5 Reasons Selling A Home Now Makes Sense

Many California homeowners are currently waiting to put their home on the market. The thought process usually involves traditional thinking that everything always looks best when the grass is green and flowers are in bloom. A home will surely be easier to sell if that is the case.

This is true, but your competition will also be using the same logic. Every year people wait until Spring to put their homes on the market. All at once there will be an influx hitting the MLS. In Gilroy there are compelling reasons why now is the time to get your home ready sooner rather than later. Here are five reasons why you should list your Gilroy home for sale now:

1. Home Inventory at Record Lows - The inventory of homes for sale in the area have dropped substantially over the last six months. The number of homes for sale in most communities has fallen to lows we have not seen for many years. When home inventory levels drop home prices tend to rise, and that has certainly been the case in Gilroy. This becomes even more prevalent in a popular neighborhood where buyer competition is high. Many times there are bidding wars. We have already started to see this trend on homes hitting the market now.
2. Demand is Up - Contrary to what some people may think there are lots of buyers out in the market place right now looking for a home to buy, and having their financing all lined up and ready to place. Some are first time buyers who are looking for a place to build some equity. There are others who see an opportunity to move up in the market as home prices have dropped substantially since the market peak in 2005.
3. Renting vs. Buying - The cost of renting versus buying a home has become the same and in some cases it is actually less expensive to buy a home. Rents in many areas have steadily increased over the last five years while home prices have dropped. If you factor in the potential benefits of building equity and some tax breaks with home ownership, you can see why it makes sense.
4. Interest Rates Going Up - Interest rates are at record lows at the moment and most economists predict they won’t stay that way for too much longer. While interest rates are not predicted to move up dramatically, every time they inch up a half a point they can knock out a percentage of first time home buyers out of the market. The first time buyers fuel the rest of the market like dominoes.
5. New Construction Coming Back - Builders are starting to get back into the fray. When builders are actively building homes it becomes harder for some who are selling their used homes to compete. There are many that will jump at the chance to have a shiny new home with all the bells and whistles customized to their specific needs.

Bonus Reason to List Now - If you’re one of the many homeowners who are hanging on with a negative ownership position, where you owe more than your property is currently worth, and don’t know where to turn, this is your best opportunity to move on. Short sales are being negotiated with lenders in far shorter timeframes than in the past, and lenders are recognizing that action needs to be taken. If you have exhausted all your options and your finances are drained, it’s time to move on.
In summary, if there are no time constraints on your part you should consider moving up your timeframe for putting your home up for sale. Our Gilroy market is extremely hot. Morgan Hill is the same, and Hollister is very close behind. Get ahead of the Summer competition and list your home for sale today. Contact Team Patereau to talk about the right price and the right time to sell your home. 

Short Sale Soundoff: Fannie, Freddie change Requirements for Short Sales

Fannie Mae and Freddie Mac announced changes to their servicing requirements for short sales. Please be aware of the following key changes for all parties involved in a short sale. These changes apply to all Fannie Mae and Freddie Mac short sales, with an offer and without an offer.

Title Transfer requirement change:

• The buyer is prohibited from selling the property for any sales price for a period of 30 days from the date of the deed.
• After a 30 day period, and until 90 days from the date of the deed, the buyer is further prohibited from selling the property for a sales price greater than 120 percent of the short sale price.

Note: The above restrictions will run with the land and are not personal to the grantee.

Relocation Assistance:

• The borrower may be entitled to an incentive payment of $3,000 from Fannie Mae / Freddie Mac to assist with relocation expenses following successful completion of a short sale unless:
• The borrower is required to contribute funds or execute a promissory note.
• The borrower has Permanent Change of Station (PCS) orders and receives a Dislocation Allowance (DLA) or other government relocation assistance.
• The servicer has knowledge that the borrower is receiving relocation assistance from another source other than the servicer.

Note: If the borrower receives relocation assistance from a source other than Fannie Mae, Freddie Mac, or the servicer, the difference in the relocation assistance amount up to the $3,000 incentive maximum may be provided. If the borrower will receive relocation assistance from a source other than Fannie Mae, Freddie Mac, or the servicer and the amount is equal to or greater than $3,000, no relocation incentive will be provided.

