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Here comes the flood of REOs - When and how big?

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The Chris Williams Radio Show

The Chris Williams Radio Show


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A recent report shows that the inventory of REOs will swell during the next two months. Find out more about what's just around the corner.


0:22 Tony Vignieri

Hello and welcome to the real estate report with Chris Williams. I am Tony Vignieri, your moderator for today's program. And today we're going to be exploring what seems to be just around the corner, the release of bank owned properties known as REOs. With me, as always on the show, is real estate expert, Chris Williams, the CEO of Blue Sky Capital in San Diego.

0:44 Chris Williams

Hi, Tony. Thank you so much for moderating the show today.

0:48 Tony Vignieri

Chris, always good to have you on the show. For our listening audience some background on Chris and his real estate investment firm, Blue Sky Capital. Chris Williams is an expert in real estate investment, finance and syndications. He has handled more than 300 real estate transactions and spent 13 years managing real estate teams. He is the proud recipient of the Prudential's President's Award and he won that award nine years in a row. In 2011, Chris launched Blue Sky Capital, a private equity firm in San Diego that is helping to rebuild neighborhoods through their systematic and disciplined approach to buying and selling distressed real estate. Chris, our topic today is very timely, REOs. A recent report from Nevada-based Harris Real Estate University, pointed out that REO inventories will swell during the next few months for levels that we haven't seen since 2008. What are your thoughts in this report and what do you see?

1:45 Chris Williams

Well Tony, I did read that report and I think it's right on the money and for the listeners to understand what's in the background of that, you have first to understand the robo-signing scandal. So, let me just say there is a massive swell of foreclosures coming our way and probably some in the next 90 days -- 60 to 90 days. So everyone listening to the show has heard of the robo-signing scandal. Let me give you some background on it. There are two types of foreclosures in our country, one is known as judicial foreclosure and the other is known as non-judicial foreclosure. The difference between the two is Tony, the judicial foreclosure requires a court hearing for the bank to finish the foreclosure process and the non-judicial foreclosure doesn't require a court hearing in front of a judge. The bank just has to follow with very strict timeline. So, Tony, what the robo-signing scandal did is this, they think that had to go in front of a judge, they fraudulently reviewed the files and they fraudulently signed off on the files and then went in front of the court with these fraudulent files known as a robo-signing scandal. As a result of that, the banks literally shut down foreclosures. They had to. They just stopped them. They had to go back and review every file they ever started in foreclosure. This also shut down foreclosures that have a non-judicial place like California. So, what happened is this took several years to weave to the system, so the banks had been very slowly taking properties back within foreclosures. Well, a couple of weeks ago, there was a big bank settlement. The 50 states attorney's generals filed suits against the bank and they did a settlement with them. The settlement looks like this, it's $25 billion settlement by a billion that is actually cash, Tony. And 20 billions is not cash it's just short sales, loan modifications etc. and then that $5 billion goes to other programs.

3:42 Chris Williams

So the bottom line is this, the banks now have a green light to go and take these properties back to foreclosure because though they can still face class action lawsuits, the big threat which was government lawsuits and intervention has been putting behind them.

3:58 Tony Vignieri

Wow! Wow! Now, I wanna make sure I understand the -- this is what stock in the system because of the robo-signing scandal, so this is an addition to what is concrete that is starting its way to the process, right? So is that why we're talking about a massive amount that's gonna hit the market here?

4:20 Chris Williams

Well, there's really both. Because there have been millions and I didn't mean millions of properties in the foreclosure process that had just been in limbo for two, three, four years. There are people that have started their house with starting foreclosure three years ago and they are still in it not making payments. Plus there's all these homeowners that haven't made payments that the foreclosure process hadn't started. So, we are going to see more foreclosures than we've ever seen, I predict, in the history of our country and the green light is this bank settlement is done and out of the way.

4:52 Tony Vignieri

Wow! So I mean two years ago was pretty massive, so we're saying 2012 is gonna be two years ago, is that what you're indicating?

4:59 Chris Williams

Yeah. Yeah, yeah. My prediction is that we'll see many more foreclosures in the following five, six, seven years then we did in 2010 and before.

