities that would put that money to better use. But it's not wrong for me to want one - it's just stupid if I buy one without being able to afford it, and if I ever can afford it, it'll be my money to do as I want (although I hope I'd donate it to something like Soldier's Angels instead). I don't think I've ever met anyone who doesn't want something they can't really afford. It's not a crime, and it's not a sin, and it can even give you motivation to get to where you can afford it. It is self-destructive if you act on your desire before you get to that point.

Nonetheless, a lot of people, will convince themselves that because they're good people, they "deserve" this property even though they cannot afford it (or cannot afford it yet). They manage to convince themselves that what they're doing is really okay, and it'll all come out okay in the end. I must disagree, because if they "deserve" this property, they "deserve" the loan that comes with it, and "deserve" all the bad stuff that will happen when (not if) they default on their payments. The odds are strongly against everything coming out okay in the end.

If you've got the cash, you can do anything legal with it that you desire, among which is buying any property you desire. But these folks want this property now, and they don't have the cash and can't afford the loan. If either of these were not the case, well then I submit to you that they really can afford it, after all.

There aren't any loans that really make more than a marginal difference in whether you can afford the property. This isn't to say it's not worth shopping around, it is. The difference between the 6.125 thirty year fixed I can do for one point, and the 6.375 the branch of that same lender in the supermarket I was in this morning wanted two points for is quite noticeable. On a $400,000 loan, that's a difference of over $4000 in initial cost, and $1000 per year of interest, not counting the fact that the borrowers will have to borrow more money for the other loan. But with reasonable and equal assumptions about equity, property taxes, etcetera, none of which are under my control, the family who gets my loan will pay $2957 per month ($2042 cost of interest), requiring monthly income of $6571, while the other loan would cause their monthly total of payments to be $3023 per month (2125 cost of interest), and the income to qualify is $6716. The difference is only about 2.2 percent. It still amounts to a lot of money, but the odds are that someone who qualifies for my loan will also qualify for the other, they'll just pay $83 per month more for the loan. This apparently small difference is one of the expensive lender's best defenses against smaller companies willing to do the loan more cheaply: it just doesn't seem like that much of a difference. Even if you dropped to a 5.875% 5/1 ARM that I had as of I'm writing this, that only drops the monthly cost of housing to $2893 ($1958 cost of interest), a further difference of only $84 (while raising the income qualification to $7613 per month, because the allowable debt to income ratio is lower). This works out to a lot of money - as I said, $4000 plus $1000 per year for however many years you keep it, but it just doesn't seem like that much to most borrowers. Nonetheless, these loans are all good loans if you qualify. That's what's real. That's what's sustainable.

But if you want the property, loan officers can use one or more tricks, such as stated income, negative amortization, or teaser loans with a low initial payment where the rate will adjust upwards at a certain time, particularly if they're "interest only" until that time. Such loans can make it appear as if you can afford the property, when you really cannot. In the vast majority of cases where they are used, such loans are unsustainable . Let's say you think of the payment as your actual cost of housing, which may not be true. You decide you need to cut your cost of housing, but you still want the same property. Lenny the Loan Shark hauls out an interest only 2/28 at 6%, and voila! cost of interest is only $2000, and the total of monthly payments drops to $2526 under the same assumptions as the previous paragraph. But in two years, not only is that rate going to jump to 8.25% (assuming the market stays exactly where it is today), but it'll start amortizing at the same time. Net result? In month 25, your loan payment goes to $3055 (cost of interest $2750), an increase of over 50%, but your overall monthly cash flow to stay in that property goes to 3581. It's more likely you can afford $3023 now, the worst option from the previous paragraph, than $3581 in two years.

Suppose you want to stretch a little further than that? Lenny pulls out a negative amortization loan, even though he calls it by one of dozens of friendly sounding pseudonymns, like "Option ARM," "Pick a pay," "Flex pay," or "1% loan". As soon as the grapevine picks up on one name for these nightmares, they come up with another. One of our local sharks is pushing these on the radio right now. Gosh, doesn't "1% loan" sound good? Why would anybody choose something different when those are available? Who wants to pay more interest?

The answer is that they're not really giving you a loan at 1%. Think of 1%, or whatever it is, as a "make believe" rate. Pretend it's your rate, and make that payment ($1286 for the loan, giving a total of monthly checks you write of $1812), and just don't pay attention to what's happening to your balance. Until of course, the loan hits recast, and you realize that they've really been charging you a variable rate above 8% this whole time, and now you discover that instead of $400,000, which you really couldn't afford the payments on, you now owe 110 to 125% of this amount you originally borrowed, and now they start charging you for the whole payment every month. Let's say you now owe $480,000, and your payment on the loan alone jumps to $3784, plus the same assumptions as previously, leads to a total of monthly payments of $4310 three years out. If you couldn't afford the real cost of housing at $2893, let along $3023, how likely is it you'll be able to afford $4310 three years down the line? How many people do you know that get 43% raises over three years? Now, how many people do you know that don't?

As for stated income, the thinking goes something like this: So what if you don't qualify by standard measurements! Those old banker stick in the muds don't ever want to loan money to people who really need it! You can make the payments, right? You're going to pay them back, right? We'll just tell them you make what you need to make in order to qualify! We do need to choose this short term loan to give you a payment you can make, but that's no problem! In two years, we'll refinance you into something better!

I'm perfectly willing to do unsustainable loans if the client can convince me they're aware of the downsides and risks. You're a legal adult, and being a legal adult means you're able to assume responsibility for your own mistakes. But doing this requires me to go over those downsides and risks in person with that client. Hiding it among 500 pages of disclosures while you're signing the final paperwork is not acceptable. People who accept these loans are putting themselves into a situation where it's essentially going to be mandatory that they refinance within two to three years. If the equity situation deteriorates, if their credit has gotten worse, if they've had late payments, they are not going to be able to obtain a loan on terms as good as what they initially had. If they didn't need a lower payment than could be had on a sustainable loan, they could have had a loan without any of these downsides. Nor is refinancing free. The fees can be paid by accepting a higher rate, but that higher rate itself means a higher payment, leading to questions of whether they can still qualify. For that matter, rates change over time. What it available rates then are significantly higher? Unlike everyone else, the person who accepts this type of loan does not really have the option of waiting for the rates to get better again. They need to understand that before they sign up to start it, not thirty days later when they're looking at final loan documents, and most people don't think they have any other choice but to sign.

All of this also begs a couple of other questions. What about pre-payment penalties, which I haven't touched on until now? What about the fact that the client who gets these loans is stretching beyond their real limits in most cases, and the credit score and situation is more likely to deteriorate than improve? Finally, most importantly, even if none of these concerns manages to bite this client, what makes you think that better loans will be available in two or three years? There just isn't anyone who can reliably predict the state of the loan market that far out.

In short, by attempting to circumvent one of the central questions of whether they qualify, these persons are not only short-circuiting a protective measure intended for their benefit as much as the lender's, but they're laying themselves open for unscrupulous providers. All of this is part of the reason why San Diego, which started out expensive and got more so, was on the bleeding edge of the bubble. If people want the house of their dreams right now, and they're seeing the market increase 20% per year with no end they can see in sight, Fear and Greed are both telling them to do whatever it takes - lie, cheat, steal, deal with shady practitioners, in order to get into that property. This was, predictably as gravity to anyone who understands macroeconomics, the wrong decision, but these folks didn't take the time to understand the market. Not to excuse them from all culpability, but here were people they thought of as credible experts, real estate agents and loan officers, telling them to do it. A rough equivalent would be if my lawyer told me it was permissible to haul off and shoot someone (other than in self defense). I'm still going to prison if I do, and rightly so, but the lawyer would certainly bear a certain amount of culpability. There is no magic wand that makes murder legal, and there is no magic wand that makes loans and properties well beyond your means affordable. Many of these were working class folks, told they qualified for a home that looks like it came straight out of Architectural Digest. This was a wedge that enabled them to be taken advantage of. It was a welcome message, it made them feel good about themselves, and it appeared to give them something that they desperately wanted, but fearful that there was no way they could afford. Yes, they were fooling themselves, but they've had a lot of company throughout history. While I cannot excuse their failure to heed warnings that most of them were given, or their failure to maybe do a little bit of research on something that any rational adult should have known was too good to be true, I can also understand it. It's a mistake I can see myself having made in different contexts.

