This just in from the front lines of the housing meltdown: ALL HELL'S BREAKING LOOSE! • Listening to battle-scarred Realtors talk about all the short-sale funny business, fake landlords, mold-slimed foreclosure properties, bogus real estate agents and yappin' junkyard dogs makes you wonder how any homes are getting bought and sold at all. • With upside-down homeowners, overwhelmed banks and cash-toting low-ballers sucking up investment properties at bargain-basement prices, veteran real estate professionals around the Bay Area say they've never seen a market as whacked-out as the one we're slogging through right now. • "It's total craziness out there," says Guy Berry, whose 30-plus years with firms like Coldwell Banker make him one of Silicon Valley's elder statesmen of brick and mortar. The magnitude and complexity of the housing crisis "slows things down so much that it creates even more opportunity for even more crazy things to happen."

There are a number of reasons for the madness. Home prices have hit gutter levels that make 2011 look like 2009 all over again. Bank lending rules have gotten Kafkaesque, clogged with fine print. Federal regulations have helped create backlogs of repossessed properties. And some underwater homeowners are gaming the system, living rent-free while foreclosures drag on for months, even years.

Chaos theory


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Combine all that, and the resulting hoodwinkery is truly epic. Steve Mohseni, a 15-year real estate broker with ReMax in Pleasanton, calls it "the wild, wild West. Whether they're buying or selling or lending, people are just looking after their own neck, and the ones who are trying to act responsibly are the ones getting burned."

There are evicted homeowners who re-key the locks and move back in. Or they rent out their foreclosed home to someone else, collecting rent until the bank gets wise. San Jose real estate agent Leonora Cruz had slapped a lockbox on one of her bank-owned listings "and when we went back to put up our sign, you could see that someone else had moved in. Turns out the evicted owner had rented out the place."

On Craigslist, to be precise. "The tenant was a young mom with three kids," Cruz says. "It was sad. She'd paid the guy a $5,000 deposit. He was renting out the place even though it wasn't even his house anymore. She said, 'It's scary because you don't even know what's a real rental these days.'"

Walk into any real estate office and the agents start shaking their heads. They've seen upside-down owners who dismantle their homes before they vanish. One broker had a Vallejo listing where someone had ripped open the walls and removed all the copper pipes. Lynda Shatsky, a San Jose real estate broker with 26 years under her belt, has a listing in Oakland that's become the neighborhood dump.

"My cleanup crew said when they were taking the first load to the dump, someone dumped another load," she says. "Last Saturday, we found two more mattresses in the backyard. And under the big mattress was a dead pit bull."

A house often empties out only after a torturous tango between a lender and homeowner. Some owners stay without paying their loan for as long as two years. And once the bank catches up with them, they often get "cash for keys" as an enticement to get them to leave.

Bad religion

Real estate agent Cory Wong had an entire church congregation lodged in a bank-owned San Francisco duplex, refusing to budge. "They'd been in the property for over two years and hadn't paid their mortgage," he says. "They had pews and an organ downstairs. The reverend was really nice, but I told him he was squatting and couldn't stay there.

"We changed the locks, but somehow someone got a key," Wong says. "Maybe it was divine intervention."

Wong finally had the church dismantled. "We moved the pews and organ into storage. It was the first time I've ever had to have a church evicted and I felt bad. After all, I'm a human being before I'm a Realtor."

Facing foreclosure apparently sharpens the creative bent of some homeowners. To keep electricity flowing to his condo as he fought eviction, one guy ran an extension cord out the front door to suck free power from a common area of the building.

Buy and bail

Then there's the so-called "buy and bail," which one real estate agent explained this way: "Mom and pop bought a place for $600,000. Now they're upside-down on their loan. So mom goes down the street and pays cash for another house just like theirs. She puts it in her name. Then once it closes they walk away from the original house. And they don't care about their credit being ruined because they've now got their new house."

As prices plummet and lending stays stuck in slow gear, investors have stepped into the void armed with cash.

"We've had them bring cash in brown paper bags," says Dennis Steinbach, vice-president of Atlantic & Pacific Real Estate and a longtime fixture in the valley's real estate business. "One guy came in with a Safeway bag with $10,000 in it and counted it out on the table."

Real estate agents say more than a third of the deals these days are cash, as investors snap up houses at fire-sale prices, slap on some paint, then rent them out for a positive-cash flow, something that was impossible to do when the Bay Area real estate market was red-hot.

One of Cruz's listings drew 23 offers, many of them cash. Other buyers use greenbacks for more sinister reasons.

Some real estate agents discover their repossessed listing was actually a pot farm disguised as a suburban ranch-style house.

The "farmer" will buy a place for $400,000 cash, set up shop inside, bypass the meter to poach electricity, harvest a few crops, maybe even pull a loan out of the property, then walk away with the profits.

Green energy

Atlantic & Pacific real estate broker Bryan Chapman had one like that. "I walked up the first time and there was a sheriff's deputy sitting there. He stood up, drew his gun and said 'If you move, you're in trouble.' Scared the heck out of me."

Inside his repossessed listing-cum-crime-scene, Chapman found fertilizer sacks and smashed grow-lamps, with marijuana leaves "blown all over the place like insulation. The whole kitchen and dining room was one giant pot farm. And the master bedroom had been turned into a processing center. I was stepping on the remains of hundreds of thousands of dollars worth of pot."

Still, with all the insanity out there, Realtors will tell you what Realtors will always tell you: It's the perfect time to buy.

"If you can strap on the Teflon so that all this stuff doesn't stick to you, this is a great opportunity," said Capitola mortgage broker Forrest Cambell. "You have incredibly low interest rates and home prices at historically low levels. So, yes, it's a crazy time, but crazy times are great times to buy real estate."

Contact Patrick May at 408-920-5689. Follow him at Twitter.com/patmaymerc.

Glossary for today's rough-and-tumble
real estate market
Buy and bail: An underwater homeowner pays cash for a similar model for much less than he'd paid for his house, then once it closes, walks away from the original house.
Underwater: The state of homeowners whose houses are worth less than they owe on them.
Cash for keys: What lenders, or real estate agents on their behalf, will offer an underwater homeowner to leave a house voluntarily.
Broomswept: The condition many lenders require departing mortgagees to leave their property in if they want "cash for keys."
Massaging: What real estate agents often must do to all parties to keep a fragile deal from falling apart.
A scrubbed lead: A lead on a buyer that a real estate agent considers has been confirmed as qualified.
A trash-out: The process a bank goes through to clean up a property that's been damaged by the outgoing resident.
Preservation company: Crews hired to clean up trashed or vandalized bank-owned properties.
Hold for rent: When a bank forecloses on a house, then cleans it up and rents it out until the market comes back.
A rehab: A house that's not in livable condition and is being sold as-is by the bank.
Handyman's special: Realtor code for a place that needs serious repairs.
Turnkey: Realtor code for a home ready to move into.
Source: Mercury News reporting