Entries Tagged 'Real Estate Blog' ↓

Westcoe Realtors, Riverside California…As almost anyone knows who has ever bought a home, the cash needed to make your purchase falls into 2 categories….the down payment, and the closing costs.  The down payment is relatively simple….it is your instant equity in the home, as it represents the difference between what the bank will lend you and the sales price. 

However, closing costs are another animal all together, since it seems everyone has their finger in your wallet…which isn’t far from the truth.  But instead of tackling all the players in the “get your cash home buying game,” today we will attempt to explain about only one of them…mortgage insurance.

To begin, please understand that mortgage insurance has nothing to do with insuring your home, like Allstate, Farmers, etc.  You are still going to need that insurance, since it protects your home against damage…like from a fire, water, tree falling, etc.

Mortgage insurance is different from homeowners insurance.   Mortgage insurance still offers protection, but not to you or your home….it’s for the bank who made the loan on your purchase.  In essence, mortgage insurance protects the bank from loss in case you, the new borrower, fails to make your payments, and the bank has to foreclose.  If the bank indeed finds it necessary to foreclose, then they will look to the mortgage insurance company to pay some of what the bank has lost on the home.

The irony with mortgage insurance is that the bank requires it, it protects only the bank, but YOU get to pay for it!  Nice racket when you think about it.

So…when is mortgage insurance required by the bank?  Well…it is on all government loans (FHA. VA), and is required on any conventional loan when the down payment is less than 20% of the sales price…but it’s paid differently with each type of loan.

On a government loan, the actual payment and cost for the insurance is built into your loan amount. You never see it and there is no separate payment…it’s just part of your monthly payment.  Of course, it is fully disclosed to you in your closing costs (we can get a bit cynical from time to time, but no one is trying to hide if from you), it’s just that as a convenience, the monthly payment for the insurance is bundled into your house payment to make things easier with just one simple payment.

On conventional loans, it is a bit different.  If you are getting a conventional loan and have a down payment of less than 20%, two things are going to be required by the new lender.  The first is that your monthly payment will include an estimated payment for your property taxes and homeowners insurance.  This is called an impound account (If you had 20% or more down, you could either have an impound account, or pay your property taxes and homeowners insurance separately…your choice).  The second requirement the new lender will have is that you obtain mortgage insurance.

The mandated mortgage insurance is usually called PMI, which stands for Private Mortgage Insurance.  There are other names (MMI…Mutual Mortgage Insurance), but it all represents the same thing…an insurance policy required by the lender, protecting the lender, but paid for by you.  The lenders rationale is that having this insurance policy allows the lender to make loans with the higher risk of loss that comes with a lower down payment…and maybe that is the case.  Or perhaps (here comes the cynicism again) it’s a money making situation that the banks don’t want to see go away. 

If you have a conventional loan, and after a few years your home value has increased (remember those days when home prices went UP?) to the point that you now have at least 20%  equity, you can apply to get your PMI insurance requirement dropped, thereby saving yourself the monthly payment.  There are a few steps involved (check with your lender), but they are not bad, and definitely worth the process.  If you have a government loan…sorry…you are stuck with the policy and payments…they cannot be removed like they can with a conventional loan.

As a final note, that has almost nothing and everything to do with this type of insurance…anyone want to take a guess why the government spent more money bailing out AIG insurance than the banks and automakers combined?  Give up? 

AIG was the PMI/MMI carrier for the majority of loans made in our country that required mortgage insurance…and if they went down (so the theory goes), it would have taken almost every bank with it because there would have been no money for the banks when they went to make their mortgage insurance claim on the foreclosures.  We’ll leave the politics on “too big to fail” to someone else…but that is why our government gave so much money to a company most people had ever heard of.

So, in the end, we hope this clears up some of the fog that surrounds mortgage insurance.  Bottom line…you pay, the banks get the benefit, and maybe it makes it possible for you to purchase the home of your dreams…or it’s a rip-off.  We’ll let you make the call.  Either way, it’s here to stay.