There are variations in the market, but finding the beautiful mansion you can afford is not a matter of persistent looking, waiting for one to go on sale for the right price, or even just somehow finding the right loan. This isn't the meat section of the supermarket, where they try to lure you in with loss leaders in order to sell you the rest of your groceries for a higher price. People only buy one property or get one loan at a time. The lenders want you to pay a high cost of money, and they will play all sorts of games with payment, and what you have to pay for with money out of your pocket, or checks out of your checking account, in order to secure what they really want: You paying a higher cost for the money you borrow. That's what gets them paid. You paying a higher cost for the money you borrow than you might otherwise, gets them paid more. Much more. They can take a small portion of it and make it seem like you're getting something for free, and still come out way ahead. And there's really only one place all this money can come out of in the end: Your pocketbook. The lenders who really have superior loan prices and rates don't play these games, because on the margins they make, they can't afford to.

Getting people to be realistic about what they can afford is probably the hardest part of a buyer's agent's job, especially when your competition is telling them they can afford something they can't. It isn't popular, and you'll lose more than a few potential clients, but you'll keep yourself out of court, out of regulatory hearings, and out of jail.

For consumers, I advise you to limit yourself to sustainable loan types, fully amortized and fixed in interest rate for five years or more. There are exceptions, but if you're the kind of expert who can recognize those exceptions, you've stopped reading before this, because this article hasn't taught that person anything they don't already know. Set yourself a fixed budget in purchase price dollars, based upon your ability to afford the full payments at current rates, and refuse to go over that. If you've got a good buyer's agent, you can get a better property for less money than you might otherwise pay. If you're willing to rehab the place yourself, you can get a better property for less money, even considering the money and time you'll spend doing so. Think of it as your pay for handling the job in place of the soon to be former owner. If you shop around, you can find significantly better loans than if you don't. But you're not going to find a palace for the price of a dump. If you do, there's something wrong with the situation, and if you aren't so certain that you understand what it is and why, that you can give someone permission to tear your arm off and beat you to death with it if you're wrong, chances are you should run, not walk, in the other direction.

Caveat Emptor

There's been a great deal of jawboning in the real estate community recently over "divorcing the commissions", changing the current practice of the seller paying the commission of the buyer's agent. Well, I've said my piece on that, why I don't like it but it's in the seller's best interest to pay the buyer's agent commission, because they can expect to end up with more money in their pockets because of it.

That got me to thinking about issues of how to improve seller satisfaction. As I said in Exclusive Right to Sell Versus Exclusive Agency, it is in the client's best interest to sign an exclusive right to sell, because the agent will have no mental reservations about whether they will get paid if the property sells.

Nonetheless, exclusive agreements always leave a lot of room for agents to misbehave. Quite illegally of course, but if such behavior is undiscovered, it will not be dealt with, and the law places quite a few impediments on monitoring your listing agent. When I'm acting as a buyer's agent, my client knows whether they want to put an offer in, they know whether or not they've signed it, and they know that because I'm working on a non-exclusive agreement, if I won't do my job, there's no reason someone else can't.

This doesn't apply when there's an exclusive agreement in effect. It's illegal in California (at least) to solicit listings from people who already have a listing agreement in effect, but that doesn't stop some agents. Last time I had a listing come off MLS, I forgot to change their phone number to mine. My client told me they received in excess of 100 calls that day, from agents who wanted the listing. None of them asked if there was still a listing in effect, which there was. None of them bothered checking the "do not call" list, which the phone number was on, evidently thinking that the fact it came off MLS meant my clients somehow didn't care about about the "do not call list." This is why agents usually don't want to put client phone numbers on MLS, and why even if they do, they'll change it before it comes off.

But a lot of agents go well past that stage. They decide that if the listing commission is good, that plus the buyer's commission is better. If they don't want to pass an offer to the client, there is no way to make them. I can point to agents where I suspect that incoming offers go straight from the fax machine to the wastebasket, it they even get printed. This has gotten so bad that my local MLS service has finally given buyers agents the right to present offers to the sellers in person. Not to be present for discussions, but to present the offer. I can't make them accept the offer, but this way the listing agent can't pretend it doesn't exist. Furthermore, enough buyer's agents tell the listing client where the market really is, and the listing agents are going to have trouble pretending the property isn't overpriced. Agents who "buy" listings by pretending they can get more than the market will support are going to be in a world of hurt. The first offer is usually the highest offer you'll get, and letting the first offer go will usually result in less money

Sometimes, listing agents bypass such tactics in favor of making showings difficult. They simply make showings difficult for other agents and their clients. The clients and I have time now. An hour is usually no big deal. But requirements for four hours notice or to "make appointment" are more often intended as barriers to other agents clients, and anyone who calls them directly gets preferential treatment, after they've signed an exclusive buyer's agency agreement, of course. Some agents go so far as to claim they're trying to sell the property, while in reality using the listing as a way to chum for buyer prospects who don't know that's a rotten way to shop for a buyer's agent. When the property sells, these agents lose their wedge for meeting more buyers, so they don't want it to actually sell.

Net result, they're not exactly shutting out the clients of other agents, but by putting up barriers to showings, they make it much less likely that anyone not represented by them will put in an offer. But you, as the owner, want to get the best possible price from your buyer, for the quickest sale - not limit yourself to the one who gets your agent paid twice for the same transaction, or to being the bait for buyers. A listing agreement is not a license to abuse that owner.

The person with the power to challenge this is the owner. They do have a right to monitor their own listing. You should periodically wander into your listing office, and demand a full copy of the listing, as seen by other agents. An agent who doesn't play these games has nothing to fear. An agent who does, deserves to get fired. And if you get showings but no offers, there's something wrong. It may be that the property is overpriced too high, it may be that your agent is rejecting them out of hand, or it may be that they don't really want to sell your property. Another tactic to fight all of this is to limit the listing agent to one side of the transaction. I don't have any problem agreeing to only the listing side commission when I'm marketing a listing - if the buyer is silly enough to want to be unrepresented by a buyer's agent, that's not my client's problem. Actually, that's a good thing for my listing client in most cases. Nonetheless, it doesn't mean it's in my client's best interest to shoo away prospective buyers represented by other agents. It's not.

But perhaps the deadliest scheme to a client's well being is the agent who wants to buy their client's property themselves, or recruits a straw buyer to buy it for them. Never ever sell to your listing agent, and be very careful that any buyer represented by them is not a straw buyer. Most often, they'll wait until you get desperate before trying this trick, and a nasty one it is, too. Get the listing, Shoo off other buyers, wait until the client is desperate, then make a lowball offer yourself. Unscrupulous agents can make more with this trick than any commission, and they don't have to share the return that comes from flipping the property with anyone else. If there's a buyer's agent involved, it makes this scam a lot tougher to pull off because there needs to be collusion between the two in order for it to work. I should mention that there are agents and brokerages who brag that they'll buy the house if no one else will. To someone who understands what's really going on, this is like a mile high flashing neon sign that says "Stay away from the shark!" I suppose it's possible for it not to be a scam, but I wouldn't be a nickel on it at a thousand to one payoff.

One thing I'd like to see, for those places that haven't granted buyer's agents the right to present offers themselves: The ability for offering agents to drop the owners a standard postcard, through the local MLS provider if that's what it takes. Enter the address of the property, pay fifty or seventy five cents, and the association sends a postcard out to the owner of record that says "Someone made an offer to purchase your property. If you already know about this, this postcard should be of no interest to you. If you don't, chances are that your agent failed to pass along an offer that was made. If you contact the association, we will provide the contact information of the person or agent who made the offer."

There's a lot of listings out there right now that say, "shown with accepted offer only." This is ridiculous, and nobody's going to make a decent offer for such a property. Me, I just laugh and move on, unless I see evidence that the owners may be desperate enough to accept a half price offer. Listing agents who don't explain this to the client are not working in the client's best interest. There could be another standard postcard that tells owners their showing instructions are too strict, although it would have to have something attractive enough about it to make it worth my bother. Agents who faithfully adhere to their duty have nothing to fear, and such things would actually enhance their credibility. Agents who don't would be in a world of hurt, and there could also be consequences for agents who claimed they made an offer, but didn't. This is the age of transparency and accountability, and such a development favors both.