Law Against Short Sale Deficiencies Expanded

Brought to you by the California Association of Realtors.

In a major victory for REALTORS®, Governor Brown signed into law this week a C.A.R.-sponsored bill, Senate Bill 458, prohibiting a deficiency after a short sale for one-to-four residential units, regardless of whether the lender is a senior or junior lienholder. Effective immediately for transactions closing escrow from this day forward, both senior and junior lienholders cannot require a borrower to owe or pay for a deficiency in a short sale. This law also prohibits any deficiency judgment to be requested or rendered for senior or junior liens after a short sale of one-to-four residential units. Any purported waiver of this rule shall be void and against public policy.

Although a lender cannot require a borrower to pay any additional compensation in exchange for a short sale approval, the new law does not prohibit a borrower from voluntarily offering a monetary contribution to a lender in hopes of obtaining a short sale. A lender is also permitted under the new law to negotiate for a contribution from someone other than the borrower, such as other lenders, agents, relatives, and the like.

Exceptions to the new law include a lender seeking damages for a borrower’s fraud or waste; a borrower that is a corporation, LLC, limited partnership, or political subdivision of the state; a lien secured by a bond as specified; a public utility lien; and additional rules apply if a note is cross-collateralized by more than one property.

This law is fully set forth as Senate Bill 458 (Corbett) at http://www.leginfo.ca.gov/.

Being FICO wise

By Chris Moles, Brokerage Counsel, Intero Real Estate, Inc.

A recent study shows that foreclosures and short sales have a similar immediate impact on a property owner’s Fair Issac Company (FICO) Score.

Data from the three major credit reporting agencies suggests that a typical distressed homeowner with a FICO score of 620 was likely to see his score fall to between 575-595 after either closing a short sale or defaulting to foreclosure. The same study suggested that those with a score of 720 could expect a drop to between 570-590 and those with a score of 780 could expect a drop to between 620-640. The manner of parting with the property did not seem to affect the average FICO drop, indicating that a short sale is not “better” for a person’s credit score than a foreclosure.

Those secondary credit considerations that some use to justify selling short (like trying to “settle a debt” or “work with the bank”) are not factored into the strict FICO equation. Therefore, short sales and foreclosures are weighed the same – each is a "failure to pay as agreed.”

Giving FICO advice
These results simply reinforce the real estate agent’s duty to manage the client’s expectations and not give financial advice. Short sale listing agents do not exist to give credit advice. Rather, they exist to facilitate the client’s decision to sell short and avoid foreclosure. Whether the client should sell short or strategically default is ultimately a choice that the client must make with his own professional legal and/or financial advisor.

Of course, if advising clients on FICO matters, real estate agents should always disclose that short sales and foreclosures have the same general effect on the client’s FICO score. It is not accurate to say, “a short sale will have a less detrimental effect on your credit score than a foreclosure.”

MARS in Real Estate

The following article gives direction to Intero Real Estate Agents about the lates rules for Short Sales. Team Patereau thought you might be interested.

The FTC’s New “MARS” Rule – Its Affect on Short Sale Listing Agents and Negotiators
By Chris Moles, Brokerage Counsel, Intero Real Estate, Inc.

The Federal Trade Commission (FTC) has issued the Mortgage Assistance Relief Services (MARS) rule to protect distressed homeowners from those mortgage relief scams that have sprung up during the mortgage crisis. The rule covers any operation that, for a fee, will initiate negotiations with the seller’s mortgage lender or servicer to obtain a loan modification, short sale approval, or other relief from foreclosure. Of course, this affects many agents and negotiators who work in short sales.

MARS has three parts. It forbids advance payments, it requires certain disclosures, and it prevents the negotiator from making certain claims.

Ban on Advance Fees

MARS completely bans upfront fees for short sale negotiators. What this means is that short sale negotiators may no longer require payment upfront upon the commencement of their efforts with the bank. Rather, the negotiator may only collect fees after satisfactory agreement between the bank and the seller.

