Spencer Rascoff, COO of Zillow and his daughter Sophia showing us how easy it is to use the new Zillow iPhone App. I love her happy dance…especially the second one.
Even a four year old knows it is disappointing when there is “only one picture”. What a bright little cutie!
Just an observation. Faxed an offer yesterday. Most agents, including me, work mostly from home offices. But yesterday I went in to pick up a commission check, and faxed an offer from the office instead of from home. Even when we transmit a contract via email to the agent, we usually fax one to the office to be “legally delivered” to “the broker”. This is especially the case when we are expecting multiple offers on the property.
There was someone in front of me “in line” at the fax machine. He was griping about the machine feeding several pages at once. I went to get a staff person to fix that, and make sure mine wasn’t going to do the same thing. She said “Oh, you are faxing to the same agent as the guy in front of you“. (she called him by name.)
What are the odds of that? 13,000+ agents in King County, thousands of homes for sale. Two agents in one office faxing an offer on the same property at exactly the same time?
(BTW On Friday I closed on a property where the agent for the buyer was in my office. I was the agent for the seller. The property was in North Seattle. My office is in Kirkland. What are the odds of that?)
There is no “point” to this post really. When I showed the property on Sunday (lockbox went on at 1 p.m and I was there at 3 p.m.) there was a revolving door of agents. It was a madhouse. Agents with their buyers all over the place. According to the other agent with the offer who showed it on Monday, his experience was the same.
I don’t know how many offers they will get, but clearly there are lots and lots of buyers…all targeting the same homes, leaving many others in the “no one is interested” category. Can’t say much more, as the listing agent is still sorting through the offers. No conclusion at this point. Just a “what’s happening out there” observation.
If you can guess the property, please DO NOT put the address in the comments. If you do, I will have to delete it.
If there is a point to this post, it is that while “pendings” will only reflect one buyer and one seller on this property, there are obviously many buyers “in play” who can’t have it. So while stats may reflect “few” buyers (in escrow), that doesn’t tell the whole story of what is happening in the market.
There is another offer we were involved in this morning…property is not listed in the mls. There’s another example of how “the stats” are not picking up what is actually happening with regard to buyers making offers on property. Stats are becoming less reliable as an indication of supply and demand.
Wouldn’t it be great if your bank had an “auto sort” to earmarked categories?
There are a million articles around the web on what the future is going to look like, but every time we get TO the future, it looks a whole lot more like the past than it should.
Picture this…you go to Starbucks and try to buy coffee with your debit card. You order your daily Frappuccino and your debit card is declined. You quickly grab five bucks out of your wallet and pay for your order with cash.
You call up your bank account on your iPhone and it says you have $853 in your account…BUT, you have NO money for coffee.
People are so much happier when they know they are spending their money on the “right” things. They are happier when they KNOW they are not overextended on certain expenses. I spent last week in Redondo Beach CA with my eldest daughter. She has only been in her “new” apartment for about two months. She asked “do you use gross or net income when determining…” I quickly gave her the formula for determining housing expense based on gross income. I showed her how to strip out overtime and bonus monies to calculate “dependable” gross income. Miraculously (or not) her rent equalled 23% of her gross income. I said that’s perfect…just right. That should leave you at least 5% of gross toward saving for a house.
I was amazed at how happy she was to know that her rent payment was exactly would it “should” be…in fact, a tad under what it “should” be. You could say I “made her day”. That’s when I got the idea that your bank statement could “make your day” every single month, if it was broken down to earmarked categories. Imagine a day when you can’t wait to rip open that bank statement, for concrete evidence that you were on target as to your personal financial goals.
One of the “old” lender guidelines for approving a mortgage was seeing that the would be borrower had deposited “the difference” between their current housing payment, and the soon to be approved new housing payment, into their savings account on a regular basis. Rent is $1,300 a month. Mortgage payment will be $2,200 a month. $2,200 minus $1,300 ($900) was deposited into their savings acount every month for 15 months prior to purchase. Downpayment of 3.5% of sale price (FHA) = 15 months of housing payment difference.
Let’s break that down.
1) $2,200 a month equals a loan amount of roughly $400,000
2) $2,200 a month equals 28% of $94,000 gross income
3) $3.5% downpayment on a $400,000 house is $14,000
4) Factor in another $8,500 for Closing Costs
Let’s say your bank let you plug in 28% of your gross income to be earmarked for “housing expense”. Every time you got a raise, you changed your gross income so that the bank statement continued to calculate 28% of your gross income for housing expense, even if your rent didn’t increase.
