Title Insurance Helps a Home Haunted by a Short Sale Past

When you buy a new home, it is wise to purchase title insurance in order to confirm clear ownership in the new property and to protect the bundle of rights associated with ownership against claims of another. In today's market, with its short sales and bank foreclosures, a title insurance policy may prove even more valuable.

After the chaos of 2008 and by the beginning of 2011, many banks have worked to better organize themselves around the short sale process. For others, the right hand still doesn't know what the left hand is doing. In some instances, home sellers have been told by a representative of the bank that their short sale is going to be approved, only to discover that another department of the same bank has finalized their foreclosure-- eliminating their ownership thus canceling the sale.

In one extreme circumstance, a privately sold home made an unexpected appearance at a public sale on the court house steps. First, the home's new owner noticed a card in the mail warning of actions the bank can take after a default, including public auction. Having just purchased the house, his first payment was not yet due much less delinquent. He promptly disregarded the notice. Soon after, a buyer standing at his doorstep (with information about the house on a smart phone) informed the unsuspecting homeowner that the sale of his property was taking place that day!

Luckily, the homeowner had a title insurance policy and the title company was able to confirm his rights. The back story at the bank; the completed short sale was not posted to the proper bank personnel and another department kept the foreclosure process moving toward the trustee's sale despite the fact that the property had already in fact been sold.

Not all short sales are disrupted by the foreclosure process. In fact, a property can still be considered a short sale even if the seller has never missed a payment. "Short sale" means only that the property will sell for less than the amount owed, not that the property is delinquent in its payments on that loan.

Even if foreclosure is not a factor, time is a consideration. Short sales, regardless of the level of hardship, still take longer than a traditional sale. The process is driven by how the bank is set up to make its decisions and this varies bank by bank. Aware of continued difficulties with short sales, the Treasury Department recently released a new directive offering revamped short sale incentives to lenders. The directive also includes stricter time lines for approving or rejecting a short sales.

Tips for Homebuyers:

• If you are pursuing the purchased of a distressed property, make sure you get as much information, the best advice and the best representation possible as you move through the transaction. We can help http://berkhills.com
  
• If pursuing a short sale, know that a foreclosure could still disrupt your sale. Ask if the seller has received a Notice of Default.
  
• In most cases, be prepared for a long "short" sale process.
  
• Remember that your title insurance policy offers essential after-sale protection.

Wishing the Zestimate for Your East Bay Home was Higher?

an opinion by Tracy Sichterman

All homeowners wish the automated valuations on sites such as Trulia and Zillow would be a bit more optimistic. However, a recent Seattlepi.com post titled, Home sellers wary of new MLS rules, warns of a new Northwest MLS rule attempting to screen these valuations. Staff writer Gerry Spratt writes:

The Northwest Multiple Listing Service has instituted new rules about blogging and automated estimates of property values, but some industry insiders say the changes could end up hurting the people they are meant to protect -- sellers.

The new rules allow sellers to block automated valuation models (AVMs) from appearing next to their listings and prevent agents from blogging about their properties. AVMs are intended to reflect the market value of a property, but can often vary wildly from listed prices.

Despite wild variations and negative valuations, I am against such rules that would block blogging and AVMs. In my broad opinion, if you try to regulate the internet, you only end up screening out the “real voices.” Those who want to manipulate the data always seem to find work-arounds to the barriers. Conversely, those with a legitimate perspective often only participate if they feel invited. Blocking AVMs and blogging may effectively uninvited many voices.

Blocking contrary opinions on the web also feels a bit deceitful to me. Throughout the sale, ethical Realtors encourage sellers to “disclose, disclose, disclose.” How do such agents go from that stance to a sidebar statement of, “let’s opt to screen out any potentially negative information that your future buyer might find on the web.” Instead a smart real estate agent should employ tools like Google Alerts to keep up and participate in the active dialogue about their listing.

We need to embrace transparency throughout the real estate industry. In the aftermath of the sub-prime crisis, consumers cried out for more transparency. Screening out negative comments or valuations on the homes that we sell flies in the face of that goal. It is like saying, “we want our banks to be subject to scrutiny but don’t look too closely at the property itself.” If a public AVM comes in with a low price, it is up to the seller and agent to effectively dispute that data. Convince the buyers otherwise. And, by the way, he/she is a 2009 consumer and you are going to need some facts to back up your argument.

