Real Estate Insights Blog

There is no question about it, these are troubled times...in fact, today it is reported that nearly 1 out of every 10 homeowners in America is behind on mortgage payments¹. Foreclosure is becoming an all too familiar sign throughout the neighborhoods of San Jose and the greater Santa Clara County. And, chances are that you or someone you know in your community is unfortunately facing the possibility of a bank foreclosure of their home.

Now more than ever, it's important to identify the options that may be available if you face this daunting situation. What I’ve learned through my experiences assisting families facing foreclosure while working as a real estate professional here in San Jose is that homeowners tend to have more questions than answers about their circumstances, and unfortunately there is not a lot of reliable information available to them.

This is why I have created this on-line resource…ForeclosureHelpSanJose.com; in an effort to help those unfortunate enough to be facing foreclosure gain a better understanding of possible solutions available to them. Because when you've fallen behind on your mortgage the thought of losing a home can often be extremely overwhelming, and simply ignoring it won't make it go away.

The website aims to better explain foreclosure alternative options (including short sales) to those most impacted by the unstable economy. Plus, the site is loaded with a whole library of FREE Reports available for download that will hopefully provide some answers, or at least clarify some options, so that a distressed homeowner will have enough information to choose a proper course of action and hopefully avoid foreclosure.

This new website is a part of the Eagle Properties Group’s ever growing commitment to our community and to our goal of helping the homeowners that have been hit hardest by the financial bust. The site is hosted in conjunction with the Certified Distressed Property Expert^® (CDPE) Institute, which earlier this month we earned our CDPE designation having completed extensive training in foreclosure avoidance, with a particular emphasis on short sales.

Short sales allow the distressed homeowner to repay the mortgage at the price that the home sells for, even if it is lower than what is owed on the property. With plummeting property values, this can save many people from foreclosure and even bankruptcy. More and more lenders are willing to consider short sales because they are much less costly than foreclosures.

Alex Charfen, co-founder and CEO of the Distressed Property Institute in Austin, Texas, said that agents with the CDPE Designation have valuable perspective on the market, and training in short sales that can offer homeowners real alternatives to foreclosure, which can be devastating to credit ratings.

“These experts better understand market conditions than the average agent, and can help sellers through the complications of foreclosure avoidance,” he said.

At a time when millions of homeowners are struggling with the possibility of foreclosure, the skills and education amassed by our brokerage will help benefit Santa Clara County-area residents and communities. And spreading the right information will hopefully reach those distressed homeowners that need it the most.

¹Ref.: San Jose Mercury News article (8/27/2010) - http://www.mercurynews.com/real-estate-news/ci_15901253

The first thing to remember is that a short sale should be a last alternative to foreclosure, allowing you to sell your home if you owe more than your home’s value, but still ends in a similar outcome – losing your home. A short sale can definitely provide a benefit to the underwater homeowner looking to avoid a foreclosure on their record by selling their home before the bank forecloses, but before you rush down that path it is important to understand that other options may exist that could help you keep your home.

Are there other options available to me that may help me keep my home?

Absolutely, and this is the most important thing that anyone considering a short sale must understand. There are more foreclosure alternatives available today to distressed homeowner’s than ever before. If you have any interest in keeping your home then you should look into all of the following before making a final decision to sell:

Refinance Programs – Most refinancing programs will require homeowners to be current on their mortgage payments; be able to prove valid employment and adequate incomes; and have enough equity remaining in their homes to qualify. There are some government sponsored refinancing programs being offered (through Making Home Affordable – see “Homeowner Resources” section at end of Guide) that can assist even those who do not meet all of these requirements.

Loan Modification Programs – If refinancing is out of the question due to a financial hardship (such as loss of employment), or if you find that you have already fallen behind on your mortgage payments, then a loan modification or re-payment plan would be the next alternative to look into. Many lenders are more than willing to modify their borrower’s home mortgages as long as they would reasonably benefit from lowered payments or even principal reductions. But then again, not all lenders will offer their borrowers such programs, and not all distressed homeowners can qualify.

Loan Forbearance – Often time’s lenders can offer borrowers a limited amount of time to stop making payments in the hopes that the borrower will be able to get back on their feet and resume payments at the end of the forbearance period

Rent the Property – If the mortgage payments are low enough and the rental market is strong enough, then it could make sense to move out of the property and then rent it to a tenant. But property management comes with additional expenses and liabilities that should be discussed with competent real estate professionals.

