Real Estate Updates & Trends

By Rick Dillion, certified Short Sale Foreclosure Resource

A Foreclosure Recovery Forum was recently held by the Federal Reserve Bank of San Francisco www.frbsf.org/community/issues/toolkit .  The goal of the forum was to provide a graceful exit from the home with the least amount of disruption and damage to the home owner‘s life.  When foreclosure is unavoidable, there are several options for giving up the property. The most common is a deed-in-lieu or a short sale or a combination of both. These options give the homeowner more control and time to prepare for a transition. Lender approval is needed to exercise these options.  It is also important for the homeowner to negotiate the liability for the difference between what is owed to the bank and what the sales price is. (Will you be sued later by the bank or not for the difference?)  It would be wise for the homeowner to hire an attorney to interpert the bank  contracts and to negotiate for the homeowner.)  The home owner’s attorney might even be able to negotiate a “cash for keys” from the bank with the understanding that the homeowner will leave the home in good condition.  “Cash for Keys” should be a available for FHA and VA type loans. Fannie Mae(fanniemae.com) is now also offering some home owners a lease for 12 months with a deed-in-lieu.

The short sale process is becoming more streamlined and standardized under HAFA guidelines.  Check out HAFA at www.makinghomeaffordable.gov/hafa.html or www.realtor.org/government_affairs/short_sales_hafa or see my earlier blog about short sales and  HAFA.

The Mortgage Debt Relief Act of 2007 generally allows taxpayers t0 exclude up to $2 million as income form the discharge of debt on their principal residence in correlation  with a foreclosure or mortgage forgiveness by the lender. The homeowner should consult their tax professional to check into the tax issues.

Bankruptcy is another option for the homeowner. The homeowner should contact a bankruptcy attorney.

For Tenants: Tenant Rights- Go to www.rentalforeclosure.comto find out if the property you are renting is at risk or in foreclosure. The general contract rule is that the tenant has to pay rent until the property is sold at a trustee sale and to the new owner which is the lender after foreclosure. Seek legal advice prior to signing any documents and to find out what the laws are for your state. Y can also check out A realtor representing the lender or servicer may set up new payments. Check out www.nlihc.org for more information. Also check out www.Tenantstogether.org (but please don’t sue the real estate agent as is recommended on the web site)

Resources for new housing:  www.rent.com, for approved housing counselors www.HUD.gov, for Community Action agencies call 2-1-1 for food, shelter, and financial assistance. You can also call a local United Way Office for support, too.

For Employment: Your community may or may not have a non profit program called SparkPoint that can help you find a job, build your career, manage your credit, get free tax help, keep your home, and locate child care. Call for local information (for American Canyon, Ca (707) 980-7024.) Want to start a business but have poor credit or a foreclosure or at risk of a foreclosure. You might be able to get a loan to start your business at www.workingsolutions.org.

For Investors:  The government has not been so kind to investors. Few options are available. Governor Schwarzenegger vetoed legislation in mid October 2010 that would have given protection to investors and the people who had refinanced their homes. Unfortunately, I believe that is a grave error. I understand that the California Association of Realtors will sponsor and make another attempt next year.  

My story:I purchased a home as an investment in November 2005. It was a fixer upper and my wife and I are hands on. After putting in many late nights, laying tile, replacing kitchen cabinets and upgrading appliances, painting, new carpet, and investing well over $40,000 more than we paid, we put the home on the market.  After 24 months and many price reductions later (we were chasing the market down) we finally accepted and offer and our net return for our investment was a loss of $125,000.  Why did we sell at a loss? Our loan adjusted from $2500 month to well over $5200 month. Rent couldn’t cover it. We were depleting our savings, and yet we had worked hard for many years to establish a stellar credit rating and we wanted to keep it.  Besides, if we walked out and let the bank foreclose, we would have been seen by the IRS as given debt relief, and we would have had to pay taxes on the debt relief, or the bank could also file a suit and then collect the difference on what they sold the home for, and for what we owed them.  Only those folks in similar situations can truly understand the stress this caused. Many sleepless nights and unkind words to one another. We opted to end it all by simply doing a short sale, but instead of the bank accepting a short sale we took the $125,000 from our bank account which was a considerable amount of our life’s savings and paid the bank what we owed.   I know that is not an option for most small investors but the short sale can be an option to get out of some of the debt.  If you are seeing your life savings going out the door or perhaps you have a job loss , and you can’t make the payments anymore, do a short sale. If you owe $500k but in the current market it is only worth $250k, then sell it for $250k and you are $250k out of debt and potential tax liability for that amount.  Have your agent or attorney negotiate the short sale and attempt to get the lenders to waive the remaining debt as a condition of accepting the short sale. Be sure and have an attorney read the documents sent over by the lender and also consult a tax advisor. 

