Sacramento Real Estate Views

The Short Sale Process

The First Step is Personal

Selling your home short is a big decision and not an easy decision to make.  Not only is it emotionally charged but you’re walking away from a home that you may love and there are short term ramifications.

More often than not, however, the short term pain outweighs the long term pain – significantly.

In the Sacramento region, homes have lost so much value that it’s appearing to not make good financial sense to keep an asset that has lost 50% to 70% of it’s value with no prospect of gaining that ground back in the long term (15 to 20 years).

So how do you determine whether or not selling your home short is right for you?

For my family, it was purely financial.  We ran the numbers, assessed our short term situation and then looked forward, based on common economic information available to everyone and applicable to the Sacramento region where we live

We live in Rocklin and love our community.  We bought our home in Rocklin, our first, with the thought that we would live in it for 5 years, sell and move up…we bought in 2003 and 5 years later in 2008..well let’s just say that selling and moving up wasn’t possible due to the fact that we were underwater on our mortgage.

No equity, no moving up and no prospect that this situation would change for years to come if we stayed in that house.

Wow..what a wake up call.

The First Step in the Short Sale Process

In my opinion, the first step in the short sale process is assessing your individual family situation and determining if staying in your home is a financially smart decision.  The problem with this is that most people are emotionally connected to their homes making the decision even harder.

How we made this easier was that we reminded ourselves that no matter what building housed our family, as long as we were together, we were home.  The building we live in doesn’t define my family.  It’s just a building.  The only meaning it had to me was the meaning I attached to it.

I would not allow my attachment to my house to ruin me financially, long term, .  We were about $135K underwater.

Some Questions to Ask Yourself

Step #2 for us was to find out how underwater we were and assess the market direction.

What’s the difference between what I owe and what the home is worth?

The more underwater you are, the easier the decision becomes.  If, at this point, you’re even to slightly above water or just slightly underwater, in my opinion, you’re in a good spot!  While you may have lost your down payment, you are certainly not financially unhealthy by staying in your home as I believe we are done with double digit value losses.

We may have more value to lose but I believe it will be in single digits going forward.

The next question was about what the housing market looks like going forward.

Is it possible for my home to appreciate to the point where we’ll recover the equity that we’ve lost in the next 5, 10, 15 or 20 years?

I ran a scenario of possibilities.  I created tables (click here for an example and scroll down a bit) that projected out possible appreciation over the next 10 years.  Because no one can know what the future holds, you can run projections on “what if’s”, best and worst case scenarios.  An “if this, then that” type of projection.

In our case, if the market appreciated 8% over 10 years straight starting today, we’d be marginally up in equity at the end of 10 years.  If the market appreciated 5% every year from now for the next 15 years, we’d been close to the same position.

Then I ran the year over year numbers for appreciation in Rocklin homes over the last 2 years.  There hasn’t been any appreciation in Rocklin in the last two years in fact Rocklin has lost value every year since 2007.  The average sales price for the average house in Rocklin this year so far has lost $500 in the average sales price over 2009.  I consider that even or 0% appreciation.

But the year isn’t over yet.  This will be a pivotal year for values in Rocklin now that we have no tax credits driving first time home buyer sales.

The state is in a tough position.  Our unemployment percentage is higher than the national average.  Businesses all around my house/community have been closing and moving elsewhere.  The economic data I have access to and have been reading for the last year all point to our economic situation not improving locally for another few years at least.

We conceded that we would likely not see any appreciation for the next two years, best case.

The waiting period after a short sale or foreclosure to get an FHA loan is 3 to 4 years.  This would put us purchasing another home at about the same price as homes are selling for now in 2 to 3 years.

Our view was that once appreciation began, it wouldn’t be meteoric. It would most likely be gradual for a couple of years before the next up cycle.  That would put us out about 7 years, the normal time of an economic boom or bust cycle, from the beginning of the downturn in 2007 to 2013/2014.

By then, we’d be able to qualify for a loan with the short sale behind us and still be able to purchase more home for less than we purchased in 2003.  From here, the decision became easier as selling short would instantly improve our situation regardless of the ramifications.

In the next article, I’ll write about further steps in the short sale process.  To be sure, this step was for us the first and most important step to making our decision.

Looking for someone to assist you in the short sale process?  Please fill out the form below and we’ll get back to you promptly.

