Banks and bankrupt car washes

[pitzerwm]

Welcome to the real world waxman, my father always respected the banker and maybe 75 years ago it was the right thing to do, but today they are mostly a$$holes with no balls and couldn't make money if you gave them a map and a shovel. Duane if you were retarded, you'd be smarter than the bankers that you are working with. They are also jealous, they know that in 20 years they will still be a banker with no balls and you will be rich/richer.

 

[robert roman]

Based on my experience as a commerical debt collector, helped pay part of my way through college, I learned some things about the seemingly odd and mysterious behavior exhibited by different bankers and regulatory agencies. If you are on the outside looking in, there will be times when their actions will not appear to make common sense. Conversely, when you are inside looking out, you can be told, quite frankly, to keep your mouth shut. This seemed to be especially so in the case of severly distressed or foreclosed commercial properties some of which never see the light of day due to a host of reasons, good and bad.

I guess sometimes its like selling a used car; you may not want sell it to a friend or relative but you would sell it to a complete stranger.

 

[Patrick H. Crowe]

Dear Bill Clinton:

I misspelled the word. I apologize. The correct spelling is pusillanimous. It is in my dictionary. It means: lacking in courage. Again my apologies.

Patrick H. Crowe

 

[rph9168]

I have a friend that works for a large banking conglomerate. She claims that with all the branch banking that goes on with large banks that there is little if any leeway for a loan officer in a branch when making a loan and even less when it comes to selling or loaning on foreclosures. There are rules and regulations that essentially make these people simply paper pushers working at a low paying job. They simply take all the forms that the applicant fills out, pass them on and wait to be told what to do. They are not even involved in the decision.

Her suggestion is to deal with the smaller banks, especially those in the community. They often are less rigid and allow loan officers a little room for negotiation. On the other hand, they have fewer foreclosures to deal with simply because of their size and they have less money to lend. She definitely says the bottom line is that money is tighter than she can ever remember with little hope for change in the immediate future. Not the first time I have heard that.

 

[Patrick H. Crowe]

I would like to restate the question and summarize the replies: The question: Why would a bank put foreclosed car washes from bankrupt ownership on the market at prices almost certain to guarantee they will not sell?

The responses (except those way off point): Earl: The bank wants to wait while hoping the gov will take the loss.

Mac: Usual sarcasm.

Wahnvac: Makes no sense.

Pitzer: Bankers don't help you, they screw you.

Earl: Banks must follow rules.

Red Baron: Banks have too many regulations imposed on them

Sequoia: Banks are afrais of me because I'm a broker who coulkd make them look bad. "Nobody wants to do business with Pat.

Earl: Volume of foreclosure too high.

Waxman: The bank's actions make no sense at all.

rph9168: Banks show more solvency by using their listed value than by selling.

Pitzer: Bankers are dumb and jealous of buyers.

RR: I know from personal experience that bankers and regulators exhibit odd and mysterious behavior especially so on foreclosed properties.

rph9168: Workers at branch banks have little authority, they are low paid paper pushers. Deal with smaller community banks.

Interesting set of responses. Allow me to add one additional piece of info: Both the washes on which Wells Fargo Bank has forclosed had SBA loans. If I understand these loans correctly the SBA backs 80% of the loan. To me that gives the bank all the more reason to sell and collect 80% of their loss from the SBA, right?

continued

 

[Patrick H. Crowe]

Banks & bankrupt washes (cont'd)

I met with an MAI commercial appraiser yesterday at lunch and described the situation to him. I put the question this way: How could a bank dare to price washes at way more than they are worth? Aren't they inviting trouble, especially these are SBA loans? Will the gov tolerate this?

His response: They will only do this for a time, months, not years. This is probally a very small portion of their troubled loans and they have already managed to delay many months before getting them on the market at any price.

If the government challenged them about the price the government would have to have the washes appraised to show the overpricing. They would be almost impossible to really appraise. Since they have long been closed down the income approach could have almost no weight. If there are genuine comparables those would work but you just told me you can't find any. An appraiser could try the cost approach if he could get good estimates on repair costs - - not like likely since the water & gas are not on.

