We’ve been hearing a lot lately about President Obama’s plan to assist homeowners in an effort to stabilize the current housing market. There seems to be some recognition on the part of banks and the Federal Government should step in and take an active role in fixing a problem that their policies and practices helped create, and we think that’s a good thing. If you’re a homeowner who is underwater in your mortgage, behind on your payment, or hoping to refinance, this could be welcome news for you.
In an effort to keep Sacramento homeowners well informed, we’ve looked at some of the key aspects of the President’s plan and how it might make a difference for your situation:
This plan so far has broad-based support, including the California Association of Realtors and the National Association of Realtors. You can view the full details of this plan on the White House website.
All of us at Granite Equity Group like to take this opportunity to wish our clients, partners, friends and families a very happy and prosperous New Year!
We’re excited about 2012 and are looking forward to more growth and expansion during the coming year. Interest rates are at historic lows and lenders are relaxing ever so slightly to make home buying a possibility for even greater numbers of people.
For buyers, the entire region is chock full of incredible homes and properties selling for excellent values. The short sale market is also in full stride with more and more sellers taking advantage of this very popular and effective option.
The Sacramento area has so much to offer, which is why we’re confident and optimistic about the future of our local market. Housing prices may rise and fall but one thing that remains constant is the geographic advantages this region has to offer. Perfectly situated between the Bay Area and Lake Tahoe, we enjoy some of the best what California’s famous for; weather, fresh local food, entertainment, shopping and outdoor recreation.
We’ve met lots of new people this year, including clients and partners, who have been a part of our growth. We hope your year brings everything that you wish for and we appreciate the difference that you’ve made in our business and in our lives.
All the best,
Tim Leingang & Garrett Rease
There’s great news to announce this month for California homeowners considering a short sale. New legislation, SB 458, was just signed into law by Governor Jerry Brown, which prohibits banks and other lending institutions from pursuing borrowers for any losses incurred as a result of doing a short sale. So, as of July 15th, if the bank provides approval in writing for your short sale they are effectively forgiving that portion of the debt that is lost in the transaction. No more deficiency judgments, no hassles, just a clean slate.
This is very big news for a number of reasons. Many potential sellers have been sitting on the sideline because of their concern over whether the deficiency would follow them long after the sale and lead to additional financial hardship and credit issues. With a relatively slow moving market, this could open the door for more buying and selling to take place, giving the Sacramento real estate market the shot in the arm we’ve been waiting for.
For those who have been considering a short sale, one of your major potential setbacks has been taken off the table. I know some people still have other concerns, but when facing a potential foreclosure, we believe the short sale option is the lifeline that many homeowners are looking for.
Just look at the benefits:
If you’ve recently been turned down for a loan modification, are suffering a financial hardship and are underwater on your mortgage, you may want to explore the short sale option. Now with the law on your side it pretty much eliminates any downside risk, and we think that’s a very good thing.
If you're a
homeowner looking to sell your home but find yourself in the unfortunate
position of being upside down in your mortgage, what are your options? For many it's simply of matter of
hunkering down and riding out the storm until real estate prices work their way
back up to pre-crisis levels.
Considering that housing values in Roseville and other surrounding areas
are nearly half of what they were just five years ago, when the buying boom hit
it's peak, that may take a while.
So, what if
you're not in a position to wait?
What if, for reasons beyond your control, you absolutely must sell your
home? Maybe you've recently been
laid off, or have experienced some other form of hardship like a divorce or
death of a spouse. Maybe your
adjustable rate mortgage just reset and you simply can't afford the payments any
more. I don't mean to be morose,
but these are real life situations being experienced by thousands of real people
in our communities every day. You
may know one of them, or you may be one of them yourself.
As a real
estate broker, I'm constantly asked for advice on these types of problems and
the good news is that there are solutions out there if you know where to
look.
The worst
thing a person can do is to do absolutely nothing. If you can't make your payment and are
in pre-foreclosure, you don't have to wait for the "inevitable" and just hope
for the best. The fact is, the
banks want to resolve your problem almost as much as you do. If you look at it from their
perspective, they don't want you to be foreclosed on. That's a costly and time consuming
process. And they certainly don't
want for you to just walk away.
Their goal is to recoup as much of their initial investment as possible,
and the best way of doing that is by working with you, the
borrower.
Many
borrowers, especially those in adjustable rate mortgages, have been able to
renegotiate their mortgage terms through loan modification. Banks still continue to modify loans,
but the requirements are somewhat stricter than they were a couple of years ago
after the market collapsed. You
still need to "qualify" for the payment you're attempting to renegotiate, so a
solid income and work history are a must.
Otherwise, they look at it as just putting off the
inevitable.
Let's say you
don't qualify for, or don't need, a loan modification. What then?
That would be
the point where I would recommend looking at a short sale. A short sale is when the bank agrees to
let you sell the home for less than what you owe on it. So, let's say you bought a house in
Roseville five years ago for $450,000 and today your real estate agent tells you
that the best you could hope to get is only $275,000. That's a difference of $175,000! You know there's know way you could come
up with that kind of cash at closing, but you absolutely must sell the home, so
you tell the bank you want to do a short sale.
