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Vacant “Zombie” Foreclosures Increase Nationally

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ATTOM Data Solutions, Q1 2020 Vacant Property and Zombie Foreclosure Report, released at the end of February, analyzed publicly recorded real estate data collected by ATTOM Data Solutions, including foreclosure status, equity and owner-occupancy status, matched against monthly updated vacancy data. According to the report, about 282,800 homes are in the process of foreclosure, with about 8,700, or 3.1% sitting empty as “zombie” foreclosures. The percentage is up from 3% in the fourth quarter of 2019, but still significantly less than 5.8% in the first quarter of 2014. The total number of properties in the process of foreclosure in the first quarter of 2020 is down 1.9% from the fourth quarter of 2019, while the number of vacant foreclosures is up 1.7%, meaning that the level of zombie properties rose while the count of foreclosures dipped. Since 2016, the number facing possible foreclosure is down 27%, while the tally of unoccupied properties in the foreclosure pipeline has declined 53%. Zombie foreclosures continue to represent just a fragment of the 1.52 million vacant homes nationwide, comprising just one in every 175 properties, or less than one percent. The highest overall vacancy rates for all residential properties continue to be in Tennessee (2.6%), Kansas (2.6%), Mississippi (2.5%), Oklahoma (2.5%) and Indiana (2.5%). The lowest remain in New Hampshire (0.4%), Vermont (0.4%), Delaware (0.5%), Idaho (0.6%) and North Dakota (0.7%).

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U.S. Homeowners Four Times as Likely to be Equity-Rich Than Seriously Underwater

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ATTOM Data Solutions reports that in the fourth quarter of 2019, equity-rich properties comprised 27% of all mortgaged homes. The highest equity levels were in the San Francisco Bay area. According to ATTOM’s fourth-quarter 2019 U.S. Home Equity & Underwater Report, released in early February, 14.5 million residential properties in the U. S. were considered equity-rich, meaning that the combined estimated amount of loans secured by those properties was 50% or less of their estimated market value. The count of equity-rich properties in the fourth quarter of 2019 represented 26.7%, or about one in four, of the 54.5 million mortgaged homes in the U.S. That percentage was unchanged from the third quarter of 2019. The report also shows that just 3.5 million, or one in 16, mortgaged homes in the fourth quarter of 2019 were considered seriously underwater, with a combined estimated balance of loans secured by the property at least 25% more than the property’s estimated market value. That figure represented 6.4% of all U.S. properties with a mortgage, down slightly from 6.5% in the previous quarter. The top 10 states with the highest share of equity-rich properties in fourth quarter 2019 were all in the Northeast and West regions, led by California (42.8% equity-rich), Vermont (39.2%), Hawaii (38.8%), Washington (35.4%) and New York (35.1%). States with the lowest percentage of equity-rich properties were Louisiana (13.6% equity-rich),Oklahoma (14.9%), Illinois (15.3%), Arkansas (16.3%) and Alabama (16.5%).