Buyers and buyer's agents can complain all we want to zero effect. The listing agent doesn't have a responsibility to us, so we have no grounds for action, legal or otherwise. But when owners are informed that there is a failing of the listing agent's responsibilities to them, and the owners want to complain, that's a different matter entirely.

Good agents should want to change for more transparency, if we're going to prosper as a profession in the Age of Information. The first group that gets the idea of competing with MLS with the addition of verifying agent performance is going to reap the vast majority of the market very quickly. We have to be verifiably demonstrating to the client on the value we provide, or there is no reason not to go with any cheaper alternative that presents itself. It's not like the clients enjoy giving us money that would otherwise end up in their pockets. If we want to do well, not only as individuals but as a profession, we have to be able to demonstrate that those dollars clients pay us translate into more dollars in their pocket. If we cannot do this, they are correct to choose the cheaper alternatives.

In the meantime, what can you do as an individual to combat these tendencies? Make the listing agent's compensation a fixed percentage, with only a small amount of additional compensation if they accept dual agency or the buyer is unrepresented. They're supposed to be trying to sell the property to all comers, not raising the bar against potential buyers who won't cause them to be paid double. Monitor your agent, so you're confident they're not putting up barriers to sale. Most importantly, learn as much about your market s you have time for. If you know your market, it's a lot easier to spot the agent who's working on their own behalf, and ignoring your best interests.

Caveat Emptor

To my readers: I've got the vast majority of important pages redirected. I'm still checking the error logs once or twice a day for more, but I only had one such error yesterday. The Hot Bargain Properties, and the Real Loans for Real People, I'm not worried about - there's not much that's as useless as non-current loans or listings. Pretty much all of the still relevant ones seem to be fixed.


To the owners of other websites: I did away with automated trackbacks due to the levels of spam. But that doesn't mean I won't put one in manually if you say more about the same subject. Email me the URL of your post and request me to put in a trackback manually. You do have to link the post you'd like a trackback on, as is standard courtesy. And of course, if your page is just spam, don't bother. The idea is trackbacks share traffic because both of us believe that the other's article is worth reading.


We live in (A California city). In a 2 bedroom 1 bath home on approximately a 20,000 Sq. ft. lot. It is easily worth 500K to 600K with a current mortgage of $116,000. The mortgage/Title is in the name of my father and his wife 90% and myself and my wife with a 10% interest.

My father who is 75 and retired wants to take out about $80,000 cash which would create a new loan of approximately $200,000. He currently has a very small income from investments and lives in a paid off home in (out of state).

He would like to gift this (California) home to us and we would like that also.

Based on your expertise what is the best way to transfer the property to my wife and I and at the same time obtain a cash out stated income loan. How will a lender expect this to be handled? Do we all qualify together and the lender then allows my father to transfer/gift title at the close of escrow?

I realize that whatever lender wants to make the loan they will want to have my wife and I qualified to be on title. Since we have a 10% interest I would assume that we could all be asked to show assets and income. This might be complicated. I am a realtor but I haven't made much money in the last two years because I've worked on a business startup currently breaking even with no income.

My wife has a terrific long term (16 yr) job with a law firm. Gross income $85,000. All of our expenses are very low and the last time I looked our credit was a 785 FICO score. When I do the front end ratio 28 with only my wife's income it appears to be no problem at all. When I do the backend it's a little more snug but definitely doable. I've racked up some credit card debt funding the startup business. I can pay it off but I would like to retain working capital handy for my business.

I believe a stated income loan would be the best way to go.

Here are the assets and documentation I would be willing to show, and the lenders exposure to the property.

1. We would have approx. a 36% LTV at the end of the transaction. 300k+ equity
2. Assets in a 401K of $200,000 +
3. Approx. $30,000 in savings accounts
4. Approx. $40,000 in negotiable stocks
5. I will of course provide credit reports.
6. Employment documentation for my wife only.

I believe my father and his wife have approximately $200,000 in mutual funds plus social security and she has a part time job doing a water district's billing.


This one is fairly complex on the surface. Issues that I see right off:

-family transfer
-documenting current interest
-structure of transaction
-Will your father be selling you some of his interest as part of this transaction?
-likely the cash out quitclaim issue
-Who is going to be primarily or completely responsible for new loan
-verification of rent/mortgage.

You say that you are already on title of record, and that the desired end state is to have you and your wife owning the property outright.

The best way to structure this is probably as an actual sale
transaction. Your father selling you and your wife a larger interest. Because this is a family transfer, you still would likely qualify to continue having it taxed based upon original acquisition price, but that needs to be checked, either through the county or your title insurance company for the transaction. You also need to scrutinize the current owner's policy of title insurance to see if it will continue coverage. There have been changes in the industry since the property was bought. If it doesn't, you're going to want to buy a new policy.

Now there is a standard policy with every lender I've ever done business with. If someone is brought onto title via quitclaim, you can't get cash out for six months after that date. This prevents several sorts of fraud. I am going to presume that you've been on title longer than six months.

Now, there are three ways that suggest themselves to structure this transaction. Each have their potential advantages and disadvantages. First though, we need to take a look at another issue.

In all real estate transactions, and for all loans, the method of evaluating the property is the so-called LCM, or "Lesser of Cost or Market," method. Market is what similar properties around yours have sold for within the past twelve months, and that is what it is, and is computed by the appraiser.

Cost is the purchase price. In refinances, there is usually no purchase to consider, because the value has changed since purchase. In purchases, there usually is.

Whichever of these two numbers is less determines the value of the property, as far as the lender is concerned. It doesn't matter if similar properties are selling for four million dollars - if you buy yours for one hundred thousand dollars, the lender will loan as if the value was $100,000. It can't be any higher than that, because the seller willingly sold to you for that amount. If the property was worth more, they would have required you to pay more.

For family transfers (and indeed, any related party) this presumption goes out the window. Parents do all kinds of stuff for their kids that they wouldn't do for anyone else, and vice versa. Lenders still won't loan money based upon a number above nominal purchase cost, however.

Furthermore, there have been a sufficient number of scams over the years that they will take additional measures to protect themselves. The presumption of willing buyer and willing seller is violated on both ends of these transactions, and many times it has been A selling the property to B for an overinflated price for the purpose of getting a loan and departing at midnight, leaving the lender holding the bag. Remember, I told you in this article here, is that because the dollar values are so large on real estate transactions, every single one is heavily scrutinized for fraud. There's a reason for that. These additional measures differ from lender to lender, and some lenders will not undertake related party transactions at all. When I'm getting loan quotes from lenders, if it's a related party transaction, then words to that effect are the first words out of my mouth. It saves a lot of time and effort.

Now, I mentioned there being three ways I can see that make sense to approach the transaction?

The first is a full price sale with upfront gift of equity. You buy the property for $600,000. They sell it to you for $600,000, but give you $340,000 in equity in addition to the $60,000 you already own. You get a loan for $200,000 (actually a bit more to pay for costs), the old loan gets paid off, your father gets his $80,000. This has the advantage of being a true picture of what's going on. The problems are that to the lender, this screams fraud. They're not likely to be too worried that its for below market value, but $340,000 is a lot of money. They are going to want to see evidence that there's not some loan going on under the table between you and your father, because that would affect whether or not you qualified for their loan. Furthermore, estate tax isn't completely dead yet and could be resurrected even if it does die, and this would have significant estate tax implications.

The second is full sale price with subsequent gifts of equity. Sell it for full price, from you and your wife as ten percent and your father and his wife as ninety, to you and your wife as twenty-five percent and your father and his wife as seventy-five. They can then give you a gift of forty thousand of equity each year. You can even combine this with the initial sale, making your interest thirty percent, which might make the loan easier. In this case, you are all four probably going to be on the new loan to get the best rates, as $200,000 is about thirty-three percent of $600,000 - a larger amount than the equity you and your wife currently have under this scenario. There is a further major difficulty with this lies in the possibility that the complete equity may not be gifted in your father's lifetime.