You make $65,000 a year (2 incomes) when you rent your first apartment for $1,300. 28% of gross is $65,000 divided by 12 times 28% = $1,516.67 a month. You find an apartment for $1,300 a month. The bank STILL allows $1,516.67 a month for ONLY housing payment, and automatically transfers the difference of $216.67 every month to an earmarked housing expense account.
While visiting my daughter we drove through a neighborhood and she said, “I love these little houses with yards”. Contrary to news media reports on housing, there were none, nada, NO houses for sale for blocks and blocks in that neighborhood, so I couldn’t quickly give her an accurate read on price. But given I have worked that area before, I estimated price at $350,000 in today’s market (50% down from peak there), $400,000 tops.
Now she knows exactly what she needs to get the house of her dreams. She knows how much money she has each month to set aside for future housing expense (28% of gross minus rent payment). She knows she can sock away the bonus and overtime money and raise money into an earmarked housing account, because we didn’t use that money to calculate the future housing payment, we only used “dependable” salary income sources.
How great would it be if the ATM card said NO, you can’t buy this coffee with your house money!?
Of course for one expense you can do it yourself, but if you could plug in all of your expenses so it said
“no, you have no money in your gift account – give that person a card”.
“Hey, you are using 1/5th of your annual electric bill expense this month – shut off some lights when you leave the house”.
How hard can it be to combine a bank account program with an expense program so they operated as one? Maybe some bank has that feature, if they do let us know. If not, someone should “invent” it. The bank that says “We help you keep track of, and achieve, every one of your personal financial goals”, might just have the ticket to the bank account of the future.
In the meantime, don’t spend your house money on coffee.
This morning I received an email from one of the major banks we work with recommending the use of a “FBI 
Occupancy Cert”. They are recommending the use of this form on any loans we sell to their bank, including owner occupied, investment or second homes. The form, which must be acknowledged by the borrower, states:
“Mortgage Fraud is investigated by the Federal Bureau of Investigation and is punishable by up to 30 years in federal prison or $1,000,000 fine, or both. It is illegal for a person to make any false statement regarding income, assets, debt, or matters of identification, or to willfully overvalue any land or property, in a loan and credit application for the purpose of influencing in any way the action of a financial institution.”
The borrower must then select the occupancy for the specific property that is being financed:
Directly above the signature line, the form states:
“I/we acknowledge it is illegal for a person(s) to make a false statement regarding occupancy of property being financed in a loan and credit application and that we are subject to prosecution under Section 1001, 1010 and 1014 under Title 18 of the United States Code”
This document seems to make it crystal clear what occupancy is and the potential risk of trying to finance an investment property as owner occupied or as a second home. Can something so direct make a difference and curb mortgage fraud?
Every Friday morning at 10:00 AM, Trustee Sales are held in various locations throughout the county. Phil Leng, one of my students, invited me to attend the foreclosure auction with him this Friday at 3535 Factoria Blvd SE, Bellevue outside of the south entrance to the Northwest Trustee Services building. I’ve been hearing rumors that banks are discounting their own opening bids right at auction and I want to check this out.
If you’ve been following along with Craig Blackmon’s foreclosure series, this means the amount of money owed to the bank, plus expenses, is the opening bid. Bidders show up with cashier checks, receive a bid number, and typically bid UP from the bank’s opening bid. During the height of the bubble run up, there were multiple bidders bidding the final price way up. The rumor is that some banks or lenders may now be opening the auction at a bid price lower than their cost. I have heard of this happening in other states such as California, but not in Washington state.
I’ll be there tomorrow. If you want to come and join me, I’ll be the one with a video camera recording as much as I can for a new class I’m writing.
The last few FHA High Balance (aka FHA Jumbo) purchases that I’ve closed, the buyers and agents thought a second appraisal was automatically required. FHA did adopt conforming appraisal guidelines for declining markets at the beginning of this month, but that does not guarantee a second appraisal.
What triggers a second appraisal for FHA?
Per Mortgagee Letter 2009-09, FHA defines a declining market as:
“…any neighborhood, market area or region that demonstrates a decline in prices or deterioration in other market conditions as evidenced by an oversupply of existing inventory or extended marketing times.”
Appraisers are having to determine overall trends for market areas including analyzing the current supply and demand, days on market, absorption rate and the prevalence seller concessions. For FHA and conventional loans, this is documented on Fannie Mae Form 1004MC which FHA adopted effective April 1, 2009.
