Inside San Diego Short Sales

Non-English speaking homeowners are the latest victims of a new scam in California’s Central Valley.  Con artists seem to be targeting Latinos who are facing foreclosure with a promise of eliminating their existing loan and replacing it with a mortgage that is often as low as 25% of the original loan amount.

People who are on the verge of losing their home will often try anything, and want to believe this will work.  The scammers file a fraudulent reconveyance with the county recorder, showing that the old mortgage has been paid off.  They then charge the homeowner thousands of dollars for a new loan.  In the end, the homeowner loses the money spent on the fake new loan, and they lose their home when the legitimate lender forecloses.

Another approach to the fraudulent reconveyance scam is the “vapor money theory”.  According to this scam, homeowners are told that federal banking systems are invalid and mortgages cannot be legally enforced because they rely on wires or checks as opposed to gold or cash.  The old loan is “eliminated” through a fake reconveyance and the homeowner is charged thousands for the service.  Once again, the homeowner loses his money and his home.

In another twist on the scam, homeowners are told that their mortgages will be pooled with others and sold for pennies on the dollar, allowing the scammer to issue a new loan with a lower principal amount.   Still other homeowners are told that federal bailout money rewards the new note holders for taking over underwater mortgages.

The bottom line is that there is no cure-all for eliminating your mortgage and if it sounds too good to be true, it probably is.  

• Be wary of anyone who says you don’t have to repay your debt because of secret laws.
• Don’t pay up-front fees.
• Avoid anyone who encourages you to stop paying your mortgage without talking to your lender.
• Run away from anyone who suggests you pay them instead of your lender.
• Be wary of anyone who suggests they have a special connection with any government agency or bank.

If you are having trouble paying your mortgage there is help, and several options.  Please don’t hesitate to contact me for more information.

In a survey of the 50 largest U.S. cities, Trulia found that it is still more affordable to buy than rent, even in San Diego.  But does this survey tell the whole story?

According to the guidelines the company used, a price-to-rent ratio of 1-15 means that it is more affordable to buy than rent, a ratio of 16 – 20 indicates it is more expensive, but still might make financial sense, and a ratio of 21+ means that it is definitely much more expensive to buy than rent.  San Diego scored a 15, and only 4 cities were over 21, including San Francisco, Seattle, New York, and a surprise, Kansas City, MO.

That all sounds well and good, but it should be pointed out that the survey compared the cost of buying versus renting 2 bedroom apartments, condos and townhomes, not single family residences.  The company arrived at the numbers by comparing the median list price of homes offered on their website for 2 bedroom units to the median rent for a comparable home.  Also, I’m not sure that looking at list price is an accurate indicator as most homes do not sell at list price.

The other problem I have with the survey is that it doesn’t take into account the level of demand for apartments or townhomes versus single family homes.  In New York or San Francisco, there is a much higher demand for condo living than there is here in San Diego.  I believe a more accurate survey for our market would be the comparison of buying versus renting a 3 bedroom 2 bath single family home analyzing sales price and actual rent paid.

The survey results did however indicate an interesting shift in the demographics of who is buying and renting.  According to Tara-Nicholle Nelson, consumer educator for Trulia, “Lifelong renters are seizing the opportunity to become homeowners while affordability is high. At the same time, a growing number of long-time homeowners are finding themselves tenants – some by choice and others by necessity.”

In the end, I don’t really believe that renting or buying a home is just about the numbers, and who is under the roof with you is much more important than the cost.

I attended a 90 minute webinar yesterday, designed to get me straightened out about the importance of social media and how to use it effectively in my business.  The presenters are somehow experts (though obviously they’ve only been doing this for a few years).   They spoke about LinkedIn, Twitter, Facebook, YouTube and blogging and how to position yourself on all of this media to gain massive lists of people who will magically consider you the go-to person for your specialty.

