“Is your house on the market?” No. 

“Did you sign a listing agreement?” Only one day.  “Huh?”

I ran the property on the MLS and it was not on the MLS at all.  And I began to wonder “How would he short sale the house if it wasn’t on the market?” 

This out of area agent put this house on an out of area MLS for exactly one day back in July.  What he was doing was advertising the house on craigslist looking for a buyer.  He got one, did a one day listing and asked the bank if they would take the offer.  He was all about double ending the transaction, not doing what was best for the client.   If this guy was ethical or knew what he was doing he would know that banks want to see short sales on the market for a minimum of 10 days.  The “short sale” failed because the bank rejected it.  The family said the bank wanted $600k.  I doubt that was what the bank said.  I know the house is worth $525k.  I work that area.  I know every house that’s sold in the last year off the top of my head, more if I think about it for a moment.  This out of area agent did this family a huge disservice. 

But it gets worse.  I had checked for a Trustee’s Deed since that was all I could do without any of the paper work.  As of last Friday there was none.  On my way to the appointment last Wednesday I asked my title company to do one more check for me.  One of my old friends dated the property down by hand and found the Trustee’s deed recorded on Monday.

I had two choices.  One was to call the homeowners and say “Sorry, I can’t list your property because you don’t own it any more”.  Two was to drive to the appointment and compassionately explain to them that the Trustee’s Deed had recorded and they didn’t own their home any more.  I sat in horrible traffic for an hour to do the latter. 

I could see in the woman’s face that she simply wanted to cry so I tried to move as quickly and simply as I could through the explanation.  Before I went to Keller Williams I worked for one of the biggest REO guys in the area.  I knew what was going to happen next to this family.  I took the time to explain that someone would come to her door and offer her money to move by a certain date.  That offer should be at least the amount of two months rent in her property.  If she had any questions about that process, I would be available to explain it to her. 

I’m not going to make a nickel on any of this.  But it’s the right thing to do.  I just wish the out of area guy had done the right thing.  This family should have been able to short sale this house under HAFA.  It should have been relatively simple.  Yet he got in the middle trying to make a buck for himself and this family has now been foreclosed on.  He is what gives us a bad name.

I was talking with a friend of mine who is an agent and a fan of the grapes like I am.  Her parents are retiring and selling the family home.  It’s a bittersweet time for these families.  Naturally you want your parents to retire and be happy, but that rock isn’t there any more.  It’s as if we are the swallows and San Juan Capistrano isn’t there anymore.  And that can be disconcerting.

I have never been to the house on Locust.  I’ve not driven by it and I’ve never been to Toms River with my mother.  My father was a real estate broker and we moved a lot when we were kids.  I lived in seven different homes by the time I was 17.  I don’t have that sort of connection to a house.  The longest I’ve ever lived somewhere was seven years.  My experience is different.  I can cavalierly pronounce “Don’t fall in love with a piece of dirt” but really, it’s the memories.  I’m currently working with a family who is selling the family home.  It’s been in their family for 47 years.  They have a similar experience to that of my mother.  I’m selling their memories.  That’s a lot of responsibility.

www.youtube.com/watch?v=DQYNM6SjD_o

It’s a buyer’s market, sellers are desperate, I can get a really good deal.

Not exactly.  It’s not a buyer’s market, most sellers are not really desperate and “a good deal” is subjective. Let me explain.  According to Investorwords.com

buyer’s market

A market which has more sellers than buyers. Low prices result from this excess of supply over demand, also called soft market.  Opposite of seller’s market.

When properties are receiving 10-40 offers each, it’s not a buyer’s market.  It’s a seller’s market.  And they aren’t desperate.

Yes, but if someone wants to sell in this market they must be desperate.  Not exactly.  There are numerous reasons to sell in this market.  Job change.  Life changes.  No one is holding off having another child because of the economy.  I defy you to show me a woman who will bet her biological clock against a shrinking economy.  If a family is ready to grow, they’re going to grow, the economy doesn’t matter.  If they need more space, they need more space.  I would argue that this is a great time to move up or downsize.  No matter which way they go, they save money on their property taxes, the purchase costs are less and that helps offset the pull back on the sale of the existing home.  Not necessarily a recipe for desperation.

