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Bethwood New Port Richey

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4 mobile home lots on Bethwood in Moon Lakes Estates, New Port Richey, FL
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Passaic in Hudson, FL

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Passaic in Hudson, FL. Get the details at SeeMyTrailer.com
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We Buy Bankruptcy,Probate,Divo

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Bargain Basement

From: odell
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From the RealEstateJournal Archives

BEGIN article content
Bargain Basement: Foreclosure Rise
Boosts This Investor's Bottom Line
END hooded headline by James R. Hagerty
From The Wall Street Journal Online
March 15, 2007

When mortgage lenders get stuck owning dilapidated houses in shabby neighborhoods, they often call James Odell Barnes.

Mr. Barnes works the rock bottom of the housing market, what his lawyer calls the "sub-subprime market." He and his partners buy foreclosed homes by the dozens, sight unseen, often for just a few thousand dollars apiece. They resell them to low-income buyers who would have trouble qualifying for bank mortgages, providing many buyers with seller financing.

"The reason the banks call me is I will buy anything," says Mr. Barnes, 55 years old, who often can be found puttering around his 54-acre horse farm in this small town outside Columbia

Times are good for Mr. Barnes, and they may get better. The subprime mortgage market, which serves people with weak credit records, is in turmoil. A surge in defaults has forced more than 20 lenders out of business in recent months. At year-end, 4.53% of all subprime mortgages were in the process of being foreclosed, up from 3.33% a year earlier, the Mortgage Bankers Association said yesterday. That number is expected to grow as rising overdue payments lead to more foreclosures. Bottom-fishers like Mr. Barnes will get more opportunities to snap up cheap homes.

Mr. Barnes farms out most of the deals to a group of about 40 investors around the country, collecting $1,000 for each deal he passes on to them. Last year, he says, he and the investors bought more than 1,400 foreclosed homes. Mr. Barnes, who never attended college, says his real-estate investment income topped $1 million last year.

Banks appreciate Mr. Barnes. Few real-estate agents are interested in peddling low-priced houses in bad neighborhoods that have been acquired by lenders through foreclosure. Mr. Barnes is happy to buy such houses over the phone. He doesn't inspect them, or even visit them.

Mr. Barnes and his investor friends don't fix up the properties. They tack up handwritten "For Sale" signs informing potential buyers of required down payments and monthly payments -- usually just a few hundred dollars each. In essence, Mr. Barnes and his cohorts sell the houses on 15-year installment plans. The interest rates they charge are a steep 12% -- about double the rate of 15-year fixed-rate mortgages for people with strong credit -- and the late-payment penalties are tough. The shaky credit of many buyers warrants it, he says. "Nobody gets cheated," he says.

Mr. Barnes and his partners normally sell the loans to other investors within six months, at a steep discount. George Kastanes, Mr. Barnes's lawyer, estimates that about 30% of buyers eventually default on the loans. So far, the trouble in the subprime market hasn't dampened investor appetite for buying the kinds of loans Mr. Barnes and his partners sell, says Bob Repass, managing director of Bayview First Funding, a Dallas-based buyer of such loans. The seller financing extended by Mr. Barnes, which doesn't involve any banks, is very different from the subprime mortgages made by financial institutions, he says.

Some nonprofit groups that promote affordable housing question whether such deals are good for buyers. They worry that poor people who buy run-down houses without having them inspected or appraised might not understand what they're getting into.

"You're setting them up for failure," says Bruce Marks, chief executive of Neighborhood Assistance Corp. of America, a nonprofit housing-services organization based in Boston. Low-income people who can't get a conventional loan, he argues, often are better off renting until they can improve their finances.

Mr. Barnes says he's giving such buyers what may be their only shots at home ownership. Low-income people, he says, generally know how to recognize and fix flaws. "Poor people know how to install a hot-water heater and they know how to paint" and even how to fix a foundation, he says. "Poor people have a lot of ingenuity."

Last September, Ola Gorby, a 35-year-old mother of four who works evenings cleaning offices, put $500 down and agreed to pay $400 a month for 15 years -- about $34,000, before interest -- for a home in Martins Ferry, Ohio. Public records show the house previously sold, in October 2003, for $44,000, then went into foreclosure in 2006 before being acquired by one of Mr. Barnes's investors for $7,875.

Ms. Gorby says she used to pay $470 a month for a three-bedroom apartment, and that banks had told her she didn't have a strong enough credit record to qualify for a home loan.

