Entries Tagged 'Real Estate Blog' ↓

Westcoe Realtors, Riverside California…Let’s face it.  We live in a world of litigation.  People sue for almost anything.  Child not playing in Little League…sue.  Teacher gives your child a “B” and ruins their Valedictorian run…sue.  Coffee too hot when you spill it in your lap….sue.  You get the point.  Such is life in the 21st century.

Naturally, the field of Real Estate is no stranger to the legal profession.  The potential for lawsuits seems to increase with the dollars involved…and in real estate, the dollars (and losses) are potentially huge.  Therefore, to help “ward off” the evil that lurks in every real estate sale, our industry has imposed numerous disclosures upon the seller whenever they sell a home (we tried garlic, but it doesn’t work as well). 

Some of these mandated disclosures are really very good and protect both sellers and buyers from each other…and from themselves.  Some are a joke…but they are required so we fill them out as well.  Below we have listed a few and will give you a brief description of why the particular disclosure exists.

Agency…This one is a little stupid to tell you the truth.  The bottom line here is that any time either the seller or buyer is represented by a real estate broker, said buyer or seller needs to understand what company is representing the seller, what company is representing the buyer, or is the same company representing both.  I mean really…can’t you just read the names of the companies?  Anyway, it’s required so we do it.

Transfer Disclosure Statement…The mother of them all, and a very essential piece of the real estate sales puzzle.  Here, the seller must disclose to the buyer anything that does not work in the home, as well as other issues that may affect the value of the home.  It is a “fill-in-the-blank” type form, and is highly necessary because since the seller is really the one who knows the most about a home, it puts the burden squarely on their shoulders to tell the buyer all that they know.  No more “buyer beware”.  As a note, the agents involved must note anything they see as well, but the agents haven’t lived in the home either, so their knowledge may not be much better than the buyers.

Smoke Detectors, Water Heater Bracing, Carbon Monoxide…Any sale of a residential home requires that the smoke detector be working at the close of escrow, that the water heater is braced/strapped for earthquake safety, and effective July 1 of this year, that the home also has a working carbon monoxide detector.  It’s the law…so head to Home Depot if necessary, but these things must be done…no exceptions.

Sellers Statutory Disclosures…This calls for additional disclosures required by law that are not included with the Transfer Disclosure Statement listed above…a supplement, if you will.  For example, here the seller must tell the buyer if there has been a death in the home in the past 3 years, any insurance claims the seller has made on the home, etc.  Random stuff, but again, legally required.

Natural Hazard Disclosure…This is actually a report that is almost always prepared by a separate company (for a cost, naturally….about $90) that includes items the seller is required to tell the buyer of which the seller has no clue.  Items like Earthquake safety issues, proximity to any military ordinance, Flood hazard potential, Fire hazard issues, Liquefaction issues (will the house sink in an earthquake?), etc.  No seller has a clue about this stuff, but since the law requires the buyer to be told these things, there are separate companies who compile the info and prepare the report…for a fee, of course.

Lead Based Paint, Earthquake disclosures…The bottom line here is that if the home was build prior to 1960, there may be lead based paint in the home, and the home may also not be built to today’s earthquake building standards.  If the home was build between 1960 and 1978, then only lead based paint potential needs to be disclosed.  Understand this does not mean an older home has these issues….only that it could.

FIRPTA…We won’t even try to give you what this acronym stands for, but the simple fact is that the seller must let the buyer know that they are either a citizen, or a citizen for tax paying purposes.  Why?  Because the government (both Federal and State) want to make sure that if there is any taxes due on the sale of the home by the seller, that they have a way to get it.  And guess what?  If you don’t have the sellers information on file with this form, and the seller skips the country and heads back to “home”, then the buyer could be on the hook for the seller’s taxes.  Yes, Toto, this is your government at work here.  Could be the most ridiculous disclosure we have, but once again, the law is the law…so you better get this one filled out.

 Believe it or not, there are more, but the ones above are probably the most common in almost any real estate transaction.  We hate them too, and those of us who are from the earlier Cro-Magnon era of real estate sales wish we could just click our heals together and go back to a simpler time…like that’s ever going to happen.  So…as the good industry soldiers that the California Real Estate Law requires, we press ahead with all of this, warm in the comfort that with each passing year of disclosure additions, we are keeping some politicians job for him or her.

Really…what could be better?  And oh, by the way…if you ever decide to sell your home yourself without the aid of a real estate professional, guess what….you will need all of the above as well.  Welcome to our world.

Westcoe Realtors, Riverside California…Ok…so we know that we are not tax professionals, and we need to tell you that.  We repeat, we are not tax professionals.  However, in a general sense, we can pass on to you information that pertains to all homeowners who either sell their home in a short sale, or lose their home through the foreclosure process.  Feel free to get the details from your tax professional, but we can use the broad brush to paint for you the big picture.

