In the height on the real estate downturn one would think that a bank would much rather see consistent payments with a renegotiated interest rate rather than foreclosing on a home but one would be surprised! Studies now show that less than 5% of struggling homeowners will be approved for HAMP Modified Home Loans. Time Magazine reported in December 2009 that less than 1% of probationary loan modifications become permanent; the actual number was 0.3% ! Yes, try absorbing that number: 0.3% were approved!
The Congressional Oversight Panel who evaluated the HAMP program concluded October 2009 that “It increasingly appears that HAMP is targeted at the housing crisis as it existed six months ago, rather than as it exists right now”. To meet HAMP guidelines, the monthly payment cannot exceed 31% of monthly income. The program is not equipped to deal with a homeowner without a steady stream of income so commissioned and unemployed homeowners will most likely be out of luck.
Of the very few homeowners who will receive permanent Loan Modifications, they will find their home sinking further underwater. The HAMP program does not work towards lowering principal balance as only 0.01% received lower balances in their Loan Mods. This one I am not complaining about, I don’t think a homeowner should have their principal reduced when their neighbor cannot.
The most important aspect to acknowledge is that the HAFA program is nothing but loopholes for banks to deny Loan Modifications for the people who need it most! As a short sale expert who speaks with homeowners every day, I have heard horror story after horror story with the same outcome: 3 month “trial loan mod” equals to the 4th month’s payment being HIGHER than when they started! The first three months of a mortgage modification are a probation period for homeowners. While the probation period set forth by HAMP appears to be a time where homeowners can prove to their mortgage servicers they can handle the new loan terms, the probation period is really an escape clause for banks who can opt out of helping a distressed homeowner.
According to the Demott Real Estate blog:
I have been in the loan modification trial period since December 2009. I made all 3 monthly payments that IndyMac Bank required me to. Then by the 4th month they still told me they had no information on whether I was approved or not. I made a payment on March 1st and called and asked again if our plan was approved. I was again told it was in review and just to stick with the same modified payment amount. Now it’s April 10th, I called again to find out my status. I was told that our plan was denied on March 30th because we did not submit another profit and loss statement. I was never asked for another profit and loss, I was never notified that they needed one, I was never notified that we were denied. IndyMac said they weren’t required to send anything saying we were denied. So now they tell me I’m 60 days late on our loan, my case is closed for the modification app, and my credit is ruined because every month of the plan they report us delinquent. How exactly is this helping anyone? And who can I contact to raise enough hell to someone that the banks will actually have to help out the homeowners? Comment by: Heidi Gallegos on April 10, 2010 @1:50 pm
Why is more profitable for banks to turn a blind eye than to reach out to consumers with Loan Mods? When a loan is created, the money loaned does not come out of Wells Fargo or BOA’s reserves, rather they are just an extension to the Federal Reserve. “Fractional Reserve Spending” can be defined as: Every dollar a commercial bank holds in its reserves from depositors, roughly nine times that amount can be used for consumer loans, including mortgages. So in essence your lender is collecting interest on money they really didn’t loan out of their reserves. Banks find it is a waste of money and manpower to help struggling homeowners modify their loans, they make out better foreclosing and reselling.
Perhaps one day our government will enact a plan that actually makes sense, until then…
I stood my ground on an earlier blog titled Will the Tax Credit be extended again? In that posting I knew that a second “home buying” extension would not be granted past April 30, 2010 and I was correct. What this newly passed legislation (today June 16, 2010) means is that if your home has a binding contract on or before April 30 you can now close up to September 30 to obtain your tax credit.
Kudos to the Senator Issakson (former Realtor) who saw the nightmares we were experiencing out in the field. There was such a rush in the spring to take advantage of the tax credit that many buyers and Real Estate Agents took advantage of the great deals on distressed properties like foreclosures and short sales. What we all found out is that the same approval timeframes we were accustomed to pre-tax rush (such as Wells Fargo short sale approvals coming in under 45 days) did not necessarily apply this Spring and Summer. Actual numbers won’t be out for months but I have a very strong feeling that the already overwhelmed departments of distressed lenders found themselves devastated once the avalanche of offers came pouring through in 2010. For the past few weeks buyers and agents have been scrambling, stressing over the impending deadline and thanks to a few Senators, we have a little breathing room to continue working towards our goal.
So if you have a contract on a short sale, foreclosure, new construction or resale that went binding on or before April 30, take a breath a relax. You now have until September 30, 2010 to close on the home to receive your tax credit.
