Archive for the ‘REO (Bank Owned Properties)’ Category

Real Estate Market Snapshot

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The San Francisco metro area has once again put up the largest annual home price gain in the U.S., according to the most recent numbers from a prominent real estate index.

Gold coins

The latest S&P Case-Shiller Home Price Indices, which run two months behind, say that single-family home prices in the San Francisco area increased by 9.3 percent in December, the most of any of the 20 major U.S. metro areas included in the report. San Francisco returned to the top of the Case-Shiller index for the first time in 18 months in November, when prices rose by 8.9 percent year over year.

As was the case in the two preceding months, home prices in San Francisco grew at about double the national rate in December. Case-Shiller’s numbers put the U.S. annual rate of home price appreciation at 4.6 percent in the final month of 2014.

Although existing home price growth and sales across the country are at their normal levels, David M. Blitzer, managing director and chairman of the Index Committee at S&P Dow Jones Indices, said that he believes the housing recovery is “faltering,” a by-product of sluggish construction and new-home-sales activity.

“Before the current business cycle, any time housing starts were at their current level of about one million at annual rates, the economy was in a recession,” Blitzer said. “The softness in housing is despite favorable conditions elsewhere in the economy: strong job growth, a declining unemployment rate, continued low interest rates, and positive consumer confidence.”

According to MLS data, the median single-family home price increased year over year in every one of Pacific Union’s Bay Area regions except the Mid-Peninsula subregion, which saw a slight decline. Home prices topped the $1 million mark in our Contra Costa County, Marin County, Mid-Peninsula, San Francisco, and Silicon Valley regions as 2014 came to a close.

The chart below provides more information on annual Bay Area home price changes. Also, be sure to check out Pacific Union’s fourth-quarter 2014 real estate report for more in-depth sales data and information on how we define our regions.

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(Image: Flickr/Bhautikjoshi)

Source: Pacific Union

What is a short sale? Five things you need to know.

What is a short sale? Five things you need to know.

Is a foreclosure staring you in the face? For many Americans faced with foreclosure and, possibly, bankruptcy, a better option is often a short sale. Short sales, which are up 10 percent from the same period last year, according to RealtyTrac, are becoming an increasingly popular way to deal with homes and homeowners burdened with too much debt. However, many homeowners still aren’t clear what a short sale is and whether it is the best solution for them. Here are five things you need to know about short sales: 

A brand-new $1.1 million, 5,200 square foot home in Davie, Fla., is offered for short sale in this 2010 file photo. Often, lenders will agree to take a loss on a short sale because they would lose even more in a foreclosure. (J Pat Carter/AP/File)

1. What is a short sale?

Very simply, a short sale is when a lender agrees to take less than what he’s owed and allows homeowners to sell their property because they are facing financial hardship. Typically, the homeowner’s mortgage is worth more than his home and he’s having trouble making payments. So the homeowner sells the home and the bank marks down the value of the mortgage to the sales price, leaving the homeowner free and clear.

Lenders agree to do this because it makes financial sense for them. According to recent statistics, homes offered as short sales are bought for roughly 20 percent below their market value as opposed to 39 percent under market value for foreclosed homes. Lenders also save on costly foreclosure and maintenance procedures. Thus, the short sale is typically a better option for the lender as well as the seller.

2. How do short sales compare to foreclosures?

A foreclosure can be extremely damaging to an individual’s credit report and it can have long-term effects on anyone seeking credit. So, for several years after foreclosure, former homeowners can find themselves denied credit – or paying much higher rates to finance a car and other large items. A borrower would also have to answer yes on an employment application if she ever had a foreclosure. She could be denied employment.

And forget about taking out a mortgage to buy a home. In most cases, a lender won’t even consider you until five to seven years have passed, although lending guidelines are changing every day. A negative credit report can even make it more difficult to rent an apartment.