First, according to a recent article in the California Association of Realtors Magazine (May, 2011 edition), the Mortgage Forgiveness Debt Relief Act of 2007, provides that if a mortgage debt is partly or entirely forgiven during the tax years 2007-2010, those taxpayers may be able to exclude up to $2 million of debt forgiveness on their principal residence.

In the old days, if you owed $300,000 on your loan, but sold the home for, let’s say, $200,000, then the $100,000 of “debt forgiveness” was taxable to you as income in the year you sold the home!  Nice, huh?  You lose your home, and then discover you also need to pay income tax on money you never got.  Perfect.

However, with this 2007 act, this is no longer the case in many situations.

Check with your tax professional for the details, but those who qualify can claim the special exclusion by filling out Form 982 and attaching it to their federal income tax return for the tax year in which the debt was forgiven.  If you failed to do this on a past return, your tax professional can help you with an amended return.

Secondly, with regards to short sales, it used to be that in some cases, when the lender accepted a less amount than what was owing on the home to facilitate a short sale, the lender reserved the right to still come after the seller for the amount the lender “lost” on the short sale.  Again, real nice.

However, beginning in 2011, once a lender agrees to accept less than the loan amount in a short sale, they also accept “payment in full” for the loan, and cannot come back after the seller in the future.  Your tax professional or attorney should also be consulted for the details on this new development, but it looks like the lenders can no longer have their cake and eat it too!

In the end, Realtors are not qualified to give either legal or tax advice…but that doesn’t mean we don’t know some of the big issues that homeowners deal with daily in the market…and more importantly, we know enough to tell you where to go to get the details you may need.  Check all this out with your tax and legal professionals…and we  hope it saves you some money.

Westcoe Realtors, Riverside Ca…There has been a lot of conversation in the media lately about short sales ( a sale where the home is worth less than the loans, so the existing bank needs to agree to accept less than what is owed on the property….think “foreclosure in waiting”) and the headaches that accompany a real estate sale of this type.  Typically, a short sale transaction takes much longer than either a “regular” sale or the purchase of a repo, and the escrow fallout rate is much higher as well…along with the frustration and patience level of the buyers, sellers , and real estate professionals involved.

Theories abound about why short sales are a problem, but none of them hit the real issue…because the real reason short sales are such a mess is due to only one thing…the existing lender and their idiotic short sale practices.

Oh well, I guess the real estate you-know-what may hit the fan, but from the perspective of a company that is neck deep in short sales because they represent about 1/3 of homes for sale, the bottom line here is that the majority of the existing lenders are so stupid with the way they handle short sales it boggles the mind.

Allow us to explain.

In a “normal” sale with a “normal” seller, the process is fairly simple:  a price range for the home is established based upon recent sales, the seller picks the listing price, the home is marketed by the real estate agent, a buyer makes an offer, the buyer and seller ultimately work out the sales price, and the escrow proceeds and eventually closes in about 30-45 days.  The marketing period can be short or long, depending upon about a thousand things, but with effective and timely communication between all parties (seller, buyer, and agents), all will go well, and the seller will be on their way and the buyer will have a new home.

With a short sale, none of the above happens in any manner that suggests expediency or professionalism…and the common denominator with all the short sale mess resides directly with the existing lender.

Understand that it is in the lenders best interest to make the short sale happen instead of waiting for the home to be foreclosed upon.  The lender loses less money, sells the home quicker, does not have to foreclose upon the home, there is less vandalism because the seller is in the home, the yards are generally kept up so the neighborhood looks better, carrying costs for the lender are hugely reduced, and oh…did I mention that the lender loses less money?   A lot less money.

However, this money savings for the lender seems to be lost in a normal short sale.

First, while the seller and agent still establish a price range for the home using the most recent sales, the real “decider” of the short sale price will be the existing lender.  They are the ones who must say how much they will accept for the home since they control the amount they will lose.

However, the lender will not give the seller/Realtor a price until they have an offer…and there can be no offer until the home is listed for sale…but the home can’t be listed for sale until there is a listing price…etc.   This circle could go on forever.  Talk about a Catch-22 here.  This is a classic “chicken vs. egg” situation. 

So what happens?

The seller and listing agent pick a price they hope the lender will accept, and then hope they can get an offer from a buyer who understands that the listing price means nothing, and then hope again the bank is reasonable with what they will eventually take for the home.  Nice way to run a railroad, eh?

