How Long to Wait to Buy After Foreclosure or Other Negative Event

According to The State of the Nation's Housing 2015 report published by Harvard University, "Up to 1 million households who lost their homes to foreclosure have already restored their credit standing, making them again eligible for FHA and other mortgages, and 1.5 million more could do so shortly."

Return buyers are coming back into the market, and will continue to do so, but one of the problems is, many buyers out of the millions who were foreclosed upon between 2008 and 2014 are not aware of the guidelines under which they may repurchase. Plus, many buyers are under the impression that all purchases for owner occupied mortgages require a 20% down purchase.  This is not a mandatory requirement but depends on which kind of loan being applied for, and how long it's been since the negative event was concluded in the past. Briefly, FHA loans allow for a minimum of 3.5% down, VA has similar program, and conventional loans may be 5%-10% down and offer different interest rates and scenarios for the buyer.  Twenty percent down loans are great to have, but many people cannot meet that level, so please understand there are other options.

A lot of buyers who suffered a financial hardship in the past are genuinely surprised when they realize that the FHA or VA loan allows them to purchase again after just 1-3 years, depending on circumstances. Let’s take a look at the 2016 mortgage waiting periods:

AFTER FORECLOSURE:
Conventional loan:  Close of escrow, meaning new loan date, must be 7 years from foreclosure date.  And, under a new rule, if you included the foreclosure in a bankruptcy, you can qualify after 4 years instead of 7 years. Contact your lender for more details on how to qualify under this new rule.

FHA  It is 3 years before you can repurchase again using FHA financing. Contact your lender to find out how you may quality after just one year (this means meeting "special circumstances" which fewer borrowers will be able to meet).

VA.  It is only 2 years before you can repurchase again using VA financing.

AFTER A SHORT SALE:

Conventional.  It is 4 years before you can repurchase again using Conventional financing.
New Rule: There was a new change implemented recently (see below), whereby if you included the short sale in a bankruptcy 13, you can qualify after 2 years instead of 4 years.

FHA. It is 3 years before a buyer can repurchase again using FHA financing. But there are 2 less commonly used ways to help you qualify in less than 3 years if you can meet them under suffering an "economic event" as defined by FHA.  Contact your lender for more information on this, but be aware that showing loss of income and other events must be documented and approved in the loan.

VA. It is only 2 years you can repurchase again using VA financing.

AFTER BANKRUPTCY:
Here are the current 2016 waiting periods when you can purchase or refinance again after a Bankruptcy and want to obtain either Conventional, FHA or VA financing.

Conventional. For a chapter 7 Bankruptcy it is 4 years and 2 years for a chapter 13 bankruptcy, before you can repurchase again using Conventional financing.

FHA. For a chapter 7 Bankruptcy it is 2 years and 1 year for a chapter 13, before you can repurchase again using FHA financing. Or, see above for how you can qualify again after just 1 year if you experienced an economic event.

VA. For a chapter 7 Bankruptcy it is 2 years, and 1 year for a chapter 13 bankruptcy, before you can repurchase again using VA financing.

Another option if you want an alternative to these guidelines, is a portfolio lender (a loan that is not  re-sold on the market after close of escrow), which may be an option, but there may be higher loan rates.

To find out your eligibility, I can help you with finding resources to doublecheck on dates, so please contact me, or, contact a lender if you know one who is well-versed in these guidelines, to find out your eligibility for a mortgage.

The Technicalities of Reverse Mortgages: Are You a Non-Borrower Spouse?

Could the lady in this photo be someone in your family?

 Per a HUD (the overseer for reverse mortgages) statement dated September 4, 2013, reverse mortgage borrowers are advised that the both the borrower and his/her spouse should be counseled:  "One main concern for the non-borrower spouse is when the borrowing spouse passes away and the loan becomes due and payable. More often than not, the surviving nonborrower spouse, who is not on the deed, may not be able to pay the balance due or meet the criteria to qualify for a HECM of their own on the property in order to remain in the property. During counseling, all parties must be made aware that the HECM cannot be assumed by the non-borrower spouse." 

A non-borrower spouse may not have protection, and may be forced into a foreclosure situation if he or she is not able to buy out the reverse mortgage.  In a situation involving a 92-year-old widow in Arizona, this article outlines the action ultimately taken because of intervention by the Consumer Financial Protection Bureau (CFPB) when appealed to by the woman's son, where Bank of America bought the reverse mortgage after the widow claimed she was unaware that her name was not put on the loan, and the Bank stopped its foreclosure action and allowed her to continue living in her home. 

This Arizona story is not an everyday scenario, however, so the counseling described above is designed to make the parties aware of the position a non-borrower surviving spouse could be put in after a spouse's death or permanent placement in a facility, because, according to the HUD guidelines, the loan is then due and payable.  And how soon is "due and payable"?  Per All Reverse Mortgage Company's site: if a borrower passes away or
"if a borrower is forced to go to a hospital for more than 12 consecutive months and there is not still one original borrower remaining in the home (not a family member, but a borrower who is on the loan), then the loan shall become Due and Payable and must be paid in full at that time," also, a borrower is urged to contact the servicer if he/she plans to be away for an "extended vacation".  This is important because a reverse mortgage requires the borrower(s) to reside in the property as their principal residence, however, that doesn't mean people don't take trips, so communication is important. 

