More Trouble In The Real Estate Market?

Housing Collapse. . .Again!?

For about the last 2 years now, most media and their housing experts have been reporting good news on the housing front. The number of distressed properties was decreasing, the number of foreclosures was decreasing, prices were (and are) increasing. This seems like good news all around, right? Well, it certainly would be IF IT WERE ACTUALLY TRUE!

I’m sure it comes as no surprise to most of my readers that things are NOT always what they are reported to be:

1.) “If you like your health plan, you can keep it!”

2.) “Al Qaeda is on the run!”

3.) “The Benghazi embassy attack was in response to a youtube video. . .”

4.) “The average family’s health plan will be reduced by approximately $2500 per year. . .”

5.) “There were a few rogue agents in our Cincinnati IRS office who were targeting their political enemies. . .”

Etc, etc, ad infinitum.

Well, now comes the news that “Housing Bubble Fears May Not Be Unfounded” and that “Low Inventories Conceal Hidden Vacancies, Threat Looms. . .”

These two news stories from DS News show what I have been telling my clients for the last few years. Yes, things LOOK like they’re turning around, when

Squatting Homeowners

you read the news. By when you actually work in the default industry, you know that things are NOT what they seem to be. Here’s the bottom line, and it makes all the difference in the world:

Many millions of mortgage holders who have not payed their mortgages for some time, are simply not being foreclosed on. You heard me correctly. There are millions of people living in homes that they haven’t payed for, in some cases up to 3 to 4 years!

Why is this happening? Because it is now politically incorrect to foreclose on people who haven’t payed their mortgages. Mortgage lenders were directed in no uncertain terms to simply “STOP FORECLOSING ON PEOPLE! You’re making things worse!”

I have been saying for years that politicians will continue to kick this housing can down the road as long as they can, and hide the data from the American people, to try to create more consumer confidence. Well, the plan hasn’t worked out too well. The news reports that consumers are more confident, but do you know anyone who has confidence in the housing market? the economy? our military prowess? our health care system? I certainly don’t.

Sooner or later, all these people who are not paying their mortgages are going to be removed from their homes. Those homes will hit the market. Then there are all the homes that homeowners have simply abandoned, but have not been placed on the market for sale, but are held “off the books” by lenders. Those will have to come to the market eventually as well. That’s a double whammy. It HAS to happen. It’s just a matter of WHEN.

So, now you know why your house price has increase by 20% over the last 24 months. There are very few homes for sale, and this contributed to creating a strong demand.

If only you could see below the surface, you’d see all those other thousands of homes just sitting vacant, WAITING to go up for sale.

Hello 2006!

Allen

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The Right Loan Modification Help

     Imagine for a moment that your wallet, purse, or handbag was stolen from your car. All of your personal and credit information was included in the “transfer” of ownership: your multiple IDs, social security card, home address, credit cards, spare house and car keys; everything. Now, you have some work to do. You need to cancel your credit and membership cards and get new ones, set up a credit monitoring or credit security service to lock credit activity, change the locks on your doors, go to the DMV and get a new license, dig through family photos for replacements, get a new cell phone and replace all your contacts, programs, music, etc. Getting your life back together is going to take awhile. You’ll be on hold for hours, talking with hapless bureaucrats, minimum-wage-earning call center human robots, jumping through hoops, providing documents to people who either don’t get them or lose them, and standing in line at the DMV.

     Processing a loan modification is a lot like this, only much worse. Whereas a dedicated and persistent person could recover from stolen personal effects in a few weeks at most, negotiating with a lender on a loan mod, short sale, or deed in lieu of foreclosure routinely takes months, and can take over a year. Real estate attorneys, agents, and short sale processors who have experience in dealing with lenders and negotiations on behalf of homeowners are not surprised by this; they expect it. They spend their days on hold, taking copious notes, demanding to speak to supervisors, “expediting” the process, verifying paperwork, and pushing through to the ubiquitous “next level” in the process. This is their job, and in most cases, they are paid well for it.