Next, understand that in a short sale, the seller has generally stopped making the payment…which means the foreclosure clock is ticking.  It would be nice if the short sale department for the bank actually talked to the foreclosure department, but that would be way to much to ask.  As a result, since the home could be foreclosed upon at any moment, the list price the seller and agent pick for the home is generally on the low side of the price range, because they need to generate an offer just to get the bank to communicate with them.

So…at this point, we have a list price that means nothing, a buyer who has made an offer based upon this “nothing” list price, and all sorts of people working like crazy to make sense of it all.  So now what?

Well…it gets even better.  Now we can contact the existing lender with the offer they demanded to begin our conversation.  We send the offer to the lender and we wait….and wait…and wait….and wait…and then we wait some more.  In a normal sale, the seller usually gives the buyer an answer within 24 hours.  With a short sale, the existing lender has taken up to 90 days to give us an answer!!!  Can you believe this?  We are attempting to save them a lot of money, and get a higher price for the home than they would ever get if the home was foreclosed upon, and they sit on an offer for up to 3 months?  We’re laughing through our tears.

So…meaningless list price leads to possible meaningless offer, which leads to months of waiting.  And what happens during this time? 

Well, the lender will tell you it takes them this time to get an independent appraisal on the home so they can decide what price they will take for their loan payoff.  We try to be cool, but we know it takes about 1 week to get an appraisal…so what are they doing with the other 11 weeks?  Beats us.

However, eventually, we will get an answer.  Sometimes the answer is Yes…they will take the offer.  Sometimes the answer is NO..they will not take the offer, and here is the price they will accept.  Sometimes the price the bank will take is actually based on reality…many times not. 

If the answer from the bank is YES, then the seller hopes the buyer still wants the home and has not found another in the time they waited (many times the buyer finds another home that actually gives them an answer in a reasonable time), or simply lost interest…and, oh-by-the-way, the bank wants this escrow closed within 2 weeks or they will not accept the price any longer.  This is almost impossible, but everyone scrambles around since at this point, it is the banks way, or the highway.

If the answer from the bank was NO, then at least now, 3-4 months later, we have a price the bank will accept…a price they could have given us in the beginning.

And let’s not forget….all this is being done while the seller is hoping the bank foreclosure department does not foreclose on the home during the short sale process!

In the end, all we can do as real estate professionals is make sure that everyone involved with a short sale understands this cumbersome process before they begin.  We explain the pitfalls, poor communication, and ridiculous time table.  The buyer and seller decide if they want to play by these insane rules.

HOWEVER…the next time the media wants to write about short sale transactions and give some other explanation as to why they take forever, and are such a problem….don’t buy it unless the blame is placed squarely where it belongs…at the feet of existing lender who refuses to act in a timely (and money saving) manner.  While the solution is simple, the banks just refuse to make it easy.

Westcoe Realtors, Riverside California…My goodness there is a lot of negative information appearing in the media the last couple of weeks regarding the current status of real estate.  Prices dropping, sales down, foreclosures, etc.  Makes Chicken Little look upbeat.  However, what does it all mean?  Anyone with a heartbeat and a slight awareness of the present understands that 2011 is not exactly 2006 when it comes to real estate….but do we all really need to head for the “real estate bomb shelters” as the media would have us do?  Well, not exactly.  It just depends on whether you want all the news, or just the stuff that sensationalizes the headlines.

Home Prices

As we have said here repeatedly over the years, all real estate is local…so anything you read that is national in content probably has no bearing on your local area.  This is especially true for our Riverside area.

Bottom line…the Riverside area has already taken the majority of price “hits” coming our way, and in most cases, our market has stabilized…and has been stable for some time.  This is especially true in the price range of approximately $350,000 and below.  Yes, the price range above that number still has some softness to it because there are fewer buyers who can swing either the financing or a large enough down payment to make the financing tolerable, but the bread and butter price range of below the $350,000 level is very stable.

So why all the fuss in the media the past few weeks? 

Because after 4 years of this economic turmoil, prices are finally starting to drop in the areas around the country that didn’t see the huge upswing of the 2000-2007 years.  The hardest areas to be hit with plummeting real estate prices the past 4 years were those areas with the largest run-up…sunbelt areas like Southern California, Arizona, Las Vegas, Florida, etc.  The rest of the country didn’t have the huge hikes in real estate pricing, so they had far less to lose.  But now, even those areas that escaped the drastic drops of the past few years are now starting to feel the sting of the real estate market. 

Why is this important?

For those of us in the Greater Riverside area, it is critical to know that the drops now being recorded in other parts of the country have already happened here.  Therefore, instead of over reacting to the negative news, we need to just “chill” and understand that we have already paid our price.  We appear to already be at our bottom, and in the majority of cases (as described above) our next move is upward.