Prove why you think your Zestimate is wrong, but don’t pretend the information isn’t out there. This statement is coming from a Berkeley agent who works in an area sprinkled with “older homes” and “famous architects”; two complex issues for computer generated valuations which often create wild discrepancies in AVMs. The real estate industry needs to stop working so hard at protecting and sequestering information and stand up instead for the competent professionals who are willing to participate in active, informed dialogue with consumers.

Speaking of information being “out there”, how do they intend to regulate such a rule? Take the following scenario: Let’s say an agent blogged about a particular listing last year, but it did not sell. This year, the homeowner puts the home back on the market to once again test the waters. The seller now opts to restrict agent blogging. A search under the property address may bring up a reference to last year's blog. If that blog doesn’t have a date stamp, is the agent in violation of the current restriction? Web 101 students know that you can’t really take anything back. Once it is out there, it’s out there. Regulation, in my opinion is not only deceptive, but pointless.

Tip for Buyers and Sellers: This post references publicly listed AVMS. Currently, lender generated AVMS (ordered as part of the loan underwriting process) do occasionally interfere with the transaction. In some instances, Bay Area buyers have offered to purchase the property for substantially more than the AVM price would reflect. The difficulty often comes when the buyer pursues a loan to complete the purchase. The lender employs an AVM that doesn't take into account important specifics about the property (such as the LEED certification or the famous architect.) We have seen loans get turned down based on a banks faulty AVM or a narrowly restricted appraisal despite the willingness of buyers. So far, the answer has been to 1. try to dispute the resulting appraised value or insist on a new appraisal, 2. resubmit the application to a new lender, or 3. in the worst case scenario, put the house back on the market to look for a new buyer. We have discovered that open dialogue only works when all parties are reasonable. Given the pendulum effect of the mortgage crisis, not all banks are ready to be reasonable.

As for the public sites, a homeowner can correct inaccurate data that may have gone into the algorithm. (My own home was listed on Zillow minus 1,000 square feet of legal living space-- until I corrected it.)

Fannie, Freddie Suspend Forclosures

Fannie, Freddie Suspend Foreclosures
Carrie Bay | 11.20.08

Fannie Mae and Freddie Mac announced this afternoon that they are suspending all foreclosures on mortgages that the two companies own.

Both companies have ordered their national networks of mortgage servicers and foreclosure attorneys to halt all foreclosure sales and evictions involving occupied single-family properties. Freddie Mac is also including 2-4 unit occupancies as part of the suspension. The foreclosure moratoriums will take effect November 26 and go through January 9, 2009.

The suspensions will give servicers time to implement the Streamlined Modification Program announced by Fannie Mae, Freddie Mac, and their conservator, the Federal Housing Finance Agency (FHFA). The agencies' fast-track plan for getting seriously delinquent borrowers into more affordable mortgages was announced on November 11 in conjunction with the HOPE NOW Alliance and is scheduled to launch on December 15.

The temporary suspensions are also expected to give servicers more time to help troubled borrowers avoid foreclosure. Fannie Mae's attorneys and servicers plan to reach out to more than 10,000 borrowers the company estimates will be affected during the suspension period. Freddie Mac said its representatives will contact an estimated 6,000 borrowers.

“By working closely with FHFA and our servicers, Freddie Mac is on track to help three out of every five troubled borrowers with Freddie Mac-owned loans avoid foreclosure this year,” said Freddie Mac CEO David M. Moffett. “Today’s announcement builds on this momentum and provides a new measure of certainty to many of these families during the holidays.”

The chiefs of both organizations emphasized that lenders servicing mortgages they own will continue to work with distressed borrowers to consider all workout options available, such as permanent rate reductions and mortgage term extension modifications, “even if previous workout efforts have been unsuccessful,” Fannie Mae said in a written statement. This year, Freddie Mac said it expects to approve 84,000 workouts for the estimated 140,000 who are delinquent on its wholly-owned mortgages. Sister financier, Fannie Mae, did not release its workout estimates.

“Fannie Mae is committed to working with FHFA to implement the streamlined modification program as quickly as possible to help prevent unnecessary foreclosures,” said Herb Allison, Fannie Mae's CEO. “We must and will do more.”