Now there are desperate sellers out there, but don’t assume that every seller is desperate.  Some just need to make a move for a real pedestrian reason, like life. 

Yes, but I want a good deal.  Who doesn’t?  I have yet to receive a phone call where the potential buyer said “Please find me an over priced home in a lousy neighborhood with questionable schools and a lot of gang activity.  It would be best if there were a liquor store on the corner with a bunch of guys hanging out so I could buy my crack from them”. 

Does this property make sense right now?  Will it make sense in five years? Do I want to spend the rest of my life in this home?  What is your holding period?  A thousand or even ten thousand dollars right now may make absolutely no difference five years from now.  No difference ten or twenty years from now.  Is this a flip or is this a termed investment with an eye towards generating income and appreciation?  What’s the exit plan?  Is this to be your dream house?  Is the exit plan giving the home to one of your children to raise their family?  The numbers differ depending on the scenario.  A good deal really is subjective.  Before you ask the question, know what your definition is.  It might simply be a property with enough space for the family in the preferred school district with a payment that the family can afford.  Or it could be an investment and only the numbers matter.  Know the definition of “a good deal” and know the exit plan to achieve the greatest return on investment.  Maybe the return is a great eduction for your kids in a house on a safe street.  That’s measurable.  Don’t discount it.  It has value.  And it colors the definition of what a good deal really is.

This past Monday, the California Foreclosure Prevention Act went into effect. It has the potential to be a help to some folks, and the potential to be nothing at all. Essentially, it directs lenders to attempt a loan modification workout before foreclosing on the property. Once a notice of default has recorded, if the lender does not have an exemption on file, they must allow an additional 90 days for a loan modification to be worked out. That is 90 days in addition to the existing 90 days that are statutorily provided for to allow the borrower to catch the loan back up. There are only certain situations where this legislation is applicable. Here is the text of the law respecting who is eligible:

2923.52. (a) Notwithstanding paragraph (3) of subdivision (a) of
Section 2924, a mortgagee, trustee, or other person authorized to
take sale shall not give notice of sale until at least 90 days after
the lapse of three months as set forth in paragraph (2) of
subdivision (a) of Section 2924, in order to allow the parties to
pursue a loan modification to prevent foreclosure, if all of the
following conditions exist:
(1) The loan was recorded during the period of January 1, 2003, to
January 1, 2008, inclusive, and is secured by residential real
property.
(2) The loan at issue is the first mortgage or deed of trust that
the property secures.
(3) The borrower occupied the property as the borrower’s principal
residence at the time the loan became delinquent.
(4) The notice of default has been recorded on the property.
(b) This section does not apply to loans serviced by a mortgage
loan servicer if that mortgage loan servicer has obtained a temporary
or final order of exemption pursuant to Section 2923.53 that is
current and valid at the time the notice of sale is given.
(c) This section does not apply to loans made, purchased, or
serviced by:
(1) A California state or local public housing agency or
authority, including state or local housing finance agencies
established under Division 31 (commencing with Section 50000) of the
Health and Safety Code and Chapter 6 (commencing with Section 980) of
Division 4 of the Military and Veterans Code.
(2) Loans that are collateral for securities purchased by an
agency or authority described in paragraph (1).
(d) This section shall become operative 14 days after the issuance
of regulations, which shall include the form of the application for
mortgage loan servicers, by the commissioner pursuant to subdivision
(d) of Section 2923.53.
(e) This section shall remain in effect only until January 1,
2011, and as of that date is repealed, unless a later enacted
statute, that is enacted before January 1, 2011, deletes or extends
that date.

For a loan modification to be approved, something fundamentally has to have changed with the borrowers’ financial situation. That is, a loss of job, divorce, substantial decrease in income, jump in interest rate in an ARM since the loan was originally approved or substantial unavoidable increase in expenses. If a borrower has had no change in income and/or expenses and just decides that the house isn’t worth what they paid for it and they don’t want to pay the mortgage any more, that’s not going to be approved and the lender is going to proceed with a foreclosure. That’s not a good reason to ask for a loan modification. If God forbid a child became catastrophically ill that would be reason for a lender to consider a modification. If the borrower can’t afford the house payment and the payment on the luxury automobile they bought six months ago, the lender is not going to look favorably on that situation. It has to be a real hardship. And the borrower has to be able to document it.