Short sales, by contrast, do far less damage to your credit report. Also, if a borrower has a home equity line of credit attached to their property, the rights to collect on that do not cease to exist.  They will remain open and sought. If borrowers reside in a recourse state (most Americans do), the lender also has a legal right to seek recourse against them. Foreclosure will sink a credit rating nearly as much as bankruptcy does.

3. How do short sales compare to bankruptcy?

When faced with foreclosure, some individuals turn to bankruptcy instead. In some cases, filing for bankruptcy can be less damaging to your credit profile than having a foreclosure on your record. Filing for bankruptcy will consolidate your debt and can wipe out your liabilities. But it will not prevent an eventual foreclosure if the bank has already started the process. A bankruptcy only delays a foreclosure. The property will eventually foreclose, which will also affect neighboring values by up to 28 percent.

However, if your home is the only debt that is creating your financial hardship, a short sale is probably your best alternative to bankruptcy. That’s because a short sale will be reported as a “settled debt” versus having to go the route of bankruptcy or foreclosure, which is far less damaging on one’s credit report. Although you can conduct a short sale while in bankruptcy, it requires strategy and a plan. It is best to consult with a knowledgeable bankruptcy attorney and short sale real estate agent before making any decisions.

4. Are you qualified for a short sale?

One reason homeowners resist short sales is because they don’t understand if they qualify for the process. Though each short sale is unique, homeowners generally must show legitimate hardship. Common reasons include: death, divorce, loss of job, relocation, etc. Anytime a property is inevitably headed towards foreclosure, a borrower qualifies for a short sale.

Short sales are a way to mitigate the lender’s loss. They’re not a consumer bailout. Nevertheless, the consumer participating in a short sale will more than likely be able to walk away from all his debt and start over.

If you should happen to find yourself underwater, owing more on your home than the home is worth, find a proper real estate agent who is knowledgeable about short sales and has a proven track record. They are different than the average transaction, and it is important that you do your own research.

5. Consider all the benefits

One of the major benefits of a short sale is that it ends the financial and emotional nightmare quickly. After the homeowner accepts a contract, it usually takes no more than 120 days (and often much less time) for the sale to close. Losing one’s home is a painful process, but a short sale can help families reduce their frustration and their time in financial limbo. It can also help maintain their credit and allow them to move forward with their lives. As long as the housing crisis continues, short sales will continue to grow in popularity. Homeowners need to become educated and empowered to undertake the process.

Source: Mike Cuevas, a national short sale Realtor trainer and a partner of Exit Realty, a residential real estate firm in Chicago that also specializes in Short Sale nationally.

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Top 10 Deal Breakers & How To Avoid Them

Your have found the home of your dreams, started packing all your things and have mentally moved in when suddenly a challenge arises that could put a serious wrench in the home buying process. In today’s market, finding the home is only the start of a transaction that can have many stumbling blocks along the way.

Here are the top 10 deal breakers buyers and sellers encounter that can impact the sale of a home:

1. Fixtures and Personal Property Pitfalls

I can’t tell you how many times I have seen deals fall apart because of disagreements over silly stuff like who gets the fireplace screen, the wall sconces or the appliances. For some buyers and sellers it can be difficult to distinguish between personal property and fixtures that come with the house. I once had a seller try to take a dish washer, like the buyer wouldn’t notice?

How to avoid it- Disputes over fixtures and personal property are common. It is important to educate yourself about the difference between attached appliances and personal property but there are times when the lines get blurred. Wall mounted flat screen TVs are frequently an issue. If something is really special to a homeowner, my recommendation to the sellers is to remove the item before you put the house on the market. Have a beloved chandelier? Replace it before you start showing the home with an acceptable alternative. If this isn’t possible, exclude it in MLS listing along with frequently confused items like that flat screen TV, and make sure it is excluded at the time the offer is written as well. Buyers should have their Agent investigate and include any items in the offer that are important to them.