     There are now hundreds of businesses and “servicers” clamoring for the distressed homeowner’s attention, offering “help” with their foreclosure troubles. I get many of them myself, and I’m not even “distressed,” at least not about real estate! Needless to say, there are many scams being perpetrated on homeowners, and care should be taken. Selecting the right company, attorney, or agent to help you can be daunting and anxiety producing. The following are some tips when shopping for loan mod help:

Be Wary of Paying Money Up Front

     If possible, look for an agreement that provides payment if, and only if, the loan modification is completed on a permanent basis. It should be understood however, that this is a very labor intensive process, and there is no real guarantee of success. The company that worked on your behalf for all those months will likely want compensation if, in spite of all their best efforts, your modification is denied. Remember, there is risk involved for both the homeowner and the processor, and that risk can and should be negotiated, or shared. Perhaps you could work out a deal where only half the fee is due up front? Be very cautious about paying in full up front, with a promise of “your money back,” if the loan mod fails. Some suggest that you insist on paying with a credit card, so that charges may later be disputed if something goes wrong.

Make Sure the Processing Charges Appear on the HUD-1

     When and if the lender agrees to a permanent modification, new loan documents will have to be generated and executed by the borrower, the lender, and the Trustee (in AZ). This will usually happen at a title company, where the documents will be notarized, filed with the county recorder, and distributed to all parties. A regular HUD-1 or “Closing Settlement Statement” will be issued for the transaction. The party who processed your loan modification should be listed on the HUD-1, along with their attendant processing fees. You would then bring that fee to the closing table to as your cost for “settlement charges”.

Make Sure the Processor Understands the Process, and Can Explain

     Make sure that whoever you choose has a plan or strategy in place for fully educating you on the process. Whether this means they meet with you in person or on the phone, or send you a flow chart, graph, or handbook, you should be aware of milestones, what is coming up next, and where you stand with the over-all process. Someone with a good “bedside manner” is what you’re looking for here, as you are in trouble, and you need to feel confident that the process is under control by a competent professional.

Make Sure Communication Lines Are Clear

     You will need to have open lines of communication with your processor. They will have questions for you, and will need you to deliver documents to them periodically. The best practice is email communication, as it is an excellent way to keep records of who said what when, and what documents were sent and when. If you have the ability to scan and email documents through email, you should also do this. The documents will be attached to their original emails, and saved in the system. This is record that you have complied with all pertinent information and data requests. If you have to, use a fax machine for documents, and keep the “Transmission Record” of your having sent it. Only hand-deliver or mail documents as a last resort, and only if they are certified (i.e., someone has to sign for them on the other end). Bottom line: keep neat records of communication and documentation sent.

     Your communication lines will also keep you up to date on the progress on your file. You should receive weekly updates, in writing. This should be a log of all activity on your file. Good processors keep notes on a “transaction” or “processing” form of some kind. Any time they have a conversation with your lender, send some document, or make a call to any third party, the conversation is recorded in this log. You want an updated copy of this log each week. The log should show that the processor is contacting your lender at least once per week, what your lender said, what your lender wants, what the hold up is, etc. Depending upon your level of comfort, you may ask for this document, along with a call to discuss it, on a designated day and time each week.

Make Sure You Check for Experience and References

     You should ask any potential processor what type, and how much, experience they have with loan modifications, how many of their loan mods have been successful versus unsuccessful, and whether they can provide a list of potential references for you to call. You might also visit your local BBB web site to look up the company’s history. Sometimes, a simple Google search with “[Company Name] Scam” is sufficient to root out trouble makers. If there are several Web sites, Blogs, or news stories connecting the word “scam” with the company or person you have selected, well. . . I’ll leave you to your own judgment.

Moving Forward

     If you decide to hire someone to help modify your mortgage, follow the above guidelines to minimize your exposure to scams and ensure the best professional selection. Also remember, there are no guarantees that your loan modification will be successful. If you would rather complete the process yourself, in our next installment we’ll provide guidance and best practices for going it alone.

Free Loan Counsel Available Now!
By Phone: (602) 499-4798
or by Email: therealtybutler@gmail.com

*Disclaimer: We DO provide loan counseling services to our clients, but we NEVER charge the homeowner money. Please also remember: I am NOT an attorney, and neither do I play one on TV or the Internet. None of these pontifications should be construed as specific legal advice. If you need specific legal advice regarding your personal situation, give us a call. We can help you ourselves, or provide a list of housing counselors that are free! 