Can you recover your losses? Yes, since we were able to preserve our credit we purchased another investment home at the current market rate with a rather good positive cash flow.  Potential for growth in equity is a plus. It actually has increased in equity about $30k. As more and more people come to California (California, Florida and Texas lead the nation in population growth) the demand for housing will outstrip supply which will result in equity growth due to greater demand.   If you purchased a home at say $300k (yesteryear’s market) why not purchase a similar home at $150k (today’s market)?

A Request for help: If you know of any resource for someone facing foreclosure. Please provide input. I’ll add it to this article.  Thanks, in advance.

Summer has come and gone and the kids are off to school. For us in Northern California it means a change from dry to wet conditions. I would usually say hot to cool, but this summer was unusually cool with the exception of a few days.  So, what needs to be done before winter comes? Cleaning the leaves and debree out of the gutters is what comes to my mind first.  Then weatherstripping around the doors and windows. If you can walk your roof (don’t walk on tile) check the flashing and vents for water tightness and apply a water proofing compound as needed.  You might call PGE or a heating service company (HVAC technician) to check your heaters and vents, too.  Don’t forget to change the filters. Apply paint where needed to exposed or weathered wood surfaces.  If you have a sump pump under your home, give it a test run to see if its working. If the chimney hasn’t been cleaned for a while, call a chimney sweep to remove soot and creosote.  Call tradesmen to help you now.  Its hard to get a roofer to come out on a cold rainy winter night when there’s a drip coming through the skylight. Yep, happened to me once-glad I had a tarp in the garage for such an occasion.  Maintainence on your home will help maintain its value.  Well that, and a recovery in the real estate market and our economy.

Please feel free to add suggestions and share ideas for getting ready for the winter months ahead.

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Let’s see, home prices per CNN.Money.com are rising in some areas of the United States and lagging in others. What are the local trends of home sales in your area? You might look at the local real estate trends as provided by Trulia.  Interest rates are so low that only grand parents or great grand parents remember lower rates.  However, the job market appears to be unstable and inventory of foreclosed homes is also rising.  So who is buying a home and why?Most calls I am getting are from investors who believe the bottom has been reached  in our area of California, (Benicia, Danville, Martinez, Alamo, Vallejo) and now have plucked or seized the day (Carpe diem). Investor-buyers are realizing that there is a profit to be made right now with positive cash flow in many cases and security in knowing that the economic up cycle is expected with equity build up in the property.   Are primary or potential owner occupied home buyers simply afraid? Is that the problem? Why are you as a potential home buyer not buying right now?

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The Home Affordable Foreclosure Altenatives Program (HAFA) is beginning to take shape as more real estate professionals aquire the knowledge of this new program to make it easier for the destressed borrower to sell his/her home by a more streamlined short sale method.

The problem  with short sales has been the length of time it takes to finally close the transaction.  The biggest issue with short sales was just getting the investor to approve or not approve the short sale. After months of waiting for a response, many buyers give up and pull out of the deal.  This should no longer be the case as a standardized form called the  Request for Approval of Short Sale (RASS) along with a completed contract of sale, and a completed short sale package from the listing agent to the servicer of the loan in default, should result in an approval or denial within 10 business days after submission of the package.  Furthermore the whole process is being revamped with standardized forms as much as possible throughout the nation.  Fannie Mae and Freddie Mac have also adopted and adapted guidelines to the HAFA program.

There are no true “experts” in this process but there are now  Realtors @ who are certified short sale specialist that have completed the educational requirements to help sellers and buyers in the new HAFA short sale process.

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