Inside San Diego Short Sales

Behind on your mortgage?  Beware.  You could become the target of a growing scam by foreclosure prevention “specialists” who use deception and outright lies to sell services that promise relief to distressed homeowners.

In the scam, homeowners are asked to pay an upfront fee to retain the services of an auditor, who is supposedly backed by an audit attorney.  This fee might be as much as 1.0% of the principal balance.  On a $350,000 loan that could be as much as $3500, and some audit companies even charge a monthly retainer of $1000.  For this fee, the audit team then offers to review your loan documents to determine if your lender complied with all state and federal lending laws.  The auditors propose that if irregularities are discovered, you can use the audit report as ammunition against your lender to stop foreclosure, get your loan modified, the principal reduced, or even cancel the loan.

Not true.  According to the FTC there is no evidence that forensic loan audits will help you get a modification or any other foreclosure relief, even if conducted by a legitimate attorney.  Some federal laws may allow you to sue your lender for errors in your loan documents, but even if you win your lender is not required to modify your loan.

The bottom line is that if it sounds too good to be true, it probably is and looking for lender errors or omissions is not going to save your home.  But you do have options.  For free guidance visit www.hopenow.com , view the options I discussed  in a previous post, or for immediate answers, please don’t hesitate to contact me directly.

I love this recipe because you can actually taste the cranberries, it’s not too sweet, and it has a bit of zip.  I wish I could claim it, but it’s from Jasper White’s Cooking from New England cookbook.  And no, this has nothing to do with short sales, but everything to do with enjoying all that we have to be thankful for J

Ingredients

2 oranges

1 cup sugar

2 teaspoons lemon juice

2 teaspoons fresh ginger cut into fine julienne slivers

1 bag (12 oz) fresh cranberries

½ teaspoon freshly ground white pepper

Preparation

Peel one orange and cut the zest (orange part only) into very fine julienne slivers, as thin as possible.  Set aside.  Squeeze both oranges for juice and set aside.  Do not use more than ½ cup juice.

Combine sugar and lemon juice in a small sauté pan.  Heat up slowly and continue cooking until the sugar begins to caramelize.  If necessary, wash down the sides of the pan by brushing with a little water to keep the sugar from burning.

When the sugar is caramel colored, add the ginger and orange zest.  Cook for about one minute, then add the cranberries, orange juice and pepper.  Continue to cook on medium heat, stirring frequently, for about 5 minutes or until the cranberries are slightly broken but not mushy.  Remove from heat and let cool.  Refrigerate in an air tight container.

Makes about three cups.  It can be made in large batches to use throughout the holidays.

Whether you’re considering a short sale purchase, or the short sale of your own home, understanding the process will relieve some of the stress.

The first thing to understand about a short sale is that unlike a traditional equity sale there is an all-important 3^rd party that controls the fate of the deal:  The lender(s).  In order for a short sale to occur, the lender or lenders must approve the transaction.  This involves 3 items for their consideration:

1. Can the current owner show sufficient financial hardship to prove that he cannot pay his mortgage?
2. Is the price offered consistent with comparable sales in the area?  The bank wants to re-coup as much of their investment as possible.
3. Will the bank or investor agree to settle for less than the amount owed, or will they choose to foreclose?

Step #1 – Pre-Qualification

Let’s start with pre-qualification of the homeowner.  Before taking a short sale listing it should be the job of the Realtor to understand the financial requirements and pre-qualify the seller.  This involves having the sellers complete a financial worksheet and reviewing their income and assets.  Whether buying or selling, this is a critical step and one reason why working with an agent that is experienced in short sales is important.  If the sellers don’t financially qualify, there is no point going any further. 