Arizona Foreclosure Process

Transcript:

Hello and thank you for joining us today at the Butler Blog.  As always, I am your host, Allen Butler, Managing Director of The Realty Butler LLC and agent of West USA Premier Properties. Today I want to examine some of the issues and strategies involving loan delinquency, mortgage default, and foreclosure affecting Arizona’s families.  

   For nearly everyone being affected by this foreclosure crisis, the foundation is almost always negative equity and financial hardship: If financial hardship comes, and you can’t sell the house because it’s “upside down,” you are likely about to stop, or have already stopped, paying your mortgage. This is when the process of foreclosure begins.

     It is absolutely critical that you know the process and timelines of delinquency, default, and foreclosure, and what your options are in dealing with them. The entire foreclosure process starts with your first missed payment. Let’s take a look at the timeline.

When you miss your first payment, you will likely start getting all kinds of communication from your bank. They want to know where their money is, and if you can’t bring your payments current very quickly (usually within 30-90 days), a “notice of default” will be issued.

The Notice of Default is a legal notice filed by your bank, indicating they have notified the courts that you are seriously delinquent on the loan. This notice also indicates that if you do not clear the delinquency within 90 days, the property will be scheduled for public auction.

When the home is scheduled for public auction, a Notice of Trustees Sale will be posted on the home itself, and filed with the courts. This notice identifies the place and time of the trustees’ sale, the loan servicer and/or legal office pursuing the sale, and the homeowner against whom this action is being taken. The auction date for the trustees’ sale is usually 30 to 90 days after the posted notice date. When and if the property is sold at auction, it now belongs to someone else, usually the lender who filed the action. 

The next step in the process is eviction. Once the home has transferred ownership at the trustees’ sale, the new owner is going to take possession. Sometimes, the lender will contact the occupants of the home, and offer a “Cash for Keys” deal in exchange for leaving the home within 15-30 days. If the occupant is uncooperative or not able to be contacted, a forcible detainer action will be filed, and eviction proceedings will commence.

Now, it is absolutely vital that you understand your “Action Zone.” This is the time during which you can act to contain and mitigate the damage to YOURSELF, your family, your credit, and your future. The Action Zone starts before you even miss a payment, and ends just a few weeks after the Notice of Trustees Sale. It is during this time that you absolutely need to contact someone for help with your situation, as there are several programs in place by lenders, and federal and state governments to help.

In our next installment, I’ll discuss these foreclosure prevention programs, how they work, who can do them, and who should do them. Until then, if you have questions or concerns regarding your personal pre-foreclosure situation, I encourage you to contact me. Both myself and my staff of highly trained and certified mortgage default specialists are always ready to take your calls or emails.

Until Next time, this is Allen Butler, Managing Director of The Realty Butler LLC, and agent of West USA Premier Properties, signing out.

Arizona Loan Modifications: Right for Arizona Families?

In our previous discussion of Arizona Loan Modifications, we discovered what a “loan mod” is, who can do one, and the process of doing one. This time, we’ll look at the pros and cons of actually doing one. Most of the clients who call our offices asking about loan modifications end up not seeking to do one. Why is that? If you can get an affordable new mortgage, and you can stay in your home, why wouldn’t you? Let’s take a look.

 The Case for Loan Modification

     A loan modification will be just right for many Americans, and can indeed save their homes from foreclosure, if “the price is right.”  The key consideration for these people is the level of price declines in their area or city. You see, only about 7 states have foreclosure “crises,” and of those 7, only 4 are causing most of the trouble (AZ, NV, CA, FL). If you live in any of the rest of the 96% of the country, the chances that a loan mod will work for you are pretty good. Let me explain.

    If you live in Cedar Rapids, Iowa, your home has definitely decreased in value over the last 3-5 years, but the price declines were fairly mild, and in fact, home prices INCREASED 1.8% from 2007 to now. Therefore, if you have negative equity in your home, it is likely to be not quite as severe. For example, let us assume that you bought a home Cedar Rapids for $200,000 in 2005. Chances are good that your home is still worth about $175,000 to $185,000. Result: you’re not upside down by a “prohibitive” amount. The loan modification in this case will make your payments more affordable for 5 years. Because of the relatively shallow negative equity, you will likely not have a problem selling your home in 5 years when the loan begins adjusting upward again.

