Category Archives: Seattle Real Estate

Market conditions, news, insights, ideas and more about the Seattle Real Estate Market

Longer Waiting Period to Evict Tenants After Foreclosure in WA State Effective July 26, 2009 and Free Legal Aid for WA Homeowners Facing Foreclosure

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There was a new law signed by Governor Gregoire this past legislative session,  SB 5810. Here is the link to the legislative page for the bill. Click on the “final bill report” for a quick summary.  The law gives TENANTS 60 days to vacate a residential home after foreclosure. Currently it’s 20 days (scroll to the very bottom of this page for details.)  Althought I sympathize with the tenants, it’s important to point out that lenders will think about this as they price new mortgage loans in Washington state. Today, any tenant renting a home or condo must wise up fast and do a thorough check on the landlord so their first, last, and damage doesn’t end up taking a walk with the seller.

This new change to 60 days is only good for tenants occupying a home that was sold during foreclosure. If a homeowner is occupying the foreclosed property, they will have to vacate in 20 days.

It looks like the law was also changed to add an additional 30 days to the foreclosure process in a residential, owner occupied foreclosure. This adds a step: The lender MUST make a detailed attempt to contact the homeowner and must make a declaration that they have taken steps to contact the homeowner. 

NEW SECTION. Sec. 2. A new section is added to chapter 61.24 RCW to read as follows:
(1)(a) A trustee, beneficiary, or authorized agent may not issue a notice of default under RCW 61.24.030(8) until thirty days after initial contact with the borrower is made… (b) A beneficiary or authorized agent shall contact the borrower by letter and by telephone in order to assess the borrower’s financial ability to pay the debt secured by the deed of trust and explore options for the borrower to avoid foreclosure…(c) During the initial contact, the beneficiary or authorized agent shall advise the borrower that he or she has the right to request a subsequent meeting and, if requested, the beneficiary or authorized agent shall schedule the meeting to occur within fourteen days of the request. The assessment of the borrower’s financial ability to repay the debt and a discussion of options may occur during the initial contact or at a subsequent meeting scheduled for that purpose. At the initial contact, the borrower must be provided the toll-free telephone number made available by the department to find a department-certified housing counseling agency and the toll-free numbers for the department of financial institutions and the statewide civil legal aid hotline for possible assistance and referrals.

There are some exceptions to the new law. Follow this link and click on “bill as passed by the legislature” to read along with me:

Subsections (1) and (5) of this section do not apply if any of the following occurs:
The borrower has surrendered the property as evidenced by either a letter confirming the surrender or delivery of the keys to the property to the trustee, beneficiary, or authorized agent; or the borrower has filed for bankruptcy, and the bankruptcy stay remains in place, or the borrower has filed for bankruptcy and the bankruptcy court has granted relief from the bankruptcy stay allowing enforcement of the deed of trust.

This section applies only to deeds of trust made from January 1, 2003, to December 31, 2007, inclusive, that are recorded against owner-occupied residential real property. This section does not apply to deeds of trust:
(i) Securing a commercial loan;
(ii) securing obligations of a grantor who is not the borrower or a guarantor; or
(iii) securing a purchaser’s obligations under a seller-financed sale.

This law will go into effect July 26, 2009.  Will it help?

There are some good things we can say about getting in the defaulting homeowner’s face with more correspondence.  The letter sent to the homeowner will provide information on how to contact the Dept of Financial Institutions, HUD-approved housing counselors, and information on how to connect with the WA State Bar Association, which recently launched a community outreach program to offer FREE legal services to homeowners facing foreclosure.

The Washington State Bar Association (WSBA) is pleased to announce that its Home Foreclosure Legal Aid Project is accepting clients. In response to the current foreclosure crisis in our state, the WSBA is partnering with the Northwest Justice Project (NJP) to provide free legal assistance to Washington residents in danger of losing their homes. The goal of the project, which will last through May 2010, is to help Washington homeowners avoid foreclosure and stay in their homes. Homeowners in need of help who are unable to afford a lawyer can sign up by calling a toll-free number, 1-877-894-HOME (4663)

Information is also available on the WSBA website here.  I am hopeful that a measurable percentage of homeowners in default will open that letter and contact the Bar Association. Maybe this will help homeowners avoid predatory loan modification salesmen and foreclosure rescue scams. During the bubble run-up, we had many homeowners who used stated income loans and flat-out lied about their income. We had homeowners who lied about occupancy. We had non-English speaking homeowners who were duped by people from within the industry and some of who knowingly lied to their lender. I could think of at least 10 more examples but these three will do. I hear that some of these folks are afraid to talk to their lender. They get phone messages from the default department and they see the letters, however, they are afraid that if they talk to the lender they might be confronted with evidence that might lead to negative consequences, so they ignore all communication and let the lender foreclose.

