This article from the Cleveland Plain Dealer outlines some of the pitfalls in finding houses to invest in using ebay real estate auctions.
Posted by Laura Johnston September 05, 2008 22:20PM
“NICE, CLEAN, Nicer!” shouts the eBay offer, boasting of a
century-old duplex with great hardwood floors in a quiet Cleveland
neighborhood.
At this East 72nd Street house, “nice” means windows boarded,
siding stripped, kitchen counters missing. “Quiet” means deserted, with
half the neighboring homes boarded up and stripped, and one house just
a pile of debris.
The owner, Best Buy Properties of Chillicothe, has been selling
foreclosed property on eBay for eight years. It has never seen the
house, let alone rehabbed it. And it likely won’t, since a bidder
snapped it up Wednesday for $3,800.
Another foreclosure, another flip, courtesy of eBay.
“They’re the next round of vultures,” Cuyahoga County Treasurer Jim
Rokakis said. “They have no interest in the neighborhood. They have no
interest in revitalization. They have no interest in Cleveland.”
In the last year, entrepreneurs in and out of state began buying
vacant houses from sheriff’s sales, banks and the U.S. Department of
Housing and Urban Development, then selling them on e-Bay’s Internet
auction site, often to folks who have never been to Cleveland.
The practice tricks bidders into buying wrecks they can’t imagine,
and sometimes even homes that no longer exist, officials say. It traps
neighborhoods in a chain of apathy. And it leaves the city to trace
strings of owners, so it can write building code citations and collect
fines for boarding up windows or demolishing homes.
“The layers on an issue like this are just continuously growing,
posing severe problems for the vitality of neighborhoods,” said Matt
Laska, housing director for the Detroit-Shoreway Community
Organization. “We’re getting a continued cycle of blight and
abandonment.”
While buying houses and flipping them for profit isn’t new, eBay
exacerbates the spiral, officials say. The East Side Organizing
Project, which helps prevent foreclosures, has tracked more than 100
eBay sales since late June.
Some sellers misrepresent the condition of their dilapidated homes,
omitting tax liens or building condemnations. Few have any intention of
fixing up the houses or even visiting the city.
Instead, they sell and resell quickly, before houses get cited or demolished, without waiting for titles to transfer.
“I’m starting to see people who buy properties shocked to end up in
Housing Court,” Judge Raymond Pianka said. “They’re saying, ‘I didn’t
know my property needed this amount of repairs.’ Why would you buy a
property sight-unseen?’¤”
City health inspectors can send owners to Housing Court for grass
taller than 8 inches or overflowing garbage. Building inspectors can
cite houses for broken windows, stripped siding, peeling paint and
fences, floors and garages that need repair.
Violations remain with the property when sold, so multiple owners
can be held liable. They can be fined $1,000 for every day they fail to
fix the property and sentenced to 180 days in jail.
In Cleveland, all active code violations on the property are listed
on a certificate of disclosure, which is required for real estate
sales.
But sometimes the county records deeds without the certificates,
said City Councilman Tony Brancatelli, who represents Slavic Village,
one of the most distressed Cleveland neighborhoods. Or often, buyers
flip the houses before they receive the certificates and file the
deeds.
So naive eBay bidders buy houses without knowing about the
citations, or tax liens, or condemnation notices. More than once,
officials say, folks have bought houses only to find they have been
demolished.
On eBay, Best Buy Properties promises no liens and no violations on
its East 72nd Street duplex, which according to the county auditor, it
bought from Deutsche Bank for $2,375 on July 22. But city records show
the house has two active violations from 2005, plus a $257 city bill
for cleaning up the lot.
Scott Burton of Best Buy Properties did not return requests for comment.
But at least the home is in the company’s name. Often, the eBay
houses are still registered in the name of previous owners, such as the
Department of Housing and Urban Development.
When a house sells, the city must track down the new owner and issue new citations.
“That’s a huge challenge,” said Edward Rybka, Cleveland’s building
and housing director. “We spend a huge amount of time trying to find
people and determine where they’re at.”
