Florence Street

November 10th, 2005

HUD
451 7th St S.W.
Washington DC 20410
Attn: Alphonso Jackson

This is letter #4 in a series. The first 3 are dated 09/02/05, 09/26/05 and 10/07/05.

I invite you to take a walk with me down the 1300 block of Florence Street in beautiful downtown Aurora, Colorado. There are 19 properties on this block. Every house on the block is a small ranch (single story) with no basement. I researched MLS and foreclosure records. Here is a brief summary of the market activity in the past 4 years:

1300 Florence: FHA loan dated Feb 2001 in the amount of $145,938. There is no MLS info on this property. The homeowner refinanced with a conventional loan in May 2003. There was a recent foreclosure started and then withdrawn. The market indication for current value of this property is about $120,000.

1301 Florence: FHA loan dated Sept 2002 in the amount of $146,924. Asking price at the time was $145,000 after 97 days on market. On Nov 29th, 2004, listed on MLS with asking price of $139,000. After 129 days on market, the price had been reduced to $126,000. The listing expired unsold. The house is in foreclosure and is now vacant. In a few months, HUD will take possession and try to sell the house, they will be lucky to get $120,000.

1308 Florence: FHA loan dated March 2004 in the amount of $145,698. Property last sold April 2002 – asking price was $139,500 with a “contract” amount of $142,500. Listed on MLS March 2005 with asking price of $155,000. After 184 days on market, the asking price had been reduced to $149,900. The listing expired unsold. This property is not in foreclosure, and the house is not vacant. The market indication for current value of this property is about $120,000.

1309 Florence: FHA loan dated June of 2004 in the amount of $162,701. Asking price at the time was $159,900 after 180 days on market. 8 months later, the property was listed on MLS with asking price of $149,900. After 106 days on market, the asking price had been reduced to $125,000. The listing expired unsold. The property is in foreclosure. In a few months, HUD will take possession and try to sell the house, they will be lucky to get $120,000.

1316 Florence: FHA loan dated Dec 2003 in the amount of $157,000. Asking price at the time was $147,500 after 34 days on market. Eleven months later, in Nov 2004, the property is listed on MLS with asking price of $114,000. Listing agent is Sean Searle (note 1). The property sold for $101,900 after 8 days on market on Jan 31, 2005. 3 months later, the property was back on the market. The listing agent is Ron D Searle (note 1) and the asking price was $154,451. The property sold with a $160,000 conventional mortgage after 29 days on market. My best guess is FMF Capital (the lender) sold the loan to a sucker. The market indication for current value of this property is about $120,000. I could be wrong, but I think the Searles made a $60,000 profit and HUD got screwed for about $85,000.

1325 Florence: FHA loan dated Sept 1999 in the amount of $118,817. Property listed in MLS May 2005 with asking price of $145,000. 2 days later, the property was taken off the market, and now sits vacant. It’s hard to tell what is going to happen to this property, but the current market indication is about $120,000.

1365 Florence: FHA loan dated Dec 2002 in the amount of $152,605, courtesy of National City Mortgage. Asking price at the time was $149,900 after 18 days on market. In August 2004, the property was listed on MLS for $152,600. After 171 days on market, the listing expired unsold. The property went into foreclosure, and in July 2005, HUD put it on the market with an asking price of $141,000 (wishful thinking). On 9/10/05 (73 days on market), it went under contract with an asking price of $126,900. On 10/30/05, it was still vacant waiting to close. It remains to be seen how much HUD can get for this property – a likely scenario is a contract price of $127,000 with a $7,000 rebate to the buyer. Estimated cost to the taxpayer on this fiasco is $55,000 (and counting). A copy of the December 2002 purchase contract and appraisal by Matthew E George, SRA (license AL01317099) and is attached.

1373 Florence: FHA loan dated March 2002 in the amount of $153,974. Asking price at the time was $150,000. In Nov 2003, the property was listed on MLS for $174,900 (wishful thinking). After 22 months, the asking price had been reduced to $135,000, and the listed expired unsold. The house is now vacant and in foreclosure, waiting to be sold by the lender. The market indication for current value of this property is about $120,000.