Her new place needs work. Duct tape covers a hole where a front-door lock was removed. Ms. Gorby had to replace some water pipes that had been stolen, and a bedroom wall needs patching. But she says she's happy with the home, which she figures is generally in good shape.

Mr. Barnes's father was a waiter at a Palatka, Fla., diner. As a teenager, Mr. Barnes says, he paid local farmers $1 apiece for calves suffering from diarrhea, then fed them a mixture of powdered milk and flour to "gum them up." The ones he saved, he says, could be sold for more than $100. He bought his first house at age 14, he says, by putting $200 down and assuming a mortgage. He says he found a tenant to pay $110 a month, more than enough to meet his loan payment.

After high school, he operated a pizzeria and a game arcade, among other ventures. A deal to acquire pizza ovens got him into trouble in the 1970s. In 1977, he was convicted of receiving stolen property and sentenced to three years in a Florida prison. Mr. Barnes maintains that he was innocent. In 1985, after he was released, he received a pardon from Florida's governor.

Mr. Barnes moved to South Carolina, where he worked in a cotton mill and as a maintenance man for apartments. By the early 1980s, he says, he was spending much of his spare time investing in distressed property. He bought motor homes, warehouses, motorcycles and convenience stores, even 150 old school buses, he says. But mostly he bought real estate.

These days, he focuses on recycling low-end houses, waiting for calls to roll in from lenders. One morning last November, his cellphone rang and he stepped into his home office to make a deal.

"Any taxes?" he asked. "Did they ever list it? ... I'm not in love with Rochester, N.Y. ... Give me an idea -- $2,000? ... All right, $2,500. ... And where is this at?" Within 10 minutes, Mr. Barnes had agreed to buy 12 homes in six states for a total of $35,250.

Banks expect to get far more than that for most of their foreclosed homes. In cities where housing is expensive and land is valuable, lenders usually hire real-estate agents to market foreclosed properties.

Mr. Barnes and his investors buy the dregs: homes in depressed neighborhoods in cities like Detroit and Cleveland, where there is lots of vacant housing, or in rural areas where few people are looking for homes. "Real-estate agents aren't real motivated to deal with these houses" because their commissions would be so small, says Mr. Barnes. "The banks just want them gone." Until lenders sell the houses, they have to pay for taxes, insurance and maintenance.

Mr. Barnes says that because the houses cost so little, it isn't worth his time to inspect them before buying. He guesstimates what they're worth, based on experience. Most buyers of foreclosed homes spruce them up before trying to resell them. Mr. Barnes wants nothing to do with renovation, a time-consuming and expensive process.

Houses are sold "as is." When one buyer called to complain about finding a dead possum in a newly purchased house, Teresa Kastanes, who is married to Mr. Barnes's lawyer and helps with the business, recalls responding: "Listen. I'm throwing in the possum for free."

Steven A. Nodine, a former manager of foreclosed real estate for First Union Corp., now part of Wachovia Corp., says Mr. Barnes buys more foreclosed homes than anyone he knows. Mr. Nodine runs Tulsa-based Destiny Ventures LLC, which buys foreclosed homes from lenders. He sells some to Mr. Barnes.

Mr. Barnes also is one of the biggest buyers of homes from Hudson & Marshall, a nationwide auctioneer of foreclosed homes, says Dave Webb, a co-owner of the Dallas firm.

After investors in Mr. Barnes's group buy homes, they often turn to one of two people trained and paid by Mr. Barnes to examine the properties and help set resale prices. One of them is another member of Mr. Barnes's lawyer's family, his 22-year-old son, Alex. He spends most of his time on the road handling these tasks. He carries pepper spray and a knife in case he encounters trouble with squatters.

In January, he drove to Pittsburgh to see two houses bought by investors working with Mr. Barnes. He parked his Chevrolet Blazer in front of a narrow, vinyl-sided three-story house in a working-class neighborhood and climbed the icy front steps. Using a hammer and chisel, he broke open the front-door lock and replaced it with a $4 combination lock. In the living room, he found most of the carpeting stripped out and a ceiling tile dangling. Cold air flowed through the window frames.

Mr. Barnes and his investors offer seller financing. They set total prices so that monthly payments are a bit below prevailing rents, they say.

After looking over the Pittsburgh house, Mr. Kastanes set off to find out about rents. He buttonholed an electrician who used to live nearby, who said he had paid $550 a month. Mr. Kastanes phoned the investor who had bought the house and recommended pricing it so a buyer would have to pay $400 a month -- $34,000, plus interest. The investor agreed.