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Tags: Rocklin, Roseville, sacramento, short sales

Foreclosure Truth

Sean O’Toole Hits The Nail on The Head

I was just directed to an article by my good friend John Levy in Anchorage written by Sean O’Toole of ForeclosureRadar.com.

ForeclosureRadar.com is a very informative site and toward the end stages of the massive REO inventories, I subscribed to it for advance notice of what might be coming on the market.

Sean has written an article that I’ll re-post here and I believe, and have made reference to in the past year, is a likely scenario that explains the differences in the level of the notices of default vs. the trustee’s sales going on in the Sacramento real estate market.

This is an outstanding article.  Read on and enjoy.

From Sean O’Toole of ForeclosureRadar.com dated 8/12/10:

“I spoke last week at a real estate investment club and shared with the audience my belief that foreclosures will trickle out over a very long time rather than come as a wave of foreclosures as others continue to inaccurately predict.

I do however, understand the nature of those predictions. Given the number of households that aren’t paying their mortgage (delinquencies) we should be seeing a massive wave of foreclosure notices, and ultimately foreclosure sales.

It’s a logical conclusion. But this has become a political problem in a world of financial fantasy, so I don’t believe that simple logic applies.

The reality is that through financial engineering (interest only, subprime, swaps, option ARMs, negative equity, stated income, etc.,) we created trillions in excess mortgage debt that has left millions of homeowners underwater, financial institutions on the brink of collapse, and the FDIC nearly insolvent.

Back in September 2008 it became clear that financial collapse was imminent, and the federal government did what it does best – bailed out those who caused the crisis while leaving taxpayers holding the bag for the losses. Pulling this hat trick off required one simple ruse – getting everyone to believe that those losses ultimately wouldn’t be very big.

To do this the government changed the rules. The FDIC who previously forced banks to get bad assets off their books became a leading proponent of saving homeowners with loan modifications that likely just delay the inevitable.

With a little government pressure, the supposedly independent Federal Accounting Standards Board was pressured into letting banks account for loans at theoretical values based on computer models rather than current market value.

Next they began rolling out an acronym soup of programs, which they promoted as being help for America’s homeowners – HAMP, HAFA, HARP, 2MP and more. But the reality is that to date these programs have resulted in little more than delays. The government and lenders say that these failures are due to complexities of implementation, difficulty reaching homeowners and a sundry other things.

But what if these programs were never intended to succeed? What if they were simply intended to create delays, provide false hope, and maybe get the banks a bit more cash out of homeowners in the form of trial loan modification payments?

Sounds like a crazy conspiracy theory, I know, but hear me out.

The problem faced by both lenders and the government is that they can neither afford to kick homeowners out, or bail them out. For lenders, either scenario forces losses to be recognized, while thanks to mark-to-model accounting rules, and little or no pressure to foreclose from the FDIC, they can instead leave non-paying homeowner in place and push those losses into the future.

Many believe that most major corporations manage earnings, what could be more perfect than getting to choose when, and if, they recognize mortgage related losses. For the U.S. government either scenario is political death. Politicians have no appetite for allowing banks to put families on the street en masse through foreclosure, nor forcing banks to deal with the problem through bankruptcy cram-downs or other means.

At the same time they realize their constituents who do pay their mortgage (or rent) simply won’t stand for a taxpayer funded bailout of their upside down neighbor. Instead, it seems they believe bailouts should be saved for the truly deserving like the executives and corporate shareholders of banks, AIG, GM, etc.

If we aren’t willing to either kick non-paying homeowners out of their homes, or bail them out, what other option is there? The answer is clear. It’s the same thing we’ve done with national deficits for years. Trade tomorrow for today, with a policy of extend and pretend. I have no doubt this is the present policy, and that this will be the policy for years to come as we work through wiping out the trillions in excess negative equity that was created during the bubble.

A member of the audience during my talk asked if this policy was really possible, after all we can’t just let non-paying homeowners stay in their homes forever. If paying homeowners figured that out, everyone would stop paying, and then our financial system would crumble.

I agree, and it’s clear the banks realize this too. But it is a problem that is easily solved by the diabolical game of Russian roulette. So long as lenders continue to foreclose on at least a handful of homeowners each month, in what from all appearances is a completely random game of chance, they’ll keep those willing and able to pay their mortgage doing so.

Those who decide not to pay their mortgage will find themselves playing today’s update on the Russian game, Foreclosure Roulette, wondering each month whether they’ll get another free month in their prison of debt, or finally be shot and forced to move.”