The third way is to sell the full property at a reduced sale price. Approximately $300,000 would probably be sufficient. Everything here is like the full price sale, but they're only giving you about $40,000 in equity upfront - which is within the IRS single year limits. The bank has less difficulty believing that (although they're still going to want a letter stating that it is a gift!). The downside is still that family transfer thing, and the fact that if you wanted to refinance within a year there would be appreciation issues on whether or not the bank would believe you.

All three ways have their bumps and walls which you very well might run into. Each lender has their own anti-fraud measures, and sometimes these run afoul of the best ways to structure it

Now, as to the loan itself, I have good news and bad news. I'm going to start with the bad. Verification of Rent/Mortgage is going to rear its ugly head no matter what you do. The bank is going to want to see some kind of evidence that you and your wife have been making rent or mortgage payments every month, and from all that I can see in the email, there's no evidence to support this. The only person who appears to be in a position to verify that is your dad - unless you've been writing the checks for the mortgage and can prove it. The lenders may or may not accept your father's word for it, and they are going to want evidence. If you're actually on the current mortgage, this would be extremely helpful.

The good news is that with an income of $85,000 per year which your wife alone makes and you should be able to document, you have a monthly income of about $7083. This means that the back end you'd qualify for on A paper, thirty year fixed rate basis, is about $3180 (about $2690 if we're talking about an A paper ARM). Picking a random A paper lender, I get about 6.25 percent rate thirty years fixed full documentation, which translates to a monthly principal and interest payment of a little less than $1232. With the yield curve inverted right now, the five year ARM is about the same rate, meaning there's no reason to do that instead.

Take $1232. Add $600 per month, which is about the worst case scenario for property taxes that I see (as I said earlier, you can probably preserve the current tax basis). Add another $150 per month for homeowner's insurance, which is a high estimate for most urban locales. This is still less than $2000 per month, leaving you almost $1200 of other allowable payments before you would not qualify full documentation. You can probably do stated income if you want, but that'd be giving the bank money that you don't need to.

Because of the multiple concerns, of which the most important are family transfer and verification of mortgage/rent, there are many reasons why the best way to approach this might change, but when you separate it all out, it certainly looks doable.

Caveat Emptor (and Vendor)

It may not come as a shock to you, but loan officers, along with many other salesfolk, speak a different language than the rest of the population. What will probably annoy you, however, is the number of times they'll say something that sounds like a phrase out of English, but really is from Salesgoodspeakian, a bizarre tongue in which the true meanings must be learned by osmosis from the particular subculture's dialect, while intending to communicate something entirely different to the poor schmuck who, after all, doesn't understand salesgoodspeakian.



This post is intended partially as humor, partially as education. I'm going to start it with a few of the most common ones, and update it by adding more and reposting from time to time. If you've got a good one, either with or without translation (and whether from one of my fields or not), please send it to me along with the context, if appropriate (danmelson at). Even if you don't have a translation, I'm pretty good at major dialects of salesgoodspeakian. It is to be noted that these phrases are not red flags, but more in the nature of yellow flags. If they just occur on a stand-alone basis, it's something that's likely to proceed from yellow to a red flag, particularly with repeated yellows. On the other hand, if the person uttering them proceeds to issue a clarification in plain English, issues an amplification rendering the translation void, or translates and explains the salesgoodspeakian, it's possible you've just been given a real world green flag that this is an ethical person. For instance, my absolute favorite loan to do is a true zero cost to the consumer A paper loan (and no prepayment penalty!), which I usually explain as "Nothing added to your mortgage. You've just got to do the paperwork with me, and come up with the money for the appraisal, which will be returned to you when the loan funds". And it's also possible you've been given a reinforced red because they lied.



And yes, I've had clients who came to me report every one of these. Some of the translations are a little exaggerated to make the point, but the spirit remains the same.



The salesgoodspeakian to English phrasebook:



Mortgage dialect:



"Stress free loans" two percent higher than you'd qualify for with better documentation and a little more work and less greed on the loan officer's behalf.



"Won't cost you anything out of your pocket" - Six points and $5000 in well-padded closing costs added to your mortgage loan balance, though.



"Thirty Year Loan" fixed for the first two, if they're feeling generous that day, but it does have a thirty year amortization. With five year prepayment penalty of course!



"How does a 1% rate sound?" Like you're a misleading weasel trying to get me to do a loan that digs me in deeper every month with a three year prepayment penalty that keeps me trapped even after I figure it out (See Negative Amortization Loans)



"Industry standard" - Everybody else at this company does it that way, too, because the boss says to, and I don't know any better. (This is very much the "G" rated translation. Please note that there are industry standards - things that pretty much every company in the industry does. Some of these standards need to change, some just are, and some are actually beneficial).



"Everybody knows there's 2% origination fee." Actually, everybody knows no such thing. But if I told you about it in the first place, you might have gone with somebody honest.



"Brokers can charge you anything they want" - so can I, but brokers have to disclose their compensation and I don't.





Found on the same billboard:

"Rates as low as 4%!" on an "adjusts every month" loan that's going to 6% next month and who knows what thereafter. With five points. While I have you on the phone, let's sign you up for it.

"No Points!" we've got no points loans. Not on the loan we quoted above. I'm really so terribly sorry you misunderstood. Now, about that 4% loan, what's your name?

"Low Fees!" compared to the multimillion dollar Oil For Food bribes, $23,000 is low. Now about that 4% loan, what's your social?

"Easy paperwork" but the start rate goes to 6% for the first month, adjusting to 8% next month. Still five points. Not for the rate we quoted above. I'm really so terribly sorry you misunderstood. Now, about that 4% loan, when can you come in to sign?





One of the occasional questions I get from people has to do with why the housing bubble got so big (or if you're one of those still in denial about it, how prices jumped so far so fast).



This has to do with several factors. Legislation made real estate investments more attractive. Interest rates got low, and nontraditional loans proliferated. People took their money out of the stock market, and wanted to invest it somewhere. The feeling that the housing market could never go anywhere but up. And I will address all of these issues in the coming paragraphs, but the largest factor is and was psychological. People were simultaneously scared that if they didn't buy now, they would be locked out of the American dream, and avaricious in anticipation of buying and flipping properties for multiple tens of thousands of dollars profit.



The first enabling factor happened in 1996. President Clinton sponsored legislation giving huge tax exemptions to the sale of personal residences. There were and are good arguments for doing so, nonetheless it had the effect of making real estate a more attractive investment. When a married couple can make up to $500,000 tax free over their basis every two years, that's a major incentive to start moving into a new house every two years in order to fix it up, or at least hope for a gain in fast growing areas. By itself, this was a minor factor initially, but by making real estate such an attractive investment (literally the best there is, considered in a vacuum), it started the bubble off. Since it hasn't been repealed yet and may never be, the value increase from this aren't really a bubble component, but the value increase for what was a one time systemic shift whetted appetites, even while the dot com boom (itself a fear and greed phenomenon) was going on.



The second enabling factor was that interest rates got low. This meant prices had the leeway to rise, as most people buy homes (and other property) based mostly upon the payment. When 30 year fixed rate loans go to 5 percent, the same payments buys a lot more house than it does at 7.5 percent. If you could have afforded a loan for $100,000 at 7.5 percent, you can afford a $130,000 loan at 5 percent. Instead of a $300,000 loan, you can afford $390,000 for the same payment. $500,000 becomes $650,000. Even though rates haven't been quite rock bottom for almost two years now, this helped start the phenomenon.



The third enabling factor was that people had gotten burned in the stock market as the dot com boom deflated, and the real estate market was doing well. With both sides of "fear and greed" working the equation, this amounted to quite a bit of incentive to chase returns in the real estate market. "I just took a bath in tech stocks, but look at how the real estate market is going!" This is known as chasing last year's returns, but large numbers of people do it. Consequently, quite a bit of personal wealth was dumped into the real estate market. This had negative consequences on the stock market, exacerbating that decline, and for the real estate market, dumping a couple trillion dollars into the demand side of the equation didn't exactly hurt real estate prices. Supply and demand are always working. The important trick is to separate fear and greed, which are real but have mostly short term effects, from real long term changes to the market.