Take care, and let us know if you have any questions you would like to see addressed on our blog.

Westcoe Realtors, Riverside California…According to the latest statistics from the Riverside area MLS, closings for the month of May indicate that 72% of all the properties that closed escrow during this month did so at a price “equal to or greater” than the original list price. 

This means that over 7 of every 10 closings were “bid up in price” buy anxious buyers looking to purchase a home in the face of limited supply and massive competition.  In today’s real estate marketplace, this “overbidding” is fueled by the large number of buyers who find the only way they can purchase a home is to enter into a “bidding war” with other interested buyers until the home contract for sale is awarded to the highest bidder.

This bidding is necessary due to the small amount of homes currently on the market for sale.  Many “regular” sellers are waiting for prices to rise higher so they may maximize their equity, and bank foreclosure properties continue to be held off the market by the banks desire to control when and where they will take their losses.  The net result is that there simply is not enough housing inventory for sale to satisfy current buyer demand.  Most new home builders are in the same boat as the “standard” sellers in that they too must wait until they can sell their product for a price they need to make building feasible.

The good news is that property values are beginning to rise in some areas, which will ultimately lead to prices getting to a level that attract “standard” sellers…but how long this will take is anyone’s guess.  The new, more stringent appraisal guidelines set in place over the past few years are holding prices down, with the result that the market improvement needed for builders and sellers to get off the sidelines are taking longer than expected.  However, signs are pointing to an uptick in pricing, which is generally where it all starts.

Westcoe will continue to keep an eye on the “overbidding” percentages, as a dropping trend would indicate either an increase in inventory, or a decrease in buyer demand…and only time will tell on that.  Stay tuned.

Westcoe Realtors, Riverside California…Desperate times call for desperate measures…or so the saying goes…and no where does that statement rear its head like it can when it comes to real estate financing.   However, as we have all seen the past 3 years or so, desperate financing has the side “benefit” of crashing down upon one’s head, so maybe it’s best to pass on the the really “creative” financing…such as today’s topic of AITD and Wraps.

To put it bluntly, almost any type of financing where the buyer will take title to a sellers home and take over payments on the seller’s loan without notifying the sellers lender is fraught with disaster, not to mention fraud…and once you take away all the fancy words with regards to AITD and Wrap financing, that is exactly what you have.  We see these types of financing come into vogue in markets such as this, when there are a number of buyers who cannot qualify for a loan (foreclosure, job loss, bad credit, etc.), but may have some cash for a small down payment…and since the banks won’t make them a loan, they need a seller to do what the bank will not.

In AITD (All Inclusive Trust Deed) and Wrap financing, the principal is the same.  The new buyer comes in and basically takes over the sellers loan without letting the seller’s lender know.  The usual method is for the buyer to make a larger payment to the seller, and then the seller makes the underlying payment to the lender and pockets the rest.  This is usually accompanied by some agreement in which the buyer promises to get their own loan at some point in the future…but until then, the seller will simply collect the monthly money and wait.

The problem here is that the existing seller’s lender has a clause specifically in the loan that states the seller cannot let someone take over the loan.  As a result, if the lender finds out about this transfer, they will call the loan immediately due and payable because this is fraud. 

As an example, let us assume the seller has a property worth $300,000 with a current loan of $200,000 payable at $2,000 per month, principal and interest.  In the case of an AITD or a Wrap, the buyer would pay the seller $300,000, and the seller would act as the bank, carrying a new loan for the buyer of (assuming a down payment by the buyer of $10,000)  $290,000 payable at $2,900 per month, principal and interest.  The buyer would then pay the seller the $2,900 per month, and the seller would pay THEIR lender the regular payment of $2,000 and keep the remaining $900 for themselves.  Sounds simple.

Now let us count the ways this can plummet into disaster.

Let’s see.  Since the loan remains in the sellers name, who gets the tax write-off come tax time?  The bank will issue the year end statement in the sellers name, but the buyer is actually making the payments…so who gets the tax credit?  They both can’t legally take it.

