Inside San Diego Short Sales

Back in November, and then again in December, I predicted that San Diego had seen the bottom and we would continue to see small gains in home values in 2011.  Over the first quarter however, there has been a lot of talk and statistics about home prices falling nationwide and some folks seemed anxious to prove me wrong. 

Well this morning, I can happily say I was right.  The just-released Standard and Poors/Case-Schiller Home Price Index for January reveals a 1.00% decrease in home values over the previous month…….except for two cities, Washington, D.C. and San Diego!  The index tracks values in 20 cities and overall, values were down 3.10% over January 2010 – only Washington, D.C., and San Diego showed a year-to-year gain.

So, to all of you who are waiting to buy in San Diego, fearful that values will continue to drop, pay attention.  Now is the time to buy….unless of course you want to pay 2.00-4.00% more at a higher interest rate a year from now.  Just a thought.

I was part of a Bank of America Webinar today during which they outlined the benefits of their new Cooperative Short Sale Program and took questions from way too many clueless agents.  To listen to the speaker, this new program is the greatest thing since sliced bread, but I think that remains to be seen.

The key difference between this new program and the traditional short sale program is that much of the work on the bank’s side that usually doesn’t begin until after an offer is submitted, can now begin before the home is even put up for sale.  This means that a homeowner with a B of A 1^st mortgage who recognizes that a short sale is his/her best option can work with their Realtor and get the process started before actually marketing the property.  B of A will complete the valuation process and let the Realtor and homeowner know the suggested list price prior to listing, in theory speeding up the approval process once a qualifying offer is submitted.  In fact, with the review of the homeowner’s financials and the valuation completed prior to marketing, B of A is promising a response to an offer in 10 days.

The program is modeled to a large degree after the HAFA program, and like HAFA, the homeowner may qualify for a relocation fee in the amount of $2500, (HAFA is $3000).   Approval in the cooperative program would also halt foreclosure action and give the homeowner 120 days to find a buyer.  Unlike HAFA, the Bank of America cooperative Short Sale Program can apply to non-owner occupied properties.

While this all sounds pretty rosy, it was not exactly clear what happens when there is a 2^nd mortgage held by another bank.  Are we to believe that they’ll speed up their approval processing to keep pace with B of A?  Ha!  And what about deficiency judgments?  In a HAFA short sale the bank has to agree not to pursue a deficiency judgment, promissory note, or the collection of funds from the borrower.  But in the B of A program, there are no such promises and the speaker today danced around discussion of deficiencies by suggesting that we all investigate the laws in our own states.  Pretty vague to me, and it has been suggested that B of A requires such in-depth financial information so that they better know who to target for deficiencies.

While I am hardly a fan of Bank of America, I’ll keep an open mind…but I’m watching closely.  I somehow just don’t trust that protecting the homeowner is their #1 priority.

For information about a short sale in San Diego County please don’t hesitate to contact me directly.

Here is an update on this post!

Research and analytics company CoreLogic reported last week that 23% of all homeowners owe more on their mortgage than their home is worth.  All together, the negative equity of our nation’s homes is around $750 billion. 

I don’t know about you, but I find it pretty scary that nearly one quarter of all homes have negative equity.  Even if those homeowners don’t default and continue to pay their mortgage, this is a huge deterrent to recovery for the housing market.  In a healthy market, many of these folks would be selling and buying, either trading up or downsizing, or simply moving to a different location.  Instead, 11.1 million homeowners are stuck in their homes, unable to sell because of negative equity.

As noted in previous posts, I don’t have a crystal ball and I’m certainly not an economist, but as I’ve mentioned, one possible solution seems pretty obvious:  Principal reduction.  Since the top of the market in April of 2006, home values have dipped by an average of 32.8%.  The majority of the people who are underwater today bought or refinanced at the height of the market…..what if their mortgages were reduced by 30%?  Do you think that would help reduce defaults and stimulate sales?  Of course it would!

Logically, this seems like a good idea.  If banks are going to lose the money anyway if a home is foreclosed or sold short, why not take the loss up front and bring some real stability back to the housing market?  Although a few banks have offered some principal reductions, it is rare, and I have yet to hear a really good answer as to why more don’t. If you understand what seems to be some twisted bank logic, please explain it to me.

In the meantime, I predict that we will see an increase in short sales. As banks are providing few meaningful loan modifications and with the economy still shaky, even those people intent on staying in their homes despite negative equity may be forced to sell because of loss of job, decreased income or relocation.  Fighting $750 billion in negative equity is a not a battle that will be quickly won.

Over the past two years we’ve all become somewhat numbed by the landslide of bad news about foreclosures and the declining value of our homes.  And if you’re in the real estate business, you’ve eagerly watched for the monthly sales statistics, anxious for a glimmer of hope. But beyond the news articles and charts of numbers are the real stories of individuals and families and lives forever changed.

No one buys a home with the idea that they might lose it one day.  We all buy a house with a vision of it being the place we call home until we move-up, downsize, or for one reason or another, decide to move.  And because it is ours, we put a lot of love (and money) into making it reflect our tastes and lifestyles.  We paint, we plant, we remodel – we make it distinctly ours.

When threatened with foreclosure, there are a lot of emotions, depending on the situation; anger, fear of the future, sadness and a sense of loss are a few.  But the overwhelming feeling that people express to me is a sense of helplessness.  Losing their home is usually not their decision and they often feel powerless to control the direction of their lives.

For many, a short sale offers an opportunity to put a positive spin on what is otherwise a negative situation.  Instead of losing your home, you are making a conscious decision to sell it – you are in control of the situation.  You are choosing to sell and salvage your credit rating; you are choosing to rebuild your financial picture; you are choosing to close one chapter, put the hurt behind you, and move forward with your life.

Facing a financial loss such as losing your home to foreclosure can be devastating.  A short sale may have benefits that go well beyond your credit report by helping you start that new chapter on a positive note.  Please feel free to call or email with any questions.