Still, the city has stepped up its code enforcement, demolishing
2,000 structures in the past 2½ years, Rybka said. Each demolition
costs $7,000 to $9,000, which the city can bill the owner by sending to
a collections agency or placing a tax lien on the property.
Those bills mean owners of the houses, considered a steal at $2,000 or so, owe more than the properties are worth.
Rokakis wants the vacant and demolished houses collected in a land bank for parks or rehabilitation or future revitalization.
Other officials want HUD to stop selling to investors, deeds to be
filed for every property sold, out-of-town buyers to have local agents
and eBay sellers to honestly represent their properties.
EBay’s defense is simple. Unlike its auctions for purses or comic
book collectibles, its real estate auctions are not legally binding
contracts, spokesman Usher Lieberman said. When bidding closes, sellers
and buyers are expected to contact each other to exchange paperwork and
take whatever actions are required by local laws.
As its Help section says, “ebay real estate is not involved in the
actual transaction between buyers and sellers and, as a result, has no
control over the quality, safety or legality of the properties
advertised.”
Huh.
So sellers post pretty pictures, advertise that the house is “as
is” and require buyers to do their due diligence. They call Cleveland
“the San Francisco of the Midwest” and “the last frontier for
super-low-priced real estate in the United States.”
Buyers are in for a surprise — the equivalent of meeting a blind
date much older and fatter than his Match.com photo. Only with a more
expensive fall-out.
Rick Davan, a Chicagoan who has never been to Cleveland, bought
eBay houses in Flint, Mich.; New Britain, Pa., and Cleveland. He didn’t
know he would have to fix them up. But when he tried to sell his East
78th Street house, where the siding has been stripped, the gutters
stolen and the garage door removed, no one bid more than he had paid.
“I just wanted to take a chance,” he said. “But even a few thousand dollars, you’re taking chances. I’m totally stunned.”
Some find it hard to feel sorry for buyers hungry for an easy thousand bucks.
“People are so turned on to this. It’s so cheap, you buy a piece of
property for $1,500, what do you have to lose?” said Michael Mulloy,
who sells vacant homes for banks through Realty Corp. of America. “But
there’s still a huge liability to owning property, especially if
they’re not going to make any improvements.”
And improvements generally are necessary.
A two-family house on Whitethorn Avenue sold for $4,050 on eBay
Wednesday, exactly two weeks after the seller bought it for $2,000 from
HUD. A HUD inspection showed it needed almost $30,000 worth of work to
make it livable.
Vaughn Alexander, 41, who lives down the street, wandered past the
eyesore on Wednesday and pondered buying it. Unlike the two vacant,
boarded-up eyesores across the street, this one could be saved, he
said. He would fix it up, maybe rent it out or move in.
“That’s crazy,” he said. The buyer “should be from around here. You gotta put money into it.”
HUD, the federal mortgage insurer that sells foreclosed homes on
its own Web site, prefers owners to occupy its houses, said Cleveland
field office director Douglas Shelby. But investor-buyers are free to
sell their purchases.
In Buffalo, where eBay home sales began popping up years ago, the
city slowed eBay flipping by creating an Anti-Flipping Task Force.
Since many of the eBay houses came from the city’s annual
foreclosure auctions, the city passed a law prohibiting auction buyers
to sell the property for more than 120 percent of the bid price for six
months. They must also commit to fixing all housing code violations
within six months of the purchase.
“It’s not that we want to discourage people from investing in
Buffalo,” said Kathleen Lynch, an attorney on the task force. “We want
to see healthy investment. We don’t want to see flipping properties
without regard to the condition of the properties.”
That’s what Cleveland wants, too.
Officials know the city has too many vacant homes — 10,000 at last
count, Brancatelli figures. That’s what happens when a city’s
population free-falls.
They just want to slow the blight. They want the frenzied eBay sale cycle to stop
ebay real estate, internet real estate, foreclosure, distressed homes
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Mark Schwartz
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