For borrowers interested in future application for a reverse mortgage, as of March 2, 2015, lenders will be required to review their:

• Credit reports.
• Payment histories on property taxes, homeowners association fees and hazard insurance premiums.
• Income from full-time and part-time employment, Social Security, pension funds, regular draws on IRAs and 401(k) accounts, plus any earnings on investments.
• Recurring household debt obligations.

FHA wants lenders to come up with a cash flow and residual income analysis.

 For further help on this topic, please contact me directly and I will be happy to refer you to a qualified reverse mortgage lender. 

One technicality tucked away in FHA’s regulations can snag owners whose spouse dies after taking out the reverse mortgage. If the surviving spouse’s name does not appear on the mortgage documents, the outstanding debt balance becomes due and payable. If the surviving spouse can’t afford to buy the house to make the payoff, the property may be put up for foreclosure sale. - See more at: http://therealdeal.com/blog/2013/03/01/232102/#sthash.Oty7WfpJ.dpuf

Are Flipped Properties Always a Good Deal?

While many buyers these days have gained more knowledge about obtaining disclosures when buying a property, they don't always know what to ask for.

Walking in to a clean, newly painted home with brand new flooring and granite counters in the kitchen and bathrooms is often a time of easy decision-making, largely because of the assumptions made by buyers and oftentimes their agents. 

The buyer is urged however, to look more closely, because many flipped properties were bought out o foreclosure by an investor.  Investors are just that--they are looking for ways to maximize profit by buying homes they can realize a profit on, so if they buy a "fixer", they are usually experienced in knowing how much money to spend in that local market in order to come away with cash after the sale.

In some cases, property enhancements are reasonably good quality, after all, no one can expect an investor to fix up a property with the most expensive custom  features available.  However, buyers need to still take a careful look, and ask for as much information as possible from the seller.  Just because it's an investor doesn't mean he/she is exempt from disclosure.  One of the fastest ways to find the prior condition of the property is to look for the previous listing's photographs (but many times there is only one exterior photograph, the required minimum for the MLS) and property remarks, which may be revealing.

There is not necessarily a horror story behind every foreclosed property, but more commonly there may be prior deferred maintenance because the prior owner could not keep up a property due to long-term financial problems which led to the foreclosure.  And, the prior owner may have blown his/her budget and spent a lot of money upgrading the house, and then ran out of money.  Either way, the current buyer should go to some effort to find out as much history as possible on a flipped property.

Barbara Nichols, owner of a general contracting firm in Beverly Hills and an expert witness for real estate lawsuits, advises buyers to ask such questions as:

• What was the property's condition when it was taken back in foreclosure?
• Are there receipts from licensed contractors for work performed by seller?
• Is there written documentation on what was done to correct defective conditions?
• Were there unrepaired defects?
• What work was done by a handyman? 
• What work was done with permits, and what work was done without permits?

Finding out if work was done by a licensed contractor is significant, because if the seller is claiming that thousands of dollars of improvements were made, it should be done with permits and not by a handyman.

Will all flippers be able to answer these questions to the buyer's satisfaction? The buyer will have the chance to find out, and then decide if he/she wishes to go forward with the sale by the time their contract contingencies are acted upon.



See the story here.

Eliminating Your Second Lien -- Do Some Checking First

Under a new program by offered by Bank of America for home mortgage second liens, about 150,000 of its borrowers are being contacted to apply for full forgiveness.  Based on the total dollar amount forgiven so far for the number of borrowers, the average is about $69,000. 

If you're currently in a short sale, this could potentially cause a delay, or worse, if you're already on track for closing on the first and time is running as you approach your closing date.  The release time required for completion of the second loan is running about 90 days, so accepting that release will result in a delay of your short sale, or even worse, a loss of that transaction if the investor/servicer on the first will no extend time to close.

Make sure you're really going to get freedom from a difficult mortgage burden.  Say you're not in a short sale, and you receive the offer from Bank of America or one of the other major banks, make sure you get a proper estimate of your home's value from a professional.   If your first loan balance is about $465,000, and your second balance is still around $45,000-$50,000 because you got an 80/10/10 loan (you had 10% down payment, and got a 10% second mortgage) getting your second loan released won't do you any good right now because it will not put you into an equity position--I forgot to mention, you just found out that at best your house is currently worth $450,000 from your neighborhood REALTOR who has checked all the sales within the last 4-6 months in your neighborhood.  If releasing that lien puts you into an equity position, and you're not under a short sale timeline that cannot be extended, then the second lien forgiveness program could be for you.  But make sure you read the entire letter, because if your first is currently in default and on a foreclosure track, getting the second forgiven will not prevent the first's foreclosure. That will still require separate action to stop the foreclosure (there can be different banks and/or different investors on each loan).  Bank of America also makes is very clear that they are choosing who gets invited to this event, you as the borrower cannot pursue it without being invited. (It's not personal, it's just that there are many conditions affecting second mortgage liens.) The fact is, Bank of America took over Countrywide's loans, and Countrywide did a lot of "piggyback" loans, which are probably some of the seconds that are part of this offer. 