Sales

Sales are the same way.  Our sales and closings for March, April, and May of 2011 have been very consistent.  In fact, closings for May were up almost 7% from April.  Bet you haven’t seen that number reported anywhere.

However, if you really want to scare the general public, you could also say that with regards to closings, May of 2011 was off approximately 40% from May of 2010 in the Riverside area…and while that would be true, it only tells a part of the story…because if you compare May of 2011 with June of 2010, sales would only be off by 12%…not as scary, eh?

The moral of this story is that depending on what numbers one wishes to quote, and how one wishes to slant a story, numbers can almost take you anywhere you want to go…so be careful when you read all the “stuff” now being reported in the media.  It’s probably true, but not always accurate.

So what is our local real estate market doing at the moment?

To accurately summarize, on a scale of 1-10, we seem to be running at a very consistent 5…meaning that while we will certainly acknowledge that 5 is not exactly 10 on the scale, it isn’t a 1 either.  We are solidly in the middle, with sales down a bit from previous years, but holding steady…and this is what has to happen before the market improves.

Remember, as we have stated before, our market will recover like a “U”, not a “V”…meaning that our bottom will resemble a flat line before it begins to rise (like the bottom of a “U”), instead of the sharp increase of the “V”…and that is where we are now.  We are stable, have taken the worst the market has had to give us, and while we will make no predictions as to when our rise will take place, we can say that in most cases, “down” is in the rear view mirror, and “up” lies out there somewhere on the horizon.

Take care, and as always, thanks for reading.  Let us know if you have any questions or issues you would like to see addressed here.

Westcoe Realtors, Riverside California…If you are a former home owner who has lost your home to  foreclosure, or completed a lender approved short sale, it looks like there are some definite guidelines that stipulate just how long you may have to wait to purchase a new home…and it may not be as long as you think.

Up to now, understanding how a derogatory credit event (fancy way of saying foreclosure or short sale) effected your future buying ability was a closely guarded secret akin to the Coke formula.  Everyone had a guess, but no one had any specifics.  However, in an effort to eventually bring so many displaced former home owners back into the real estate market as buyers, FHA has recently provided specific guidelines for just such circumstances as these.  Here are the basics.

FORECLOSURES…If you lost your home to a foreclosure, your wait period is 3 years from the date the home was transferred back to the bank.  With extenuating circumstances, this time period can be reduced to 2 years (or maybe even less), but never less than 12 months.  The definition of “extenuating circumstances” is open to interpretation to allow for unique circumstances, but the general rule of 3 years will apply unless you can get a waiver for your situation.

SHORT SALE…If you completed a short sale, the wait is also 3 years from the date you transferred the property to the new owner…BUT…there is no waiting period if you had no late mortgage or consumer debt within the 12 months prior to the short sale, and the reason for the short sale was hardship, and not just bailing on a property that had lost value.  **As a note here, it is very hard to get an existing lender to grant the short sale unless your are behind in your payments, so this is a bit of a Catch 22 situation.  Our thought is that the mortgage component of this stipulation will get changed at some point in the future, but for now, there is way to get right back into a home provided you qualify.

There are also stipulations if you have had either a Chapter 7 or 14 bankruptcy.  They are a bit more detailed (too lengthy to go into here), but in general, your wait is anywhere from 1-2 years, depending on your type of bankruptcy and your credit since the date of your discharge.

Please understand that these above guidelines are simply that…guidelines.  Lenders understand that every situation and every buyer is different, and they really do a good job of trying to paint an individualized picture for all potential borrowers.  That is why they can offer exceptions to their guidelines sometimes.  Each case is different.

Also, remember these guidelines are only good for FHA loans.  In time, there is no doubt that conventional loans will probably head the same way…but for now, FHA is leading the way.

In the end, it seems that the “powers-that-be” are realizing that owning a home is the American dream, even after all the “junk” that has come down the real estate road the past few years…and loan programs that offer a way for former home owners to re-purchase real estate are probably beneficial to all.  It gets more buyers back into the system, which will increase home sales…which is good for everyone.

So…if you fit into one of the categories above, take heart…you may be back in the market for a home sooner than you thought.

Westcoe Realtors, Riverside California…Since we are obviously in an age of information, it’s only logical that we are also in an era of statistics.  There are stats for everything.  It started in sports, and has spread to business faster than a Lindsay Lohan rumor.  Stats…stats…stats…we are drowning in them.  However, since we can’t slow their usage, we can make sure that our readers at least understand what is really behind the statistics being quoted repeatedly in the media.