Please note that conventional, FHA and VA appraisals require this new form. FHA does have additional requirements:
If a home buyer is using a FHA mortgage with a base loan amount over $417,000, they may want to consider saving up for that extra 1.51% down so that they are at a 94.99% loan to value and therefore (currently) avoid the potential second appraisal issue and make sure that the lender you’re working with does not have underwriting “overlays” that will impact you. FHA’s second mortgage requirements can be found on Mortgagee Letter 2009-09.
Regardless of what type of financing you’re doing, know that the underwriter is going over the appraisal with a fine tooth comb. It’s quite possible that if they don’t require a second appraisal, they may request additional information or comps from the appraiser which could take more time for your transaction to close. Since this post is based on FHA transactions–we won’t even venture into HVCC here…that’s a whole other can of worms.
This post is not legal advice. It is a general discussion of SOME of the relevant legal issues surrounding foreclosure. If you are considering or facing foreclosure, you need specific legal advice for your particular situation. Consult an attorney in your area.
In my last post, I discussed the difference between a judicial and a nonjudicial foreclosure, which is one of the two essential issues to understand when considering whether to allow your property to go into foreclosure. The other essential issue concerns the number of mortgages you have on the property.
For many reasons, people often took out a first and a second mortgage when they bought property. Others opened up a home equity line of credit which they then used to pay other bills. In either case, the owner has a first and a second mortgage on the property. Where there are two mortgages, foreclosure creates much greater risk.
First, some background: mortgages, like all other liens, are arranged by seniority. (A “lien” is a legal right to force the sale of particular property to repay a debt, whether on a mortgage, unpaid property taxes, an unpaid contractor’s bill, etc.) As a very general rule, seniority is determined by time; the older the lien (i.e. the longer ago it was created or placed on the property), the greater the seniority. The “first” mortgage (or any other lien) — known as “first position” — will be paid in full by the sale of the property before the second and all subsequent liens are paid. The second will be paid in full before the third and all subsequent liens are paid. The third will be paid in full before the fourth, and so on. So, in a market like this one, the only debtor who has any real chance of being repaid in full is the mortgage or other lien in first position.
Where an owner has two mortgages, one is senior to the other (usually in first and second position on the property). Typically, when an owner stops making payments on these mortgages, the first position mortgage will foreclose. By foreclosing, the first position mortgage (under authority created by the deed of trust) forces the sale of the property and the proceeds (after payment of costs) are used to satisfy the debt. If there are any remaining funds (very unlikely in today’s market), they are applied to the second position mortgage and then to the remaining liens in order of priority.
Now, here is the important part: foreclosure extinguishes the debt that is being foreclosed, but it does not extinguish the junior debts (such as a second mortgage). So, if the lender forecloses the first mortgage and the proceeds are insufficient to pay the total amount due, the balance is extinguished as a matter of law (with certain tax implications — perhaps the topic of a future post). In other words, even though the debt was not repaid in full, the debtor is off the hook and does not need to pay the difference on the first mortgage.
However, the debt of the second mortgage survives. Admittedly, the second lender can no longer foreclose on the property because the legal right to do is extinguished by the foreclosure of a senior debt. The problem for the owner, though, is that he still owes the money borrowed under the second mortgage. In WA, you have six years in which to sue for breach of contract. The owner/debtor’s failure to make payments on the second mortgage (per the terms of the promissory note) constitutes a breach of contract. So, after foreclosure of the first, the second lender will have six years in which to sue the debtor for the full amount of the debt. The debtor will probably lose that suit. At the end of that process, the lender will have a judgment against the debtor for the full amount of the balance due, plus interest and late fees, plus attorney’s fees and costs incurred by the suit. Judgments are bad (see Part 1).
So, if you’re thinking about foreclosure, you’re taking a very big risk if you have multiple mortgages. You could get a very, very unpleasant surprise five years later. At that point, bankruptcy may be the only viable option.
This post is not legal advice. It is a general discussion of SOME of the relevant legal issues surrounding foreclosure. If you are considering or facing foreclosure, you need specific legal advice for your particular situation. Consult an attorney in your area.
Practically every day, I get a call from a potential client wondering what to do with a property that is seriously “under water.” A property is under water where the owner owes more on the mortgage(s) than what the property is worth in today’s market. The problem can be compounded by high mortgage payments (in the go-go market of yesteryear, it was not uncommon for someone to buy “more house” than they needed in the hopes of continued double-digit appreciation — the more expensive the asset, the greater the total appreciation). At least once a week, I speak with someone who has mortgage payments of $3000+ per month, where they could rent a suitable place for half that and they owe $50,000+ on the property beyond what it is worth.
