Weekend Reading

Since it looks like a long, wet weekend, and since I didn’t even get a chuckle out of you readers with "squirrel underpants", here are a couple of dull and boring items for your enjoyment.

CC&Rs – We all know what happens when you sign off on your loan documents without reading them and thoroughly understanding what they mean.  But have you ever given your CC&R document the same scrutiny?  This is the latest and greatest edition of the Montage CCRs. ( you may need to enter User Name rrb, and password 877yodiane) 85 pages, dry as toast.  smarten, if you have ever seen a more one sided document, let us know.  No completion or closing dates defined – the developer has no responsibility at all and can string things along until they are "done" or when it is in their advantage to issue the 30  day Notice to Close document.   A lot of leeway for major design changes.  Also look at how the HOA is funded – half a percent of the unit cost due at closing –  I wonder how many buyers missed that one?  Do any of you see any "out" clauses?  I know a at least a few readers here would love input on how to "skate" on their contracts with the Montage.

Master Plan Changes – When you buy into a planned unit development, you have a certain confidence that your neighborhood will build-out as planned.  Don’t bet on it.  The master developer of Somersett has applied for this Master Plan Revision (since postponed – click Agenda, and look for item 7) that represents an 18% increase in allowable density for the overall project.  Since about half of the ‘Sett is already built out, that is a 36% increase in the allowable density for the rest of the project.  Senior apartments, assisted living facilities, long term care facilities?  Somersett already has the "Raisin Ranch" – Del Webb’s 1200 unit Sierra Canyon.  Can you imaging the outrage when some of the "other" densification includes subsidized housing (w/o golf privileges)?

IP, thanks for the heads-up or I would have missed my own party!  It was great to meet a lot of you (lurkers included) Wednesday night.  You are why we all put in all the hours researching our posts here.  If any of you have ideas for posts you would like to see, just ask and we will see what we can do.

 

 

24 comments

  1. dcreno1

    I would like to see some bloggin’ on what to do when your bank screws you on your home loan 6 days before closing .
    this is what wells fargo did to us .we applied for a mortgage back in april . took til may to get a commitment letter . by may 20 we had a seller accepted offer(on a short sale) . then their lender finally approved in aug. we get our inspection sept and we were due to close on 10/7..
    well the loan processor did not lock our rate in . as you know 10/1 they went up . and then we qualified for the nevada housing bond. to help with the down.. okay with me so far 🙂 the processer NEVER reserved the funds and and we have paid the proccessing fee and the appraisal.. well fargo admitted fault but will do next to nothing to. resolve this.they did offer us a 1 year buy down on the rate or as we call it a “bandaid” but after that we still have to pay for there mistake . we are first time home buyers . not to mention we will probly not ever see a dime of our earnest money.i dont see how wells fargo can take our money without delivering on the loan in the original terms .how can our money just be gone . i read in our purchase offer that if we had to fall out of the deal for financing reasons we get our money back. why are banks so un-ethical and greedy.
    i hope the processer at wells fargo that handled the CONLEY FAMILIES loan and screwed us out of our first home feels horrible.how would she feel if someone did this to her or one of her kids … violated just like us .
    if feel sorry for the sellers who were trying to save their asses by selling on a short sale deal.these poor people are probly going to have to go along with a full on forclosure now my heart goes out to you…. wells fargo is horrible to do business with..can anyone help us . or are we really screwed
    any helpful comments welcomed .

  2. smarten

    dcreno1 –

    Not saying my comments are “helpful,” but…

    It took till May to get a commitment letter?

    You were due to close FIVE MONTHS later [on October 7]?

    Your commitment letter was good for how many days [assuming less than 150, was it ever extended in writing]?

    Assuming no, you lost your commitment.

    You state Wells Fargo admitted fault – what exact fault are you speaking of? Even if a rate were “locked” in, it would only be for “x” days unless you started paying for extension fees. When do you contend your rate should have been locked?

    Processing and appraisal fees are often collected up front and are due whether/not you actually close. Assuming the bank performed an appraisal; and given your application was successfully processed into a loan commitment; how were you screwed out of your out-of-pocket loan costs?

    Either there’s a lot missing from your story or I just don’t see what Wells Fargo did that was wrong.

