Marin Real Estate Pulse

When looking for a new home put Short Sales at the bottom of your list. The reason most Short Sales fall out of escrow is the buyers get tired of waiting for the bank to accept their offer. In most cases it takes months for the Short Sale bank to respond to your offer and then you might find out they want to counter with a higher price.  Or perhaps you have waited several months for the bank to respond they at the last minute a new buyer comes in with a higher offer than yours.  At the very least I hope you keep looking for another “perfect” home while waiting for the bank to respond, and no, it is not legal to write offers on several Short Sales and take the first one that is approved (unless you disclose your intent on all offers).

Maybe everything goes along perfect, the bank accepts your offer and then you find out the sellers have changed their mind.  Rather than go through with the Short Sale they will let the bank foreclose and live in the house for several more months without paying their mortgage.

Speaking of waiting, did you realize that you don’t lock your loan rate until the bank accepts your offer?  This means you may write your offer when rates are in the 4% range and by the time the bank accepts your offer rates may have gone up close to 6%.

Don’t think you are getting a better price on a Short Sale either.  Many times the bank will list the home for a lower price as an REO (foreclosed home) than a Short Sale offer they refused.

According to an article published in the Los Angeles Times, a Short Sale can hit your credit rating up to 130 points according to researchers at VantageScore. While this is a big hit there are several advantages to a Short Sale over letting your home foreclose. Typically owners that sell their home short have missed several months of mortgage payments and that is usually what affects your credit. The actual formulas for calculating credit scores are kept secret but typically you can get a new home loan in less than three years after a short sale.

If the bank forecloses on your home your credit rating can take a hit of up to 150 points and the record of foreclosure can stay on your credit report for seven years.

For those that choose Bankruptcy look for a credit drop of well over 300 points and ten years on your credit report.

To read the full story click on this link.

Buying a foreclosure is for the pros with a big checkbook. In Marin a “real” foreclosure is literally sold on the steps of the courthouse on Fifth Avenue in San Rafael. The buyers have several denominations of Cashers Checks that add up to the maximum they will pay. They bid against each other and the bank that holds the loan on the house and is foreclosing on it. The bank has the upper hand because they don’t have to write a check unless the bidding goes over the loan amount.

You will be bidding on a house you likely have not seen on the inside. No bank will lend you money until you buy the home. This is a cash transaction that does not come with title insurance.

When you hear someone say they bought a foreclosure that usually means they purchased a home that has already been foreclosed on by the lender. They are known as REO’s, which stands for Real Estate Owned (by the bank). When buying an REO the paperwork sucks. Banks expect buyers to start their inspection and financing timelines without so much as a signed offer acceptance from the bank. In many cases the acceptance of the offer is conveyed to the buyer verbally. As you know, in real estate verbal does not cut it, the law requires everything in writing. But as long as you are getting a good deal are you really going to fight with the bank that selling the house?

Homes are also sold in pre-foreclosure status which may mean the seller had a notice of default (they are late in mortgage payments) or it is a short sale. In a short sale the seller gets the bank to agree to sell the home for less than the amount owed.

Warren Carreiro

The front page of the Huffington Post had an interesting article regarding Short Sales and why banks do not like them. The focus of the article was that if the bank sells Short they have to write off the short portion of the loan. If they prevent or ignore a Short Sale they can keep the full value of the loan on the books. I am not sure this is true if the owner is behind in their payment which most Short Sale owners are. Here is the link to the Huffington Post article http://www.huffingtonpost.com/2009/05/08/short-sales-banks-blockin_n_199099.html

Paul Hickman of Stewart Title feels banks don’t like Short Sales because they fear getting scammed by the home owner. An example of this is the owner sells to a friend or family member as a Short Sale and then in a year or two buys the house back (pre-arranged) from the “friend”. The result is the original owner gets the house at a much reduced price and the bank has lost a lot of money. All the Short Sales I have been involved with have a form required by the Short bank saying there are no secret deals. Usually they require that the new owner can’t have any pre-arrangement to rent back to the sellers.

Either way, the article is correct, banks can and often do take months to respond to an offer and by the time they do the buyers’ have given up and found another house.

Warren Carreiro, Broker

Novato has half the Short Sale listings in the Marin MLS (B.A.R.I.E.S.) yet they are not closing escrow at anywhere near the rate they are going into contract. Short Sales in general have a high escrow fall-out rate and most of the time that is due to the bank taking too long to respond to legitimate offers. The banks are overwhelmed with paperwork from poor performing loans and don’t seem to know how to deal with the situation.

Here is the interesting part; Novato currently has 121 Short Sale listings and 48% of them are in contract (various stages of the sale process). If that percentage were actually closing escrow it would represent a very strong Sellers Market, which is definitely not the case.

In July 2008 Novato had just 9 Short Sales close escrow. Assuming the number of listings was similar in July to this August, which it is that means that less than 20% of the Short Sales are closing which is way off from the 48% in contract.

What happens to these homes when they fall out of escrow? Some go back on the market to give it another go but many are taken back by the bank and sold as bank owned property (REO – Real Estate Owned “by a bank” ).

No, this article was not written ten years ago, these are Marin condominiums from Sausalito, San Rafael and Novato all currently on the market with an asking price of less than $200,000.   The lower price point has taken a significantly larger hit than the average Marin house.

If you have an interest in looking at this type of investment property let me know.

While I am on the subject of lower priced homes there are 105 condos in Marin priced under $300,000 and what I find interesting is while 31 of those are in escrow the numbers don’t add up to all of them closing.  For example for February, March, and April 2008 an average of 3 units per month closed.  That would imply we have over 30 months of low priced condo inventory.  If you look at the over thirty in escrow the number should be closer to just over three months inventory.  So what gives here, is May going to be a super month or are these just not closing?  Because I have not been following this statistic I can’t say for sure but when probing a little deeper I find that the vast majority of these condos in escrow are short sales.

In prior post I have written about the large percentage of short sales that fall out of escrow.  Part of the reason for this is sellers and listing agents are not always realistic about the asking price.  After all, it is the bank that has to agree to take something less than the full loan payoff, they are the one short at the end of the day.  I am not defending banks or their prior practices by any streach, just pointing out that short sales fall apart for many reasons; lack of or untimely bank response to offers, and unrealistic asking and offer prices just to name a couple.  That being said, I feel if you are willing to put up with what it takes to close a short sale you better have gotten a very good price on the property.