Real Estate Information Archive

Are you facing foreclosure, or have you already lost your home? Share a story of how the housing crisis has affected you by emailing me @ Patti@PattiLyles.com

Here is my first entry from Jackie Crockett, a short sale realtor:

There's another side to the foreclosure crisis: Realtors trying to save families from losing their homes. Jackie Crockett is a short sale realtor in Fairfield, CA who has seen the hard times faced by numerous families. Despite her own health problems, she considers herself lucky:

I was one of the first in our area to start listing and negotiating short sales over 3 years ago and helping various clients with loan modifications and 2nd lien write-offs. Unfortunately, the horror stories are never-ending. Plus, we work 4 or 5 times as hard, for about 1/6^th of the income. Those of us handling short sales (versus REO - bank owned properties) are really not in it in for the money, but for our community.

For every short sale listing I've had, I've submitted an average of 7 offers, with only a 50% closing ratio. That is higher than most. The average is 3 out of 10 short sale listings will foreclose before a negotiator finalizes an acceptance. I've had homes ready to close, clients ready to sign, and had the homes foreclosed out from under us. The worst part is, the home usually sells for well below the lowest offer we had submitted.

None of this makes sense. It is frustrating for us as Realtors, and heartbreaking for our clients, their families and our community. These are good people, hardworking, caught in a vicious cycle, with really no fundamental understanding of where to turn, who to talk to. When even the lenders and bankers don't know what to do, or how to proceed, what chance do "regular" homeowners stand?

The lenders and bankers treat us Realtors as if we are the enemy when all we are trying to do is stabilize our communities by keeping folks in their homes, or getting people into these homes as quickly as possible. It's worn me out mentally and physically. I am preparing for a kidney transplant - my husband is my donor - and I've put if off for almost a year now because I felt so many of my clients needed help more desperately. For all that my husband and I are facing, all the uncertainties, I know we are luckier than most and for that I feel so blessed.

Due to the nature of my business, I was in a unique position to take care of our own personal finances when my health started to deteriorate. We very easily could have been one of the statistics, losing our home due to skyrocketing hospital bills, dialysis costs, and lost income. I recently negotiated a settlement with my own 2nd lien holder who will take a very small payoff to "release" the loan. It took months of negotiating, reams of doctor's bills, hospital bills, tax statements, pay stubs, hardship letters, etc., but it was well worth it. Of course, using money from our rapidly dwindling 401 K seems to negate some of the euphoria. I've also called every credit card and set up various payment plans, and auto debit payments that earned us huge interest rate reductions for as long as we need while we're recuperating, and both back on our feet.

I could go on and on about all the pets we found locked in homes when families would leave. Neighbors would gasp and ask "how could people do that?" But some had no choice. Those losing their homes are mostly families with children, some were elderly folks on fixed incomes with no where to go. Pets ended up being the least of their problems. Needless to say, we have 5 rescued cats - we love them and hope their owners somehow know they are well and loved.

Are you facing foreclosure, or have you already lost your home? Share a story of how the housing crisis has affected you by emailing me ...Patti@PattiLyles.com

 Law Alert! New California law amends loan foreclosure procedures

On July 8, 2008, California signed into law SB 1137 as urgency legislation, effective immediately. The new law

1. (1) establishes detailed procedures as part of the foreclosure process requiring lenders to contact homeowners in default on their mortgages to assess the homeowner's financial situation and explore options for avoiding foreclosure;
2. (2) requires a purchaser to maintain under the building codes vacant residential property purchased at a foreclosure sale and authorizes local governmental entities to impose civil fines and penalties for violations of up to $1000 per day; and
3. (3) gives a tenant or subtenant, in possession of a rental housing unit at the time the property is sold in foreclosure, 60 days instead of 30 days to vacate the unit.

Note, the legislature declared that this act was necessary for "the immediate preservation of the public peace, health, or safety" of California communities, citing the underlying policy of the law to "stabilize and protect the state and local economies and housing market." Although most provisions are effective immediately, some provisions become operative 60 days after the effective date of the law (i.e., 60 days after July 8, 2008). Nearly all provisions sunset by January 1, 2013.

Friday, September 07, 2007

Are there any foreclosures, short sales or distress properties in your town or neighborhood? If you answered "no," you probably aren't paying close attention to the local real estate market.

Good times or bad, these situations always occur. Even during the peak years of 2004 and 2005 for home sales, there were still mortgage lender foreclosures and distress property sales. Today, the numbers of these sales are rapidly rising. If you're interested, the current buyer's market in most cities is a great time to acquire these below-market-value properties.

WHAT CAUSES FORECLOSURES AND DISTRESS PROPERTIES? There are many reasons, but the cause usually is the property owner isn't thinking straight. Reasons for foreclosures include divorce, unemployment, drugs, alcohol, death or serious illness in the family, disputes between owners, local economic conditions, mental problems, and good old-fashioned greed.