Fannie Mae has just updated their timeframe for defaulting borrowers who wish to qualify for future conventional loans. This update includes the waiting period for Deed in Lieu and Short Sale on conventional confirming loans effective on or after July 1, 2010. No changes have been made to bankruptcies or foreclosure so the current guidelines will apply. Why is this important? Before this update, there were a handful of sellers looking to get out of their “underwater homes” via short sale and turn around and purchase a new property with instant equity. Since every lender is different, some lenders do not require sellers to necessarily show a valid hardship or be behind in their current mortgage therefore some sellers could instantly qualify for immediate repurchase. Fannie Mae is putting a stop to that after July 1, 2010.
According to Fannie Mae:
When a seller uses a Deed-in-Lieu of Foreclosure the new waiting period is as follows:
2 years from completion date, Max LTV 80%
4 years from completion date, Max LTV 90%
7 years from completion date, follow standard LTV chart
*Special Exceptions for Extenuating circumstances Deed-in-Lieu of Foreclosure = 2 years from completion date, Max LTV 90%
When a seller uses Short Sale in lieu of foreclosure the new waiting period is as follows:
2 years from completion date, Max LTV 80%
4 years from completion date, Max LTV 90%
7 years from completion date, follow standard LTV chart
*Special Exceptions for Extenuating circumstances Short Sale in Lieu of Foreclosure = 2 years from completion date, Max LTV 90%
This does not apply to FHA or VA loans, only conventional loans
One of my most popular questions is regarding the foreclosure process and what are the steps leading up to foreclosure. While it is important to understand that timeframes between each step vary from state to state and lender to lender. Some states are judicial and some are non judicial states. GA is a non judicial state meaning the bank does not have to file a lawsuit or go to court in order to foreclosure on the property. It would also be helpful to put a disclaimer right here that states: Always contact an attorney, tax professional or retain a real estate professional for specific advice about your situation.
Now that legalities are out of the way, let’s get started with the steps to foreclosure:
1. DELINQUENCY – A Delinquency occurs when you are up to 30 days late on your payment
2. DEFAULT – The loan goes into default once payments are OVER 30 days late. At this point the lender will contact you to see if this is a short or long term problem and will work accordingly.
3. LOSS MITIGATION – Once the bank realizes that the default is a long term problem (job loss, ARM adjustment, illness, etc) then the lender will offer the homeowner some options to avoid foreclosure to include:
Loan Modification
Forbearance (grant a few missed payments)
Negative Settlement
Deed in Lieu
Short Refinance
Short Sale
4. FORECLOSURE – If Loss Mitigation fails then lender will foreclose, evict borrower and put property up for auction
5. REO (Real Estate Owned) – If the property is not sold at auction then it will revert back to the lender as a REO which is then prepped and sold on the market
Every state has different real estate laws and procedures and this blog is written for Georgia’s procedures of purchasing AS IS short sale and foreclosure properties.
In the GAR (Georgia Association of Realtors) standard contracts, there are two ways to purchase real estate: Due Diligence and AS IS. Since the bulk of real estate transactions currently are some form of distressed properties (REO Bank Foreclosures, Short Sales, Pre-Foreclosures) it is very important to understand the difference especially when the contract instructions state that property is sold AS IS.
First allow me to define the differences:
DUE DILIGENCE – means the purchaser would have a mutually agreed upon period of days to inspect the property and its surroundings. This includes the actual inspection of the home structure, systems, roof, etc. It also includes any additional tests the purchaser may want to perform during this time period: termite inspections, radon gas, soil tests and inspecting the neighborhood and surroundings. The later would include research for any landfills, high voltage power lines, registered sex offenders, etc. The costs and work of these are the sole responsibility of the buyer.
AS IS – means the purchaser is forgoing all inspections purchasing the property AS IS with any and all faults whether known or unknown. The Seller will not perform repairs of any defects.
What becomes confusing is when the Bank/Seller advertises the property AS IS. This does not mean that the Seller will not allow inspections to take place as it is the right of the purchaser to inspect the premises. What this means is that after the inspections have been completed, the purchaser understands that no matter the outcome, the seller is stating they will not make any repairs. In distressed sales (foreclosures and short sales) purchasers should always choose the “due diligence” route and perform inspections knowing that within the timeframe they can either accept the property “as is” OR terminate the contract and receive their earnest money back (within the due diligence time frame).