It's also wise to review beforehand any possible impact to your credit score (debt cancellation may actually impact your score), reporting to the IRS, and any bankruptcy issues you may have.

If you need an estimate of value on your Long Beach, Cerritos, Lakewood, Seal Beach home, or somewhere near these cities, please contact me.  If you would like more information about a short sale and you're in Long Beach, Cerritos, Lakewood, or in Los Angeles County or Orange County, please contact me.

Julia Huntsman.REALTOR®, CDPE, e-PRO®, SFR, Broker

and don't forget to "like" us at www.facebook.com/longbeachhomesandcondos

The Potection of the Mortgage Debt Relief Act Coming to End

With some recent news about positive signs in the real estate market, some owners may be taking the pressure off themselves.  However, the national statistics seem to indicate that about 30% of properties nationwide are in negative equity.

The federal Mortgage Debt Relief Act was passed at the end 2007 to allow homeowners debt relief on their principal residences if foreclosed on or sold in a short sale. California later passed a bill also helping homeowners in this situation.  Currently, it is set to expire at the end of 2012, meaning that if the deadline is not extended by Congress, owners after that date will be responsible for debt after a foreclosure or a short sale. Previous to this Act, the amount forgiven in a short sale, or walked away from in a foreclosure, was treated as "phantom income" to the owner, and taxed.  California's Debt Forgiveness Relief Act also expires as of January 1, 2013.

So, after December 31, 2012, if a property is approved by the bank in a short sale and sold for

California Foreclosure Study by San Francisco Assessor

This information just came in this afternoon to me from Duane Gomer, a real estate trainer active in the real estate market:

The San Francisco Assessor commissioned a foreclosure study during 2009 and 2011. The results are revealing and stunning to me and I’ve studied this market for decades. For example: 1 – 99% had irregularities, 2 – 84% had violation of law, 3 – 75% had issues with the assignments of the trust deeds, 4 – 84% had problems with the substitution of trustees, 5 – 59% had evidence of backdating, 6 – 45% the foreclosing party had never been assigned the loan. The Assessor’s conclusion: The California Non-Judicial Foreclosure System is “utterly broken” and needs repair.

Just as further comment, the California non-judicial foreclosure law and procedures is explicitly spelled out in California code. 

This study of 382 San Francisco homes between 2009 and 2011 was conducted by a Newport Beach-based company, and a February 2012 Orange County Register article goes into more detail here.

Which is Better, A Longer or Shorter Turnaround Time For the Distressed Owner? Or, Buying. After a Short. Sale

Do you picture yourself here someday? or someplace like this?

I can't guarantee anything, but the likelihood that your life will turn better faster might be greater if you consider how quickly you (or someone you know) can shorten the time it takes to obtain a loan in the future.

Many people have friends and family members struggling with their situation, and all too often, they think foreclosure and/or bankruptcy are their best avenues--when they haven't really gotten all the information they could yet.  If you know someone like this, please share these guidelines with them because they can make a big difference for them in the future for the next several years:

• FHA loan -- After a foreclosure, pre-foreclosure, short sale, or a deed-in-lieu, a homebuyer may obtain an FHA loan 3 years after the date of the event. The FICO score requirement today is about 620-640. (There may be exceptions to this time period, if you can prove the default was beyond your control.)
• VA loan--After a bankruptcy, foreclosure, deed-in-lieu or short sale, a homebuyer may be able to obtain a VA loan 2 years later, with re-established credit.
• FHA loan & Bankruptcy--After a Chapter 7 bankruptcy, a buyer may be able to obtain an FHA loan 2 years later, with re-established credit. Chapter 13 requires 1 year of payout and court approval for a mortgage.
• Conventional loan -- After a pre-foreclosure sale/short sale or deed in lieu, a conventional loan requires 2 years from the completion date to get a 20% down loan, 4 years from completion to get a 10% down loan, and 7 years to obtain maximum financing loans. 
• Conventional loan and foreclosure--It takes 7 years to obtain a conventional loan, and re-established credit.
• Conventional loan & Bankruptcy--Chapter 7 requires 4 years, and re-established credit; Chapter 13 requires 2 years with a discharged BK, and 4 years with a dismissed BK. There can be no 30-day lates in previous 12 months.

Finally, a foreclosure stays on the credit report for 10 years, for all employers, insurance companies and others investigating your credit worthiness to see, regardless of how you've moved on.  A short sale's impact on your credit rating may be considerably less severe over a shorter period of time due to type of entry made, short sale negotation with the bank and depending on the policy of the servicer/investor.

Not all short sale situations succeed, unfortunately, and there are many reasons for this. However, banks would still prefer to do a short sale than a foreclosure: they don't want REO inventory, and they almost always recoup more money doing a short sale.

The banks come out ahead, and so do you, if you can do a short sale.  Doesn't it make sense to choose the option that would allow you to become a homeowner faster in the future, as well as the option that would have less impact on your long-term credit? And then someday you could be back here again--sooner.