As I’ve mentioned before, Wachovia has a great short sale department set up in Northern California. Unfortunately, a lot of other lenders haven’t come around to their evolved way of thinking yet. Wachovia knows that it costs them less to work out the loans with the borrowers. They will try a loan modification first, if that isn’t going to work for the borrower, they move on to a short sale. Foreclosure is the last possible resort for that company. I always give credit where credit is due, and they deserve credit for doing the right thing and doing it well. They will probably apply for and receive an exemption. Another huge bank we’ve all heard of is doing a terrible job. I wrote a short sale contract for a family back in April. Large Unorganized Bank is the lender on the transaction. They have to approve the short sale. Three days ago I got an email that they had uploaded the package, assigned it to someone and that I would get a response on July 17th. Really. July 17th on a contract written in April. I don’t see that bank getting an exemption.

It remains to be seen how long it will take the different entities within the State government who are supposed to regulate this to get up and running, but for now, if you’re in trouble, you can’t afford to hide in your closet all balled up in fetal position sucking your thumb. There are options available to you. Ignoring the problem will only make it worse. If you don’t get help the process will march forward with out you and one morning you’ll wake up to find the Sheriff at your door, evicting you. That’s not what anyone wants. If you are one of the many who is in this position, send me an email or give me a call. I’m here to help. But most of all, don’t pay someone out of your pocket to save your home. Those guys won’t save your home and you’ll be out whatever you paid them.

1. Business is cyclical
2. If you don’t like the real estate market just wait ten minutes

Well, another ten minutes have passed and we have a new market. In my last post I mentioned how the inventory has been drying up. The inventory disappeared just about the same time everyone figured out that it was a great time to buy a house. All those screaming deals that were being bandied about at cocktail parties were a thing of the past. The market was different again. For the last month, nearly every property on the market has received multiple offers. Not just a little multiple, but multiple as in 30 offers. That’s how tight the inventory had become. I went from handling nearly forty properties to managing 22. What that told me was that market was off by half. At the same time, droves of people who had been standing on the sidelines, tried to get into the game. April was a food fight.

In response to Obama’s election, the lenders went ahead and had a self imposed moratorium on foreclosure starts. At the time I thought this was wise. It was the right thing to do. By doing it they kept the government out of that aspect of their business. To me, that’s the way it should be. We do the right thing and keep our autonomy. So for over ninety days there were a lot less new bank owned properties soiling the market. And the market stabilized. The point of the moratorium was to give banks and borrowers time for workouts. Lots of short sales occurred and lots of loan modifications were completed.

Then ten minutes passed. We’ve been hearing that California had 92,000 homes that were already foreclosed upon that were going to hit the market. We’ve also been hearing they were high end. Judging from my last two weeks, I’d say that’s true. I’m no longer seeing roach infested rat traps. I’m seeing the creme de la creme. And it’s going to be a wild ten minutes.

But that’s not the point of today’s missive. While all this was going on, one bank figured it out. One bank went out and set up an entire division in Northern California to help out borrowers. Two years ago, it would be the last guys I expected, except the new ownership is out doing the right thing. I’ve always hated the Pick-a-payment loan from World Savings. I got talked into one for 20 minutes once. I paid a hefty pre-payment penalty to get out of it. Most weren’t that lucky. It was such a bad package that 60 Minutes did a piece on that very loan. Wachovia, who actually paid money to buy World Savings has been sued over the Pick-a-payment loan. There were millions of them. Wachovia has figured out that they needed to do something. And what they did was smart, innovative and correct.

short sale (of house)

A sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments. By accepting a short sale, the lender can avoid a lengthy and costly foreclosure, and the owner is able to pay off the loan for less than what he owes. See also deed in lieu (of foreclosure).