Further, the agreement will only be deemed “satisfactory” if there is evidence that the seller knew 1) how the terms of his mortgage would change, and 2) that he had an option to refuse the modification. Therefore, this rule imparts a more pronounced duty on both the listing agent and the negotiator (if they are different) because they are on the hook if the client comes back later and claims, “I didn’t understand what was happening.”

Of course, this part of the rule is easily complied with so long as negotiators only get paid upon closing, which is advisable.

Disclosures

MARS further requires standard disclosures for the short sale negotiator to make before executing a loan modification agreement. The FTC will assume that the seller was mislead if he was not explicitly informed that:

• The negotiator is not associated with the government, and the negotiator’s services have not been sanctioned by the government or the bank;
• The bank has the right to refuse to modify the existing loan;
• The seller has the right to refuse an offer and, if he does, he owes nothing to the negotiator,
• The seller may lose his home and damage his credit rating if he discontinues making mortgage payments, and
• The amount of the fee.

Prohibited claims

Coupled with its mandatory disclosures, the MARS rule prohibits negotiators from making any false or misleading claims about their services. This is not new (fraud or false promises have always been a trade violation). However, the rule gives examples of misleading claims. Generally, advertisements about the following topics will be scrutinized to determine whether they are misleading:

• The likelihood of sellers getting the results they seek(essentially, claims that promise or impart certainty that the seller will get approval at the seller’s terms. For example, “I have a 99% success rate” is now likely a violation if things don’t work out);
• The negotiator’s affiliation with government or private entities(For example, ads that say things like “this is made possible by the federal stimulus plan” and the like will now be scrutinized);
• The seller’s payment and other mortgage obligations(Any ad that would make a seller think he doesn’t need to pay his mortgage or that his mortgage agreement has standard language that entitles the seller to a short sale will be scrutinized);
• The negotiator’s refund and cancellation policies(Any statement that leads people to think they can get a full refund from their agent or negotiator, if reasonably untrue, will be scrutinized);
• Whether the negotiator has performed the services promised (the negotiator must negotiate a settlement that is knowingly accepted by the seller and bank. Any statement that seems to entitle the negotiator to money for anything short of this is a violation);
• Whether the negotiator will provide legal representation to the seller(if the negotiator’s company makes it seem that they will act as the seller’s attorney, they need to be duly licensed to do so and they need to follow through. Attorney affiliates will be scrutinized to determine what percentage of “bone-fide legal work” they deliver);
• The availability or cost of any alternative to for-profit mortgage assistance relief services(any assertion about other services or options needs to be 100% accurate. It is not appropriate to discourage making payments, talking to a lawyer, working with the bank directly, or looking into government programs. Ads stating “don’t waste money on a lawyer” or “stop letting your bank call the shots” and the like will be scrutinized);
• The money and/or credit a seller will preserve by using these services(if the total benefit does not seem to match the prior promises, the FTC will scrutinize that situation. This makes it even more important to request that the client seek independent legal/financial advice);
• The cost of the services(hidden fees and unusual costs will be scrutinized); or
• Any advertisement or advice that tells sellers to discontinue speaking with their bank.

What it Means

In California, most legitimate negotiators have DRE licenses and work with listing agents to negotiate with the bank. The negotiator is then paid out of the commission. The bank and the seller know about it and the listing agent is arguably the one losing money. As such, the seller does not pay until the agreement is made and the seller gets the service for which he bargained.

However, this rule should cause all short sale listing agents and negotiators to revisit their practices. Be sure that the client is given those disclosures listed above and be sure that the client knows how the negotiator is compensated. Further, negotiators and listing agents must be careful that their advertisements can survive FTC scrutiny. This is more a good-faith judgment call than anything else. If it sounds disingenuous, change it. And always advise that the client seek outside counsel.

Finally, and probably most importantly, NEVER require any up-front payment for negotiation. While the rule technically allows negotiators to collect after short sale approval and prior to closing, the short sale negotiators and listing agents who avoid trouble always and only get paid upon a successful closing.

