The funny thing about capitalism is that it rarely mirrors its stated goals. I am often reminded of how misleading the commercial statements of business are when cross-referenced against their practices. I was first made aware of this fact at the age of 16, growing up in Minnesota enduring the annual tornado season. One year, tornado’s swept through central Minnesota wreaking havoc and devastation in their wake. Having lived in Minnesota all of my life, I was privy to the many wonderful public service accomplishments of The American Family Insurance Company of Wisconsin. Up to that point, I had always thought of insurance companies as large, conservative, social giants! I thought they did well because they invested money smarter than the rest of society. Sure, invested well; didn’t take risk, etc. But that summer I was awakened to a powerful truth as American Family Insurance opted to refuse compensation due to longstanding policy holders in central Minnesota. Because the cost of paying claims superseded the penalty of refusing to pay, American Family gave their central Minnesota policy holders the single finger salute and said sayonara to Minnesota. And what was their cost? Apparently, an insurance company in Minnesota is banned from selling the particular line of business (in this case homeowners insurance) for one year for failing to pay legitimate claims. Insanity!
This week I experienced a parallel reality in my internship. Fairplay Realty-Elite has a very rigid model for foreclosure properties that we’ll go after prior to the trustees sale. You take a market analysis that estimate resale value at 70 cents on the dollar; subtract six months of taxes, insurance, and interest at current hard money rates; subtract repair cost that would position the property as an equal in its surrounding market; pay the tile and closing fees that are obtained from a matrix: And if the bank is owed a figure that is 110% or less – than we’re allowed to pursue the deal. Any other computation a homeowner is “S-O-L” (I never realized there is an “O” missing from that moniker!). This past week was extremely frustrating as I learned that the banks are less willing to bend on a transaction now than they were before they screwed everything up with the mortgage fiasco! Apparently they aren’t willing to expose themselves to the possibility that the market will tank anymore than it already has, so they only “deal” in cases where the backside exposure (after they resale the foreclosure) is limited. Essentially, the government gave them the incentive to holdout by buying out AIG, the mortgage insurance subsidiary that pays off the shortfall the banks are due if there is a shortfall on the resale of foreclosure properties. If the bank negotiates a short sale, no foreclosure has taken place, hence – no insurance payment from AIG. So for all intentions, the banks would have to be fools to give massive discounts when the current set-up assures they will get 100% of the principal they loaned returned – whether it is through the trustees sale, or via the insurance payment to close the gap on the difference. I am quickly starting to see why I had the little pow-wow with the owner, et al. Talk about power differences! How do you mediate a dispute when one party stands to loose only by coming to the table? This is going to be tough.
Last week I had the “big meeting” with Jeff Potts (Managing Broker – Oregon), Chris Ozlund (the owner of the Fairplay Realty-Elite branches in Vancouver and Portland), and Kristin Riggs (Ozlund’s administrative assistant/right hand woman). The head honchos thought it might be a good idea to lay out their goals and expectations in a formalized meeting. My take away is that it is abundantly clear they expect to come out of this investment of time and energy with an additional revenue source. As previously stated in the internship contract, the overarching requirement of this internship is that I develop the skills to both evaluate the physical condition/cost to repair of all classes of residential real estate. But it was made clear that is is equally important that I develop the administrative skills to navigate the legal challenges specific to each property. Ozlund and Riggs went to great lengths to clarify that they would continue to be open to my “modernized methods of accomplishing the firms goals.” At the same time they were careful to repeatedly slip in that they had every intention of looking over Jeff Potts shoulder to see if my numbers were comparable to any other 1st year associates! Talk about pressure. Here I am fresh out of academia, forced to learn to ride a bike all over again, and the top management is all but announcing their discomfort with differentiation I bring to the game. Suddenly I feel like the one guy at the costume party that didn’t open his invitation! Well, all I can do is my best. If at the end of the day, the powers-that-be force me to abandon my grand experiment and try to jam fear down the clients throat – I can always resign! Buckle up.
This week was filled with administrative responsibilities…not a lot of the “fun stuff.” I met several times with my internship supervisor, Jeff Potts, to clarify our individual expectations and responsibilities for the internship. Jeff explained how his only real objective is to position me to “man a territory” on behalf of the firm; in the process, explaining that the future of the firm is highly dependent upon people like me establishing new territories in areas that aren’t as competitive as the Portland/Vancouver markets. I, on the other hand, listed the opportunity to lead an office as a secondary concern. My main objective is to figure out how my skill in finding common ground between disputing parties could be used to change the current gridlock that exist between the acrimonious homeowners and the monolithic foreclosing banks. Jeff warned me to not get my hopes too high because the banks are “rigid, top down thinking organizations” that don’t make changes to the way that operate unless there is a clear monetary advantage. I thanked him for his well-intended forebodings and reminded myself that change is never welcome and that my task is to figure out a way to show the parties that they stand to gain through innovating their current relationships. I only hope that that is actually an establish-able point.
The balance of my week was dedicated to settling in to my little corner cubicle, and setting my training schedule around the Portland Metropolitan Association of Realtors (“PMAR”) training schedule. One of the challenges of this internship will be attending the necessary trainings while at the same time meeting with time-restricted clients on schedules that are conducive to their needs. Well I have determined that there very well may be a ton of re-scheduling on the training front in order to accommodate the needs of the clients. as my former mentor used to always say, “You have to Major in the the major’s!” That was code for knowing what (and why) your priorities were. I am really looking forward to getting this assignment moving as it could end up as the foundational basis of my future career as a foreclosure work-out specialist.