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.
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?
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.
These homes are called “Mid-Century Modern” because then was the heyday of architect-designed homes that were carefully fitted to the needs of the owners and the properties involved. Often located on
choice lots in established neighborhoods, most of these have mature gardens not needing to be planted. Many of these homes have had a number of owners- some better than others at maintenance.
Perhaps the main thing that sets these homes apart is the construction – many are “post and Beam” and are laid out showing the structure per the plan for this custom home in Fauntleroy, West Seattle overlooking the Ferry to Vashon Island.
Courtney Cooper broke the news on Easter. The Northwest MLS has voted to add a required field: “Third Party Approval Required” and “Bank/REO Owned.” From the NWMLS (no link):
“NWMLS is excited to announce two new required fields; “3rd Party Approval Required
For those who are just tuning in, Sunday Night Stats is a continuing saga that I started back in early January of 2008. Each week is a small piece of the whole, and often shows only those changes that were revealed in the week between posts. For a longer perspective of the Seattle Real Estate market, click the category for “Sunday Night Stats” for other posts in the series.
Last week I did a brief Snapshot showing that home prices appeared to have increased by as much as 10% in a very short period of time. This week I was testing how sales were doing in comparison to the new 2009 Assessed Values. Up until very recently, the mls was giving us the 2008 Assessed Values. Most people know that I use these in conjunction with other valuation techniques to determine offer prices for my buyer clients. As soon as I noticed the change to 2009 values, I started studying the relationship of the most recent sales to these new valuations.
To my surprise, the same 10% increase in prices appeared! I tested late 2008 and early 2009. I then tested the period immediately preceeding the escrows that would have been entered into just prior to the $8,000 Homebuyer Credit being passed. The 10% increase happened in a two week period AFTER the credit passed (allowing 30 days or more for those escrows to close). Given the % increase is the same as last week, using a completely different method, it seems pretty certain that the stimulus is stimulating more than we expected…but it could of course be very temporary. Time will tell.
Before you do this at home, see the end of the post after the charts. I will give you a few tips on how to utilize this type of information around any home you are making an offer on.
(Note: During this same time period of “increase”, “bottom” prices are still available on many homes. 3 buyer clients of mine achieved prices of 86%, 83% and 77% Of 2009 Assessed Values, during this same timeframe showing the Average at 100%. “bottom” is not a month or a day. Every day homes sell at different prices and different values. You do not “miss” bottom. You just have to be willing to find it OR make the choice that you don’t want it. Many people can afford to have their dream home and don’t want to deal with the tradeoffs of buying “at bottom”.
Bottom is not something you wait for, it’s something you put the extra effort into finding…or not.
A few notes. I entered dates at the end of March of 2009 and the beginning of April 2009, until I had about 10 homes. I did not pick and choose the homes to conform to an answer I was looking for. I simply closed the dates when the desired # of homes was obtained. Of course I’m using a small geographic area and the same area is used for all charts, with different timeframes. I did eliminate new construction, as Assessed Value information is not always available for those immediately after closing.
What you may find to be of particular interest is the Days on Market (DOM) and % of Asking Price, is not as good of an indicator of value, nor a reliable one. Review all three charts for all three periods (one is in a link at the end) as I think you will get a lot of tips on how to price and how to make offers, by studying the results of many people’s attempts at different means of pricing .
The results are really pretty much irrefutable, but just to be sure, I did a third set of data for closings immediately prior to the 30 day period following the Stimulus Package being passed. The values were slightly lower…the increase was ONLY in the very short period of time after the credit was passed. Pretty amazing results.
To convert the data to your specific area, simply gather the same information for sold property in a radius around your home or the home you plan to make an offer on. You might not be able to get OLP (Original List Price), but I think the results here show that using that as a basis is not all that helpful. The rest you should be able to get from Zillow or the King County Parcel Viewer, or a combination of both.
If you want the detail chart for the period at the end of February and early March, closings that were entered into before the credit past, CLICK HERE. The Average % was slightly under the second chart in this post for late 2008/early 2009.
Two things happened yesterday, prompting me to write this post today.
1) One of our buyer clients closed on a bank-owned property at 20% under current market value.
2) Someone asked in comment #61 of this post “What percentage of homes sold from Jan-Apr 2009 are foreclosures and short sales? What percentage of the above graphs are attributed to those numbers?”
We were exceptionally pleased with the result of yesterday’s closing, especially when the new lender’s appraisal came in at 20% higher than the sale price. Given how tight lenders have been on appraisals lately, that was an awesome bargain. One of the quirks of the contract when you purchase a bank-owned property is that the bank-seller may have the right to cancel up to the day of closing. There is often no home inspection negotiation, so you do a home inspection for your own information and adjust your offer price accordingly prior to making an offer, or prior to finalizing the contract.
Other than that, I have to say clients buying a bank-owned vs. a short sale was much easier and a very rewarding experience for all involved. The commission to both agents was cut dramatically, but that may be why there weren’t too many offers, so worked out well for my clients. There were huge risks of the seller keeping the Earnest Money if the buyers failed to close, many more than in a normal transaction, but as long as everything goes well and it closes, that was a stress factor but not a disadvantage in the long run.
Now to 2) and the picture at the top. There are many types of “as-is” bargain sales, and always have been. When someone is using the mls as a source of information for stats, most “as-is” bargain sales are always part of the mix. They are difficult, if not impossible, to identify and remove from the stats. To remove bargain sales from the stats today, and then compare to a previous year without removing the bargain sales from those stats, would be of no value.
The question “are foreclosures included” suggests that there are some misconceptions about what “a foreclosure” is. In WA, foreclosures are usually “non-judicial foreclosures” called Trustee Sales, and they don’t happen in the mls. So those would never (or at least almost never) be part of the stats if someone is using the mls. You can tell if you are buying “a foreclosure” if you are buying it outside “on the Courthouse steps” in the rain 🙂 and not in the comfort of an escrow office.
Pre-Foreclosures
Bank-owned Post-foreclosures
Estate Sales
Relocation Properties
All of the properties named above are most often discounted and have “as-is” addendums, but are handled through a normal escrow closing. That means you usually have a lot of the risks removed with regard to the property having liens after closing.
When you buy “a foreclosure” vs. a pre-foreclosure or a short sale, you have to buy them cash and they are not cleared of liens and you usually buy them sight unseen and without someone “representing” you as to the purchase.
In my experience so far, buying a good property that is bank-owned seemed to be a really good deal with less risk than buying at foreclosure. As long as you do a really good inspection and know the condition of the property well, they don’t take nearly as long as most of the short sales.
Bargains in the form of Estate Sales and Relocation Properties have as-is addendums, but most often allow for an inspection negotiation phase after you enter into a contracted price.
Not all bargains are alike, and some sellers will sell at bargain prices and “as-is” even though they are not shown as one of the options in the picture. You may not find your “perfect dream home” in these options, but if it’s a bargain you’re looking for, one of the options shown in the picture is a good place to start.