2. The dreaded ex-wife/husband

There may be many reasons to dread an ex, but when it comes to selling a property, it can impact the sale of a home. Over the last 25 years I often see situations where the owners got divorced but he/she didn’t sign off. Finding this out late in the process can be problematic, especially when one of the parties no longer has a financial interest in selling the home. This scenario along with other clouds on the title can take time to clear. Bank owned properties often come with title issues such as unpaid garbage fines or back HOA dues that can impact your closing.

How to avoid it: Get a preliminary title report as soon as possible and if you are a seller be sure to disclose to your Agent up front if there are any potential claims on the title.

3. Buyers Buying “Stuff”

Your are a first time home buyers and you are moving into your new home. You don’t have a washer and dryer of your own and the local appliance store is offering a smoking deal – get a store credit card, and save 15% on the purchase of your new appliances! Sound like a steal? It might just kill your deal.

Time and again I counsel buyers not to make any major purchases before close of escrow such as a new car or major appliances, and time and again, some appliance store has a great “deal” that kills the deal. Any major purchase can impact your credit, and it can also impact your loan being funded too.

How to avoid it: If you are a buyers wait on appliance purchases, new car purchases, furniture and more until the loan has been funded and the escrow is closed. Put all  those credit cards away until the paperwork is recorded.

4. Failure To Disclose

“But Greg, I didn’t know I had to disclose that the hill behind the house next door came down last spring. It didn’t impact my part of the hill.” I have had to fight with sellers to get them to disclose certain facts about their home, but it is almost always better to over share when it comes to disclosure. Inevitably, a neighbor is going to tell the prospective buyer about the sliding hill, the formerly moldy basement or about the meth lab around the corner.

How to avoid it: When in doubt, disclose, disclose, disclose. Did I forge to mention disclose? Problems always seem much bigger when they are uncovered by a buyer after they are in contract.

5. Appraisal Nightmares

We went through a period of time when appraisals always magically came in at the offer price. For the most part, those good old times are gone. Appraisals are common deal breakers, and in many transactions, you don’t just have one. Review appraisals of the first appraisal are commonplace these days.

How to avoid it: Make sure the lender has a qualified appraiser. When possible, have your Agent accompany the appraiser on the inspection. Be prepared in advance that the purchase price may have to be renegotiated or a higher down payment may need to be brought in if the appraisal comes in low.

6. Who Owns What?

You as a buyer think you are getting a 10,000 square foot lot, only to find out that the fence is built on the next door neighbor’s property. Or the seller think they own the driveway, but it is really an easement on property owned by the cranky old neighbor next door. Lot lines, shared driveways, and fences are common stumbling blocks in a transaction.

How to avoid it: Review the preliminary title report with your Agent carefully. Legal descriptions aren’t always easy to read, but take the time and effort to do so carefully. Have a title officer walk you through the title report to explain anything unusual. If needed you should go to the city/county authorities to review the items on file. If you are concerned about the lot boundaries, hire a Civil Engineer or a Surveyor to perform a survey. While surveys can be costly, not knowing the actual boundaries can be costlier. If you are only concerned about one side of the property have the Surveyor perform a partial survey for just the side in question.

7. No permits

In many areas, unpermitted additions or remodels have become serious deal killers. Many cities and towns have implemented pre-sale inspections to fill their dwindling coffers.

How to avoid it: If city/town inspections are required, get them in advance, correct any required issues, and get your clearance. Some municipalities don’t operate on the swiftest timeline, so start as early as you can.

8. Unexpected inspection findings

I have worked with an inspector that other agents called the deal killer and honestly, he was. But he was also a lawsuit saver. When you are paying hundreds of thousands if not multiple millions of dollars for a house, you should know what you are buying. I call inspection periods the second negotiation phase of the deal. Inspections are common deal breakers when agreement cannot be reached over repairs. I remember I once almost lost a deal when the home inspection uncovered numerous foundation cracks in the crawl space. Amazingly enough, I was able to hold it together, the price was renegotiated and we were able to close the deal.