Credit Impacts on a Short Sale? You Make the Call

I try to help people with this question: short sale or foreclosure, which is the better option? For most people, my reaction is, “Short sale, of course!” This has been mostly because I was always under the impression that a short sale, although still a ding on your credit, was easier on the score than a foreclosure.



But for some time, other sources have been saying, and according to a recent blog post by FICO Banking Analytics, that there is no real difference in the effect a short sale or a foreclosure has on your credit score. Supposedly, both the impact in points and the time to fully recover is about the same for both events.


But all this time I believed that the short sale was superior to foreclosure, largely because of its less adverse effects on credit. So I was forced to do further research into which was the better option. In doing so I learned about benefits of a short sale I wasn’t even aware of, and found that the FICO blog was not true all the time for everyone.


The fact is, each borrower’s credit situation is different, and the way that a creditor reports a short sale to bureaus is different. The reality is that hundreds of thousands of distressed homeowners who have chosen a short sale have experienced a lesser impact on their credit than those who have chosen foreclosure. One of the differences, for example, is how long the borrower had been delinquent on payments prior to the short sale, along with other credit factors.


And, another very big mitigating factor is that in a short sale, a distressed homeowner may be able to obtain another mortgage sooner than someone who has a foreclosure on his or her record. Did you know that more and more employers pull credit before hiring a potential employee, and a foreclosure might keep you from getting a job. Some employers pull credit reports on existing employees, and a foreclosure may not bode well for job advancement in certain industries.
To see a special report, go to www.juliahuntsman.com/briefcase/29690_526201142402PM32754.pdf  which can be downloaded.

These benefits stacked against the negatives of foreclosure, including the embarrassment of public announcement and literally being kicked out of your home, make, in my opinion, short sale the reigning champion.



Now you make the call!

What Do You Do After Finding Out About the Notice of Default?

What if you have a Notice of Default recorded on your property? What then?
This is what happens when your bank or loan servicer no longer is receiving your mortgage payments, and they initiate legal action as stated in your loan documents, and according to California state law.

Once you start down this path, it can be a tough course to change unless you have the financial resources to pay the bank past due payments, plus interest and penalties.

Non payment can occur because your income has been reduced, you lost your job, your payment is going to increase above your means, and last, but not least, you wanted to get a loan modification and you were advised to stop making your payments.
The last reason is a common one, but it can lead the borrower down the wrong path. By the time he/she is behind 2-3 months in payments, it may turn out the homeowner does not qualify for the loan modification program. We hope you didn't pay anyone fees up front, because that's illegal now. PLEASE do not pay anyone an upfront fee for a loan modification, and get a second opinion at least before you stop making payments.
Your credit score will drop and the effect will continue as long as payments are not made, because every month the bank is reporting another 30-day late payment.
You have about 111 days from the recordation date until the time of the foreclosure sale. If your loan was made between Jan. 1, 2003 and Dec. 31. 2007, there is an additional 30 days for the lender to contact the borrower.  The Notice of Sale is usually recorded 20 days before the end of that period.
What can you do? 1) Pay your loan and make it current. 2) Put it on the market to sell it, either as a "regular" sale or a short sale depending on your loan-to-value plus costs of sale. 3) Rent it out, if you think market rent will cover the monthly costs, or your income will be able to make up the difference. 4) Try giving it back to the bank if there's only a first mortgage--if there's a 2nd with a different lender a deed-in-lieu will probably not work.

If you have considered all your options and you can't keep the property and your funds don't cover the deficient amount, please investigate a short sale. In most cases you will be able to obtain a future mortgage sooner than if you have a foreclosure--or a deed-in-lieu--on your credit report. More banks and servicers have become more efficient and able to deal with the volume of short sales in the market, and more buyers are willing to wait out the time period involved. Depending on the lender and the program, some short sales are being approved and closed within 90 days and less.  But remember, you have just a certain amount of time to obtain a buyer and get short sale approval, and then close escrow. Banks may extend the sale date one or more times, but usually they want an accepted offer in hand by a qualified buyer. So it's back to the loan modification point-in-time: think twice about not making your payment unless you know what's on the road ahead.

It will cost you nothing to weigh your options, a fact that more people should remember in spite of it being such a difficult thing to think about while you're in it. In fact, a lot of people let their properties go into foreclosure without having tried to sell it. Please don't do that without consulting with a real estate professional who's had experiernce with distressed properties.

Please contact me for a printed format on your foreclosure timeline, and for more information about the your options, and the difference between short sales and foreclosure. You may also go my distressed property page and also here for more information on foreclosure timelines and prevention.

Looking Down That Road: Borrowers Need to Know Their Options

For some people, the picture of this highway might represent escape. For others, it could mean taking a new direction. It's important to know how this looks to you, or someone you're helping, because it probably represents the starting point of dealing with a potentially distressed property issue.