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From Salesman to CEO

Drive, thick skin and a customer-focused approach propelled Brandon Guzman’s quick rise in the industry. You could say I grew up fast. I was a latchkey kid from Puerto Rico with a single mom. I didn’t have any rules. If anything, that fueled my drive to create something, succeed at something. After moving to Cleveland, Ohio, with my mother, I attended a local Catholic school and was always searching for ways to make money. At age 13, as an eager eighth grader, I officially joined the workforce as a bag boy at the Heinens—a popular local grocery chain. I walked to work after school and worked as long as they would let me. That job taught me a lot about work ethic. Entrepreneurial Spirit Emerges Early My first entrepreneurial endeavor happened the summer after my freshman year of college at Ohio University. My friends and I had all returned home and we needed to make some cash for books and tuition. So, we decided to start a lawn care company. We rented some equipment for lawn cuts and mulching, and we printed thousands of flyers that we hand delivered to every mailbox. We started to get some calls, and then referrals, and then it just took off. Sure, it was a simple business idea, but I found I loved building something from the ground up. And I learned I could outwork the competition. Once I was back at Ohio University, I tended bar every night I could while working toward my business major. After graduation, I took a job I thought would lead to a big career and a big paycheck—insurance sales. I had no idea what I was doing or talking about. I compensated by outworking every other rep in the room. I was good at sales. I have the drive for it, the thick skin, the confidence. But I did not like the company. It was stagnant. A Startup Calls A chance encounter with an investor introduced me to a new startup that was looking for its first sales rep—MFS Supply. I jumped at the offer. The idea of working at a company that had its whole future ahead of it appealed to my entrepreneurial spirit. I started with MFS Supply that Monday. As I walked into the office, I realized the reality of startups. I walked into a single room shared with the other two employees where we had to jostle for chairs. There weren’t any desks. The only bathroom was in another tenant’s office. If all of us were making calls at the same time, you couldn’t hear yourself think. I took to it immediately though. This fledgling company needed its employees to mold it, grow it, establish its brand. Growing Pains In 2007, the year I started at MFS Supply, the company sold five products into the property preservation space to about 20,000 contractors nationwide. As the subprime mortgage crisis hit and the recession enveloped the U.S., MFS Supply thrived. Banks were foreclosing on homes left and right, hiring more and more property preservation contractors to secure and winterize the properties. MFS Supply’s customer base grew to 60,000 contractors by 2008 and hit 100,000 contractors at the height of 2009. I led the charge on expanding inventory from securing products to winterization materials. In 2007, as the first and only sales rep at MFS Supply, I didn’t know what I was doing. I didn’t know the industry, the customer. I worked 10-12 hours a day, just calling customers. Not just to sell but to ask them questions, have a conversation and start educating myself on what they really needed. The idea of really collaborating with your customers, listening to them, putting them first is what made MFS Supply stand out from the competition. It’s now a core value of the company and something we do every day. This set the tone for me and the company. I built out a strong referral program with my customers, and the company grew by focusing on adding value. When I was promoted to senior account manager, I was tasked with bringing in more sales reps to support growth. The customer-focused attitude was instilled in all of us. I remember a time I had a customer who had to have product the next day for a job. But he couldn’t afford the $300 overnight shipping. Another rep and I jumped in my car and drove the three hours to his home to deliver it to him. Often we’d get a customer order after the UPS pickup cutoff. We’d box up the order and take turns driving around the neighborhood to catch a UPS truck to hand off the package. Eyeing the Future In 2010, I signed up for night classes at Baldwin Wallace and started working toward my MBA. College had prepared me for sales, but I wanted a full understanding of management, operations and finance too. My MBA classes were a key driver in my career expectations, shifting my focus beyond sales goals and toward management. The same year I graduated from the MBA program, I was promoted to director of sales. In this new role, I oversaw the birth of a new market—REITs. In 2015, these real estate investment trusts started snapping up affordable homes in bulk in the wake of the financial crisis. Invitation Homes, American Homes 4 Rent—MFS Supply was their first vendor. REITs didn’t need many securing products, they needed appliances. This was MFS Supply’s first big product diversification. Selling appliances was a different ballgame—new shipping structure, new pricing model, huge variety of SKUs, new sales knowledge. So, I built out an appliances team to support this initiative. The following year, I launched into another new market—multifamily—and was promoted to vice president of sales and marketing. The appliance game is tough. High competition, low margins and price driven. We found it was a great way to get a foot in the door in the multifamily industry but not a product we could use

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Property Preservation in Illinois: Know before you go!

