Good People are Losing Their Homes too

You watch the real estate market continue to flounder. Prices continue to fall and foreclosures are still the topic of almost every conversation. Most of these conversations revolve around the irresponsibility of home buyers who bought with no money down or bought just too much home. But people who played by the rules are losing their homes too.

Sue and John Tate sold their home for a tidy profit and used all their equity gain as a down payment on a new home. It wasn’t big and it wasn’t full of upgrades and amenities. It was simply newer that their last home and in a great neighborhood. Their payments were affordable and taxes were low. John and Sue couldn’t have been happier. Then it happened. John got hurt at work. He tried to continue with his job but he just couldn’t do it and was forced to go on social security disability. The couple’s income was drastically reduced but John and Sue were responsible people and had a nest egg to fall back on. Besides John knew his injury was just minor and he’d be back at work in no time. But as weeks turned into months John wasn’t getting any better and their savings was dwindling. Sue tried to find another job to fill the gap in their income but no jobs with that kind of income were available to her so she took a night job at a fast food restaurant, after all something was better than nothing and every penny would help but if things didn’t change soon John and Sue would be faced with losing their home.

What Goes Up Must Come Down

The real estate market was just entering an upswing in 2000 and 2001. Prices were rising and the market was strong. Lending guidelines were pretty much as they had been with tight qualifying restrictions. But as the market continued to strengthen banks became greedy...disguising their actions of loosening lending guidelines and offering new loans as an attempt to help people purchase a home but in reality it was just another way to generate revenue. The market went nuts. People were buying homes they could previously never afford and in reality still could not afford but these new loans eased the initial burden by offering low interest rates or no interest loans making in easy to get in over your head. More buyers could suddenly buy and prices reflected this new surge in buying. Sellers were making a bundle as prices soared. But as the saying goes "What goes up must come down" and in 2006 the bottom was looming. The real estate market slowed as buyers started feeling the pinch of higher payments. As the market slowed prices started to fall and many homeowners who were told by their lender to simply refinance when their payments adjusted didn't have that option any longer. Their only option was to sell but so many people were in the same situation suddenly the market was flooded with homes and the few buyers out there could pick choose and dicker. The bubble didn't burst it had a slow leak that started in 2006 and finally will loose all it's air this year (hopefully) Unfortunately because of such a huge number of people finding themselves unable to make higher payments and unable to refi, they have no alternative but to let their home go into foreclosure.

The funny thing about this whole situation is the Banks who are faltering because of their own greed and mismanagement. They gave people loans they couldn't afford and when the realization hit, it's now the banks who are suffering along with the people they were deceptively "Helping to Buy a Home".

I've talked to many homeowners in this situation. Some who aren't behind in payments yet or their loan has not readjusted, but see the writing on the wall and try to take steps to save their home. They contact their lender hoping to negotiate something with their mortgage company that will ease the burden of a much higher payment. But in almost every case the bank simply won't deal with anyone who has not missed a payment. So if you know you payment will be rising above what you can afford and the bank only laughs in your face when you ask for help what are your alternatives? Sell your home as a shortsale? Guess what most banks won't consider approving a short sale unless you are behind in your payments. Do you let your home go into foreclosure? Many people are because they don't realize there is an alternative. But what is the alternative? It's simply buying another home before the readjustment of your current mortgage payment. Take advantage of your GOOD credit before it's ruined by a mortgage company who's only interested in your money. They won't lift a finger to help until they have to so don't be a victim of the mortgage crisis. Come out a winner. Buy another home before it's too late. The banks won't help you so YOU'VE GOT TO HELP YOURSELF!

Using an Inexperienced Real Estate Agent

By this time the slow real estate market has taken its toll on new and inexperienced real estate agents Heck its take its toll on all real estate agents. The difference between producers and non producers however is huge. Producers have taken a cut in pay as fewer homes sell and buyers are still on the ropes as to whether this is finally the right time to buy. Non producers have made no money and unfortunately if they manage to pick up a buyer, the ensuing process is so tangled with mistakes that often the transaction never closes and a frusterated buyer loses out.

I recently spoke with a buyer who wanted to buy another home then let his current home go back to the lender. He had a family member (new real estate agent) he was using to buy his home. Now first of all this type of transaction is complicated at best, so any agent attempting this really has to know the market and whats available and the type of transaction the buyer is best attempting (foreclosure, short sale, or owner seller).

For this type of buyer a shortsale is the least advantageous route simply because of the unpredicibility and length of time a short sale takes. A foreclosure on the other hand can offer some great opprtunities and of course if you can find an owner seller with a realistically priced home this would be the best to attempt.

Now this new real estate agent showed his clients many homes, each time the buyers found a home they liked and the offer was written. Each time some mistake hampered the transaction and the sale fell through. By this time the buyers were at their wits end and the agent was scratching his head in wonder at how three transactions all fell through.

Do yourself a favor and use a good real estate agent for your transactions. Real estate is complicated enough with out the blind leading the blind.