The national average is that about 1 in 7 or 1 in 8 homeowners is facing a difficult time with their mortgage. And recent statistics were published from the 4th Quarter U.S. Census data stating that there were 18.4 million vacant homes in the U.S. (11 percent of all housing units vacant all year round). While the breakdown of rentals, foreclosures held off the market, or homes not sold, etc., is not clear, we know that many of those homes used to be occupied by people whose were foreclosed on.
Did you know that many many people allow themselves to go through foreclosure without first checking their options, which include:

Foreclosure Timeline in California

If your loan was obtained between 2003 and 2007, and you meet certain other guidelines, your timeline (for a non-judicial foreclosure, the most common in California) from the first day of the pre-foreclosure period up through the Notice of Sale, will be about 152 days.

The Notice of Default may be filed 30 days after the lender contacts the borrower to explore options avoiding foreclosure for the borrower.

Three months after the NOD is filed, the Notice of Trustee's Sale may be recorded and then published over a period of 3 weeks. The borrower has 5 days prior to the sale to cure the default, which means catching up on the entire debt, and all other interests and costs. On Day 152 of this timeline, the lender may sell the property to the highest bidder at public auction.

If the seller is contemplating selling, there is a minimum of 4 months at the time the NOD has been filed. Since many sellers are in a short sale position and would need to list their property, find an eligible buyer, submit their entire financial package to the lender and obtain the lender's approval, 4 months is not enough time since the standard bank approval time is still around 90 days.

If the homeowner is experiencing financial distress and is now starting to not pay the mortgage, they need to immediately recognize their situation and allow for 6 to 8 months in which to get their property listed and sold, if that is to be the course of action. Most people do not want to sell, and make the mistake of hanging on too long until they lose the house through foreclosure. This is usually the worst course of events from which it takes longer to recover in terms of credit eligibility and future mortgage eligibility. Credit is checked for rental applications, insurance, and employment, so the distressed homeowner may be affected in many other ways.

If an owner is in bankruptcy, or has surrendered the property, the initial 30-day notice requirement does not apply.

For other owners not in the 2003-2007 loan origination period, the original foreclosure timeline applies, which is about 121 days total.

Turn An REO Fixer Into Your Palace

DID YOU KNOW . . . .

THAT the foreclosure/bank-owned property (REOs) market is shrinking? There are several reasons for this, but basically, it may be the buyer's opportunity to get a very good deal on the right property under conditions acceptable to the seller.

THAT the County of Los Angeles' HERO program works with foreclosed/abandoned properties which may be purchased with a 1% down payment, and provides down payment assistance for low-to-middle-income households, for up to $10,000 of the purchase price. This program is for single family homes up to $493,000 and condos up to $394,250. Call me for more information on approved lenders and other requirements for this program.

THAT the Good Neighbor Next Door Program through HUD helps law enforcement officers, teachers and emergency medical technicians purchase an available home, at a very large discount. Teachers must be full-time in an accredited school, other personnel must be employed by a unit of the federal, state or local government, including an Indian tribal government. Eligible buyers may receive up to a 50% discount off the HUD appraised value, as well as an extremely low $100 down payment if the buyer qualifies for an FHA-insured mortgage. This program may be used in conjunction with the FHA 203(k) program also. Contact me for more information about this program. This program is for homes in one of many of hundreds of designated areas.

THAT the FHA 203(k) Residential Rehab Loan may offer financing in conjunction with several types of buyer program (but not all) and is a great way to gain up front financing to remodel or repair the home of your choice. If you find a fixer property in an area you would like, but the house needs work, this loan is a way to accomplish those repairs within your overall mortgage qualification, so that you're not paying for repairs out-of-pocket, but amortizing them over time. Repairs may include flooring, fencing, roofing, windows, foundation, appliances, heating, A/C and termite.

Turn a fixer into a palace. These programs are just some of the ways a first-time, or return buyer, may find a new home under very advantageous conditions.

PLEASE CONTACT ME AT JULIA@JULIAHUNTSMAN.COM FOR A LIST OF HOMES THAT ARE ELIGIBLE FOR THESE PROGRAMS. NOT ALL SUCH HOMES MAY NECESSARILY BE FOUND THROUGH THE MLS. I CAN ALSO HELP POINT YOU TO THE RIGHT AREAS THAT APPLY TO THESE PROGRAMS.

Are You Looking Into Selling Your Property as a "Short Sale"?

Although the terms "short pay" or "short sale" are heard frequently, some people are still asking what they mean: It means the property owner owes more on his/her property than it can be sold for, or sold for after paying all the standard closing costs. In other words, the seller is "under water". Briefly, the mortgage holder(s)--there may be more than one loan on the property--must agree to accept the lower payoff amount, which means the bank is losing money on the seller's outstanding loan amount. The owner must "apply" for that approval by submitting financial information and a written statement about the reasons for their situation. As more and more properties are involved in this situation, some banks are finally, at long last, gaining some level of efficiency at dealing with all the short pay applications. Guidelines for the seller include submission to the bank of a signed and dated financial worksheet (usually in a standardized format), and signed and dated hardship letter, as well as a copy of the listing agreement, and letter of authorization for the party helping you with your short sale to communicate with the bank about your loan.