Take today for instance.  In our local Press Enterprise paper, there is a real estate story that essentially says the real estate market is down, sales are less than usual, etc…and the source for all the stats used is Data Quick, a major supplier of real estate information.  However, while the story attempts to let the reader get a “real time” view of just what is happening in the real estate market today, there is one huge problem here…Data Quick’s statistics are 1-3 months old, and therefore outdated for the purposes of the story.

Don’t get us wrong…there is no attempt to deceive.  It’s just that most media articles are published using data on closed escrows…and closed escrows reflect the marketplace of a few months ago, not the market of today. 

Most escrows that close in April are sales that took place in January or February.  In a normal market, a standard escrow will take about 30-45 days to complete.  Some can finish sooner, and some later, but 30-45 days is the norm.  However, we are not currently in a normal market…and escrows take far longer to close.  A full 1/3 of our properties for sale are bank repossessions, another 1/3 is short sales, and the remaining 1/3 are regular, standard sales with the seller having some equity.

Given that 2/3 of our available inventory takes some sort of bank approval for the loss to be incurred, and given that getting a timely answer from these banks is nearly impossible, it is no wonder that the average escrow period is almost double.  So…where does that leave us?

 It means that stories and statistics that rely on closed escrow information are inherently 60-90 days out of date.  The April statistics quoted in today’s article referenced above reflect our SALES of January or February…which were awful.  Call it a New Year’s hangover…whatever.  The bottom line is that for the 1st two months of this year, sales were really down…but in March, April, and so far in May, sales are picking up.  In reality, our market is actually getting some steam, not lagging as is suggested by the closed statistics.

The moral of this story is that while statistics don’t lie, sometimes they can really mislead.  It’s no ones fault, just the way the statistics are presented.  What to do?  Easy…just read any information about the real estate market with an eye that the information presented may not be exactly what you expect…and call us if you really want to know what is happening now….not 3 months ago.  The media cannot access “sales”, only closings…and “sales” will give you the real picture of today….not months ago.

Take care, have a great week, and thanks for reading.  

Westcoe Realtors, Riverside California…Let’s face it.  Real Estate is one of a few hot topics these days, and there is no shortage of “experts” and talking heads who will share (without being asked) their opinions with you about real estate at the drop of the proverbial hat.  Whether on TV, the internet, facebook,  tweets, blogs, newspapers (yes, newspapers are still with us) etc., everyone has an opinion.  That brings us to the question of the day, which is…Who do you listen too?

Well, when in doubt, remember the first rule of real estate news, which is that while national news makes for great cocktail conversation, local information trumps the national data every time.  Please don’t forget that.  Local over national….every time.

Since we are bombarded with information from all of the sources named above, it is hard to know where to filter.  We can’t tell you who makes the most sense…you will have to make that value judgement for yourself…but we can tell you that anyone making generalizations about the real estate market on a national level really has no clue about what is happening in your backyard.

Let’s take our area of Riverside.  Yes…we are affected by the national events as they pertain to real estate, but only as a general guideline, not as a definitive statement on local values.  Sort of like a chainsaw to a scalpel.  Knowing what is happening in New York may be nice to chat about with your friends at your next BBQ, but if you really wanted to get the value of your home, as the movie said…”Who you gonna call?”  Not New York, but a Realtor who handles properties in Riverside.  You get the idea…closer is better.

Therefore, when reading any information about real estate, and the byline is Associated Press, or a story from another newspaper in another state, or information on a nationwide study, or comments from someone on Wall Street, or Washington D.C. for that matter, please filter the information as general background, not as gospel on your situation.

Think about it.  No matter where you live, there probably over a dozen distinct real estate areas in your own town…areas that may have higher values than you, lower values, older homes, newer homes, larger yards, condos, near a school of choice, close to shopping, rural, etc.  This list could go on for days, but you get the point…real estate values and market activity are a result of what is happening locally, not nationally…and locally could even mean different areas in the same city.

This is why many knowledgeable real estate professionals laugh at companies like Zillow, who attempt to offer home values based upon computer models and geographic proximity.  Sure, they will probably get you in the ballpark, but when it comes to hitting a bulls-eye, you need better than maps and charts.  What you really need is a local professional who can distinguish the differences between neighborhoods…differences that won’t show on a map.

The same goes for national news.   Background only, but not necessarily applicable to the local real estate scene.  Trust us…the real estate market is far different in Detroit than Riverside, from Florida to California etc.  Grand geographic generalizations just don’t cut it in real estate.  Location is everything, and location is best explained locally.

So…enjoy all the data that is out there about the general nature of the real estate market…just don’t get too worked up over any of it with regards to your personal situation.  Smile, nod, and then move on…because if you want the real scoop on what is happening with you, give your local real estate professional a call…it will make far more sense than what is happening on the national news.

Take care, and thanks for reading…and let us know if there is any particular real estate issue you would like to see addressed in our blog.

