Archive | Short Sale
With a new decade just begun, it’s interesting to look back at where we’ve been these past 10 years. In 2002, there were 1023 single family homes sold in the Truckee/Lake Tahoe area, with a median price of $397,500. By 2006, we reached the peak of market value, at a median price of $680,000. Now, at the end of 2009, we’re down to a median price of $512,000, a total decrease of 25% in median value from the high in 2006, yet a 29% increase since 2002. However, this year has also seen an increase in number of homes sold (787), up 20% from the low in 2008 of 655.
In looking at the Tahoe Donner subdivision in Truckee, which comprises the largest percentage of the sales in the overall area, the statistics are similar. In 2002, there were 302 single family homes sold, with a median price of $495,000. The highest median market value was reached in 2005, at $765,000. At the end of 2009, the median price is at $568,500, again, a 25% drop since the high in 2005, yet still a 29% increase from where we were in 2002. And similar to the picture for the entire area, the number of homes sold in 2009 in Tahoe Donner (225) was up 16.5% from 2008.
During the past year, we’ve seen our share of distressed properties come on the market, although not near as many as many areas of our state and country. Of the 787 single family homes that sold in 2009, 127 (16%) were foreclosures and 85 (11%) were “short sales”. We currently have only 23 foreclosure properties active on the market (3% of the total inventory available), and 102 “short sales”, comprising 14%.
As we look towards this new decade, we’re excited about the opportunities in our industry that will hopefully allow many more buyers to realize their dreams of home ownership, be it here in our mountain paradise, or wherever their dreams may take them.
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As a Real Estate Broker, focused primarily on distressed property sales, I can honestly say that I have. August – October of this year I was just about as busy as I have ever been in the business of Real Estate. Most the people I chat with in Mortgage, Title, Inspection Services, etc. say the same thing. The transactions were typically affordable in nature but it was nice to see a lot of them. More importantly there was a sense of urgency in the market-place. In certain price ranges and neighborhoods demand clearly exceeded supply. When considering the following points I can’t help but feel as if another shoe is about to drop.
- The extension and expansion of the credit has left some recent buyers wondering why they were in such a big hurry. Meanwhile some would-be buyers are feeling a little less confident. All are worried they will or have paid too much.
- Housing demand is typically created by one or more of the following: Household formation, employment opportunities, attractive financing and the lure of home equity. All of these are lacking in my market.
- I sense that many if not most of the recent first-time buyers would have eventually purchased a home regardless. The looming expiration of the tax credit served to get them of the fence. This created a somewhat false demand.
In short I do think we’ll suffer a bit of a hang-over this next year. As a generality banks are holding a bit firmer to their prices when dealing with fore-closed properties. I do expect interest rates to rise at some point. Short sales are just as mixed up as they ever have been. It will be interesting to see how things turn out for the big auto companies after the “cash for clunkers” revenue stops showing up on their bottom line. Perhaps an indicator for the near future in our housing market.
That said, if you’re in the market for a home now, don’t be too concerned. Your income should be secure. The monthly payment should be conservative in relationship to your income. It needs to be the right house at a fair price. If all those pieces fall in place, I say go for it. Prices will inevitably rise & fall and I think the joy of home ownership has been relatively under-rated lately. Planting a tree or shrub wherever you wish, knocking a hole in the wall to hang the family heirloom or driving down your street to the “best” house on the street; some things are priceless.
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A good article for the Wall Street Journal.
Digging yourself out of a mortgage mess.
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Thirty-nine Dickson Realty agents have recently earned the prestigious Certified Distressed Property Expert (CDPE) designation, having completed extensive training in foreclosure avoidance and short sales. This is invaluable expertise to offer at a time when the area is ravaged by “distressed” homes in the foreclosure process.
Short sales allow the cash-strapped seller to repay the mortgage at the price that the home sells for, even though it is lower than what is owed on the property. With plummeting property values, this can save many people from foreclosure and even bankruptcy. More and more lenders are willing to consider short sales because they are much less costly than foreclosures.