Thanks to Gwen and Rhoda from Holmgren and Associates for this information:

REAL ESTATE FINANCE
Gwen Hoople and Rhoda Paul
Mortgage Lending Specialists
HOLMGREN + ASSOCIATES
1900 Mountain Boulevard
Oakland, CA 94611
office: 510-339-2121
fax: 510-339-1004
loans@gwenandrhoda.com

News of Government Takeovers: Freddie Mac & Fannie Mae

The Jury is out on whether long term government involvement of these formerly private institutions will benefit our home buyers. So far the market has reacted possitively.

Our hope is that the resulting lower interest rates (at least in the short term) may make this an exceptionally good time to invest again in real estate. Could we be facing a unique market where the bottom (assuming we are near the bottom) could actually coexist with reasonable interest rates?

From AP:
Investors, Industry Pleased With Govt. Takeover




Here is the California Association of Realtor's official (cautiously optimistic) stance:

In light of the U.S. Dept. of the Treasury's action, C.A.R. today reaffirmed its support for Fannie Mae and Freddie Mac and their countercyclical roles.

While the short-term impact of the Treasury's actions over the weekend served to calm the markets and restore confidence, in the longer term these entities need to be able to fulfill their historic mission. A privatized Fannie and Freddie will short-circuit the countercyclical role the GSEs have played during precarious times in real estate markets.

Without an institutionalized mortgage-backed securities market, mortgage capital eventually will be less predictable and more expensive, and adjustable-rate mortgages could become the standard loan for home buyers, as could higher down payment requirements. The 30-year, fixed-rate mortgage as we know it will no longer be readily available for most home buyers and may effectively disappear. The result could be a dramatic decline in homeownership rates in California and across the nation.

C.A.R. is concerned that the Treasury, and Fannie Mae's and Freddie Mac's new CEOs, will overreact and change the mission and role of the GSEs. Wall Street and investors are understandably reluctant to buy mortgage backed securities (MBS) that are not either originated from or guaranteed by Fannie or Freddie.

The GSEs hold or have securitized nearly half -- roughly $5 trillion -- of all mortgages in the U.S., and in the current environment with private lender constraints, they account for the vast majority of all new mortgages in California.

We have just recently begun to see an increase in home sales, currently at nearly 490,000 units on an annualized basis, up from 284,000 in the fourth quarter of last year. The most significant, reliable source of home loans in California today are financed by either Fannie Mae or Freddie Mac. California's and the nation's housing markets simply cannot withstand the financial rug being pulled out from beneath them. Additionally, the repercussions this could have on the already weak economy could be devastating.

NPR: The Giant Pool of Money

I'm a sucker for episodes of This American Life. No matter what the subject, the program always seems to lure me in with its combination of sentimental narration and poignant documentary. Episode 355 isn't merely entertaining, it manages to educate and encapsulate this whole economic/mortgage crisis. I recommend it to anyone interested in how we got here.

Here are the program notes:

355: The Giant Pool of Money (click here to be directed to the site, then click on the full episode link on the left.)

A special program about the housing crisis produced in a special collaboration with NPR news. We explain it all to you. What does the housing crisis have to do with the turmoil on Wall street? Why did banks make half-million dollar loans to people without jobs or income? And why is everyone talking so much about the 1930s? It all comes back to the Giant Pool of Money.

A shorter companion version of this story appeared on NPR's "All Things Considered."

Prologue.

Ira talks with NPR business and economics correspondent about two gatherings he attended. One at the Ritz Carlton and one at a community college in Brooklyn. The first was an awards dinner for finance professionals who created the mortgage based financial instruments that nearly brought down the global economic system. The other was a non-profit conference for people facing foreclosure. Ira explains that today's show lays out how the finance guys and the people facing foreclosure are connected by a chain of middlemen, and that together, they all brought about the current housing and credit crisis. (4 minutes)

Act One.

This American Life producer Alex Blumberg teams up with NPR's Adam Davidson for the entire hour to tell the story - the surprisingly entertaining story - of how the US got itself into a housing crisis. They talk to people who were actually working in the housing, banking, finance and mortgage industries, about what they thought during the boom times, and why the bust happened. And they explain that a lot of it has to do with the giant global pool of money. (31 minutes)

Song: "Hard Times," The Sex-o-Rama Soundtrack


Act Two.

