This posting is the third in a series designed to help take the mystery out of the home buying and selling process. That process can be confusing and, since it pertains to the single most expensive asset most of us own, our home; we feel it best to provide our clients with an understanding of the process before it starts. 

Once a buyer submits an offer to purchase a property, and the seller accepts that offer, the Realtor’s® involved with the transaction open an escrow. It is common for the Realtors® to select an office and escrow officer with whom they have worked before.  That past relationship provides some assurance that this escrow will go smoothly. 

Since it is not legal to force a buyer to pay for a title insurance policy, the buyer’s agent frequently ends up selecting the escrow officer.  The exception is when a buyer is offering to purchase a bank owned home.  In that case, the seller/bank usually dictates which title company they will use.  Buyer’s agents usually get to bank/seller to pay for the title insurance so that no laws are broken.

A fully executed purchase agreement, meaning a copy of the agreement with all participants’ signatures, goes to the escrow officer. The escrow officer must follow the instructions provided in that purchase agreement.  The escrow officer must disburse all monies deposited into escrow as directed in that purchase agreement.

If, for any reason, the buyers or sellers wish to cancel the transaction while it is in escrow, they must both agree before the buyer’s earnest money deposit can be returned.  The buyer’s agent usually guides the buyer’s actions to ensure that they will get their money back. This is one of the reasons to select an experienced Realtor® when you plan to purchase real property. Fortunately, most escrows end with a successful purchase.

Another important document used by the escrow officer is the Buyer Information Request Form.  This simple form provides the escrow officer with the information needed to complete the transaction.

First American produced a straightforward video that is easy to understand.  If, after you view the video, you have questions, please feel free to call, text (916) 337-0658, or e-mail Mike@BuyYourVilla.com for clarification.

If you like the slide show, PLEASE select “LIKE” on the YouTube site.  The more likes we get the more people are likely to see it.  Enjoy!

One of the most common questions asked about a short sale is, “why is this taking so long.” 

Obtaining short sale approval and closing a short sale transaction is one of the most complex processes and real estate. There are many elements in the equation that makes up a successful short sale. Any single element can delay or scuttle the entire process.

The borrower/seller’s financial hardship, the various components of their financial picture, their ability to produce required documentation all must meet the loan servicer’s expectations and guidelines. The borrower/seller’s ability and willingness to respond quickly to that loan servicer’s requests are also essential to the success of any short sale.

The selection of the listing Realtor® is a key component. That individual must understand the short sale process thoroughly and be able to help the borrower/seller successfully navigate the short sale minefield.  Many people do not know that there is no short sale training requirement for a real estate sales person or broker’s license.  It is essential that the Realtor® be trained in the short sale process and, they must be willing to handle the many details involved.  Any delays in responding to the servicer or any errors or incomplete documents submitted in response to the servicer’s requests will create delays.

The loan servicer’s ability to deal efficiently with a short sale requests is also critical.  Several years ago, at the start of the recent “housing bust,” the loan servicers were unprepared for the volume of defaulted loans.  They were buried with short sale requests and did not have anyone to process those requests.   It has taken years for some of them to staff appropriately.  Some still have not done so.  This single factor was a major reason for delays and short sale processing over the past three or four years. Some servicers have made progress, and are handling the requests more efficiently. Others are still struggling.

A complicating factor in the processing of short sales is the identification of the decision-maker on each loan.  In most cases, investors buy residential mortgage loans on the secondary market. Insurance companies, mutual funds and retirement funds are just a few of the investors that actually own the notes on the homes in question. A small number of loans are actually own and serviced by the lender who originated them. Some of these loans (notes) have changed hands so many times that it is unclear who the true owner is.

It is the owner of the note, who makes the decisions about whether to approve or reject the short sale request.  In some cases, the owner of the note allows the loan servicer to make a decision. Usually the owner of the note provides the servicer with specific guidelines and authorizes the servicer to make the decision if the short sale request falls within those guidelines. In other cases, the investor wants to see the short sale document package so that they can review it and make the decision. This additional step adds considerable time to the short sale process. Each time the owner of the note has questions they request additional documentation for clarification.  They make the request through the loan servicer. Each request delays the process further.

