In the past 12 months, two bills have come under consideration at the House of Representatives.  The National Association of Realtors, the largest trade organization in the United States with 1.2 million members, is strongly advocating and extension of an expanded bill.  NAR members are lobbying members of the House Ways and Means Committee and the Senate Finance Committee.

The NAR is joined by the powerful National Association of Home Builders in efforts to extend the 2009 bill.  The Home Builders are addressing a new tax bill including extensive credit modifications with congressional leaders in their home states.  The hope is that increased media coverage will pressure firm action.

Chairman of the Senate Banking Committee, Chris Dodd, has teamed up with Georgia Republican Senator Johnny Isakson to sponsor a joint bill extending the current format for another year and broadening the tax credit to $15,000.  Other possible adjustments could include expanding the credit to any homebuyer rather than just to first-time homebuyers.

Homebuyers considering delaying a purchase may want to re-think that idea.  If the muddle, similar to health care reform, on Capitol Hill continues, the only sure thing to expect is the unexpected.  Most first-time homebuyers are applying the old theory that a bird in hand is worth two in the bush.  The 2009 $8000 tax credit represents a significant boost form its predecessor, the 2008 credit, which required repayment.  This is not the case with the 2009 tax credit, which is expected to assist 350,000 first time homebuyers purchase their first home.

Like all investors, the real estate investor strives to buy low and sell high.  The recession seems to be providing plentiful opportunities to buy on the low end.  With low interest rates, a plentiful inventory and with prices at levels deemed a thing of the past, the only ingredient missing is when the demand will surpass supply.

Many analysts are not sure the market has hit bottom.  Spurred by generous tax incentives for first-time homebuyers, the low end of the market appears to have stabilized while the effects of the recession, especially increased blue and white collar unemployment, has begun to take a toll on the upper price levels.

Economist Robert Shiller recently sent up a cautionary flag and when Case-Shiller speaks, real estate investors listen.  In November 2009, Shiller reported that many homeowners believe their homes will dramatically appreciate in value in the upcoming decade.  There is certainly an abundance of historical evidence to support this position.

Shiller is quick to point out that the bubble concept is one of the factors that sparked the current decline.  While acknowledging that the tax credit helped with lower priced buying opportunities, it did little to help the upper end.  And, while houses once valued at $600,000 were selling in the $400,000 range, they may be contributing to a false bottom.

The $400,000 sale, while representing a substantial loss, actually is raising the average selling price of current inventory.  It does not reflect the amount of loss suffered by the homeowner and in some cases may actually be an underwater transaction.

The National Association of Realtors indicates that the median selling price for April residential sales fell by 14.9% as compared to the 16.7% decr4ase in January.  The NAR’s chief economist is cautious about interpreting this date suggesting that sharp decrease in the higher price ranges actually lift the median price.  Some investors read the increase in the median price as a signal that the bottom has leveled.

Experienced investors analyze each real estate transaction strategically and on a stand-alone basis.  Opportunities are out there but this is no time to disregard normal investing strategies.

Banks have learned that they can help homeowners and themselves by aggressively addressing loan modifications.  Even though only 4% of trial modification programs have been extended to long-term solutions, the modification game is changing.  Initially resistant to change, the banks have taken a harder look at the numbers.

What bankers see is a rising unemployment rate, more defaulted mortgages and increasing foreclosure activity.  These are all negative signs for the financial industry, which is finally coming to realize that something is better than nothing.  Banks do not like owning and managing real estate and in today’s market they are holding more property for longer periods.

Banks, like Wells Fargo, are now attending and working with the Neighborhood Assistance Corporation of America (NACA) and its Save The Dream program.  Most lenders in the program have agreed to reduce interest rates for qualified modification programs to 2%.  Interest reductions of this magnitude are leading to a higher rate of conversion to long-term loans. 

Even though just 4% of American homeowners received long-term modifications, more aggressive modification programs began to up the curve in the second quarter of 2009 when 80% of all loan modifications resulted in lower payments.