5:08 Tony Vignieri

Wow! Wow! And so after more properties like the south there, the __05:13__ properties everything, does this mean it's -- again, we've talked about this before all the stuff has to work its way through the system, correct?

5:22 Chris Williams

Yeah, that's right. You know Tony, there's the bank, the government, the homeowners, and everybody's trying to avoid foreclosure. They're doing loan modifications. They're doing refinance programs. They're doing short sales. And the truth of the matter is, if you look at the volume of properties whether it's a distressed borrower compared to the number of loan modifications to the number of short sales, the number of refinances, it's very small. So, the only way that our country is going to heal economically and be back on stable footing is to have all these houses go to the foreclosure process, because it's that process that set the house back to its real market value and it puts good qualified families in those homes that are making their payments.

6:06 Tony Vignieri

So it's painful but it has to happen, it has to work through the system?

6:10 Chris Williams

Yeah, it really is painful. You know I personally experienced with this when the market collapsed in 2008, I was holding seven residential properties and I had unwind all seven of those properties. So, I understand first hand what that is like. It is painful but if you look at it from a 30,000 foot view, this is just part of the bust and boom cycle of real estate.

6:30 Tony Vignieri

Sure. Sure. So, what would your recommendation be on real estate as an investment in this client with all these things happening?

6:39 Chris Williams

Well, my recommendation is, is that it depends on where you are right? As an investment, if you've got some money put away, my recommendation is you get into this market. This is a once in a lifetime, unique opportunity that we may never see again in our lifetime, because of the massive amount of deeply just kind of real estate that is now available. So if you're an investor, my recommendation is you get in this. How do you do that? Pick a high role local realtor where you are. You know, with that local realty you can go look at the properties, buy the properties, either put a tenant on them or flip them. So that does require a lot of time and frankly it requires a lot of expertise and a lot of capital. Another option is that you like real estate, you understand it but you don't have the time to really manage being an active investor, then you can work with a company like ours who will take your capital and deploy it passively for you and have it grow.

7:33 Tony Vignieri

And give me a sense of Blue Sky Capital again. If this client really is what resulted when you are starting Blue Sky Capital in the first place, correct?

7:42 Chris Williams

Yeah, it really is. You know when my -- I have been in real estate for -- coming up on 14 years and over 300 real estate transactions almost 150 of those were some sort of the flip or a new construction and so I have a lot of investor clients then. When the 2009-2010, my investor client started coming back to me saying, "Hey! We'd like to buy some properties" and I went out to find the steeply just kind of deals and I could not find them, they went on the MLS, they went a short sale, they went to the bank or _08:10_. So I designed the company to get the biggest discount, which is at the daily foreclosure options. You know Tony, it is such a complicated, sophisticated, risky type of transaction that I created a system with electronics and with the right people in place, so that the everyday investor can just plug their money into the system and watch their money grow.

8:33 Tony Vignieri

So, so you are reviewing a lot of properties on any given day?

8:38 Chris Williams

We really are. You know in San Di -- I am in San Diego, here in Southern California, there are 1,200 properties a day that are scheduled to foreclose. Now 80% of those...

8:46 Tony Vignieri

What 1200 a day?

8:47 Chris Williams

1200 a day, just under 15,000 a year. There are four auction houses in San Diego. Every single day, five days a week from 10 am to about 2. So we are tracking through literally thousands of properties, we use software that we designed to sort through them and the once that we'd liked we then take through a very rigorous systematic approach to figure out what is worth and what we pay for it, and then we are at the auctions with cash in hand ready to buy and if that property foreclosures, our tracking software keeps it in our system so that when it comes back up for foreclosure, we don't have to go back to the entire process because we know we have recently assessed the property.

9:26 Tony Vignieri

Nice. And we mentioned this towards the beginning, it is part of rebuilding, your process really does help rebuild neighborhoods because it taking that distressed property and rehabbing it and making it fractionally new again.