Here's a video from HAFA, the US Government supported housing recovery program. We learned about this by going to http://www.makinghomeaffordable.gov/.

The main page description is: The Obama Administration’s Making Home Affordable Program includes opportunities to modify or refinance your mortgage to make your monthly payments more affordable. It also includes the Home Affordable Foreclosure Alternatives Program for homeowners who are interested in a short sale or deed-in-lieu of foreclosure.

As is the case with many government programs, this one has not been completely successful - BUT - a few have benefitted. And, if you are in a situation that stresses you constantly, watching this video may help you take action to change things.



If this applies to you or someone you know, contact Team Patereau. We have helped people move on. We can help you too.

Keep Your Home California introduces new program for unemployed

Picked up this announcement from my CALIFORNIA ASSOCIATION OF REALTORS®  newsletter:

Unemployed California homeowners now can apply for up to $3,000 a month in mortgage assistance to tide them over for up to six months while looking for work.

The Unemployed Mortgage Assistance Program (UMA) is the first of four programs the state is scheduled to roll out as part of an initiative called “Keep Your Home California.” The programs are supported by $2 billion in federal dollars provided through the Hardest Hit Fund.

Eligible homeowners who are struggling to make their mortgage payments after suffering a job loss may qualify for assistance.

Realty Times Reports on California's Slice of the Bailout Pie

California gets $700,000 slice of special $1.5 billion homeowner bailout pie


Broderick Perkins of Realty Times reports, "California struck gold, receiving the biggest chunk of a special $1.5 billion federal fund pie for programs that target struggling homeowners in states hardest hit by the housing crash."

Perkins goes on to report that the California Housing Finance Agency (CalHFA) recently announced the fat $7,000,000 slice would go toward four different programs ultimately assisting 40,000 homeowners.

Read on to find out more about this windfall for California homeowners in distress.

HAFA - The Movie

Short Sale Basic Training

We're helping a client who is facing a hardship, leading to a probable short sale, so we gathered some basic information. We thought you might benefit from knowing this, too.

Definition: A Short Sale is when a home is sold for less than the amount owed and the lender, after much negotiation, agrees to release the lien and settle for less than the full payment.

Why would a lender accept a Short Sale? A Short Sale is a form of loss mitigation, the lender is presented with a choice between a smaller loss by Short Sale or a larger loss through foreclosure, so accepting the Short Sale mitigates the loss.

The advantage of a Short Sale compared to a foreclosure is that you avoid having a debt discharged due to foreclosure on your credit record. This foreclosure mark can reduce your credit score by over 250 points and keep you from qualifying for a home loan for up to 5 years.

Short sales appear on your credit report as pre-foreclosure in redemption. With a Short Sale you can qualify for a home loan in 24 months.

Qualifications: For a Short Sale to be approved by your lender you must show a hardship. A hardship is defined as a situation that is the result of some extenuating circumstance that forces you into a position where you can no longer afford the mortgage payments. Some examples of a hardship are loss of income, unemployment, divorce, illness and job transfer.

Lenders will also allow a short sale of an investment property. Some examples of hardship include the amount of rent charged does not cover the mortgage payment and related expenses and you cannot afford to pay out-of-pocket to make up the difference. You are unable to rent the property at a price that covers all expenses. You cannot afford to fix damage to the property that keeps you from renting it out.

Timing for your next purchase: Fannie Mae's new policies for manually underwritten loans related to the time period that must elapse before borrowers can demonstrate they have reestablished an acceptable credit history after the occurrence of a short sale or foreclosure.

Short Sale - 2-year time period from completion date.

Additional Requirements: None
Note: No exceptions are permitted to the 2-year time period

Foreclosure - 5-year time period from completion date.

Additional requirements that apply after 5 years up to 7 years following completion date:

• The purchase of a principal residence is permitted with a minimum 10 percent down payment and minimum credit score of 680.
• Purchase of a second home or investment property is not permitted.