How to avoid it: If you are a seller get inspections before the property is actively on the market. Buyers will probably still get their own, but at least you can resolve serious problems that may send a buyer running in advance. Repairs almost always cost a seller less if the buyer knows about it before they write their offer.

9. The lender changed the rules

This may be hard to imagine, but sometimes you are ready to rock and roll, you got your loan pre-approved, not just pre-qualified, you are in contract and everything looks great until- poof- the lender changes the rules. Suddenly you can’t meet the lender documentation requirements. This would have been helpful to know in advance.

How to avoid it: Unfortunately, there is not much that can be done to avoid it other than working with a reputable mortgage broker or lender with a solid record of closing transactions. If you are the buyer, I highly recommend that you leave your loan contingency in place until the loan is funded. If market conditions don’t permit this, make sure you are aware of the ramifications if the loan doesn’t fund.

10. The bank doesn’t care

If the property being purchased is a short sale, the bank is pretty much in charge and they simply don’t care about your timeline. I have heard of people celebrating two and three year anniversaries of working on a short sale. Although most banks have made tremendous efforts to improve and streamline the short sale process when it comes to short sale timelines, anything goes, or better yet- who knows?!

How to avoid it:The best way to save a deal when a bank is involved is to make sure you as the buyer have appropriate expectations about the process. Work with an Agent who has experience with short sale transactions and learn about all the pitfalls of working with a bank. You might also want to read my other blog that I posted 3 weeks ago 5 Most Common Complaints of Short Sale and REO Buyers ( and How To Avoid them ).

One of the best ways to avoid killing a deal- Work with an experienced and reputable agent to help guide you through the process of the entire home buying/selling process to make sure you are properly prepped goes a long way to holding deals together.

Happy Buying and Selling in 2011!

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The 5 Most Common Complaints of Short Sale and REO Buyers (and How to Avoid Them)

Roughly forty percent of the homes for sale on today’s market are short sales and foreclosures! Distressed properties are well known for their value (a reputation which is sometimes accurate, and sometimes not), but they also have a reputation for causing buyers to become distressed, too!
Transactional snafus, last-minute surprises and long, drawn-out escrows that never close seem to be par for the course.

Instead of avoiding these properties altogether, get educated about the most common dramas that go down in these deals, and how you can avoid falling victim.

1.  Run-on (and on, and on) escrows. When you’re buying a home (or selling one, for that matter), time is absolutely of the essence.  And buyers reasonably expect that the big time suck in real estate is in the house hunting process itself; seems like once you find a home you want to buy and the seller agrees to your price and terms, things should move pretty quickly, right?

Not so much, when it comes to some distressed property sales. I’ve heard tell of the occasional, swiftly-moving escrow on an REO (real estate owned – by the bank). But for the most part, these transactions take anywhere from a few days to a few weeks longer than “regular” sales, because of the extra signatures, supervisor-level approvals and even investor involvement required to seal the deal.  Banks don’t have the same sense of urgency individual home sellers do, and it’s not uncommon for the people who need to sign on the dotted line to be on vacation or scattered across the country, adding days’ or weeks’ worth of time to the escrow.

And short sales are also an entirely different animal when it comes to escrow timelines. While a standard sale from an individual seller to an individual buyer might take 45 days from contract to closing, a short sale can take anywhere from 45 days to 6 or 8 months (!) to get the deal closed, after the seller has accepted the contract.

Avoid the drama by: expecting your escrow to run long, and being pleasantly surprised if it doesn’t.  Expectation management is everything. Make sure you take these extended timelines into account when you’re working with your mortgage broker on the issue of when to lock your interest rate, and how long your rate locks will last. You might even need to plan on and/or set aside an allowance for the cost of extending your low interest rate, if rates are rising rapidly during the time you’re waiting for the deal to be done.

