Loan Modifications vs Short Sales
February 16th, 2009 categories: Foreclosures, Real Estate, REO, Short Sales
Does hiring an attorney really help?
The past couple of years have re-introduced to the real estate community the short sale that has helped many people sell their homes and keep some semblance of credit worthiness, and now attorneys have found a niche with loan modifications.
We last saw the short sale in the mid 1990′s when the market had a similar fall due to the overbuilding and investor inflation created by a rising real estate market. In essence, the seller was able to sell his house without having to satisfy the debt he owed to the lender and the new buyer was able to purchase a home with a clear title even though the previous owner owed more than the new buyer paid.
Now attorneys are introducing their services to help homeowners obtain a loan modification. Real estate loans can be obtained from a variety of sources i.e. banks, mortgage brokers, mortgage bankers, credit unions, investment firms, private funding, etc… so is it necessary to hire an attorney to get a toxic loan re-negotiated? That depends on a couple of factors but most importantly it depends on the reason you are seeking relief from your loan obligation.
How much you owe vs. what you can afford to pay for a mortgage is the primary reason most people find themselves in this situation in the first place. There are exceptions for loan fraud and in those cases an attorney would be a good choice however, the majority of people now seeking relief accepted a loan at a teaser rate knowing it would adjust. They were hoping the market would continue to increase and that they could re-finance at a fixed rate after their minimum period expired. Your ability to qualify for a loan modification is the same criteria lenders use to qualify any buyer for a loan.
In a loan modification the goal is to re-negotiate the loan to something that the homeowner can afford. The best case scenario is to get in touch with your lender and begin the discussion of loan modification prior to missing any payments. The labyrinth of departments make this an intimating situation and can seem overwhelming. Attorneys capitalize on these fears and extract more money from the homeowner which exacerbates their financial situation.
I recently had a conversation with one loss mitigator from a bank I was working out a short sale for one of my sellers. He said his bank requires that the attorney, the loss mitigator and the homeowner have a three-way phone conversation explaining to the homeowner that the hiring of an attorney was not necessary to negotiate a loan modification. He then asks the homeowner why he hired an attorney when he could save himself the money and the usual answer was fear. This was the reason most people were willing to go further into debt with no guarantee that they would get their loan modified. Again, the primary factor in obtaining a loan modification is your ability to qualify for the loan in the first place.
Some law firms specializing in loan modifications have “working relationships” with investors who will purchase your home should you not qualify for a loan modification. Essentially, they are structuring a short sale with the law firm doing the paperwork on behalf of the seller. This is where I have a problem because the seller is being charged for services a Realtor would provide FREE. Since the seller did not qualify for the loan modification they are now forced to sell their home or face foreclosure but they now have attorney fees to pay. Talk about fear!
My suggestion to people who are upside down on their mortgages is to first talk with a Realtor who is familiar with loans and short sales. Find out if you qualify for a new loan and what your home value is in this market. If you suspect loan fraud then get a referral from your Realtor for an attorney who specializes in real estate. Paying for the learning curve of those attorneys who are exploiting people’s fears is not going to help your situation.
For more information see these articles: Now Is The Time To Renegotiate With Banks
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What Is Your Home’s Value?
January 25th, 2009 categories: Folsom CA, Foreclosures, REO
Sacramento Valley Real Estate Market Trends
There’s this great website that a client of mine sent me that shows the market trends over the past 5 years in the Sacramento Valley. It’s put out by the Sacramento Bee and you can select any area and see how much the values have changed.
This past week at the Realtors board meeting there was a presentation complete with charts reflecting the decline of our market in relation to the loans people took out on their homes. The best part was that the numbers show that we’ve been through the first wave of loan re-sets and are starting the second which some say could be the last for this buyers market.
According to the recent stats the Sacramento area has dropped to values last seen in 2001. The Folsom area has been hovering around the 2003 price point which upholds the old adage of keeping location paramount. The percentage of bank owned homes in Folsom is about 63% compared to some areas which are close to 100%.
