Monday, November 15, 2010
Everyone wants to know: What's next?
Now that the Palermo Palm Springs developer is in default on its bank loan, one question on the minds of people hoping to become homeowners is: When will the unsold condos once controlled by the developer individually go on the market? And the next question is: What will that do to home prices if a whole bunch come on the market at once? Of the 117 condos in Phase 1 of Palermo, 34 units are unsold and were once controlled by the developer. An bank auction is set for Nov. 30 to sell all the units as a group. These units now are being rented out. There are government protections in place for renters living in foreclosed properties so they can't immediately be evicted. Many Palermo renters have leases that don't expire for up to a year. Another consideration is the type of units that are left. For example, about a third of the unsold 34 condos are single-level one-bedroom units, known as Models E and F. (This site published a list of the 34 condos and their model types earlier this week.) Miss Penny Lane says: She'd like answers too, but the most recent buyers of Palermo residences have been such a jolly crew that she's confident that the future is bright indeed.
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17 comments:
Sorry for the renters but I've been eyeing Palermo and have my eye on one Enterprise condo because of location and type.
We seem on the end of the short sales/foreclosures at Palermo as the people with "bad" loan have and are having them come due. The floor already hit in some sense.
Does anyone know how to find out what time and where in corona the action is? I may want to go just to see if these units are sold.
There may be another wave of short sales coming next year as interest rates re-set (higher) for folks with adjustable rate mortgages. Foreclosures have stalled as there is currently an investigation into how the foreclosures were conducted. HOWEVER, short sales can continue as well as REOs. The auction affects buyers in that if they have FHA financing, the FHA requires that PUDs (Planned unit developments, like Palermo), be 90% owner occupied and the development must be 100% completed.
For those who would like to purchase a Palermo unit..think long and hard because unless you have cash, your lender will not fund your purchase of a Palermo unit via FHA or conventional mortgage...WHY? Because Palermo is an unfinished development. Moreover, it is currently not at 90% owner occupancy, which the FHA requires in order to insure FHA Loans. Cash is king. If you have cash, you can name your price for units coming-up for sale. One unit, which was listed for 186,000.00, went for 168,000 cash. Auctions are all about cash, so if they auction units individually, you can get a great deal. The BIG question regarding Palermo is--who is going to finish it? Will it ever get finished? Palm Springs is littered with unfinished developments, Murano, Escena..sadly, the list goes on.
Not sure the above is correct. "Owner occupancy" is not the same of "owned but rented out." There's no way to determine the number of units owned by people but rented out. There's no list. Furthermore, once the Enterprise units go into the hands of another party (en mass or one by one) they would be considered "owned." FHA has backed loans during the Enterprise sales years when many more units were empty and there was no Phase 2 construction. FHA loan continued then and still are. Also, the above postings confused FHA (little down payment) loans with convention or other loans that don't have these concerns/restrictions. Lastly, I love that people paying all cash because it shows they are investing in Palermo and putting their money where their mouth is. Is is GREAT. Sure, they may sell later, like anyone, but only for higher amounts, so prices will go up. The short sale/foreclosure homeowner people are in the ones who are driving down the prices. The cash buyers will eventually help to bring up prices because they won't sell for a loss.
Due to the elimination of ‘spot approval’ in February 2010, an entire condominium development must now apply to the Department of Housing and Urban Development (HUD) and be granted FHA approval before someone can purchase or refinance a unit using an FHA loan. Before its elimination, spot approval allowed an FHA buyer or refinancer to conduct a transaction in a specific condominium unit located in an unapproved complex. Here are just a few of the highlights of the 2009-19 HUD/FHA Mortgagee Letter detailing the new guidelines:
» No loans if more than 10% of the units are owned by investors.
» FHA won’t approve loans where less than 50 % of the total units already have been sold, or where less than 50 % of the units are owner-occupied
» If more than 30% of the unit owners in a project took out FHA-backed loans, the agency doesn’t want to do any more business in that condominium.
Palermo fails these guidelines on many counts. With at least 38% of the units owned by investors, let's just start there. Good luck getting a loan.
More clarity on the FHA owner occupancy requirement and investor requirement:
"1. What is the Owner Occupancy Requirement?
At least 50 percent of the units of a project must be owner-occupied or sold to owners who intend to occupy the units."
AND
2.“No more than 10% of the units may be owned by one investor.” All condominium projects must meet the eligibility requirements set forth in ML 2009-46 B regardless of project classification.
Enterprise (PS Canyon, LLC) owns (owned) 32-34 of the 117 completed units, this is well over 30% and the 10% limit set by the FHA of units held by one investor. Because of this and the impending auction, (along with the unfinished condition of the project) my lender bailed on me. I love Palermo.
Palermo is an approved FHA condominium, however that "approved" status was conditionally granted back in 2008 and condos must be recertified every 2 years. THus, Palermo's status expires in December 2010. Recertification is not likely since Palermo fails on the guidelines for approval, notably the one below:
(Visit the entire FHA document detailing condo approval for FHA loan insurance at: http://www.hud.gov/offices/adm/hudclips/letters/mortgagee/files/09-46bml.pdf)
5. Investor Ownership: No more than 10 percent of the units may be owned by one investor. This limitation also applies to developers/builders that subsequently rent vacant and unsold units. For condominium projects with ten or fewer units, no single entity may own more than one unit within the project; all units, common elements, and facilities within the project must be 100 percent complete.
Palermo possible fails on this guideline also:
6. Delinquent Home Owners Association (HOA) Dues: No more than 15 percent of the total units can be in arrears (more than 30 days past due) of their condominium association fee payments.
A lot of the above is or will be moot because the 34 "Enterprise" condos will be individually pretty soon (year or two).
It isn't moot if you're a potential buyer who wants to buy now or a seller who needs to sell now. Also, who says the units will go to individuals? Auctions are open to investors also--money, cold hard cash talks.
We purchased our unit at Palermo for cash at and auction. We applied for an FHA loan after the fact and it was denied due to problems with the FHA certification. We were told the complex no longer qualified under the FHA guidelines.
I personally I'm glad Palermo and other PS developments in the future might NOT qualify under FHA because these loans are just another form of the bad risky loans that were given before. The people can walk out with losing nothing basically. Larger down payments are a must for long term market stability.
The previous post reflects a growing national concern with the government's large role in housing. Critics would argue that homeownership is not for everyone and that the government should stop "hawking" products to promote homeownership as if it were the holy grail of existence. Homeownership is a privilege and homes are places to live, not investments! On the other hand, homeownership, if supported responsibly, provides a fundamental engine in the economy providing jobs and stable communities from which people can develop and grow into responsible contributors to society. This is NOT an easy issue to decide, but definitely I think the government needs to reduce its role in insuring loans (that's all the FHA does by the way--they do not loan money, they only insure a portion loans--PMI, private mortgage insurance should fulfill more of this role in the future, in my opinion.
If all these people had PMI, why are the banks in crisis? You never hear about the PMI and the foreclosure crisis.
PMI is usually only for the 2nd mortgage, which is on the downpayment. This is supposed to make it more affordable for some to own, although like 11:17 said, it makes it much more likely someone will walk away, because they have no skin in the game. The government has succeeded in turning a home loan into a call option on the value of a house.
Golly, Ill sell mamas diamond earbobs for a condo
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