  3. Marla

    This may be a bit off topic, but did you see where the bank is taking over the GSR? I guess they just couldn’t sell enough “renovated” hotel rooms for $300K.

    Chalk up another one for RI and BB and others on this blog who predicted this well over a year and a half ago.

  4. Inclinejj

    So is this a friendly type of foreclosure action??

    Grand Sierra changing hands
    JPMorganChase subsidiary takes ownership of Reno’s Grand Sierra
    BY RAY HAGAR • rhagar@rgj.com • October 3, 2008

    Read Comments(14)Recommend(1)Print this page E-mail this article Share Del.icio.us
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    Buzz up! A subsidiary of JPMorganChase & Co., the chief financiers of the property, will take over ownership of the Grand Sierra Resort, according to an announcement Friday.

    Ownership of the largest gaming property in Northern Nevada will be transferred to Credit Markets Real Estate Corp., a wholly owned subsidiary of JPMorganChase on or about Oct. 23, a news release stated.
    Grand Sierra executives, including President and CEO Tom Schrade, would not comment after releasing a short e-mail.
    Daily operations of the Grand Sierra will be unaffected by the ownership transfer, according to the statement. The current ownership, Grand Sierra Resort Corp., bought the property for
    $150 million from Caesars Entertainment in 2005.
    Culinary Workers Union 226 is locked in contract negotiations with the resort. Contract talks have been stalled with current management because of issues surrounding health care costs.
    “We are very confident that we can come to an agreement with JPMorganChase,” said Kevin Kline, chief negotiator for the Culinary Workers Union 226.
    Mayor Bob Cashell said he met with JPMorgan executives Friday and left feeling positive about the future of the property.
    “From my understanding, they are just replacing the current management,” Cashell said.
    “JPMorgan has a subsidiary, and they are backing these guys. It’s the same guys who have the mortgage on it,” the mayor said.
    New ownership pledged to finish renovations at the resort, Cashell said.
    “I am very encouraged because the division of JPMorgan intends to run it, continue to fix it up, and make it a great part of our community,” he said.
    Bill Eadington is director of the Institute for the Study of Gambling and Commercial Gaming at the University of Nevada, Reno. He said he does not think JPMorgan would have an interest in running a casino and trying to develop a major multifaceted development resort.
    The economy’s downturn probably will make it more difficult to sell the property, he said.
    “If this were a normal situation, it would still be difficult because Reno is a tough sale these days,” Eadington said. “But JPMorgan would certainly be a willing seller and a very interested seller at some point. So it could very well create an interesting opportunity for someone to step in and make a very good purchase.”
    “This is not surprising,” Eadington said of Friday’s announcement. He attributed the action partially to financial difficulties and partially to the slowdown in the economy, Eadington said.
    When Grand Sierra Resort Corp., took over the property in 2005, executives had planned for an indoor, 150,000-square-foot water park to open in 2007, 90,000 square feet of new retail space and a new spa.
    Longer-range plans at the time included a condo-hotel tower with 1,000 or more luxury condos, 300,000 or more square feet of retail space around the current man-made lake and condos around the lake and along the Truckee River.

  5. Mike

    I posted an interesting summary of what’s gone on with Grand Sierra Resort. Way back in July, two shareholders of a company looking to buy GSR emailed me telling me JP Morgan gave Schrade 60 days to try to sell the property to a private party, ‘or else’. Supposedly there were at least 4 people on the table to purchase it, however if JP Morgan passed it over to one of its subsidiaries, by guess is this is the ‘or else’ and no one was able to come up with financing to buy it. Nevada Land II, the people building the baseball stadium, supposedly were going to somehow partner with or purchase some of GSR’s land, but it was rumored they were hard up to find financing.
    They never sold more than half of those hotel-condos (or else JP would have funded the indoor water park long ago), and I heard there are more than a dozen pending lawsuits against GSR.

    Try to be somewhat nice to the Montage, if you get a chance, tour it, and you’ll see the deveoper hasn’t skimped on any details or made any major design changes, and the building is nearly complete.