Westcoe Realtors, Riverside California…We live in a Real Estate world that is defined by the bizarre.  We are going to share two stories with you below, that if we didn’t preface each story with the statement that what follows is the honest truth, no one would believe it…but trust me..we don’t have the imagination to make stuff like this up.  We will not disclose the names of the banks involved, but this will give you a small glimpse into the fascinating (and often ridiculous) waters today’s Realtor must wade through.

Foreclosure Property

So…where to start.  We represent the bank as the listing broker on a property that they have taken back though the foreclosure process.   Our account manager calls us, paperwork is passed back and forth, and the bank ultimately decides to list the property for sale at $184,900.  We recommend a lower price nearer the $150,000 range, but what the heck…it’s their property, and since they are the ones eating thousands of dollars on the sale, it’s their call.

About 30 days later, the bank drops the price to $169,900, and 30 days after that, they drop the price again to $159,000.  There have been no offers up to this point, and we are 90 days into the marketing of the home.  Shortly after the price is reduced to the $159,000 level, we receive an offer from an investor buyer who offers to purchase the property for $140,000 all cash, close in 10 days, and they will take the home in it’s “as-is’ condition with no repairs (and yes…the home needs some repairs).

The bank rejects the offer, with no counteroffer.  There is no attempt to negotiate a price between the $140,000 and the $159,000…just a flat out rejection.  Mind you that this vacant house has been vandalized at least twice during this 90 day time period, with each vandalization reducing the value of the home by thousands of dollars….not to mention the cost of maintaining the home (utilities, lawn care, etc) during the listing period.

Approximately 25 days after rejecting the $140,000 cash offer, the bank decides to allow the home to be sold at auction…with a minimum bid price of….$49,000!!

Seeing this, we receive yet another all cash offer from an investor of $130,000…and that too is rejected because the home must now go through the auction process and cannot be sold before the auction!  Understand that the auction is 30 days away, because the bank requires all auction properties to be marketed to the public for 30 days.  Offers can be submitted before the auction date, but none can be accepted until the home has actually gone through the auction bid process.

A few days before the auction, another all cash offer is presented at $110,000, but that buyer is told to wait until the auction date.  By now the previous $130,000 cash buyer has walked away because they do not want to get involved with this debacle.

The auction itself is handled by another real estate auction company, so our bank seller does not have us attend, as they feel it will be confusing…so we wait to hear from them, which we usually do a few days after the auction.  On the 3rd day after the auction, we get a call from the bank’s escrow company, stating that the bank has received an acceptable bid at the auction, and the close of escrow will take place ASAP…hopefully within 10 days…and “oh by the way” the price the auction company got for the home ( and the price the bank accepted) was $99,900!!!

We ask about the $110,000 offer, but no one seems to know what is happening (wow, what a shock), and we are simply told to make the escrow close at the $99,900 price.  But wait, our story does not end there.  The next day, our bank representative calls us and tells us to put the home back in the MLS at the $159,000 price because the home did not sell at the auction!

So how does all this stand at the moment?  Well, we are unsure as of today.  We told our bank representative about the $99,900 auction escrow, they are checking into it, and the escrow office is being told that we are full steam ahead trying to close the $99,900 escrow by the end of this week.

And the $110,000 all cash buyer…where are they in this saga?  Pulling their hair out, and trying to understand how in the world this can happen…which is exactly what we are trying to do.  Stay tuned.

Almost Foreclosured Property

Let’s condense a long story into a short one.  We represent the buyer on a purchase in which the seller is way behind on payments, but when our escrow closes, the lender will be paid in full with no loss.  The foreclosure sale is scheduled for today, April 5.  We open escrow 35 days ago, and are ready to close this escrow by March 25, but we cannot get the bank to give us the exact loan balance to get them paid off at the close of escrow.  Delay after delay.

In the meantime, the foreclosure sale date is approaching, so we are trying to make sure the bank does not foreclose…but getting one department to talk to the other seems to require an act of God.

Fast forward to yesterday, where we are told that the bank statement we need to close the escrow will be coming tomorrow…but they cannot stop the foreclosure sale…so sorry.  But that’s not the worst part.  The delay in closing is totally caused by the bank…and while our close will get the bank the $190,000 they need to collect in full…the foreclosure sale will get them only $122,000, plus they will have to then own the home, maintain it, and then ultimately sell it at who knows what price!

Needless to say, we are flabbergasted…angry…frustrated…etc.

So what happens today?  We finally get someone in the bank to see the logic in waiting 3-4 days to get the total $190,000 they need, and the sale is stopped at the last minute…but only with a massive intervention by both our escrow officer and a very-high up individual at the bank.  Without this huge effort, the property would have gone to sale, and the bank would have lost thousands and thousands more.