So what to do? It’s been the topic of some discussion. One option is to hunker down, bite the bullet, and wait for the market to bounce back. After all, you’ve got to live somewhere. Eventually, the market will start going up and some day you’ll regain equity in the property (equity = value in the property greater than what is owed on it). However, depending on when you bought and what you paid, it may be a loooooooooonnnnng wait…. In the meantime, you’ll keep making those big mortgage payments.
Some people wonder whether they can just walk away from the property and be done with it. The usual plan: Let it go to foreclosure, temporarily ruin your credit, and start saving the difference between rent and the mortgage. To determine whether this is a good idea — or, more accurately, to get an idea as to the risks and benefits of doing so — you must first understand the difference between a judicial foreclosure and a nonjudicial foreclosure. [Author’s Note: This post is written for residents of Washington State. If you live somewhere else, your laws may differ. Yet another reason to consult an attorney.]
First, some background: When you bought the property, you borrowed money from a lender. In doing so, you signed two key documents: a promissory note, and a deed of trust. The promissory note is the legal document that sets forth the debt and the terms of repayment. The deed of trust is a type of deed (a document that transfers title to real property). Under a deed of trust, you transferred title to the property to a trustee, who “owns” the property for the sole purpose of guaranteeing that you repay the debt as set forth by the promissory note. If you fail to pay the debt, the trustee has the power to sell the property without your permission so that the proceeds of the sale can be used to repay the debt.
Now, the two types of foreclosure: A judicial foreclosure is a civil action filed in court by the lender. The lender sues for payment of the debt reflected by the promissory note. The process takes 12+ months and is expensive. At the end of the process, the court will order the sale of the property, the property will be sold at public auction, and the proceeds from that sale (after costs incurred) are applied to the amount owed. If there is a balance remaining on the debt, that difference becomes a judgment against you. This is a “deficiency judgment” because it is a judgment for the deficiency between the amount paid (via the sale) and the amount owed. A “judgment” is a court order requiring a person to pay a specific sum, and if not paid immediately it accrues simple interest at 12% until paid. A judgment expires 10 years after it is entered by the court, but it can easily be renewed for another 10 years. Once a creditor has a judgment, the creditor can use various legal tools to extract payment from the debtor without the debtor’s consent. For example, the creditor can garnish the debtor’s wages (the employer pays a portion of the wages directly to the creditor) or garnish the debtor’s bank account (the bank disburses the funds in the account directly to the creditor). It is safe to say that judgments are bad. So, one should avoid a judicial foreclosure.
The other type of foreclosure is a nonjudicial foreclosure. With this type of foreclosure, the trustee orders the sale of the property under the authority conferred on him or her by the deed of trust. Once again, the proceeds (less costs of sale) are applied to the debt owed under the promissory note. This process is quicker and cheaper than a judicial foreclosure. However, a nonjudicial foreclosure extinguishes the debt set forth in the promissory note, even if the sale does not net enough to repay the debt in full. There is no possible deficiency judgment. Thus, with a nonjudicial foreclosure, the debtor knows that he or she will not owe anything following the foreclosure, regardless of whether or not the lender is repaid in full following the sale.
Obviously, then, foreclosure may make sense if the lender foreclosures nonjudicially, but probably does not make sense if the lender forecloses judicially. Which will happen to you? Unfortunately for debtors, lenders do not advertise in advance which method of foreclosure they intend to use. That said, the vast majority of foreclosures are nonjudicial. A judicial foreclosure would make sense for a lender if the debtor has other assets that can be used to satisfy the deficiency judgment. If the debtor has no other assets, then they are “judgment proof” (a term used to describe someone who simply has no money to satisfy a judgment, thereby discouraging anyone (including a lender) from incurring the costs of a lawsuit). Where the debtor is judgment proof, it makes no sense at all for the lender to incur the costs of obtaining a judgment.
So, if you’re willing to assume the risk of a judicial foreclosure, and/or you have no assets whatsoever such that you are comfortable being judgment proof, then it may make sense to just walk away. [Note: you’ll have a hard time getting credit, finding a landlord, or otherwise living in the modern world if there is an unpaid judgment against you.] However, this is only ONE of the TWO key factors you need to consider. Stay tuned for Part 2.
Real Estate photographers come across some interesting subjects and situations in the course of their work but this one is at the top of my list. An inter – species friendship that’s truly unique…
And when you’re showing houses, please watch where you’re stepping. The gal on the right would really appreciate that.