Real Estate Information

Question for Patti:  I have heard people refer to "buydown" or "discount" points.  What are they?

Anwer to Heather: Discount points help BUYERS save costs over the life of the loan.  Discount points are fees paid at closing to lower a monthly mortgage payment over the life of the loan.  In essence, points are prepaid interest.  A point is 1 percent of the loan.  So if you are buying a Felton Home and there is going to be a $500,000 loan, one point equals $5,000.  This cost is paid to buy a lower interest rate, and is known as a rate buydown.

If you intend to keep your home for only a short term----five years or less---then you might not recover the cost of paying the discount points.  If you plan to keep your mortgage for a long time, then discount points are an excellent upfront investment.

Another key benefit is what discount points for residential real estate are tax deductible in the year they are paid. Consult your tax advisor regarding the details of these deductions.

Felton Home Seller, If you'd like to learn more about how "buydown" or "discount' points effect you in a transaction and what they mean to you r bottom-line please contact me.

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.

When I told my buyers last week that Fannie Mae's 2007 Conforming Loan Limit Remains at $417000, they quickly chime in with "How dumb is that?"  As a Santa Cruz County Realtor what do you tell them next week if the buyers come back?

OMG,  The trouble is that $417,000 is the maximum loan amount for a single family residence that Congress will allow Freddie and Fannie to provide, doesn't work in California.  It doesn't help my buyers in the San Lorenzo Valley.  Which is the cheap seats of the real estate theater in my county, I can't believe this.  

This may be fine for some parts of California, it does not provide much help for any home buyers and homeowners in Santa Cruz County where the median price in July was $780,000.  Even if that went down in the next 4 months the conforming limit would still be a joke.  Amazingly, years ago Congress saw fit to raise this conforming limit to $625,500 in the "high-priced" states of Alaska and Hawaii. I will never understood why they didn't include us. Why can't we get the same breaks that Hawaii gets?

The House of Representatives has recently passed a bill raising the limit but the Senate has yet to act. While today's borrowers might still have access to the wide variety of mortgage options that existed prior to this month, there aren't as many viable options to satisfy most of my earnest home buyers or any homeowner (past client) who calls me and wants my advice about refinancing.

I strongly urge the Senate to make this a priority, because we need to help homeowners get access to needed credit.  I sent out an short email to express my thought to Reps. Barney Frank, D-Mass., and Gary Miller, and Sen. Charles Schumer.  I understand they are on my side.  What else can I do?  I do still service the high-end $2mil +++ stuff http://www.LuxurySantaCruz.com but I can't get my next door neighbors into homes any more.

I am not a lender but don't you think that in general, the more mortgages the two entities can purchase, the more confident lenders can be about making loans?

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Patti Lyles, San Lorenzo Valley Best Choice in Real Estate

Q: I want to buy a Felton Home in the next 60 days. You asked me what my FICO scores are.  I just found out that the score was below what you would have liked.  My FICO scores are a little low, is there a way I can improve my scores very quickly?

A: The first rule of maintaining and keeping a healthy FICO score of 720 or higher is NEVER BE LATE!  Primarily any MORTGAGE PAYMENTS. I can't emphasize the point of how important it is to never be late on your mortgage payments.

But it is not the sole deciding factor of your FICO score, the three major credit bureaus involved with FICO scoring are Experian, Equifax, and TransUnion. All three of these companies use algorithmic equations taking in a multitude of factors in determining your FICO score. The FICO score range is between 300 and 850 and to get the best rates from lenders today, a mid-score of 720 is needed.

For example, if you have the following three scores, 680, 730, 745, you are in a position to get the most competitive rates because your mid-score of 730 is over the 720 benchmark score. So what happens if your mid-score falls under 720? There are a few things you can do to get a rapid turnaround in 30 days.

The first and most immediate impact is to look at your credit cards. If you have any credit cards at or over 50% of the maximum credit limit, pay those credit cards to under 50% of the credit limit immediately. For example, if you have a bank credit card and the credit limit is $5,000 and you have a standing balance of $3,500, pay that down immediately to 50% of the credit limit, which means sending a payment of at least $1,000 to bring the balance under $2,500. One of the biggest detriments to your FICO score is having what is classified as a revolving debt (a credit card) maxed out or over 50% of the balance. Once the revolving debt is paid down to under 50% of the credit limit, the impact on your FICO score can be significant.

What happens if you don't have the cash to pay down your credit card debts to 50% of the balance?. If you do not have the $1,000 to pay down the balance, you can ask for a credit limit increase. With the above example in mind, requesting the bank to increase your credit limit to $7,000 will reduce your debt to 50% of the credit limit and can give you a boost in your scores. But this is only for the most disciplined of people because most people are in the habit of just spending and putting more on a credit card once they are granted a credit limit increase.

There are other things you can do to improve your scores to buy that Felton Home which include limiting credit inquires to no more than 12 a year, do not cancel credit cards you may have had for a long period of time, and there are a list of others which we can go into with the lender you choose to work with on any San Lorenzo Valley  Real Estate transaction.

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EzineBlog.ORG is a new site for me that I strongly encourage you to view today.  It has topics for everyone and about everything from entertainment to politics.  If you review their blog, they’ll link to it and help increase your page rank!

It was launched August 8, 2007.  Trying to revolutionize the market with their proven techniques for getting their hosted blogs to the top!

