Real Estate Updates & Trends

Brought to you by the CALIFORNIA ASSOCIATION OF REALTORS®.

LAW AGAINST SHORT SALE DEFICIENCIES EXPANDED
In a major victory for REALTORS®, Governor Brown signed into law today a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lienholder. Effective immediately for transactions closing escrow from this day forward, both senior and junior lienholders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.

Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.

Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

This law is fully set forth as Senate Bill 458 (Corbett) at www.leginfo.ca.gov.

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The short sale is quickly becoming the norm for real estate transactions.  Unfortunately, that doesn’t mean that there are standardized forms and procedures.  Every lender has its own set of standards, forms, and guidelines. However, one can expect the seller of a short sale and the sellers’ listing agent to provide: tax form T4506, hardship letter, listing agreement, sales agreement, 2 years tax returns, 2 months most recent pay checks, a copy of a utility bill, two months most recent bank accounts, an account of assets and liabilities, a monthly budget, arms length transaction statement and a  Dodd-Frank form.  This will get you started.

The selling agent must also be prepared to provide more detailed information about their buyers than usual. For example: social security numbers, pre-qual letter, and proof of funds, current address, and an arms length transaction statement that is specific to the seller’s lender.

Once all this data is collected and submitted to  the first mortgage holder and the second mortgage holder then negotiation begins.

The first usually offers to pay the second a nominal amount. The second either accepts, or rejects and perhaps counters. Sounds simple but it may take weeks to come to an agreement….or not.

Only 3 of 5 short sales actually are successful at this time. (Is the glass half empty or half full?)  Its best to prepare for the worst case. Your seller should be packing for a move one way or the other.

If a short sale lender  is using a 3rd party transaction site like Equator.com then the process might be a little easier. Agents have many complaints about the system, but its probably the best that is available.  Bank of America,  Chase and Nationstar all use Equator with more lenders expected to join in the future.

You can expect to take about 60-90 days on average for the short sale process. That’s about twice as long as a regular non short sale.

Sellers shouldn’t accept offers that are too far below the current market as the lenders that hold the mortgages do order evaluations and will reject short sales that are significantly below the market.  Many investors are making multiple offers with the expectation of being rejected and are very happy when an offer they didn’t expect to be successful is accepted. Most of the time the offer is not accepted and the seller has lost valuable time on an unrealistic offer.

Buyers and sellers should realize that today’s real estate professionals are working twice as hard for half as much under much less than ideal situations. 

Patience is the key.  If your a seller, always consult with an attorney and a professional tax consultant. The Realtor does not have the expertise to answer legal or tax questions.

(Rick Dillion serves Solano, Napa and Contra Costa counties.)

Related articles

• 6 Tips for Buying a Home in a Short Sale(mysanmarcos.wordpress.com)
• 8 Reasons Why You Will Not Buy My Short Sale Listing(massrealestatenews.com)
• Finance Friday: Buying a Short Sale – The Need for Speed(vaned.typepad.com)
• This is what a short sale is(thekeytoyourheart.wordpress.com)
• Banks encourage “short” sales to invigorate economy, public not enthused(warmsouthernbreeze.wordpress.com)

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Would you like to add automatic deposits of several hundred dollars to your checking account on a regular basis?  Everyone would answer”  Yes, but what’s the catch?”  Well before I tell you that, what if you also received interest write-offs on your taxes.  You can also depreciate the source of this income.  However, the value of the source of the income is likely to increase in value over time.  So what’s the catch? You have to make an investment just like any business.  You have to manage the investment or have someone manage the investment for you. How much do I have to invest you may ask?  What will it cost me you may ask?  The question is perhaps not what if will cost, but HOW MUCH AM I GOING TO MAKE?  If you invest $28,000 (20% down) on a $150,000 single-family home in today’s real estate market, your payment would be around $800 a month and the rent you collect each month could be as much as $1500 in some markets which would produce a POSITIVE INCOME of $700 per month. A simplified net ooperating cost would use 8% or $120 or management fees and for a one-month vacancy factor of $66 ($800/12) and you would still get a positive cash flow of more than $500 a month for long as you own the property !.  So the question now is when will I get my investment back? Simply divide $28,000 by $6000 which is a little over four years and less than five years. 