In the Northern Nevada area, currently it is estimated that close to 1,800 homes are in danger of foreclosing. It is happening in all price ranges. Local experts say that even high-priced homes are not immune.
Dickson’s new CDPE designated agents: (shown)Teri Shields, Jeff Geisler, Tammy Olivas, Claudia Byrne, Chris Barns, Victoria King, Jill Deeter, Dan Rider, Andrea Green, Helen Graham, Beth Nitz, Amy Shocket, Mary Robinson, (not shown) Bonnie Beck, Cindy Henderson, Donna Clark, Ivy Cohen, Cyndi Dawson, Gary Edwards, Pam Eikleberry, Denise Fox, Jan Houston, Jen McDonald, Mandie Jensen, Christy Klinger, Anne Lavoy, Gerry Martin, Margie McIntyre, Dee McNeely, Brenda Mee, CJ Risley, Darlene Sharp, Jan Sluchak, Alison Elder, Norm Nicholls, Lil Schaller, Kane Schaller, Emily Sterling, and Maryann Truitt.
“Our job as REALTORS® has changed over the past several years. In our area, our number one goal is to help homeowners stay in their homes. If we are unable to do that then assisting them in a short sale may be a very viable option. A short sale doesn’t impact a homeowner’s credit as disastrously as a foreclosure does. A short sale usually nets the original lender more money and it does not devastate the neighborhood pricing. However working with lenders in a short sale situation can be very frustrating for sellers, for buyers and for real estate agents. We believe successful short sale closings require specialized training and we were pleased to have had 54 agents in this two-day training.” said Nancy Fennell, president of Dickson Realty. “In addition to this two day training, our firm holds monthly “short sale conversations” at each of our branch offices. We have sent our managers to short sale training around the country and we have pooled that information into our Short Sale Toolkit. Because policies and procedures change daily in this market, we find meeting monthly is a tremendous advantage for our agents. We are proud that our agents believe as we do in training, training and more training.”
Alex Charfen, founder of the Distressed Property Institute in Boca Raton, Fla., said that REALTORS such as these Dickson agents with the CDPE designation have valuable training in short sales that can offer the homeowner much better alternatives to foreclosure, which virtually destroys the credit rating. These experts have a better understanding of market conditions and can help sellers through the emotional experience, he said.
The Distressed Property Institute opened in January 2008 and provides training on-site and online. The CDPE is the premier designation for Realtors helping homeowners in distress and handling short sales.
To find our CDPE agents, visit us online at www.dicksonrealty.com or call any of our local offices: Caughlin Ranch 775.746.7000; Damonte Ranch 775 850.7000; Sparks 775.685.8800; Montreux 775.849.9444, or Truckee 530.587.
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So I’m trying to explain our market conditions to an entry level buyer. In this case he’s considering homes in the $120,000 range. Key points for him to consider:
Overall, inventory is relatively low with less than two months supply on the market now at this price point.
In this price range, in some areas we are actually seeing appreciation. It’s not uncommon to see multiple bids and often the price is actually bid up from the list price.- We may have some challenges with the purchase appraisal.
- The well priced, active inventory is dominated by REO’s & Short Sales
Sans the distressed inventory this is exactly how we counseled buyers when the market was hot (in my market ’03 – ’06). Kind of ironic under the circumstances and one would hope that consumers and real estate professionals proceed with some caution
The five year ARM’s originated during the boom are beginning to reset now. For many if not most homeowners a lack of equity makes refinancing impossible. Meaningful loan modifications are still pretty rare and short sales still anything but “short”. With this in mind we will undoubtedly see increased foreclosure activity and that will likely create another drop in median value. So how should we proceed?
Fist of all Buyers & Agents should talk about this. Some areas and types of properties are more vulnerable than others. For example smaller, poorly funded condo associations may really struggle if a significant number of homeowners stop paying dues.
Secondly focus on the monthly payment and long term tax benefit rather than the market value of the property. We often see monthly payments equal to or less than monthly rental value. For the moment we shouldn’t consider home equity our nest egg.