(from NOLO.com)

Wachovia figured out that when a property is foreclosed and the bank takes it back, the costs associated with owning and maintaining that property are high. They figured out that the folks who are stuck in these homes need help. And they came up with an innovative way to provide it. Essentially, this is the process. When you contact Wachovia, the first thing they try to do is modify the loan. If the borrower has had a life event such as job loss or catastrophic illness, a loan modification isn’t going to be possible. If it isn’t a workable situation, then they try to save the situation with a short sale. They have an entire division devoted to Loss Mitigation. This division is locally situated and locally managed. I’ve met them, they’re nice people. They will come to your house with your Realtor and meet with you in person and it’s not scary. It’s nice. No drone in another State or country to deal with. Real people. Right here. In your living room. Real solutions. In your living room. Then they stop the foreclosure process and work with your Realtor to assure that your house is sold on a short sale.

Benefits of a short sale over walking away

To me the most important aspect of a short sale to a borrower is that they walk away with their credit somewhat intact and some honor. No sheriff pounding on the door. No coming home to the locks changed. No harassing phone calls. It’s a business transaction and the bank is involved. In the case of Wachovia, the right hand really does know what the left hand is doing. In most cases they can work it out in less than a week and close the short sale in the normal closing parameters. The real drawback is that the lender forgives a portion of the debt and issues you a 1099 for that amount. Currently it is taxed as income but there are rumblings that the Feds may be handling that differently for 2009. There’s no leaving in the middle of the night and no dodging knocks at the front door. The borrower gets their life back. Win/win.

Sometimes the only solution is for the borrower to walk away. Unfortunately, that wrecks credit, so the borrower gets whacked twice. There’s also the possibility of getting a 1099 for the forgiven portion of the debt, although currently it doesn’t seem to be occurring. That could mean a third whacking on a foreclosure. The harassing phone calls don’t stop until the bank actually takes possession of the house. Leaving and not telling the bank doesn’t stop the phone calls. They’re going to offer cash for keys through their real estate agent. Take it, leave with your head held high and start your new life.

Wow! Yeah, wow. If you’re reading this and you’ve found yourself in this position with this loan, please give me a shout. If I can help you, I will, if I can’t, I’ll refer you to someone who can. Isn’t it time you got your exceptional life back?

I look at these as a bad business decision. People chose homes that they really couldn’t afford and gambled. And lost. I know there is a certain sector that have lost their homes because of job loss, but that’s not our focus today. My advice has always been and continues to be, if you can afford the mortgage, do it. If not, wait. Simple advice. I don’t like ARM’s never have. I’ve always hated that World Savings Pick a Payment product that buried so many people. Judging with what happened to Wachovia, I think I was right. And I don’t like teaser rates. I’m a fixed rate old school gal. Fixed rate never has prepayment penalties because they aren’t loaded on the back. They’re old school mortgages. They’ve worked for years in this country and they’ll work today.

There’s been a lot of talk about people using their homes as ATM’s. I’ve never been an advocate of that either. The only unsecured debt I believe that should be rolled into a mortgage is home improvement debt. Twice I took out a second on my last project. I used it exclusively on the house and when the work was complete, I refinanced it out into the first. Why? Because the goods and services purchased went back into the home. Buying a car with a home equity line is fraught with peril in my book. Yes, you can write off the interest, but it’s way too tempting to buy more car than you can really afford and that’s when things start to come apart at the seams.

One of the things we see a lot of in the REO business is personal property left behind. I’ve had houses where it required three or four TRUCKLOADS to get the personal property out. We’re talking 30-50 cubic yards of junk. I have to document all that stuff photographically. When I’m taking these pictures I always think, what if these people hadn’t paid all this money for all this junk they didn’t even care about and paid the mortgage? Then I think it’s part of the culture of this country. Buy, buy, buy. It’s the American way. If we spend an hour watching something on television we are tempted for up 22 minutes with different products. After 9/11 President Bush took to the airways and told America to go shopping, go to Disneyland and take a vacation. Apparently we did. Maybe some of us should have stayed home.

I don’t think the attitude in the financial sector of sell sell sell has helped America or Americans. I think that everyone needs to understand the financial products they are getting involved with. Some people are not cut out to own their own homes and they’re better served by renting. That’s good because other people are cut out to own investment property. And other people are cut out to live check to check. And other people are very happy buying their property at a young age and paying the mortgage every single month for 30 years and living happily ever after. That’s what makes this country great. Everyone is different. What makes my life exceptional may not even be on the radar of someone else’s life. What makes your life exceptional may not inspire me to get out of bed. That’s what makes us all so interesting and that’s what makes this country great.