What about the insurance?  The buyer needs to insure the property, but the seller cannot cancel theirs since once they do, the lender will be notified.  Very sticky here…especially if there is a claim on the insurance company (flood damage, fire, etc.).  There is a very real possibility that the insurance company  will deny the claim once they ascertain what is really happening here.  Do you really want to take that chance?

To protect the buyers interest in the property (after all, they did give the seller $10,000 and are making the payments) something has to be recorded…but recording anything that shows the seller has transferred title to the buyer will trigger the existing lender to call the loan.  Sticky again.

What if the seller is a little shady, and stops making the payments on the loan, and simply begins to keep the $2,900 per month for themselves.  The buyer would never know until way too late to protect their interest.  In our example above, since the seller would have $90,000 remaining equity, this would probably not happen…but what if the difference was much smaller, and the house value had declined?  If the seller determined that there was little or no equity left in the home, then who knows?

What if the buyer fails to make the payments, for whatever reason?  What is the seller’s remedy?  Is the buyer a “true buyer”, in which case the seller would have to foreclose on the buyer…or is the buyer merely a tenant in the eyes of the law, which would require a completely different type of action.

And if the loan gets called…lookout below.  Since the loan is still in the seller’s name, it is his credit now spiraling down the toilet…and if the seller wants to protect his credit, then the seller must now get a new loan on the property (harder to do now that it is not “owner occupied”)…and assuming the buyer still cannot qualify for a new loan, they run the possibility of losing not only whatever money they put down in the beginning, but they have no equity position for all the monthly payments they have been making.

While there are even more potential issues here, you get the idea.  Our recommendation here is that no matter how desperate either a buyer or seller may currently be, it is never wise to entertain selling or purchasing a home with this type of financing.  It just very seldom ever works in the long term. 

However, in a market such as this with more buyers having issues qualifying for a loan, we are beginning to see some if this type of financing coming out of the woodwork.  Westcoe would never recommend a buyer or seller to head down this path…but we don’t represent everyone…so if you are being asked to go this route, either as buyer or seller…BEWARE…THIS DOG COULD COME BACK TO BITE YOU VERY HARD.

Take care out there…its a goofy real estate world.

Westcoe Realtors, Riverside California…Seems like the financial world these days is like Midwestern weather…if you don’t like it, just wait a few hours…it will change.  The bottom line here is that the interest rates on 30 year fixed rate mortgage loans have dropped the last few days faster than a souffle with a slammed oven door.

As of today, a qualified borrower can get a 30 year fixed rate loan at 4.75% interest.  To put that in prospective, the monthly payment for every $1,000 borrowed is only $5.22…which means that the principal and interest payment for a $100,000 loan is $522 per month…for $200,000 the payment would be $1,044.  The term “cheaper than rent” certainly applies with rates this low.

So what happened?  Why did rates drop to these historic low levels?

You can probably get a more detailed answer on some really deep financial blog, but the cocktail conversation answer is that the trouble in Greece and other Euro using countries has caused huge investors to purchase 10 year United States Treasuries as these investors look for safety over return.  As a result, our 10 year treasuries have dropped the interest rates they need to pay to attract these huge investors…and as the 10 year treasury rates drop, so go house loans.  Short and sweet.

Where all this goes from here is anyones guess…and trust me, it will be a guess.  We at Westcoe generally stay away from predictions because like everyone else, they are generally wrong and no one remembers them anyway.  However, what we can say is that if you are even remotely thinking of buying a house, you want to jump on this bandwagon of low interest rates and ride it until it drops…because rates like this are the residue of opportunity, not design…and they will rise at some point.

No one could have predicted these rates, so it stands to reason that no one has a clue how long they will last…but when you really can purchase a home for less than you can rent it, that’s not exactly a bad time to jump in.  Saving thousands and thousands of dollars on a home payment is a good thing.

So…good luck, and good house hunting.  It will be worth it.