Alex and Adam's story continues. (23 minutes)

Song: "Time Machine," Grand Funk Railroad

Multiple Micro Markets

By Arlene Baxter

A month ago in this space we reported on a jaw-dropping example of over-bidding in what the mass media still describes as a “buyers’ market.” A two-bedroom, one-bath home in Rockridge, listed for $799K had received 17 offers. It sold this week for $930K, 16% over list. Yesterday I was one of six agents presenting offers on a property in North Oakland, and I routinely hear of colleagues who are presenting one of three to six offers on homes. That’s unremarkable for those of us selling in Albany, Kensington, North Berkeley, Elmwood or Rockridge. What was a bit unusual in this case was that the house was just one block off a part of Telegraph Ave. with fairly high crime statistics. And only a few blocks away several homes are in foreclosure, and others have had several price reductions.

The home I presented an offer for was very charming with lovely period details and a tastefully updated kitchen, a feature that often translates into considerable interest. The overall charm, plus a full basement, tantalized my clients, despite the fact that the price seemed quite high for the location. A dozen other buyers were attracted as well. And so, to be as competitive as possible, my clients decided to do a pre-inspection. At the high-point of the market this was one of several practices used to gain some advantage in the bidding. Some other aggressive practices were pre-emptive offers, and relative offers, both of which have re-emerged this spring. Conducting inspections in advance of presenting an offer allows buyers to go in without an inspection contingency, as they’ve already truly inspected the property. It means they have also spent around $600, and they and their agent have spent another four hours or so bonding with a property that they may not be able to buy.

Within the written disclosures, items may be mentioned as “possible areas of concern.” That’s a very different perspective than when a highly knowledgeable inspector points to a roof with missing shingles and says “this roof is shot: it needs replacing.” That was the recommendation for our charming bungalow. We also were shown a leaking, rusting water heater and an ancient boiler for a radiant heat system. It needed earthquake retrofitting, demolition of a chimney and various other smaller fixes‑-some inexpensive to deal with, some that could lead to a domino effect of other requirements. So my clients backed off from what they had anticipated offering. That put them in third place out of six, evidently well behind the first two offers.

The question on everyone’s mind is Why? Why, in a general atmosphere of doom and gloom regarding the lending industry, and when increasing numbers of short sales and foreclosures are appearing on the market, are there still pockets of such strength here in the East Bay? I believe it’s a combination of factors:

1). Sub-prime loans never were much of a factor in the hotter locations

2). We have no room here to build new developments, the property types that have suffered the most in many parts of California

3). This is an area of intrinsic desirability. It is physically beautiful. It has interesting topography. Within minutes we can be in the woods of Tilden or at the Bay. And we are surrounded by mostly attractive, and in some cases positively gorgeous homes. As Realtors we have the opportunity to represent beautiful architecture, including the works of some true masters. That gives our jobs, as well as our clients, a kind of satisfaction that does not exist in the areas where foreclosures now dominate.

4). We have easy access to interesting, colorful, delicious things that are hard to find in so many areas. The large population of immigrants attracted to the San Francisco area has produced remarkable cultural diversity in our part of the East Bay. In practical terms that has resulted in the broad availability of many types of ethnic music, phenomenal ethnic cuisine at reasonable prices and celebrations from many cultures that have become now part of our experience.

5). Berkeley especially, but other academic settings within the East Bay as well, have attracted huge numbers of people who are attracted to “the life of the mind.” And finally. . .

6). It’s the wisteria. I am only partly kidding. More to come. . .

All photos copyright © Arlene Baxter 2008.

Appraising the Current Market Situation

by Arlene Baxter

Today our Berkeley Association of Realtors auditorium was packed to capacity with Realtors wanting to get the latest information on the status of loan availability and appraisal conditions in this changing market. Our speakers, one representative each from the mortgage and appraisal industries, confirmed what we’d been hearing anecdotally from our colleagues. Loans were super abundant a year ago, with everyone knowing someone moonlighting as a loan broker who could get you “such a deal!” Last summer came the implosion of sub-prime lending and the virtual disappearance of jumbo loan products, those loans larger than $417K. Fast forward to our current state. The pendulum has swung so far that now folks with a fully documented loan application may have great difficulty getting financing if they have less than 20% down, gorgeous credit scores, and substantial assets. Buyers who can stay within the limit of a $417K loan can still get very attractive rates, today at the 5.5% level. But buyers who need to borrow amounts up to the new “super-conforming” limit of $729,750 need to be prepared for much stiffer requirements (see FHA and Freddie Mac Daddy from March 6th, below).