We need to pick mortgage and investment vehicles that make sense for our situation, not Bob up the street or Joe around the corner. We’re all different. Now is a great time to be looking at investment property, if that’s your interest. I love to show investment property that is consistent with each individual’s long term goals. Not Bob’s or Joe’s, or anyone else’s. Just yours.  It’s also a great time for first time buyers who have been sitting on the sidelines to get into the game.  There are some great properties out there.  And there’s some junk.  I’ll show you the difference.

We’ll take my home for example.  Realtor.com estimates my home to be worth between $250,000 and $516,000.  That’ narrows it down.  Cyberhomes nailed it.  They say my home is worth exactly $361,746.  I’ve lost $18,513 dollars in value in the last month.  Whew.  Actually they’re estimating that my neighborhood lost over 5% in value last month.  Probably not.  Zillow.com estimates my house to be worth $336,000 with a Value Range: $262,080 – $376,320.  Eppraisal.com gives me an estimate of $429,122.  I like that number better.  Redfin.com informs me that I can save over $7500 by buying a property on line.  So what good am I?

Well, what those online estimators don’t know is that while I paid $501k for this place, the neighborhood was actually selling in the high 5′s, low 6′s.  That’s because I bought the worst house in the neighborhood.  Since then, the real worst house in the neighborhood sold about 8 months ago for $325k.  It needed $100k in work.  The online estimators don’t know that the worst house in the neighborhood had a terribly dirty termite.  Two baths needed to be ripped out completely.   The original construction in 1955 was substandard on that property and the three properties next to it.  I am the fifth house away.  The floor plans are the same but a different builder took over the tract in 1958 and the construction on the rest of the subdivision is superior to those four houses.  Zillow doesn’t know that.  If you saved $7500 buying through Redfin (as they cheerfully tell you when you log on) and spent over $100k on remodeling a substandard home did you really save any money at all?  Cyberhomes doesn’t know that the home I bought needed a ton of work, and that the work has been mostly completed.  They don’t know that this property now sports a new roof.  They don’t know that in June of 2007 when I purchased this property the carpets reeked of pet urine.  And they were 30 years old.  They don’t know that the linoleum in the kitchen had been slapped over the old linoleum and was peeling up.  They don’t know that there were three different colored carpets in all three bedrooms.  All from the 1970′s.  They don’t know that the old carpet was stripped out, the subfloor sanded and sealed to eliminate the pet odor, the kitchen cabinets refinished, the formica replaced with stone, the slate that replaced the double thick linoleum, the sparkling new master bath.  They don’t know about the fresh paint throughout.  They don’t know that the termites were eradicated and the damage repaired.  They don’t even know that the two trees that pushed up against the foundation were removed in June of 2007.  Those trees are still showing up in the aerials on those sites.

The computer models are nice, but at the end of the day, you need a human being on the ground who can tell the difference between a property that looks like a crime scene inside and a property that has been completely remodeled and is sparkling clean, ready to move in.  How much money is really saved saved running from train wreck “bank owned” to train wreck “motivated seller” learning about a market vs. hiring a professional who already knows the market and has seen the train wrecks?

No one knows if we’ve “hit” the bottom. The bottom of the market is a lot like the bottom of the sea. It’s rough and ragged and unpredictable.

So while we may have hit the “bottom”, which bottom we hit is another thing.   Maybe, as a buyer, it doesn’t matter.  Searching for the absolute bottom in this market is really a Quixotic endeavor.  What we need to search for is the threshold of diminishing returns.  At what point does the investment no longer make sense?  I called a client last week and told him to forget about a condo he was considering.  It had been bid up over asking to the point that it no longer made sense for him as an investment.   In times like this, as a Realtor, that’s a tough call and many of my contemporaries would not make the same call.  “Mr. Client, I would love to sell a house, but I would rather be honest with you today, than disappoint you tomorrow.”  I made that call, it was the right one for that client last week.   It’s important to know what’s right for each individual client.  Redfin, Trulia, Zillow and the like are nice tools, but at the end of the day, they aren’t going to tell you that a property doesn’t make sense for your situation.  I will.

But what about you? You have been waiting for this market to settle and now you’d like to finally buy your new home. But well prepared investors keep shutting you out. How do you get your home?