  6. IP

    mr. mcgonagle – You are welcome. And I laughed at the squirrel underpants. The only reason I noticed your typo was had it been thursday I would have attended. For now though lurker status is just fine. Reno Realty and Downtown Makeover are my favorite blogs to lurk and have helped a lot as I try to time my purchasing with the bottom of the current dive. Funny you should mention montage. In february I made a visit to their sales office in hopes of finding room to negotiate on a tower unit due to slow sales. What I found was what you are talking about today. Pages of contract that did nothing more then leave a buyer at the mercy of the developer and paying HUGE HOAs at the same time. With that and one of the two blogs breaking that the developer was planning on retaining a majority ownership of units I decided not to get involved. You are correct though. The detail work on the units is very good. But there is paying a premium and then flushing cash down the drain.

  7. Grand Wazoo

    “the developer was planning on retaining a majority ownership of units’

    What exactly does this mean – rentals?

  8. IP

    that part wasn’t clear but the significance in a Home Owners Association is that amendments to HOA agreements and changes to things like maintenance contracts are made by majority decision of owners. If the developer maintains majority ownership then the other owners are at the mercy of the Developer to do what is best for the HOA. Should the developer decide to not participate in the HOA meetings the board will never be able to pass any decisions unless their charter includes a clause to allow passage by majority based on board members present. Not likely.

  9. smarten

    IP’s observation is a point I was trying to make in earlier posts on this subject.

    Let’s say buyer “x” entered into a contract to purchase a Montage unit in September of 2007. At that time the project’s CC&Rs and HOA bylaws read a certain way, and were [or should have been] given to the buyer as part of his/her important contracting papers.

    Then let’s say in July of 2008, the seller decided to unilaterally amend those CC&Rs and HOA bylaws into their present form. Buyer “x” never had an opportunity to vote on these amendments because he/she has never closed on his/her purchase.

    If the amendments change the benefit of the buyer’s bargain and he/she is not in agreement with them, it’s my opinion he/she can revoke his/her prior consent and demand refund of his/her deposit[s] if he/she acts timely and in writing.

    It’s really no different a concept than signing up for a credit card based upon a credit card company’s cardholder agreement in effect at that time. Then some years later the credit card company decides to unilaterally change the cardholder agreement under which you as a cardholder will be bound in the future. If you don’t agree with the amendments, you are given the right to notify the credit card company and opt out. If you do nothing, your actions [i.e., silence] can be construed as consent by conduct and you are thereafter bound.

    Not knowing how the Montage’s CC&Rs read at the time some of you who want to get out of your contracts actually contracted [you know who you are], I can’t speculate on the materiality of unilateral amendments [according to Mike, the latest and greatest version], if any. But assuming they’re more onerous than the ones in existence when you contracted, you very well may now have a legal basis to revoke your consent, if that be your decision. If you fall into this category, please don’t take my word for it. Consult an experienced [in contracts] real estate attorney.

  10. renodude

    I finally got a red-lined copy of the new CC&Rs. It shows the deletions and additions. There are a LOT of changes.

    RD

  11. Grand Wazoo

    Make sure you read section 30.18 – “ReTRAC Assessment”. Let me summarize:

    Each unit’s owner is on the hook to pay directly to the City of Reno their share of the ReTRAC assessment. How much this is and how often this will be paid is unknown. Failure to pay will result in a lien against the unit and foreclosure. Have a nice day.

  12. IP

    wazoo- the retrac assessment applies to all property holders within the designated retrac corridor. I don’t know the boundaries of the corridor but I know my family pays it on rental properties near Keystone and Jones(4 blocks south of the trench). Liens and then foreclosure due to unpaid city bills of property owners within an HOA is common practice. I believe that was covered in an earlier entry here on reno realty regarding a fistful of somersett properties that were delinquent on city or HOA bills and closing in on foreclosure.

  13. Renonative

    renodude-

    Any chance we can get our hands on the red-lined copy. I’d love to see what these guys are up to.

  14. CommercialLender

    Someone asked about the ‘majority ownership’ meaning they will rent. In the commercial lending business, permanent debt can be obtained (in normal markets) on the rental portion of the asset if the owner (borrower of the perm debt) owns 51%+ of the units and controls the HOA. Once he sells the fifty-first percent unit, he’s no longer financable with any semblance of decent debt.