Servicers and investors should be sure to know their options when code violations and preservation issues arise. As is often the case in mortgage servicing, properties secured by defaulted mortgages can wind up vacant or in need of repair. Depending on the condition of the property, the municipality may issue code violations and file suit, naming both the owners of the property as well as anyone with a recorded interest. Neighbors also may report conditions to the city or county. In addition, the properties may be vulnerable to vandalism and thievery. Given all this, should servicers or the investor secure the property?  It can be difficult to provide an easy answer. However, from a best practices approach, consider the path with the least exposure for litigation. Under the terms of the standard Fannie Mae & Freddie Mac Mortgage, the answer typically is yes, you can secure.  Still, it is imperative that you always review the actual terms of the mortgage at issue. Most of the time, the mortgage will contain a paragraph relating to what actions the mortgagee may take to protect its interest in the property. The mortgage will call for the borrower to maintain the property and keep it from deteriorating. It will also include specific language allowing the mortgagee to do and pay whatever is reasonable to protect both its interest in the property and its rights under the terms of the mortgage in certain circumstances. Caution is Key From a servicing standpoint, when ample evidence suggests a property is vacant and needs securitization or repair, it may be easy to rush an order to a vendor to secure or repair the property; however, exercise caution. The cautious approach is to first review the terms of the mortgage to ensure you have the option to secure or take actions with respect to the property. Second, evaluate the potential risk and exposure. Would your actions lead to additional litigation? Is the property in foreclosure and has the foreclosure become contested? Is the mortgagor represented by counsel? Does there appear to be personal property within the property? Third, does the municipality have any vacant building registration or securitization requirements?  For example, the City of Chicago requires that a mortgagee shall, within the latter of a residential building becoming vacant for more than 30 days or 10 days after a default, register the building and secure the property to prevent unlawful entry and pay a $700 registration fee. The registration must be renewed every six months for as long as the building remains vacant and unregistered by an owner and a renewal fee of $300 will apply. (Note that governmental entities are exempt from the payment of the registration and renewal fees pursuant to 13-12-126 of the municipal code of Chicago.) Additionally, the property must have a visible posted sign indicating the name, address and phone number of the registered mortgagee or mortgagee’s agent with the vacant building registration number. Further, the property must be maintained so that the exterior is clean and secure and the interior is winterized. (See 13-12-126 of the municipal code of Chicago.) Legal Consultation May Be Needed Because these situations can sometimes lead to confusion or instances in which both sides are pleading their case before the court, consult your attorney and consider seeking a court order allowing the repairs or any actions you wish to take at the property, unless you simply seek to secure the property pursuant to local ordinance requirements. The Illinois Mortgage Foreclosure Law has a specific statutory provision (735 ILCS 5/15-1701) that addresses the right to possession of mortgaged real estate during foreclosure. Specifically, in terms of residential real estate, the mortgagor/borrower shall be entitled to possession of the subject property except if the mortgagee/lender objects and shows the following elements: A sufficient basis why it should be entitled to possession. The terms of the mortgage allow the mortgagee to obtain possession. The court finds a reasonable probability the mortgagee will ultimately prevail in the pending suit. If you do elect to secure the property, ensure that ample photos are taken showing exactly what actions were taken at the property. If you do not obtain a court order, a situation may occur in which a property is secured and the mortgagor(s) or occupant(s) subsequently files a motion with the court seeking relief for time, mental anguish, lost personal items and anything that is reasonably related to being locked out of the property. In these scenarios, it can be difficult to disprove what personal property was or was not present and has subsequently disappeared. This leads to additional litigation fees in terms of having to retain counsel to defend the motion as well as extend funds for settlement, in many cases, to resolve the matter as quickly and efficiently as possible. What if your loan is current and the city or municipality files suit alleging code violations? It is equally advisable to seek the advice of counsel in this situation. If the servicer is named in a lawsuit seeking relief for municipal or building code violations and the loan is current, the servicer will still need to appear in the case and ensure the borrower is taking the appropriate steps toward curing whatever outstanding issues remain. Failing to appear could mean missing out on notice of actions the plaintiff may wish to take at the property, such as appointment of a receiver which could eventually record a lien that takes priority over the mortgage. Typically, in these cases, the court will want to be kept updated from the servicer side of things with respect to the status of the loan (i.e., current or in default). In some situations, the court may ask the servicer to take action at the property. The importance of recognizing building code violations and municipal ordinance issues is not unique to Illinois. As natural disasters continue to occur throughout the U.S. and Mother Nature reminds us of her strength, code violations and preservation issues will continue

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Regional Spotlight: Austin, Texas