In the end it would be more of a guess than an actualy appraisal and the appraiser would have to point that out. In the end the places will either sell to "out of town buyers" (fools) or the government may eventually suggest, perhaps force them to be sold at auction - - eventually.

Meantime - - wait.

Further comments welcome.

Patrick H. Crowe

 

[Waxman]

Why don't the banks then move to get the 80% guarantee from the SBA company that administered the SBA portion on a carwash in foreclosure?

I'm no banker, but if the SBA backs 80% of say a $500k loan, isn't the bank then entitled to $400,000 from the SBA?

What gives? What am I missing???

 

[Patrick H. Crowe]

Waxman:

You & I read it exactly the same. I'm awaiting answers. Perhaps Alan of Car Wash Loans will help us out since he has done many SBA loans.

Hello, Alan.

Patrick H. Crowe

 

[soapy]

The problem you are facing has to do with the passage of the Sarbanes-Oxley bill passed in 2002. It was in response to the Enron scandal among others. It is an attempt to make large fianancial transaction more transparent so Large scale fraud like ENron does would not happen again. One of the Key points of the bill is that banks must now use "market to market" valuation. This principle worked great as long as markets were going up. It actually let banks and other large institutions over value their assets leading up to our current economic crisis. Values could be adjusted up as values rose making the bank look stronger. As the market slowed and mortagage prices started to fall they had to devalue their holdings causing them to have to sell assets to try to keep within govenrment guidelines for liquidity. AS they sold assets this lead to further plunging of prices causing even more selling to meet federal guidlines. Housing pricing have been easy to determine the slide in values and must be done almost monthly to meet the Soxy provisions. Carwash values will decline but are much slower to be valued down compared to housing. So the bank can keep these carwashes on the books at the higher value longer to help prop up their balance sheet. Eventually they will have to mark these down but as soon as they sell one at a deflated value they will have to devalue all of them and weaken their balance sheets even farther.
I think we should get rid of the market to market value standard. This will let banks go back to economic value basis so they do not have to sell assets at depressed rates. They will be able to value assets at income levels based on monthly cash flows of the asset. This will help all of america get fianancing as well as Pat be able to buy carwashes held by banks.

 

[Patrick H. Crowe]

Soapy:

Very interesting past.

Patrick H. Crowe

 

[Happycarz]

Scott,
The actual term that you are refering to, is "Mark to Market" instead of "Market to Market." I only offer this claification to aid someone doing reseach on such. In no way am I trying to mimic P.C.

 

[jprb]

Here is a news story on a locally owned bank and the stimulus package. Not quite on point with the discussion, but interesting reading!

http://www.dailystatesman.com/story/1509497.html

JPRB

 

[sudnshine]

Banks used to look at prime borrowers as "risk free returns", now even with 50% down and an 800 FICO, we are looked at as "return free risks". Things will thaw out over time, and at some point those of you on top of your game will make some decent buys. It's a matter of timing, things have been worse before.

 

[robert roman]

As I said before, mysterious and odd also comes into play. Regardless of the type of the financial instrument, how a deal comes together can also be a function of the characters involved. For example, there where times when I was forbidden to attempt to collect on seriously delinquent notes as there were times when I was forbidden to become involved in the disposition of a foreclosed commercial property. One of the banks I worked for had more than several tombstones in the backyard.

As for your specific situation, I would agree with the appraisers assessment. Of course, it could also be that the bank in question just doesn't like you Patrick, LOL.

 

[Greg Pack]

Soapy did a very good job of describing mark to market. perosnally I do not agree with suspension of mark to market. If they suspend it, you have essentially enabled them to keep lying about what is on their balance sheet. And, no one will trust another. Shareholders need transparency to be able to make investment decisions

I just signed a contract this week to manage four carwashes owned by an out of town bank. They are looking for a buyer and I am told they will ask a little over half of what they sold to the last owner for. Three are very nice washes. There's only one problem with them, express tunnel have been built within sight of three of them. Those tunnels have soaked up the excess cars in the market, now it's a scramble. These washes had been operated and you can see the massive neglect in the facilities as funds got tight. I've spent the past three days trying to get them clean and operational enough to open back up. I get to have a little fun, though. My job will be to maintain viable business and I have the advantage of a low rent. I'm going to value price the services and see if I can regain good market share and be a thorn in the side of those expresses.