While you’re at it you can browse through the 100% ad-free postings about current events, commentary from posters, and more.

Q: Dear Patti,
We're nervous about selling our Zayante home. We've spruced it up but my neighbor is quite sloppy. I don't want to hurt his feelings, but what can I do to help him clean up his yard? I offered to help him remove a collapsed camping screen that sits between our homes but he said he'd get his daughter to help do it.

It's still there, along with other junk strewn around his yard.

Harry Messe

A: Dear Harry,
You sound like a nice, gentle neighbor who respects boundaries, isn't too confrontational and wants to help others preserve their dignity. Good for you! But reality may call for you to be a little more assertive to get results in this situation and in this tough market.

Many a listing agent can tell you tales of appointments that were canceled at the last minute after potential buyers drove up for a showing only to see an undesirable neighbor situation next door. At best, a neighborhood eyesore gives one more negotiating advantage to the buyer in what is already a buyer's market. What's more, sloppy properties can prune up to 10 percent off the value of neighboring listings, according to the National Association of Realtors.

And it seems every neighborhood has one. A recent survey of 900 homeowners by the national contractor-referral firm, Service Magic, showed that 63 percent of respondents have a messy neighbor who neglects the house and/or yard to the detriment of the neighborhood. Their top complaints: high weeds, junk cars, long grass and poor paint. Yet more than 40 percent said they just put up with it.

For those of you that live in a place that has neighborhood associations, if that neighbor was violating any neighborhood association rules, you could certainly try approaching the association.  But Zayante/Lompico and most of the Valley doesn’t have associations.

Of course you always have the option of complaining to the city or county but barring any overt health risks, infestations or damage to the environment, the best you could expect would be a warning and a follow-up citation if the improvements aren't made. But I have personal experience that process could last longer than you might think -- a few months -- and perhaps create acrimony where you least want it. Not to mention that what's legal in many jurisdictions often is an eyesore that can turn off would-be buyers.

A more constructive approach might be a "neighborhood clean-up" effort. You might get the desired results if you could find a few others who'd like to see the situation rectified and be willing to help tidy up that yard under the guise of a more widespread property value improvement effort. That way, you'd come across as a do-gooder instead of a grumpy neighbor.

Just to prove my suggestion works:  I told a prospective listing client in Forest Lakes to do this with her 5 neighbors.  I told her to call it a Clean-Up Party and tell the neighbors why you were doing it.  Well, they all spent about 3-4 days really cleaning up. They collectively were able to get ride of a junk car, shared dump loads and thrift store runs.  Unfortunately for me it worked so well I lost the listing. You see, when it was all done a neighbor’s friend was impressed enough to make that prospective client a decent purchase offer!  

Finally, you might just have to conduct the cleanup yourself, perhaps offering to do it on a "while I'm at it" basis as you're mowing and tidying up your place a little. It may be you neighbor is somehow physically limited and is unable to do the work, but is too proud to ask someone else to do it.

Be sensitive but firm. Good luck on the cleanup and your sale.

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SENTINEL VIDEO: 88 animals confiscated from Ben Lomond home

July 19th, 2007 · 2 Comments

Fed finally reacts - the Global Credit Crunch Timeline

This morning the Fed finally reacts to a most turbulent week of market activity and dropped the discount rate 1/2 point. Here's the domino effect that preceded the rate cut:

April 2 - Subprime crisis takes down first major lender - New Century files for bankruptcy
June 21 - First sign of widespread credit crunch - Wall Street hedge funds hit hard... Bear Stearns hedge funds near collapse
July 19 - Dow closes at all time record high 14,000 - Fed says subprime crisis still contained
July 27 - Credit squeeze spreading to higher grades of debt - Dow drops 520 in two days - Corporate debt dressed up, nowhere to go
August 2 - Alt-A loans now suspect - American Home Mortgage shuts down
August 9 - Global markets start crashing together - France's BNP Paribas and Countrywide, largest US lender unexpectedly send out warning signals begetting investor paranoia about other hedge funds with subprime holdings
August 10 - No buyers for commercial paper - Central Banks start pumping funds into repo markets for the first time since Sept 11, 2001
August 13-15 -  Everything falls apart - no more buyers in the global debt markets
August 16 - Asia gets hit hard by unraveling of the Yen Carry trades ... Japan's Nikkei index plunges 5.4% - Yen carry trade unraveling fast
August 16 - Countrywide taps credit line and bankruptcy rumors fly
August 16 - Market comes back from a 300+ point DJIA fall - foreshadowing today's rate cut.

The debt markets were in a rout that was adversely affecting the stock market, and the economy. The Fed seemingly could ignore the domestic pressure to cut rates, but once it became a global economic threat extending to the yen carry trades, it was forced to act... just to appease the world.

The Fed didn't want to give away its hand on the cut this week, and its sudden decision to drop the discount rate was unexpected, catching short sellers offguard. Two days ago, St Louis Fed President William Poole prominently stated that the Fed shouldn't consider a rate cut before its next Sept 18 meeting (Bloomberg today disclosed Poole had to pretend today's rate cut wasn't happening )

The cut met with mixed reviews... the general conclusion being it was a confidence building gesture that lubricated debt market function, but it doesn't really solve the suddenly exposed global credit problems.

Related articles:
Explaining the Global Credit Crunch
Why the stock markets keep falling

Thanks to my friend for breaking this down for me.

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