Foreclosure Crisis may lead to Necessary Changes

With so many homes being lost all over the country, it is time there are some changed made in the real estate industry, especially regarding lending.

A few good things proposed that might become a reality in the future:

1. Lenders will require proof of income if the borrower's credit isn't good. Also money for taxes and insurance will need to be set aside.

2. Prepayment penalties are banned if the payment changes in the first four years. (I would like to see prepayment penalties go away completely. It is a ridiculous clause anyway.)

3. The borrower must be able to repay the home loan based on house's value alone. This one is a little confusing to me because it seems like this condition is already present, which is why we have appraisals. No one can guarantee the future value of a home, and it seems that's the desire here.

We seem to be moving in the right direction - just very, very slowly.

Foreclosures Down 3% in June

RealtyTrac has said that foreclosures are down 3% nationwide in the month of June over last month, but higher than last year. Although we might not have gotten over all the foreclosures yet, this is a good time to remember that the real estate market will eventually absorb all this excess inventory and at that point prices will begin to rise. So if you're on the fence wondering about whether you should jump in, the answer is... YES!

Read the entire story here.

Nine Reasons Why I May Never Take On Another Short Sale

I've been dealing with a short sale listing for quite some time now. Really, I guess I'll never learn. It's been about three to four months it's been on the market and priced extremely well.

After having to answer innumerable calls from agents, buyers and not to mention the sellers who are the most affected by this, I've decided I will never take another short sale listing again. Besides not being in control of the situation, here are a few of the other myriad things that go wrong with listing a short sale:

1. The lender does not talk with you or communicate even their ballpark price. The listing agent is left guessing.

2. If there are two loans on the property, the situation is made even worse because even if the first lender co-operates, the second doesn't.

3. The sellers are constantly wondering if you're doing anything to sell the place.

4. The sellers are very inconvenienced, usually for months on end because even if offers come in, the house is still active on the market for others, just in case one falls through.

5. Buyers get tired of waiting and walk away before the bank accepts or makes up its mind to come up with a number.

6. Sometimes the bank will come up with a foreclosure notice instead of taking the short sale offer. Sometimes, surprise, surprise, the house will sell for exactly the amount of the offer, maybe less. (This actually happened to me with the last short sale - did I get paid? No.)

7. The agents almost never get paid. Really 5 times out of 100 is not a good statistic for a business to run on and that's how many short sales actually close.

8. Usually, the lenders don't know where paperwork is or really what's going on until a financial negotiator takes up the file.

And finally...
9. I almost always lose favor with everyone involved: the buyer's agents, the sellers and the potential buyers. How many times and in how many ways can one say, "Nothing yet?"

Tenants Facing Foreclosure

Another story popped up in the Sacramento Bee recently about tenants facing foreclosure.

I had written about it when the first tenants were being foreclosed on last year.

Hey, maybe you should read this blog first!

Another Great Short Sale Article

Maybe the reality of short sales - neither short nor sales - John's by now famous quote is finally beginning to sink in. Most traffic to this blog comes from Google search and here are some of the search terms people are using: "Buyer's rights short sales;" "Short Sale Addendum;" "Short Sale Buyers" and so on.

I think this points to a definite uncertainty in the market relating to short sales. Buyers don't know what to do or expect when faced with a short sale. Sure, the price seems interesting in the beginning, even enticing. And they think they have the patience to wait it out.

Here's another excellent article which points out why they are better off staying away.

Foreclosure Filings Up... and Why this Might be a Good Thing

Yahoo recently reported that foreclosure filings are up 65% from last year's numbers in April nationwide. The last time we had such record numbers of foreclosures was in August 2007. While I am not thrilled about the individual effect this has on the families involved, I am glad that this is happening on an overall market scale and especially for Sacramento.

Really, you say. But aren't foreclosures bad for prices? Yes. And yes. But foreclosures are bad for prices in the short term. Foreclosures however are not bad for sales.

The real problem in the Sacramento market as I see it? Short sales. Not convinced? Okay, onto the reading material!

