Short Sales
"Short sales" can become a possible way out for some borrower/ homeowners -- but it isn't an easy or smooth process.
A short sale occurs when a lender agrees to write off the portion of a mortgage that's higher than the value of a home -- provided there is a buyer willing to purchase the property. If there is plenty of inventory to choose from (like right now) and there is a choice between showing two identical homes with comparable pricing, but with one in a short sale situation, guess which one will get shown? Of course the one that doesn't require lengthy negotiations with the lender over taking less than the loan amount and waiving arrears and pre-payment penalties, and all the rest.
This process often takes over 45 to 60 days and more, and often well beyond the first buyer's patience in the process. There is no assurance that a lender will agree to take less than is owed on the property and allow escrow to close, and as Realtors we often find that even as negotiations with the lender come to a conclusion, it is with an agreement for a short sale that will apply to some subsequent buyer, the first buyer having given up on the property and gone on to buy a property that can close in a timely manner.
As the last recession gathered steam during the early-1990s some financially strapped homeowners turned to the short-sale bail-out option to unload homes and mortgages they could no longer afford. Lenders this time around are no more fond of actually taking properties back and will work with borrowers, but it does usually take a missed payment or two and a real distress condition before the lender will even consider a short sale. The technique can offer a softer landing than bankruptcies or foreclosures, but many homeowners may not survive the turbulence on the way down.
Click for How Do Short Sales Work?
If you think a short sale option is for you, please call us today at 661-287-9164 to schedule a confidential interview.
Click for a great Blog article on short sales in California.
Foreclosures
There is a lot of interest in buying bank owned properties these days. A lot of information, some good and some bad, is floating around about the subject. Often the information offered is for sale, with the promise that you can make a lot of money with little effort once you know the secret formula. The fact is that there are no secrets, and to make money does require effort.
Foreclosures in California are primarily administered out of court, although court foreclosures are allowed. Out-of-court foreclosures take about four months. Pre-foreclosure Period
Court foreclosures only occur if a lender desires a deficiency judgment. This process gives a borrower up to one year to redeem the property after the foreclosure sale.
In almost all cases, foreclosures are handled out of court. The process begins when a lender files a notice of default with the county recorder identifying the default amount and the date the borrower must pay off the default. The notice is mailed to the borrower and other affected parties.
Up to five business days before the trustee's sale, the borrower may pay off the default plus any applicable costs of foreclosure and stop the foreclosure process. Three months after the notice of default is filed, the lender can schedule a trustee's sale of the property.
Notice Of Sale / Auction
At least 20 days before the trustee's sale, the notice of sale must be posted on the property and in one local public location. The notice is also published once a week for three weeks in a local newspaper, starting at least 20 days before the sale date. The notice is mailed to the borrower at least 20 days before the sale and to anyone who requests the notice. The notice must contain the date, time, and location of the sale, the property address, and the trustee's contact information. In addition, the notice of sale must be recorded with the county recorder at least 14 days before the sale.
The trustee's sale is a public auction and the property is sold to the winning bidder. The trustee may require bidders to pay the full bid amount in cash or cashier's check. Anyone may bid at the sale, including the lender and any junior lien holders. A trustee's sale may be postponed by announcement at the sale. If a sale is postponed more than three times, a new notice of sale must be issued.
When buying a property during a foreclosure sale, you must pay at least the loan balance plus any interest and other fees accumulated during the foreclosure process. You must also be prepared to pay with cash in hand. And on top of all that, youll receive the property 100% as is. That could include existing liens and even current occupants that need to be evicted. Most private parties take a look at the potential pitfalls for them in this process, and unless they want to do this all the time, will pass and wait for the property to come on the market as an REO.
After the sale is complete, the trustee transfers ownership to the winning bidder. The borrower does not have the right to redeem the property after the sale.
Sale Prior to Foreclosure
Sale prior to foreclosure is generally better for both the borrower and the lender. For homes whose market value exceeds the loan amount and selling costs combined, selling the home prior to foreclosure completion will help preserve the credit standing of the seller, even if there is little or nothing in the way of proceeds from sale. If all costs including loan amount(s), arrears, penalties, liens, and selling costs exceed the market value, a successful sale can often still be completed prior to foreclosure (see Short Sale). Sometimes some amount may be required to be brought into escrow to close the sale. Every situation is a little different, and please call 661-287-9164 for a confidential interview and review of the options.
The Foreclosure Buyer
Buyers buy.
That statement might be self-evident, but too many people who have had the fleeting thought that they could make a financial killing buying foreclosure properties or have attended a foreclosure seminar or have visited a couple of websites self-describe themselves as a 'buyer'.
Buyers buy.
And buyers will meet me in my office and we will have a serious discussion about goals and their preparation and they will get pre-approved for a loan and they will hire me and will work with me and I will get them a screaming great deal.
It takes more than a casual phone call or passive MLS search to start all of our engines on your behalf. But for those who have serious intent... we are going to have fun and go out and get you a great deal!!
Contact us at 661-287-9164 and let's get started!
Whats an REO?