The sale generally must be an "arms-length" transaction; you cannot sell to someone you have a close personal relationship with, i.e., family member, personal friend, even a neighbor.

Different banks have different approaches about when to best receive submission of the seller's package for approval; and these approaches have changed from one time period to another, even in the last several months, so it may be difficult to know what to expect. Some mortgage holders will want the seller's package up front; other banks seem to respond faster when an offer has been obtained and is sent with the seller's package so that the seller's package does not "sit" at the bank and get lost.

The contract terms between the buyer and seller is negotiated as if it were a normal sale, but it's important to note that all disclosure about the short sale status must be given, and the buyer must in almost every case be willing to wait at least 60 days for the entire process. Even though the bank is not the seller, its role is key in whether the property gets sold and for what price. And, the bank will want an accounting of all costs of sale, and may not approve certain costs in order to preserve its bottom line. Banks have also been known to "approve" in advance a certain amount as the selling price, hoping that a buyer will be found at that price and they will therefore lose less money, but the market may decline, so the actual selling price may be less the longer it takes to find a buyer, or the approved price may not be realistic for the specific area of the property.

The Obama Administration will soon be issuing short sales guidelines and standardized forms--the outcome for all lenders to participate is yet unknown. It is hoped these guidelines will prevent future unrealistic negotiations among all parties, and faster treatment of short sales to assist stabilizing the real estate market.

As more loans entered into 2-3 years ago come up for their reset dates, the short sale process will continue to be a "staple" in the market, making a more uniform process mandatory. Some areas are completely dominated by either short sale/pre-foreclosure properties on the market, or bank-owned properties that have already been through foreclosure.

Any seller contemplating this as the only possible way to sell their property should also seek any legal and tax advice at the same time, especially if also contemplating bankruptcy.

Short sales generally have less impact on one's credit (assuming there are no or very few missed mortgage payments) than does a foreclosure, which will stay on the credit report for a much longer period of time and be a more severe "hit". Even with the FICO hits of missed mortgage payments, a short pay may be preferable for several reasons, including that the IRS has allowed debt forgiveness on mortgage amounts involved in the short sales. Foreclosure carries a longer period of impact on one's credit, something to think about when FICO scores are used in insurance applications, employment promotions, and of course, credit application.

There are many related and complex issues with these situations, and much confusing information which seems to change or modify on a monthly basis, and even legal and tax advisors are not totally familiar with impacts on credit scores in these two situations. For the most accurate information and opinion, contact a reliable loan professional who is in contact with borrower's credit reports on a regular basis.

More recently, per National Association of Realtors website:

On May 14, 2009, the Obama Administration announced its upcoming Foreclosure Alternatives Program, expected to launch in late July. Among other things, the new program:

Establishes financial incentives for servicers, sellers, and second lien holders to encourage the completion of short-sale transactions.

Requires that a timeline, of no fewer than 90 days, be set to allow a homeowner to sell a home, without threat of foreclosure action.

Freddie Mac Suspension of Foreclosure Sales

Hope you have a Happy Thanksgiving.

Starting today, sale of single family homes and 2-4 units on loans held by Freddie Mac will not be sold until the suspension period is over on January 9, 2009. Vacant single family homes are excluded from this suspension. This is to allow more time for Freddie Mac's loan modification program to be implemented. Read the Do's and Don'ts of Foreclosure.

If you are in this position, or close to it, please don't stop answering your phone or reading your mail. Lenders are now attempting loan modification programs, and engaging representatives to speak to you in person. (Ask for identification.) You could be hurting your chances of success if you ignore the many attempts made to contact you; some loan modification programs are the only chance the borrower will have to catch up, until you improve your FICO score and can get an improved refinance. If you would like to know more, please call me.

How Many REO and Short Pay Properties Are There in Belmont, Alamitos Heights?

The filing of notices of default increases each quarter in California, per Dataquick on October 23rd, "Foreclosure resales have emerged as a major market factor, accounting for 47.6 percent of all California resale activity last quarter" but not all areas are impacted as heavily as others:

So far, for areas falling in the 90803, 90814 zip codes, the MLS listings are showing, out of 257 residential properties up to 4 units listed, there are 27 "short pay" and "NOD" listings, 3 in bankruptcy, and 11 REOs (bank-owned properties). The 4-bedroom, 2100+ sq ft Alamitos Heights single family home at right is an REO property that has been on the market for 8 days, and is competitively priced at $679,900. Looking for your next home? This is a great residential area close to the coastline, Cal State Long Beach, the 405 and 605 Freeways, and a few blocks from a major grocery chain store, bank and eateries.

BUT, did you know that we (meaning Realtors) have an REO Advisory that goes along with your offer on a bank-owned property? Be sure and ask for this important disclosure because you the buyer should know that owners of bank-owned properties are not legally required to provide you with certain information that you would expect from a "equity" seller, and you may even be asked to sign the bank's addendums, and in some cases, the bank's own contract form, that are not the same as the standard Realtor contracts. They are exempt from the transfer disclosure statement, the natural hazard disclosure statement (although the listing agent is not exempt from this), the supplemental property tax notice, Mello-Roos lien disclosure, the 1915 Improvement Bond Act notice (that's how you learn about other taxes affecting your property), and notice of private transfer fees, or the earthquake guide book. After all, they never lived in the property, and took it back in foreclosure, so they just want to sell it. Also, they often will do no repairs, including termite repairs, or so they say. As time goes on, though, I'm hearing that banks are more willing to contribute towards buyer closing costs.

