Short Sale Update

Short Sales are proliferating lately and the good news is that they are working through the system at a much faster pace than they did 2 years ago.

Again, the definition of a “short sale” is when a homeowner decides that he no longer can make the payments on a mortgage which is collateralized by a home that is no longer worth what it was when the mortgage was made.  When this happens, the homeowner works with his real estate professional to come up with a listing price that will sell the house.  Once a buyer is procured, the seller/homeowner agrees to a contract with that buyer subject to approval from the mortgagor.  2 years ago, the waiting time for the response from mortgagee was anywhere from 6 months to a year.  Now, the process has been streamlined and mortgagee acceptance can be accomplished in as little as 2 weeks.

One of the things that is making the “short sale” a viable exit for the underwater homeowner is the new State of California law ( in effect since July 15, 2011) prohibiting the mortgage lender from collecting a deficiency (the difference between the outstanding loan balance and the loan payoff received by the lender)  or obtaining a deficiency judgment for a short sale involving a loan secured by a one-to-four residential unit property.  This law applies to first trust deeds, second trust deeds and other junior trust deeds including equity lines of credit.  Prior to this new law, short sale deficiencies were only prohibited on first deeds of trust.

Furthermore, the new law SB 458 (anti-deficiency law) for short sales applies to owner-occupied or non-owner occupied properties. Non-owner occupied properties include rental properties, vacant homes, second homes or vacation homes.  This is definitely relevant in our area as there are many second home owners who are struggling with what to do about their properties that carry onerous mortgages.  While not forced to accept a short sale contract, the bank that holds the mortgage who does accept the contract will be bound by this law.

So, the California Association of Realtors Legal Services recaps the circumstances under which the California Anti-deficiency protection law applies for us here:

• Mortgage loan is solely secured by a deed of trust or mortgage;
• Mortgage loan is for a dwelling of not more than four units;
• Borrower sells the property for less than the outstanding loan balance;
• Lender provides written consent for the short sale;
• Title voluntarily transfer to a buyer by grant deed or other document of conveyance recorded in the county where the property is located; and
• Proceeds of the sale have been tendered to the lender or lender’s agent in accordance with the parties’ agreement.

There is nothing in this article however, that speaks to the sellers’ tax liability for the forgiven, either Federal or State.

As always, we would strongly urge anyone considering this form of sale to consult their attorney and/or tax accountant before making any decision.

Home Auctions as a Marketing Tool

Lately we have been seeing quite a few sellers using the private auction as a marketing tool to get their homes sold.  This tool is not a new invention, we have seen it used here about 20 years ago when there was a plethora of lots for sale in the Tahoe Donner Subdivision.  The auction was an effective tool for getting some of the inventory off of the market.  Today’s auction is somewhat different however.

Most often now the private auction is used as a tool by banks who have had to purchase the properties that they held loans against at trustees sale.  After they take the property back, the bank typically lists it on the multiple listing service with a local (sometimes not so local) real estate agent.  If the property does not sell, then some  banks employ the assistance of a private auction house such as Williams & Williams.  This marketing tool works well for the banks because they can lower the price of the home since they generally will not be paying anymore than 1-2% to a real estate agent who helps a buyer.  Some buyers will decide to skip the buyers’ agent altogether, thus lowering the overhead further for the bank.

One of the problems with this type of sale is that there is no “inspection contingency” period.  When a buyer and/or his/her agent put in a bid — be it on line, pre-auction or at the physical auction itself — they best be prepared to buy that house no matter what.  The auction house does offer to hold the house open for a couple of hours prior to the auction and if you employ a buyer’s agent, the auction house will give your agent that lockbox code so you can go inside the house and inspect but there is no formal “inspection” period and no opportunity to present the seller with a “request for repairs” as is typical in a standard transaction in California.

Each auction house handles their auctions differently so if you want to participate, you best be sure to read the fine print — usually published under “terms and conditions.”  There is no arguing with the auction house, either you play by their rules or you don’t play at all.  The good news is that you can get a super bargain by using this tool.  The bad news is that if you aren’t careful, you could “get what you paid for.”

We currently have a client who is involved with us in this Auction process.  There is a “physical” auction in Truckee for the home he wants but he has decided to place a pre-auction bid, which is just another story.

One of the things you can count on if you are involved in this real estate business is CHANGE!!  First there was the short sale, then REO sales and now this Auction sale.  If we don’t keep up with the changing market — we may as well get out.  Never a dull moment.

5 Things to Do Before You List your Home!!

There is some time to do a few things this winter to prepare yourself and your home to put it on the market.  Here are 5 really critical — and I might add — relatively inexpensive things to do to get ready:

1)  Get rid of your junk!! You don’t need it anymore.  You know that, give it away to someone else who thinks they need it.  Do it before the end of the year and you can get a credit for your tax deductible donation — hit the Hospice Thrift Store or the Salvation Army.

2)  Declutter your house. Invite a friend or better yet your real estate agent, over to give you their honest opinion of what needs to be out of your living room, bedroom or kitchen.  Sometimes it is difficult for us to see our own homes objectively.  Don’t get your feelings hurt.  Your friend or agent is just trying to help.  See above for suggestions on how to get rid of this stuff — if your child doesn’t want it.

3)  Paint, paint and paint — again.  Don’t do anything wild — no dark colored accent walls — just white or something like that.  You have enough time to take care of this between now and March — a room at a time.

4)  Spruce up your bathrooms.  This can be done with a minimal amount of $$$.  Some new sink fixtures or just some new towels and accessories.

5)  Clean out your kitchen cabinets and closets.  This is related to numbers 1 and 2 above.  You’ll feel better, especially when potential buyers open them and brooms and glasses don’t fall out.

The word for the year 2011 is SIMPLIFY!!! especially if you are thinking of selling.

Realtors Offer some Employment Insurance

This is the time of year when we really loose our momentum.  I am committed to continuing to blog — regularly.  So here is my offering today.

The National Association of Realtors announced their latest enticement for the buying public.  One of the reasons the real estate market has been taking so long to recover is that people are afraid of loosing their jobs.  Anyone can understand that concern in these times.  So, to try to allay that fear, Realtors are offering their buyers an insurance policy that will essentially pay up to $1000 or $1500 per month for 6 months if the borrower looses their job.  This insurance has a premium somewhat like a Home Warranty policy.  For the higher amount of coverage, one pays $275 (one time at close of escrow), the lower one $200.

There are some restrictions of course but basically this looks like a good deal.  The coverage is only for one year and the buyer cannot renew it.  It does only cover 6 months but this bit of help could be just what buyers need to get them off the fence and into their own home — at a time when everything else is giving them the green light!  If you are interested, read more here and contact us!

Way to go NAR!!  NOW, LET’S GET THE WORD OUT!!

Congress votes to extend temporary loan limits for Fannie & Freddie

I was speaking with my colleague Ephraim Schwartz yesterday trying to make sense of the news that Congress had voted to extend the temporary loan limits that had been put in place at the introduction of the economic stimulus package.  This, I thought, would be good information to put in our monthly newsletter.  I  studied up on it, regurgitated it onto paper then passed it over to him for editing.  Following his review, this is what “we” came up with.  I hope we did a better job than the articles I read because the articles left me in the dark.  I can imagine what the average lay person must go through.    Thank you Ephraim for making the muddy waters more clear. [Read more]

Next Page »