Meeting the Appraiaser

But what happens if the reverse occurs and the appraisal comes in at such an inflated value there is no interest in the property?

The word appraise is defined as “to assess the value or quality”. This can be much different than “market value” which defines what a buyer is willing to pay. In most instances the two are close, in this instance, the two are worlds apart.

A Simplified Short Sale?

A HAFA Short Sale is a process whereby the transaction has been given a set of parameters in advance which should result in a smoother, uncomplicated transaction. The homeowner has been through the loan modification process and very likely has been denied. Therefore the next step is probably to sell the property. You could call it a hybrid transaction. The price and terms are provided in advance. Find a buyer, submit the required documentation and proceed to closing. Saving lots of time and frustration.

Everything is set to run smoothly, unless you are given an appraised value which far exceeds the value of the property based on the poor condition. There is one issue here that remains unknown as to how the value of the property was determined.

Did the Lender Escalate the Appraised Value?

If you consult Occupy Wall Street you might get an affirmative response. Given the fact that the initial sales price is too high and if by a miracle the property were to sell at the inflated price, the short sale may be eliminated because there is no “shortage”, the balance would have been paid in full.

However, in reality the property fails to close within the 120 day listing period, therefore another appraisal is ordered and the new sales price is 5% higher than the one completed 4 months ago. Now we have an equity sale and the homeowner receiving this new found money at closing. According to this progressive thinking, the bull real estate market has returned, therefore you can expect an annual appreciation rate of 15%. Home sellers will be glad to know.

One thing we will never know……did the appraisals truly reflect the professional opinions of the two separate appraisers that conducted and completed licensed appraisals, or was the value actually propped as a disguised attempt to increase the offer price?

You May Pass Go

Finally, through a series of appeals and resubmission of mounds of paperwork (something that a HAFA Short Sale was supposed to eliminate) we were able to close the transaction and save a homeowner from foreclosure.

As for me, maybe next time I will take my chances with the traditional short sale.

You may think the term foreclosure applies to other areas of California and Los Angeles County, not South Pasadena. It just doesn’t happen here or does it?

Foreclosure begins when a homeowner is late on the mortgage payment. A “Notice of Default” is filed letting the homeowner know that unless the debt is cured (brought current) along with the outstanding fees, etc., the property will be sold at auction. This pre-foreclosure process can last approximately 3 months until the “Notice of Trustee Sale” is recorded and an auction date is set. The auction date can be a minimum of 20 days after the Notice of Trustee Sale is recorded. Once in the auction process they can be postponed, sold to the bank, sold to a 3rd party or cancelled.

How many homes are actually sold according to the above time frame? Very, very few. I have seen some homes stay in the foreclosure process anywhere from at least a year to a year and half and have heard of 2 years in some cases. Banks are giving the appearance of understanding and a desire to work with homeowners through loan modifications and being very patient with allowing owners to stay in their home payment free. But is a loan modification really productive and advantageous if the bank reduces the payment balance by say $50,000 and tacks it on to the back end of the loan. Kind of like the old TV commercials for auto parts…..”you can pay me now or pay me later”.

The bad news is many homeowners will not be helped and cannot qualify under many of the federal programs which were designed to assist these individuals. Therefore how long can the inevitable be delayed? The good news is that after a long trail and error period, many banks are now encouraging and even paying relocation fees to property owners who are underwater and in distress, encouraging them to do a “short sale’. A short sale occurs when the market value of the property is less than the mortgage balance. A contract is written, signed by the property owner and contingent upon the banks approval. Many times there is no additional cost to the homeowner as the bank pays for the escrow, real estate fees, past due taxes, etc. If the property is sold with a real estate agent, the banks are providing as much as $2500 to $3000 and possibly more depending upon the lender to the owners upon a successful close of escrow.

The unfortunate thing is many people are still being foreclosed upon. They ignore the notices in the mail, they don’t return phone calls from their lender and for reasons I cannot explain they fall victim to foreclosure. Granted not everyone may be a candidate for a short sale, but given the list of pros and cons, short sale or foreclosure, I know what path I would follow. This is not a time to play ostrich and stick your head in the sand. Talk to someone, an attorney or a real estate agent who works with short sales and distressed homeowners. Help is available.

In my next post regarding South Pasadena real estate, I will take a look at home prices over the last few years. We will see where we were and compare that with where we are today.

