Sean O’Toole with PropertyRadar #390

Norris Bruce

Bruce Norris is an active investor, hard money lender, and real estate educator with over 30 years experience. Bruce has been involved in over 2,000 real estate transactions as a buyer, seller, builder and money partner.

Norris Bruce
July 15, 2014
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Bruce Norris is joined this week by Sean O’Toole. Sean is the founder of PropertyRadar.com. He began his very successful career as an entrepreneur in Silicon Valley working with people and starting up companies. He is a personal friend, and he and Bruce have gone on trips together down to Washington D.C. to do research. PropertyRadar.com is a big advantage to any investor or realtor who has access to it since it helps them navigate the real estate market and find things easier than you would have any other way.

PropertyRadar provides different services. Some lingering confusion is whether they have additional services and include what ForeclosureRadar used to do. Sean said PropertyRadar originally started as ForeclosureRadar and really dominated this market helping realtors with short sales and REOs as well as investors find foreclosure opportunities. In 2010 they decided to expand beyond this and help investors find other opportunities, such as absentee owners as well as help realtors find other opportunities outside of foreclosures. They always knew foreclosures were going to be a smaller part of the market over time. PropertyRadar includes everything ForeclosureRadar had plus information on every property. This could mean properties in foreclosure as well as the sales, listings, comparables, and other new things in the area.

Sean described it as a superset, which means everything in ForeclosureRadar plus other features. Bruce said he knows one of the things people are doing is mailers to absentee owners. Bruce asked if there was a way to distinguish equity in the information that you have. Sean said this is one of the things they do really well. With over 100 different search criteria, a lot of people sell absentee owner lists. However, even with these you can decided whether it is absentee because it is the same mailing address or different address, or because they have a tax exemption. Most companies don’t have this choice. You can also add things like absentee owners who are underwater, owners who are free and clear, or have a certain percentage of equity, certain sizes, neighborhoods, polygons drawn around neighborhoods. There are 100 criteria you can combine with absentee owners, making it the most powerful absentee owner search in the market.

Today’s real estate investor has been completely spoiled and has no idea this is true. Absentee owner lists were simple and you did not need to specialize. If you have an absentee owner list you are going to target and are buying this list from somebody today, it may not tell you about some of the absentee owners being underwater and others owning it free and clear. The message is you should be sending is different for the underwater person versus the free and clear. You may not even want the underwater person. Maybe you think you can do a better job of talking to that owner, such as an out of area owner versus down the street owner. If you understand this and segment these out and get the right messages to the right owners, this will put you ahead of the competition.

Another person may want to buy Subject To. You have somebody with approximately 10% equity that you want to walk in who is current and not in foreclosure from whom you can get a grant deed and take over payment instead of having a lot of expenses at closing. You would want that mailer to only direct the message to that crowd. With Sean’s list, that can happen. Sean said you could even take it a step farther, and this takes some experience on the investor side. If you target folks who had a foreclosure that was cancelled in 2011 and 2012 since those started to have a lot of principal balance reductions, they have very low payments. If you take these people subject to, you have a long-term artificially low payment that will make the cash flow better on that property than another property that does not have that low payment loan mod.

Bruce asked how realtors would use this after next year when there are not a lot of REOs or short sale business. He asked how a realtor would use PropertyRadar during good times. Sean said at the end of the day, as a realtor he still wants to own his market. For example, if he specialized in a particular sub-division or zip code, within this he still has different people. Some own their property free and clear, while others are still underwater. There are areas where 10-20% of the people are still underwater. His message as realtor should be different for one group compared to another. Some people have moved in just the last six months, while others have lived there ten years. His messaging to these folks should be different. You know your market and zip code, but how well do you really know it. Do you know the average home size, the number of people in the area, what type, and are you sending the right messages to the right people. At PropertyRadar they can help you do a much better job and distinguish yourself from the competition.

