Is California facing a 'FALSE' sense of housing recovery?

As the year 2012 is drawing to a close, there is alot of discussion among home buyers, home sellers, real estate professionals, mortgage advisors, financial advisors and the public about where the real estate market is headed. 

 

Obviously, I cannot predict the future, just present my observations and thoughts about the low housing inventory in the Sacramento, California and surrounding areas.   Based on my communication with other real estate professionals across the country, I'm confident that what I am presenting here is a nationwide concern.  Home buyers are facing bidding wars, sellers are uncertain they are netting top dollar and the public is believing the inflated predictions from the news media that the real estate market is dramatically improving. 

 

As most of you are well aware, the low inventory for home buyers has not been in the forefront of the news because it is obvious, we all have been distracted with media inundating us with the presidential elections and international affairs. 

 

At the end of 2011, the federal government proposed to rapidly and dramatically reduce the supply of newly foreclosed homes coming onto the market from Fannie Mae, Freddie Mac and Federal Housing Administration (FHA) through the bulk sale of foreclosed homes to Wall Street Investors.  Here it is, nearing the close of 2012 and I know my fellow bank owned (foreclosed home) listing Realtors' inventory completely dried up this year so one can only imagine that federal government actually implemented their own proposal....

 

So what does "bulk sale of foreclosed homes" mean?  The federal government proposed selling aggregates of hundreds, if not thousands of properties to investment pools of a minimum of $50 million or more.  These aggregates were auctioned to the highest bidder which means that only Wall Street investment syndicates, hedge funds and institutional investors could participate.  Important note:  at the level these investors were participating, they have little to no interest in community strength or development, sad indeed.  Lastly, to make things worst, the winning bidder were required to convert these homes into rental properties for an unspecified period of time, adding to a weakened national economic market....

 

You get the picture?  The questions we need to ask ourselves:  Should the federal government dictate how investors best utilize purchased properties?  Will this implemented plan actually worsen California's collateral housing market damage long term?   How will this action affect local small investors?  Are we experiencing a 'false' sense of economic housing recovery?  How will this affect taxpayers?  Why would Fannie Mae, Freddie Mac & the FHA receive such a 'reduce' return through bulk selling? 

 

Stay tuned to the signs 2013..... 

 

 



 

 

 

 

 

 



DUE DILIGENCE IN BUYING IN TODAY'S REAL ESTATE MARKET!

Buying an investment property, a residential income property, a flip or any type of real property in today's real estate market requires more due diligence and a discerning eye than ever before.  While investors, business owners and owner occupied buyers are seeing record lows in real estate prices, it seems very evident that many buyers are buying 'lemons', 'headaches', 'money pits', 'nightmares'...etc..The chances of this happening to you are less likely when you follow the Golden Rule in real estate investing..... 

What is the Golden Rule?  YOU make your money when you BUY.   I know this seems like a backward concept to my blog viewers.   Think about this concept for a minute....  When you ACCURATELY know how you will spend every dollar on a property BEFORE submitting an offer, you can invest with confidence with a unshakable certainty your return on investment (ROI), your NET PROFIT!  

Here are key items you must consider with EVERY real property you buy as investment property (income generating or flip (quick turn).  

• Confirm ALL repair costs, this is NOT an estimate, this is a CONFIRMED dollar amount.  Why is this so important?  This is often overlooked with inexperienced investors.  Many beginning investors are so over zealous in making 'quick money', they believe that they are qualified to make ALL repairs and more importantly, cut corners by waiving thorough professional home inspections.  Many hidden damages or deferred maintenance problems can include structural foundation damages, entire structure electrical wiring damages, major plumbing issues hidden in raised foundation older built homes.  These are just a few major and yet very COMMON mistakes that has the ability to bankrupt a beginning investor. 

• Confirm exact dollar amount for down payment, repair costs, operation costs TOTALS.  This another key that is so important.  Why?  Every dollar you put into your purchase as an investor, you must know how that equity dollar will make you profit every year you own the property.   Be an expert on how to 'leverage' when buying investment property.  It is similar to the concept of 'using other people's money' to create profit.  What does this mean?  You find and establish relationships with a hard money lender and reputable direct lender and/or mortgage broker.  These people will be your allies when you begin building your portfolio of real property assets.  

• Establish your ROI (Return On Investment) minimum and commit to that amount.  Never, ever waiver from that amount.  In today's real estate market, it is best to be conservative because of the volatility of the property prices.

• Create a dynamic team that includes, an experienced escrow and title company who understands investment property sales and purchases, a State experienced licensed general contractor, an experienced licensed real estate professional (who knows how to work with investors, who will scout for great properties to purchase and who will sell your flips quickly and efficiently)

• Exercise PATIENCE and be over the top thorough with every property you consider purchasing! 

• Never become emotionally attached to any investment property you are considering for purchase.  Treat every investment property as a business decision ONLY!  You may save the emotional attachment for your personal residence.  

• Building your financial future with real estate investing is fun and exciting.  When conducted with an educated mind, it affords many options for your future and secures a lifestyle that can be hugely rewarding! 

