Short Sales: Know Your Options
February 26th, 2010 categories: Finances, Foreclosures, Home Selling, Loan Modifications, Real Estate, Short Sales
With the recent decline in foreclosures due to banks holding back some REO (real estate owned) inventory, agents have begun to re-tool their marketing to target short sales. Clear guidance is the key to getting your home sold via a short sale so when hiring a broker to sell your home ask if they will be personally handling the transaction. It’s imperative to let the broker know the date of the last payment made or how many payments you are behind. These details will determine the success of your short sale so providing as much information up front will help speed the process. Below are some of the pitfalls facing sellers as their broker attempts to negotiate with the banks to sell short.
Each lender has its own criteria and level of tolerance for short sales. Multiple levels of approvals with varying conditions are common in short sale transactions. Once a sale is submitted and uploaded to the system, it must fit the pre-determined criteria dictated by the banks loss mitigation dept. Loss mitigation is the first department that grants approval. The initial package typically takes about 3 weeks to be uploaded to most banks systems. Recently banks have begun to streamline the process and are utilizing online software which is supposed to speed response time. This is relatively new so we hope to see time frames shrink as new requests are processed.
Every short sale is unique and the amount of time it takes to get the home closed will depend on how many liens are attached to the property. There are so many possibilities when it comes to lien holders but here are a few that hold sway. Home equity lines of credit (HELOC), Home Owners Associations (HOA) that can have multiple assessments attached, tax liens (income, estate or corporate franchise tax) real property taxes and mechanic’s lien holders. Additionally, any unpaid utilities will need to be paid and if maintenance has been neglected and the city has to mow the lawn there will be a lien for that service attached.
There are additional pitfalls that can also prevent the short sale by way of lender required mortgage insurance on the loan. The way this works is that the bank is obligated to allow the mortgage insurer to be party to negotiations. This is part of the servicing agreement initially set up by the mortgage insurer with the bank. The reason being that the insurer will have to pay out a claim to offset the lender’s loss in the short sale. Some mortgage insurers require a side note to be executed in order to transfer title. This is another item of negotiation that can halt the transaction so knowing upfront if there is mortgage insurance certainly helps.
The failure rate of short sales is relatively high due to the complexity of the processes involved. Numerous parties to the transaction, fickle buyers unable to perform or worse walking away from the purchase complicate an already frustrating experience. Inexperienced agents who do not understand basic procedure can jeopardize the sale because time is of the essence. Auctions do happen and most of them are for homes that failed to sell short.
Short sales do adversely affect a person’s credit score although the negative impact is typically less than a foreclosure. Short sales are a type of settlement and remain on a credit report for seven years. Some lenders are designing loans for those customers who have experienced a short sale with some buyers able to re-purchase in as little as 13 months. The determining factors are keeping your other credit obligations under control and no late payments exceeding 90 days. Of course, you have to qualify your income and work history but the banks realize that there is a distinct need for these loan products and it will grow as we get out from under this current market.
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Beward of FDIC Fraud Alert
October 27th, 2009 categories: Finances, Real Estate
Email Phishing Scam
If you receive an email with the subject line “check your Bank Deposit Insurance Coverage” do NOT fall for it! According to the official FDIC website the file asks that you open a “personal FDIC insurance file” to check your deposit insurance coverage. The “insurance file” may actually be a form of spyware with executable files that attempt to collect personal or confidential information.
The email starts out by saying that your bank has failed and the assets have been taken over by the FDIC. It further provides a hyperlink to the “official FDIC website” which is fraudulent. Clicking on the provided link opens malicious code that could access your personal information and compromise your security.
The FDIC is trying to acertain where this email is coming from and sever the connection. They are working with the United States Computer Emergency Readiness Team (US-CERT) to understand how the files function and will no doubt update their site once they have it figured out.
If you would like to keep informed on banking matters and receive fraud alerts go to: www.fdic.gov/news/news/SpecialAlert/2009/index.html and subscribe to their newsletter. You can also send suspect emails to them at: alert@fdic.gov This is not a Halloween hoax so take extra caution and pass along this information…the credit information you save could be your own!
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Lenders Wise to Short Sale Flippers
September 1st, 2009 categories: Finances, Real Estate, Short Sales
Don’t Fall for this Scam
Short sales are here to stay and many agents who previously wouldn’t touch them are realizing they now ARE the current market. For those of you who do not know what a short sale is I’ll briefly explain: When a lender agrees to take less than the amount owed on the loan or “short” from the buyer. The seller does not receive any money, is not liable for the difference and the buyer gets the house free of any liens. My blog today is focusing on the lenders and their perspective when it comes to approving a short sale and transferring the title to the new buyer.
