Sunday, June 29, 2008

Truths about REOs

Thank you for reading my blog. This post was written in 2008 and the real estate market is ever evolving. It is now 2010 and the real estate world is very different, especially in the Northern Virginia area. If you're considering purchasing a bank owned home now, please refer to the updated series found by clicking HERE.


========ORIGINAL POST==========

Despite the fact that most people, practitioners and consumers alike, are now familiar with the term REO, some myths still remain. Here, I’ll address a couple that I seem to be hearing every day.

But, first, for those that don’t know, REO stands for Real Estate Owned. This generally refers to properties which have been foreclosed upon and which are now owned by the bank. In today’s market, these properties are being marketed in large numbers, and consume about half of the available inventory in many areas. So, before you enter the buying game, there are a couple of myths you should better understand.

Myth: Foreclosures are always a great deal.
Here, people often are using the words "Foreclosures" and "REOs" interchangeably, although they are not technically the same thing. In any case, considering the "as is/where is, take-it-or-leave-it" nature of the transaction, REOs and foreclosures SHOULD be a great deal. But, never assume. In some market conditions, I've heard of practitioners referring to foreclosures as “fool’s gold” because only a fool would believe they were a great deal. The message here: always evaluate every purchase individually. With these transactions, make sure you're well educated on the market conditions, and that you carefully compare the value of these properties with other types of sales. Remember to calculate in the risks and frustrations with buying a bank owned property vs. other properties in more traditional sales. At the end of the day, you have to feel like it was worth it all.

Myth: These banks don’t want the properties, so they’ll give them away.
Well, banks do not want the properties. They really don’t know what to do with them. However, out of need, they are now systematizing the management, marketing and sales of these properties. Consumers often fail to consider, however, that most banks have shareholders and they have a fiduciary responsibility to sell the properties for FAIR MARKET VALUE. By law, they are not permitted to give them away, or even come close to that. They are required to go through a process to determine what fair market value is, and to make sure the sales price is in line with those determinations. Compared to the average seller, negotiations with a bank may be tougher.

Consider this: an individual seller is making emotional decisions and is driven by their personal circumstances. On any given day, they could decide they don't care what they get for the house, so long as they don't have to mow that lawn one more time! On the flip side, they could decide since they loved the home and raised three kids there, that no matter what the market is doing, they are not selling their home for a price that does not match their emotional attachment. The dynamics of every real estate transaction are far reaching. As a buyer, you must understand what's going on behind the listing in order to properly gauge the sellers' motivation level, so you know the best way to attempt a negotiation. With individual sellers, it's a little tough, because there are more variables. However, with banks, we're now seeing patterns of behavior which are setting industry standards. This is allowing experienced buyers' agents to better advise their clients.

This is the first of a series of posts relating to purchasing REOs. There is so much to know and understand that I couldn't possibly put it all into one post. But, if you are considering buying an REO, or if you're an agent finally relenting and jumping in with your buyers, these are posts you won't want to miss.

Stay tuned!