Step #2 – Documentation

Once it has been determined that the sellers qualify, the Realtor or qualified short sale negotiator, will contact the seller’s lender and determine the exact requirements for submission as they are all slightly different.  It will also be determined at this point if the lender participates in the government HAFA (Home Affordable Foreclosure Alternatives) program as there may be incentives for both the sellers and the lender, and certain procedures may be streamlined.  In any case, the Realtor will work with the sellers and collect all the necessary documentation.  This will include: 

1. A statement of general information
2. Financial worksheet
3. Handwritten letter explaining their hardship
4. 2 months pay stubs or year-to-date Profit and Loss statement if self-employed
5. 2 months bank statements
6. Tax returns for the last 2 years
7. Most current statements for all retirement accounts or other assets
8. Authorization form to allow Realtor or negotiator to speak with the lender(s)

Step #3 – Sale of the Property

The house is then listed for sale as a short sale.  Both listing and selling agents must agree to equally split whatever commission the lender decides to pay.  Once an offer is received the Realtor should carefully examine the offer and make sure that it is an offer the lender is likely to accept; the price should be consistent with comps; the offer must not be contingent on the sale of the buyer’s home; and the buyer must understand that it is unlikely that the lender will pay for any termite work or other repairs.

Step #4 – Submission of the Short Sale Package

The listing Realtor or negotiator submits everything to the lender for approval of the short sale and the sale is noted in the MLS as “Contingent”.  Again, it is important to have an experienced Realtor or negotiator who makes sure that the submission is not only complete, but that it is packaged neatly and easy to read and understand.

The package goes to a special department at the lender where it is reviewed.  If there is any documentation missing or unclear, they will request additional information. Unfortunately, even this initial review can sometimes take 4 weeks or longer.

Once this initial review is completed and the package confirmed as complete, a negotiator representing the lender will be assigned.  It is the job of this negotiator to carefully review the file and make a recommendation as to whether it should be approved, or not.  If there are 2 lenders (a 1^st and 2^nd mortgage), this entire process must be completed for both lenders. 

Step #5 – Negotiation

During the actual review and negotiation process, the lender’s negotiator may counter specific items in the offer including the purchase price and the requested commission.  In the case of the second mortgage holder (who stands to lose the most), they may also request that the buyers make a financial contribution.  Again, this is where experience counts.  The seller’s Realtor or negotiator should be in communication with the lender’s negotiator several times a week, working to move the deal along and arrive at terms that are favorable to the seller and buyer.  This part of the process can drag on for weeks, or even months, although some lenders have streamlined the process.  Also, keep in mind that many of the 2^nd mortgage holders won’t even begin the review process until the 1^st lien holder has approved the sale.

Step #6 – Approval

If the lender’s negotiator recommends approval, the file goes to upper management or the investor for final approval.  Generally speaking, if the file makes it this far, it is usually approved.  But again, this final leg of the process may take an additional week or two.

And finally, the letter everyone has been waiting for – the approval letter.  Assuming all terms are acceptable to sellers and buyers the sale will now proceed as a “normal” sale.  The approval letter will stipulate a date by which the sale must close or the approval is no longer valid, usually 30 days.  Hopefully the buyer has hung-in during the approval process, and at this point the clock starts ticking for buyer inspections and contingency removals.

Navigating a short sale as either a buyer or seller can be overwhelming.  Making sure you’ve got an experienced professional on your team is the best way to protect your interests.  Questions?  Just give me a call.  619-846-9249.

Considering a major home improvement?   Updating a kitchen, replacing windows or adding living space are just some of the expensive renovations that homeowners tackle to add functionality or enjoyment to the use of their home. But which projects are the big winners and losers when it comes to adding value?

Winners

Kitchens are at the top of the list in terms of adding value to your home.  Renovating an outdated kitchen can add thousands to your bottom line when reselling your home.  Because remodeling a kitchen is a big, disruptive project it is something most buyers want to avoid.  An updated kitchen requiring no work is definitely an added value.

Bathrooms are another winner.  Just like kitchens, an outdated bathroom represents a major project and expense to most buyers.

A master bedroom suite can also be a big plus.  An added walk-in closet and larger private bathroom are very appealing selling points to most buyers.