Here's an excellent article on Sacramento-home by John Lockwood that talks about how short sales are neither short nor sales. Elsewhere, he mentions that any given time 5% of all short sales on the market actually close escrow. I have also written before about how life would be a lot easier if banks just foreclosed on these defaulted properties. It is not the foreclosures, but the short sales that are skewing prices, often because agents are forced to list them at ridiculous prices that will never get approved by the bank in an effort to remain competitive.

Foreclosures would solve all these problems. That, and me deciding not to take on any more short sales or buyers who want to see them. With a 5% success rate, ask a sports fan - What's the odds? And I'm not the gambling kind.

REO Single Family Residences

For those of you first-time home buyers still on the fence about buying a house, you might want to look at the foreclosures here in Sacramento. Either do the search yourself or follow this link to the foreclosure listings page. I've been showing a lot of these bank-owned properties to prospective investors and - mark my words - these are going to become future rentals.

A recent poll in the Sacramento Bee said that about 50% (or more - I don't have to exact numbers) of potential home buyers are staying away from buying right now, because they are afraid of falling home prices over the next two years. If you're only going to live in the house for two years, I can see being a little concerned. But if this is a house you intend living in for anything more than seven years, I think that thought is foolish, baseless fear. Do the math and see for yourself - also consider that Sacramento area real estate appreciates at about 6% per year on an average, in spite of the dips.

REOs, Asset Managers, Multiple Offers... Grrr!

I've written in the past about one of my clients who has been making offers on homes in the Anatolia area of Rancho Cordova and getting outbid every time. Well, yesterday was what seemed to be a historic day for both of us - one of her offers was accepted.

Mind you, she's been looking since January of this year.

Back to the story. After getting outbid each time, on new homes and waiting forever on a short sale, today was the last straw. I received a call from an apologetic listing agent saying that no, our offer has been rejected after all. Apparently, the asset manager in the bank changed and someone else took over the files and they decided to go with another offer. This AFTER my client has sent over good faith deposit cashier's check, and I had made an appointment for a property inspection!

In a span of 24 hours, I lost a great, motivated home buyer.

Thanks, asset managers!

Should Banks Just Foreclose?

I've been speaking with a great many frustrated real estate buyers in the greater Sacramento area lately and the one thing I hear repeated over and over is that they have been looking for houses for a while and not been able to buy any.

But it's a buyer's market, you say.

And I agree. However, there are certain areas where short sales are the majority of homes for sale. Which home buyers hate. Picture this: drive down a street and see every other house for sale. Asking price is about half of what the sellers paid for it about three years ago as a new construction. The homes look great, and there hasn't been much time for even normal wear and tear. The home buyers are thrilled. They call the number on the real estate sign.

Three months later, they're still driving by the house they've made a full price offer on, wondering what in the world happened.

What's happened is that the lender who needed to approve the short sale has not responded. At all. Not even to say that they have received the offer and are considering it.

Meanwhile, the asking price on every other house on that block has fallen even further, as frustrated Realtors try and generate some interest in the inventory.

Would this problem just be resolved if the banks decided to foreclose on these properties? Yes. Why aren't they doing it? Beats me. Maybe they are waiting to unload some of their existing REO inventory before taking on more. Maybe they're waiting to see what happens with the market like the rest of Sacramento.

Unfortunately, by waiting for the statistics, they're creating statistics. They're creating lower list prices, which is making other homes, including REOs harder to move. Now that's irony for you. Or karma. Depending on how you choose to see it.

REOs, Real Estate Statistics and the Pricing Paradox

The investors are finally jumping in. They are actively searching properties and buying up Sacramento's real estate. February pending sales are up.

And whether while this activity signals the very beginning of the end of the bad market is debatable, there is a bigger paradox that buyers should watch for and it is this - some REOs are still pretty hot properties which get picked up immediately for far higher than the asking price. Thus even though the listing price seems like a steal, the selling price shows prices stabilizing, even amongst certain low-priced homes.