Deed-in-Lieu of Foreclosure - 4-year time period from completion date (date deed-in-lieu executed)
Additional requirements that apply after 4 years up to 7 years following completion date:

• Borrower may purchase a property secured by a principal residence, second home, or investment property with the greater of 10 percent minimum down payment or the minimum down payment required for the transaction.

Tax Considerations: On December 20, 2007 President Bush Signed H.R. 3648, The Mortgage Forgiveness Debt Relief Act of 2007.

The law applies to primary residences only and takes effect from January 1, 2007 through December 31, 2012. It provides relief to home owners by shielding them from the additional burden of potential federal income tax on any amount written off or forgiven by their lender in case of foreclosure or short sale. Consultation with an experienced tax professional to see how the law applies in your circumstance is advisable.

If you would like more information click here to be taken to IRS Guidance regarding The Mortgage Forgiveness Debt Relief Act of 2007

Getting Started: The first thing we need to do is evaluate your situation, which includes a conference call with your lender to understand your loan terms and current status. Only after discussions with both you and your lender can we determine if a Short Sale is the best solution.

If a Short Sale is the best solution for you, we will begin the process. A Comparative Market Analysis (CMA) will be done and a marketing strategy will be developed.

Short Sales normally take at least 90 days to complete. Lender approval will take up to 60 days from the time an offer is submitted. Once approved 30-45 days will be necessary to close escrow.

Charges: Real Estate commissions are paid out of the sale proceeds. Your lender has final approval as to the amount of commissions that will be paid. There are no additional costs, fees or charges because the transaction is a Short Sale.

3 Definitions

Short Sale

Deed in Lieu of Foreclosure

Foreclosure - In California it's the Non-Judicial kind....

Thanks Nolo Press.

What the Heck is a Short Sale?

As we have all read and heard and seen, real estate is not normal these days. Today’s real estate market is a great value for home buyers. There is currently a 15 month inventory of homes available in Silicon Valley. Life goes on and buyers need to move, or want to upgrade, but they must sell their current homes first, and homes are sitting on the market for a long time.
In addition, foreclosures are at a record high. However, there is this thing called a “Short Sale” that isn’t a foreclosure, and isn’t just listing and selling a house by the owners. It is our experience that most people don’t know what a Short Sale is, so here is the scoop.

Basically, a Short Sale is the sale of a property for less than what is owed on it, Owners do this by obtaining permission from all the secured creditors to complete this kind of transaction, and transfer clear title to a new owner (purchaser). When lenders agree to a Short Sale it means the lender is accepting less than the total amount due, and will transfer clear title to a purchaser. Not all lenders will accept short sales, or discounted payoffs, especially if it would make more financial sense to foreclose.

Short Sales leave the homeowner/borrower free of debt when the sale closes. However, they also leave with no money in hand to move on to the next home – no down payment, and not even money for first and last months rent and security deposit if the seller now has to rent.

Another thing Short Sale Sellers should be aware of is that the IRS will consider debt forgiveness as income. As an example, the owner owes $789,000 on the home. They get agreement from the lender that it can only sell now for $725,000. The home gets put on the market and is sold for $719,000. There is a forgiveness from the borrower(s) for $70,000. The IRS will consider the $70,000 as income in the year of the sale.

Short Sales appear on the owner’s credit history for three years. That’s less than the seven years for a foreclosure, but it still has a long-lasting effect on credit.

There’s lots to do in a Short Sale, but of the utmost importance is that the owner keep in contact with the lender. The owner should also have an experienced real estate agent to represent them in this complicated transaction.

Here’s a couple of links to Short Sale information:

About.com: Short Sales in Real Estate - How to Handle Real Estate Short Sales

eHow.com: How to Do a Short Sale

Real Estate Journal.com: Short Sale May Be an Option WhenMortgage Debt Looms Too Large

Losing your home can be very emotional and most people don’t want to face up to the reality until foreclosure sets in. Our recommendation is to talk to your lender. If you cannot pick up the phone and call the lender, then at the very least, call Team Patereau. We can help you get started on this very difficult project.