Popcorn ceiling removal is a relatively inexpensive project that definitely adds value.  Again, this is a messy, disruptive project that buyers want to avoid.

Replacing windows and or the roof are projects that are marginal winners.  Most buyers expect these items to be in good condition.  So while replacing them may not add tremendous value, not replacing them if old or worn could significantly detract from resale value.

Losers

Swimming pools lead the list of projects that don’t add significant value to your home.  Because they can be viewed as dangerous, and are expensive to maintain, swimming pools can actually be seen as a negative to many buyers.

Room additions that don’t conform to the original design or floor plan also detract from value.  While enclosing a back patio or converting a garage to living space, may add to usable square footage, most buyers don’t want a dining room that has a window into another room and probably do want a garage.

Overbuilding or high-end upgrades are big losers.  Improvements should be comparable to other homes in the neighborhood.  Increasing a home to 5000 square feet in a neighborhood of 2000 square foot homes is money that will never be recouped.  Likewise, using the most expensive fixtures, appliances or flooring will generally not add more value than using a slightly less expensive selection.

Extensive landscape and professional hardscape features may be very enjoyable and add to overall appeal of your home, but will most likely not significantly add to resale value.

Invisible improvements such as replacing plumbing, electrical or HVAC systems are not big winners.  Again, buyers expect these items to be in good condition and it is seldom that you’ll recoup your investment here.  Consider these a part of general home maintenance.

When planning a major home improvement project, keep in mind that even if your project is a winner, you’ll probably not recoup more than 75-80% of your investment when reselling your home.  Especially in today’s market with home values remaining flat, the primary reason for undertaking any home improvement project should be for your own enjoyment of the home, not adding to your bottom line at resale.

The sarcastic answer in today’s market might be, “Not much.”  My husband thinks that some sort of insanity has a grip on his otherwise logical wife.  He just shakes his head as I watch one more episode of House Hunters or Property Virgins and asks, “Don’t you get sick of looking at houses?”

And I guess for me, that’s where the answer lies:  I love houses!  Big houses, little houses, modern, traditional, tree houses…..I am completely intrigued by the shelters we each call home.  From the time I was a little girl, I enjoyed drawing pictures of different types of houses and designing floor plans.  And today, every time I unlock a door to show a home I’m still excited to see what we’ll find inside.  Okay, sometimes its cockroaches and filthy walls, but looking past the mistreatment, the bones of the home have something to say.

Houses solve the most basic problems of existence.  Our homes provide shelter, protection, and a place to prepare and eat food.  And if that is where their function and purpose ended, being a Realtor would be pretty dull.  But houses speak volumes not only about who we are individually, but who we are as a country and civilization.  Houses reflect how we as people, wherever we live, respond to the challenges of our physical and economic environment.

Since WWII the U.S. has witnessed a huge housing boom where we’ve seen our houses change along with our economy and lifestyle.   The small bedrooms, closets and bathrooms of the 1950s have given way to master suites that often occupy as much as a third of the total square footage.  Kitchens are no longer cloistered behind a swinging door, but are open to the living area. And who would have thought that you’d ever hang a TV above the fireplace?

As we all continue to feel the economic squeeze of recent years, we see new trends developing in our homes as well.  The mega mansions so popular at the early part of this century are just too expensive to maintain, and we see many people downsizing to more manageable homes.  Little used rooms, such as a formal living room are becoming obsolete as the great room becomes the center of the home.  And as interior space shrinks we develop our exterior spaces as outdoor rooms.  Less is the new more, and I predict that the need to reduce our footprint will drive significant changes in our homes over the next twenty years.

So do I love being a Realtor?  Absolutely!  Can’t wait to see what I’ll discover tomorrow behind the next front door.

Many homeowners who are facing foreclosure are turning to attorneys to help them save their homes, especially in light of the recent revelations regarding mishandled paperwork.  With few other options available, the struggling homeowners hope that an attorney will find a flaw or legal loophole that will cause the foreclosure to be dismissed.  The problem is that most of these homeowners have no way to pay the legal fees.