There’s several components to a successful offer. First and foremost, have your ducks in a row. Every selling lender will require a copy of your preapproval. Have it ready. Have copies available. Every selling lender will also require 1-3% earnest money deposit. Have it ready to go. (Of course, you never go over 3%. That’s the liquidated damages amount) And be ready to write. A very nice couple I was working with lost out on the perfect house for their family because they didn’t have their preapproval in order. They are a big family needing at least a 4/2. Those don’t come on very often as bank owned. I had one, in their school district.  They missed it scrambling to get their loan in order. That’s not where you want to be.  Step One, get your money/preapproval in order.

The next component is a strong offer. Selling lenders like to see strong offers. A good deposit, a good preapproval from a reputable lender indicates commitment. A good increased down is very attractive to them. That indicates that the loan is not in danger of being “disappeared”.

And finally, make it a quick close. Very rarely will they take an offer contingent on you selling your house. In this market, unless there is room to mark your house down, it may labor out on the market for months. Be ready to go in 30 days. They like that. Then perform.  You’ll be moving into your dream house in no time.

When I get to the bottom
I go back to the top of the slide
Where I stop and turn
and I go for a ride
Till I get to the bottom and I see you again
Yeah, yeah, yeah

Helter Skelter -The Beatles

One of the burning questions that we hear all the time is “Have we hit bottom?” Have we? I don’t know. No one knows. We can guess or throw tarot cards or look into a crystal ball but we won’t know until we’re there. After we get there a lot of charlatans will say they predicted it. They didn’t. On the other hand, we could use the Potter Stewart argument. We’ll know it when we see it. The Philadelphia Enquirer has a great article quoting Robert Shiller. He is one of the founders of the S&P/Case Shiller Home Price Index. He says, and I agree, that when the inventory, which is very high, gets back to more normal numbers, we’ll be there.

I just said we aren’t at the bottom so why should you even look at property right now? Simple. Because your family just got bigger or your kids need their own rooms or you are empty nesters now or you’re relocating or downsizing. In the grand scheme of things, if you miss the bottom by 3%, so what? Is it worth gambling on the exact bottom to miss out on the right house? Over the period of years that you’ll own that home prices will fluctuate. That’s what happens in the market. Even if you bought at the absolute peak in 1991 before the market tumbled, the investment is double right now. So even if someone bought at the peak in 2006, in the long term they’re going to be just fine. Real estate should be regarded as a long term investment. Here’s the story:

Karl E. Case, one of the economists that developed the 20 MSA methodology, a widely used subset by Standard & Poor’s in the S&P/Case Shiller Home Price Index, thinks that the housing market may be near a bottom.

According to WSJ, in a paper presented this week before the Brookings Institution in Washington, Mr. Case argued that the relationship between incomes and home prices has neared a level seen at the end of past housing slumps. He also noted that of the 20 metropolitan areas covered by the Case/Shiller index, nine have shown prices slightly improving in recent months.

Obviously, anyone making specific predictions on the Housing sector should be regarded with some doze of skepticism. After all, the housing collapse led to rapidly falling home prices and massive defaults on mortgages, causing major dislocations in financial markets – the ongoing negative effects of which, in terms of write-downs, credit contraction and dilutive capital raises, continue to weigh heavily on both Financials and the housing market. However, considering Mr. Case’s authority in the field, his model of predictions, and expertise on real estate markets and prices, we can argue that while the economics has never been a controlled science, perhaps, there is some cause for optimism here.

At the same time, the Case-Shiller index’s most recent reading was 19% below its July 2006 peak, and many analysts, including Robert Shiller, the co-creator of the Case/Shiller index, say the decline is far from over since inventory of unsold homes on the market is still very high. The main basis for Shiller’s argument is that until that excess is absorbed, home prices will continue to be negatively affected. This has further fueled the debate of whether the deterioration in the Housing sector will continue, or if we are seeing the beginning of the end of the crisis. In addition, if so, if there is some sort of consolidation taking place at current levels.

Irrespective of these suppositions and as the debate continues, it would be naive and unreasonable to pretend that the housing sector, which has undergone the biggest speculative boom in U.S. history, will start immediately uptrending or come back with a bang. Instead, a slow languishing bottoming action is the most likely scenario.