Now with that being said, if a purchaser submits an offer on a bank owned foreclosed property and inspection finds issues that would not allow purchaser to move forward with the property through their VA or FHA appraisal, I have seen instances where banks did in fact complete repairs. You may be saying that this is in direct conflict of what is written above and you are correct! Since the end of 100% financing in 2008, the two most popular financing options have become FHA and VA loans due to their lower required levels of down payment. As of 2010, VA still offers 100% financing and FHA offers 96.5% financing. Since the majority of current buyers are using these two types of loans, if the home does not pass FHA or VA minimal inspection guidelines then the bank realizes it will take longer to sell therefore the required repairs must take place to get these homes off their books. There are two common solutions to this problem:
Some banks will pay for the repair costs out of their own budget
Some banks will repair however roll the repair costs back on top of the sales price
It is important for the purchaser or purchaser’s agent to inquire before submitting an offer whether the property will pass FHA or VA inspection.
There are some new terms being thrown around in both real estate and at water coolers around the country and I want to assist homeowners with what they mean.
The Obama Administration is attempting to assist homeowners stay in their homes by budgeting $75 Billion dollars in funding to help reduce foreclosures. The first program to be discussed is HAMP which is the Home Affordable Modification Program. This program temporarily allows eligible homeowners to lower their mortgage payments to 31% or lower of their pretax income through a loan modification.
Technically the adjustments are labeled as “temporary” however do become permanent once the homeowner makes 3 consecutive on time mortgage payments. As an additional bonus, if you make all of your loan payments on time for five years you will also receive a $5000 credit on your first mortgage principal balance. To qualify:
The home must currently be a primary residence meaning this is not a rental/investment property
Your first mortgage must be less than $729,750
There must be some kind of hardship (divorce, job loss, chronic illness, ARM adjustment, etc.)
The mortgage must have been obtained prior to January 1, 2009
The mortgage payment must be more than 31% of the mortgagee’s gross income.
If these qualifications are met, you must contact your service provider (who the mortgage is serviced with ie. Bank of America, Wells Fargo, Suntrust, EMC, etc) to see if they participate in the program.
Next is HAFA – the Home Affordable Foreclosure Alternatives Program. This program began very recently on April 5, 2010 and is designed for homeowners who meet the above terms for HAMP but cannot keep their homes. This program ends on December 31, 2012.
In summary, HAFA is designed to provide incentives to homeowners to short sell their properties as opposed to allowing the property to go into foreclosure. The following are some outlines of the program:
Borrowers must be HAMP eligible however unable to keep their home
Allows homeowners to receive pre-approvals for short sales (including the minimal acceptable net proceeds the bank will accept for a short sale)
Allows homeowners to be fully relieved of responsibility for the first lien. What this means is that the first loan cannot ask the homeowner/seller to be held liable for the loss, sign a promissory note or bring additional cash to closing. It is important to note that this does not cover any additional liens such as second loans, home equity lines of credit, etc.
Provides financial assistance for homeowner relocation costs (up to $3000); $1500 for service providers to process the short sale; up to $2000 for investors who allow a minimum of $6000 short sale proceed distribution offered to a subordinate lien holder (2nd mortgage)
Loans must be conventional loans, the HAFA program does not apply to FHA or VA (both government backed loans)
What does this mean to home owners, home buyers and Realtors? The HAFA program is set up to assist in streamlining the short sale process (which in some instances there is nothing “short” about it). Shortening approval processes, higher short sale approval success, guaranteeing Realtor’s commissions and eliminating future liability for Seller’s first liens.
If you have any questions regarding any of these programs OR want to discuss the possibility of avoiding foreclosure with a short sale, please contact us for more information.
You have been out scouring the area you want to be in, walked through dozens of homes in search of the right one. Finally you find it, your dream home! You submit an offer and are looking forward to an acceptance or a counteroffer but instead you are hit with a “Multiple Bid Scenario – Please submit Best and Final Offer”.
What?!?
What this means is that other buyers have stumbled across your prized home and fell in love just like you did! Sometimes it is a foreclosure property, sometimes a short sale and sometimes it is a regular resale listing. Many buyers become very stressed out asking me how to handle it and my answer is always the same. “Best and Final” is actually what it means. The seller is looking for your absolute best and final offer, there will be no counteroffer, the seller will move forward with the best net offer on the table by the offer deadline. The offers of others will always be held confidential (sometimes so will the number of offers on the table).
In these scenerios it is crucial to know the comps of other properties in the neighborhood. In the event of a foreclosure, the property could be priced well below fair market value and the bidding could significantly increase the final sales price. For instance, not long ago a foreclosure hit my client’s radar hours priced at $114,000. After reviewing the comps I found that sales in that Powder Springs subdivision ranged from $189,000 – $260,000 and this particular foreclosure was the largest floorplan in the subdivision. We submitted an offer for $135,000 which was $21,000 OVER ASKING PRICE. Unfortunately we lost the bidding war. We found out later that the property sold for $164,000 – Fifty thousand over asking price. While that is not the norm, it is an example of how important comps are when bidding.