The Silicon Hills are on a takeoff trajectory. When you think of Texas, the capital city of Austin probably isn’t the first metro area that springs to mind. Although Austin’s housing market would certainly claim top honors in many other states, it is often overshadowed by headline boomers such as Dallas-Fort Worth, San Antonio and Houston. That is likely to change in 2020. Austin’s real estate market is just taking off, thanks to reliable and steady appreciation, ongoing population growth and an extremely attractive, talented employment sector. “Austin enjoys a strong and diverse economy somewhat dominated by high-tech,” observed Mashvisor analysts in a 2020 report on the Texas city. Austin is home to operations centers belonging to Apple, Amazon, PayPal, eBay, Facebook, Samsung Group, Nintendo, 3M and many others. Not surprisingly, this high-tech cluster contributes to the nickname, Silicon Hills, and has attracted a great deal of highly skilled, highly educated talent to the area. According to the Austin Chamber of Commerce, the metro’s population topped 2 million fiveyears ago, due largely to its ability to attract migrating talent. Among the 50 largest U.S. metro areas, Austin ranked third based on net migration as a percent of total population in 2018. Nearly 7% of the population lived somewhere else just one year earlier. Not surprisingly, this has created an ideal real estate market for investors using both short- and longer-term strategies, though the long-term plays are likely to require less effort and be more rewarding in today’s market. “Austin is an excellent market for real estate investors who have an investing strategy that thrives with consistent growth,” said Daren Blomquist, vice president of market economics at Auction.com. “Home sales have increased annually an average of 6% [over the last eight years of the housing recovery] and home prices have increased annually an average of 7.3%. Blomquist noted that Austin’s real estate market “favors the buy-and-hold investor who purchases rentals” because of its reliable growth pattern: “The cash flow won’t be as eye-popping as in other parts of the country, but that buy-and-hold investor should be able to see solid equity growth over the longer term.” Marco Santarelli of Norada Real Estate Investments agreed. “Austin has a record of being one of the best long-term real estate investments in the U.S. over the last 10 years,” he said. “Investors who got involved early entered the market ahead of an influx of interest and capital. If the appreciation rate in Austin remains steady, the annualized appreciation rate will be over 10%. This could trigger additional strong interest in Austin’s real estate investment opportunities.” Best in the U.S. Austin tops myriad Top 10 and “Best of” lists when it comes to the metro-area housing market. And, like its appreciation rate, high performance is nothing new. U.S. News & World Report has named Austin “#1 Best Place to Live” for three years in a row . CompTIA labeled Austin the 2019 “Top City for Technology,” beating out Raleigh, North Carolina; San Jose, California; Seattle, Washington; and San Francisco, California. Austin ranked third on the list the year prior. From a lifestyle perspective, Austin also performs well. The city ranked in the top 10 for foodies (WalletHub), as a “top city” by Travel & Leisure and as “the best city in America” by Forbes. When asked to comment on the city’s economy and housing market forecasts for 2020, a Pulsenomics/Zillow survey of more than 100 economists and industry experts predicted en masse that Austin’s market growth would “outperform the national average” and is “the most likely [city] in the country to do so.” If those analysts are correct, then 2020 would be the 10th consecutive year that sales volume and median price “topped the previous year’s numbers,” observed the Austin Board of Realtors (ABR). This type of growth is often difficult to maintain in high-population metro areas, but Austin’s unique population, employment characteristics and incoming population create the ideal growth medium for 2020. “I don’t see anything getting in the way of another robust year for [the Austin] economy,” said Eldon Rude, principal of 360° Real Estate Analytics. ABR president Romeo Manzanilla agreed. “Austin’s unprecedented population growth during the past decade has heavily impacted the real estate market. That exponential growth has put enormous pressure on the market…[and] as we look forward to this year, the market is not showing signs of slowing down anytime soon,” Manzanilla said. Beware of Rose-Colored Glasses Despite all the positive expert commentary on the Austin real estate market, investors should take all predictions with a healthy grain of salt. After all, 2020 will mark a decade’s worth of expansion in Austin’s housing market, and the national economy is arguably teetering on the edge of a downturn. However, with the right strategies in place, investors can still invest in Austin despite Local Market Monitor’s president Ingo Winzer’s warning of as much as a 25% overvaluation in some parts of the metro area. “Austin home prices increased briskly in the past decade, to the point where the market is now overpriced,” Winzer said. “This will create problems down the line, but right now the local economy is still doing well and home prices have been up steadily.” Winzer’s numbers put annual appreciation around 6%, which means he said that demand is good for both single-family homes and rentals. He recommended that cautious investors “subdivide properties or put their money into apartments as a safer bet [than single-family residences].” Austin benefits from its relative affordability when compared to other tech-driven markets like Seattle, San Francisco and Boston. Likely, the problems to which Winzer refers will hold off aslong as the comparison remains favorable. According to Yardi Matrix associate editor Anca Gagiuc, the city has a plan to keep affordable units in its active inventory. “The city has approved a plan to build 60,000 affordable units by 2027,” she said. “In October [2019], 3,163 units in 16 affordable communities were underway in the metro.” Yardi and Moody’s Analytics Data indicate that both

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Playing Bigger, Buying Better