There are a number of “investors” who are purchasing short sales but never intend to hold on to the property. There are also a number of desperate real estate agents who are not making it and have agreed to work with these investors. Let me explain how they set up these fraudulent transactions.
Real estate agent A lists a home for sale advertising it as a short sale. Investor Joe submits a low-ball offer with the listing agent to the bank. The agent continues to advertise the property for sale with the intent of finding a buyer who is willing to pay more than the investor. The investor gets an approval from the bank, sells the property to the new buyer and makes a tidy sum on the difference. The only problem with this scenario is that it’s fraud. Don’t forget the seller signed a contract to pay back the loan therefore any money made from the sale of the home is rightfully due to the bank until the loan is paid in full.
The interesting part is that the banks are finally getting hip to what is going on and including language on the approval letters against this practice. I just received one such approval for a short sale and the lender clearly outlines how the transfer of title is to be conducted and prohibits any third parties from receiving any funds. This implies that if a seller is aware of any such transaction that they can be held liable for fraud. That’s a nasty little word and in all honesty I don’t ever want to be involved in any litigation that includes that word.
So how do you beware of unscrupulous agents? The first rule of thumb is to check out the agents license with the Dept. of Real Estate (DRE) and see if there are any previous disciplinary actions against him. You can also go to the local real estate board and check for complaints against the agent. If the agent is not a member of the local board then you have no recourse should he do something unethical.
Remember that a short sale is STILL A SALE and you are hiring someone to represent you in this real estate transaction. Your agent should be able to tell you what to expect and explain the process clearly. If they seem a bit fuzzy then you know they are not experienced. If they tell you they have an investor they are working with, ask them to explain the process to you, and if it sounds like what I just outlined then beware of fraud. You are hiring the agent to represent you so cover yourself and hire someone with integrity to represent your interests. The old adage is true: You can delegate responsibility but you can’t give it away.
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Home Shopping Goes Back to the Future
August 24th, 2009 categories: Finances, Home buying, Real Estate
How Much House Can You Afford?
In this last market it wasn’t unusual for buyers to tell me they were qualified for a home that was well beyond what they could comfortably afford. My next question was geared towards getting them to think realistically about those monthly payments and was something along the line of, “So you can afford to eat every other day?” We all know how that shook out and are now facing unprecedented challenges in our economy.
This brings up the idea of housing affordability and reminded me of the movie Back to the Future. Word on the street is the banking industry is starting to revert to the old 28/36 rule when qualifying consumers for home loans. This tried and true method allows up to 28% of your income to be spent towards housing and caps all debt at 36% to include the PITI, insurance, car payments, credit card debt, etc. Given some statistics showing that up to 12% of all Americans spend up to half their gross income on housing costs it’s no wonder the banks are tightening their belts.
Financial advisers all agree that you need to outline your life style and figure out your living expenses prior to shopping for a home. The magical thinking of re-financing out of a too high housing loan into a more affordable traditional 30 year fixed has back-fired and caused a lot of pain. So do the hard work of sitting down and itemizing every necessary expense vs. those that vary from month to month. Should finances get cut you can eliminate that expense and apply the funds towards your mortgage.
Down payments, taxes and reserves are the main elements lenders look at when determining how much house you can afford to purchase. Traditionally 20% down showed the banks you had skin in the game and they rewarded consumers with preferred rates and no additional mortgage insurance. FHA and VA offers buyers the ability to get into home ownership without the big down payment but with the added expense of mortgage insurance. These costs are fixed and most new homeowners set up an impound account to collect these funds on a monthly basis. When the tax bill or homeowner insurance bill comes due the funds are ready to be dispersed from the impound account making the process painless.
Home ownership is the American dream and after we get through the nightmare created by the creative financing of the past six year perhaps we will embrace the fundamentals we were taught with higher regard. Being house poor isn’t much fun but living beyond your means creates stress so don’t disrespect the numbers. If you would like to know the difference between your rent vs what you could purchase let me know. Now is a perfect time to buy with interest rates AND prices down so let me know if it’s time to go shopping.
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FICO 08- What’s your score?
August 13th, 2009 categories: Finances
New Scoring Model Introduced Aug 2009
Everyone knows the FICO score is what determines your ability to get credit for a home or car but did you know that every few years the program used is updated? The newest version FICO O8 which is set to roll out this month. The end result could mean a better score for people with relatively good credit and impact those with less than perfect credit much harder.