But one enterprising law firm in Florida came up with a solution:  If they manage to get a foreclosure dismissed, the firm takes out a second mortgage on the property to pay the legal fees!  The Ticktin Law Group in Deerfield Beach reasoned that this was a way they could find an affordable way to represent homeowners.  Other firms are now following their example with similar second mortgage programs.

OK, call me crazy, but how does this make sense?  A homeowner that presumably owes more than the house is worth and has a first mortgage they already can’t afford, now takes on additional debt in the form a second mortgage?  The lawyers point out that they are charging low interest, around 4.0%, and insist that they would never foreclose.  So, the home is saved, for the moment, but how is this a sustainable solution? Sorry, but this defies logic and seems downright predatory.  I’ll be stunned if these poor homeowners aren’t back in foreclosure a year from now.

For the first time since June, pending home sales (number of contracts signed), dropped in September by 1.8% according to the National Association of Realtors. The report was unveiled on Friday as the Association began its annual convention in New Orleans.  This came as a surprise to many as a group of Reuter’s polled economists had recently anticipated an increase of 3%.  So why the drop?

Paul Dales, U.S. economist for Capital Economics surmised that the lower number was a result of the recent foreclosure mess; deals signed in September, might have fallen apart in October as banks pulled some foreclosures from the market and buyers got cold feet.  But that doesn’t really make sense as the September drop occurred before any of the problems with foreclosure affidavits came to light.

I think that one of the most obvious factors is the continued unemployment rate that has now been at 9.5% or higher for the past 15 months.  People who aren’t working, or fear that their employment is tenuous don’t buy houses.  Lawrence Yun, NAR’s chief economist also pointed out that “tight credit and appraisals coming in below the negotiated price continue to constrain the market.”

So as noted in my post on November 3, Capital Economics continues to predict a bit more of a gloomy future for the housing market.  Dales says that “existing sales may well fall back,” and described housing activity as “bouncing along the bottom.”  NAR on the other hand continues to be a bit more optimistic, forecasting an increase in existing home sales in 2011 to 5.1 million, up from 4.8 million this year.  I’ll keep you posted as soon as I have the San Diego numbers for September, but I’m siding with NAR and remain cautiously optimistic about sales in America’s Finest City, especially if lenders loosen their stranglehold on the market by approving more home loans.

First and foremost, don’t ignore the problem.   Chances are you won’t win the lottery, and your financial troubles are real.  As soon as you are 30 days late on your payment, the lender’s clock starts ticking.  There is help and you have several options.  Take a deep breath and try to look at the situation objectively.  Pick up the phone and talk to your lender.  Just remember that time is of the essence.  Acting early allows you to make the decision that is best for you.  Wait too long and your choices disappear.

Do Nothing.  It is likely the lender(s) will foreclose.  Foreclosure information will stay on your credit report for up to 7 years and may make it difficult to buy again for at least 3-5 years.

Refinance.  This is only a viable option if there is equity in your home.

Reinstatement.  This option means that you will have to pay all delinquent amounts due plus interest, attorney fees, late fees, and taxes and insurance if impounded.  If withdrawing funds from a retirement account you should consult a tax advisor.  If borrowing from friends or family make sure that all terms are in writing and that you can afford the re-payment plan. 

Loan Modification.  A loan modification re-writes your existing loan to make the monthly payments more manageable by reducing the interest rate, extending the term, and/or reducing the principal amount owed.  Your lender may participate in the government’s Home Affordable Modification Program (HAMP), which provides incentives for lenders to modify loans.  This program and loan modifications in general have limited success.  Please read my blog post dated 10/27/2010. 

Forbearance.  In a forbearance agreement your lender arranges a repayment plan that spreads out the defaulted amounts due over an extended period of time.  It may include temporary payment reductions.  You will need to supply information that shows your financial problems are temporary and you will be able to meet the repayment requirements.