Buy conservatively. I know, there are a few ½ priced mansions out there and that can be alluring. I like to recommend that the buyer at least consider the possibility of hard financial times ahead. Contemplate job status, reserves and the length of time the buyer anticipates owning the home. I have a physician client that recently told me for the first time in his career he now has big gaps in his daily appt schedule. It seems that few people are immune from this downturn.
In short I think we all must keep our wits about us and learn from the recent past. Those that ignore history are doomed to repeat it…
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It is true that both foreclosure and short sales have serious consequences for homeowners faced with the inability to pay thier mortgages. The following are some of the ways homeowners are affected showing the difference between foreclosure and short sale. (Source: Distressed Property Institute)
PURCHASING A HOME IN THE FUTURE…
- Fannie Mae Insured Loans for Primary Residences - Foreclosure requires a 5 year wait before purchasing again vs. a 2 year wait if you sold through a short sale.
- Fannie Mae Insured Loand for Non-Primary Residences – Foreclosure requires a 7 year wait and short sale again will only require a 2 year wait.
- Future Loan Applications – On any 1003 application the borrower who has a foreclosure will have to mark “YES” to the questions “Have you had a property foreclosed upon or given title or deed in lieu thereof in the last 7 years?”, yet a borrower who has done a short sale will not have to answer yes to this question.
CREDIT HISTORY AND CREDIT SCORE
- Credit scores can be lowered anywhere from 250 to over 300 points with a foreclosure and will typically affect your credit score for over 3 years. With a short sale only late payments will show and after sale the mortage will be reported as paid or negotiated. The short sale’s affect can be as little as 50 points and can be as brief as 12 to 18 months.
- Credit history for foreclosure will remain as a public record on your credit history for 10 years or more. A short sale is not reported on a credit history, typicall it shows the mortgage was “paid in full, settled.”
EMPLOYMENT
- SECURITY CLEARANCE – If you have a security clearance, a foreclosure can result in a revokation of your clearance, where typcially a short sale on its own does not challenge a security clearance.
- Your current employment can be affected if your employer checks your credit regularly.
- Many employers are requiring credit checks when hiring for new positions. A foreclosure could challenge future employment opportunities.
DEFICIENCY JUDGEMENTS
- In 100% of foreclosures in Nevada the bank has the right to pursue a deficiency judgement. With a short sale the lender often agrees in writing to give up the right to pursue a deficiency judgement.
- With foreclosure the price the home sells for after the bank gets it back through the foreclosure process is often significantly less then the proceeds they would receive in a short sale. Thus the deficiency balance is typically much higher with a foreclosure than with a short sale.
There is a common misconception that foreclosure and shortsale are equal, but as you can see the truth is that the consequences of a short sale can be more favorable for homeowners.
If you or someone you know if facing foreclosure please contact me and I can help you understand the options available to you and give you referrals to others who can help.
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Whew! Resale, residential real estate inventory is down all over town. In some price ranges and areas we are actually seeing some appreciation. Anyone looking for a nice, well priced home in the $100,000 – $200,000 range can tell you that. Many banks, brokers, buyers & sellers are starting to truly understand the short sale process and we’re seeing a much higher rate of closing.
Foreclosure crisis over right? I think not! There are some serious issues looming, some are here now:
- Notice of Defaults: Up over 100% when measured against last year in Washoe County. The foreclosure moratorium (Winter ’08 – Spring ’09) put a cork in the bottle for a few months but we’d better brace for the next wave.
- Option ARM’s: This next wave will be different and not just a sub-prime problem anymore. These are often nice, sometimes upscale homes and lenders were often incentivized to get these borrowers as much credit as possible. These borrowers have (or sometimes had) good jobs and great credit. For many “Pick a Payment” sounded like a good idea at the time. The number of units (properties/loans) re-setting is quite similar when compared to the sub-prime mess. The total dollar volume of these loans is significantly greater.
- 5 stages of grief: Many Washoe County neighborhoods have depreciated 50 – 60% from the peak: Often these homeowners, not yet in distress, are either unaware or in some stage of denial. Besides, “Won’t the bank simply modify my loan”? I for one sure hope so but don’t hold much faith. I recently heard that over 70% of those borrowers granted loan modifications fell into default within 10 months.
