Have you seen The Big Short? I have, and it’s great.

The Big Short is a movie about the lead up to the Global Financial Crisis. The movie is centred on the CEO of FrontPoint Partners, Mark Baum, who goes to Florida to experience the prime and sub-prime mortgage markets first-hand.

He meets with bankers, brokers, realtors and even strippers to ask questions and get answers straight from the people themselves. No media spin, no “I know a guy…” – info straight from the horses mouth.

The reason I enjoyed it so much was because I did what Mark Baum did. When I first heard about the “real estate opportunity of a life time” – the post GFC USA property market, I had to be there, I had to be a part of it.

In 2008, I went to the USA to check things out for myself. I went to the ground zero of the USA property crash, I went to Las Vegas.

I met with bankers, I met with brokers and I met realtors. I talked to tenants, casino workers, lawyers, accountants, and shop workers – whoever wanted to talk about housing and finance (everyone), I would talk to them. I wanted to spend time with the people that were profiting from “the opportunity of a life time”. Were they fools? Were they vultures? How were they cashing in on this opportunity of a lifetime?

Now, unlike Mark Baum, I didn’t spend a night with a stripper who owned 5 houses and a condo; no that was pre GFC. I got the post GFC version. I spent some time with a realtor/investor that was buying half a dozen properties a week from foreclosure and forced sales. During the week I spent with him he had “closed” on the purchase of 7 units and houses and I spent a Saturday with his team as they went to have a look at what they had bought.

His team was made up of himself, let’s call him Glenn (because that’s his real name). His sales associate (and dubious part time car dealer) Paul. His renovations supervisor, Simon (his first day on the job). Ian, the white ware supplier who talked way too much. And last but not least, a locksmith. The point of the day was to have a quick look at the condition of the property, collect any paperwork on the premises such as default notices nailed or taped to the front door, letters from the bank, eviction notices, and MOST importantly change the locks to secure the property.

Now, when you go buying a foreclosed property in Las Vegas you don’t get to collect the keys from the old owner or their realtor – no – getting into the property is your problem and you only get what you find. In a later post, I will talk about what we found, but for now here is something you need to know.

When we went to change the locks and secure the property it was not to keep it safe from the old owners – no, they were long gone. It was not to keep it safe from tenants or squatters – no, all of these properties were vacant. It was to secure them from the bank! They needed to change the locks to keep the bank and its people out. But why?

Here is the first lesson:

The reason why many of these foreclosed properties “sell” at a fraction of their market value is because a lot of the time they are not mortgage free or unencumbered AFTER the sale. A lot of these properties have multiple mortgages or liens, or are in the process of foreclosure by more than one “forecloser” and title is nowhere near free and clear.

As a mortgage broker in Australia I am always dealing with banks and their paperwork but I had no idea of the unbelievable mess that was in store for me in Las Vegas. Lenders suing each other over who had a mortgage on properties, mortgage companies that had gone broke but were still foreclosing on people, foreclosures on properties that the lender didn’t even have a loan on, foreclosure of properties that weren’t the right properties or had been sold by the borrower years before, even servicemen from Nellis Air Force Base that were on active service were getting foreclosed on and they are meant to be Federally protected from this. Unbelievable is all I can say.

So why would a smart real estate investor like Glenn buy a property that he wont have clear title to? How can he make any money on a property that he doesn’t really own, that he can’t borrow money on, and can’t sell it to a normal buyer at normal market price. I will tell you how – in my next post.

In the meantime if you would like a free ticket to the movie, comment here on what you think the best movie about Wall Street or the finance world is. The first 5 commenters will find themselves at a screening of The Big Short.


Author: Dale Heremaia

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