    So, the owner of this asset might well have been hedging his bets so he could rent up the remaining units and get perm debt to take out his remaining construction debt. Otherwise, it would likely go into distress leading to possible foreclosure. Now, the underlying construction debt was likely structured to have full cash sweeps of the net proceeds of the sale of each unit go directly to the construction lender. This gets the construction lender paid back first and the later condo sales largely represent the developers profits. It is highly probable that the asset needs to sell well in excess of 51% of the units to pay off the construction debt. So, hedging his bets, if he could qualify for some perm debt after selling 49% of the units, the cash raised in the perm debt refi would in theory pay down the rest of the construction loan or a good portion of it. Assuming his numbers work out about like all condo deals I’ve seen and worked on in the past year, it’ll be many years before this developer makes a nickel in profit. So he’d be forced to lower prices to try to continue to sell units, rent the 51% units so he can obtain perm debt, or he’d walk away. In all 3 cases, the owners of the existing units would be less than happy.

  15. Marla

    Interesting sign of the times here on the RRB. Six months ago (maybe even six weeks ago), news that the GSR has been taken over by the bank would have resulted in about 70 comments. Now, it’s barely newsworthy. Just one more piece of evidence of the impending crash.

    Let’s face it. We all know that the $ 1+ trillion bailouts over the past three weeks are no more than turniquets to keep the patient from dying right now. Instead, the patient is going on life support and will die in the next few weeks.

    Housing market bottom on January 11, 2009?

    I don’t think so.

  16. IP

    Marla – I don’t see it the same. There are plenty of sectors in the economy that are not getting hammered right now. Not only that but those of us who read the writing on the wall three years ago and stayed out of the market when it was wickedly inflated are now positioned with cash to make some very nice purchases. But those poised to buy need a settled market first. We have waited out the worst of the price skyrocket and now we wait till the market resets and when we feel it is close or has turned that corner I am sure you will see a healthy amount of purchasing.

    The bail outs are a weird issue. Politicians have to fund their reelection campaigns and to do that their financiers have to have the cash and see a benefit. Not only that but the voters have to see something they like. I would have preferred no bail outs but I’m not your average joe working from paycheck to paycheck and voting based on current conditions. Regardless of who voted for what any average joe who is severely affected by the condition of the economy is going to tend toward voting for the challenger because in their view the incumbent has “caused” tangible or intangible suffering.

    The bail outs will cause more market inconsistency and further delay us turning the corner but it will happen. Sadly though unless the government liquidates the properties they purchase by buying the bad loans this will ultimately result in a permanently inflated market or further delayed losses by the banks.

  17. smarten

    IP –

    I could be mistaken but I don’t think the government is going to buying bad loans per se [what institutions really own loans, let alone bad ones, in today’s complicated secondary mortgage market?]. Rather, I think the government is going to be buying institutions’ illiquid assets. And what exactly are those assets?

    I don’t know if you saw 60 minutes Sunday but they did a piece on the current financial mess we’re in and it presented the best explanation I’ve seen. Basically wall street created a market for fractionalized interests in mortgage backed securities [pools of mortgages]. Then many of the “players” created a new type of insurance that purportedly insured investors who would buy these securities. But the insurance couldn’t be called “insurance” because then it would be subject to government oversight/regulation [like reserves]. So the insurance was called a debt swap and institutions started cross-collateralizing each others’ securities. That’s why no one is able to “value” each other’s assets.

    With no regulation the sellers of these securities did not have to maintain sufficient reserves like an insurance company would have to maintain. So when there was a run on financial institution assets, insufficient reserves existed and some financial institutions were quickly rendered insolvent [the inability to satisfy obligations as they become due]. At that point the government had to step in.

    So I believe [but again I could be wrong] that the government is proposing to buy these mortgage backed securities and/or debt swaps[because there’s no immediate market for them]. Now it’s true these securities are ultimately backed by pools of mortgages against pools of real properties and that may ultimately mean buying bad loans and liquidating properties, but I think we’re a long, long way off from this happening. So in the short run it’s really an illiquid credit market that has frozen up. Now will the so called bailout relieve the credit freeze so qualified home buyers can obtain mortgage financing? Time will only tell.