First a history lesson. The original objective when developing the scoring system was to determine how likely a customer was to default and be 90 days late paying their mortgage within a 24 month period. The three top credit scoring agencies: Equifax, TransUnion and Experian deliver to FICO (formerly Fair Issac) two million consumers data files and they run their algorithms and note the spending trends. They run those same accounts 24months later and note the patterns. The results are used to determine the likelihood of default and are scored within the 300-850 point range that is known as your FICO score. One other interesting fact about the actual scores: The actual scoring range for the first FICO score developed for Trans Union is 397-871, for Experian is 368-839, and for Equifax is 407-829.
The current model used by the top three agencies tends to be more forgiving when it comes to the amount of credit balance you carry in relation to your total credit net worth. Apparently the new version impacts those with high credit balances on the total amount of credit available more negatively. The result is a lower score for the consumer so keeping your percentage of debt on your credit cards to a max of 30% will help improve your score.
The previous version has also provided a means for people with low credit scores to piggyback on another person’s credit and thereby raise their own score. With the new version there has been some method included to detect if you have added “authorized” users to your account. Those users will not see their scores improved and it could adversely impact the primary user and disqualify them from getting loans altogether. There have been examples of people who have been denied loans regardless of large down payments and high incomes due to having additional “authorized” users on credit cards. Apparently the banks don’t trust those additional users and are fearful of fraud so deny the principle card holder regardless of their good standing.
Another benefit to consumers will be the more forgiving attitude of FICO O8 towards outstanding collections under the $100 amount. So long as the original bank isn’t holding that account, and it has been sent to collections, you could see a boost in your score. We will begin to see a clearer dividing line between those who have a lot of derogatory accounts vs those with fewer derogatory accounts. Those with fewer accounts will see their score increase and those with a higher number of accounts will be penalized. I can see how this might impact a small business owner who is leveraging his accounts to stay in business. The logic has changed and by spreading out your credit between many accounts with high limits you will effectively lower your score.
According to a press release issued by FICO on July 22nd “FICO 08 Credit Score Available at All Three National Credit Reporting Agencies” by the end of July. Additionally, “five of the seven largest U.S. banks and four of the five largest credit card issuers” have begun testing or using the new score. It will probably take about 12 months to see the new scores impact on consumers so pay attention to which banks are using the new model. It could be the difference between getting a loan or being denied.
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Buyers: Who’s Got Your Back?
August 5th, 2009 categories: Finances, Home buying, Real Estate, Tax Incentives
As usual, I was holding an open house this past Sunday afternoon hoping to find some buyer’s who had not found an agent to work with yet. A young couple came in and we started to chat about their dream home and I asked them if they had contacted a lender yet?
They looked a little uncomfortable and then said rather sheepishly yes, “and you know what he advised us to do?” “You see,” the wife said, “we just got married and we haven’t finished up the paperwork yet so I still have my maiden name. I already own a house that I bought while in college…my parents helped me. The lender suggested that my husband buy a house in his name, even though we’re married, but not tell the bank so he could take advantage of the $8000 tax credit.”
Did I see red lights flashing or what? Loan fraud by any other name is still loan fraud!
First time buyers are vulnerable to whatever the lender tells them and the temptation to commit loan fraud is apparently alive and well. Just remember that if the lender finds out that you have committed fraud they WILL foreclose and take back your home so when shopping for a lender or real estate agent make sure you check their integrity credential.
Another scenario to be wary of is when a property is being flipped by a seller without every recording the sale. Here’s how it works. Seller A is in dire straits and needs to sell his home. Mr.Realtor lists the home for sale and conveniently has a buyer who is also an investor. He encourages the seller to sell the property to his investor but continues to advertise your home for sale.
Buyer Bob comes along and and writes an offer higher than what Seller A is selling the home to the investor for. That difference is not disclosed to him and the lender isn’t aware of it either. So who benefits here? Does the seller…no…because he doesn’t get a dime from a short sale. Does buyer Bob…no…because he is paying top dollar. The investor and the realtor make bank because the spread covers the double commission for the agent and give the investor a great return for tying his money up for a couple of months. Non-disclosure is risky business and not worth the trouble it causes.
Real estate agents can offer referrals but if they are working with lenders like this one their advice is just as toxic. They might lose their license to sell real estate but YOU will lose your HOME if loan fraud is committed. Working with ethical people will never hurt you. You won’t have to deceive anyone and can be assured they have your back.
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Who has the Advantage? Buyers, Sellers or Lenders?
July 20th, 2009 categories: Finances, Home buying, Real Estate
Getting Your Offer Accepted
I read an interesting article recently that outlined the differences between a buyers market and a seller’s market but added the newest player…the lenders. Yes, it’s true that prices have dropped significantly and interest rates are hovering around 5%, and it would appear that the buyer’s have the advantage but it’s really the lenders that seem to be calling the shots.