Crazy, Sean?  I don’t think so…I think you hit the nail, most directly, right on the head.

Thanks for visiting!

Tags: foreclosure statistics sacramento, Rocklin, Roseville

Total Number of Homes for Sales Continues to Rise

Percentage of Short Sales Increasing

The total number of single family homes for sale is continuing to increase for the 8th month in a row.

There are, as of this writing, 7883 home on the market in the 3 county area of Placer, Sacramento and El Dorado.

Getting short sales approved has become easier and many more people are choosing to sell their distressed home short in the Sacramento, Rocklin and Roseville real estate markets.

The increase in the total number of homes for sale is bound to get worse as we enter the slower selling fall months.

Homes just aren’t selling as fast and as the number of available homes for sale continues to climb, values must be affected adversely, again.  Simple supply and demand.

Short Sales By City

The percentage of homes in short sale has increased.  Currently, short sales in occupy 30% of the homes for sale in the 3 county area.

Individual cities in Placer county have much higher percentages.

In this report, Rocklin leads the pack at 39% of the available homes for sale being  in short sale.  Next is Lincoln and Sacramento at 35%, Roseville at 33% and Granite Bay at 14%.

I think timing is at play in Rocklin with the bulk of new construction being completed in the 2001 to 2003 time frame when the market was going up very fast.

The point here is that more and more homeowners in distress are choosing the short sale route as it is much easier process than it used to be and the credit ramifications, especially for purchase money loans, are less severe.

Are you considering selling your home short?  For more information on short sales, click here.  Additionally, if you’d like a no obligation, confidential consultation, please fill out the form below and we’ll be in contact with you promptly.

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Tags: granite bay, Lincoln, Rocklin, Roseville, sacramento, short sale

Short Sale Hell

Still Doing Business With a Bank?  Read On…..

I have a client who recently went through a hell of an ordeal with their lender in attempting to sell their home short.

These folks have had a rough 2 1/2 to 3 years.  They are in the real estate industry and started feeling pinched financially in late 2006 to early 2007.  The market had turned sour and he was unprepared for how to deal with the changes in the market opportunity at the time.

His wife had steady work but the reduction in his income left them short and they ended up in debt trying to keep their home life stable.

They continued to think that the economy would get better and they could recover their situation but the market and economy got worse.

And worse. And worse.

Time to Stop the Bleeding

Seeing that the situation nationwide was not getting better and the local economy in dire shape, in April of 2009 they made a conscious decision to completely restructure their financial life to start over.

For them, that meant bankruptcy to wipe out all debts and getting rid of the house. It was worth $125K less than they owed and they determined it would be years before that value would come back.

They had already waited too long for the market and their fortunes to turn back in their favor.  They had to take action to get back on the road to financial recovery.

The Bank Says “No Problem”

Because they had intended to give the house back to the bank, preferably selling the home short, they stopped making their payments as the bank wouldn’t talk to them until they were late.

After a couple of months, they approached the bank about a loan modification and were told that it was possible however the investor wouldn’t lower the principal loan amount.

They declined to even try to get the loan modification as anything other than a principal loan amount reduction did no good for long term financial stability.

They asked the bank about a short sale and were told to fax in a documentation list and they would review it.

He called the bank several times over a 60 day period to make sure they stayed in and each time he spoke to someone different who told him something different than the last person he spoke with had told him.

Because the bankruptcy was now finalized, the bank continued to push toward a loan modification seemingly ignoring the fact that they had clearly said, repeatedly, that this wasn’t an option for them as the principal loan amount would not be reduced.

Trustee’s Sale Scheduled

The bank had scheduled a trustee’s sale to sell the home at auction.  When the notice was posted on their front door, they called the bank to ask if they were still going to be able to sell the home short.

They were told the trustee’s sale would be postponed.

The day before the trustee’s sale was to occur, they called the bank to follow up on the paperwork and to inquire about the postponement of the sale.

They were told that they were going through with the trustee’s sale and the home would be auctioned off the next day.

No one anywhere along the line, in all the calls to the bank, ever gave the impression that they would be foreclosed upon provided they got their information to the bank.

For some reason, the bank would not even attempt to cancel the sale.

The next day the property sold to the highest bidder at auction.  The buyer at the auction said to my client “not to worry, we’ll work something out so you have time to move”.  That evening, they were served with a 3 day notice to vacate or be faced with a lawsuit.