Now compare that with other investment opportunities.  All have risk. Returns will vary and you could even lose money. You could make a return that would be so low, that at best, you would hope to beat the inflation rate .  Yes, you could buy that lucky stock on the start up, but the odds are against it.

How can you get started?  All you have to do is call a Realtor.

Oh, for the good old days when you met with a prospective seller and listed the home, brought the offer and everyone was happy! Now, I’m meeting with sellers who are far from happy. They are stressed and under duress.   Being upside down (owing more than the home is worth) is so common that perhaps a definition of the meaning is no longer necessary.

“My credit is ruined. I am months behind on my mortgage payments, credit cards, and I can’t even pay my water bill. ” said a upside down homeowner. “I lost my job, my car was repossesed. Then the mortgage payment increased. Why should I worry about a short sale?”

Well, many homeownersdon’t worry about it.  They don’t answer the telephone or return calls.  They are in denial of the situation and just maybe it will just go away.  But there is light at the end of the tunnel and it doesn’t have to be the REO Train.  Under HAFA rules the homeowner will get up to $3000 for moving expenses if the homowner qualifies.  Losing a job certainly does.  Also, bouncing back financially and becoming credit worthy will take only about two years with a short sale but over seven years with a foreclosure.  A HAFA short sale also extends the time period for the homeowner to stay in the home as the auction date is extended.

HAFA rules that had been established  are changing. The latest rule change is that you now can qualify for HAFA even if you have already vacated the home.

Why do the banks like HAFA short sales over foreclosures?   The banks are trying to avoid the higher cost of the foreclosure process and the legal entanglements that go along with it. The banks are now realizing the value of the short sale process.  This wasn’t the case a few months ago. 

Take action as time is of the essence. Call your local HAFA certified or Short Sale & Foreclosure (SFR) certified Realtor today to see if you qualify for a HAFA short sale.

Related articles

• Want Out? (3driblog.com)
• Home Affordable Foreclosure Alternatives (HAFA)(massrealestatenews.com)
• 3 Ways on How To Stop Foreclosure(marketersdaily.com)

USA Today and The California Association of Realtors reported that Fannie Mae and Freddie Mac are raising risk fees charged to lenders on loans they buy for resale to investors.  Fannie and Freddie also are adding risk fees to more loans offered to borrowers with exemplary credit.  Although lenders could absorb the cost, most are expected to add the fees to loan costs.  Risk fees are almost certain for FICO scores of less than 740 and even for credit scores higher than 740 some lenders are expected to charge risk fees.  Said fees are to start around March 1, 2011. Risk fees may add about a quarter of a point to the buyer’s cost. Roughly adding $10 month on a 200k purchase.   While this isn’t very much, if might make it harder for the first time home buyer to qualify for a loan. California home sales are up.

Meanwhile,  New York Times  David Streitfeld,  reported that home prices are falling in several metro areas but….” California and the District of Columbia — went counter to the trend and had rising prices over the last year.”

Interest rates are also expected to rise, there is a lot of pressure on the Fed to raise rates. The Fed is planning  on raising rates once it is satisfied that the recovery is strong enough to absorb an interest rate hike.  Current rates are still historically low ranging from 4.75 to 5.25%.  FHA loans are available with as little as 3.5% down and a VA  purchase can be 0% down.

All the key elements  are in place for a prospective home buyer if that home buyer has job security.  Fear of the potential for unemployment is keeping many buyers on the sidelines. They too are waiting for the economy to strengthen.  Ironically, by waiting the California buyer will be paying more for the home. If a potential home buyer is secure in his/her job, then the time to do so has arrived.

Related articles

• Fees for home mortgages increase(usatoday.com)
• “Fannie and Freddie raising mortgage loan lenders risk fees” and related posts(personalmoneystore.com)
• ABC’s for First Time Home Buyers(doorfly.com)
• Fannie Mae Mortgage Interest Rates & Costs Rising(massrealestatenews.com)
• Hot Real Estate Market in Benicia, California? (rdillion.com)