Where are these properties? Really, they are all over Sacramento county - Natomas, El Dorado Hills, even Foothill Farms and Fair Oaks. I have seen some REOs disappear in a matter of a week or two, even two to three days. These REOs have some features in common: they are usually newer, priced toward the lower end of the range in a mile radius, and don't require much work to be considered livable. Mainly, they look like such a "deal" to buyers that some are paying a premium to buy them - offering many thousands over asking price and putting down hefty deposits.

It will be interesting to see how this plays out over the next few months in terms of statistics for Sacramento county. But one thing is for sure: there is still pent up demand for homes which is not showing up in pendings or sales. Every day, of the 40 - 50 unique visitors this blog sees, about 20% are searching for some form of these terms: "Sacramento real estate market statistics;" "Sacramento time to buy a home?" "Market update Sacramento real estate;" and so on.

Maybe it's time to quit waiting and start looking. The good ones really do go fast.

Foreclosure Article

I've been telling you for a while that fear in the real estate market is driving a lot of people to run to the safety of their (rented) homes. Instead, read this article and decide for yourself if the foreclosure crisis is overblown.

If your home rose in value 53% in the last five years, really, do you have to worry quite so much?

Sacramento Foreclosures - Why the Numbers Need to be Taken with a Grain of Salt

The California Association of Realtors' Market Matter Advisory just hit my mailbox and I think this is important information in the light of all the bad news of foreclosures out there.

If you're reading numbers from Realty Trac, you should remember that the company reports defaults on loans and not properties - an important distinction that could artificially inflate foreclosure statistics since a first mortgage and a home equity line could count as two foreclosures, although they are both on one piece of property.

Another piece of information that I don't think most consumers are aware of is that a foreclosure filing includes default notices, auction sale notices and bank reposessions. One property can fall into each of these categories as it goes through the foreclosure process. RealtyTrac counts each of these as separate incidents and can skew the statistics.

Now be aware that I am not denying that there are a record number of foreclosures out there. In fact, that is how prices have fallen and many people that have not been able to buy in years are now first-time buyers. But I think it's important to remember to take the doom and gloom news with a grain of salt and remember that in the long term real estate is a great investment.

Sacramento Foreclosures Affect Pets

Here's a side to the Sacramento real estate market that has been largely ignored - the pets of foreclosed homes. According to a recent article in the Sacramento Bee, a large number of homeowners leave their pets behind either tied to a tree or just stuffed in closets when they leave a foreclosed home.

If you're facing foreclosure and cannot afford to take your pets with you, at least consider adopting them out. You can go to the Sacramento Society for Prevention of Cruelty to Animals on Florin-Perkins Road and surrender them for $30. Website is here.

If you know you won't be able to take your pets with you (and honestly foreclosures take months) advertise them as adoptable. Here are some tips on how to do so and here are some more.

REO Buyers: Three Things to Watch For

Yesterday I wrote about how the new short sale addendum protects buyers from waiting forever for the house they made an offer on to get approved. Later in the day it made me wish we had something similar to that for bank-owned homes. The unfortunate truth with bank owned homes is that the buyers are almost always relying on every inspection in the book they can think of and then just plain luck.

Here are the three most important things however that buyers need to watch for when it comes to bank-owned homes:

1. Timelines always get mangled unless they are in the bank's favor - I remember being frustrated with short sales in the past because the lender would come back with an approval that was good for fifteen days. Most escrows take 30 days. However, this last weekend I wrote an offer for a bank-owned, foreclosed home for a client. The offer was more than fair - it was full price, cash and the buyer was paying for half the escrow costs. It has now been ten days and we hear the same thing from the listing agent - "Nothing yet." Today the message changed to "We have another offer, over asking. Bank will pick one soon." Just how soon?!?!? Message to banks and the listing agents that represent them: when you get what you're asking for have the wherewithal to accept it and move on!