Bankruptcy – Often misperceived as the “fix-all” solution for financial hardships, bankruptcy may or may not allow you to keep your home. If the homeowner has non-mortgage debts that cause a shortfall of paying their mortgage payments and a personal bankruptcy will eliminate these debts, this may be a viable solution. But, if you don’t have any equity remaining in your property and you cannot make the mortgage payments or reinstate your mortgage, then a bankruptcy will not save your home, it may delay the foreclosure process by weeks or even months, but it will not stop the process (it will also ruin your credit and can only be declared once every 7 years).

When do you know you’re ready for a Short Sale?

If all other options fail and keeping your home is not an option then maybe it’s time that you looked into a short sale as an alternative to foreclosure. You can bet on one thing during the foreclosure process, your lender will NOT continue to stall the foreclosure process once started, and if you are not working with them on one of the options above, or if your lender has already turned you down for these options, then it may be time to seek assistance from a local real estate professional knowledgeable in short sale transactions.

While not always the case, underwater sellers who have listed their homes for short sale may have missed mortgage payments and may not be able to financially afford their home any longer. Perhaps an interest rate adjustment has made the mortgage payment too expensive or their interest-only adjustable-rate-mortgage (ARM) has now begun to incorporate additional payments of principal. Or perhaps the homeowner has lost a substantial source of income, suffered a financial crisis, or other circumstance that has created difficulty for the homeowner to repay their mortgage.

Whatever the case may be, homeowners must be able to prove to their mortgage lenders that they are currently suffering from or will inevitably suffer from a viable financial hardship…and the homeowner’s lenders must see evidence of such hardship. Without a hardship it may be improbable that a lender will allow a short sale over a foreclosure, although it is always up to the lender to decide, and lenders usually do what’s financially in their own best interests.

It may take more paperwork to get out of your mortgage than it did when you got into your mortgage! A short sale requires much paperwork, preparation and patience on behalf of both the seller (borrower) as well as the buyer. Typically, before applying for a short sale, the seller must have all their paper work prepared and ready to present to their lender along with a valid purchase agreement with a fully able buyer. The buyer of a short sale must also be prepared to wait patiently for the seller to receive such required lender approval and, once approved, be ready to act in a protracted time period to conclude the purchase of the property.

Are there downsides to a Short Sale?

In short, a short sale is an alternative to foreclosure and nothing more than negotiating with lien holders a payoff for less than what they are owed, or rather a sale of a debt, generally on a piece of real estate, short of the full debt amount. A short sale does not extinguish the remaining balance unless settlement by the seller’s lender(s) has been clearly indicated on the acceptance of the short payoff. And, although the lender may consider the loan satisfied through a short sale, the IRS may look upon any such forgiven debt as income (by issuance of a 1099-C) and the seller could be responsible for paying income taxes (both Federal and State) on any such forgiven debt (homeowners should seek professional tax guidance from certified professionals).

At least with short sales, there is usually always a little room for negotiation. Although different from foreclosure, in which there is no negotiation of terms available, short sales offer the seller the chance to negotiate the terms of how a lender may handle any deficiency balances as well as how the short sale may be reported on their credit report. These negotiations may come at an additional cost to the homeowner, in the form of cash contributions from the seller at closing or even requiring a promissory, whatever the case may be, the short sale process allows the seller options that a foreclosure will not provide.

Where to Begin?

Simply listing your home “for sale” when you owe more on your mortgage(s) than the current market value of your home is not an as easy task, nor is it always a guaranteed solution. Careful thought, consideration and planning should be given to the task of selling your home versus simply walking away when you are faced with being upside-down in your mortgage and wanting to move. There must be a REASON for your mortgage holders to allow a short sale.

It is important to understand that not all lenders will allow short sales or accept discounted payoffs, especially if it would make more financial sense to foreclose; moreover, not all sellers nor all properties qualify for short sales. As such, homeowners contemplating a short sale should learn more about your Foreclosure and Short Sale Resources before proceeding with the sale of their home.

Be sure your most valuable asset has enough coverage before it's too late! These articles shed some light on all you need to know in order to get your homeowner's insurance coverage in tip top shape. Please enjoy!