Deed in Lieu of Foreclosure.   You voluntarily sign the deed back to the bank and vacate the home instead of the bank foreclosing.  Slightly better on your credit report than a foreclosure.

Bankruptcy.  Consult a bankruptcy attorney.  Filing Chapter 7 for liquidation of debt may stall foreclosure, but your lender may be allowed to resume proceedings.  Chapter 13 may halt foreclosure, but the debt of the past due amounts will be included in a 3-5 year re-payment plan. 

Short Sale.   If your home has equity, you may sell the home without lender approval.  Lacking equity, you can opt to sell the home for less than the amount owed.  This is negotiated with your lender by a qualified Real Estate Professional.  In a short sale the lender must agree to accept less than the amount of the debt owed.  This option is more favorably reported on your credit report. 

Other alternatives.  You might want to consider renting a room in your home, or getting a second job.  If you own a small business, you might qualify for an interest-free America’s Recovery Capital (ARC) loan of up to $35,000 from the Small Business Administration.  Also, if there are discrepancies in your loan documents or foreclosure paperwork, you may be able to sue your lender.  To pursue this option, consult an attorney specializing in forensic real estate work.

The most important thing you can do is not bury your head in the sand.  When a homeowner calls and tells me their home is going to auction in 5 days, there is little that can be done.  Be realistic about your financial situation.  Put it all down on paper and know exactly what you can afford today and your anticipated income over the next year.  By taking control of the situation versus letting your lender direct the action, I guarantee you will have a less stressful, healthier outcome.

Please call for a confidential, no-obligation consultation if you’d like to discuss any of these options and how they might work for  you.  To reach me quickly please call my cell phone:  619-846-9249 .  Or, leave a reply and let me know how to reach you.

We all know that numbers and statistics can be interpreted in many different manners, depending on the desired outcome and the audience.  Case in point, within the last two weeks we have two separate reports on U.S. housing prices that range from cautiously optimistic to doom and gloom.   What’s real, and who do we believe?

Back on October 13, I happily reported in a post on this blog that according to an elite panel of economists surveyed by the National Association for Business Economics, home prices across the US saw their lowest point in the first part of the year and have been gradually trending upward.  In San Diego, the news was even more encouraging as our prices rose higher than the national average.

However, that trend over the past nine months might not hold true for the future.  On October 29^th, Capital Economics, a leading international economics research firm, announced that a double-dip is already underway for both housing activity and residential prices.  Paul Dales, a U.S. economist for the firm, predicts that home prices will continue to decline over the next twelve months with a dip of over 5%.  Paul and his team add that if the economy continues to improve more quickly than analysts predict, home prices might hold steady.  On the other hand, if the economy worsens greater than predictions, prices could fall as much as 20%!

That’s huge!  Couple that with the firm’s forecast that housing demand for the next three years will remain “unusually weak”, while supply remains “unusually high”.  Right now the analysts say that there are about 1.5 million too many homes on the market given today’s demand, and that number will likely swell with additional foreclosures.  There are approximately 2.5 million homes in foreclosure and 2.4 million that are 90 days past due.  That is an addition of nearly 5 million homes that could flood the marketplace in the next year.

So what does all of this mean for San Diego real estate?  Well, I wish I had that crystal ball, but here’s my take.  To a certain degree, I believe that both reports are correct.  I certainly believe that we’ll see an increase in the supply of homes on the market due to foreclosures and short sales.  Banks can control the number of REO properties they bring to market, but I think that we’ll see a large increase in short sales as homeowners seek to avoid foreclosure. However, I don’t see a huge dip in home prices, at least here in San Diego.  I do believe that barring a total economic melt-down we’ll continue to see static prices with some modest increases in value, particularly in the $250,000 – $400,000 price range for single family homes.

Is this a good time to buy?  Absolutely!  With prices and interest rates at near record lows, what’s not to like?  Waiting to see if prices fall further is a gamble in my book as it is very likely that 6 or 9 months from now, interest rates could be as much as a full percentage point higher.