Unlike the last recession, REO properties in this market are not well-prepared for sale, may need a lot of repairs, or just plain smell bad requiring the buyer to use a lot of imagination to see the ultimate potential. The issue in some communities has been such that laws have been passed forcing banks to maintain their properties and drain the swimming pools.

So, buyer beware, but if you can get past the physical condition and the disclosure issues, or lack thereof, you may find a great home.

The same story goes for a "short pay" property, and indeed, there are a growing number these days. If you make an offer on one, be sure you receive a "short pay" advisory with your contract--this details conditions surrounding the bank's approval of the seller's market value of the property vs. the mortgage amount owed and how it may affect you, the prospective buyer. You may be in a for a wait just for an initial response, especially if there is also a second lender whose approval must also be obtained. Banks vary in their efficiency handling these offers, and much depends on the completeness of the seller's package, along with the growing number of properties affected.

One thing that's immediately affecting the number of Notices of Default filed right now is that lenders are required to contact borrowers in advance of filing default notice. Just how much this is affecting the market, and how far into the future, is unknown:

"It's unclear just how much foreclosure activity will be time-shifted into future months. We'll know more when we have fourth-quarter numbers. What's interesting is that the surge in activity certainly did level off during the second and third quarters. A lot of the market's distress is working its way through the system and the spectacular jumps in activity may be behind us. Or it may be that those processing the default paperwork are just maxed out," said John Walsh, DataQuick president.

So, when all is said and done, take advantage of the opportunity before you.

Foreclosure or Short Pay Debt? New Laws

Starting September 25, 2008, the federal income tax exemption for debt forgiven on a home loan now partly applies to California's state income taxes.

Federal law provides a tax exemption for debt forgiveness on a loan incurred for acquiring, constructing, or substantially improving a principal residence up to $2 million if the debt is discharged from 2007 through 2012.

Under the new California law, the maximum qualifying debt is $800,000, and the maximum exclusion is $250,000. The California law only applies to a debt discharged in 2007 or 2008. (Info by California Association of Realtors)

New California Law Requiring Notice from Lenders

New law in California requiring lenders to contact homeowners 30 days prior to filing a Notice of Default (NOD), so don't overlook your mail, especially when it comes from your mortgage lender:

"FORECLOSURE RELIEF BILL BECOMES LAW This week, the State Legislature enacted foreclosure reform law to address the adverse effects of high foreclosure rates in California. The new law requires lenders to contact homeowners to explore options for avoiding foreclosure at least 30 days before filing a notice of default. It also requires owners acquiring property through foreclosure to maintain the exterior of vacant residential properties. The new law also extends from 30 to 60 days the time for residential tenants to move out of properties that have been foreclosed upon, unless other laws apply. These requirements will remain in effect until January 1, 2013. The full text of Senate Bill 1137 (Perata) is available at http://www.leginfo.ca.gov/.

- Contact Between Lender and Borrower: Effective on or about September 8, 2008, a lender, trustee, or authorized agent may not file a notice of default until 30 days after contacting a borrower to assess the borrower's financial situation and explore options for avoiding foreclosure. A lender must generally contact the borrower in person or by telephone, or satisfy due diligence requirements for contacting a borrower. During the initial contact, the lender must inform the borrower of the right to request a meeting with the lender within 14 days. The lender must also give the borrower the toll-free number for finding a HUD-certified housing counseling agency. A subsequent notice of default must include the lender's declaration that it has contacted the borrower, tried with due diligence to contact the borrower, or the borrower has surrendered the property. A lender who had already filed a notice of default before the enactment of this law must include a similar declaration in the notice of sale. This requirement to contact borrowers applies to loans secured by owner-occupied residences made from 2003 to 2007. Certain exemptions apply if the borrower has filed for bankruptcy, surrendered the property, or contracted with a person or entity whose primary business is advising people, who have decided to leave their homes, on how to extend the foreclosure process and avoid their contractual obligations.

- Maintenance of Vacant Properties: Effective July 8, 2008, anyone who acquires property through foreclosure must maintain the exterior of vacant residential property. Violations of this law include permitting excessive foliage growth that diminishes the value of surrounding properties, failing to take action against trespassers or squatters, failing to take action to prevent mosquitoes from breeding in standing water, or other public nuisances. This law authorizes a governmental entity to impose a civil fine up to $1,000 per day for any violation, as long as the owner has been given notice and an opportunity to remedy the violation. A violator must be given at least 14 days to begin, and 30 days to complete, such remediation before a fine can be assessed.