	Improve Your Insurance Score Paying all of your bills on time is one good way to improve your insurance score—and, in turn, lower your homeowners insurance premiums. Read
	Homeowners Insurance: Time for an Annual Check-Up An annual check-up on your homeowners insurance can result in a healthier policy and a healthier pocketbook. Read
	Homeowners Insurance: Are You Over- or Underinsured? Paying for more homeowners insurance than you need is a waste of money, but it can prove even more costly to get caught without enough coverage. Read
	Your CLUE Insurance Report Matters Your CLUE insurance report keeps your homeowners insurance claims alive for seven years—and that could cost you on your premiums. Read
	How to Correct Your CLUE Insurance Report An error in your CLUE insurance report can increase your homeowners insurance premium or even prevent you from getting coverage at all. Read
Visit houselogic.com for more articles like this. © Copyright 2010 NATIONAL ASSOCIATION OF REALTORS®

If you find yourself in the unfortunate event of falling behind on mortgage payments, or struggling to meet your mortgage obligations, or being pressured by your landlord to move out due to foreclosure, then you may want to contact the local ForeclosureHelp services offered through the City of San Jose.

There is FREE assistance available – ForeclosureHelp (http://www.ForeclosureHelpscc.org) is a City of San Jose Housing Department program. Volunteers from the local Real Estate and Lending communities volunteer their time to provide information and referral services to assist families impacted by foreclosure and to help them navigate through the foreclosure process.

IMPORTANT: You don’t have to be in foreclosure to receive assistance. Help is available for those that may be impacted by foreclosure including those that are currently being foreclosed by their lenders, those that are in jeopardy of being foreclosed on by their lenders, and even tenants of properties that have been foreclosed

Services are provided to San Jose Metropolitan area residents and include prevention, intervention and family re-stabilization. By appointment, volunteer staff is available to discuss your circumstances and connect you to the appropriate resources including HUD-certified foreclosure prevention counselors, nonprofit legal services, emergency financial assistance and other housing services.

Through the ForeclosureHelp services, homeowners can receive key information that may help them stay in their homes. The most important service offered through this agency is the ability to meet with someone both familiar with the foreclosure process and the FREE resources available through the City in order to hopefully provide a sense direction to those impacted by the foreclosure process.

Foreclosure alternatives include loan modifications, deed’s in lieu of foreclosure, and even short sales. For tenants, the City offers programs that can provide rental and legal assistance. And for those that may have been impacted by foreclosure scams there is also legal assistance available.

Contact the City of San Jose’s Foreclosure Help by calling (408) 794-1242 or visiting their website - http://www.ForeclosureHelpscc.org.

It’s not surprising that according to specialists in Financial Planning Magazine, REO properties (Bank owned foreclosures) are considered “the best real estate deals” of 2010.  With the current volume of foreclosure activity and the amount of REO properties readily available for sale, it’s difficult not to jump back and feel like “a kid in a candy store.” 

Generally REO properties are a great investment as long as you know what you are getting yourself into.  There can be a lot of pit-falls to those who purchase foreclosed homes, such as tenants or squatters that need to be evicted as well as the deferred maintenance that usually accompanies REO properties. This is why it is recommended to work with an experienced REO buyer’s agent who understands the risks as well as the rewards associated with these properties.

And speaking of reward, it can’t be denied that in the current stormy real estate market, there are some real opportunities out there to buy up some great REO properties that are being offered for sale at bargain prices. There are seemingly thousands and thousands of bank owned homes sitting empty, just waiting for an enthusiastic buyer. 

As a Buyer, when you consider that the bank just wants to get rid of these homes, and if you find the right property and are ready to make the serious investment, it can be a great way to get off and running in the real estate investing business.  In fact, some banks are known to commonly offer their REO properties for around 30% of their value just to get them off their books. 

All you need is some capital, business knowledge and “a whole lot of patience” and you can be on your way to making some great investments.  You probably won't be able to flip these properties quickly, but if you can afford to sit on them for at least the next few years, then you stand a great chance of turning a good profit, especially if you've purchased high-end homes in good neighborhoods.

Read more about the pitfalls of purchasing REO properties

HAFA is a government-subsidized Home Affordable Foreclosure Alternatives program for distressed homeowners to sell their homes to avoid foreclosure, even if the sales price is not enough to pay off their existing mortgage loans. Under HAFA, a participating lender will pre-approve the terms of a short sale and give the borrower at least 4 months to market and sell the property using a licensed real estate professional.

Short sales involve the sale of real property when the outstanding loan balances owed against such a property are greater than the current market value of the property. Short sales involve much negotiation between the seller, their listing agent and the seller’s lenders, as well as much patience on behalf of the buyers during the short sale process.

Until recently, lenders have only had their own way to process short sales, but with the new HAFA program, the government hopes to provide lenders with a standardized process that will also provide additional incentives for the lenders if they choose to follow the program.