 

[Patrick H. Crowe]

Dear Harry Martin:

Many thanks for letting folks know it is mark (not market) to market. I resisted the stong urge to offer that correction but I'm glad you did it.

PHC

 

[soapy]

Harry is right about mark to market verbage. I have seen many of the economic gurus call it market to market or at least pronounce it that way so I got into a bad habit of repeating it that way. For most of last century mark to market was suspended. Starting in the early 1900's as I recall.

 

[Indiana Wash]

Would a bank be best served by attempting to sell a property on which it foreclosed by listing it at the initial appraised value then lowering the price by 10% every six months or by selling it to the guy who contacts them initially and "knows" what the property is worth?

In each and every foreclosure, there is someone who contacts the bank after the foreclosure attempting to purchase the property. Just like Patrick, they explain their particular expertise and why they "know" what the property is worth. While they may not have a book to push, they always have compelling reasons why the bank should take their offers. Having managed an REO department, it has been my experience that in each and every case, someone else eventually offers considerably more than the know it all.

Tomorrow, on behalf of a private mortgage lending company, I am closing on a property for $18k. Granted the mortgage was $35k. Initially, after the foreclosure, the neighboring business offered to purchase the real estate for $10k. The real estate is a dilapidated bank building. Since the PMLC has owned the building, its condition has worsened considerably. After 1.5 year of ownership and no effort, someone has come along and offered 80% more than the know it all. An 80% return on the $10k is pretty good over 1.5 years.

The federal government has strict guidelines on its foreclosures. They get an appraisal from one of their trusted appraisals and list property for the appraised value. Every 6 months, they know 10% off the appraised value. It is a system that works a lot better than selling to the eager guy.

I am by no way saying banks are smart. I am merely saying that selling to the guy who is eager to buy for the price he wants to pay is not usually the best answer. There is always a bigger fool, it just takes time to find him sometimes and banks are aware of that.

 

[Patrick H. Crowe]

Dear Indiana Wash:

Your posting is so full of false assumptions it was laughable to read.

1. I was not the "initial" contact. In fact the real estate agent who presented my offer to the bank told me that my offer "was substantially higher" than the initial one.

2. Unlike the assumption you made I was the someone "who offered considerably more than the know it all". Please apologize.

3. According to the agent it was the bank which set the asking price so "listing it at initial appraised value" once again - - a false and misleading assumption.

4. Unlike your offer, 18K on a 35K property, roughly half, my offer was over 60% of the asking price. Your own offer shows how wrong you were about mine.

5. In further support of the question about whether banks really want to sell some of these foreclosed properties, the bank made no counter offer. The real estate agent invited one. Moreover he noted the property is urban core and my offer was all cash. Since you tell us you managed an REO department would you have made a counter offer of say 90% of asking price? Or some figure?

6. Perhaps a "bigger fool" will come along as you predict. This same property sat on the market for over a year an a half in 94 - 95. Only one offer in all that time.

7. Finally, contrary to your advice and experience, the real estate agents I know tell me that often the authentic and workable offers come in the first few weeks the property is on the market. You obviously endorse the "bigger fool theory". You set the price knowing you'll lower if 10% every six months Most agents I know have the properties sold long before that.

Patrick H. Crowe

 

[Indiana Wash]

You asked "Why?" I answered. I made no assumption. I explained the bank's thinking first hand. I explained in general terms.

The 10% every six month rule is not something I do. Please read. It is what the federal government does.

You seem to be very defensive. If you internalized anything I said, it is a reflection of you. If you want to know "why" or "how" about REO or real estate in general, I can often shed some light. If you are going to identify with the characters in the examples, please choose better characters.