In February, Govenor Schwarzenegger signed the California Foreclosure Prevention Act, which requires banks to try to work with the homeowner by modiying the terms of the loan before starting foreclosure procedures. There are a number of exceptions to this rule. Here’s an article that was released today: California’s 90-day foreclosure moratorium starts, sort of
Not sure how this will impact the number of foreclosures on the market. Inventory of foreclosed homes for sale in Santa Maria and throughout the Central Coast is low, although we keep hearing that there will be many more on the market soon.
For several months I have been warning Central Coast buyers about the challenges of pursuing pre-foreclosure properties, or short-sales. There is an incorrect assumption that buyers can get a better deal on a property if they purchase it directly from the homeowner who is facing foreclosure. Time after time, I’ve watched my clients face huge frustrations when trying to buy a home during this stage. From a logical standpoint, you’d think that the short sale would be the preferred path. The banks could cut their losses prior to foreclosing on a home and the homeowner can be spared the shame of foreclosure. However, this scenerio has not played out as many thought it would
Too Many Cooks Spoil the Stew
An article in the April 17, 2008 Wall Street Journal clarified some of the reasons why you should think twice before buying a short sale home. Not only do the buyer and homeowner need to agree upon the sales price, but the mortgage-holder needs to be involved in that decision as well. In addition, if the loan was “packaged into securities..the mortgage servicer must consider the interests of the investors who own the loan. All of these “hoops” lead to long delays before a decision is reached. The WSJ article indicates that, nationwide, short sale deals are difficult to close and that buyers end up walking away from the deals out of frustration. I am finding the same to be true in the Santa Maria and Orcutt area, where most of the foreclosure properties I list are located.
But the WSJ article did not mention something that I think gives even more reason to avoid short sales. Buyers can save more money on properties that have already been through foreclosure. Here is a perfect example: I recently sold a bank-owned home that had been through foreclosure. Ironically, I was the listing agent for the same home several months earlier when the owner tried unsuccessfully to sell it as a short sale. Prior to foreclosure, we received an offer that the bank rejected. But the offer that the bank accepted AFTER foreclosure for the SAME home was LESS than the offer it had recieved while we were trying to sell the home as a short sale. To me the moral of the story is clear: it pays (in both time and money) to go after bank-owned foreclosures instead of short sales.
If you’re curious about how to buy a house in foreclosure, check out this article: http://www.homescentralcoast.com/tips_for_buying_foreclosures.html
That is probably the question I am asked most these days. My personal opinion, after 20 years as a real estate agent, is that we seem to be approaching that point. Here’s why:
1. Over the last month, I have started to see a dramatic change in the way banks are treating their bank-owned properties (REOs). Just a few months ago, some of the banks with which I work were listing their foreclosures at prices higher than recommended. Now they are starting to list them for sale at prices under market value.
2. We are starting to see multiple offers on foreclosed homes. Last week, a client I represent was competing against 11 other offers for the same property. Fortunately, my client’s offer was the one that the bank accepted.
3. Multiple offers on foreclosures is driving the prices up. In other words, in order to secure the home they want, buyers are offering more than list price. That is a big sign that we may have reached bottom.
4. The federal government is very anxious to do things that will help the economy and reduce the large number of homes on the market. Interest rates are a big part of that, and they are very low right now. However, that can’t last forever. As soon as they go up again, we are likely to see a slowdown in real estate buying activity.
5. There are a lot of active buyers right now. People have a general sense that the time is right to jump back into the real estate market.
6. Sellers of homes that are not in any stage of foreclosure are very willing to negotiate terms of sale right now. They are willing to pay for things such as closing costs (normally something that the buyer and seller split) or provide an allowance for repairs.
If you are seriously looking to take advantage of the real estate opportunities out there right now, my biggest piece of advice for you is to meet with your lender and get a prequalification letter. Many of the banks who own foreclosures will not consider an offer without it. If you need some recommendations for experienced, reputable lenders, please check out our recommendations at http://www.homescentralcoast.com/mortgage-rates.html.