2. RESPA goes out the door - The Real Estate Settlement Procedures Act protects buyers from having to accept a title company that the sellers want, especially if the buyer is paying for half the title costs, amongst other things. Banks will almost always have a title company they want to use and more often than not it will say so in the addendum they require the buyer to sign. Usually this doesn't bother too many buyers, but I thought I would mention it here because it always sticks out at me.

3. Banks are exempt from the Transfer Disclosure Statement - This makes sense since the bank has never really been inside the house. Chances are they don't know what's wrong with it. However, it does leave the buyer with a lot of questions that can be resolved only with numerous inspections.

Bank-owned homes are the cheapest homes on the market. Agreed. The discounts on these homes are the biggest you can get anywhere. Sure. But buyers should be aware of the potential problems and liability they assume by buying one of these homes.

Short Sale Addendum Protects Buyers

The California Association of Realtors added a short sale addendum to the required forms in November of 2007. So far, this is one of the best forms I have seen and goes a long way in protecting a buyer's rights while buying a home in California.

For one thing, it limits the amount of time a buyer has to wait to hear back from the lender's approval - "the short sale contingency period." If the lender doesn't respond during this period, the buyer can walk out of the escrow.

Secondly, the addendum expressly states that all timeline begin after the approval from the seller's lender. This protects the buyer's security deposit from getting deposited into escrow before approval.

The short sale addendum should put a lot of buyers' worries regarding short sales at ease.

Short Sales with MLS Entry Only - What?!?!?

Everyone knows that short sales are not my favorite form of sales, and I believe the best prices and attractive options right now in Sacramento are bank-owned homes (REOs) but I seem to come across these entries in the MLS more often than I'd like - the short sale (not approved by the lender) and the classic "MLS Entry Only" status modifier.

The MLS entry only to me is the classic red flag that the listing agent has either collected a fee for entering the listing into the MLS and has no further duties throughout the transaction, or that he is a discount broker with no further duties.

No further duties? Excuse me, but this is a short sale!

Here's what the Metrolist says about MLS entry only listings:

MLS Entry-Only Listings are listings whereby the listing broker, pursuant to the listing agreement, will not provide any of the following services:

a. provide cooperating brokers with any additional information regarding the property not already displayed in the MLS but instead gives cooperating brokers authority to contact the seller(s) directly for further information;

b.accept and present to the seller(s) offers to purchase procured by cooperating brokers but instead gives cooperating brokers authority to present offers to purchase directly to the seller(s);

c.advise the seller(s) as to the merits of offers to purchase;

d.assist the seller(s) in developing, communicating, or presenting counter-offers; or

e.participate on the seller(s) behalf in negotiations leading to the sale of the listed property.

Said MLS Entry-Only Listings will be identified with an appropriate code or symbol e.g. “M” placed in the Status Modifier Field) in MLS compilations so potential cooperating brokers will be aware of the extent of the services the listing broker will provide to the seller(s), and any potential for cooperating brokers being asked to provide some or all of these services to listing broker’s clients, prior to initiating efforts to show or sell the property.

I repeat, excuse me, but this is a short sale! Usually a lot more work than the average sale transaction - especially for the listing agent. If he won't even advise his clients about my offer, just how exactly is he going to get it accepted at the bank and close this sale?

Ask Sacramento Real Estate Gal Answers!

Some weeks ago, I wrote about a Sacramento homeowner regarding a possible short sale on two of his homes. I have now done enough research to be able to answer this very important question with the seriousness it deserves.

If you are a Sacramento homeowner in distress, here are the steps you should take:

1. Admit it. Many people that call me never take action because they are in denial. In fact, a lot of them hope their home will never be foreclosed upon and are still in denial when the home is auctioned on the courthouse steps. Don't be that person!

2. Call the mortgage company. The first thing you should do when you suspect not being able to pay your mortgage bill, is call the mortgage company and ask them if they can rewrite the loan under new terms. Now, be forewarned that they cannot create miracles. If your home had been bought just two years ago and the value has plummeted, the mortgage company might not be able to rewrite the loan without you contributing some cash. Try and work it out so that you can keep your home.