Members of my professions, meanwhile, did absolutely nothing to slow the madness. Indeed, they added as much fuel to the fire as they could. As I have said elsewhere, buying a home really is a fantastic investment, all things being equal. It literally clobbers renting and investing over the long term, with those last four words being the critical part. There are limits, and most agents and loan officers went over them and three states beyond. Anybody who takes any real estate agent's unsupported word for investments and sustainability probably needs a guardian. Reality check: Here's a person who makes thousands of dollars if they tell you you can do something, and nothing if they tell you you can't, and has very little responsibility in the law for telling you lies. They're not financial advisers, after all. What do you think the average person will tell you in this position? (And before anybody sends me email or comments about the "superior ethics of Realtors®" they were just as bad statistically and worse morally, because they were holding themselves out as ethically superior, thus using the propaganda to allay legitimate concerns. I'll believe Realtors® offer some ethical advantage when I start seeing the Boards of Realtors® imposing some real disciplinary measures upon significant numbers of scumbags that the state regulators don't. Aside from advertising to build brand awareness, I haven't seen anything that the Boards of Realtors® contribute to the ethics of real estate practice.)



So there we are, with four factors doing everything they can to drive values up. This goes on for a little while, and now psychology starts becoming a real factor. "They're not making any more land!" making a scarcity argument. "Real Estate always goes up over the long term!", making a safety argument, and ignoring any number of past bubbles and downturns. Heck, I remember four previous ones in southern California! "You can always sell for a profit!", ignoring transaction costs, which are significant, and flat out misrepresenting liquidity. Real Estate can beat anything else, investment-wise, but it is certainly the least liquid class of investment that comes to my mind, as well as being sensitive to many factors beyond your control.



Couple this with a couple of years worth of twenty percent returns, and the feeding frenzy really kicks in. There starts being a real fear factor - people get afraid that if they do not buy now, they are never going to be able to afford a home. When prices rise by 50 percent in two years and wages rise by six, who can really blame them? Most people do not have the economic background to sit back and consider who buys houses, and what controls housing prices. So the mentality of "buy now or rent forever!" took hold, further exacerbating the rise. People were willing to do literally anything they could to qualify for a home, lest they be unable to qualify forever. And with the thinking detailed in previous paragraphs, they were told that "Even if you have to sell in a year, you'll still come away with a huge profit!" Yes, that's greed again, rearing its ugly head.



Into this situation stepped the lending community, particularly the sub-prime lending community. Starting about 1997, more and more lenders started being willing to loan 100 percent of the value of the home. "Hey, why risk your own money when the bank will lend theirs?" This drove market leverage to never before seen heights. Furthermore, in an effort to sustain volume, lenders started a trend of competing ever harder for the most marginal case. Stated Income, Interest Only, and short term hybrid ARMs proliferated (The most common sub-prime loan is only fixed for two years). Finally, lenders started pushing the Negative Amortization loans, for those borrowers who couldn't really make even the payments required on the short term interest only alternatives.



Lest anyone think otherwise, the community of real estate agents was fully on board with this. Always higher, and fast increasing, prices meant they made more money in commissions from selling the same number of homes, and the apparent virtues of real estate as an investment of the moment kept seducing those who did not know any better. Those few voices of sanity were drowned out, and many left the business. There just aren't that many people who really qualify to buy homes these days based upon the tradition metrics, even relaxed as they have become, and if you won't put them into something they can't afford, somebody else will. Furthermore, during this period, more and more real estate agents were starting to do their own loans, further isolating any voices of sanity in the loan community. Speak the truth that a client probably cannot afford a loan once, and the real estate agent will never bring you another client again, and will try everything they can to pry any clients they might have away from you. After all, you cost them a commission once. Interest only, and negative amortization loans further proliferate, as agents try to persuade prospective clients that they "really can afford those payments." Forty year loans start making a comeback, where they were all but extinct. Sub-prime underwriting standards are loosened until they ignore what happens when these hybrids adjust (or Option ARMs recast) and concern themselves only with the minimum starting payment. A larger and larger portion of purchasers is forced into the sub-prime market if they want to qualify. And still property values rose.



Or, more correctly, prices rose. The actual property value certainly wasn't growing that fast, only the common perception of value, aka price. People were getting away with these terrible loans, complete with prepayment penalties, because even though they weren't able to make their payments in many cases, prices were still increasing fast enough such that even if they sold relatively cheap, in order to unload the property in a hurry, and paid a prepayment penalty, they were still coming away with money, further aiding the illusion that there was no way not to make money. When workers are making more money buying a house and holding it for two years then selling than they are at their jobs, that's an incentive to keep doing it. That's an incentive for more and more people to get in on the act. And the feeding frenzy builds. Fear and Greed. When someone holds a house for two years and sells for a huge profit despite the fact that they did nothing to enhance the home's value, that has the appearance of easy money. When people start buying with the intention of short term flipping without doing any work (We call this "Hoping for a bigger fool"), and when they'd call to see if I knew of any such properties and hang up when I'd start telling them about properties that really were good investments but needed work, I knew the end was coming very soon.



The first group to holler "enough!" was not the lower income folks who were getting priced out of stuff even at the lowest end of the market. It might be what you'd expect, but it wasn't the case. My theory is that those people simply don't know any better, and didn't think they could afford to wait. It was the better paid, more economically savvy buyer at the higher end who first called "Bull****!" At least here locally, higher end McMansions and such were the first to start sitting on the market. These prospective buyers made plenty of money, and knew they weren't on the verge of being priced out completely. If they were right, they'd buy a better property when things fell apart. If they were wrong, such is life, and they could still afford something. Meantime, they were going to rent.



Lessons here: Always separate psychological factors from real market shifts. The general rule is that once they find something that appears to be working right now, the crowd always overreacts. Many times you will make more money in the long term by bucking the obvious trend, particularly if that trend is Fear and Greed driven.



If you are in an untenable position with your loan right now, whether because it's negative Amortization or interest only or just about to start adjusting: Either sell now for what you can get, refinance into something fixed for at least five years right now, or be resign yourself to disaster. With the yield curve inverted right now, there is practically no spread between the five year ARM and the thirty year fixed rate loan. Even someone who is as huge a fan of the 5/1 ARM as I am has to admit that, at the moment, the thirty year fixed rate loan is looking very attractive by comparison. When you get a much better guarantee of the rate not changing, for the same price, and the the loans are otherwise identical, what's not to like? As I've said before, you can survive and prosper when you're upside down on your home, as long as you have the right loan for it.



If you can make the real payments on such a loan, I would do it now while appraisers still have the ability to appraise your property for near peak values. If you lose the ability to appraise for near peak values, then you may well be a member of that rather large group in many parts of the country where the market will no longer bear a price greater than the loans on your property. When you owe more on the property than the market appraisal, then for all practical purposes you are stuck in your current loan. If it adjusts, amortizes, or recasts, you're suddenly going to be making much larger payments. If you qualified under one of the less sustainable programs I noted earlier, when this happens you are going to be in a world of hurt, and probably unable to refinance. Most common result: Losing the home, credit ruined for years, and a 1099 from the lender that says "we lost money on you!", for which the IRS will demand taxes. If your loan is going to start asking for higher payments soon, and you can not refinance, or cannot afford to refinance, it's time to sell, right now.



Caveat Emptor (and Vendor)

About a year ago, I took a look at a lender owned property a few miles from my office. It was ugly. I mean ugly. The yard was a mess, there was a deck that was rotting. The facade looked like it hadn't been painted since before President Kennedy was shot, and really needed to come off besides. Inside, the carpet was gone, the vinyl in the kitchen and bathroom looked like it was waiting for the return of President Truman, and most everything else looked even older. The color scheme was something out of the art deco age, too. You know the pastel salmon and blue.

But it had good intrinsics! Dynamite location within a mile of three freeways, although it didn't get traffic noise from any of them. The area is a resurgent one, and it's within fifteen to twenty minutes of just about everything, even during rush hour. The schools - especially the high school - are top notch public institutions. The property itself did not have any basic structural flaws that I could find - just an old and ugly surface. And that's not mentioning the fact that it had excellent sight lines and a pretty darned good view.