In class this week, an agent told me that 95% of all available listings under $300,000 in Kent are short sales.  I’m afraid the foreclosure train has left the station and is rolling down the tracks towards the mid to upper price tiers.  The 60 day eviction waiting period is going to slow down REOs returning to the market, adding more hold-time to the lender’s balance sheet losses and pushing the housing bottom out longer.  Score one point for the tenants, zero points for the lenders, and two points for homeowners who get to stay in their home payment free for another 30 days. Maybe we can justify giving the lenders half a point if they get to collect rent from the tenant for the 60 days.

We will pay the piper on this one: Higher rates and bank/lender fees are in our future.

The legislature also slipped in something interesting: The foreclosing bank must prove that they hold the note before the bank can foreclose.

What you may be missing about a short sale

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Below is a simple diagram of a “normal” sale.  Buyer makes offer AFTER verifying  everything is in order to close, except the appraisal. Downpayment funds in bank? Check. Pre-approval for mortgage? Check. Cash for closing costs in bank? Check. Ready to make offer. Appraisal comes in at the sale price. Buyer ready to close.

We’re just following the money here. We don’t need to show the Earnest Money, as Earnest Money is not “additional” amounts needed by the buyer. It’s just an advance against monies later needed at escrow to close.

Ardell_Normal_Sale

In the example of a “normal” sale, the amount provided by the buyer is in excess of the amount needed by the seller to pay all seller costs and payoff all monies owed on the property, including lienable utilities.  As long as the amount offered exceeds the amount the seller needs, the sale closes.

Now let’s look at all the things that go wrong, creating a “short sale” situation, in the graph below.

Ardell_short_sale

First notice that the main reason the buyer is often impatient and confused is that everything the buyer does is exactly the same in a short sale as it is in a normal sale.  Everything that goes wrong, and everything that may or may not be done to fix it, is out of the buyer’s control.

That is why you often see questions like:

1) How can I contact the seller’s creditors?

2) How can I contact the seller?

3) How can we find out exactly what is going on!?!?

Now look very closely at the diagram above.  I want you to go to the last box on the right. Aha… that’s the part everyone seems to be missing.

Just because the value of a property is obviously less than the amount owed, that does not mean that the seller’s lienholder is going to approve the short sale. In most cases no one involved in the transaction knows what is in that last box.  Escrow doesn’t know, the agents don’t know and very often everything proceeds for months as if what the seller has in assets and cash outside of the sale of the property is meaningless.

Now ask yourself this: You lend your friend $10,000 to buy a car. He decides to sell it when he still owes you $8,000.  He tells you someone is willing to pay $5,000 for the car and he wants you to take $5,000 as payment in full.  You look at his offer, you find out he he has $15,000 in a savings account.  You find out the blue book value for the car is $6,500. The person who wants to buy the car for $5,000 is getting impatient wating for an answer. What would you do?

That’s a “short sale” pure and simple.  Do you take the $5,000 because you can get it in a few days? Oh but wait, your friend won’t sell the car to get you the $5,000, unless you agree, in writing, that you won’t EVER come after him for the remaining $3,000 you owe him. Should you just take the car and try to sell it for the $6,500 or better, so that you can still collect the amount your friend owes you after you sell the car?

Tell me, what are the odds in that situation that you are going to say “sure, I’ll take the $5,000 and leave you alone”?  If you know there is $15,000 in the bank AND the car is worth more than $5,000, why WOULD you say…sure, no problem.

Almost never do you see anyone talking about why the bank WOULD NOT approve the short sale, because they are always talking about how the bank should be happy to get a fraction of what is owed, and $60,000 or more less than what it’s worth.

But what about the owner’s money in the bank? What about the owner’s $120,000 income a year, but he moved and bought a new house and stopped making payments on the old house? What about the equity in the seller’s other house…oh and he made that big downpayment on his NEW house by refinancing (taking the cash out of) this one that is now short.