But the real reason for foreclosures and distress property situations usually is the borrower isn't acting rationally to solve the problem. Imagine you can't afford the increased monthly payments because your adjustable-rate mortgage just "adjusted" and your payment went up by $300. To make matters worse, home market values in your neighborhood are stagnant or slipping so your market value is no longer appreciating.

You consider selling. But local Realtors tell you there is a glut of listings for sale nearby and you would be lucky to sell for the amount of your mortgage balance. Should you stop making mortgage payments and walk away? Of course not. That would ruin your credit and you need a place for your family to live.

Rather than face foreclosure, the obvious solution is to increase your monthly income by at least $300. Maybe you can get a part-time evening job. Or perhaps your spouse or teenage child can get a part-time job to help out. One way or another, virtually every foreclosure and distress property situation can be avoided.

SOMEONE PROFITS FROM EVERY FORECLOSURE. The grim reality is somebody will profit from every foreclosure and distress property situation. If you didn't cause the problem, you might as well profit from someone else's problem.

Most institutional mortgage lenders do not want to foreclose and acquire the property. It costs lenders thousands of dollars to hold foreclosure property instead of keeping their mortgage money earning interest.

However, if you understand the simple foreclosure rules, you can profit from someone else's distress. That's why it pays to understand the basic foreclosure profit opportunities.

STEP 1 -- THE JUDICIAL FORECLOSURE LAWSUIT OR NOTICE OF DEFAULT. Until the mortgage lender gives up on the borrower, the public usually does not know there is a problem. But when the lender records a judicial foreclosure lawsuit on a mortgage, or files a notice of default on a deed of trust, the borrower's default becomes public knowledge at the local court house.

At this point, bargain hunters swing into action to contact defaulting borrowers to see if there is a "preforeclosure opportunity" during the lender's reinstatement period before the official foreclosure auction.

This reinstatement period, which can be as short as 21 days in Texas but generally is three to six months in most states, gives borrowers time to either sell the property or reinstate the mortgage before losing the property at a foreclosure sale.

SHORT SALES USUALLY ARE NOT BARGAINS. Sometimes during the mortgage reinstatement period it becomes evident the home's fair market value is less than its mortgage balance. When that happens, the real estate listing agent confronts the mortgage lender to accept a "short sale." That means the lender agrees to accept less than the mortgage balance as full payment of the mortgage.

For example, suppose a mortgage balance is $250,000 but recent comparable sales prices of similar nearby homes are only $225,000. If the mortgage lender agrees to a $225,000 short sale, the buyer can purchase for $25,000 less than the existing mortgage balance.

The defaulting borrower on a short sale walks away with nothing. However, the borrower gets rid of his mortgage obligation without a foreclosure on his credit record. But the downside, in this example, occurs when the lender sends the borrower an IRS 1099 form showing $25,000 of taxable debt-forgiveness income.

As a general rule, the buyer of a short-sale house does not get a bargain purchase price. Lenders are usually very demanding to insist that the home sell for as much as can be obtained.

Another problem with short sales is lenders often take 30 to 90 days before deciding to accept or reject a short sale purchase offer. For this reason, smart buyers set a reasonable deadline, such as 15 days, for the lender to accept or reject a short sale offer.

STEP 2 -- BUY AT THE FORECLOSURE AUCTION. If a property buyer cannot purchase the home from the defaulting borrower during the reinstatement period, the house will go to either a judicial court foreclosure sale or a nonjudicial trustee's sale.

The advantage of buying at such an auction is any junior liens are wiped out. To illustrate, if a house has a first, second and third mortgage, plus a judgment lien and a mechanics' lien, they will all be wiped out when the first mortgage lender holds a foreclosure sale.

But the disadvantage of buying at a foreclosure auction is cash (actually cashier's checks) are required either at the sale or shortly thereafter. This is one place your MasterCard, Visa and American Express cards are not welcome.

Raising enough cash to bid at a foreclosure sale can be difficult, especially when the amount of the defaulted mortgage is large, often $100,000 or more.

Another problem is foreclosure auctions are "as is," meaning there is no opportunity to inspect the house before purchase and the foreclosing lender will not pay for any repairs. In most states, foreclosure-sale sellers are not required to disclose even known defects at the auction.

STEP 3 -- BUY AFTER THE FORECLOSURE AUCTION. When there are no bidders at the foreclosure auction, title to the property then goes to the foreclosing lender. This is called REO (real estate owned) property. Lenders are usually very anxious to get rid of REO property, which costs money to maintain and incurs liability risks.

Astute buyers often approach foreclosing lenders who acquired property immediately after the sale to make a purchase offer. My favorite tactic is to send a FedEx overnight letter to the lender's president, offering to purchase for the amount of the foreclosed mortgage (presuming the property is worth that much).

Of course, the lender's president never sees the letter, but it will get referred to the right decision-maker in the REO department.

SUMMARY: Foreclosures, short sales and distress properties offer opportunities to purchase houses at bargain prices if you know what you are doing. However, it is easy to make mistakes because the safeguards of normal sales are not present.