The moral to these stories?  We wish we could tell you these are isolated incidences, but in reality, we get 1-2 of these per week…where common sense and accountability take a huge back seat to ineptitude and faceless non-responsibility.  There is no doubt our system is horribly broken, but you and I can do little to effect a change.  All we can do is ride this bizarre wave of real estate frustration, and do the best we can to make lemonade from all the banking lemons we get thrown in our path.  Welcome to our world.

Take care, and thanks for reading.

Westcoe Realtors, Riverside California…Given the varied types of real estate purchases these days (repos, short sales, standard sales), sometimes buyers get confused as to when they should get a home inspection.  Hence, our question of the day….just when should you get a home inspection when purchasing a home?

The answer:  ALWAYS.  The confusion comes because a home inspection means different things for different types of transactions.  Allow us to explain below.

 STANDARD SALES…In a standard sale (a sale in which the seller has equity and there is no existing bank involvement necessary), the normal routine is for the buyer to obtain a home inspection, and then if there are repairs necessary to the home, the buyer and seller negotiate who is going to pay for what.  The seller may agree to fix everything, or nothing…and the buyer may agree to accept the home with massive “warts’, or demand that the big items get fixed, or agree to accept the home with the minor items not repaired.  Lots of options.

The bottom line with a standard sale is that the seller and buyer hash it out, and if they cannot, then the transaction falls out of escrow, and everybody moves on.  The key element here is that there is actually a seller to talk with, have a conversation with, and reason with…a seller who voluntarily wants to sell the home, so in theory, the seller has some level of motivation to solve the problem since they cannot get their equity unless the escrow closes.

FORECLOSURE SALES…In this type of purchase, the seller (the bank) has already lost tens or hundreds of thousands of dollars, so they are not generally in the mood to fix a leaky sink or a running toilet.  Almost all banks also include in their an “as-is” clause, which essentially says that the buyer is excepting the home in it’s current “as-is” condition.  Therefore, when the buyer has a home inspection done on a foreclosed property, it is for the buyers personal information, and not as a negotiating tool between the buyer and the bank.  The bank doesn’t want to play that game.  Sometimes…rarely…the inspection report will reveal a problem that is so large, that the bank will realize that they must fix it for almost anyone to ever buy the home…but this is rare.  The bottom line here is that while you may get the bank to occasionally fix an item or two, most of the time your report is for your own information to know what you will have to fix once you close the escrow.

SHORT SALE…In this type of sale, it gets even stickier.  Remember, in a short sale, the seller has no equity so will get exactly ”0″ at the close of escrow, and the existing lender does not yet own the house…so the lenders participation in your sale is totally voluntary.  In essence, the seller means nothing, and you the buyer are going with your hat in your hand “begging” the lender to take a loss of tens or hundreds of thousands of dollars.  Some lenders get that it is better to take the loss now rather than later, some do not.

However, once you do get the lender to agree to this massive loss, the voluntary lender will not spend one dime on fixing anything you may have discovered in your home inspection…..ever.  Unlike their foreclosure counterpart (who already owns the home so they are stuck with the property), the short sale department is not stuck with anything, and they will never….never…agree to fix anything wrong with the home.  Trust us…they will blow up the sale and let the foreclosure department figure it all out later.  Therefore, in this case, your home inspection is only done so you know exactly what you are buying…and what you are fixing…after the escrow closes.

As for the seller, since they are already netting a big, fat goose egg on this sale, they will not fix anything either.  No seller is willing to dip into their pocket to spend money fixing a home that is worth nothing to them.  Therefore, if there is any fixing to be done, that only leaves one party….you, the buyer…to repair any items…which you can do once you close the escrow.

In the end, we always recommend a home inspection, because it is one of the many ways a buyer can protect themselves from the horror of the unknown…because unknown repairs can be very costly.  You just need to understand where you have bargaining power, and where you do not….but remember:  always get one.  You’ll be glad you did.

Take care, and thanks for reading.

Westcoe Realtors, Riverside California…So let’s piggy-back on last weeks blog, where it was stated that in the MLS listings for the Riverside area, 47% of all the properties listed for sale were offered as short sales. Since short sales represent such a large part of the availability market, before every buyer rushes out and thinks they have found the Holy Grail of real estate purchasing, there are a few things all short sale buyers should know…because, as Dorothy said…”You are not in Kansas anymore, Toto.”

Some short sales go really well, on time, and happen to close escrow just the way you think they should.  For those few buyers, congratulate yourself on winning the real estate lotto…because for the majority of short sale buyers, they will face one or more problems along the way…and below, we have tried to list the major culprits to watch out for on your short sale journey.