- HVCC: The Home Valuation Code of Conduct was intended to head off some of the nepotism inherent in the relationship between the banks & appraisers. It worked and loan officers can no longer communicate with the appraisers. We’re now losing 25 – 30% of our transactions over failed appraisals. I can’t blame the appraisers, why not get conservative? This lame attempt to curb favoritism has created an absolute lack of accountability and favors the unskilled.
- Show me the money: China, Russia, Japan & many others are financing our low interest rates with their investment. That investment dropped significantly last month over fears that the US might be spending too much. Ya think??? No doubt they’ll come to the table with more funds in the future. It’s also likely they’ll want a greater return on investment or higher interest rates.
It’s going to be a long winter but I consider myself up to the task. It will likely fall in the laps of local Real Estate Professionals to fix it this time too.
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Many homeowners in the Reno-Sparks area are facing issues with mortgage delinquency and possibly foreclosure. This can be a very stressful time and knowing the process and where to go for help can be very beneficial. As a member of the Nevada Association of REALTORS Foreclosure Prevention Task Force, I have come across a very valuable tool for homeowners – “Nevada Foreclosure Information Workbook”. This booklet was compiled by the Nevda Statewide Foreclosure Prevention Taskforce. You can download this booklet from Nevada Department of Business and Industry’s website. Here is a link http://foreclosurehelp.nv.gov/Brochures/ForeclosureWorkbook.pdf.
The booklet covers topics like – Understanding Delinquency, Understanding Your Financial Situation, Know Your Mortgage, Know Your Options, Beware of Scams, Tools for the Homeowner, and Document Checklist for Dealing With Your Lender. There are also definitions for many of the terms you may need to know. There is also a list of resources.
If you are facing issues with delinquency the best thing you can do is take a pro-active approach and educate yourself on the process. This will enable you to have more successful results when dealing with your lender.
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Have you heard the term short sale and wondered what it really means? Well, a short sale is when a Seller’s lender agrees to let the property be sold for an amount that is short of the payoff amount of the Seller’s loan without requiring the Seller to pay the difference owed to the lender at close of escrow. Here are some of the factors that determine eligibility of a borrower for a short sale. At least these are some of the “rules” as we know them today. The rules for short sales seem to be changing daily and what one lender allows may not be acceptable to another lender and what works in one state may not be acceptable in another state.
Typically, the property involved has to be owner occupied and the Seller needs to have experienced a hardship. The hardship could be due to a loss of job, health issues, family issues, death, divorce, etc. There needs to be a legitimate reason why the owners are not able to afford their loan payments any longer. It also means that the borrower doesn’t have other assets that can be used, although some types of retirement accounts are excluded. In some cases the hardship could be caused by an increase in the monthly loan payments caused by an Adjustable Rate Mortgage (ARM). There were ARMs that were available five to seven years ago that had an interest rate lower than the fixed rate loans available at the time. Depending on the terms of the ARM the interest rate and payment would adjust in five years or seven years to a higher interest rate and the monthly payment would adjust accordingly. Many borrowers who obtained these ARMs planned to refinance their homes prior to the loan adjusting in five years or seven years. The problem is that the current value of the borrower’s home is less than the outstanding balance of the loan. So it isn’t possible to refinance to a better rate or to sell without bringing cash to the closing table. Unless, that is, the lender allows the sale in an amount short of the amount of the loan balance That’s why it’s called a Short Sale.
Following are some of the documents that your lender is likely to require in a hardship package. Typically the lender is looking for a one page hardship letter describing why you are asking for a short sale on your property, bank statements, tax returns, and thorough Financial Statement. Each lender has their own documents. Generally a lender will not approve a short sale until there is a potential purchaser who has submitted an Offer. Many times you can go to your lender’s website and find out exactly what they require.
In my next blog I’ll let you know what is likely to happen then.
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Wednesday, January 13, 2010 By: Lil Schaller
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