Eligibility

The HAFA program is not for everyone; homeowners looking to sell their home through this program must qualify and show a valid hardship. The property must also be the homeowner’s primary residence, their loan must have been originated prior to 2009, they must currently be delinquent on their mortgage or default must be reasonably foreseeable, the first mortgage balance cannot exceed $729,750, and the homeowner must be eligible for but unable to qualify for the Home Affordable Modification Program.

So how do you know if you really qualify?

If your mortgage is owned by Fannie Mae or Freddie Mac, then this program will automatically apply to your short sale request. To check whether your loan is owned by Fannie or Freddie please read this article: http://www.eaglehomegroup.com/WhoOwnsYourMortgage

If your loan is not owned by Fannie or Freddie, then it is up to your loan servicer and the investor who actually owns your mortgage. For a list of participating lenders please visit http://makinghomeaffordable.gov/contact_servicer.html

The only way to really figure out if you will be eligible for the HAFA program is to apply through your lender. Also each participating lender will have its own written policy for approving or rejecting a HAFA short sale, based on factors such as the severity of the loss, market conditions, the borrower’s motivation and cooperation, property valuation, and title review. 

How does it work?

Under the HAFA program, the government may provide the homeowner with up to $3,000 for relocation expenses, provide the loan servicers $1,500 for each successful short sale, and provide the actual investor behind the mortgage with up to $2,000 to use towards the payoff of any junior liens.

Once your lender has determined that your short sale request may qualify for the HAFA program, the lender will then provide you and your listing agent with instructions on how to complete a successful short sale. But, just because your lender approves a short sale request under the HAFA program does not mean that any junior lien holders must comply with the sale. Junior lien holders are still free to decide whether they will authorize a short payoff in return for releasing their lien from the subject property – which may or may not also include a release of liability from the loan as well.

An approved HAFA short sale may still have serious tax, credit, financial, legal, and other consequences.  A homeowner is strongly encouraged to seek the advice of a qualified professional regarding these consequences.

For more information on this program please visit the government’s website for the HAFA program at http://makinghomeaffordable.gov/hafa.html

With the current climate in the housing industry, and overall economy for that matter, it’s no surprise that some people may look for any angle in order to get ahead, and sometimes this may include taking advantage of those in financial desperation.

Unfortunately, distressed homeowners trying to avoid the loss of their home through foreclosure are finding out the hard way these days that they may have fallen prey to an unscrupulous scam artist (or as they refer to themselves as “real estate investors”).

The scariest part is that if you’re currently delinquent on your mortgage then chances are that you may have already met a few face-to-face, as these so-called “investors” frequently stalk the occupants of distressed properties for any possibility of “assisting them to avoid a foreclosure.”

But beware of their empty promises, there are no quick corners to cut in order to “avoid foreclosure,” and there are also many legalities surrounding the foreclosure process in which homeowners should be aware of before they allow anyone to provide any such “foreclosure prevention services” or pay any upfront fees of any kind.

Potential victims are easy to find: mortgage lenders publish notices before foreclosing on homes. Private firms frequently compile and sell lists of these foreclosed properties and distressed borrowers.

After reading these notices, con artists approach their targets in person, by mail, over the telephone, or by e-mail. They often advertise their services on television, radio, or the Web, and in newspapers, describing themselves as “foreclosure consultants” or “mortgage consultants,” offering “foreclosure prevention” or “foreclosure rescue” services.

Here are the top Foreclosure and Loan Modification scams Happening in your neighborhood:

1. Foreclosure “Rescue” and Refinance Fraud. The scam artist offers to act as an intermediary between you and your lender to negotiate a repayment plan or loan modification and may even “guarantee” to save your home from foreclosure. You may be told to make mortgage payments to the scammer directly — along with significant, up-front fees — and be told that the scammer will forward the payments to your lender. In reality, the scammer may pocket your money and leave you in worse shape on your loan. The scam artist also may tell you to stop making payments or stop communicating with your lender. Don’t follow that advice, remember that your mortgage lender should be the starting point for finding options to avoid foreclosure and you also should consider contacting qualified and approved credit counselors.

2. Fake “Government” Modification Programs. Unscrupulous people may claim to be affiliated with, or approved by, the government or may ask you to pay high up-front fees to qualify for government mortgage modification programs. While government-supported mortgage modification and refinancing initiatives are legitimate, the scam artists’ claims are not. Keep in mind that you do not have to pay to benefit from these government programs. All you need to do is contact your lender or loan servicer. Additionally, the scam artist’s name or Web site may be very similar to those of government agencies. These tactics are designed to fool you into thinking the scam artist is somehow approved by, or affiliated with, the government. The government is taking actions to stop this fraud, but you also need to protect yourself. Your lender will be able to tell you whether you qualify for any government initiatives to prevent foreclosure.