Here's what
the bank is going to want from you:
First,
they'll want to know why you absolutely must sell the home. What is your hardship? This has to be explained in a hardship
letter. It can't have anything to
do with not liking your neighbors, or the neighborhood, or you just need a
bigger place, etc. They want to
know that a short sale is the only thing that's going to save you from being
foreclosed on. Examples of hardship
include unemployment, divorce, bankruptcy, medical bills and
death.
Second, they
will need to be shown that the house is worth less than what you owe on it. This can be done very easily by using
what’s called a BPO (Brokers Price Opinion). The professional real estate broker does
their analysis primarily by using apples-to-apples comparisons of recently sold
homes in the immediate area. The
bank may also order an estimate from a licensed appraiser.
Third, the
bank will want to verify that you have no assets that could be used to offset
their expected losses. Do you have
a 401K sitting around? How about
that condo you inherited ten years ago?
It’s all fair game and will be part of the bank’s due diligence in
determining whether to allow the short sale.
Fourth, they
will require that you have a legitimate offer from a qualified buyer. Although some buyers may want to take
advantage of your distressed situation to make an unreasonable offer, a good
buyer’s agent will understand that the bank is also trying to mitigate their
losses and keep the offer in line with the fair market value. That’s why it is always important to
deal with only reputable licensed real estate agents for a short sale, or any
sale for that matter.
If, after
satisfying these basic requirements, the bank agrees to the short sale, the
process proceeds very much like any other real estate transaction. Always make sure to get your approval in
writing before taking it to the next step.
I often get
asked about the tax implications of short sales and, for most people, this is
not an issue at all. Thanks to the
Mortgage Tax Debt Relief Act of 2008, you are generally not liable for taxes on
losses from short sales as long as the mortgage was a purchase money loan and
you didn’t take equity out of the house to spend on things other than home
improvement.
Recently, the
state of California went one step further in 2010 when it passed SB931, which
protects borrowers from banks seeking a deficiency judgement in order to collect
unpaid balances from short sales.
In short, if the bank approves the short sale in writing, then they are
not allowed to pursue you for their loss.
As for credit damage, with some fiscal discipline, good work history and steady income, many borrowers can be back in the real estate market within just a couple of years. While the bank will report that the closed account was “Paid in Full for Less than Agreed”, this is far less severe than showing a foreclosure which can stay on your report for seven years.
I hope you’ve
found this information helpful, and if you have any questions about short sales
and want to find out if it’s a good fit for your situation, just give us a
call.
All the
best,
Tim
Right now there seems to be a lot of confusion about what’s happening in the Sacramento housing market. Is it up? Is it down? Is it sideways? What does the future hold? At our recent golfing fundraiser that seemed to be the conversation of choice while waiting on deck for the next tee shot.
Since I’m not a professional fortune teller, I try to avoid predicting the future. But as a real estate professional, however, I can tell you what’s working and what’s not working right now. And if I’ve learned anything from my years in this business, having seen all the ups and downs, is that there are always – and I mean ALWAYS – great opportunities if you know where to look.
The housing market is a little bit like the stock market in some ways. Regardless of which way the market is going, there’s always someone making a profit based on the direction it moves. And like the stock market, people can make money selling long and they can make money selling short – which leads me to my topic.
If anyone were to ask me right now, what’s the best opportunity for buyers (and sellers) in today’s real estate environment, I would have to say the “short sale”. There has absolutely never been a time like this for people who are looking for a bargain on a home and want to create some instant equity for themselves. There’s also never been a time like this for sellers who are upside down in their mortgage and looking for a way out of the situation.
Banks are normally not in the habit of just forgiving hundreds of thousands of dollars in debt to their borrowers, but, as the saying goes, “Drastic times call for drastic measures”. For them, it really comes down to the idea of the lesser of two evils; one being foreclosure, the other being a short sale. Either way, they’re going to be writing off losses, the only question is how much do they want to lose?
The short sale has turned out to be the Win/Win for just about everyone involved. The buyer wins by usually getting a deeply discounted price for a new home. The seller wins by avoiding foreclosure, getting out of an upside down mortgage and suffering much less damage to their credit than what would’ve resulted from being foreclosed on, and they can get on with their lives. The bank wins by cutting their losses, and the real estate businesses win by having a wonderful new opportunity to offer. Let’s not forget to mention how the communities and neighborhoods benefit by all the economic activity that is generated by a housing market that’s moving.
If you happen to be one of those people who are upside down in your home and suffering a financial hardship, the short sale could be a very viable alternative to foreclosure. And if you’re a buyer, you need to get while the getting’s good. For Sacramento’s real estate market, that’s the long and the, uh, short of it!
Look for my next blog on How to Qualify for a Short Sale.
Welcome to the new Granite Equity Group blog site. We will be using this part of the site to keep you up to date on the lastest developments in the world of Sacramento area real estate. We hope you come back often and leave your feedback whenever you'd like to add your two cents to the discussion.