Westcoe Realtors, Riverside California…According to the latest MLS statistics for the Riverside area, overbidding on real estate is continuing to rise, with the most recent numbers showing that 72% of all properties that closed escrow in April, 2010 closed at a price equal to or greater than the original list price.

With regards to housing, the combination of low supply and high demand has led to multiple offers on many of the homes available for sale.  Buyers find themselves competing with sometimes as many as 20 other buyers for the same property…and this competition leads to multiple offers, with many above the list price of the home…in essence, a bidding process ensues, with the property going to the “highest” bidder. 

For a prospective on the previous months of this year, for the months of January-April, the overbidding percentage numbers are as follows:  January 68%…February 69%…March 69%…and April at 72%.  These numbers are slightly lower for properties over the $350,000 price threshold, but the unit sales in that range represent less than 10% of the monthly sales.

As one might expect, this overbidding is leading to price increases in many areas of Riverside, but if you will read our latest blog post prior to today, the appraisal process that is required for the buyers new lenders will many times reduce the bid price offered by the buyer.  As an example, it is not uncommon for the price agreed to by the buyer and seller to be undermined by the appraiser for the buyers new bank, leading to either a “fallout” escrow, or the seller accepting less for the property than the buyer originally offered. 

The net result is that the ultimate close of escrow price is higher than the original list price, but less than the agreed upon contract price.  It is hard to predict what the near future holds for pricing and “overbidding” in our Riverside area, but until the supply of available properties for sale increases (or buyer demand decreases, which does not seem to be happening), these statistics show few signs of changing soon.

So…if you are looking to enter the real estate market as either a buyer or seller in the near future, strap on your hat and get ready for what lies ahead, because this market is challenging for everyone.

Westcoe Realtors, Riverside California…As a veteran of over 30 years in the real estate business, it seems like every time there is a massive change in the real estate market (either up or down), the scam artists come out of the woodwork like the insects they are.  In a upturned market, they offer riches beyond your wildest dreams, and in a downturned market, they prey on your fears.  Today, I want to warn you about the latest scam that may be headed your way, and hopefully save you some money in the process.

In a nutshell, NEVER PAY ANYONE FOR A COPY OF THE RECORDED GRANT DEED THAT SHOWS YOU ARE THE RIGHTFUL OWNER OF YOUR HOME.  If you can remember that, you will be fine.

In the past week, many of our agents have received what appears to be an official document from the “Title Compliance Office”, whatever that is.  Without boring you with the details, they have notices pasted throughout this document that coerce you into believing that for your own protection in this foreclosed crazed market, “you should have a copy of your Grant Deed.”  Of course, they offer to get ”a certified copy of your Grant Deed” for only $167.  It all looks very official…even down to the “promise of prompt processing if you return said $167 by the requested deadline.”

Please…please…please…Do not send them any money…this is a scam.

Let me count the ways this is totally unnecessary.

1.  Any Realtor can get you a copy of your Grant Deed for free if you simply let us know…or if you are so inclined, you can pay the County Recorder a visit and get a copy for about $5-10.

2.  Having a Grant Deed in your possession will not afford you any greater protection from whatever Bogey-man these letters say is out to get you.  Your Grant Deed is a recorded document, and once it is a matter of public record, it makes no difference if you have a copy in your possession or not.

3.  A “Certified Copy” is about as important as a certified copy of your daily newspaper!  Stamp the word “certified” across the top of any document, and viola, you are in business.  The word “certified” is this case means nothing more than having the word stamped at the top.  You can buy a rubber stamp and use it on any piece of paper in your home and you would have the same impact…nothing.

4.  When you sell your home, you will not even need a copy of your Grant Deed then, as your escrow company will simply call any title insurance company and get a copy from their records. 