    Now for those of you interested in my January 11, 2009 SFR market call [although I can’t imagine you’re really interested BB as you’ve stated on so many occasions that it’s not worth your effort striking the keys on your keyboard to comment upon anything I’ve posted], let’s not forget the following:

    1. The fat lady hasn’t sung;

    2. If you’ll recall, my call was largely tongue and cheek. I believe it was RI who wanted me to come up with a day of the month [I merely opined January], and then he pushed for an hour of the day to boot;

    3. My call was made last February or so. NO ONE on this Board [and I specifically mean BB, RI, Lindie or whomever] had ANY clue the economy as a whole [as opposed to the local housing market] was heading for what has actually happened in the credit market. As many of us fail to acknowledge, conditions change and although it’s easy to be a Monday morning quarterback, it’s not so easy to forsee major future economic events like what we’re experiencing. Does that make those who go out on a limb stupid people?

    4. My call was really nothing more than when the Reno/Sparks SFR median sales price, as a whole, bottoms – nothing more [such as a “housing market bottom”]. So far we’re still heading in this direction and we’ll have to wait until April – May, 2009 to see where we really were in January, 2009;

    5. As I’ve said many times before, we can easily hit a bottom in the monthly SFR median sales prices and then scrape along that bottom for an extended period of time. No one really knows.

    With that said, never in my lifetime [and it has probably been longer than many of you] have I seen first hand, real world conditions where cash is really king. I am now of the view that I am about to see it and in this regard, I agree with IP’s observations [“those…with cash…are now positioned…to make some very nice purchases”].

  18. IP

    thanks for clearing that up smarten. I didn’t catch that episode. The fact that the issue is another step removed from actual equitable assets makes me even less happy about it but as I have been saying for the last three years. We shall see.

  19. BanteringBear

    Smarten posted:

    “NO ONE on this Board [and I specifically mean BB, RI, Lindie or whomever] had ANY clue the economy as a whole [as opposed to the local housing market] was heading for what has actually happened in the credit market. As many of us fail to acknowledge, conditions change and although it’s easy to be a Monday morning quarterback, it’s not so easy to forsee major future economic events like what we’re experiencing. Does that make those who go out on a limb stupid people?”

    Here we go again…the world according to Smarten. But you’re dead wrong, yet again. I’ve been talking about this meltdown for years (as has RI). You just haven’t been paying attention, Smarten. It seems to me that your whole MO is to attempt to rewrite history in order to manufacture some credibility. Unfortunately for you, it’s not working. Your statement is an outright lie.

    Further:

    “…although I can’t imagine you’re really interested BB as you’ve stated on so many occasions that it’s not worth your effort striking the keys on your keyboard to comment upon anything I’ve posted…”

    So many occasions? Once, Smarten, once. You’ve just got to get your digs in. It burns you up when others are right and you’re not, doesn’t it? Unbelievable.

  20. BanteringBear

    Here’s a snippet I posted on this blog over a year and a half ago, Smarten:

    BanteringBear said,
    in March 29th, 2007 at 11:55 am

    “I think a recession is imminent. And I believe it will be severe, and due, in large part, to the housing crisis. Many are unaware of the potential danger of the current situation…And then there is the issue of the banks. Many people anticipate some large banks folding. They have lent out too much money that will never be repaid. And not only to homebuyers, but builders as well. When you look around at all of the failing/failed construction projects, most are heavily backed by some financial institution. With prices falling on homes and land, as these individuals/companies fail, the banks have little chance, if any, of recouping their funds. The government will most likely have to step in to help…This is a very simplistic overview of course. The problems run very deep, which is what is so troubling. There’s never been a better time to have job security, little debt, and cash at hand.”

    You don’t speak for me, Smarten, and I’ve grown quite tired of your inaccurate utterances. I’ll ask you, once again, to please refrain from your bad habit of creating false truths about myself and other posters. It’s not only annoying, it’s quite unfair and misleading.

  21. smarten

    Okay Mr. BB, since you have such an instant grasp of EVERYONE’s prior posts on this Board, show us the money.

    Show us YOUR past posts [preferably links so we can re-read your warnings ourselves] that in the somewhat near term future the sub-prime mortgage mess would lead to a worldwide collapse in credit markets where in part, few could secure credit and this would contribute to the drop in Reno/Sparks SFR unit sales/monthly median sales prices you and others were predicting.