It’s easy to see the truth of this when you realize that the banks have a shadow inventory of about 2/3 of the current inventory on the market. Lending requirements have been tightened to the early 1990’s standards (10% down) with only FHA or VA alternatives. Additionally, they disregard the time frames and procedures regarded as standard operating procedure for the real estate industry as a whole. It’s no wonder the buyers get frustrated and walk away from offers. Some real estate agents refuse to show short sale properties even though they represent 75% of the current inventory on the market.
So what is the solution for buyers eager to take advantage of the situation? The first rule of order is to get your finances organized. Once you have your paperwork in hand and can sit down with a lender, they will be able to qualify you for a loan. I always tell my buyers to make sure this is done first BEFORE you go shopping. Once you find that perfect house you don’t want to feel as though you’re being held hostage to the lender, so get the financing out of the way so you are confident in your offer.
Always get a Good Faith Estimate (GFE) from your lender because this is what you can use to shop around for the best rates. Once you decide on who you are going to work with get a Desktop Underwriting (DU) approval which is considered gold when it comes to offer submission. Remember that once an offer has been accepted the seller is required to show the home as pending sale and cannot continue to offer it for sale. You want to reassure the listing agent by submitting your offer with a DU so they can tell the seller with confidence that you can complete the transaction.
Now that the financing is in order and you know what you can afford, determine which neighborhood you want to live in and work with someone who is familiar with the area. I once had a listing in Rocklin that a buyer’s agent recommended to her clients from the bay area. They bought it as an investment but didn’t see the property until 5 days before we closed escrow. When the agent finished showing her clients the property she called me to ask why I didn’t tell her there were numerous rentals on the same block. I countered that I had done my job in selling the home but she didn’t do her’s in telling her clients about the community. Always work with someone who you trust to be your eyes and ears…if all they are interested in doing is pushing you to sign a contract then realize who’s interest they are truly representing.
Finally make sure you understand what your obligations are when you sign your purchase offer. Too many times buyers assume they can walk away from their contracts without penalty. I recently had a seller who kept the buyer’s deposit due to her agent’s negligence. Remember that the final decision is your responsibility and as the saying goes you can delegate responsibility but you can never give it away.
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Credit Scores and Home Buying
July 1st, 2009 categories: Finances, Home buying
Five points to fixing your credit
A couple of months ago a friend was telling me about some financial difficulty with their business and remarked how fortunate they were to have their credit line on their home available for backup. I advised them to check with their bank to make sure their credit line was still available. Unfortunately, I was correct because their credit line had been closed without their knowledge.
Another client called to ask about buying a home and when I asked about their credit history they said they were trying to pay down some credit cards only to find that once the amount due was paid the bank reduced their limit.
The first basic in credit scoring is to understand what the numbers mean. FICO or the Fair Isaac Corporation is the company that for the past 53 years has offered a measurable number by which creditors can determine your credit worthiness. Credit scores range between 200 and 800. Scores above 720 are considered desirable for obtaining a mortgage. They have determined five main factors will affect your score…things you ultimately have control over.
1. Your payment history. Whether you paid credit card obligations on time.
2. How much you owe. Owing a great deal of money on numerous accounts can indicate that you are overextended.
3. The length of your credit history. In general, the longer the better.
4. How much new credit you have. New credit, either installment payments or new credit cards, are considered more risky, even if you pay promptly.
5. The types of credit you use. Generally, it’s desirable to have more than one type of credit—installment loans, credit cards, and a mortgage, for example.
There are some variations on the theme but the basics itemize your scores and more importantly indicate how you can improve your scores, which in turn, improves your life.
I spoke with Linda Ferrari who has a FREE ebooklet called: “Save Your Credit, Save Your Life” which is a 10 step action plan to help clean up your credit. She offers great advise starting out with only ordering your credit report when you visit the various agency websites. Apparently even the credit agencies are trying to sell additional services that you may not need. Another point she makes is that everyone is entitled to one FREE credit report each year and to be sure you order only from www.annualcreditreport.com …all other sites offer paid services so don’t be fooled.
Another option is to pay a credit repair company to “scrub” your credit. Typically this is done once you have a complete copy of your credit report from the three main agencies: Experian, TransUnion and Equifax. Thoroughly examine your report, line by line, and be ready to prove any incorrect information. Once you challenge any information they are required by law to look into and correct anything false. If you find you are having trouble this is where a credit repair service can come in handy.