LOAN MODIFICATION, SHORT SALE OR FORECLOSE?

Within the last 60 days, I've received an increasing number of calls from frustrated homeowners attempting to modify their loans on their depreciated properties with no success.  


While our team does not conduct loan modifications, we work to give these people tips on how best to approach their banks, specifically their mortgage servicer, with the hopes of a successful modification, a loan modification on the homeowner's terms.  It is not enough for the homeowner to state to their mortgage servicer, "my home is upside down in value and I don't want to pay the mortgage on an upside valued home." 


Unfortunately when the homeowner is unsuccessful in obtaining a loan modification, our team informs these homeowners of other options, either short sale or foreclose and not something these homeowners want to hear.  When a homeowner chooses to short sale their property, our team works to make this process as painless as possible.  We are nationally Certified Distressed Property Specialists and very experienced at working with distressed property owners... Please check out my testimonies   on my website...www.myfengshuiagent.com


In the eyes of the mortgage servicer who contracted with the homeowner to lend money to the buyer to purchase their home, the servicer does not see the depreciated market as their responsibility.  I realize this is stating the obvious.  


What most upside homeowners desire is either a principal reduction and/or interest rate reduction.  It is rare the bank will grant a principal reduction and it is more common to obtain an interest rate reduction.  Given this information, it is up to the homeowner to provide clear evidence of "hardship" supported by a detailed financial statement in order to position themselves to obtain a successful modification.  


Here's what the banks are looking for in your "hardship" letter when attempting loan modification.  


1- Explain what changes or events have occurred since your loan originated that have caused you as the homeowner to fall behind. (***very important note *** if you are making your payments, the servicer does not view this as a hardship... )


2- Explain how these changes impair your ability to afford your mortgage payments.


3- Explain when the changes and/or events occur.


4- Explain if you foresee your financial situation improving in the future.  If you state "yes", there is a strong likelihood that your mortgage servicer will ask what you are able to contribute towards your loan...


Any statement you make in your hardship letter must be supported in detail on your financial worksheet.  It is critical that the financial worksheet is completed with 'accurate' detail.  Accurate in this case, an honest and truthful detail because the mortgage servicer will definitely verify every accounting detail you've documented on your financial worksheet.  


Should the mortgage servicer offer a loan modification after these filings have taken place, it is imperative that the borrower (homeowner) understands 100% what the new loan terms are.  I've seen many modification packages that offer extremely attractive interest only packages for SHORT term and when the interest only portion expires, the payments adjust to nearly triple that of the original offer. . .This is a small bandaid and a very LARGE wound!!!  Be careful....


As I mentioned earlier in this article, many of these homeowners who cannot afford to stay in their homes or cannot live without a loan modification or even with the modification with unacceptable terms choose the short sale option.  This means that we work with the homeowner to sell their home for less than what is owed on the property.  With California's new short sale law, Senate Bill 458,  Prohibits Recourse and Anti Deficiency On Second Mortgages, the short sale option is a more common option than foreclosure to distressed homeowners these days.  

The Reality of TODAY's Appraisal!

At one time in your history of home refinance, home buying, or home selling, you've been discouraged because your appraiser has valued your home as this. . .

Your lender see's your house as this. . .

 and yet, your buyer sees your home as this. . .

and you see YOUR own home like this. . .

meanwhile YOU will most likely go to battle because your assessor will see your home as this. . .

With the current market conditions, I've observed sellers who cannot sell their home, home owners who cannot refinance or home buyers who cannot purchase due to the numerous appraisal challenges.   Here are just a few items that can make a difference in the success of an appraisal. . .

1- Make your home sparkle. . .This doesn't mean rebuilding your home to new construction.  This means paying attention to the 'obvious' deferred maintenance.   Dark, dingy and spotted walls,  worn carpets, broken windows or damaged flooring, just to name a few items of appraisers consideration.  Appraisers will assign an 'effective age' after considering these items that are not corrected and will obviously and significantly reduce the value of your property.  

Be mindful to correct things that give you the HIGHEST return on your investment (ROI).  It is highly recommend that you hire a reasonably priced home stager who will do their best to make your home look like a model home!

2- Paying attention to curb appeal by having tidy landscaping.  Obviously, this is a challenge with distressed properties, foreclosed or short sale homes.  Because of the current market conditions, it is even more important as a re-sale seller to pay attention to this item.

3- Make sure appraiser is aware of all upgrades and remodels.

4- Location, Location, Location of the subject property. . .It does matter!  

5- Have comparable sales available for the appraiser to consider.  This is extremely important for newly constructed homes!  When new homes are sold, the builder's sales office has these records, the broker's multiple listing services (appraiser depend on this service for their comparable sales) does NOT!  

Buying, Selling or refinancing in this market is a "team" concept.  The proactive homeowners, sellers and buyers who believe in this attitude will most likely see positive results!  

DISCLOSE OR NOT TO DISCLOSE?