I tried real hard to get one set of prospective clients, a couple with two kids, to put an offer in on the property. Based upon what they had told me, they could afford the property with a thirty year fixed rate loan with even a little left over, even at the asking price, and the property was livable as it was. It just wasn't modern or gorgeous, and they still had room in their budget to fix it up. They could have spent roughly $40,000 for professionals to come in and fix the whole thing, or they could have cut those costs in half or more by doing it themselves. At the end of the process, they would have had a wonderful property worth at least $120,000 more than they paid for it, with at least $80,000 in smart sweat equity. Furthermore, the property taxes would have been lower, they would have had plenty of room in their budget for disasters, and on and on the list of advantages goes.

These people decided not to pay attention to me. They wanted something that was beautiful now, and someone else persuaded them to stretch past their real the limit to buy into a fairly new PUD on the other side of that particular suburb. HOA dues, and no room in the monthly budget for anything to go wrong. Not to mention they had to use an interest only 2/28 to qualify, and they called me not too long ago and said they've got a late payment, but they were hoping I could do something for them. The answer was unfortunately no. I really hope for their sake that the market takes off next spring, because otherwise they're going to be hosed as far as refinancing goes, and they're going to need to. I didn't say a thing even implying, "told you so", but to my surprise, he volunteered the information that he now wished he had listened to me. Unfortunately, he can't go back in time with what he knows now.

A flipper ended up buying that property for cash. He did a light surface rehab, and it's beautiful. He spent less than $500 getting someone to clean up the yard and haul away the wood from the old deck. He stripped off the old facade and put good quality siding on. Carpet went in before he even moved in, the vinyl is now a fairly nice tile, and the two bathrooms he basically resurfaced, one at a time. Kitchen cabinets he re-stained, and updated the sinks, the faucets, and the appliances. Put up a white picket fence, seeded grass, painted the inside, and now the property is on the market again. After all the costs of rehabbing and selling, he's going to come away with at least $40,000 pure profit, assuming he paid to have all the work done. Plus, he got a place to live for six months out of the deal, at least a $10,000 value even for a rental.

My point is this: Flippers aren't the only ones who can do this. In fact, the math works even more strongly in favor of someone buying a place to live. No $40-50,000 to get the property sold. The lower purchase price means lower taxes, which last as long as you own the property. I know that career and kids are tough enough, but the property was livable as it sat, and you have however long you want to get it rehabilitated. Net difference to their situation: almost a year and a half of the income it would have taken to qualify. If I offered you a year and a half worth of pay to work overtime for less than six months, most people would jump at it, kids or not. Add to all of this the fact that this is money you didn't borrow, so you're not paying interest on it every month. At 6% interest, every $1000 you don't borrow saves you $5 per month, and this was a fair number of thousands of dollars.

There is a reason Why There Is Money in Fixer Properties. I can understand if you're a big executive who needs to move into something beautiful so you can have social professional or client sales meetings there right away, but this just doesn't describe most people. Not to mention that those folks aren't looking to scrape into a property - they make the money to easily afford the beautiful modern six bedroom home overlooking the ocean.

I'm not going to say that you'll never find a bargain property that isn't already beautiful. I'm saying you're at least a hundred times more likely to find this sort of bargain in a property that isn't beautiful yet, and that the vast majority of the time, the big stroke in value goes to the people who make it beautiful. I had another couple a few months ago,and they listened to me about fixer properties, more than even I was really comfortable with. They bought a property that was almost a century old, and all through the inspections, I kept saying things like, "I expected worse." Turned out the property was more solid than even I gave it credit for. I drove by a couple weeks ago, and the property has been fixed up significantly. Furthermore, I'll bet they could sell for a profit, even now, and there's still a long way to go. These people have basically zero pressure on their pocketbook, and zero stress in their life. They can still save money. They can still live like they were accustomed to. The only difference is that now they are owners rather than renters, and they have placed their cost of housing forevermore under their own control, they get the tax advantages of owning, and so on and so forth.

People stretch beyond their real means to buy that beautiful new gorgeous eye candy property all the time. It's never a sure bet, and when the market isn't going up twenty percent per year, it's considerably more risky. Far better to restrict yourself to a property you can afford with a sustainable loan, and that gives you some monthly cash flow for emergencies. You shouldn't plan to have a need to refinance for at least five years, but if such a need should happen, you're likely to be able to do so. If you'll buy a solid property that needs some updating and beautifying, it's likely to be a financially rewarding experience, and any number of professional property flippers can attest. There's no reason why you can't take advantage of this fact to find a property to live in, instead of the quick flip for profit. In fact, it makes even more sense to do it for a property you intend to live in for a long time.

Caveat Emptor

I've been aware of this scam for some time, but with a larger than normal number of people in foreclosure or otherwise at the end of their rope, it's probably past time to cover this. It is a pure scam throughout, but it's legal as far as I know.

I'm not going to go into more details than I can avoid. The universe knows there's enough people pulling this right now, but the bad guys already know about it, so let's even the level of illumination a bit. Here's the general way it works. The owners in default, and there's no way they're going to bring the loan current, as the lender can require once the Notice of Default hits. They do not have the requisite cash. Along comes a blackguard masquerading as a white knight, and makes the homeowner a proposition: Sign the property over to me, and I'll bring it current, rent it back to you long enough for you to get back on your feet. Pay the rent on time for two years, and I'll sell it back to you. There may even be a small amount of cash involved, as compensation for your equity "in case" you end up unable to purchase it back.

People desperate to stay in their property will agree. They think they'll be saving their equity, their kids won't have to change schools, and nobody will have to know they were in foreclosure. Of these, only the fact that the kids will be able to stay in their schools a little longer might be true.

Here's what happens: These scams are usually structured as a sale subject to existing deeds of trust, with all of the problems entailed in that, but not always. A signs the property over to B. B now owns it. In the absence of a contract for future activity, B can do whatever the heck they want to with the property. Usually, B will try to talk A out of demanding any actual written contract, and a verbal contract isn't worth the paper it's printed on. Without such a contract, what's preventing B from evicting A is essentially B's goodwill.

But with a contract or without, B is usually motivated to keep A in the property by the fact that they're going to charge A an above market rent - usually enough to pay not only the mortgage, but a significant monthly profit for B. I had a guy come to me a couple months ago who had accepted such an arrangement. His monthly payments had gone from $3100 to almost $4300. Where else is B going to get that kind of rent for properties that normally rent around $2000? And, of course, A is going to maintain the property. After all, they still think it's theirs.

Now, if you can't make the payment now, let me ask you what makes you think you'll be able to afford a much higher payment? What makes you think you'll be able to pay it on time, as the contract, assuming there is one, demands in order to retain your right to re-purchase the property? It isn't going to happen. If you had that kind of spare cash, you would have brought the property current yourself. If you could afford the payment in the first place, you wouldn't be in this trouble. You probably wouldn't have been behind in the first place. But people will tell themselves all kinds of things, because "it's only temporary".

Now it's worth noting that for the ones of these structured as sales subject to existing deeds of trust, B is going to make a point of having some late payments on there. These hit A's credit rating. Chances of A being able to qualify for a better loan, that they can actually afford, when the two years are up? Zilch.

Even if they're not structured as sales subject to existing deeds of trust, the chances of A being able to qualify to buy the property back at the end of those two years are basically zero. There's going to be a late payment somewhere. "Sorry, but you're in default upon the contract terms." They can take the contract and a decent lawyer to court, and paint themselves as being a saint who kept A in the property, tried to give them the opportunity to buy it back, and was rewarded with default on the rental agreement and this lawsuit. Chances are that A ends up paying for B's lawyer, as well as their own. Even if A somehow manages to make all the rental payments on time and in full, they are now even more broke than before. No cash for closing costs, or anything else. Particularly in the sort of lending market we have now and expect to be having for the next several years, A is not going to qualify for the loan they need in order to repurchase the property.