Wells Fargo community relations executive, Jason Ferebee, explained, “We’re getting a lot of borrowers looking for a better interest rate.”  Wells Fargo now analyzes each modification application.  If an applicant does not qualify for government programs, the bank now applies its own innovative programs designed to keep the homeowner in the home.

Some programs actually apply the 2% interest rate for the entire length of the mortgage while others offer a 0% interest rate for three years.  The rate then escalates gradually with a cap at 5%.  The new position is leading to fewer foreclosures and more long-term conversions.  The good news for homeowners is that banks are now seeing the merits of modifications.

One should take advice and information from the Department of Housing and Urban Development (HUD). The counselors will advice you on a range of housing matters, including foreclosures. Also, the website of this department has a list of approved agencies state wide. Please remember that, for homeowners in financial distress, HUD counseling comes at a very low cost and is sometimes free. Refrain from working with an agency that asks for a fee before giving advice.

Any agency promising to stall the foreclosure once and for all and make it go away should not be trusted fully, since no one can give this guarantee. Any fee or service payments demanded by the agency, before the program goes into affect, should not be made unless clarified with the authorities. Before going to a local agency, check the credentials and listing at the HUD website. Ask for some customer names that have already availed the service; speak to them to learn about their experience.

During these times, the Federal Trade Commission (FTC) for the consumer information on frauds, started back in 2008, still holds good. They mentioned that the agencies trying to perpetrate fraud get the information of distressed owners through notices on newspapers and online. These agencies then send personalized letters and offers to the individuals to see if they can get them to take the bait. Extrapolating from this it would be advisable to know how these agencies who contacted you got the information.

The Federal Bureau of Investigation reports that, in the year 2008, the total mortgage fraud Suspicious Activity Reports were 63,173 cases, with a loss of $1.5 billion. Some of the most popular types of mortgage frauds that happen in America include equity skimming, property flipping and mortgage related identity theft. One should also be aware of predatory lending practices, which hurt the primary borrowers and usually result in defaults and delinquencies. These predatory practices target the elderly, distressed owners and defaulters.

With one of every seven residential mortgages in delinquency and with one in every 350 homes already in the foreclosure process, the REO marketplace will provide investment opportunities for years to come.  CNBC reported that as of September 2009, more than 7 million homes were in the “shadow market” soon to be coming on the market.

Unlike the short sale or sale at auction, the REO allows the investor direct access to decision makers.  These decision makers want action and quick resolution.  In fact, the qualified buyer who can move quickly solves a myriad of problems for the REO.  Investors can increase profits by being professional and submitting professionally prepared documents that provide solutions to the REO seller.

This means verified financing, quick contingency dates, clean offers and a streamlined approach.  For the most part, REO transactions follow a “let the buyer beware” approach.  The buyer who is aware stands to do well, but that does not mean every REO is a winner.  The investor should build a team of professionals that accumulate information and assist in the decision making process.

·                     Real estate agent – assemble a comparative market analysis, help draft an offer to purchase the REO, perform a background check including all historical information about the property and help negotiate the contract.

·                     Qualified home inspector – while many REO owners will not entertain repairs, the purchaser can strengthen their case and protect their investment with information form a qualified contractor or inspector.  This expert should prepare a written report describing the property’s systems, structural strengths and weaknesses, perform a radon test and pest inspections and furnish estimates for repair to the buyer. 

·                     Attorney – to serve as consultant and review all offers and contracts prior to issuance.

·                     Lender – REO sellers must see support for the purchase offer.  The REO investor should forge a relationship with a reliable lender who will provide pre-qualification letters and be prepared to move rapidly upon acceptance.  The buyer should get a general overview of the lender’s policies and closing costs as relates to REO purchases.