REO stands for Real Estate Owned. These are properties that have gone through foreclosure and are now owned by the bank or mortgage company. This is not the same as a property up for foreclosure auction. A REO, by contrast, is a much cleaner and attractive transaction. The REO property did not find a buyer during foreclosure auction. The bank now owns it. The bank will see to the removal of tax liens, evict occupants if needed and generally prepare for the issuance of a title insurance policy to the buyer at closing. Do be aware that REOs may be exempt from normal disclosure requirements. In California, for example, banks are exempt from giving a Transfer Disclosure Statement, a document that normally requires sellers to tell you about any defects they are aware of.
Is it a bargain?
Its commonly assumed that any REO must be a bargain and an opportunity for easy money. This simply isnt true. You have to be very careful about buying a REO if your intent is to make money off of it. While its true that the bank is typically anxious to sell it quickly, they are also strongly motivated to get as much as they can for it. When considering the value of a REO, you need to look closely at comparable sales in the neighborhood and be sure to take into account the time and cost of any repairs or remodeling needed to prepare the house for resale. The bargains with money making potential exist, and many people do very well buying foreclosures. But there are also many REOs that are not good buys and not likely to turn a profit. You really need to work with an experienced Realtor in this process.
Ready to make an offer?
Most banks have a REO department that your Realtor works with in buying a REO property from them. Typically the REO department will use a listing agent to get their REO properties listed on the local MLS. Before making your offer, youll want to contact your Realtor and find out as much as you can about what they know about the condition of the property and what their process is for receiving offers. Since banks almost always sell REO properties as is, youll want to be sure and include an inspection contingency in your offer that gives you time to check for hidden damage and terminate the offer if you find it. As with making any offer on real estate, youll make your offer more attractive if you can include documentation of your ability to pay, such as a pre-approval letter from a lender. After youve made your offer, you can expect the bank to make a counter offer. Then it will be up to you to decide whether to accept their counter, or offer a counter to the counter offer. Realize, you and your Realtor will be dealing with a process that probably involves multiple people at the bank, and they dont work evenings or weekends. Its not unusual for the process of offers and counter offers to take days or even weeks.
Sub-prime Loans And Foreclosures In California
By the California Association of Realtors
While the California housing market is showing signs of stability, attention has turned toward potential problems with sub-prime loans and other alternative loan products that have gained in use in recent years. (Briefly defined, sub-prime loans generally are loans to qualified individuals with credit scores below 620). Indeed, the use of sub-prime loans in California has climbed dramatically in recent years, accounting for less than five percent of loans outstanding for several years before climbing to roughly 14 percent of the total by 2003, based on data from the Mortgage Bankers Association (figures reported are not seasonally adjusted). Concerns center mainly on how many sub-prime borrowers will face foreclosure in the next couple of years, as their loans reset from lower teaser rates to fully indexed mortgage rates.
Delinquency rates provide an approximate measure of the potential downside risk in the months and years ahead. The delinquency rate for all loans in California as of the 4th Quarter of last year stood at 3.25 percent, compared to 5.31 percent for the US as a whole. California has fared better than other states around the country because its economy has continued to grow and add jobs in recent years. Moreover, it experienced much larger price gains in the first half of this decade compared to many other parts of the country.
Of all the sub-prime borrowers, the most threatened group consists of households who have sub-prime adjustable rate mortgages (ARMs). In the 4th Quarter of 2006, sub-prime ARMs made up 8.6 percent of the total number of loans outstanding in California. Of all sub-prime ARMs in California, 12.1 percent were delinquent as of the 4th Quarter, and accounted for 1.04 percent of total loans outstanding. Only a fraction of all delinquent loans will actually go into foreclosure because of measures taken by lenders to prevent costly foreclosures. For borrowers who face temporary problems, these include delaying payments for a short period of time or scheduling a lump sum payment in the near future. For borrowers with more severe problems, alternatives include short sales or mortgage forgiveness. At present, it is anticipated that the proportion of foreclosures in California should be near the long-run average of just under one percent.
The loans posing the greatest risk of delinquency and/or foreclosure were underwritten in 2005 and 2006, with many of these loans facing resets in 2007 and 2008. Numerically, there were many more loans in 2005 -- the record year for California home sales -- than in 2006, so the 2005 cohort of loans is most worrisome. Given the timing of the resets, the greatest stress on the market and the economy should be in 2007 and 2008.
The negative impact of sub-prime loans in California is likely to be limited to sub-prime borrowers -- mainly those holding sub-prime ARMs -- and to lenders who relied heavily on the sub-prime market segment for their business in recent years. Risks loom largest for marginally qualified households in newer developments with a concentration of borrowers holding sub-prime loans. If payment resets force a few of these households into foreclosure, property appraisals may suffer, and may have a potentially adverse impact on others in the development when they seek to refinance their homes. Spillovers to well-qualified borrowers or other neighborhoods should be minimal. Also, assuming the foreclosure rate remains near the long-run average and the economy avoids recession, the risk to the overall housing market and the general economy should be manageable. That said, the market has not dealt with this type of situation in the past, so the likely outcome is difficult to gauge.
~~ SRAR website April 2007 |