What does the blackguard who pretends they're a white knight get out of all this? Well, they won't do it for properties without a good bit of equity. So for an investment of a few thousand dollars to bring the loan current, they get a property with 10% equity at a minimum, and usually more. They get a positive cash flow from having it rented above market for up to two years. And if A should somehow manage to leap all the hurdles to repurchase the property, that repurchase contract will give them back every penny they invested with cash to spare. And for the vast majority where A is unable to repurchase the property according to the terms of the contract, I'll bet that they get a good chunk of change, not only out of the equity built in to the deal, but also out of the differences between the market now and the market two years from now.

For being in denial, and unwilling to face the fact that they can no longer afford the property, A loses basically all of the equity they have built up. They would have lost some of it anyway, as it's not free to sell a property and in this market, you're unlikely to get top dollar for anything. But this ends up costing them more - tens of thousands more.

If you get into a situation where you're looking at losing the property, and someone pretending to be a white knight rides up and offers you this kind of deal, you're better off selling outright in pretty much every case. Yes, you've just lost the property. But you would have lost it anyway, together with basically every penny of equity if you accept one of these deals. How is that better than being responsible and realistic enough to accept the situation as it is, and sell on the regular market for the best deal you can get?

Caveat Emptor

I've seen more changes in the lending industry in the last six months than the previous five years. But those changes simply restored us to the place we were a few years ago.

Loans are easy to get, rates are good. For all the howling and gnashing and grinding of teeth you see in the media, and elsewhere, I can get loans at rates that are very low, historically speaking. I can get 100% financing quite easily, and not just government programs, either.

You just have to be able to prove you can afford the payments.

Actually, let me modify that. You don't have to prove you can afford the payments. You can get "stated income" and NINA financing. There's actually quite a lot of it out there, and the rates have even fallen a bit in the last couple weeks. The lenders are perfectly willing to make stated income and NINA loans. Want one? I can get it, even A paper, provided you've got the credit score.

You just have to have enough equity that the lender isn't worried about losing the money they loan you.

All you need is one or the other. And that's the rub. Starting a few years ago, and increasing until the house of cards started collapsing back in the beginning of the year, many real estate agents and loan officers stopped worrying about whether or not their client could really afford the property. The question was could they get the loan funded, and let the client worry about whether they could really afford it later.

The relaxation of lending standards was like manna from heaven to the less ethical members of my professions. Agents could sell people who could barely afford a condominium in reality a beautiful huge detached house with its own yard in an affluent community with great schools, and loan officers could make it look like they could afford the payments. Talk about your easy sale! The clients expect a chintzy little condo in a rough neighborhood, and the agents shows them a beautiful five bedroom home half a block from the beach, and says they can get it for the monthly payment they told the agent they could make. Prices skyrocket! People who bought a couple years ago and are strapped for bills refinance into these ridiculously low payments while getting cash out for all of the toys they can imagine! New SUV? How about two new SUVs! Some loan officer needs to get paid for a loan, and everybody has a thirty year fixed rate loan they got in Summer 2003 at 5.25%? Offer to cut the payment in half!

Never mind that the real interest rates on these loans was much higher. People just naturally assumed that if they kept making the payments, they'd pay the loan down, and eventually, off. After all, that's what loans are! Except that wasn't the case in this particular instance. That small minimum payment, way below the real cost of interest, caused thousands of dollars to be added to the loan balances, where the above market interest rate could be charged on that money also - and the lenders could report all of this as income, doing wonderful things for their revenue and stock prices!

Some others may not have gone in for negative amortization loans in a big way. Instead, they put people into "interest only" loans where the loan and interest rate was fixed for two, or maybe even three years. They may have used stated income, or they may not, but they put people in unsustainable loans where the clients could barely afford the initial payment, and never mind thinking about what would happen, sure as gravity, when the adjustment hit. When the loan started to amortize at the same time the rate jumped by two percent, they affect to be somehow surprised that their former clients cannot afford the payments!

Or perhaps they used stated income only because the clients had two thousand dollars of other debt service per month. Well, hello! debt to income ratio is the most critical measure of whether someone qualifies for a loan there is. It protects the lender, and it also protects the borrower, and this intentionally short-circuited it. Yes, they could have afforded the property if they didn't have have this debt. It's not a distraction, it's the central, single most important issue in whether or not they qualify for that loan!

For those who were taken advantage of thusly, may I recommend finding a competent real estate attorney? The last few months have seen some very interesting court decisions. One in Ohio started it off by ordering a negative amortization loan rescinded due to failure to disclose its nature sufficiently. There are all kinds of class action suits going on, which may be the first worthwhile use to which I've seen them put in twenty years. I would not be surprised at all to see some real estate brokers successfully sued over basically the same issues (actually, I'm anticipating it with a fair amount of schadenfreude), and I also expect the regulators to get pretty heavily involved. Licenses are going to be lost, and even a few jail cells are going to be filled.

All of that is neither here nor there, really. My point is that the only thing that's changed is that the lenders have woken up to the fact that was evident all along - that they were the "deep pockets" who were liable to eat most of these losses from the price collapse, and from people who couldn't make payments on unsustainable loans, particularly after the payment started adjusting. The lending standards that contributed to the bubble are gone, and they are not coming back any time soon. Forget about them. That was then. This is now.

The lending standards in effect now are very livable. Bankers transported from the seventies - or even the early nineties - would be horrified at how lax they are. Until 1997, there was precisely one lender that would loan 100 percent of the value of the property (when they bailed out of the 100% loan market in late 2005, it was the first sign that collapse of the lending market had actually started). I've still got at least a dozen lenders who will go 100% now, but they want to see proof you can afford the payments. Failing that, they want to see enough equity (which means down payment in the case of purchases for you real estate agents reading this), so that if the loan were to go south, that lender would still get their money.

This means real affordability and down payment have become a lot more important to the purchase market, and if you're looking at a refinance, you had better be able to afford the real payments. If you can't, you better have equity. If you don't have either, that refinance is not going to happen. I just checked two wholesaler databases, and neither one had a 100% stated income loan, even with verified asset reserves.

If, on the other hand, you're willing to restrict yourself to properties you can really afford, welcome to ownership! As I've said, I've got any number of 100% loan to value ratio programs if you'll do this, and have credit that isn't putrid! As I covered a few weeks ago, affordability has increased a lot, and that's just judging by asking prices. When you judge by actual sales prices, things are more affordable yet!

The catch is that if you can only afford the payments on $300,000, then $300,000 is all you're going to be able to borrow. I've been selling my clients what they can really afford all along - the only difference it makes to me is that I'm no longer competing with the jokers that can only sell houses by showing clients the beautiful property they can't afford. I've been telling people about real, sustainable loans all along. The only difference this makes to my loan business is that I'm not competing with jokers who sell negative amortization loans by the minimum payment to unsuspecting people who don't understand what's going on.

What this means is that lazy agents and loan officers are going to have to bite the bullet and sell the client a property they can really afford with a loan they can really afford. Agents can have people make offers on property they can't afford, but they're wasting their time and the clients'. Loan officers can tell people about this loan and that loan they used to have, but they're wasting their time and the clients'. Possibly the clients deposit, inspection, and appraisal money too, in both cases. The loans to make this nonsense happen do not exist any longer.

On the other hand, 100% financing still exists for those who can afford the payments. But they have to be able to actually afford the payments. This means working within a budget, and settling for what you can afford within that budget. Settling is a very hard message to send someone who's going to be spending six figures on a property and is all emotionally tied up with how they want it to be beautiful, and in a great neighborhood with wonderful schools and all of the usual things that have buyers gushing - particularly when everyone else is telling them they don't have to settle. They really did have to settle, all along, and those that believed ethical practitioners when they were told that are doing just fine, thank you, while those who didn't are in real trouble. The real world has come crashing back into real estate. The fantasy may have been nice while it lasted, but the real world always comes crashing back.

Among those real world facts that have come crashing back is that all of the long term benefits of owning over renting are just as real, just as relevant, and just as true, as I painted them back when I wrote those articles. Let's review a few:

Should I buy a Home?, Leverage in Real Estate - Making a Decent Investment Spectacular, Why Renting Really Is For Suckers (And What To Do About It) (and its counterpoint, When You Should Not Buy Real Estate), Save For A Down Payment or Buy Now?, The High Cost of Waiting To Buy A Home, Real Estate: Getting From Where You Are To Where You Want To Be.