Bruce said he thinks unless you have done a mailer, you don’t realize that getting a bump in your response rate is a very big deal. You will mail 1,000 mailers, and if you think you will get 100 phone calls you are incorrect. You will get 10, and if you do something super you may double this. These are all the specific things you are talking about when you ask how you can make the message seem to be where they are speaking directly to someone’s exact situation 100% of the time. This will differentiate. There is the Pareto Principle, which everybody knows as the 80/20 rule. This means 20% of the people get 80% of the deals. People joke and say it is the 90/10 rule where 10% of the folks do that extra little bit of work that gives them 90% of the business. If you are not getting the 90%, you have some work to do.

Bruce asked how the government becomes a customer. Sean said they are a huge customer of theirs right now since they still use them with everything from code enforcement to cost recovery, mosquito abatement, fraud investigation, and many different things. Bruce asked what states in which this information is available. Sean said their new product has been California only up until last Thursday. As of then, it is the same states as ForeclosureRadar, which is Arizona, Nevada, Washington, Oregon, and California. They are really rolling it out brand new to these states since right now they have the same footprint as ForeclosureRadar. They are also ruling out teams so that multiple people can share data and work as a team. That way when there is a new listing on a property in which you are interested or one of your clients takes a loan, you can get an alert on this. There are lots of different ways to use alerts. They have had these in ForeclosureRadar, but not yet in PropertyRadar until now.

Bruce said he has noticed there is some forums that are lots of different topics online. Bruce asked how interactive this is and if people are watching the questions and Sean is getting input from different people who are taking and helping people with the services and to understand the answer to their problem. Sean said they need to be doing a better job here. Their support team is probably the best place to go. The idea for the forums was to get customers to interact and answer each other’s questions. They have had some problems with spammers in the forums, which has made it a little hard. If people post to the forums, the people at PropertyRadar will do their best to answer. Sean said sometimes he will answer the question himself, and sometimes other customers will answer.

Bruce asked about the cost for the service. Sean said they have a discount for people who are members of the California Association of Realtors as well as discounts for annuals. This could put the cost at $27 per month if you pay for the year. At the top-end it is $60 per month. There is so much of this Bruce has to do by hand, so he chuckles when people say it is a lot of work. He knows access to information has changed, and he is thankful for it when he does research. Sometimes it is funny how little cost there is and how the new generation looks at it and thinks it is expensive.

Bruce asked Sean what has become easier for investors as well as what has become harder since he started as an investor. Sean said access to information has become a whole lot easier. What has become harder is the fact that there is so much more access to information, which makes it easier for other people to compete. They don’t realize how much harder it was just a few years ago. Half of the people were really glad that it was so much easier to get the foreclosure proponent information than it was before PropertyRadar existed. The other half wished nobody else had this information, unlike the old days when you were the only one to get it.

Specifically to the trustee sale business, this used to be a small group that had insider information. When you went to bid on properties, there were five people. The next day there were five, and the faces never change. Before when it was very active you would have around 100 people, which meant about five new people a day. In a way, Sean was a big part of this. With this information, they have been able to get up to speed in an industry that used to take a lot of time. Now it doesn’t. To get to 95% efficiency takes much less time than it ever did in years prior. Just to find all the properties that were postponing, you had to look at notices at least one year back. You could not just start looking at new notices. If you did, you would show up at the courthouse and miss 80% of what was there. Most of them postponed from an earlier date.

The same thing is true with absentee owners and flippers. It is so easy to research your competition by using the transfer search feature where you go in and look for transfer searches that are flipped. You go in and find every investor that has flipped a deal recently, see when they bought the deal, how much they paid for it, and for how much they flipped it.

Bruce and Sean also discussed foreclosure trends and trustee sales year-over-year. Sean said they are way down and around 60%. Notices of default are down about 14%. What is interesting is that cancellations were down 64%, so the question is what happened here. You always need to go back and see what was happening a year ago and what kind of program or effort went into effect. His guess is if we are seeing cancellations drop 64%, there was some sort of bump in cancellations a year ago that pushed a lot through the system. The year-over-year numbers are great, but they can easily be thrown off when you get bumps for some reason. This could be a bank that could not do foreclosure notices due to some process change for four months. If they suddenly push all of them out, people will panic and think foreclosures are up 32%.

We have been trending downwards since the TARP announcement in September 2008. They are getting to the tail end of this where we are leveling off at a level where we will see a slow decrease but not too much more. We are not seeing price increases like we used to see, and we are getting more and more people out from underwater. Sean thinks the people underwater are still going to be there a year from now.