In the end, every time you purchase a property (assuming you use a reputable escrow company and title company…which if you have a loan on your property, your lender insisted upon it), the Grant Deed is recorded showing the home has been deeded from the old seller to you.  The only time you would ever feel the need to check on this document is if you feel someone has committed fraud by recording a fake Grant Deed showing you transferred title to someone else…and in most cases, your original title insurance company would get involved to assist you in solving that issue…and this scenario is extremely rare.

Otherwise, simply ignore any request for your money.  Save the $167, and simply throw the letter away.  As a matter of information, our office has already referred this to the Riverside District Attorney’s office. 

In the meantime, if you receive a letter like the one mentioned here, toss it away and rest assured you are fine…and if that doesn’t work for you, call us.  We’ll get you a copy for free…and if you like, we’ll even let you stamp “certified” across the top with your rubber stamp!

Take care, and let us know if there is any question or real estate issue you would like us to address on our blog.

Westcoe Realtors, Riverside California…We had one of our past clients ask us a question this week…a question that may be on the mind of many homeowners, so we thought we would pass this on to all of you today.  The question was…..Given all the negative news in the media about the housing market and economy in general, when is a good time for a homeowner to sell.  Good question…and here’s your answer……NOW.

Many homeowners have put their lives on hold for almost 3 years now, waiting to sort out all of this real estate and economic mess that has flowed our way.  Certainly, many good people have lost their homes as a result of this chaos, but far more have equity (although not as much as in 2007) and have simply been waiting for the market to sort itself out.  Well….it’s sorted itself out quite nicely for homeowners, and if you are looking to sell, right now is a great time.

Why?  For the simple reason that we have far more buyers than sellers, and sellers are in control of the market at the moment.

Our inventory is way down in the Riverside area…surrounding areas too.  All the bank repos that were supposed to be in the works are hiding somewhere in the “big bank repo closet” and are only trickling out at best.  There are more short sales on the market for sale than in the past, but that still represents only a small fraction of what we need to satisfy our buyer demand.  That leaves “regular” sellers to fill the void…and regular sellers have been sitting on the sidelines for the past 3 years, only selling when they have too…not when they choose too. 

The result?  Many buyers, not so many sellers, and a frenzy when a good property comes on the market.  In essence, the seller gets fought over like the only piece of chocolate in a candy store.  Not bad.

To give you an example, the Riverside area is averaging about 1000-1100 homes for sale at any given time…but all through 2008 and the first half of 2009, our inventory averaged about 2400-2600 homes for sale.  We are less than 50% of what we see in a “normal” inventory market.

Another example of this is the current “overbidding” statistics for our area.  For the first two months of 2010 (March figures will be out soon), 67% of all homes sold in our area sold at a price equal to or greater than the original list price.  Think about that.  Seven out of every 10 homes sells for the list price or more.  Again, more buyers than sellers leads to fighting over the chocolate…and the highest bidder wins.

But if that is the case, why are we not hearing about rising prices in our area?  Most reports show prices have stabilized (even rising in a few places), but they are not rising like you would think given all the overbidding and buyer demand.  What gives?

In a word…appraisals. Due to both new regulations designed to keep markets from getting “overheated” again, and the fear that appraisers have at getting their valuations “sliced and diced” by the banks they work for, buyers bid up sellers properties with their offers, and the appraisers cut them right back down.  The net result is that while the property may sell for more than the list price, it will not sell for the price negotiated between the buyer and seller…because if the buyer and seller do not reduce their price down to the appraisal price, the sale (in most cases) cannot go through.  

In essence, the kids (buyer and seller) decide to stay up until 10:00, but Mom and Dad (the appraisers) say no way, and bedtime becomes 9:30.  You can argue all you want, but Mom and Dad will win almost every time.

So…back to the homeowners of our story.

The bottom line is that if you are happy with getting whatever equity your home will bring you in today’s market (yes…we know it’s not like 2007, but then what you may be buying is not at 2007 prices either), you couldn’t pick a better time to sell.  If you price your home reasonably, given it is 2010 and not 2007, you can expect to sell your home for top dollar in today’s market in a relatively short period of time. 