My local market in San Diego County has been on the bleeding edge of all of this, because it's such a desirable place to live, and our housing supply is probably the second most constricted in the nation (after Manhattan, and although the City of San Francisco also has a decent claim it covers a much smaller area). Between natural obstacles to growth and zoning codes constricting the building of new housing, I think we've had about all the downwards adjustment we're going to get. If you can't afford to buy a detached house, buy a condominium, townhome, or PUD (indeed, how dead the condo market has been the last three summers has been directly attributable to two factors: Over-conversion or apartments, and the fact that lazy agents were selling people properties they couldn't afford because it was easy), or think seriously about moving out of town, because with the number of people who want to live here, it's only the current meltdown in lending that's causing the hiccough in prices (and what effect do you think over-conversion of rentals will have on the rental market?). With local housing demand trends going the way they are going, even the prices at the peak of the bubble two years ago are going to look pathetically cheap in a few years, and that's pretty much the facts of the matter, albeit perhaps not so strongly where there's still room and the building codes to allow growth People are able to qualify here locally. Right now, the only thing preventing them is irrational Fear and Greed, exactly opposite to but caused by exactly the same psychological factors I wrote about in February 2006, back when everybody else thought the market was still going gangbusters, and updated here. But psychological fear and greed are difficult to maintain. It's not going to be very much longer before people figure out, en masse, that the economic basis is there to support those few sales that are actually happening. Actually, the economic basis is more than there to support current prices - I'd look for a significant bounce in prices next spring and summer, and even if I'm wrong about the exact timing, the price turn-around is coming. Buy something you can really afford, and be ready to see it increase in value.

If you buy something you can really afford, the moderate increases in value I expect to see will leverage your money favorably, such that you will be better able to afford something more expensive, more quickly, than if you saved your money, even if you invested those savings in the stock market. Even if you never move up, the fact that you have fixed your costs of housing now means that if you can afford those costs now, you will be even better able to afford those costs in the future, assuming inflation and all of those other economic factors we've gotten accustomed to these last fifty years. Homes are not going to continue at today's prices any more than candy bars are still ten cents, or that you're going to be happy working for today's wages thirty years from now. What's going on right now is an opportunity for buyers, and an opportunity for those who would like to be able to continue to afford to live here for the rest of their lives. If you decide to wait until event prove me right, that's your prerogative, but neither I nor anyone else will be able to bring the market back to today's state. The moving finger writes and moves on.

Caveat Emptor

Real Estate information is asymmetrical. One of the central facts of real estate transactions is that the seller always knows more than the buyer. They've lived in the property for years, and had to deal with any defects first hand. Even if it was rented out, the chances are that the tenants contacted them over every defect those tenants encountered. It's not like tenants are noted for their desire to spend more money on behalf of someone else. The vast majority of the time, that seller could quote you chapter, verse, and receipt number for every repair they've had done, tell you more than you ever wanted to know about the time the tenant called them at 3AM to take a plunger to the toilet, or about the time the water heater exploded while they were on vacation and they came back to a property filled with water up to the window line on the second story. Water bills, stucco cracks, the cracked slab that was revealed the last time the floor covering was replaced. The question is: Will they?

The law is quite clear. The owners are required to inform prospective purchasers of any known issues, or for that matter, issues that they reasonably should have known, that a reasonable person might consider in their decision of whether or not to purchase that property, and by obvious (and well precedented) extension, on whether or not to purchase it for a particular price. Failure to do so can make you liable for the entire purchase price, repairs, legal fees, and even damages. Please, consult with a lawyer as to your responsibilities. I'll bet you a nickel, in advance, they advise you to disclose whatever issues with the property there may be.

Nonetheless, two factors stop a lot of owners from proper disclosure. Particularly in this market, those owners may be hoping just to get out even, or even simply owe less money in taxes than they might after the lender accepts the short payoff. The old "blood from a turnip" argument. It's one of the maxims of the legal industry never to sue people who are broke. You can get a judgment. What you won't get is the money.

The second factor is that the current owners intend to shield their assets (via homesteading, etcetera), leave the country, or simply hope you're not going to sue due to one of a number of reasons. Mostly, these amount to denial. If you've got to put out $50,000 to get the property into the condition you were lead to believe it was in when you bought it, it's worth their while to pay the lawyer and chase you down.

The various inspectors are your friend. Quite often, I encounter resistance from clients about spending the money for the inspection. I make it very plain that I will try my best to spot defects, but I am not a licensed inspector of any kind, and there aren't very many agents who are. I've met exactly one who was, and let's just say that I'll bet significant money that my clients end up happier than his, and expect to win a lot more often than I lost. Especially if the clients were asked how happy they were five or ten years out.

Admittedly, inspections cost money. However, on the scale of the value of real property, this is money you need to spend. $400 to make certain that a $500,000 property is basically sound. Look at it this way: Would you spend an extra eighty cents for a third party vouching for quality on a thousand dollar item? Particularly if you can sue them if they're wrong? Say you were looking at a $10,000 used car. Would it be worth $8 to you to have your favorite mechanic tell you what, if anything, was wrong with it? I'll bet every single one of you who drive answered "Yes," and that's even without the liability issue. The point I'm trying to make is that these are equivalent bets. It's just that "$400 is a lot of money." Well, $500,000 is a considerably larger pile of money than $400, and it's no less real if you happen to be borrowing the whole amount. In fact, it's even worse, because if you lose $500,000 cash, all you've lost is $500,000. If you borrow $500,000 and lose it, not only do you have to pay it back, you have to pay interest on it until you do. Not to mention that it's kind of hard to refinance, among other problems.

However, you don't want to be putting out that $400 inspection fees for properties you're not going to buy anyway, because there's something wrong that a knowledgeable agent can spot before it gets that far. Nor do you want to spend it before you've got a fully negotiated contract, especially in the current market, because the fact that you've spent $400 inspecting their property before negotiating a contract can be interpreted by sellers as giving them more power. Furthermore, negotiations post contract are always subject to whether the other side wants to be reasonable about their end of what the inspection reveals. You've already got a deposit in escrow, and my experience has been that it's easier for the owner to break an escrow that's not going anywhere, than it is for the former prospective buyer to force the owner to release their deposit money from that same escrow. You'd really prefer to find out about Vampire properties before you put an offer in.

This is one of the many areas where a good buyer's agent pays for themselves many times over. If they spot the vampire property before you make an offer, that's a minimum of about two weeks and $400 you saved, and it's likely to be a lot more. If you put a $5000 deposit down (and nobody sane accepts offers without a deposit), now you're wondering whether the other side is going to return it, which not only might necessitate hiring a lawyer, but also impact your Loan to Value Ratio until and unless you get it back, and could very well impact your Debt to Income Ratio. Time, money, headaches. All saved because your agent spotted the problem before you put an offer in. There aren't any spaces on the HUD-1 to document them for the government, but they're all real.

So when you're going around looking at properties, it's a lot more important for your agent to look critically at what might be wrong with the property, and compare and contrast it with other similar properties on the market, than it is for them to tell you about how the floor goes so well with the walls, or how gorgeous the view is. Most people really can figure those latter qualities out for themselves, and if they really want input, a good agent is happy to provide it, although most people will only be asking for confirmation that other people feel the same pain in the optic nerve that they do. The real job of a buyer's agent is to consider things other than the transient decorations that are likely going away. Physical situation (including defects!), orientation, and of course, location, location, location. How easy will be to maintain or improve the property's value? What will it be like to live there? What does the future hold for the neighborhood, at least according to current plans? What's the commute like? How's the grocery situation? What about other shopping? City services, how far to common activities? Most importantly for most people with kids, What are the schools and how good are they, really? None of this stuff is part of the standard disclosures from seller to buyer, because the buyers are theoretically just as capable of finding it out as the sellers. Not true in practice, I might add, because the seller has usually been dealing with these and other neighborhood issues the whole time they've owned the property. These and other questions are some of the reasons why good agents can only cover so much area, and why it's a real good idea for even current residents of a neighborhood to find a good agent and use them to help them buy a property.

Caveat Emptor

Copyright 2005-2017 Dan Melson. All Rights Reserved

 



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This page is a archive of recent entries written by Dan Melson in October 2007.

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