The numbers for upside-down owners has changed significantly from where we were at the worst levels back in 2009-2010. Bruce asked Sean what he thinks of the levels of people under water now. Are we at a safe enough level where this will not become a significant block of property? Sean thinks it is a disaster, but it is not a disaster waiting to happen because we have changed the regulatory environment enough to where even if everyone stops making their payments tomorrow, we would not see a flood of foreclosures since the banks do not deal with these things this way. The number of people underwater is a significant drag on the economy since these are all people who are not buying new air conditioners, buying new swimming pools, or replacing roofs. It is basically all real estate that we are forcing into a state of decline because people will not throw good money after bad. Sean thinks it is a disaster and the fact that this far after the crisis we have not had the leadership to clean it up is terrible. However, it is a lot better than it was.

Regarding trustee sales, those sold to third parties are down about 48% year-over-year. Bruce asked about Sean’s take on this and if he expects it to be more level a year from now. Sean said he expects it to be more level. Another thing to keep in mind is that a year ago, we still had institutional investors paying as much as market value for properties at trustee sales. This was because they met their rental criteria and their return on investment. At current prices, that institutional investor is largely gone and are not willing to over pay compared to what a flipper would be willing to pay. It still may work for them if they get a decent discount off market value, but they cannot pay this and get something else with it. Sean thinks with the decline in trustee sales, if you dug through it you would see an improvement in conditions for flippers with the decline from holders.

The spread has grown for the person who is still in the business today. The folks who remained down there realized that to make the deal work, you to buy it with significant margins. You are not going to make it up right now by paying market value and then having the market rescue you with the big increase like we saw last year. They are only buying what makes sense from a flip market. The people who were speculators and those buying for rental are leaving.

Bruce said the foreclosure process in California used to be three months and 21 days for the trustee sale process. Bruce asked how long it is now, meaning what are the rules now? Sean said it is still around the 120 mark. The thing that has fundamentally changed is the regulation around delinquencies. For a bank to be compliant, if you stop making your payments then typically at about 90 days the bank was required to file a notice of default. 90 days after that, about 3 months, they had to file a notice of trustee sale. Unless there were some mitigating circumstance like a bankruptcy, they have to take the property to sale. This is good asset management. You don’t let a property sit if the other party has not come to an agreement.

The regulatory environment changed dramatically to where we now see the biggest increases in that period of time where we are not paying and a notice of default is not filed. This is off the radar screen. You can get delinquency data, but it is credit data. There are a lot of restrictions on its use, and we do not have very good optics into this. The actual foreclosure process has lengthened as well, but it has been less impacted than the delinquent pre-NOD phase. When we buy something at a trustee sale, we are probably still meeting somebody at the door who likely has not made a payment in excess of a year, possibly 2-3. They have not been in foreclosure expect for maybe the last four months.

The exception is people who have equity. If the property has this and the bank is going to get their money back, you will stick to that 90-days delinquent and right through the foreclosure process in a little over 120 days. You get notice requirements up front that are not technically part of the foreclosure process from NOD to whatever else. There are some new requirements before you can even file the NOD in terms of contacting the owner that lengthen the process, but not the process from NOD to sale. There is a pre-NOD process as well. If you have equity and are missing your payments, expect to be foreclosed on quickly. If you have not made payments in two years, and you are in an expensive property, then expect it to take a long time. In Sean’s mind, from a moral standpoint this is the opposite of how it should be.

Bruce asked if he buys something at a trustee sale that is occupied by a tenant, what are their rights. Sean said if you bought the property at a trustee sale, it really comes down to whether or not they have a lease. If they have a lease and are a tenant, then they get to stay through the end of the lease. Otherwise, it is the normal eviction process. Depending on whether it is an owner or a tenant, there are different notice periods. For an owner it is a three-day notice to payer quit. You then can file the unlawful detainer, and the court will tell you how long it will take depending on how backed up they are. It will vary a lot depending on where you are in the state.

Tune in next week as Bruce continues his discussion with Sean O’Toole. For more information, you can visit his website at www.propertyradar.com.