2.  Bank won’t take lowball offer. If I had a dollar for every time I’ve received a question from an outraged reader to the effect that a buyer has had their short sale or REO offer rejected on grounds that it was too low, even though the bank has no other offers, I could buy a foreclosure myself (admittedly, it’d be one of those $150 foreclosures in some blighted town with tax liens and no plumbing, but still).

Banks owe their shareholders and investors a duty to get as much as they can for these properties. Just because you see it’s on the market and listed as a short sale or a foreclosure doesn’t mean they’re going to give it to you for a fraction of its worth. The bank’s goal is to get a purchase price as close as possible to the home’s fair market value, as determined by the recent sales prices of similar, nearby homes, with some adjustments made for the property’s condition.  Fact is, many banks would rather see the listing agent reduce the price by a moderate amount, and wait to see what offers come in, than to accept an offer 30 percent below the asking price just because there are no other offers on the table.

Avoid the drama by: working with your agent to make a realistic offer, based on recent comparable sales in the neighborhood, not just on what you think you can get away with.  You can waste a lot of time, spin a lot of wheels and lose out on a lot of properties making lowball offer after lowball offer on distressed homes. Sit down with your broker or agent, review the ‘comps’ and make a smart offer that reflects a good value for you, is within your budget and is not bizarrely out of the realm of the fair market value of the property.

3.  Last minute postponements/cancellations. These transactions have an uncanny way of being delayed at the last minute – or never going through at all, through no fault of the wanna-be buyer. You signed docs yesterday, put your dog in the crate this morning and just hopped in the moving truck, only to get a text from your broker that the deal didn’t close because the escrow company which was selected by the bank flubbed the checkboxes on a single sheet of paper (it happens). Or, you’ve been in contract (with the seller) on a short sale for four months, and the bank refuses the sale entirely because the seller refuses to kick even $1 of their own cash into the deal, despite having a flush savings account.

Avoid the drama by: staying as flexible as possible with your moving plans as long as possible.  Best practice is to plan on some overlap between the time you can be in your last place and your scheduled move-in date.  Also, if you’re in contract on a short sale, you should take the point of view that you don’t have a firm deal until you get the bank’s approval of the transaction. So don’t even think about starting to make moving plans or paying for home inspections and appraisals until you know the bank has greenlit the deal and that the purchase price and terms they’ve approved work for both you and the seller.

4.  The bank’s black box. Make an offer on a normal home and you’re likely to know what the outcome will be within a few hours or a few days, at the outside. If things take longer because the seller is out of town or some such, the listing agent tells you that, and you at least know what’s going on.

Make an offer on a bank-owned property or a short sale?  It’s a crap shoot – could be days, but could also, easily, be weeks or months before you know what’s going on.  And no amount of calling, pleading, prodding or nudging is likely to get you much information on how your offer or the seller’s short sale application is being handled or what (if any) progress is being made.  And that “black box” into which your offer disappears at the benk level is very frustrating.

Avoid the drama by: continuing your house hunt until you have an answer back.  Maniacally pestering the listing agent for answers or harrassing your buyer’s broker into spending hours on hold with the bank is highly unlikely to get you any insight. (With that said, it does make sense for your agent to check in regularly – sometimes even daily –  with a short sale or REO listing agent to stay updated on any developments with the property and to make sure your offer/transaction stays in the front of their mind.)

Most of the angst in these situations arises when a buyer feels they passed on properties that would have really worked for them when they pinned their hopes on a distressed home.  You can only control your efforts and activities, not the bank’s.  So, consult with your own broker or agent about staying proactive in viewing and even pursuing other properties until you have a firm “yes” from the bank on your short sale or REO offer.  Until that time, and usually for a short time after you get the bank’s approval, you have the right to back out of the transaction if you need to (make sure your broker briefs you on precisely when your right to rescind your offer or exercise contingencies – i.e., bail – will expire).