The REO marketplace is competitive.  Purchasers should assemble their team and be ready to act.  Opportunities are out there are ready for profit making.  Get your REO investment team on the same page with a plan to either sell or rent the property upon taking title.  The REO purchaser who is prepared will most likely come across the same seller on other occasions.  Build an REO acquisition team and be ready for action.

Foreclosure is intimidating, embarrassing and stressful.  Foreclosure can be avoided by either completing a short sale, or loan modification or forbearance program.  Unfortunately banks have been burned by all these options.  43% of loan modifications have become delinquent within six months.  To complete a short sale, the lender inevitably ends up taking a loss and forbearance programs only work if the homeowner can find work.  If the employment opportunity is elsewhere, the lender is likely to takeover the house anyway.

Homeowners are frustrated.  Most homeowners want to make their payments but simply do not know where to turn.  Lenders do not really want to foreclose.  Owning and maintaining property is expensive and lenders are not geared for this process.

Recently, Sheila Bair the Chairman of the FDIC ordered 53 of the banks under the agency’s control to consider forbearance programs for unemployed homeowners.  The Department of Treasury and the Obama Administration have enacted incentive-based legislation to urge borrowers and lenders to come together before foreclosure takes place.

Lenders are obligated to pursue foreclosure when homeowners do not communicate and attempt resolutions.  Very often, the lender is willing to work with the borrower to attempt a better alternative. 

Most foreclosure actions take six to eight months.  During that time, the borrower can attempt forbearance plans, loan modifications, a sale or short sale or refinancing.  Many homes have decreased in value during the recession and loan values often exceed the fair market value.  This “under water” scenario is most common in the Sunbelt areas.

Foreclosure can sometimes be avoided if the borrower presents a strong case to the lender.  The request should including bank statements, debt balances, a statement of income, pay stubs and a letter of hardship.  Lenders are obligated to protect their investments but borrowers are sometimes surprised with the bank’s willingness to avoid foreclosure. 

RealtyTrac, an internet-based real estate data collection agency reported that August 2009 foreclosures reached 358,471, raising the four-year foreclosure total to more than 4 million homes.  In 2009, more than 1.9 million U.S. homes have entered some stage of the foreclosure process.

Debra Marsh, the executive director of the Lied Institute for Real Estate Studies at the University of Nevada Las Vegas suggested; “Whether you are an investor looking to purchase a rental property or a homeowner who is ready to retire and move someplace more affordable, the price of foreclosed properties right now is right.”

Experienced investors realize that the current climate for buyers is extremely favorable.  The inventory of Real Estate Owned properties has never been as supplied.  More than 1,000,000 homes will fall into the REO category by the end of January 2010.  Real Estate Owned provides qualified investors with serious profit potential as banks remain anxious to dispose of inventory.

As management fees, maintenance and insurance costs continue to mount, many lenders are approaching qualified investors with aggressive financing alternatives.  Qualified investors should convey a written letter of interest along with a pre-qualification letter, a balance sheet and investment history.  Better yet, locate bank employees who handle the REOs and arrange a meeting to discuss inventory and purchase procedures. 

One of the drawbacks to REO acquisitions is the amount of time these transactions can take.  However, investors can use this time to procure competitive bids for improvements, locate prospective tenants or buyers for a quick turnover.  By establishing a personal connection with the bank’s Real Estate Owned or foreclosure department, the investor can expect the relationship to expand.

While many investors envision the buy and flip option, the more likely option is buy and hold.  Analysts feel there are two to three years worth of shadow inventory that will need to sell before prices begin to climb back to 2006 levels.  At today’s prices, the wait should be worthwhile and the closing delay may well work to the buyer’s advantage.    

When the homeowner calls and has decided a short sale is the only alternative, the listing agent must move rapidly.  Time is of the essence.  The listing homeowner has agonized over this dilemma.  Either the house is headed for foreclosure or the seller has already received a Notice of Default.