My mind is reeling.  First of all, I consider myself very good at what I do, and pride myself on the service I provide to all of my real estate clients.  But I don’t take myself so seriously as to think that there will be 30,000 people just waiting for my next tweet!  And even if I did, do I really want the responsibility of keeping-up this continual stream of content bits and pieces? 

The experts pointed out that the average user spends 55 minutes on Facebook every day, not to mention time spent updating LinkedIn, sending tweets, uploading a new video, or of course, composing a new blog post.  Besides feeling that I am totally failing Social Media 101, I came away from the webinar wondering when I’m supposed to actually do any of the real work I’m trying to promote!   Having thousands of people like me or what I do is useless if I don’t have the time to do it.  So I’ll keep you posted on my progress, but don’t expect a tweet any time soon.

If you’ve ever wondered why we’re drowning in REO properties, it could be that banks are stupid.  No, I shouldn’t say that.  Let’s rephrase that more politely to read, “People in banks who make decisions about liquidating foreclosed properties perhaps lack any trace of common sense.”   See if you agree.

Last night I received an email from the asset manager in charge of one of my foreclosure listings.  In case you aren’t familiar with the lingo, the asset manager is often an employee of a third party company that is assigned bulk REOs by a bank.  It is his/her job to hire a Realtor to market the individual properties, act as an intermediary between the Realtor with the listing and the bank, and get the properties sold as quickly as possible for the most money. It is a stressful, high-pressure job.

I like the asset manager on this deal, and so far we’ve worked well together.  I’ve been waiting though for her to open escrow on a sale they approved early last week….an all cash offer of over $300K on a home that needs more than $50K in repairs.  The buyer is ready to close, and I can’t understand the hold-up.  So my asset manager sends me the following email, “We have an issue on this one. The offer is $80 under what I can accept. And no I am not kidding. Is the buyer willing to come up $80?”

$80 dollars????  Are you kidding me?  On a $300K all cash deal?  Geez! I’ll write the check myself!  Let’s just get it done!  So this is what we’re dealing with….a system that is so screwed-up that the person in charge of unloading foreclosed homes doesn’t have the authority to waive $80 bucks!  Sigh.  It’s going to be a long road back to a ‘normal’ real estate market…..

In an underwhelming report issued this week by Field Asset Services, the company revealed that people would rather buy a foreclosure that has new paint, carpet and appliances than a foreclosed home that has not been spruced-up.  Really?

Field Asset Services is a Texas based company that provides cleaning and rehab services to banks and companies holding REO properties.  In an independent study during the first half of 2010, 17,252 properties were tracked across 13 states.  The homes that were not rehabilitated were on the market for an average of 222 days while those that were rehabbed sold in 69 days.

The benefits are obvious.  Not only do banks cut their expenses associated with holding a property but neighborhood values are also improved by reducing the number of vacant homes.  It is also more likely that the home will be sold for more and bought by someone who is going to live in it versus an investor looking for a flip.  Everyone wins.

So at a cost of only $4000 – $8000 for the average rehab, why aren’t more banks willing to put some lipstick on the pig?  I wish I knew the answer to that one!  I was assigned a foreclosure listing back in September.  In early December, the bank finally got around to asking me for quotes to rehab the place.  I supplied 2 quotes at roughly $4200 each…..and I’m still waiting.   They won’t let me list the condo in the MLS, and won’t let me sell it to an investor…..because they’re still trying to decide if fixing the place is worth it!  Crazy!  And people wonder why there is a glut of REOs on the market?  I say slap on the make-up and get ‘em movin’!

It’s no secret that the government’s short sale program, HAFA, has had less than stellar results.  The Home Affordable Foreclosure Alternative program was started in April 2010 to provide alternatives to foreclosure when a loan modification wouldn’t work.  Through September, the program has processed only 342 short sales or deed-in-lieu transactions.  This number is ridiculously low considering that third-party technology provider Equator, who provides the platform for processing short sales for several banks, including B of A, reports that over 117,000 HAFA short sales were initiated in the period from April – October.   What happened to all of those transactions?