3. Research the ARM freeze plan and see if it benefits you. If you had taken out an adjustable rate mortgage, hoping to refinance in two to three years, and can still make the minimum payment, you might be able to freeze your rate for some time. Here's the FAQ page about how you might be able to freeze your rate.

4. If none of the above options work, then your might have to consider bankruptcy and see if you can still keep your home. Research bankruptcy options here. If they sound like something you might be able to do, hire a bankruptcy lawyer or at least go in for a consultation. If you can keep your home until after this mortgage mess ends, it might be worth at least looking into.

5. If the mortgage company won't rewrite the loan and the ARM freeze doesn't help and you decide bankruptcy is not the way to go, you're probably resigned to the fact that you are going to have to move out of the home. A short sale might be possible and you should list your home as soon as you can. The mortgage company will not tell you what amount they will accept and probably will start the foreclosure process as soon as you stop paying your mortgage, but if your Realtor prices the home right and it shows well, you might be one of the lucky few that gets a short sale through, where the mortgage company forgives your debt and settles for less than what you owe. While there is some debate on how little or how much it affects your credit score, the most important thing about a short sale is speed. The quicker the home is sold, the less it brings down your score, so pricing it right is important. Also, the Mortgage Forgiveness Act may now forgive your debt even if your lender gives you a 1099, so you may not pay taxes on it. Consult your tax professional.

6. Of course, if none of these options work, the last option is foreclosure chosen by your lender. They are however required to follow a process to foreclose on your home and you will be apprised of the actual foreclosure date, so be sure to leave the home before that date. Because California is a non-recourse state, the lender can only take the house back and cannot pursue you to pay the outstanding debt. It does however stay on your credit history for seven years.

Short Sales in Sacramento - Now What?

The other day, I received a call from someone who has read this blog with a very serious question. He owned two homes and was making payments on both homes every month, with not one missed bill. However, he knew he couldn't keep this up much longer. He was stuck with an Option ARM on both homes and the value of both homes had dropped about $100,000 each. What were his options, he wanted to know. He had a job offer in the Bay Area and was considering moving, but didn't know what to do with the homes. The rent wouldn't cover the mortgage and he didn't have enough to pay the real estate taxes.

So I thought I would deal with what I told him with a post under "Ask Sacramento Real Estate Gal."

Check back for the details!

Found: Flippers in Sacramento

It seems like idiocy for anyone to use the word "flipping" in today's market. Or does it?

Unfortunately, the word "flipping" in my opinion has got a pretty bad rap lately. It went from being a bad word which meant buying and selling property with no attempts at rehabbing it while profiting from the market upswing to lately adding sweat equity and then selling the home for maybe a bigger profit.

However, flipping is essentially a speculative activity. Which doesn't mean that there is no research and work involved. It simply means that it is one of the more riskier investments you will undertake.

Here are five things to keep in mind when considering flipping a home:

1. Math is always important. Here's a handy calculator for your improvements. Always over-calculate by about 25% - that way, all your surprises will be pleasant.

2. Know the neighborhood. Know the numbers - bedrooms, baths, what homes sell for, what square footage is common, even what homes rent for.

3. Stay with the neighborhood - don't overbuild. Understand that the home value is determined by the value of the neighborhood. Overbuilding won't necessarily get you the best return on your investment dollars.

4. Maintain adequate reserves. Can you hold on to the house if the market goes down further? Can you rent it out to cover your mortgage? This is thinking that has to be done before you buy the home.

5. Remember the old adage, "Be greedy when others are scared and scared when others are greedy." There's a reason it is a cliche.

Happy House Hunting!

Excellent Short Sale Article on Sacramento Home

I have written a post before on bank owned homes (REOs) and short sales and the difference between them, but if you are considering a short sale of your property, do read John Lockwood's post on three things your Realtor should tell you about short sales.

I think it's also important to look at the statistics on short sales and how many of them really go through - not too many, in my experience! I promise to do more research into this and post it soon!