I recently had a conversation with an agent in the bay area where there have not been any fair market sales for the past 6months. According to DataQuick prices are down 50% there and we usually follow the bay area. The upshot is that the investors are starting to come back. It’s not unusual to hear of agents writing a dozen to 20 offers hoping to get 6 houses for their clients.
Right now we have low interest rates, plenty of property to choose from and little competition…sounds like a good time to go shopping. The real key is trying to guage when & where the bottom of the market will be. There are indications that this year will be the last decline and things will begin to level off but you need to remember that there won’t be anyone who will ring a bell to alert us.
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Short Sales: Are They Worth The Wait?
December 3rd, 2008 categories: Foreclosures, Real Estate, Short Sales
When Is It Time To Give Up?
This past year the majority of homes that have sold have been either foreclosures, REO’s or short sales. This post will focus on short sales because although they tend to take longer, are probably the riskiest, they also have the potential to be great deals. I have closed a number of them this year and have helped sellers get out from under a mortgage that had a rate adjustment or got caught in a relocation they didn’t expect. The buyers gained because these homes are usually well maintained and have good locations. In the previous market these are the homes that would sell quickly. 
First of all let me define what a short sale is: When the bank agrees to take an amount short of what is actually due on the loan or loans against the house. If there is more than one loan then position will dictate who gets paid first and who stands to lose the most. For example: A home was purchased for $400,000 and the loans originally taken were for $300,000 (1st position) and $100,00 (2nd position) with different banks. (This was how a lot of people avoided paying PMI (Private Mortgage Insurance) which can increase your monthly payment by hundreds of dollars.) The seller lists the home for $320,000. An offer comes in at $310,000 and the 1st bank approves the amount at $310,000 because the cost to do business:realtor fees, title fees, taxes, etc. comes in around $20k so they will take a short amount of about $10,000. The problem lies with the 2nd lien holder. They are stuck with nothing so the agent needs to negotiate with them to accept a small amount to come off title so the house can reconvey to the new buyer. This is where you need to make sure you have an agent who is dedicated to seeing this transaction through.
Patience is the key to a successful short sale. I have a client who will be closing escrow on a short sale that we first made an offer on in March 2008. We will close this Friday so, doing the math, it took 9 months to deliver this baby. There were some interesting twists along the way, one of which was a reduction in price of $15k because by the time the bank decided it would agree to the short sale the market had dropped. My appraiser said he couldn’t come up with any closed sales to substantiate the price so the bank had to reduce the sales price or lose the buyer and start the process all over again. This is very costly and even though the NOD (notice of default) was filed and the bank was ready to foreclose they were willing to reduce their price because it saves them money in the long run.
Another short sale I will be closing on next week has a very happy buyer because the rates dropped last week and his interest rate went down. We asked the bank to extend the closed date and they agreed and the buyer now has a lower monthly payment. The seller is happy because he managed to keep his credit intact by keeping all his other bills paid on time so the hit from missing only one payment didn’t damage his credit rating too badly.
The dirty little secret about short sales and the real estate community is that agents don’t like to show short sale properties. Why? Because it takes so long and the potential for the sale to NOT close is greater. Conversely when the sale does take place there exists a possibility that that buyer could realize some equity in the property even in this down market. The reason that is possible is because finding an equal comparable property that has closed escrow within the past 3 months is hard to come by so the appraisers only recourse is to use what actually closed. In some areas there isn’t a true equal comparison. It’s the different between finding a home with the same square ft. and lot size but the interior has been completely remodeled vs. one with original equipment.
There are so many variables when purchasing a short sale but the old adage of location, location, location still rings true. The fear of not closing the sale is very real when trying to purchase a short sale and the agent representing the seller needs to be flexible and willing to do the extra work to get it across the finish line. So when is it time to give up? I would say that if you have a timeline that doesn’t allow you to wait. If you absolutely need to get settled quickly, can’t stay in your current home or need to focus on something else (like a new job) then don’t get involved with a short sale. But if you have the time to see it through then find an agent who is patient and will work with your situation. Grandma was right, good things come to those who wait.
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