Mortgage servicers and Realtors have complained about the confusing rules and the stringent requirements for participation that have made it difficult to complete a transaction.  In December the California Association of Realtors sent a letter to government regulators complaining about the program and requesting specific changes to expedite approvals.  The government responded quickly and issed a directive on December 28 that made some significant changes to the program.  Here are a few of the highlights:

• Servicers are no longer required to verify that an applicant’s mortgage payment exceeds 31% of their gross income, although a hardship must still be demonstrated.
• Applicants do not need to be currently living in the home so long as it was their principal residence in the last 12 months.
• Payments to subordinate lien holders are no longer capped at 6%, but have an aggregate cap of $6,000.
• Servicers participating in the HAFA program will be required to either approve, disapprove or provide a counter to any complete short sale application and purchase offer within 30 days.
• Servicers who pay contractors to assist in processing the short sale cannot charge those fees to the borrower or deduct it from the real estate commissions.

Will these changes improve the approval rate?  Probably, but the key will lie in how well the banks comply and the rules are enforced.

We live on the edge of a canyon, and the homes across the street are on narrow lots, perched on a steep hill about 50 feet above our home.  Last night, I awoke in panic as the foundation on one of the homes began to crumble in the heavy rain and started sliding down the hill towards our home.

Luckily it was a dream, but I couldn’t get it out of my head.  Would we get out in time?  Would I have time to grab anything before our home was crushed?  What would I take?  When I got up this morning and reassured myself that both homes were very much intact up on the hill, I wondered if our insurance would cover our home if my nightmare had been a reality.  And the truth is, I have no idea.

We all heard the horror stories after the last two wildfires swept San Diego County…stories of those with no insurance, but even more frequently, those who were under-insured.  Disasters such as wild fires or flooding can happen to any of us, but how prepared are we to recover our losses and rebuild our homes and our lives?

My way-too-real dream reminded me that a call to my homeowner’s insurance agent for a New Year’s check-up might be a good idea.  Here are a few things to review: 

• What is the deductible?
• Are we covered for flooding?  Any limitations on fire coverage?
• Are we sufficiently covered for loss of use?
• Would our additional coverage pay for removal of debris if the house across the street did slide down the hill into ours?
• Do we have an endorsement for guaranteed replacement cost of our home?
• Is our personal property adequately covered?
• And finally, are we getting all of the discounts that might be available to us?

This morning I’m very thankful that we didn’t have to make a midnight run for our lives, but I think I’ll sleep better once I know we’re covered, just in case……

If you think it’s OK to ignore the ketchup that dropped on the carpet, and that black fur growing in the bath tub is normal, do me a favor:   Don’t list your home for sale.  As a Realtor, I’ve seen more than my share of filthy, smelly houses, but yesterday’s showing put a surprising twist on what people consider acceptable. 

Entering the front door of the home I noted several rows of shoes in the foyer.  Normally, this is a sign that the occupants care about keeping their floors clean and don’t want to track dirt from the outside world into their home.  However, as I gingerly stepped onto the carpet, not only did I keep my shoes on, but I was wishing I had worn waders to protect me from whatever life forms were living in the carpet!  What were these homeowners thinking?  The carpet was stained to the point that it was difficult to determine the color and piles of dog and cat hair billowed around my feet at every step.  And they remove their shoes?  Really?

Most sellers of course don’t live in a pig pen, and if your standards of cleanliness are a bit relaxed, that’s your business.  However, most of us become so comfortable in our own environments that we may not be able to see things that will distract a buyer.  When it comes time to sell your home, listen to your Realtor!  Most buyers lack imagination and will not be able to see past dirt or clutter.  Hand prints on the walls and less than clean appliances are seen by the buyer as work they don’t want to do. 

Ready to sell your home?  Ask your Realtor for a candid evaluation of items that need to be cleaned and/or repaired before you worry about the list price.