Using a black marker, Mr. Kastanes prepared three signs offering the house for sale for $750 down and $400 a month. He listed a toll-free number, but no total price. He fixed one sign to the front of the house and the other two at nearby intersections.

George Kastanes's South Carolina law office fields calls. Teresa Kastanes handles some of them. Some of the houses are easy to sell, she says. A white bungalow in Roseboro, N.C., purchased last October for $16,250, quickly sold for $38,000 -- $500 down and $450 a month.

Others are much harder to unload. Ms. Kastanes cites a small, one-story house in Detroit. It has no furnace or water heater, and there are water stains on the walls. "It's a dump," she says. It's priced $500 down and $275 a month -- $23,400 before interest -- but there have been no takers after several months. When houses fail to sell for a year or so, investors sometimes auction them on eBay.

Mr. Barnes's associates run credit checks on some potential buyers, but they don't interpret credit reports the way banks do. "Not paying your hospital bill I don't hold against you," says Mr. Barnes. He says he wants to know: Have you cheated people? Do you have a job? And are you paying your rent? "You do a whole lot on the seat of your pants, just listening to people talk," he says. "It don't take long to figure out if they're running a game on you."

Ms. Kastanes says she would tend to trust a single mother with a steady job in a hospital and a record of paying her rent, even if a past divorce had led to unpaid bills and credit problems. But she'd be wary, she says, of a potential buyer who failed to send back a "verification of employment" form or to provide an employer's phone number.

Under the standard loan agreement, buyers who are more than 15 days late on a monthly payment are slapped with a 10% penalty. That's twice the 5% fee charged on conventional loans guaranteed by Fannie Mae, the government-sponsored provider of funds for home loans. Mr. Kastanes says the higher percentage is necessary as a deterrent, given the small size of the monthly payments.

Nearly half of the people who call end up buying homes, Ms. Kastanes says. Most of them don't bother with professional appraisals or inspections, which would be mandatory if they got bank mortgages. Few buyers consult lawyers. Mr. Barnes says about 90% of buyers manage to keep up on payments for at least the first few months.

If the buyers default, Mr. Barnes's investors move to repossess the homes. Buyers generally don't get title to the properties right away, as they would with conventional home purchases. Mr. Kastanes says that makes it easier resell the homes if buyers abandon them within the first few months. He says the title transfers usually don't take place until the loans are sold, typically within three to six months of the deals.

Robert Strupp, a lawyer at the Community Law Center, a Baltimore nonprofit group that helps low-income people with housing issues, says that's "very risky" for buyers because they might have no way to prove ownership despite having made payments. Mr. Kastanes says Mr. Barnes and his partners would never cheat buyers.

Mr. Barnes says investors typically buy the loans for about 70% of the balances owed. That steep discount reflects the high risk of default. American Equity Funding Inc., a mortgage brokerage and investment company in Fort Smith, Ark., is one of the regular buyers.

Brokerage firms sell the loans to bigger investors, including Bayview Financial LP, a Miami-based finance company that bills itself as the nation's largest buyer of seller-financing mortgages. Bayview says it packages some of the loans into securities for sale to other investors.

Mr. Barnes maintains that his investment activities help poor people. Still, he says, "I wouldn't do it if it wasn't for the money."

Email your comments to rjeditor@dowjones.com .

http://www.realestatejournal.com/b uysell/markettrends/20070315-hagerty.html
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Odell Barnes on TV

From: odell
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Watch the video

http://abcnews.go.com/Video/player Index?id=3081811&affil=wfts

Investor Cashes In on 'Cheap, Shabby' Homes
A Self-Proclaimed 'Good Ol' Boy' Resells Foreclosed Homes From the Comfort of His Front Porch
by VICKI MABREY and TED GERSTEIN
April 26, 2007

An auction on the front porch, a crowd of nervous buyers, a few minutes to see the item -- and the bidding begins. This is how most homes in foreclosure are sold.
Foreclosures

But it's rarely how foreclosure king Odell Barnes snaps up the hundreds of properties he buys every year. Barnes operates by fielding dozens of calls a day -- from his own front porch.

"I do most of my buying from right here," said Barnes, while sitting on the porch. "I do whatever I want to do. If I want to go fishing, I go fishing. As long as I have a cell phone and a computer, I'm happy."