1.  Bad Listing Agents…Make no mistake…the listing agents role in the short sale is very involved, time consuming, and takes someone who knows what they are doing, and is willing to do it.  It is not easy because besides dealing with a seller, they are the only conduit between the seller, the buyer (and buyers agent), and the lender who is being asked to voluntarily lose tens or hundreds of thousands of dollars.  It requires a very organized, very committed Realtor, and if the listing agent is one of those who only “throws stuff on the wall to see what sticks and hope they get lucky”, you are in for a very frustrating experience…so make sure the listing agent has a clue.

2.  More than one existing lender.  If there is both a first and second loan on the short sale you are trying to purchase, in most cases, do yourself a favor and run the other way.  In these cases, usually the 2nd lender is losing everything, but since you will still need their “approval” to close your escrow, most 2nd trust deed lenders use this opportunity to throw their weight around and hold the entire closing hostage until they get some money.  The problem here is that the 1st trust deed lender has control, and they usually say “no” to the 2nd lender, or severely limit what they will allow the 2nd lender to receive.  The bottom line is that it is a real mess with a much lower chance of closing than with just a 1st loan.  Sometimes, if both the 1st and 2nd are with the same bank, you can make it happen…but beware of what the existing loan situation is before you get too involved with a double loan property.

3.  The existing lender is horrible.  This is totally the luck of the draw, but if the existing lender is horrible to work with, and is not set up to handle short sales, or is only an intermediary to the real lender, or is short staffed because they make no money by doing short sales, or a variety of other reasons, then you have a real nightmare on your hands.  The listing agent should have a feel for the lender before you ever make the offer, so you can check with them…unless they fall into category #1 above.  Each lender is different, and sometimes the same lender can be both excellent and awful, depending on the person who is handling your file.  Again, the bottom line here is to be prepared for anything and understand that the communication is spotty at best, and downright brutal at the worst.

4.  Huge equity loss.  If the lender(s) are losing a huge amount of money on your sale, the cumbersome short sale process just got worse.  Every lender has a different threshold of what their definition of “huge” is, but once you cross it, the amount of paperwork and time to check you out just got far worse.  In these cases, the lender wants to make sure the seller is not selling the home to a family member, friend, etc., so there are times when the buyer needs to undergo a background check!  Again, remember you are asking the lender to voluntarily lose a massive amount of money here, so don’t expect them to be in a hurry to accommodate you.

5.  Non-cooperating seller.  This too can be a big red flag.  Remember, the seller is getting no money here at the close of escrow, so sometimes they take the attitude of “don’t bother me…just let me know when I have to move out.”  The problem with this is that the existing lender will require ample paperwork from them, and if they dither about, and take their sweet time, or worse yet, they are getting a divorce and the word “cooperation” left their vocabulary months ago, then pass on this house and move on to the next.  A seller who does not want to be part of the process is simply a frustrating escrow fall-out waiting to happen…so avoid this if you can.

6.  The property may get foreclosed on while you wait.  Yes, this happens all the time because the left hand has no idea what the right hand is doing.  Trust me…just because you are attempting to save the lender the hassle of foreclosing does not mean the lender will figure it out.  Hopefully, your listing agent (remember, the listing agent is the only one who has any direct communication with the lender) has done all they can to keep this from happening, but if they are the type of agent to simply take the lenders word that all is OK, and not continually recheck on this, then there is a decent possibility that all your efforts could go to waste on the court  house steps.  It happens…more often than you think.

7.  Lastly, beware of repairs, back HOA dues, and city code violations.  These little beasties can crop up at any time during your escrow, and while in a “normal” sale, they would be the responsibility of the seller…guess what?  Not now.  The seller is getting no money, so they will not repair anything, nor will they pay the Home Owners Association any of the back payments.  Most of the time the existing lender will not do it either (they should because they would inherit the costs if they foreclosed, but logic will not necessarily prevail here), so that leaves……YOU.  If you are going to head down the yellow brick road that is short sales, then you can expect to pick up some of the costs that would normally be paid by the seller.  Hopefully, the price you are paying is worth the extra costs to close…but only you can determine that.  Just be aware that short sales can come with some hidden expenses to you.

In the end, we are not trying to dissuade you from purchasing a short sale…as we said at the beginning, they represent 47% of what you have to look at.  We simply want you to know what you are getting into, and be ready for all the “stuff” that can come with a short sale.  Some buyers choose to pass, and only work with existing repos or standard sales with regular seller.  However, if you are adventurous enough to pursue a short sale, the rewards can be great…but with great reward comes great risk….so enter this realm with your eyes open, and your frustration level under control….and good luck!