Lastly, this is not intended as legal advice. You should contact the appropriate professional (CPA, Attorney) as to your own individual situation.

Will Banks Pick Up the Pace?

With states battling their own budget issues and seeking additional sources of revenue, house in foreclosure become wildfire on a windy day. Homeowners who are not making a mortgage payment are very likely not paying their property taxes. Compound this with the impact of reduced property values and you begin to see how it escalates. Local and State governments need these houses to be occupied by people who can afford them and to have the past due tax bills brought current.

Completing the Foreclosure Cycle

Cancellations which have seemed ubiquitous in the foreclosure process have been declining while bank repossessions and auction sales have shown small increases.

Estimated Market Value

The majority of homes in the foreclosure process have an estimated market value below $600,000 as indicated by the filings recorded in January. Possibly due to the ease of financing options that were available with no money down and a combination of 100% loans with an 80% first and a 20% second. If there was no equity or investment by the owner (buyer) is there a reason to stay when market values begin to drop? Strategic foreclosure became an option.

Foreclosure Inventory in Pasadena

Preforeclosure filings reached thier peak in June and have steadily declined but one has to wonder if this represents an accurate assesment of the market. Properties which are Scheduled for Sale and Bank Owned have shown slight increases in the last few months.

What’s Next?

Whether or not we see an increase in foreclosures, one thing is definitely certain. Banks are ramping up their distressed property efforts by sending letters to homeowner’s suggesting they do a short sale (it’s about time; as I advocated this in a similar post about the foreclosure lottery) to avoid foreclosure and also promising shorter response times and expeditied approval processes. This is welcome news for many reasons, but a clear indication that progress is on the horizon.

The new process for deciding foreclosures?

In fact most of the attempts to address the high rates of mortgage defaults and foreclosure have met with less than satisfactory results. Maybe the reason can be attributed to the size and scope of the problem. When the sky begins to fall, providing a quick and equitable solution to a problem may seem good in theory, but in all practicality proves useless.

A condo was in foreclosure for 15 months

Draw Straws

On Monday, November 29, a total of 18 properties were scheduled for foreclosure in Pasadena. The auctions were to be held at various courthouse locations in Los Angeles County. How many do you think actually went back to the bank or were sold to a third party. If you said “zero” you are correct. 16 were postponed and 2 were canceled. When you hear the housing market can’t find a bottom and it is a result of the shadow inventory, this is what is being referred to. The properties in foreclosure which are not being foreclosed upon.

No delays & foreclosed in about 122 days

As stated before, empirical data seems to suggest the lender will have their own policy in regards to foreclosing. If I am in the unfortunate situation of being late on my house payment and have received a “Notice of Default” what do I do? I know confusion reigns supreme at this point. Do I stay or do I go? Do I attempt a Short Sale or take my chances with Foreclosure? The uncertainty of forecloure could be much worse than the eventual action.

More and more California homeowners are playing the foreclosure lottery. However in this game, there doesn’t appear to be any chance of a winning payoff. Possibly the only opportunity is to sit a while longer at the table and enjoy a round or two on the house. But in the end, you will lose and probably lose big.

Who hasn’t purchased a lottery ticket? When the jackpot climbs to over $100 Million, many decide to go against better judgment and plop down $5 for a quick pick. Why are so many California homeowner’s gambling their homes and credit as if it were a $5 lottery ticket?

Is the Threat of Foreclosure a Conditioned Response?

Has the finality of foreclosure ceased to be a threat? With many people in the foreclosure queue, continuing delays, bank moratoriums, refiling of Notice of Defaults and monthly postponements may have convinced consumers that their pending foreclosure is on hold for an indefinite amount of time. What appears to be happening to these homeowners is they have become pawns in a game which allows a short term gain in exchange for a more perilous penalty when the bank finally decides to pull the lifeline of support. The only question is when is the lifeline going to be pulled?

Banks and other lending institutions have lulled the consumer into a false sense of security that something will be done or worked out to keep you in your home, when they should have been actively encouraging homeowners to look for other alternatives. Alternatives that would lessen the negative impact of foreclosure and allow for a planned exit. Anyone ever heard of a short sale? Instead they seem to consider the 15 month moratorium a “gift” that allows the inhabitants to live mortgage free until they deem its time to go ahead and pull the foreclosure trigger.