3. Leaseback/Rent-to-buy Schemes. In this type of scam, you are asked to transfer the title to your home to the scammer, who will, supposedly, obtain new and better financing and/or allow you to remain in the home as a renter and eventually buy it back. The agreement may be very hard to comply with, because it may require, for instance, high up-front costs and monthly payments that you may not be able to afford. In fact, the scammers may have no intention of ever selling the home back to you. And remember, transferring your title does not change your payment obligations — you will still owe your mortgage debt. The difference will be that you will no longer own your home.

4. Bankruptcy Scams. You may have heard that filing bankruptcy will stop a foreclosure. This is true — but only temporarily. Filing bankruptcy brings an “automatic stay” into effect that stops any collection and foreclosure while the bankruptcy court administers the case. Eventually, you must start paying your mortgage lender, or the lender will be able to foreclose. Bankruptcy is rarely, if ever, a permanent solution to prevent foreclosure. In addition, bankruptcy will negatively impact your credit score and will remain on your credit report for 10 years.

5. Debt-elimination Schemes. Scammers may claim to be able to “eliminate” your debt by making illegitimate legal arguments that you are not obligated to pay back your mortgage. These scammers will provide you with inaccurate claims about applicable laws and finance, such as that “secret laws” can be used to eliminate debt or that banks do not have the authority to lend money. Do not stop making payments on your mortgage based on their claims.

Always proceed with caution when dealing with anyone offering to help you modify your mortgage or avoid foreclosure. Remember that you do not need a third party to work with your lender — any such party should make the process easier, not harder and more expensive.

The main ways to protect yourself from falling victim to a foreclosure scam are to:

• Always keep in contact with your lender no matter what anyone else says;
• Always make payments on your mortgage to your lender and no one else;
• Avoid paying upfront fees of any kind;
• Always understand what you are signing before you sign it;
• Never, under any circumstances, sign the title of your property away to anyone without proper legal counsel;
• Be sure to get all promises in writing.

It’s important that homeowners understand that there are FREE foreclosure counseling services and loan modification services available. One of the most important services is offered by your lender, and if your lender becomes unresponsive then the government has sponsored a number of other resources such as the “Hope Now Alliance” and “Making Home Affordable” programs.

But it’s up to you to keep yourself from falling prey to a foreclosure scam. Work with real estate professionals with a proven track record of assisting homeowners in your similar situation. And for more information on these scams and ways in which you can protect yourself, please visit http://www.occ.treas.gov/ftp/ADVISORY/2008-1.html

Late this afternoon, Gov. Schwarzenegger signed Assembly Bill 183, the Homebuyer Tax Credit legislation, into law. His actions today are the result of the California Association of Realtor’s efforts in Sacramento over the last several weeks.

The new Bill will provide $200 million for home buyer tax credits, allocating $100 million for qualified first-time home buyers of existing homes and $100 million for purchasers of new, or previously unoccupied, homes. The eligible taxpayer who purchases a qualified personal residence on and after May 1, 2010, and on or before Dec. 31, 2010, or who purchases a qualified principal residence on and after Dec. 31, 2010, and before Aug. 1, 2011, pursuant to an enforceable contract executed on or before Dec. 31, 2010, will be able to take the allowed tax credit. The credit is equal to the lesser of 5 percent of the purchase price or $10,000, in equal installments over three consecutive years. Under AB 183, purchasers will be required to live in the home for at least two years or forfeit the credit (i.e., repay it to the state).

The positive impact of the federal home buyer tax credit is clear. Nearly 40 percent of first-time home buyers said they would not have purchased a home if the federal tax credit for first-time home buyers was not offered, according to C.A.R. research conducted last year.

The state’s previous home buyer tax credit program was so successful that it ran out of tax credits by the end of June 2009, eight months before it was set to expire and just as housing markets appeared to be turning a corner. Unlike last year’s legislation, AB 183 adds a tax credit for the purchase of an existing home by a first-time home buyer.

AB 183 will significantly contribute to the effort to stimulate jobs-creation within California's housing market by helping to incentivize first-time home buyers to purchase homes that have been abandoned, foreclosed upon and returned to the lender, or have been sitting on the market for extended periods of time. It is these homes that will require substantial rehabilitation by the new owners, which will in turn generate a tremendous increase in jobs and accessory purchases connected to home improvement activities

For further details of the new Bill and information on how to claim the tax credit, please feel free to reach out to our office or contact your tax professional.