So if you are buying a short sale and are simply waiting for the bank to say yes, remember it sometimes takes a really long time for someone to say YES to something that they don’t want to say yes to. On the other hand if all you want is a fast answer, anyone can pressure the bank to say NO in a matter of days.

There’s a lot more to a short sale approval, and most of it has to do with whether or not the bank is willing to forgive the remaining debt, or the seller is willing to sign a note agreeing to pay the remaining debt.

No one asks this question, before they make an offer. No one knows the answer to this question while they are waiting for approval. Most of the time the delay is because the owner wants forgiveness of debt, and the lender needs the owner to prove current and long term “hardship” in order to release them from the future obligation to pay.

Is Your Open House In The NWMLS For ALL To See?

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FrontThe last few weeks have been extremely busy open house wise for us in Seattle – mostly in the $400,000 and under price range or close to it.  Agent hits on the NWMLS for those listings has also soared and the web traffic in general has increased for this price point.   The buyers are definitely out there poking around!

Many of  my recent open house visitors have been Redfin buyers.  They seem to expect to be treated poorly by other agents at opens.   Maybe this is just my own perception, but they are physically cringing upon entrance.  I guess it could be my outfit or my hair, but more likely it must have to do with the typical reception a Redfin buyer might get.  The point of an open house has always been for the hosting agent to meet, network, and possibly pick up new clients.  Although it is also great exposure for the listed property, very rarely does the open house sell the home – at least it didn’t used to. 

Enter Redfin. 

Redfin arguably has one of the nicest real estate search websites and their open house feature is probably second to none.  I can’t keep up with their changing business model and have no idea how effective or not they are for their clients, but do love their site and always welcome Redfin buyers to my open houses.  Redfin buyers seem to almost always be actively looking for a home.  They meticulously schedule and map out the open houses they plan to visit and they come with questions prepared.  In short, they are serious.

One little problem: 

Open houses that show up on the site are swept from the NWMLS when a listing agent enters the information in the “public open houses” field of their listing and not all listing agents do this.  Some companies prefer to hold on to that information and only enter their open houses on their corporate site alone.   Soon enough, though, most agents will hopefully catch up and realize that not entering their opens for all to see is a disservice to the seller.    Just looking at Seattle stats alone in the NWMLS, Redfin has sold 62 residential properties and 9 condos since the beginning of the year.  Redfin buyers are clearly putting a dent in the inventory. 

Redfin aside, it is just smart business and good representation to enter your open house into the NWMLS so that you expose your seller’s property to as many potential buyers as possible.

Google Wave – The Future is Now

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I am watching the video preview of Google Wave, which is the hot topic that was demonstrated yesterday at the keynote of Day 2 of Google I/O.

Interesting stuff, open source, and the preview is a means for people to start thinking about apps they might write to enhance the use of this product, before it becomes publicly available.

The multi-faceted communication possibilities are very exciting.

Some Short Sale Statistics in West Bellevue

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I had occasion last week to do some digging for short sale listings in West Bellevue – the NWMLS area 520, west of I-405 and north of I-90 including  Beaux Arts, Enatai, Medina, Clyde Hill, plus Hunts Point, and Yarrow Point on the north side of Hwy 520.

I wondered whether the new NWMLS listing fields to indicate short sale or bank-owned/REO would help – they didn’t; it only showed 3 hits.  So just for fun I went back and did it the drudge way.  There were 313 active listings for single family homes.  I scanned through the agent summaries for each looking for “subject to lienholder approval” or some similar phrase.   I found 32 listings that were short sale, about 10% of the total, and 5 that were bank owned, less than 2% of the total.  So 1) as we knew, there are a lot of short sales going on, and 2) there is very little use so far of the new fields.  So add this to the previous good post that Jillayne  did before the new fields were added by the MLS.

Some other interesting observations out of this little study – this is a relatively high-priced area: 68% of the listings are over $1 million.  But 67% of the short sales are under $1 million.

And last of all, since Sunday, 4 of those shorts have gone under contract – sounds like a pretty good absorption rate; I’ll track them for a while and post an update later.