I look at the number of foreclosures in the Pasadena, South Pasadena and Altadena area’s and I cannot understand why some people lose their home in 6 months while others have been on the list for a year and a half and are once again delayed for another month. Issues involving court decisions and Civil Rights have long focused on Housing Discrimination. Would anyone like to tackle the perceived inequity that so frequently seems to involve the issue that says, “Sorry Mr. & Mrs. Smith but today is your day. However the Johnson’s have another 30 days?”

Time to Quit Postponing the Inevitable

There is a much fanfare and lip service being paid to loan modifications which seem to be generating only a limited number of success. Homeowners receiving a “Notice of Default” are given specific instructions stating that unless the debt is cured the house will be sold to satisfy the debt. That in itself is very definitive. But with extension after extension the message looses its meaning. Homeowners should also be advised to seek out the possibility of conducting a short sale as a more favorable option versus a foreclosure. If banks don’t want to repossess the house, they seem to be doing a poor job of informing their customers of the available options.

But then again, maybe the banks like stacking the odds in favor of the house.

A Short Sale is an alternative to Foreclosure

Enter the Short Sale Negotiator

Maybe a more appropriate title would be “Son of Loan Modification” I mention this only in the natural course of events since distressed properties and consumers intent on loan mods have now come to realize that a short sale may become the best and only option. Especially when you have neglected to make your house payments for 18 consecutive months.

Actually to link short sale negotiators and loan modifiers together does a disservice to the short sale negotiators who do run legitimate businesses. These individuals and companies only get paid when the transaction closes. They do provide a service which does assist the listing agent in the negotiations with the lender. They are brought into the transaction by the listing agent for numerous reasons. The agent may not understand the complexities of a short sale, may think too much time and follow up is involved, or has failed to become certified in dealing with distressed properties. For whatever reason, they prefer not to get involved. Actually, I don’t have a problem with that at all. I’m sure some of these third party companies are very good at what they do.

The issue I have with this is that a select few of these listing agents expect the buyers agent to participate in the cost of compensating these “third party” providers.

It bothers me that some agents try to pass themselves off as being knowledgeable about how to transact a short sale. RE/MAX has taken the lead and has more qualified agents that deal with distressed properties than other companies. We have put together a special short sale website to assist homeowners with questions and have also spent the money to receive the proper training and education credentials required to specialize in this industry.

I think the worst rule in golf is when a player hits his ball in the middle of the fairway only to find it has come to rest in a divot, and from there it must be played. The player before was not penalized. He was in the middle of the fairway and was rewarded for his effort. The player that followed was penalized for his misfortune. By thinking I need to split the cost of your third party assistant in essence your asking me to play form your divot.

You want to use a short sale negotiator? Fine, go ahead. Just don’t ask the agent on the other side of the transaction to subsidize your side of the business. This is a decision you made. Pay for it yourself!

If you have been reading this blog or other real estate publications or just the newspaper (does anyone read the newspaper anymore?) you probably are aware that short sales are being marketed as a viable alternative to a foreclosure.

If a short sale is truly a panacea for homeowners in distress (think of a woodpile) then as with most woodpiles, things may not be as cut and dried as they seem. For instance, there may be snakes in the woodpile. Some homeowners are finding out there may be a lot of snakes in the woodpile which are taking shape in the form of taxes. Like most people, you are probably afraid of snakes.

In California when you purchase your home, you have what is known as a purchase money mortgage. Sounds simple; its the original loan you receive to obtain your residence and it affords you a protection known as an anti-deficiency, meaning the homeowners liability on the mortgage is limited to the property itself. As the video explains, once you refinance your property you may lose the protections you are entitled to under a purchase money mortgage. The California Association of Realtors is calling for passage of Senate Bill 1178. If passed this bill would afford additional protections to homeowners who have refinanced. Rather than summarize the proposed legislation, watch this short video. It provides a great explanation.

Full Disclosure?

When most people used a Home Equity loan, my guess is they understood the home became the collateral. Don’t pay and you can lose your house. You were provided with a 3 day right of rescission to think about it. My question is how many people understood the foreclosure ramifications when they chose to refinance their home? Was this a conversation you had with your lender?

The issue here is how to avoid your exposure to the snakes. The answer is to seek the guidance of the appropriate professional be it legal or tax.

For more information refer to the Mortgage Forgiveness and Debt Relief Act.

After looking at all of this information the only thing that seems certain at this point is uncertainty.