    Your warnings were that the Reno/Sparks SFR market [as well as bubble pricing] would fall because mortgagors who couldn’t really afford the mortgages they had secured would default creating a glut of distressed housing.

    But that’s NOT what I’m talking about.

    Don’t provide generalities – I [and I’m sure others] want to re-read the particulars of your so called prior posts along these lines because I for one don’t remember reading anything even remotely close [at least not in the last 1-1/2 years or so I’ve been following this blog].

    No one in any responsible position of authority saw the current worldwide economic melt down coming; not Wall Street CEOs; not WAMU, Wachovia nor Indy Bank CEOs; not Alan Greenspan nor Ben Bernanke; not Secretary Paulson; not Barney Frank, Charles Dodd nor Barack Obama; not even John McCain who supposedly unsuccessfuly sought to legislate Fannie Mae/Freddie Mac reform several years ago. I dare say few outside of Wall Street even knew what a debt swap was. So for you to proclaim you saw all of this coming and shared it with us on this blog years ago, would make you the real stucco oracle and savior to the world.

    And BTW, don’t you think your comment “it burns [me] up when others are right and [I’m] not” is an example of the pot calling the kettle black? When in the world according to BB, have you every admitted you were wrong about anything on this blog [and you can provide links to these instances as well]?

  22. smarten

    “I think a recession is imminent…Many people anticipate some large banks folding…With prices falling on homes and land…banks have little chance, if any, of recouping their funds. The government will most likely have to step in to help.”

    This is far, far different than what’s currently going on in the worldwide credit market. We’re not talking about home mortgages per se. We’re talking about creative, unregulated, fractionalized securities sold worldwide, backed by a substitute for unregulated insurance.

    If we were just talking about failed mortgages, all this government intervention would be unnecessary. Things would eventually work themselves out. But we’re not and that’s the point you continue to ignore.

    And BTW, I’m happy to annoy you! At least I attempt to do it on this blog with some degree of respect, and unlike you, without resorting to name calling. I guess now that Derrick is gone, am I your new whipping post?

  23. BanteringBear

    Smarten-

    Apparently you believe that convoluting the subject matter will somehow win you any argument. You’re mistaken. And, you’re not my dictator, so YOU go back and read my numerous posts, because it’s not up to me to satisfy the demands of some narcissistic authoritarian. If you have a hard time interpreting them…not my problem.

    Is your argument that declining real estate values and mass foreclosures have nothing to do with the current credit crisis? If so, you’re delusional. They precipitated this whole mess as that’s what’s backing these financial instruments which were sliced and diced. The stalled prices and subsequent massive loan defaults are what led to investors shunning the instruments, and it all cascaded from there.

    Furthermore, to insinuate that NOBODY saw this coming, just because you yourself DID NOT, is pathetic. It’s quite obvious all you’re doing is trying to save face by attempting to destroy others credibility as your bottom calling proved premature and naive.

    I’m glad you’re “happy” you annoy me. That’s not something I’ve ever heard of anyone striving for. I do find you terribly annoying, and I have a feeling I’m not the first person who feels this way. Congratulations.

  24. billddrummer

    To BB,

    While I don’t typically pick sides in arguments, I’ll have to side with you. The defaulting mortgages prevented the secondary market from properly valuing the securities issued, which led to the freeze-up in the markets you mentioned. As a result, all debt instruments were similarly infected, culminating in a near standstill in new debt issuances that weren’t government backed.

    In my Business Psychology class, we studied a phenomenon called the Law of Unintended Consequences. Who knew that expansion of credit to less creditworthy borrowers would lead to a banking crisis that has spread worldwide? No one knew.

    In the quest for yield, investment bankers took what looked to be acceptable risks, because the securitization process ‘homogenized’ the underlying mortgages, making it highly unlikely that isolated defaults would impair principal repayment. Obviously, they were wrong.

    I submit that the increased leverage created because of the securitization process acted as a yield multiplier in good times, but is now acting as a yield destroyer with devastating impact.

    Please, continue your spirited discussion. It’s interesting reading, to be sure.

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