Normally, as detailed in a previous blog “The Skinny on Foreclosure Bidding”, multiple bid scenerios usually result in a final sales price at or above list price. With that being said, how do you know which number makes best sense for you?
I always tell my client to think about the number that they can sleep well at night knowing that they wouldn’t have paid 1 penny more for in the event they lost it. Nothing worse than a client coming back to me and saying “I know I bid $150,000 but I really would have gone up to $154,900”. In best and final scenarios, your absolute highest bid is what you should submit. If your submit best and final is truly that, there is nothing more you can do. Good Luck out there!
Most of the last 2 years made your typical “resale” listing the ugly stepchild of real estate. (Note “resale” is defined as a reselling of a previously owned home by a seller/home owner). The hot commodity of real estate since the downturn of the market has been the distressed market which is comprised of foreclosure, bank owned REO, pre-foreclosure and short sales. While April showers may bring May flowers, April will also bring a huge (albeit temporary) sell off in resale inventory!
There are tons of first time and return home buyers who have straddled the home purchase fence for months. Now that the tax credit deadline looms, buyers are becoming frantic! Short Sales are time consuming and this late in the game cannot be guaranteed a June 30 closing date to meet tax credit deadlines. With the influx of foreclosure offers, some banks are now taking WEEKS to respond to offers leaving many buyers worried that they won’t have enough time to find a back up property in the event their foreclosure bid loses.
Enter the beautiful position of the average home resale.
Sellers are available, motivated and ready to make it happen! A good listing agent has advised their sellers that it is do-or-die time until April 30, 2010. Today (Saturday April 17) I received an offer for a resale listing of mine at 1:09 pm and had it binding with a counter offer by 4:25pm. Definitely a refreshing change from the typical bank’s snail like pace and the buyer met the tax credit deadline! That makes THREE of my listings that have gone under contract this weekend and it is only Saturday afternoon!
Metro Atlanta (including suburbs) typical peak spring market runs from late January through Memorial Day weekend. With the tax buyers credit deadline (which said tax credit is not expected to extend) at the end of April, we may actually see an early end to what has really been an amazing spring selling season! Only time will tell however at this moment through the end of the month, resale sellers have become the belles of the ball. Enjoy this brief moment to shine and SELL, SELL, SELL!
About two years ago one of my neighbors (who was also a Realtor and investor) was hit hard by the turn in the market. The rumor was that his family was so upset that the housing market declined that upon their move out, they dragged garden hoses to the top level of the home, turned on water and left. The house sat vacant for about 8 months after their move out. While that part is rumor, I can confirm that I saw workers in HAZMAT suits demolishing the property: stripping all floor coverings, drywall, AC units, cabinetry. When I say the home was a shell of what it once was, I am not exaggerating one bit. From the exterior one would never know but peer inside a window and all you could see were wall studs and water pipes. Sad to say the home sold to an investor for less than 1/3 of what the value would have been if not destroyed. As neighbors, that selfish and defiant act hurt all of us and our property values. (more…)
I was recently out with a buyer showing a brand new listing in Marietta, GA. As we pulled up, an agent with buyers were leaving. As we walked around the house and property, two more sets of agents with interested buyers came through. When we left another agent pulled in. Since I knew this was exactly what my buyer had been waiting for being priced well under fair market value, I told him that “time is of essence”. We had lost out on two other homes before now so he agreed that we should go to my office and prepare an offer. Even after losing two other bids I was floored when he told me “paying list price is just paying too much, Jennifer”.
One of the biggest misconceptions in real estate is that paying list price is simply overpaying or not getting a good deal. Nothing could be further from the truth, especially in the land of foreclosures and distressed properties. As detailed in the recent blog “The skinny on foreclosure low-balling”, it is not uncommon for both banks and distressed selling agents to price a property aggressively and watch a flurry of activity ensue. Often this flurry ends with the property selling well over list price.
As a short sale agent, when I take a new short sale listing I purposely price the home at the lowest price I feel the bank will accept. I don’t pull numbers out of the clear blue sky, I base them on actual distressed sales within the past few months as before any short sale is approved it must pass a BPO (Broker Price Opinion). When agents show my short sales and call for offer instructions, I communicate how price was derived and that we expect a full price offer. Every once in a while you get the buyer that refuses to put in an offer at list price and 99.99% of the time that buyer loses out on the home.
Buyers: Do not base your emotions on the list price, base them on the comps! If the home is listed at $200,000 and comparable homes in the neighborhood have sold between $215,000 – $245,000 then you are getting a good deal at list price. Don’t allow a misconception get in the way of the home of your dreams!