Everything mentioned above applies to each loan outstanding on a given home. If there is only one loan, the processing can be much faster. The exception is when there is private mortgage insurance on the loan. Private mortgage insurance protects the lender in case of default and private mortgage insurance companies approve few short sale requests because the short fall comes out of their pocket.

If there is more than one outstanding mortgage on a home the process becomes much more complex. Each lien holder must approve the short sale. In most cases, the value of a home will not cover the first loan balance. Therefore, if the home goes into foreclosure, the Junior lien holders will not get anything. Borrower/seller’s find it difficult to understand why second and third lienholders will not accept the small payments authorized by the first lien holder. After all, if foreclosure ensues they will receive nothing, right?

In 2011, California past Senate Bill 458. That Bill limited a lienholders ability to pursue recourse if they approve a short sale. What this means is that if the second lien holder approves the short sale they cannot pursue the borrower/seller for the unpaid balance of the outstanding mortgage. If, however, the home goes into foreclosure, the second or third lien holder may pursue the borrower/seller for the unpaid balance. They can sell the note to a collection agency and will receive more cash than they would by approving a short sale. It is all about the dollar.

The buyer in a short sale transaction may be responsible for some of the delays if they are not responsive to communications from the loan servicer, usually relayed through the listing agent. It is not unusual for a loan servicer, using an independent appraisal, to counter the offer accepted by the borrower/seller.  The goal is to get the most from the buyer. The buyer then has to decide if they like the home well enough to pay the higher price or walk away from the purchase.  

Once short sale approval is given, there are strict timelines that the buyers and sellers MUST meet. The fact that the investor and loan servicer have taken months to reach a decision does not matter.  They now set deadlines that the buyer, seller and Realtors® must meet.  The timelines are very short.  Failure to meet those deadlines can result in termination of the short sale process and foreclosure of the property.

A buyer can wait for months only to learn that the lender rejected the short sale request. There is no guarantee that any short sale property will close escrow.  Buyers should know this before making an offer on a short sale property.

Buyers can take certain steps to improve the odds of success if they decide to attempt to purchase a short sale property.  Most revolve around the selection of a knowledgeable Realtor®.  That individual can guide the buyer through the process and help them avoid the more difficult roadblocks.

A good Realtor® can help the buyer try to avoid dealing with homes with private mortgage insurance and junior loans.  They can find out which loan servicer or servicers are involved.  Some are easier to deal with than are others.  They can talk to the listing agent to determine if that individual has any training or experience in handling short sales.  They can also learn the general nature of the borrower/seller’s hardship to judge the likelihood of lien holder acceptability.

The good news is that most of the loan servicers are fully aware that a short sale is better for their investor than would be a foreclosure.  After years of dealing with the process, the data is clear on that point. 

A short sale is far better for the borrower/seller than is foreclosure.  The impact on one’s credit score is not as traumatic and most sellers are able to purchase another home much sooner if they have an approved short sale on their record, as opposed to a foreclosure.  And although it may not seem like it to those in that position, many do recover and end up in a beautiful home in just a few short years after a short sale.

Buyers find that the lowest prices on the market are on short sale properties.  However, they have to understand the process and the odds of failure before getting involved.  The have to select a knowledgeable and experienced Realtor® and they have to have a lot of patience.

If you are having financial problems that force you to consider a short sale, or if you want to take a shot at buying a home that is a short sale property, feel free to contact us for answers to your questions or to start your journey. 

 (916) 337-0658.

SHOULD I BUY A CONDO?

When most of us reach the point in life when we are ready to buy a home and settle down, the Condo option frequently enters the home selection equation.  Young singles and newly married couples, often with small children, are likely to find the Condo option very attractive.  

The living spaces are frequently newer than are the single-family homes in the same price range, amenities are more modern, and Condo complexes frequently include a clubhouse, pool, exercise facilities along with other attractive features.  Another big draw is the fact that Condo owners do not have to spend time and money directly on exterior maintenance and overall upkeep. 