It has been a long time since sellers could claim to be driving the bus, but here we are…with the seller’s at the wheel.  Enjoy it while it lasts, for the only certainty in our market is change…and how long it will take us to see the change.  For now however, sellers rule the roost.

Take care, and let us know if you have any questions you would like addressed in our blog.

Westcoe Realtors, Riverside California…Please…before we begin…let’s make sure we all understand that the following is not a political message, or an anti-government rant.  This is a real estate blog, not a political one.  However, that does not mean that we don’t shake our head (continually, it seems) at some of the “help” our government has thrown our way the past 3 years…and now we are at it again. 

The latest program now touted by the government is, in general strokes, a program that is designed to make the banks more open to doing short sales on a timely basis.  As it stands now, a short sale (bank agrees to take less than owed on a property in lieu of foreclosure so the seller can sell) takes approximately 90-120 days to complete….and double that time if the lender is one of the huge ones buried in bad real estate loans.  Of course, by the end of this 4-6 months, many buyers have moved onto greener pastures and the whole process starts again.  turst us…short sales could frustrate Jobe.

So…this latest program from the Feds offers cash to a number of players in the short sale process…the seller, the bank, and the bank servicer to name a few…up to $1,500 we hear.  And all of this may be a good thing…we’ll see.  The catch is that certain procedures must be done in a limited time frame, because the goal is to speed up the short sale process…although it is hard to imagine a bank that is about to lose $100,000-250,000 really cares about $1,500…but as we said, we shall see.

So what is our problem with this?  The same as with almost all other government “help” programs that have been thrown our way the past few years….it all sounds good on the 15 second national TV sound bite, but the devil is in the details, and the details are usually all over the place.  We have had more government “help” programs thrown at us than insults thrown at Tiger or Jessie, and most programs usually turn out about the same….in a heap pile within months, replaced by the “new and improved” government help program.

That these programs usually get bogged down at trench level when they are implemented is no surprise to anyone who deals with the government on a regular basis.  But what is really irritating is that the entity in charge (Fed, treasury, whomever) makes these huge pronouncements, stirs up everyone’s hope, and then leaves the room, leaving everyone else to clean up the mess.  And by everyone, we mean the local real estate professional who is the main contact with sellers and buyers.

Examples from our past?  How about loan modifications programs.  There were numerous programs and pronouncements made by the White House itself (remember, this is not an Obama rant…could just have easily been done by a Republican President too), and yet by almost every measure out there, loan modifications have been so insignificant on a National basis as to be a joke.  But that didn’t stop the politicians of all persuasions from making pronouncements and promises.

How about foreclosure moratoriums…how did they do?  The goal with the moratoriums was to stave off the foreclosure for a few months to allow sellers and banks a chance to implement a better solution than foreclosure.  The result:  a complete mess with few compromises that only delayed the inevitable.  Oh…and a lot of angry homeowners who wanted to know how to implement these programs since their actual lenders had no clue what the details were to the program.  Sound familiar?

How about FNMA rent-backs by homeowners?  Loan balance forgiveness for over encumbered properties?  Perhaps the government program that allows for a refinance of up to 125% for certain properties (this one never worked with the banks)?  Automatic fixed rate loans for those people with adjustable mortgages.  How did any of these pan out?  Take a guess. 

It is ironic that the politicians stand at their pulpit mandating what lenders need to do for homeowners, when in reality, if the government had any real control over the banks, we might not be in this mess in the first place.  But that doesn’t stop the pronouncements…and the banks will probably simply continue on with business as usual.  As we said…we’ll see.

So…if you are a homeowner who is hearing of a new, special program where you can get money by participating in a short sale, and that this short sale process is now going to be streamlined, you might try taking all that with a grain of salt…because it has been our experience that there is a huge…HUGE…gap between what you hear on the news, and see with your bank.  A little patience will go a long way to helping you through this process.  Hopefully, we are wrong.  We’ll see.