When you are foreclosed upon, the homeowner has NO rights at all.  They are required by law to move out immediately.  If a renter were in the property they would have rights but not the homeowner.

Understandable but you’d think the decent thing would be to work with the homeowner to get them out as quickly as possible without adding undue stress to their situation.

This is the reason so many people who go through the foreclosure process destroy the home before they leave.  They are in financial trouble, they are lied to all along the line and finally snap ripping up everything in sight.

My clients are not that kind of people but just wanted to get the hell out of the house and get on with their lives.

They were lied to by the bank. They were lied to by the investors who purchased the property.  All this on top of feeling guilt for walking away and having to move out on short notice.

Are the better off?  Absolutely they are but not without having to go through hell to get there.

What They Learned

In talking with them, I learned that they hadn’t attempted to go through the loan modification process with the bank.  They didn’t know about he HAFA program and that the bank is compensated by the government to allow homeowners to sell short.  The caveat is that you’ve got to go through the loan modification, or HAMP, process first, reject it then you can go through the HAFA program to sell short.

This coupled with the fact that they have a monthly income surplus was probably the reason the short sale request was ultimately denied.

They had a surplus only because of the bankruptcy.

During the final stages of the process, the bank said that they had to have a hardship in order to qualify for a short sale.  My client said to them that they had just finished a bankruptcy and wasn’t that considered a hardship?  The bank said no as now you have no debt and can pay your mortgage!

My clients, with a bankruptcy on there credit report, won’t be able to get financing for a home purchase for 2 to 4 years yet the bank didn’t consider it to be a hardship.  Amazing.

The Moral of the Story

There is no rhyme or reason to what the banks do.  None.  If there is, only they know it and they’re not talking.

My clients had an offer from an investor for $220K.  The house sold at auction for $199K.  The opening bid was $190,800.  In this case, this was probably about the same amount to the bank.  Usually, it’s far less.

My clients have said that they will never do business with a bank again if they can avoid it.  They’ve closed all banking accounts and gone to the local credit union.

I don’t blame them one bit.  Now we know why people used to, and some still do, hide money under their mattresses.  It’s safer!

Need short sale advice?  Just fill out the form below and we’ll get back to you promptly.

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Tags: Rocklin, Roseville, short sales sacramento

Have You Received a Notice of Default?

Time Is Of The ESSENCE!

If you’ve received a Notice of Default and are in the beginning stages of the foreclosure process, you have a small window of opportunity to sell your home short and avoid the trustee’s sale.

If you don’t get the documents to the bank very early in the process, they could deny your sale and your home could go to auction.

Once the house sells at auction, you’re rights to stay in the home are gone and you’ll need to move almost immediately upon the close of the auction.

My recommendation is to have the required documents to the bank 30 days prior to the trustee’s sale to make every attempt to get a postponement.

What You’ll Need To Get It Done

Selling your home short is a stressful process but foreclosure is worse.  You can make it easier by being prepared upfront before you communicate with your bank about your desire to sell your home for less than you owe.

Your lender is going to require that you substantiate your reason to sell short and they are going to want all of your personal financial information upfront as well as documentation regarding your situation and the listing of your home.

Here is a brief list of what is commonly asked for from most lenders.

List of Required Documents

Most lenders, with few exceptions, will request a list of documents from you much like the list below.  This information is personal but you’ll want to provide everything as concisely as possible so that you’ll be considered for a short sale.

Selling your home short is a far better option than going through the foreclosure process.

• Bank Statements – If you’re are employed, you’ll need two months. If you’re self employed you’ll need 4 months.
• Financial worksheet monthly expenses – The lender or bank is going to want to know where your money is going.
• Copy of your homeowners insurance policy.
• A hardship letter signed and dated – Lenders need to see why your can no longer afford your home.
• Two recent pay stubs.
• Two of your most current year tax returns.
• 1099’s or W-2’s for the last two years.
• Proof of occupancy – utility bill of some kind.
• 4506T request for tax transcripts

At the same time you send in these documents, you’ll want to also show that the house has been listed for sale and that you have a contract pending their approval of the sale as well as all of the buyers documents.

Loan Modifications

What I’ve found is that the larger lenders want their borrowers to go through the loan modification process first to find a solution rather than go directly into a short sale.  Once you’re in the loan modification process, everything from a foreclosure sale perspective stops.