One of the elements of loan approval that has been mostly in the background up until now is the appraisal process. In our area we have for more than a decade been able to assume that homes would appraise for their contract value, except in the rarest of circumstances. If a property had multiple offers, as so many did, that was a strong argument in determining that market forces were setting value, and that we were in an area of increasing values. Lenders allowed appraisers to use closed sales back as far as six months, and there was reasonable flexibility to use properties that shared a similar characteristic to the subject property, even if they weren’t in the same neighborhood.

The job of the appraiser has changed dramatically over the past few months. Marian Huntoon, the owner of Real Valuation in Berkeley, spoke to our Association today about the intensity of scrutiny that appraisers must now face. Lenders want to see properties used as comparables that sold within three months or less, and they insist on having both an active and a pending sale in the same neighborhood. Appraisers are now routinely making significant adjustments to value in order to use “comparable” properties that are really not very comparable at all. Marian estimated that it takes appraisers anywhere from twice as long to four times as long as a year ago to complete an appraisal report that is acceptable to the lender. Appraisal reports are now routinely sent back to appraisers with the request that additional adjustments be made to reflect declining market conditions. That is really a loaded phrase. Lenders are now reviewing market conditions with an extremely broad brush, defining the direction of the market by county, not by city, nor by neighborhood. Those of us who are actively representing clients in this area know that we are still seeing multiple offers on many properties in the most desirable neighborhoods. We are back to seeing pre-emptive offers both in the modest and in the most expensive price ranges. So to have both Alameda and Contra Costa Counties defined as a whole as “declining market conditions” makes us all a bit crazy. Explain that to my buyer who lost out in fairly modest competition of only four offers. He still didn’t get the house he loved! And then there was the James house, receiving 17 offers last week after only one Sunday open house (see our March 14th entry below).


But it is also true that there are properties sitting for a few weeks before they sell, as opposed to selling according to a pre-established seven or ten-day schedule. And then, even in some of our most desirable neighborhoods, there are the short sales, trust sales and foreclosures. Those are topics for another day!


Tip for Home Sellers: Review carefully with your listing agent what the recent sales have been, closest to your home both in location and style. Try to step back and look at the data the way both buyers and appraisers will now be forced to look: at currently active homes, those recently pending, and the sales back only a very few months. Even if some buyers might be willing to offer a very high price, unless they have unusually high cash reserves to make up the difference, most buyers will need to have your home appraise very close to their offer, in order for the contract to close. Sellers should come to expect to see both financing and appraisal contingencies in the majority of offers, rather than assuming that buyers will waive those contingencies in order to have their offer accepted. The goal is not receiving and accepting a very high offer. The goal is, and really always has been, to close the escrow, and at an acceptable price.

The Subprime Scape Goat

Excerpt from the March 2008 Atlantic Monthly, The Next Slum?, by Christopher B. Leinberger:

The decline of places like Windy Ridge and Franklin Reserve is usually attributed to the subprime-mortgage crisis, with its wave of foreclosures. And the crisis has indeed catalyzed or intensified social problems in many communities. But the story of vacant suburban homes and declining suburban neighborhoods did not begin with the crisis, and will not end with it. A structural change is under way in the housing market—a major shift in the way many Americans want to live and work. It has shaped the current downturn, steering some of the worst problems away from the cities and toward the suburban fringes. And its effects will be felt more strongly, and more broadly, as the years pass. Its ultimate impact on the suburbs, and the cities, will be profound....

...Some experts expect conventional suburbs to continue to sprawl ever outward. Yet today, American metropolitan residential patterns and cultural preferences are mirror opposites of those in the 1940s. Most Americans now live in single-family suburban houses that are segregated from work, shopping, and entertainment; but it is urban life, almost exclusively, that is culturally associated with excitement, freedom, and diverse daily life. And as in the 1940s, the real-estate market has begun to react.

Excitement, freedom and diverse daily life are all hallmarks of the Bay Area. Add a temperate climate and picturesque park lands and it is no wonder our real estate values have held strong. National headlines belie the strength of our local market. Many have found it hard to rationalize our local market against national statistics. Our sales volume is down because buyers and sellers are hesitant to make a move in an area that feels like an isolated anomaly. This Atlantic Monthly article gives credence to the virtue of our housing stock. There is science behind what is happening in the market place. Now is the time to move out of the suburbs. Be on the forefront of a trend that is quickly gaining momentum and take advantage of incredible interest rates and market opportunities that exist today.