Many sellers become confused when they are deciding when to disclose material facts about the home they are selling.  The general rule in California, "when in doubt, disclose".  I have a seller along with his buddies installed a brand new HVAC (heating/air) system in their older home without obtaining a permit before installing the unit.

It is common for homeowners to avoid retaining permits for remodels or installation and/or replacement of equipment in the home.  In many California city and counties, the building permits can be quite costly so it is understandable why many avoid taking out required permits prior to construction or installation. In some counties, a seller must obtain a clear 'city re-sale inspection' before placing their home on the market.  This forces the seller to sell a home that is code compliant. 

Even though my seller had already installed the HVAC system without the permit, it became very clear that he needed to produce evidence of a permit and he understood it wasn't too late to obtain the permit because of the following California law.  

Beginning October 1st, 2005, all HVAC systems installed or replaced requires a permit and test for leaks.  Any ducts leaking more than 15 percent from the HVAC system must be repaired or properly installed.  This law came into affect as a measure of energy conservation in California.  

 

AVOIDING FORECLOSURE WITH A LOAN MODIFICATION

Today, we received an unfortunate call from two distressed homeowners who found a Notice of Trustee Sale taped to the front door of their home.  What does this mean?  The bank and/or their mortgage servicer has notified the homeowner that in 21 days from the date of the Notice, their home goes to Auction and the home is sold to the highest bidder in a court setting, not pretty.  

Unbeknown to this couple, the foreclosure timeline proceeded forward while this upper middle class couple had successfully obtained an approved loan modification.  Keep in mind, their approved loan modification came from the same bank who is scheduling to foreclose on their home!!!  Wow?!?

Yes, this is just plain strange and NOT surprising. The left hand doesn't communicate to the right hand!  Several months ago, I blogged on the topic of the banks' loan modification and loss mitigation departments never communicating with each other.  Another case and many cases out there just like this young couple.

Viewing from the borrower's perspective, one might assume that this is malicious intent by the bank, the banks must be on a mission to foreclose on their borrowers' homes.  Rumors and the news support distressed borrowers' suspicion that the banks are receiving subsidies to foreclose on them, a justifiable paranoia. 

My advice, don't give up, if you have a bonafide APPROVED loan modification from your mortgage servicer, that means you as the borrower have signed an agreement to the terms of the loan modification provided by your mortage servicer, there's a strong chance you will avoid foreclosure.  

It is a matter of providing documentation of your approved loan modification to the loss mitigation department of your bank and/or mortgage servicer.   It is advisable that you seek legal counsel when you find yourself in a similar situation of these distressed homeowners.  

 

 

NOT AN REO/BANK-OWNED OR SHORT SALE TRANSACTION: IT'S A RESALE SELLER!

Serendipity really does happen when we are open to the magic that life has to offer!  Peter is from Sweden and his lovely wife, Diana, is American Filipino.  These people are the sweetest most gentle clients I’ve had a in quite sometime.  This lovely couple married just three years ago and came as a first time buyer referral from a business associate. 

October 24^th, 2010 was the first stormiest day of the fall season in the sleepy town of West Sacramento when I met Peter and Diana at the local coffee shop.  With my laptop, we spent a good hour becoming acquainted while learning about the type of home this young couple imagined as their home.

Peter was raised in the rural countryside of Sweden while Diana was raised in a bustling city in the Bay area.   With their diverse cultural backgrounds, I was also able to see how well they complimented each other and how similar their priorities were!  After the 2 hours we spent together at the coffee shop, we visited three homes and one they fell absolutely in love with. 

As soon as we walked in the front door of this impeccably maintained 3000 sq. ft one story home, the moment felt completely surreal. . .and yes 45 days later the home belonged to Peter and Diana! 

Last weekend, I had the privilege of presenting Peter and Diana with their closing gift and as I entered their home, I was pleasantly surprised that these new homeowners had already re-painted their living room and decorated for the holidays.  My heart warmed when I saw their 9 foot Christmas tree adorned with blue and white lights only, Sweden’s colors.

The tears welled in my eyes when Peter and Diana presented me with an unexpected gift basket filled with ‘relax/de-stress’ products and the most beautiful appreciation card, I was overwhelmed !!!  Working hard to maintain my emotions, Diana then proceeded to show me a note that the sellers left. 

“Dear Peter and Diana, Kathi and I have lived and spent 25 years in this home raising our children and have filled this home with many, many happy memories.  We know this home will allow you to do the same.  We are leaving a legacy behind and have taken care of this home as if it were one of our children.  We hope you do the same.  Sincerely, Del”.

Oh my God, I completely lost it, I just get emotional recapturing this moment as of the writing of this blog. 

To all my readers, now you know why I love what I do and the passion I have for how I can serve! 

In this market, working as an “REO/bank owned and/or short sale” listing real estate brokers/agents, we forget that as real estate professionals, we are in a ‘relationship business’.  I so appreciate when I have the opportunity to work with clients like Peter and Diana! 

With these type of transactions,  I am reminded that I am in the best business in the world!!!