Banks all across the country call Barnes when they want to unload hard-to-sell properties in bulk. They know he'll buy anything -- but at a rock bottom price.

That's because the houses he purchases are in the most distressed parts of the country. Barnes has bought and sold thousands of them over the years, some nice, some not so nice. Most are small and often plain, and all share the same forlorn look of loss.

"[I] bought them for 20 cents on the dollar, or maybe 10," said Barnes. "Do you really care when you're buying that cheap, and it's a piece of real estate? I don't care."

He claims he's a "good ol' boy" who can't read anything but a "For Sale" sign. He bought his first house at the age of 14.

"There was an ad in the paper," said Barnes -- "$200 down and take over payments. I asked my daddy, who was a waiter in a restaurant -- I mean, we were really poor. And I said, 'You think we could buy that house?'"

'If It's a Good Deal, I'll Buy It'

And buy he did. With a modest initial investment of $200, Barnes has become a millionaire. Today he lives with his family on a 54-acre ranch outside Columbia, S.C.

"I have an illness about buying things that's a good deal," said Barnes. "It doesn't matter how many I have -- if it's a good deal, I'll buy it."

This is strictly business to Barnes. In most cases, he never sees the houses he's buying -- or the buyers, for that matter.

"I'm a dictator. I approve it," said Barnes. "In the first week I own a house, I would like you to have a 550 credit score. In the second week I have a house, if you have a job, I'll sell it to you. In the third week I own a house, if you're breathing I'll sell it to you. Because I want it moved. I want somebody in that house."

And Barnes rarely has to leave that porch. His employees do the legwork. "I have three people that work for me that do nothing but travel the U.S. [and] put up signs," said Barnes.

"It's a little 'For Sale' sign … and the reason I use this sign … I don't want to look like a big company. I don't want to look like a real estate company. I want this sign to relate to that guy who is walking home and he can say, 'Wow, 500 down, 300 a month. That's cheaper than my rent.'"

Sometimes he doesn't even bother with home buyers. Instead, he'll sell in bulk to one of the dozens of investors he works with.

'Too Good to Be True'

Jarrod Haning, a classical musician, got together with Barnes to supplement his symphony salary. "Odell has a group of investors, about 40 of us, that buy his houses. He finds the deal; we do the legwork. We find somebody to put into it. We make sure they're making their payments on time. We take care of them," Haning said.

Two months ago, Haning sold a three-bedroom bungalow to Pat and Gary Chitwood, and following Barnes' method, sold it "as is."

"We'd been hoping and praying that we could buy something," said Chitwood. "We're not young anymore. So you don't get a lot of chances. Saw the sign 'For Sale' … 300 dollars down, 275 per month … I backed up, said to my husband, 'That's too good to be true.'"

Haning bought the house from Barnes for about $5,000 and sold it to the Chitwoods, with no improvements, for $27,000. At 12 percent interest for 15 years, they'll pay almost $50,000.

Despite the higher-than-normal interest rates, Chitwood was happy with her decision. "I just wanted a house, and once my son said, 'Mom, this house is well built,' I bought it," she said.

'People Want to Own a Home'

Chris Estes, executive director of the North Carolina Housing Coalition, thinks these types of transactions can be problematic. "Sure, families are always happy when they first get in the house that they own at any level, whether you buy it at $9,000 or at $300,000. The challenge is, how do those families feel about that purchase two years from now, three years from now? Are they still able to afford their mortgage?"

As many as 30 percent of Barnes' buyers wind up losing their homes, can't keep up with the payments or can't handle the repairs.

Estes said some people are better off renting. "Is it better for them to be in a better-utility rental unit that doesn't cause health issues, doesn't have issues with mold or asbestos or lead paint, rather than owning a home that may have some of those health issues?"

"The model of helping low-income people buy homes is a great idea. It's really how you do it and what the impact is," he continued.

"People want to own a home," said Barnes. "And these people -- they're poor, they ain't dumb. They know how to put in a hot-water heater. If their house needs to be painted, they'll go to Lowe's to buy a gallon of paint and they'll paint it. They don't have book sense, but they know how to fix up their house. And it's amazing -- you go to them and they fix them up and they're so proud and they own a home."

And it's those two fundamental American tenets -- home ownership and capitalism -- that have made Odell Barnes a wealthy man.

http://abcnews.go.com/Nightline/St ory?id=3084500&page=1
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1 year ago
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