While this isn’t always the case that they want you to go through the loan modification process, it doesn’t hurt even if your intention is to sell short regardless of the outcome.

At this point, lenders/investors haven’t been willing to reduce principal loan amounts to keep people in their homes.  Reducing principal loan amounts is the only viable solution for the homeowner for the long term but for the banks, they’d rather foreclose or sell short than to lower the principal loan amount.

This makes NO SENSE but there must be a reason for it on their level.  I know no one who has any rational idea of why this is.

Now What?

After you have all of your very personal information together, you’ll need to have someone knowledgeable about the process put the house on the market and help negotiate the sale for you.

You don’t want to do this on your own as it is VERY frustrating and could stress you beyond your rational limits.

It’s always better, especially if it costs you nothing, to have a Realtor handle the short sale for you.

We have a professional negotiation team handle all our short sales and we close a very high percentage of them as a result.  We keep you updated weekly so that you know every step of the way where we are in the process.

Looking to sell short?  If you’d like more information on how we handle short sales, please fill out the form below for additional information and we’ll get back to you promptly.

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Tags: Rocklin, Roseville, sacramento, short sale

QUICK STATS: Rocklin Short Sale Closings Increase 23%

Quarter over Quarter Results

From the first quarter to the second quarter of 2010, short sale closings has increased by 23%.

More and more people are seeing selling short as a viable option and the banks are cooperating to get them closed.

Most banks are now approving short sales without the borrower being late on their payments.

Our feeling at SellState Realty First in Rocklin is that borrowers are getting over the stigma that once existed about keeping a home that is hopelessly underwater with no sign the investment will appreciate in the short term.

The fact of the matter is that even if a borrower sells short, it isn’t the end of the world.  While it’s stressful in the short term, in the long term, it’s a viable option for borrowers who are underwater.

While there are short term financial consequences, they are pale in comparison to waiting 10 years for the investment to be worth what is owed on it versus being in a equity position over the same amount of time by selling short and then buying again in a few years. (click here for this scenario)

Considering selling short?  Please fill out the form below and we’ll get back to you promptly.

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Tags: Rocklin, Roseville, short sales

Time to Sell Short in Rocklin Decreases

Quarter over Quarter Results

The time it takes to get a short sale* closed in Rocklin has decreased by 68 days from the first quarter to the second quarter of 2010.

That’s a 32% decrease in the time it takes to get a borrower on their way out of a bad financial investment.

With the government providing a solution to the failed loan modification program, short sales have become easier than ever to get closed.

The HAFA program has put the banks on notice that the government would rather not see any more foreclosures.  Due to this, banks are approving short sales even with an notice of default filed and a trustee’s sale scheduled.

Now, we’re also seeing some lenders, most in fact, approving short sales without the borrower being late on ANY payments.

Wells Fargo/Wachovia has come out and told me personally that a borrower doesn’t have to be late to be considered for a short sale.

On their portfolio holdings, Chase has said that they don’t want ANY foreclosures.  None!

While the individual borrower is not portfolio, I can tell you that Chase is pretty easy to work with in approving short sales.  So is Bank of America.

This is the best possible scenario for homeowner who can see that the underwater mortgage they are holding onto is a bad investment.  You can now get out of that bad investment without completely destroying your financial situation.*

Values Hold Steady

So far, values have held steady in the Rocklin area this year.  This appears to be the direction the market is going in the short term.

Don’t look for wild or even gradual appreciation anytime soon.  (for an appreciation scenario, click here)

For the next few years at least, it appears that, unless something crazy happens with our local and statewide economy, that our market will stay steady if not lose a little more value now that the homebuyer tax credits have expired.

This makes holding onto a mortgage that is underwater an even worse decision.  If the market were looking to appreciate in the short term, then we’d have a “wait and see” attitude toward it.

No economic analyst worth their weight in tomatoes is saying that real estate values will increase in the short term, 2 to 4 years, and when they do begin to appreciate, it won’t be 8% or 10% per year but more like 2% to 5% per year or around the national average.

Not good for those who purchased from 2000 to 2007.  Unfortunately, a large part of the new homes sold in Rocklin per purchased in that time frame.

Are you thinking about selling your home short? or If so, please fill out the form below and we’ll get back to you promptly.

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*Selling your home short comes with financial consequences.  Before making a decision to sell your home short, please consult your personal financial advisor.

Tags: Rocklin, Roseville, sacramento, short sales