- 60-Day Notice to Terminate Tenants: Effective July 8, 2008, a tenant or subtenant in possession of a rental housing unit that has been sold through foreclosure is generally entitled to a 60-day written notice to quit, not just 30 days. However, a borrower who remains on the property after foreclosure may be served a three-day notice to terminate. This law does not affect, among other things, rent-controlled properties with just-cause evictions. Effective on or about September 8, 2008, the lender, trustee, or authorized agent posting a notice of sale must also post and mail a specified notice of a tenant's right to a 60-day eviction notice from the new owner, unless other laws apply. This requirement to notify tenants of their rights applies to loans secured by residential real property where the borrower has a different billing address than the property address." per California Association of Realtors

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Foreclosure Debt Forgiven; New FICO Score System

The name of the little photo to the right is "holiday deer", and I hope you can also think of it as "Holiday Cheer" with the recent news on debt forgiveness.

At least if you do have to take the bad credit hit for a foreclosure or short pay, the new law signed yesterday by President Bush removes certain taxes that used to apply. So the good news is for renegotiated loans where more was owed than the current value of the home ("short pay'), the borrower will not have to pay income tax on the difference.

A sign of when things are going to bottom out is when there are signs of things getting better, and one of those signs with loans might be that there are more fixed rate loans taken out in the first half of 2007 compared to the first half of 2006. See this Mortgage Bankers Association article. Fixed rate loans are most certainly a sign of better financial health for many borrowers who will thus be avoiding the spiking of their monthly loan payments 1 and 2 years after taking out their loans.

If you're contacted by someone saying he/she will get you out of foreclosure, please read this article about foreclosure scams. This includes DO NOT sign over your property or sign a quit-claim deed, and do not pay someone to renegotiate your loan with the bank (you can do this yourself for free, or ask your REALTOR to help you). Foreclosure in California follow a very specific process--do not allow yourself to be taken advantage. Read my earlier post about knowing your rights if a Notice of Default has been filed on your property.

More news is about your FICO score, as calculated bv the Fair Isaac Company who invented the index most commonly used throughout the loan industry, the insurance industry, the car industry, and anyone else who wants to figure out if you're a good risk or not. Keep your credit as clean as possible, because that will help you get a better loan at a better interest rate if you are trying to refinance or purchase. This new model will be rolling out in the Spring, but may be used before that in the loan industry (it's hard to know), but take a look at the samples in the box under Figuring Your Credit Score as these may be a hint of things to come.

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Do Foreclosure Properties Always Sell Under Market?

"Foreclosed properties sell way below their market value," per Foreclosure Times.com. This is the kind of myth that spreads quickly, and often to the detriment of the investor or buyer.

A lender may buy or take a property back below market, but will price the property as near as possible to local market values in order to recoup their loss. Why would it do otherwise? An example: A Long Beach property where the total loans taken out were approximately $580,000. The property in my CMA analysis had a market value of $645,000-$650,000 in early 2007 if certain improvements were made before going on the market. Eventually, the property was on the market for 6 months, did not sell, even at $599,000, and went into foreclosure. The tax records show the lender took it back for $400,000 (the seller originally bought it for $475,000 about one year prior.) Two months later in October 2007, according to the tax records, it sold for $650,000 to a new owner. That was not an undermarket price.

Another example is an upgraded single family home in Palmdale which was first listed for $399,000 and eventually dropped to $279,000 and still did not sell. After going into foreclosure, the asset management company recently listed it for $329,000.

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CAR's Annual Expo and Tradeshow

You've probably read in the news headlines by now that the median price in California is projected to fall by about 4% overall in 2008, a figure presented by Leslie Appleton-Young in her Wednesday 2008 forecast (112 slides linked).

Having heard presentations on Wednesday and Thursday by Leslie Appleton-Young, CAR's chief economist, Jack Kyser of the Los Angeles Economic Development Corporation, Frank Nothaft from Freddie Mac, and Richard Green of George Washington University, one consistent message was that the impact of borrowers taking negative amortization and other subprime loans they could not handle has affected certain states much more severely than was ever thought. Although these economic experts differed somewhat in their market recovery time projections, all agreed that 2008 would probably not be a year for the bottom of the foreclosure market impact, and that it could take 1-2 years beyond to see the end of this issue. Markets where borrowers did not enter the subprime loan arena are actually seeing a price stabilization or increase in home values--these include Idaho and Texas. In spite of the subprime loan issues (and all the media attention), the first reason people experience foreclosure is still due to loss of employment. Los Angeles County is more stable than other areas of the state. The buyers having the most difficult time are those in the $500,000 and lower price range--the loan picture has tightened and a 5% down loan and 100% financing is reviewed very stringently by lenders, although the softening in prices in many areas is helping first time buyer affordability.

It also should not be surprising that this year's seminars included foreclosures and short sales, and how they should be handled by agents, buyers and sellers. Buying opportunities are out there, and sellers who want to sell should present their homes and price them to sell, not to sit. Please remember that there are buyers buying and sellers selling right now, so if you'd like to consider how to be one of these, or for a free professional evaluation of your home's current market and selling price, please contact me.

For an MLS search, please go to http://www.juliahuntsman.com to see 3 choices in finding houses, condos, and up to 4 units. For a commercial property search, please contact me.

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