Entera.ai Cracks the Code to Control and Scale in Real Estate When you hear words like “machine learning” and “artificial intelligence,” you might think more about algorithms and search bots than you do about real estate. Prepare to rethink that after you learn what the leadership team at Entera is doing. To Entera, the future of real estate revolves around investor access to information—and that means combining AI, machine learning, one of the nation’s biggest residential real estate databases and the human element into one comprehensive buyers’ platform that ultimately serves everyone involved in any real estate investment. Martin Kay, co-founder and CEO of Entera, described the platform as a backbone that pulls all the strategic components of real estate investing together. “We…provide our clients in residential real estate with an AI-powered buyers platform that helps them scale their capabilities, control their outcomes and drive returns all in one place,” Kay said. Kay and Entera’s other two co-founders, Gregory Morrison (CTO) and Robert Salmons (vice president of brokerage), work primarily with institutional and midsize professional investors and real estate funds that buy between 100 and 10,000 or more homes each year. These investors are already dedicated to adopting the innovative technology necessary to find and buy more properties, make better decisions and become more competitive in the increasingly tight real estate market. “Our clients want to find and buy the best homes, scale their capabilities, control their outcomes and drive returns,” Kay said. “We apply technology, real-time data and an on-demand network to the investing process to create a platform that accomplishes this allin one place.” Because efficiency is integral to ongoing growth and success in real estate, that element of consolidation is key, Kay believes, to a successful scaling process for investors. However, those investors are not “cookie-cutter” in nature by any means. Each client leverages the Entera platform in unique ways to accomplish their specific goals. “We present a powerful combination to our clients, and they leverage these tools in highly specific ways that could not take place if they were not able to access all of these resources and data in one place,” Kay said. Profitability and Scale According to Kay, Entera excels in the real-estate platform space because the company’s three co-founders integrated three distinct and vitally important components into the fabric of the platform at founding: Property source aggregation and automated discovery. The platform aggregates real estate from dozens of unique on- and off-market sources and matches the right properties to the buyer’s unique investment thesis. Comprehensive market information and analysis fueled by AI and machine learning. Kay said Entera may be explained simply as the “Bloomberg of Real Estate,” meaning it offers professional-grade decision tools and local on-demand real estate experts to determine the right home and offer for each client. Full-service transaction services. In addition to AI and machine learning, Entera’s human element is dedicated to making sure transactions move smoothly from beginning to end. On-demand local and centralized transactional services “make investors more capable,” Kay said. Harnessing Data and Details Thanks to powerful data integration technology, Entera’s discovery engine has access to roughly 215,000 on- and off-market properties available for purchase across the 14 markets it serves. That number might seem overwhelming, even to an institutional investor. But Entera’s machine-learning technology can customize “short lists” of properties optimized for individual investors’ requirements and already vetted for a high likelihood of success based on the investor’s past actions as well as the market data available. “We have been successful at quantifying qualitative investment criteria like ‘family-friendly,’ ‘millennial-friendly’ or ‘crime-ridden,’ and combining that with information about construction costs, renovation risks, tenant demand and geographic appeal, both present and future,” Kay said. “Then, we consolidate all our information about the properties in our system with our information about the investor’s wants, needs and capabilities. At that point, it is just a question of making a match between properties and investors.” For example, in Atlanta, Georgia, Entera has about 38,000 on- and off-market properties available for purchase. Kay said that on any given day, Entera can find the 10 properties that fit the exact ‘buybox’ (yield, tenant profile, location, home characteristics) of any potential client in a manner of seconds. “Our system runs 24/7, and it is smart,” Kay said. “The platform uses advanced machine-learning technology to interpret how the client interacts with real estate and refine recommendations for future deals.” This means that a client who has a history of loving certain types of neighborhoods, fighting certain types of comp values or finding rehab budgets to be “too high” for them to buy will soon find that the lists of properties they receive factor these preferences and behaviors into the equation. “At that point, it is just a question of making a match between properties and investors,” Kay said. The Entera philosophy places heavy emphasis on matching the right investor to the right property in order to create a living environment that is conducive to long-term residence. The co-founders believe that optimizing investors’ ability to give residents “the home they want” is integral to long-term, large-scale investing. “At the end of the day, what we care about most are the residents living in the home,” Kay said. “The place you call home really matters. When investors give residents the home they want, residents love where they live, stay for a long time and pay their rent.” The co-founders designed Entera to point investors to the right neighborhoods and propertiesthat exhibit growing demand compatible with their investment strategies. This means helping clients understand how to rehab; how to charge competitive, profitable rents; and what amenities and other home features will attract the residents who are the best fit for an investment property. Releasing and Realizing Hidden Potential Entera’s focus on the individual components that make up the biggest and largest-scale real estate strategies in the sector is the key to its clients’ successes. Those successes often come in areas that most investors would likely overlook

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