5.  Double standards. In a “regular” equity sale with no bank involvement, both buyer and seller are obligated to meet various timelines.  Seller has to provide disclosures by X date, open the property to inspections – with utilities on – by Y, and close and move out by Z.  REO and short sale buyers, on the other hand, are often dismayed to find that  even though the bank might take weeks or months to sign or handle its deliverables, the bank will insist that the buyer show up, sign or send a check quick-like.

Avoid the drama by: chalking it up to the (admittedly irritating) way things are – the price you pay to buy from the bank.  Realize that working with the bank on the bank’s terms is unavoidable when you buy a distressed property. Then, go into the deal with realistic expectations – including the expectation that the bank will drag its feet, despite expecting you to keep every deadline – and you’ll be less frustrated, and less likely to make poor decisions out of frustration.

Also, make sure you do respond in a timely manner to the bank’s requests and your obligations under the contract.  I’ve seen banks capitalize on buyer delays in returning signatures and removing contingencies to accept higher offers they received in the interim.  Don’t lose your home on a technicality because you assume that the bank’s lackadaisacal timelines apply to you as well.

Source: Tara-Nicholle Nelson, staff writer of Trulia

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Fed Cracks Down On Mortgage Servicers, Banks

Immediate changes coming to the foreclosure industry. Lenders being held accountable for improper foreclosure process. ALL foreclosures starting in 2009 to be examined for infractions and owners given compensation….and/ or their homes are to be GIVEN BACK TO THEM.

NOTE: the AG Robo-Signers settlement will be in addition to this…so, more changes coming to the foreclosure process.

The Office of the Comptroller of the Currency, the Federal Reserve and the Office of Thrift Supervision released enforcement action against 14 major bank/servicers in the form of consent orders.

Bank of America , JP Morgan Chase , Ally Financial, Wells Fargo, SunTrust, Citibank, HSBC, MetLife, PNC, U.S. Bank, Aurora Bank,   EverBank, OneWest Bank and Sovereign Bank will all be hit with no fewer than 16 new requirements for mortgage servicing and loss mitigation.

These 16 new requirements are more or less what the requirements were always thought to be…. forcing the servicers to improve on foreclosure documentation, oversight, and chain of ownership. Additionally, lenders are required independent reviews and a single point of contact for borrowers facing foreclosure. The action prohibits dual tracking, when one arm of the bank pursues foreclosure while another pursues modification.

Another detail, servicers (banks) will also be held accountable of their third-party vendors, including lawyers, who provide foreclosure services. No more…”that was an outside company we hired…we had no idea they were doing X”. Banks must comply within 120 days of the order. Most of the big banks have already implemented many of these ‘new’ requirements. The second we get an official copy of these 16 new requirements we will publish them.

And now the really interesting news….

Penalties are coming… “The Federal Reserve believes monetary sanctions in these cases are appropriate and plans to announce monetary penalties.”

And…. The OCC also says the enforcement actions, “do not preclude determinations regarding assessment of civil money penalties.”

In other words, we are talking about potentially huge penalties and judgments from the civil claims.

As part of this new enforcement the banks will be required to engage an independent firm to review foreclosure actions from January 1, 2009 through December, 2010 to assess whether foreclosures complied with federal and state laws and whether there were in fact grounds to foreclose.

You read that correctly, all foreclosures that happened between 01/01/09 and 12/01/10 will be reviewed by (hopefully) independent firms looking for infractions.

And what happens if (when) infractions are found….?

If borrowers were harmed by the foreclosure process the banks will have to remediate the borrowers in some way. Remediation could include monetary damages and even the borrower getting the home back.

Imagine all the folks who lost their homes to foreclosure that will be filing claims. Lenders will be required to create a system where by anyone who feels they suffered financially can submit a claim.

Click on this link to watch the video from CNBC News: CNBC Video on Fed Cracks Down On Mortgage Servicers, Bank

Source:  Real Estate Insiders News By: Tim and Julie of Harris Real Estate University.

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