9:41 Chris Williams

It really does, you know, so far I have only spoken about the opportunity for the investor, but you know what our company stands for is that we are part of the solution, whereas the solution for the investor that what wants to make money were also the solution for the community. We are one help at a time, rebuilding communities. You know, when a home owner gets into distress, one of the first things that they do is they stop watering their lawn because...

10:05 Tony Vignieri


10:06 Chris Williams

You know what's the point.

10:07 Tony Vignieri

That's right.

10:08 Chris Williams

They get to save couple of bucks a month potentially. So the houses that sit there and they with there Tony, they look terrible and then by the time we get there to buy the property, you know, when it's in bad shape outside and sometimes on the inside as well, so we take the house that is pulling down value. Here is an interesting stat. It is projected that in a neighborhood, if there is one foreclosure, it brings down the value at 10%.

10:31 Tony Vignieri

Wow, wow.

10:32 Chris Williams

Yeah. So we take up the help within foreclosure. We make it pretty again, we take us, what we call a sad house to make it into a happy house and then we put a family inside there and make them happy and we increase values in the neighborhood as well.

10:45 Tony Vignieri

That's wonderful and we've all drive down any block and you know you can tell what you were talking about and how that does help change your neighborhood. You website is blueskycapital.com you have a case study, studies on the site. Tell me about one of your case studies that you have there.

11:06 Chris Williams

I would be happy to, yeah. If we go to our website at the case studies, the very first one in on Semillon Boulevard, this is the first house that we did as Blue Sky Capital in January of 2011 and this house is a great house. We bought it at foreclosure for $706,500. We turn around and flip that five months later for $953,500. This is an interesting story. So when we bought the house, we'd already been there to assess it, but we bought and we now own and drive up to the house there and get out of the car and I walk up this long windy driveway and there is the former owner of the house standing on the driveway waiting to agree that and saw us coming and he says, "Hello you must be the new owner of this house". So we are indeed and let me tell you Tony, he was perfect gentleman. He toured us to the house after we helped him figure out where he was gonna go. We helped him get a new place to rent. We delivered boxes to him to that he could pack his house. We gave him some money so that he can actually move and put deposits down on his new house. So you know while it was a sad thing for him to lose his house. By the way, he built it by hand, it was a custom home. He was actually frankly relieved. He was relieved because this uncertain thing called his house is finally behind him. He'd been wrestling with the bank for a short sale and a loan modification for years and it was finally behind him. So we still have a good relationship with that person and he was happy to have that behind him and we took this majestic house in this neighborhood called Scripps Ranch and we polished it up we made it beautiful and there was now a family that moved down from Washington DC. A husband, wife and two children that are happily living at that home and we increased the value on that neighborhood.

12:48 Tony Vignieri

Wow, that's great. And then as you indicated, that's helping to rebuild the neighborhood taking a sad house turning it into a happy house.

12:56 Chris Williams

Indeed, indeed.

12:58 Tony Vignieri

So we only have just a couple of minutes left on the show, any closing thoughts for our listening audience.

13:04 Chris Williams

Yeah, here is my closing thoughts. You know if you are a listener out there and your currently in a sad house, you are behind of your payments, your terribly upside down, your facing an interest reading increase, you know if you are that really, it's time to dispose of that home, I invite you to get in contact with us. Go to our website at blueskycapital.com, click on the contact us and fill out the form we will call you immediately and we'd like to talk to you about either actually buying your house if we do and it is a short sale, we will do all the negotiations all for free for you no hassle to you, or well at least point you in the right direction and so that you can get the help for your need. Now, you are an investor, if you are on the other side of the coin you have got a two dollars that you have like to deploy and make some money with, we invite you to contact us as well. We'd like to be part of the solution for you and having your money grow so you can reach your financial dreams.

13:58 Tony Vignieri

That's great. Thanks Chris. That's great information and again the website is blueskycapital.com, you can go there, you can look at the case studies and you can learn more about the company and there is also an 800 number there, if you want to speak to a live person. So thanks again for joining us today in the Real Estate Report with Chris Williams, around the air weekly to keep you updated and informed about what's happening in real estate today. Have a great real estate day.