     So, what if you DO live in one of the 7 states where prices have declined up to 54%. Does this mean that you can’t do a loan modification because have too much “negative equity?” Absolutely not, as there are no negative equity restrictions to participation in the program. The question is not whether you CAN, but whether you SHOULD.

The Case Against Loan Modification?

     According to the Congressional Oversight Panel that regulates loan modification programs, loan modifications are probably NOT going to help families with tremendous amounts of negative equity, or families who default because of job loss. For obvious reasons, you can’t modify a loan if you lack sufficient income. But, what about negative equity? Why would this cause a problem for loan modification?

     Let’s use another example, and this time, we’ll apply greater negative equity. If you live in one of the handful of states with the most severe foreclosures, it is likely that your situation looks something like this:

a.)    Bought house for $400,000 (First mortgage balance of $387,000, possible second?)

b.)    Homes just like yours are now worth $197,000.

c.)    You now have approximately $182,600 in “negative equity”.

You now do a loan modification of your interest rate (as occurs in 97% of cases), and as a result:

                                       1.) Old Payment: $2575 p/month

                                      2.) New Payment: $1750 p/month

                                       2.) This modification is in force for five (5) years.

Sounds fabulous, right? Maybe, but this is where practical reality sets in as people contemplate the future:

The Facts:

I have a new, affordable mortgage payment.”

“I still owe my lender $387,000, plus some late charges, etc.”

“My house is still only worth about $200,000.”

“My loan is going to readjust in five years.”

 The Burning Question:

“Will my home double in value  in 5 years, so I can actually sell it if I have to?”

     This last is what causes many to decide NOT to do a loan modification. They are reasoning, and quite soundly unfortunately, that there is no way their home is going to almost double in value within 5 years. Not only are prices projected to fall for most of 2010, even if they stopped falling and began to rise again (using an optimistic rate of increase of 10% per year), it will still take almost 10 years before the negative equity is wiped out.

     You can see the problem: five years from now, there is a likelihood that you’ll be in exactly the same position you are in now. Your mortgage payments will start to increase again, while the situation at large hasn’t changed much, if at all. To make matters worse, your credit score has likely already taken a hit due to your current troubles. So, just when you’ve got your credit built back up, you’re faced with the negative equity problem again.

     Now, please understand, I am NOT advocating that you dismiss a loan modification as a possible solution to your mortgage troubles. You just need to be fully aware of what your true situation is, and what it needs to be in the future for a loan modification to actually solve your mortgage/housing problem. Many families, when they discover the real situation, decide that a loan modification is simply delaying the inevitable, and it is preferable to just “cut the losses now”. Cutting your losses now is becoming a strong mindset for many borrowers.  These homeowners reason that it is better to get rid of the ridiculously over-valued home (either through foreclosure, a deed in lieu of foreclosure, or a short sale), take a credit hit, and start life over. It’s like pressing the “reset” button.

     These “strategic foreclosures” are absolutely on the rise among many homeowners. Of course there is an ethical and moral consideration to this, but practical economic reality often overtakes the struggling homeowner. Provided that they do not actually go to foreclosure, and instead work with their lender to do a deed in lieu of foreclosure or a short sale, they WILL be better off. Consider: our latest research shows that the average borrower who conducts a short sale or deed in lieu of foreclosure within 5 months of default will suffer a 175 – 225 pt drop in their credit score. These same people are reporting that they are qualified to purchase a home again within 2-3 years.

     The practical reality is that, if you move quickly to expedite the transfer of the home to someone else (the lender or another buyer), your credit damage is fairly manageable. Furthermore, this leads to the positive conclusion that homeowners are much better off dumping their over-priced homes and just buying another home later. Not only will they probably save lots of money on a rental each month, but their credit scores will rebound fairly quickly, enabling them to purchase a newer, cheaper home, WELL BEFORE their old home would have appreciated to the level of the old mortgage. This is hard to argue with, as it makes both economic and common sense. 

     When the Congressional Oversight Panel reviewed the efficacy of the government’s programs to save families from foreclosure, they were extremely concerned. Their skepticism is valid indeed. The foreclosure programs in place now DO NOT address the issue of job loss, or of homeowners who simply decide that staying in the home makes no economic sense. To the extent that these problems continue and increase, well. . .use your imagination. But only for a few minutes; it will lead to anxiety and depression ;>)

Free Loan Counselors Available Now!

