Short Sales

2008 Oct 4th

The Consumer Bailout For Home Owners That Nobody Seems to Know About

Categories: Foreclosures & Bank Owned, Short Sales

Here is a great article I just came across that I wanted to pass on to potentially help some home owners that are struggling right now here locally in Santa Barbara as well as nationally.

I have copied and pasted below the first section of the article exacty as it appears on the RISMEDIA website.

“RISMEDIA, Oct. 1, 2008-As congress considers various bailout proposals for the financial system, there is a little known ‘bailout’ for home owners that has already been enacted into law, according to Gibran Nicholas, Chairman of the CMPS Institute, an organization that certifies mortgage bankers and brokers. Section 1403 of the new housing bill that was signed into law on July 30, 2008 (HR 3221) requires mortgage servicers to modify loans for homeowners and help them avoid foreclosure as long as three requirements are met:

1. Default on the mortgage either has already happened or is “reasonably foreseeable”

2. The home owner is living in the property as his or her primary residence

3. The lender is likely to recover more through the loan modification or workout than by forcing the home owner into foreclosure

“The fact is that this law is effective immediately, and most distressed home owners are simply not aware that they have this option,” Nicholas said. Borrowers make their monthly payments to mortgage servicers, and servicers keep a portion of the payment as their profit while sending the rest to the Wall Street investors who actually own the mortgage. “This law requires servicers to act in the best interest of all their investors and obligates them to modify your loan if you can afford the modified loan terms and if they are likely to recover more for their investors by working with you than by going all the way through the foreclosure process,” Nicholas said.”

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Are Short Sales a Good Path to Santa Barbara Real Estate Ownership?

Categories: Buyer's Resources & Advice, Seller's Resources & Advice, Short Sales

Are short sales in Santa Barbara an option? At the beginning of 2008, I wrote a few articles about short sales and foreclosures in our local areas here in Santa Barbara, Goleta and Carpinteria. At that point, we had only seen a handful of foreclosures in our areas and most of these were in the entry level condo market from the $300,000 to $650,000 price point as well as track homes from the $590,000 to $800,000 price point. Short sales were also just starting to creep up in our local areas within the same market and price points.

Now in the last several weeks, we have started to see a definite increase in short sales with many sellers looking at short sales as a great opportunity to attempt to sell their home and many buyers looking at short sales as a great opportunity to get into the market here in the Santa Barbara area.

Here is the Catch: Not all short sales are actually going to be sold…in fact most won’t from what we are seeing. Ruth Simon and James Hagerty have written a very informative article in the Wall Street Journal talking about this fact.

I myself have now represented both buyers and sellers with short sales here in that last few months and here is what I can recommend:

1) You have to be patient. Start to finish can take 3-4 months or more and offer many headaches.

2) Look at what the seller currently owes on the property. If they currently owe a lot more than the asking price (for example $650,000 and they are trying to sell if for $550,000 and you write an offer for $500,000), most likely the investor that buys up the loan from the lender will not accept your offer.

3) There is a definite difference if the seller has only a 1st or a 1st and a 2nd on the property or has refinanced the property or owns the property as a second home / investment.

4) If you are currently an active buyer, continue to look at properties for sale and don’t just count on the one property that you have an offer in on if it is a short sale. You don’t want to pass up 6-10 weeks of properties coming on the market to then learn that your offer is not going to be accepted.

If you have any questions…I would be happy to talk and share what I know.

View: Current Inventory of Short Sales in Santa Barbara

Any Great Short Sale Opportunities in Santa Barbara and Goleta CA?

Categories: Buyer's Resources & Advice, Short Sales

Over the last 4-6 months we have started to see an increase in the amount of short sales and foreclosures here in the Santa Barbara area…especially in the Goleta and Carpinteria areas. Almost all of these have predominantly fallen into the price point from $250,000 to $800,000.

Question - Is a short sale a great opportunity to buy a home for cheaper than market value?

Answer - It can be if you have the time, patience and the wherewithal to deal with a lot of potential frustration, uncertainty and waiting?

What is a short sale? - A short sale is simply an unfortunate situation where the current owner of the property owes more on the loan than what the going market value for the property is or can be sold for. For a buyer, this can be an opportunity to purchase a home at a definite discount. But it is not as easy as it seems on the surface.

Steps taken for a short sale:

1) The owner has to first contact the lender to let them know that they have learned (via comps and/or their Realtor) that the market value for their property is less than what they owe on the property. The seller then lets the lender know that they can no longer make the payments on the home and thus need to sell the home as a short sale. Lenders are obviously not excited to hear this and will do all they can to encourage the owner to keep making the payments if possible. Only once the owner finally says that they will not be able to continue to make the payments and need to sell, is it then determined that the home will now be a short sale.

2) The owner now has to market the property for sale, but herein lies the Catch-22 and the start of the waiting and headaches. At what price do you market the property for sale and at what price do you “accept” an offer since no one knows the exact price the lender will accept. To officially go into escrow, the lender has to approve of the purchase and the terms of the contract. If you then call the lender to talk about this, they will give you absolutely no guidance. Here is where the headaches start to manifest….the cart before the horse.

The lender will only respond to you about pricing, terms and the sale of the property once you have:

an explanation letter and proof of the hardship of the situation of the owner
an “accepted” purchase contract
proof of the buyer’s ability to purchase the home
copy of escrow instructions
estimated closing costs
previous tax return slips from the seller
employment paychecks from the seller
copy of a TDS
past bank statements and potentially several other documents from the seller

And here is where the headaches continue. Once you have all this documentation you have to fax it into the lender. There is still no point person for the entire transaction. Just fax it in to the number given and hope all goes well. The waiting now builds. After about 1 week you will most likely get a call from someone at the bank who lets you know that they have received all the correct documents that they need and a negotiator has been assigned to your case. Say thank you if this happens. If they don’t have all the correct documentation, one missing signature etc., you then have to obviously get this to them and then again wait for several days for a response. Finally they have everything and the real wait begins.

Over the last 6-10 months, the amount of short sales and foreclosures has increased so drastically for the lenders that it can take 5-9 weeks to get an accepted offer. Usually the listing agent will be called within 2 weeks after submitting all documentation to simply be notified that the case is progressing and a negotiator will call you “soon”. Finally after around 3-5 weeks they will send out an appraiser to do an official appraisal. This then will take another 1-2 weeks at least. Once the lender then determines that the appraisal is OK and the price and terms that the seller has “accepted” is OK, the lender still has to get approval from the investors who will be buying the loan. The investors ultimately determine whether the price and terms are acceptable and whether you now officially go into escrow. If they do not accept the terms then they will counter the buyer and you go from there.

Note* - During this entire 5-9 week period of waiting, any other offer(s) can be submitted at anytime and the bank will look at these. The potential buyers have no idea of whether their offer is acceptable or not, or whether one buyer has written only $1,000 higher than the other. The banks then have no obligation to accept either offer, or to counter one offer vs. the other.

If you do get your offer accepted after a general 5-9 weeks of waiting, then you have roughly a normal 30-45 days escrow to close on the property. And…the property is sold as is. Hopefully now you will not discover during a home inspection any repairs that are needed that are not acceptable to you based on your offer. Additionally, the buyer will have to stay in contact with their lender during this time to make sure that the loan they were “getting” is still a go. Most lenders can only lock a rate for 30-45 days and so your loan situation might change during this entire waiting period.

So…yes, if all does go well and you can deal with the waiting and potential headaches, you most likely will get an accepted offer at somewhat below market value.

View: Current Inventory of Short Sales in Santa Barbara CA