County recording office closures creating frustration

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The past couple of days our escrow office has received several phone calls from frustrated loan officers handling both purchase and refinance transactions. The frustration has come about due to the county recording office closures and furlough dates.   Contact your escrow or title office to confirm closure and furlough dates/times.   In Snohomish County they have recently indicated that the entire excise, recording and Dept. of Licensing floor will be closed during lunch time, in addition to their shortened hours and closure dates.

Much of the frustration has been directed at loan officers and escrow. Both escrow AND title offices have for months been active both calling on offices and online via website and blogs sounding the alarm about the impact of county office closures for agents writing purchase and sale agreements.

Behold, I give you some relief to help assist your buyers and sellers through tomorrow’s (May 22nd, 2009) county closures for recording sales and also being that recording offices are closed on Memorial Day.

From your very own NWMLS Form 21 purchase and sale agreement it appears (I’m not giving advice nor am I an attorney giving advice) that the contract is NATURALLY giving you an extension whether or not you were aware of it.

Computation of Time

Paragraph “I

Foreclosure Rescue Scammer or AG Victim: You be the Judge

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In order to go into the foreclosure rescue business, foreclosure rescuers must make themselves believe that they are helping the homeowner. This is done in a cognitive way, by attending many foreclosure seminars, reading lots of books and memorizing scripts that can be played back inside the foreclosure rescuer’s head over and over again until it becomes real and true to them.

Similar to how we fool ourselves over and over again when we say to ourselves “it’s only one drink,” “it’s only a cookie” and “it’s not really sex.”  Self deception is very powerful and it appears to be working well with foreclosure rescuers.  I hear many phrases over and over again such as, “it’s perfectly legal,” “homeowners want to stay in their homes,” and “if it wasn’t for me, then….”  With the case of Joe Kaiser, we are starting to hear a different song. It’s the whine of the victim.  You know the type of person I’m talking about who constantly complains about being victimized to the point where they transform into victim.

Joe Kaiser (doing business as PreFlop, LLC, G. Hobus Investments, LLC, Bobo Buys Real Estate, and Unclaimed Funds, Inc.) makes money selling foreclosure rescue sales courses and books (examples: ‘The Subterranean Marketplace in 2009″ for $997. “Learn How to Day Trade in Real Estate Online Using Craigslist for $667.) though not everyone has been a satisfied customer.  Joe buys and sells homes in foreclosure but not just any kind of foreclosure: tax foreclosure.  Some of you will remember fine movie, “The House of Sand and Fog” very well acted by Sir Ben Kingsley, Jennifer Connelly, and the beautiful Shohreh Aghdashloo. I assign this movie as extra credit for my college students because of all the possible title insurance issues surrounding the tax foreclosure plot.  This movie should be required viewing for anyone thinking about entering the world of tax foreclosures.

In a very methodical way, described in his books, Joe locates homeowners who are delinquent on their real property taxes, and also have equity in their home.  This is a bit like a needle in the haystack kind of work today but during the bubble run-up, as others swarmed the trustee sales, Joe focused on tax foreclosures. Interestingly, several of his victims have Hispanic surnames but I digress. Le’ts read the public records documents:

The Court found that Mr. Kaiser violated the Consumer Protection Act by soliciting homeowners with false promises to help them keep or save their home when partial interest deals do not actually result in the homeowner keeping or saving their home.  The Court also found that, in the course of creating partial interest deals, Mr. Kaiser violated the Consumer Protection Act by falsifying real property excise tax affidavits and by acting as both trustee and co-beneficiary seeking a profit from the trust.

Kaiser solicits homeowners facing tax foreclosure and induces them to place their home in a trust, with Kaiser, through his business entities, as trustee and co-beneficiary.  Mr. Kaiser does not pay the homeowner for their homes. Once title to the home is in Kaiser’s control, he pays the delinquent property taxes and stops the sale of the home.

The land trust…that Kaiser created give him complete title and control over the homes and leave the former owners with only two tenuous rights: 1) the right to some percentage of the sales proceeds if Mr. Kaiser chooses to sell the property, and 2) the right to occupy the property for one to three years, provided the former owner pays rent. These two rights are tenuous because the documents contain hair-trigger default provisions which void these rights if the former homeowner is even five days late on a rental payment or violates any of the other terms contained in the numerous documents Mr. Kaiser has them sign.