Westcoe Realtors, Riverside California…Based upon the phenomena that began in earnest in the early part of 2009, we get asked the above question all the time…Is overbidding still as prevalent today as in 2009?  And almost 2 months into 2010, the absolute answer is a resounding…YES. 

As any of our loyal readers know, overbidding refers to a closed escrow in which the ultimate closing price is equal-to-or-greater than the list price.  In essence, this is a great indicator of the strength of the current real estate market.  A high percentage of overbidding indicates that there is more demand than supply, which leads to multiple offers on properties, which in turn leads to selling prices higher than the list price because of the competition between the interested buyers.

As a reminder, for all of 2009, the percentage of homes that closed escrow in the Riverside area at a price equal-to-or-greater than the list price was 64%.  In breaking down those statistics further, the percentages on homes below $350,000 was 65%, and on homes above $350,000 was 50%.  Naturally, there were far more homes in the lower price range than in the upper, which is why the lower price percentage is far more reflective of the marketplace.

Now….for the month of February, 2010…the numbers break down as follows:  for homes below the $350,000 level, the percentage of overbid closings has risen slightly to 69%, and for the higher price range, the level is 51%, leading to an overall percentage of 67%.  The unit sales are down from the previous February (395 total closings in 2009 as compared to 328 for 2010), but the percentage of overbidding is higher.

What does all this mean?

For starters, it shows that there are still more buyers than sellers, and until that ratio comes more in balance, overbidding is here to stay.  It is our sincere hope in the real estate industry that this ratio becomes more balanced by adding more supply (and not losing the demand), but no matter how this balance is obtained, until it comes, every buyer better get comfy with the idea of competition.

Secondly, it leads to the most constantly asked question we get from our clients, which is….”what is happening with all the bank repos?”  Everyone knows that there are a huge number of properties in the Inland Empire area that have had Notice of Defaults filed (the first step in the foreclosure process), but as of the past 6 months or so, these properties are not making it through the process to eventually show up as available inventory for all our buyers to see and buy. So what gives?  Where are they?

Well, we don’t know…and neither does anyone else.  Speculation runs rampant, but the bottom line is that the bank repos have dried up like grapes into raisins, and no one knows if this will change.  Yes, there are more loan modifications happening (but not many), more short sales (a higher number than 2009, but not enough to explain the lack of inventory), and more houses sold to investors at the court house steps (again, more than in 2009, but not by a huge margin)…but added together, these still do not account for all the possible foreclosures by a long shot. 

In the end, no one really knows if these potential foreclosures will burst the dam gates and flood our market (which seems unlikely, but trust me, we could handle them all with our huge buyer demand), or whether these properties will just continue to trickle out as in the past 6 months…only time will tell.

Until then, our market will remain unbalanced, and overbidding will remain a simple fact of life for anyone who is purchasing a home.  Your ultimate purchase price will still be a very good price relative to where we were in the past (and most likely where we will be in the future), but for now, at least 67% of the time, your purchase price will not be lower than the list price.

Good luck and stay patient…the end result is worth it.

Westcoe Realtors, Riverside California…It is an unfortunate sign of the economic and real estate times that we even have a title like the one for today’s blog…but we get asked this question often enough that we thought it might be best to explain this process for anyone who may be interested.

There is a technical explanation and a “real-world” explanation to this process, and we will discuss both below.  Also, whenever we delve into the fringes of the legal world, we need to include the typical warning that the following is generalized information and that you should consult an attorney for any specific information you may need regarding your situation.  However…that out of the way, hopefully you will never need to know the following details…but just in case, here we go.  A simplified explanation of the foreclosure process.

Technical Version

STEP ONE…At some point, after falling behind on your house payment, your bank will contact you with a series of letters or phone calls trying to get you to pay what you have not been paying.  Once they are convinced that you either will not or can not pay your back payments, they will proceed to step 2.