The number of foreclosures continue to grow

Risk vs Reward

Apparently homeowners are not under any pressure to vacate the premises. Why go somewhere else where you would be expected to pay rent? If you can continue to live in your home and not make a payment for 12 to 18 months has this become the new defacto economic stimulus? As more homeowners realize there is no inherent risk of being evicted, has neglecting house payment’s become financial salvation?

A $500,000 mortgage at 6% is about $3000/month. Not making that monthly payment for 12 months is a $36,000 savings and assuming the selling price of the house was $500k you can throw in another $7500 in property taxes. When was the last time you added $43,500 in discretionary income to your bottom line? As Washington ponders the next unsuccessful program for homeowners in distress, wouldn’t it be much simpler to provide a restructuring of a 4% mortgage and then if a homeowner falls behind again the repo man cometh. It’s difficult to understand how we can have a selective housing/foreclosure program subject to the shortest straw.

Pro or Con?

There seems to be agreement regarding the positive impact of the programs designed to assist and incentivise homebuyers. A stimulus if you will. Where consternation does seem to exist is the benefit being received by homeowner’s who are underwater on their home. I’m hesitant to use foreclosure because a “Notice of Default’ may not yet be filed, but there may be little doubt it will soon be on the way.

Numerous articles have appeared about the lack of success of loan modifications. Many of the qualifications required to successfully achieve a modification or the almost unheard of principal reduction, required financial verification that distressed homeowners simply cannot provide. Anecdotal information also suggests that financial institutions are being lenient with homeowner’s (principal residence) who are not making their house payment. Evidence indicates auction dates are being postponed to allow property owner’s every opportunity to meet their obligation. Investors on the other hand who are behind on payments are not enjoying the same benefits.

The Feds Step In

A new program being proposed would give homeowners more time to qualify for federal programs designed to avoid foreclosure. In other words after your application for a modification has been denied you would now have 30 days to respond and appeal. The bottom line is the lender could not proceed with a foreclosure. More T I M E for the property owner.

If lenders will now be required to provide written certification as to why an applicant was denied a modification, look for more information on this subject in the future. Someone (government bureaucrat) will develop written guidelines as to who and what qualifies. I think lenders will be demanding more guidance from the federal government because the last thing they want to do is have their approval or denial appear subjective.

Apparently the most successful program designed for homeowner’s in distress isn’t reduced monthly payments, but increased time. Twelve or more months of missed house payments can go a long way towards financial security.

Could people in 1849 receive more reliable information than they do today, 160 years later? Was a text message delivered by carrier pigeon, a better source of communication than the same message delivered over the Verizon network?

The point attempting to be made is in this present day, information age, technology at your fingertips society; how can so many myths and misconceptions about short sales and foreclosures be so prevalent?

Many homeowners who find themselves in the unenviable position of owing more money on their home than it is worth worry about incurring additional debt in the sale process. Some homeowner’s will incorrectly assume that the bank will pursue a deficiency judgment against them, making them liable for the unpaid balance. Probably the biggest misconception is that foreclosure is inevitable and there are no alternatives, the house will be lost and the credit score destroyed in the process.

Suppose you found yourself in the position of missing your last 4 house payments as well as skipping the latest installment of the property taxes. Add to this the market value of your property has dropped $100,000 since you purchased it over three years ago. Perhaps you have suffered a financial hardship that has catapulted you into this situation that seems hopeless and unending.

This is where you need to look into the possibility of doing a short sale to sell your home.

While a short sale is not a panacea, its the closest thing we have to helping a homeowner in financial distress. Every day I see homes scheduled for auction as they progress through the foreclosure process and I wonder if the homeowner looked into the possibility of selling their home with the approval of their mortgage lender in the short sale process. Help is available, why aren’t more consumer’s finding it?

For whatever reason, some homeowner’s seem content to let the foreclosure process take its course. I think it’s due more to a lack of knowledge regarding the alternatives than it is just to accept what may seem inevitable.

Shhh, I Cannot Hear For The Noise

With all of the communication channels we have available today, you would think consumers would be aware of the choices they have and where to turn. However, just the opposite may be true. Perhaps we have become reluctant to leave another voice message on a prerecorded customer service phone line, knowing that the call will not be returned or that our request for assistance will ultimately be denied.

Maybe things haven’t changed that much after all in the last 160 years. People are still having to sift through a lot of sand to find that one lucky nugget.