Friday, June 27, 2008

What A Seller Should Know About Short Sales

We live in a rapidly changing environment, and what was good advice just a few weeks ago is not true today. So, check with MANY professionals before you make the decision to attempt a short sale. Things that increase your chance of having a short sale approved: -You have one lender, not multiple lenders. -If you have more than one lender, other lenders will be getting some of the proceeds of the sale. (With a foreclosure they usually get nothing.) -You are not requesting full debt forgiveness, but instead are asking for an unsecured note to pay any deficit in what is owed to the bank(s). -You are current in your payments (if you’re behind already, its too late – they will foreclose faster than you can get the sale approved). -You move QUICKLY. -You provide the documentation they ask for, QUICKLY. -You have had a change in your circumstances that has led to this issue – forced relocation (like military), illness, job loss/change, disability, divorce, etc. -You can prove every claim you make “I can’t afford the payments much longer”, “I don’t have the resources to pay off the balance I’ll owe”. -You marketed the property properly and received one or more reasonable offers, all of which are arms length (not your brother). Other things you should consider: -If the lender forgives any portion of the debt, you could owe taxes on that amount. Learn about the Debt Forgiveness Act Here, and talk to a competent tax advisor who is “up” on this (this is a law recently enacted and there are very few people who’ve filed a return yet under this new law). -You will be forced to give the lender a gazillion papers (you will know that gazillion is a number once you see what they are asking for). -This will take A LONG time. -Consumers are being PROSECUTED for loan fraud, if you fudged the truth about your income when you got the loan, you should seek competent legal advice before contacting your bank. (Please note this is true even if the foreclosure happens). -Your credit will still be significantly tarnished, and you likely won’t be able to buy another home (ever) without 20% down, and you won’t be able to buy at all in the near future. (However, it will probably be better than a foreclosure.) As you can see, you’ll need to consult with a tax accountant, possibly an attorney and definitely a real estate agent before making the decision. It might seem too hard, but, if your house goes to foreclosure, you’re not off the hook. Banks are pooling these “bad debts” and selling them to companies who will come after you for the remaining balance, unless you’ve negotiated something with the bank that prevents that. And, consumers who participated in loan fraud are being prosecuted regardless of whether the home went to foreclosure or there was a short sale. Being proactive and negotiating with a bank upfront for a short sale is probably your best option, you might be able to limit your future exposure for collection efforts, tax ramifications or prosecution for loan fraud.
Bottom line - if there is a way you can continue to ride out the market, pay your mortgage payments and make good on your debt, the market WILL eventually come back, and THAT is your best option. The WORST thing you can do is take the "Ostrich" approach and stick your head in the sand. Call a professional who can walk you through this process and get you the resources you need.

What is a Short Sale?

A Short Sale is when someone owes more on their mortgage(s) than they can clear from the sale of their property.
We dealt with lots of Short Sales in the early 90's, but at that time, generally homeowners expected to have to come up with the cash to close. It was not easily done, but only 15 years ago, Americans - by and large - understood when they took out debt it was their responsibilty to pay it off.
Today, homeowners are attempting to negotiate with the banks to get the banks to "eat" the difference. If there has been a true hardship, and the consumers can not continue to make their mortgage payments, banks are agreeing to forgive that debt, or at least a portion of it, with increasing frequency.

Monday, June 23, 2008

What Our Grandparents Taught Us About Real Estate

What did your grandparents teach you about investing in real estate? Likely, they taught you a lot, if you were just listening. I still remember the day my grandmother made her last mortgage payment. Our grandparents, those who lived through the depression (and their children who learned those lessons from their parents), bought homes so that they could get into a fixed loan and could predict their housing costs for the next 30 years; and so that after 30 years, they’d have no housing payment. Over time, they paid down what they owed, and they had something tangible worth serious cash when they died, something they could leave to their children. That’s why they thought of buying as an investment. It’s true – go ask them. If you rent your entire life, you’ll never stop having to pay a monthly housing payment, and when you die, your children may have nothing. Later generations have forgotten these lessons. They bought homes, but then expected the homes would double in value in only a few years. They refinanced every year to pay for cars, vacations, and all sorts of luxury items. They never learned to live within their means, and they thought that because they bought a home, it should pay them an annual bonus. Now, those people are learning that maybe their grandparents knew a little something. Our grandparents still do know quite a bit, after all, one third of the real estate in America is owned free and clear. Those properties are owned by our grandparents. They make no mortgage payment, and their property is worth a small fortune. It’s not too late for us to learn from the wisdom that surrounds us.

A Place for Your Stuff

OF COURSE! You need to buy a place - NOW - a place for all your stuff!


 I love this bit by George Carlin. And, in reality, it's got some real truth to it. Everybody needs a home, "a place to hang your hat", or, as George Carlin says it "a place to keep your stuff". But, should you buy or rent? Buying is the best choice for almost everyone. The alternatives are (1) renting your entire life, or (2) being a bum. With either of the latter two choices, you will not have control over when you have to move your stuff, or how much time you'll have to get it moved. But, buying a home is not just about finding a long term storage solution for your stuff. It is about how you live your life; and it is usually the largest single financial investment of your lifetime. So, to get to the REAL answer about buying or renting, there is much analysis that should be done. It's very personal, and it's about timing.