First time buyers need to understand that they didn’t get into their situation overnight and it might take just as long to correct the situation so don’t despair. There is gold in those hills and it’s in the form of tax credits BUT they are due to expire Nov 30th 2009 so NOW is crunch time. Making the effort to improve your credit will pay big dividends and could ultimately result in home ownership…don’t let this market pass you by.
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Homes Sales up 13.6% in Sacramento County
June 8th, 2009 categories: FHA, Finances, Home buying, Sacramento, Tax Incentives, VA
April 2009 statistics show increase in sales volume
Great news! Sales are up, prices are down and interest rates are holding! If you can afford to buy a home now is definitely the time to do it! According to DATAQUICK Sacramento has seen a reduction in price point of 30% since 2008 and so long as interest rates keep steady we’re expecting to see a good summer for real estate sales. The actual numbers reveal that Placer & El Dorado counties are each down 16% with Sacramento closing 2130 homes in April 2009, Placer coming in at 457 and El Dorado at 155 homes sold. To put this in perspective you need to understand that Sacramento county had 4786 homes on the market in April so we’re absorbing a lot of inventory and starting to see multiple offers on the nicer properties.
My local banker tells me that the interest rates are slowly climbing and we’re up from 4.6% to 5.25% in some instances. For every .25 point increase in the interest rate you can expect to to pay anywhere from $30-$130 more per month depending on your loan amount. For a $300,000 home expect to see an increase around $50 per month. There needs to be a sense of urgency because as we get closer to the end of the buying season rates will most likely increase just as the inventory starts to decrease. Remember that on average it takes 2-3 months to find and purchase a home from start to finish.
Another piece of good news is the $8000 tax credit can be used for closing costs. For a VA loan that means you don’t have to pay a penny to buy a house! There are also FHA loans available with as little as 3.5% down. On a $300,000 home that’s only $10,500 down and your closing costs are pretty much covered. There are lots of other opportunities for vets and their families as well as those who need a helping hand through FHA. For instance there is a FHA loan to improve the property that rolls the costs of the improvements into the loan. If you would like to talk to a lender who can explain these loans I can offer a couple of seasoned professionals who specialize in VA and FHA who would be happy to go over the details with you.
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Buying Foreclosures Basics
June 4th, 2009 categories: California Property Taxes, Finances, Foreclosures, Home buying
Tips to protect your interests in real estate
Now is a great time to take advantage of buying foreclosures, bank owned homes and even short sales. But how do you lessen the risk of liens and judgments attached to a home? That is one of the many fears buyers have when shopping for a home and another good reason to have a seasoned real estate broker representing you at the table. I’m going to outline the process and highlight some ways you can protect yourself from absorbing the previous homeowners bills.
The typical escrow begins with a preliminary title report which itemizes all the liens on the property. In our region the escrow officer will order the report and the buyer should receive it within 72 hrs of depositing their check with the title company. This report gives a full disclosure of all the liens and judgements on the property and identifies who holds those liens and how much is owed. I cannot emphasize enough that buyers need to carefully review this information.
It is important to understand that the preliminary title report is only good from the day it was printed which is usually 14-21 days prior to the escrow being opened. In other words if you open escrow May 21st then your preliminary title report will show all the activity on that property up to May 1st. This is to allow time for the recordings against that property to show up in the system. The escrow officer will pull another title search just prior to funding the loan to ensure no additional liens were placed on the property between the time the purchase contract was signed and the transfer of title to you.
On this report you will see everything that is attached to the home and if there are outstanding bills like water, sewer or garbage. Most of the banks that I have worked with paid off the utility bills for the short sales that I have closed but it is never safe to assume that they will. I have seen water bills in the $800 range because some utility companies will not close the account out until the final bill has been paid. Even though the homeowner may have vacated the home the monthly cycle continues until the final bill shows paid in full. The escrow officer should follow up to confirm all utilities are clear prior to funding the loan but it doesn’t hurt to ask at the time your sign your paperwork.
Judgements are another issue that can be resolved at the time of closing so long as they are paid in full. They can range from child support to back taxes. The title officer will do a check against all parties social security number to make sure each party is free of judgements. My recommendation is for the title officer to do this early in the escrow so that no surprises show up at the end. I once had a judgement show up for a buyer of $45,000 for back taxes happen 3 days prior to closing the escrow. Fortunately they had the cash to bring to the table but if they didn’t then the entire deal would have blown up.
After all is said and done there is a title insurance policy that is taken out for the buyers to ensure a free and clear title to the property should anything show up after the escrow has closed. Of course the buyers pay for this but it is money well spent especially if a lien shows up or a judgement from some government agency happens without notice. The bottom line is to work with a realtor who has good relationships with title companies…they are your allies and are there to protect your interests.
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