Naturally, there are tradeoffs.  A Condo owner lives in closer proximity to their neighbors.  Homeowner association rules are by necessity more restrictive, limiting the owner’s flexibility.  

The next logical question is, why not choose a Condo over a single family home? 

Some buyers may find the living conditions a little too restrictive and the association rules too limiting.  Others may find the monthly association dues costly.  Much depends how well the homeowner’s association is managed and how well the governing board oversees that management process.

As a rule, older complexes tend lose value because they are not properly maintained over time.  Homeowner associations are notoriously underfunded.  Getting a majority of the owners to agree to dues increases or special assessments is difficult.  When funds are not available, maintenance suffers and the market value of the complex declines as the property’s condition deteriorates.  Those owners who would not pay for adequate maintenance frequently loose more because of the reduction in property value when they sell their units.

Understand that there are upkeep costs associated with the ownership of any property.  However, with most single-family homes, there is only one owner and that owner can decide how much time and money they wish to put into maintenance.  As a member of an owner’s association, the single owner has to go along with the majority-for better or worse.

When considering ANY purchase, one should think about what it will take to sell that property in future years.  Most families move every five to seven years.  Buying a property that will appeal to the future buyers is prudent.  Naturally, those buyers must be qualified.  As a potential buyer and, as a seller down the road, financing of the property must remain a critical concern.

Buyers should know that lenders tend not to like Condos.  This attitude results from past problems they have had with Condo loans. When they receive a loan application for a Condo, they require a Condo Cert. (a document providing essential data about the complex, the association, association management, association funding, reserves, owner occupancy ratios, percentage of owner’s current on their dues payments and other data).  Underwriters comb through this documentation carefully, comparing that Condo’s situation to their guidelines. They base most Condo involved loan denials on specific data provided in that document. 

Existing Condo owners report frustration and with lenders due to the difficulty, they have in refinancing their Condo units.  Once you own a Condo, you may be in the same position and your buyer may face similar problems when they try to obtain financing in order to purchase your unit.

There are a number of Condo complexes certified by the FHA.  These units are a better choice for those considering a Condo purchase because buyers may obtain a FHA loan to purchase a unit in that complex.   The danger here is that the complex must retain that certification or future buyers will have trouble obtaining a loan.

The FHA has recently revised its standards, making it more difficult to qualify.  This action, designed to protect investors, also helps potential buyers by weeding out the weak and substandard complexes.

They have recently advised us that only 8.4% of all Condo complexes are now certified and that the more stringent requirements are resulting is a reduction in the number of certified complexes.

The short answer to the original question is, caveat emptor (let the buyer beware).  INVESTIGATE potential Condo complexes carefully.

Go to the HUD web site:  http://entp.hud.gov/idapp/html/condlook.cfm  To determine if the complex you like is FHA certified.

Note that many newer single-family homes are part of a homeowner’s association with monthly dues and additional rules.  They too should be carefully investigated.  However, they tend to be less restrictive and lenders are more accepting of those properties.

Few older single-family homes have a homeowner’s association. Most will have CC&Rs (Covenants, conditions and restrictions-usually less strict than HOA rules).  Many will require updating, a process that may be undertaken over a long period as funds become available.  Some have been undated and are available in move-in condition.

The important thing to remember is that the prospective homebuyer should be fully informed so that they can make an informed decision that best meets their needs.  Find a Realtor who is patient and helps you make the best choice for YOU.

Enjoy your search!

Select this link to read the complete Realty Trac story:

http://www.realtytrac.com/content/news-and-opinion/new-fha-rules-doom-condo-values-5029

HARP REFINANCE PROGRAM EXPANDED!

A change in the underwriting guidelines just made by the FHFA (Federal Housing Finance Agency) may enable more upside down homeowners to qualify for a refinance and save their homes from foreclosure!

Until this change they has placed a 125% loan-to-value CAP on the HARP (Home Affordable Refinance Program).  That meant that if the new loan could not be more than 25% over the present value of the property, the property did not qualify for a HARP refinance.