STEP TWO…The bank will file a Notice of Default (NOD) with the county recorders office.  This document says you are officially in arrears, and the NOD will state the total amount of money needed to bring your loan current.  Once this document is filed, you have 90 days to bring the loan current, and the lender must accept these back payments if you offer them.  If you do not attempt to bring the loan current, then step 3 occurs.

STEP THREE…While this is not an actual step, once the 90 days has passed, you now have 21 days to pay the loan in full, including all fees and back payments.  In other words, if you merely offered the bank the back payments that you owe, the bank is under no obligation to take the back payments and can instead insist that you pay the loan in full.  Of course, no bank in their right mind would do this, but stranger things have happened in the banking world.  Assuming you cannot pay the bank off, then step 4 happens.

STEP FOUR…The bank can now schedule a Trustee Sale, which is basically selling the property on the Court house steps.  Regardless of whether the home is sold to someone else at this sale, or if no one bids and the bank takes it back themselves, the bottom line here is that after this sale is approved on that day, the home is no longer yours.

STEP FIVE…The bank (or new owner) will notify you that they now own the home, and inform you that you, in most cases, have 30 days to vacate the property.  If you are not out in the 30 days, they will schedule a Marshall Lockout, where the bank representative, a Marshall, and a locksmith will arrive at the property.  The Marshall will then remove you from the home, and the locksmith will change all the locks.  If you have any possessions in the home, the bank will store them for a certain period of time (unsure how long the law requires them to store), and if you do not redeem them and pay for the storage and costs, the bank will sell what is there and this nightmare is over for everyone.

Now, for the Real World Version.

STEP ONE…How long you are in this step depends solely on who your lender is, and how many other loans they have in a similar situation.  A smaller bank, with fewer  delinquent loans, will be on top of this issue far sooner than a huge bank with thousands of similar loans.  So what is the timetable?  In a generalized statement, a smaller bank will proceed to step 2 in anywhere from 90-120 days after your last payment was received.  A larger bank can be so buried in paperwork that we have seen examples where the owner has stopped making payments for over a year and has never been contacted!  Just remember that every bank is different, so the time they allow you to stay in the home without making payments can vary a great deal.

STEP TWO…Very few differences here.  Eventually your lender will “discover you” and figure out that you have ignored all their letters and calls, and file the NOD.  Again, how long this takes is anyone’s guess, but once they have indeed filed the NOD, the 90 time frame is the same as above.

STEP THREE…Again, the same as above.  No actual step is taken here, so the 90 days in step 2 combined with the 21 days in step 3 blend together into a single 111 day process.

STEP FOUR…Here’s where huge differences can occur.  Every morning at the Riverside County Courthouse, there are hundreds of scheduled Trustee Sales…and every morning, a HUGE percentage of these sales are cancelled for who knows what reasons.  Our theory mentioned previously in this blog is that many lenders do not want to take the home back at that time because they would then have to show the loss on their books and they would rather wait…but who knows.  The bottom line is that if your home is one that is postponed, then you are off the hook until the next scheduled Trustee Sale…in which case the same thing could happen again.  This is another “big lender vs. small lender” thing as well, so it is impossible to predict.  We only know that there have been many people who have had their sale postponed multiple times. 

STEP FIVE…If your home has gone to sale, when the bank representative contacts you (generally by posting information on your door), it is usually a real estate agent hired by the bank…and that agent usually has the power to offer you what is known as “cash-for-keys.”  The bank knows that you (the now former homeowner) can delay your departure, and even take months if you do not move and force them to get legal, so they will generally offer you some money to move out in 30 days.  How much money?  Depends on the bank, but generally it is between $1,000-3,000.  My advice it to take it, because it only gets worse if you force the bank to do the lockout etc.

In the end, no one likes this side of the business…not the real estate agents, not the banks, and certainly not the home owner…but today, it is a reality that is all too often part of our daily picture.  Hopefully, your life is such that you never have to head down this road…but if circumstances put you there, then perhaps this generalized road map can guide you a bit on what to expect.

Take care, and as always, let us know if there is any issue you would like to see addressed in this blog.