By Phone: (602) 499-4798  or by Email: therealtybutler@gmail.com

*Disclaimer: Please always remember: I am NOT an attorney, and neither do I play one on TV or the Internet. None of these pontifications should be construed as specific legal advice. If you need specific legal advice regarding your personal situation, give us a call. We can help you ourselves, or provide a list of housing counselors that are free!

The Latest on Arizona Short Sales

Hello Again, Folks,

I know it’s been a few weeks since I’ve been able to post anything about short sales and the like, and I wanted to keep you up-to-date on the current state of this aspect of the Arizona market. The reason I have been unable to post? I’m up to my eyeballs in short sales and foreclosure homes! So, what’s been going on?  I have determined a few things that may be helpful to both homeowners and real estate agents dealing with these nasty bits of real estate practice:

a.) If you can help it at all, stay the heck away from Countrywide if pursuing a short sale! I have written about the Blundering Nincompoopery of Countrywide before, and nothing has changed. These guys are the most inept bunch in the industry. For example, I have a short sale that was just accepted by Countrywide, in which the offer on the home was sent to Countrywide on February 19th, 2008. By the time this file closes escrow, it will have taken . . .uh. . .too long. WAY to long!

Interesting side-note: The last two short sales I completed with Countrywide were of a very interesting nature, and probably shouldn’t have been accepted in the first place.  On the first one, the homeowner never missed a single mortgage payment, and on the second, the homeowner never sent in any financials. No bank statements, W-2s, tax filings, income statements, not even a financial worksheet. Just a hardship letter. Do not try this at home. It will not work for you; I am simply THE MAN ;>)

Really though, and this brings me to point b:

b.) Short sales are won, or lost, on the tenacity of the listing real estate agent.  If you EVER take “No” for an answer, you are sunk.  I don’t know why, but I have always enjoyed having my way with bureaucrats. Some fun and pleasant memories: The power company calls to say that the power is being turned off for non-payment. By the end of the hour-long conversation, it is their fault, they are apologizing, waiving all fees, and I have a credit balance of $278.  Calling the credit card company, and demanding that they lower my rate from 13% to 6%.  Leasing an Infinity G35 for $187 per month, with no money down, and a full maintenance package thrown in, for uttering the magic words: “Oh. . .I thought you guys were a LUXURY car dealership!” 

Ass-holish? Maybe. Love to parlay? Absolutely! Maybe I should have been an attorney. In any event, don’t give up!

Allen

Making The Case For Blundering Nincompoopery.

Did I spell that right? Hope so. . .

So anyway, I’m back with more “tales from the dark side.” I am going to continue on my  Saga, while throwing Papa John’s Pizza into the mix. Let me just state flat out, in as clear a way as I know how, that CountryWide’s loss mitigation department is the most incompetent group of blundering nincompoops that I have ever seen.

Case #1: I have a certain short sale that Countrywide has had in their possession since February 19th. Two loss mitigators later, and they just ordered the appraisal yesterday.

Case #2: On another active file, newly minted, fresh outta loss mitigation school comes Paul Romero (the name has NOT been changed, so as to shame the guilty) . Now Paul, bless his little heart, indicates that he’s gonna “send the file to the investor” to get their response. Uh. . .Paul? Countrywide owns the loan.  He calls me back two days later to indicate that he was wrong. Problem? He’s suddenly discovered that there is PMI on the loan, and he’s “sending the file to them immediately.” That’s great Paul, but their is no PMI on this loan. He argues with me for awhile and says he’s gonna send it to the PMI company to get their response. In the meanwhile, I’m off to demonstrate conclusively that there IS NO PMI on this loan. Within about 3 hours, I have written confirmation that there is indeed NO PMI on this loan. Fast forward 24 hrs. Here’s Paul on the phone again: “Uh. . .the PMI company has denied the short sale. They think the property is worth more than the offer you have given them”. Ok. Paul, let me explain this to you again, real slow. . .: There is no pmi on this loan. He proceeds to tell me that he’s sorry, but the short has been denied. Okay Paul. Give me the policy number, inception date, & contact information for the person handling the case at the PMI company. “Uh. . .I don’t have that information.” Well then how did you send them our offer? “Uh. . .I’ll have to get back with you. Click.