Mr. Kaiser testified that every partial interest deal he has created is actually in default…therefore, none of the former homeowners maintains their right to possession of the property or a percentage of the proceeds if Kaiser chooses to sell it.  By virtue of the lease provisions and other contractual provisions for reimbursement of all of Mr. Kaisers expenses, his terms entitle him to receive either the entire home vacant or his share of the home’s equity without having ultimately paid any money….Homeowners who enter the transactions believing they are saving their homes are actually stripped of any ownership interest and are not even given a right of first refusal to buy back their home.  No fully informed person, not acting under compulsion would enter a transaction with such onerous terms.

There is much more in the Findings of Fact and Conclusions of Law and if you want to learn how to “Negotiate Foreclosures Like a SWAT Team Leader” then by all means, meet Joe here.

There are some investors who feel sorry for Joe.  Joe feels like he has been attacked by the AG’s office and is blogging about his new role as a victim. Let’s see if this logically works.

In the F&G M. transaction, Mr. Kaiser claimed he saved F&G’s home…What Kaiser actually did was purchase the home at the foreclosure sale and then had Mr. M. sign over his rights to the overage money from the foreclosure sale. As a result, Kaiser obtained both the house and the $45,428.47 in overage money he had paid at the auction. Kaiser never sold the house back to Mr. M. even when Mr. M. obtained a Realtor and made an offer. Kaiser then sent Mr. M. an eviction notice demanding Mr. M. immediately pay $2700 in rent or vacate the property.

I’m trying to work up some tears but they’re just not coming.  Now it’s your turn: is Joe Kaiser a posterboy foreclosure rescue scammer, a victim, a sociopath, a combination thereof, or am I too  justice oriented to become a real estate investor guru?  I just can’t look at someone, flat-out lie to them, and steal their house and money.  If that’s what it takes to be a real estate investor guru, count me out.

HVCC…I’m not making this stuff up

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I’m closing my first conventional purchase that falls under the rules of HVCC (a majority of my transactions have been FHA) which became effective at the beginning of this month.   Today I was asked by the Real Estate Agent, in disbelief:

“If I understand you correctly:

  1. We don’t know who the appraiser is
  2. We cannot contact the appraiser even if we knew.   [Note:  the real estate agent CAN contact the appraiser if they somehow know who it is…the loan production staff cannot].
  3. We have no idea when the appraisal will be done”

Yep.  In a nutshell, people who are considered a part of “loan production” including mortgage originators and loan processors have no idea who the appraiser is until we receive it from said appraiser with conventional financing.

HVCC does not prohibit the real estate agent from communication with an appraiser.  However, unless the appraiser contacts the agent to schedule an appointment there will be no way for a real estate agent to know who the appraiser is.

Note to Real Estate Agents:  please keep this in mind when you are writing up offers with conventional financing.  The mortgage originator has no contact with the appraiser and therefore, the Letter of Loan Commitment that is typically required within 20-30 days may still be subject to appraisal or the underwriter’s review of the appraisal.   We can request the appraisals are provided to us by a certain date; but I cannot contact the appraiser to say “what’s the e.t.a. on the Jones appraisal; we really need it by Friday”.

Currently FHA is not following HVCC however, FHA has been adopting some of Fannie Mae’s other appraisal guidelines and addendums.

Are we having fun yet?

Lies, Damn Lies, Statistics…. and Headlines

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Sometimes our favorite statistics mislead us.  I was most recently reminded of that when I was reading one of Ardell’s North King County Stats post – Ardell does a great job on these stats, and sales volume and median price tell a lot of the story.  But there is another dimension we need to keep an eye on, and that is the change in mix over time – particularly the change in the ratio of number of higher price homes sold to number of lower-price homes sold.  That change in mix can make the same set of statistics generate a variety of very exciting, or depressing, headlines.

Here’s an example: if over a year or so the number of sales of high-priced homes drops a lot, and the number of sales of low-priced homes doesn’t drop as much, then both the median and the average prices are affected dramatically.  If we are concerned that our home prices are dropping, we watch that median number like a hawk – we’ve been trained that ‘median’ is better than ‘average’ for telling what’s really going on.

Suppose we build an example set of data where the mix of home sales has changed dramatically over the course of a year or so, and the total number of homes sold has dropped in half, but the value of individual homes has dropped only 10%.  As it turns out, there are lots of ways to cut the data, and some of them yield more exciting statistics than others.  We all know the old saying “Bad news sells newspapers