HUD

HUD is the not-so-proud owner of 5 of the 19 homes (26%) on the block, with one property already thru the foreclosure process. As you can see, HUD has been involved in basically 100% of the market activity on the block. Of the 5 homes currently owned by HUD, the median HUD purchase price (loan amount) is $152,605. HUD will be lucky to average $120,000 when they sell these 5 homes. HUD has already taken an estimated loss of $85,000 on 1316 Florence. I estimate a total cost of $355,000 for the 6 HUD foreclosures on the block.

What Happened?

How do I explain the fact that in mid 2004 HUD was willing to finance every home on the block for about $155,000, and now they are worth about $120,000? There is no easy answer. Any time a whole block experiences a 23% decrease in market value, it raises eyebrows.

As an appraiser, I know that changes in value are always a result of:

1) Changes to the property (for example a remodel), and/or
2) Change in the market.

It must be one or both of these reasons, it can’t be anything else.

Everyone is accustomed to seeing markets go up in value, no one expects a market to go down. In this case, all indications are the market has been flat or slowly (4% per year) increasing.

I know from personal observation that all of the properties on the 1300 block of Florence have been mostly consistent in overall condition and level of maintenance. You cannot explain the change in value by changes in the property.

If we know that current values are about $120,000, what does that leave? It means all of the HUD loans were inflated by thousands of dollars. It is obvious that every HUD loan was for more than 100% of the amount paid to buy the house. I am confident that HUD pretended every one of the loans was 100% LTV, which is a lie. A knowing lie. The dishonesty had a harmful effect on the process. On this block, HUD is the market, so the dishonesty had a harmful effect on the market.

I have the benefit of hindsight – but the crystal ball is not the real story here. Any competent and ethical appraiser could have determined the market value of 1365 Florence in December of 2002. I have included a copy of the contract, and a copy of the appraisal. I urge you to read them and come to your own conclusions. Ask yourself, with the benefit of hindsight, did this appraisal miss the value? Was this house worth $9,350 more than the amount paid to the seller? A good appraisal report is ethical and competent. In my opinion, this appraisal was competently done. As you read the appraisal, ask yourself if it was ethically done.

Ken Lay School of Ethics

Alphonso Jackson asked for cooperation from the real estate community with a nod and a wink. The appraisers, real estate agents, lenders, and HUD employees all knew what to do, and they worked together as a team. HUD got the desired transaction count (i.e., quota), and the following people got screwed:

1) The American taxpayer got screwed,
2) Everyone on the 1300 block of Florence got screwed, and
3) Every homeowner in Aurora got screwed.

When nearly every transaction on a block results in foreclosure, it has a negative effect on the crime rate and the market appeal of the entire block. It affects how people live.

The people who bought these houses with FHA loans lasted only a few months. I see no evidence that any of them filed for bankruptcy. Apparently they walked away with the tacit approval of HUD. Alphonso Jackson, are you trying to encourage or discourage this behavior? Does anyone think “we” are doing them a favor by pushing them into this situation? Does anyone think they didn’t get pushed?

Mr. Alphonso Jackson, I urge you to clean up your act. Stop telling lies, and stop selling lies. You are stinking up the 1300 block of Florence, and your organization is stinking up the real estate market for the entire city of Aurora, CO. Like it or not, you are leading the way – and your leadership has been negative. I know from personal experience that nearly every HUD employee understands what is going on. They all know you are a dishonest leader – your lies have tinkled down thru the entire organization.

I urge you to step up and be part of the solution. There are plenty of good people in your organization. If you need help, all you have to do is ask.

Sincerely,

Philip G Rice
11268 E Linvale Dr.
Aurora, CO 80014
720-282-3376

-- End of Letter --

End Notes

Note 1: The name Searle is infamous and a big red flag in the Denver real estate community. Ryan Searle got run out of Colorado in 2003, and headed for Texas. From a June 2005 report by the National Consumer Law Center:

Ryan Searle is facing a criminal charge of aggravated assault with a deadly weapon in Texas. The charge stems from allegations that Searle pulled a gun and tried to run over the president of a homeowners’ association who was trying to flag him down after he snuck into a gated community before the gate closed.

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