When I say timing, I don't so much mean TIMING THE MARKET, but the TIMING WITHIN YOUR LIFE. If you are trying to time the market, however, the general concensus is this is a great time to buy! Inventory is high and prices are the lowest they've been in a very long time. Plus, loans are still available at low rates. There are also some wonderful programs available for those buying their first home. It's true that the predictions are for the prices of real estate to be stagnant for some time in most areas, so many people remain unmotivated to buy now. However, there are discussions of inflation - which causes loan rates to increase. Even if the prices of real estate remain the same, if the price of borrowed money costs you more next year, then you will have done yourself a disservice by waiting. Your actual costs will be higher, even though the cost of the home has stayed the same. If you'd like to be buying now, but your financial house is not in order, work on that. Call a real estate agent you trust who can recommend a course of action for you and help you get in position to buy. As for financial advice, some of my favorite books on the subject were written by David Bach: The Automatic Millionaire and The Automatic Millionaire Homeowner. These are not "get rich quick" books - they include practical advice, and give you financial priorities and tools for actually getting things in order. Go to http://www.finishrich.com/ for information on David Bach's books, some great calculators and other investment tools. David Bach is not quite as entertaining as George Carlin, but I'll recommend him all the same.
For a personal analysis of whether now is a good time for you to buy, or whether you'd be better off renting, please call me. And, once you've made the decision, check out the HOME SEARCH option from the home page of my main web site http://www.vickychrisner.com/. P.S. We sure will miss your perspective, George!

Read about George Carlin:

Wednesday, June 18, 2008

Market Changes - Can You Hear The Whispers?

The evening news is still shouting doom and gloom about the real estate market. When Ed McMahon is losing his house, surely the sky is falling, right? But, wait! What is being whispered in the background? Could this be it? Are we at the bottom? The only way to really know is when we’ve seen consistent statistics that prove it… and by then, it’s over, we will have missed the bottom of the market. Even so, there are starting to be some mumblings and whisperings about signs of recovery. In one way or another, we all have vested interests in the real estate market, so listen closely.... In a May 6th, 2008 Wall Street Journal article, Cyril Moulle-Berteaux suggests that April 2008 was the bottom of the market. RealtyTrac reported that, nationally, from April to May, 2008 the number of homes going to foreclosure auction reduced by 3%, and Virginia’s foreclosure rate dropped 7.65%. A recent REAL Trends survey of brokers showed 64% of respondents agreed with the statement “Our market is showing signs of improvement as of the end of May 2008.” RIS Media posted an article on June 18, 2008, quoting James Weichert (President and founder of Weichert Realtors) as saying “We have reached the bottom of the housing market and will soon begin to see improvements.” On the same day, an article by Jim Stakem (broker & owner of RE/MAX Select in Ashburn, Virginia) was featured in the Loudoun Times Mirror citing more statistics about absorption rates and prices which led him to believe "we are at the end of a rapid and painful price correction." Everyone cautions that prices will not be automatically returning to the range of 2005, that will take several years… one writer suggests that it could be as much as 15 years from now. What have I seen? In Northern Virginia, the spring brought a lot of activity. Banks finally got real about the pricing of foreclosures, with a 10-15% drop in prices in some parts of the Loudoun and Western Fairfax markets in the first few months of the year. These sudden drops motivated investors and first time home buyers. Buyers were suddenly competing for homes at the lower price points with escalation clauses, cash contracts, high deposits, and quick closings. Higher price points are still slower, but “traditional” sellers (for the most part) understand that they must compete with the price of distress sales in order to sell. So, some sellers will take the sign out of their yard and wait out the market, others will drop their prices and sell. When the price is right, the properties are moving. Activity has returned to the market. That is a good sign. Perhaps the “whisperers” really do know something? Only time will tell.
 
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