The new guidelines apply only to mortgages backed by Fannie Mae and Freddie Mac. To determine if your loan qualifies, go to:  http://www.makinghomeaffordabel.gov/get-assistance/loan-look-up/Pages/default.aspx

There are other program enhancements which include, among other things: reduction of some fees, eliminating the need for a new appraisal if FHFA has a reliable automated valuation model (AVM) estimate and extending HARP until the end of 2013.

New federal guidelines for the HARP changes should be released by November 15^th.

Basic eligibility requirements include:

•  Existing loan must be owned or guaranteed by Fannie Mae or Freddie Mac
• Existing loan must have been sold to Fannie Mae or Freddie Mac before June 1, 2009
• Existing loan may not have been refinanced under HARP previously (Except for Fannie Mae loans refinanced between March and May 2009)
• Current loan-to-value must be more than 80%
• The existing loan must be current , with no late payments in the past six months, and no more than one late payment in the past 12 months

More information is available from FHFA at :

http://www.fhfa.gov/webfiles/22721/HARP_release_102411_Final.pdf.

The monthly video, “This Month In Real Estate” covers real estate related topics for buyers, sellers and borrowers. EAch month it focuses on different aspects of ownership, acquisition or sale of real estate assets.

The monthly video, “This Month In Real Estate” covers real estate related topics for buyers, sellers and borrowers. Mortgage interest rates continue to remain low.  That factor, combined with excellent values has resulted in an increase of sales by 2%.  Also mentioned is the importance of quality photographs of your home, enabling you to stand out on the Internet, where most buyers start their home search.

This is a continuation of a three year study of Bank Owned home sale in Folsom, CA.  This report covers REO homes sold in October 2010.

There were 19 REO homes sold in October, up from 11 in September.    Lenders continue to release these homes for sale at a very slow pace in order to avoid causing major problems in the housing market. A glut of low priced homes would be catastrophic to an already shaky market.

The average days-on-market statistic for the month was 78, up from 73 the previous month.  The trend for the length of time REO homes are on the market is increasing.  Six of the homes sold had been on the market over 100 days.  Only two of the REO homes sold had been on the market for two weeks or less, a much smaller number than has been reported over the past years.          

The 19 homes sold represent 24% of all homes sold in Folsom, on the lower end of the normal range.

The overall home inventory in Folsom increased to a 6 month supply, the highest level of inventory in well over fourteen months.  The overall is trending up over the past year.  We had a 2.9 month supply last October.  The inventory for REO homes peaked for the last year in July with a 4.7 month supply and has dropped steadily since.  The present inventory in October was a 1/7 month supply.  A six month supply is considered a neutral market.    

The average cost per square foot of REO homes sold in October decreased to $ 154, down considerably from $ 166 the previous month.         

The difference between the cost per square foot of REO properties and the cost per square foot of all properties sold indicates that REO sales represented a 5% savings for REO buyers.  That is the same as reported the previous month.

The overall sales price for REO homes was 95% of the final asking price.    And only 11% of the buyers paid more than the asking price for their bank owned home in September.  There was a $ 9 dollar per square foot savings in the purchase of REO homes, compared to the cost of all homes sold.  When we apply that price difference to a 2500 square foot home it represents a $ 22,500 savings, something worth considering when selecting a home: not a small sum.

If you have any questions about purchasing a Folsom REO or an REO anywhere in the area, or are just looking for the best buys available feel free to call us at (916) 337-0658. 

The data follows:

The Department of Housing and Unban Development has just come out with a three video series designed to help home buyers better understand the home buying and financing process.  The videos are straight forward and easy to understand.  They range from 10 to a little over 12 minutes long and are a MUST VIEW for any first-time home buyer.  More experienced home buyers may also find them helpful.

Here is a link to the first of the three, Shopping For Your Home:  http://www.youtube.com/HUDchannel#p/a/u/0/kTn6hSrEGZg

Anyone who is seriously considering the purchase of a home should take the time to view these videos.  It might be prudent for home sellers to view the videos as well.

If, after viewing the video, you have any questions or need assistance in finding the best deal on a home, feel free to give us a call at (916) 337-0658, or e-mail Mike@BuyYourVilla.com.

Serving El Dorado Hills, Folsom, Cameron Park, Placerville, El dorado, Sacramento and Place counties.