So, I call today. The case has indeed been rejected. Case closed. The peons at the loss mitigation department can’t seem to figure out why, based on Paul’s notes. About an hour or 6 later, I get a call from Paul’s boss:

“We’re sorry Mr. Butler; there was a mistake. There is no PMI on this loan. We’ll have this file ready for you in a few days”.

Huh. I’m speechless.

Then there’s Papa John’s. My wife has unfortunately fallen in love with this new pizza they have. So I ordered some . . . . . . . . . .and waited for almost 2 full hours to receive it. When I did receive it, it was cold. THAT’S FABULOUS! So I call. They offer to deliver a new one. “When? A couple of hours from now?” No sir, it’ll be there in 30 minutes. Great. How about you throw in a little 2.99 desert thingy to make it up to me and my family? Sorry sir. The manager says no. FABULOUS.

I guess my point is this: when someone actually gives even adequate customer service, they are heralded as “amazing” and people marvel. What has the world come to?
Allen

Arizona Short Sales Not For The Faint of Heart

I’ve commented before about short sales on this blog, but not to much extent, and I haven’t seen many of the other contributers do it either. I wonder why? Does everyone abhor them? Are they afraid of them?

I have taken a lot of advice around here, and one of the best pieces of advise I have gleened is to write about something that interests me, and build a long tail. Well, the long tail has actually been working. I have written on my home blog about The Ins & Outs of Arizona Short Sales, and lo and behold, people started coming out of the woodwork. And I don’t mean a few. Let us just say it’s been a fabulous return on investment.

I have agents calling me from around the country asking for short sale help. I have homeowners calling me (from around the country, no less) about the possibility of doing a short sale on their home. I refer them out. (Incidentally, if you are from some other state than AZ, and you are familiar with short sales, send your contact information to me, I may have clients for you.)

I would like to first give a shout out to the new Barry. His Real Estate Radio USA has been very cool and helpful for me professionally, and is entertaining to boot.

When I say that short sales are not for the faint of heart, I mean that in two distinct ways: for realtors, and for sellers.

Realtors are running up against brick walls with “The Gate Keepers.” That’s what I call the people who protect the actual “loss mitigators” like the Swiss Guard protects the Pope. Loss mitigators are behind bullet-proof glass, tucked away somewhere in a bunker under the Potomac river, without email, which out phone lines, whichout fax machines; they are completely incommunicado. They send messages between the bunker and the outside world by carrier pigeon. The particular brand of pigeon they use is not one of the kind where you separate it from its home turf by a thousand miles, thow it up in the air, where it circles a few times and “goes where it knows.” The kind they use soars into the air, flies crazily for a few weeks, and then lazily makes its way to where ever it happens to be open season for pigeons. This is enough to drive any semi-sane realtor into a nut house.

Then there are the sellers. They come in a few varieties. The first is the charming couple who believes that because their home is worth less than they own against it, they are eligible for a short sale.

The second is current on their mortgage, and will use credit cards for as long as necessary to “stay afloat” while they continue to pay their mortgage, while at the same time, pursue a short sale, hoping that the lender will look favorably on their “diligence.” This is in fact true, as the lender does indeed look favorably on the payment of mortgages. In fact, the lender’s advice to the homeowner at this point is predictable: “Keep it up! You’re doing great!Keep sending us your money!”

I think I’ll pause here and offer some advice for those unlucky homeowners who happen to read this blog, and fall into category two. Mortgage debt can be forgiven. Credit card debt cannot. Unless you want to go to foreclosure AND declare bankruptcy. If you are truly screwed, and are digging yourself a hole of unsecured debt to continue to pay the mortgage on a house you will ultimately loose, STOP IT! You’re throwing your money away. Just come to grips with the fact that you are losing your home. The sooner you face this reality, the better.

The final type is the truly destitute homeowner, who truly CANNOT pay his or her mortgage any more. They have come to face the fact of the loss of their home, and are ready to proceed with their lives. They have a real hardship, they are ready to provide all the documentation needed to demonstrate this, and they are already moved on to a new rental home. This is the golden client. This is where short sales actually work. This is where the realtor has some reward for his or her (copious) labour.

Short sales are definitely not for the faint of heart, whether seller or realtor, but they do work. Unfortunatey, in Arizona, that’s where the market is. The Land of The Lost Equity.