Temecula Foreclosures and HOAs

Once HOAs ruled the roost and took no prisoners when in came to deliquent dues. Some HOAs were notorious for instigating Foreclosure action on back owed dues anywhere from $100.00 and up. Yes one hundred dollars. Can you imagine? Well those days seem to be over with new legislation in California. Now HOAs are much more limited as to when they can start the foreclosure process. These days though there is a bigger picture; growing lender foreclosures. Homeowners who have bad loans and are unable to keep up with payments are walking away from their homes, they stop making payments to their lenders, their taxes and their HOAs. Now the HOA can still file a lein against your home for non payment of HOA dues but with declining home prices these HOAs have little chance of recouping their money. So do these HOAs have other avenues to collect back dues? They do, they can go to small claims court, but will they and have they. Have you recently gone through this situation with a home in an HOA and what was the outcome? Since this will be affecting many people in the near future relay your experiences to help others understand the ramifications.

Closing Costs and Bank Owned Homes

I’m often asked if banks will pay closing costs in the purchase of REO property (Real Estate Owned)...in other words a bank owned property. The answer is yes. Most banks will pay closing costs. These costs are added to the purchase price, so if you offer 250,000 for a property and ask for $5000 in closing costs the bank sees the purchase price as $245,000. If this isn’t their bottom line they’ll counter for a higher price which reflects the closing costs. If they won’t take less than $250,000 the purchase price better be $255,000.

I think the more important question here is what do banks consider their closing costs to be. In a normal real estate transaction in California the seller pays specific fees and the buyer pays specific fees. Everyone understands this except banks. Banks feel they should pay the absolute minimum in order to recoup their loses. Banks usually don’t pay tax stamps and some won’t pay for the termite inspection or the necessary repairs. For this reason as well as others home warranty insurance is always adviseable and some banks may pay this cost. Many banks consider their own escrow fees and title as their responsibility the rest will come out of the buyer’s pocket. Most REO properties are sold “as is” this means whatever is wrong with the house is the buyer’s responsibility. The purchase price can be renegotiated to include any outstanding repair bills required inorder to sell the home but these costs will have to be added to the purchase price which sounds simple but in actuality with a declining market once you start adding costs to the price of a home the buyer runs the risk of out pricing the home for the market or offering more for a home than it’s worth. If the home won't appraise you won't get the loan.

So now that I’ve totally confused you here is the bottom line. The seller considerers his closing costs responsibilities to include sellers escrow fees and seller title fees(this can vary). The buyer will be responsible for the rest. You can request the seller pay these fees but the total for these fees will have to be added to the purchase price of the home. If you are asking for 3% IN CLOSING COSTS, that 3% will be added to the purchase price, making the home 3% higher in cost. The buyer does not have to come up with this money at the end of escrow he is actually financing it. Make sure the price of the home will not exceed what the home is actually worth or this won’t work.

Buying Before Foreclosure

There are many homeowners who owe more on their homes these days than that home is worth. These homeowners are often making high mortgage payments. Some may face circumstances where they need to move, but in this declining real estate market selling a home these days can be impossible. So what is a person to do? Some buyers who are faced with having to move are taking drastic steps to ensure their family will have a home. These steps involve some moral issues as well as some credit issues but these people are willing to take the risks. So what is this scenario you might ask? It’s simple and many people today are considering it. It’s buying another home and then letting the existing home go into foreclosure. Yes it’s possible and actually quite easy, with minimal if any risk. There are however, a few criteria buyers must understand and meet before attempting this plan.

1. The buyer must be current on their existing mortgage. This means no Lates what so ever or you probably won’t qualify.
2. You will have to qualify for two mortgages, the existing and the new one.
3. The buyer must have good credit and be prepared for his credit to be ruined for a while afterwards.
4. The buyer should have a down payment or buy a home through a down payment assistance program. (HART)

There are factors surrounding the foreclosure as well. In California the foreclosure laws prohibit banks and financial institutions from seeking the difference between what the owner owes and what the home actually sells for. This is called a non deficiency and is a requirement of a trustee sale as apposed to a judicial foreclosure. A trustee sale is most common in California and your mortgage contract will determine whether a trustee sale is the method of foreclosure your lender will be using. In order for a homeowner to qualify for this situation there a few criteria that must be met.

1. The buyer should still have his initial purchase money loan. This means the original loan he used to buy the home.
2. The buyer can have a first and a second as many owners do but, it’s better if the buyer does not have a HELOC as his second.
3. The buyer should be in his current home for more than 2 years. This will eliminate any IRS ramifications of capitol gains although there are other ways around this and a tax representative should be consulted.

There are more and more buyers who are faced with the dilemma of selling a home in a declining market. Some of these buyers have no choice due to circumstances and this method offers these buyers a change to own a home rather than rent for years as their credit is slowly repaired. This situation of buying another home before foreclosure often helps the buyer rebuild his credit much more quickly after the foreclosure as he has another mortgage to help boost his score.

This method may not work for many buyers as they will have to qualify for a new mortgage taking into account the existing mortgage. Other factors will need to be considered as well but all in all this may be the light at the end of the tunnel for some homeowners.

If this scenario is one you are considering please consult with a tax professional before taking any steps and get as much information regarding your personal situation before taking this drastic step.