Ensuring the success of a short sale is often about price.  Unfortunately for the seller, the short sale listing price is rarely reason for celebration.  After all, the short sale is predicated on financial hardship and shrinking market value.  The purpose of the short sale is to conclude a transaction that is acceptable to the lender before foreclosure becomes necessary.  The homeowner is attempting to sell the property for less than is owed and get out of the transaction with a semblance of credit and credibility.  Short sales are tough on the sellers and tough on the lender.

Pricing the short sale is about bringing five parties together in a compromise.  Shirt sale listing prices are not based upon fair market value.  The truth is that short sale prices are generally below market value.  The short sale listing price must appeal to five interested parties.

·                     The short sale bank – in explaining the listing price to the bank, the agent should use pending sales comparables.  By the time this transaction closes, those will be relevant.

·                     The buyer – short sale buyers do not expect to pay market value.  Short sale buyers are valued commodities.  They are also going to have to wait 90 days or more to close.  The price must motivate them.

·                     The buyer’s agent – short sales take longer than a conventional sale and the agents generally make less money.  The buyer’s agent will need to see this listing is a goof offer and a viable transaction.

·                     The buyer’s lender – the buyer’s lender will be using an appraiser.  Today’s lenders need appraiser that meet stringent lending requirements.  The price cannot be too low for the buyer’s lender.

·                     The seller - the seller will not be receiving any equity from this transaction.  However, the listing price must assure the seller that all obligations are satisfied and retired.

Experienced short sale agents know how to perform and how to arrive at the best price to achieve the seller’s goals.  It is a hard process but one that is saving many of today’s homeowners.

Early in 2009, the National Association of Realtors (NAR) saw the handwriting on the wall.  On March 1^st, the 1.2 million-member trade organization launched its Foreclosure Prevention and Response (FPR) Program as part of the association’s more comprehensive Right Tools, Right Now program.  The FPR program is designed to assist communities in facing the challenges of the current marketplace and specifically the continuing increase in foreclosures and short sales.  Specifically, the NAR has provided grants to help state and local real estate agencies develop coordinated plans of action to prevent foreclosures and respond to the adverse market conditions.

 

The NAR has also launched a web site featuring educational information and resources as well as listing government, state and private grant programs.  The NAR goes further in describing the best practices for foreclosure prevention and response.

 

The NAR’s funds have been allocated by state and are based upon membership levels in that state.  Local associations needing additional assistance can apply for more help through their state association. 

 

The NAR encourages persons facing foreclosure to enlist the help of real estate professionals who will help design action plans to address the many challenges of foreclosure.  The group does not recommend inaction.  Property owners who remain engaged in the process have an excellent chance of forestalling foreclosure proceedings.

 

Successful strategies often involve requesting grants from the government.  Many realtors are experienced in assisting the development of these grant requests.  Realtors can also assist with applications for private funding. 

 

As the NAR suggests, the dramatic increase in short sales has forced real estate agents to learn much about the procedures.  Property owners can benefit from short sales and should contact experienced agents to assist with the process.

 

The NAR has provided funding for training of real estate agents who wish to learn more about the foreclosure and short sale marketplace.  For the typical property owner, the most difficult step is often facing the le3nder.  Let a professional step in and help.  Often times an experienced third-party representative can more easily accomplish the desired outcome.  If you face foreclosure, do not wait.  Time is against you.  Call a trusted real estate agent today. 

 

 

The new climate is wide open for short sale acquisitions.  Banks have come to realize that foreclosure is the resolution of last resort.  The cost of maintaining foreclosed properties in a down market loaded with excessive supply and dwindling demand has led banks to negotiate with qualified investors.

These investors can reap big profits by buying low and turning properties over in a relatively short time or by renting the properties until market conditions improve.  The possibilities for profit are many.

The key to a successful short sale is to bring the vested parties together.  With more and more homeowners with secured debt exceeding the value of the property and with rising unemployment placing more and more Americans in default, short sale opportunities are abundant.

Banks are allowing these “underwater” homeowners more flexibility than ever before.  Today, banks are allowing short sales, often accepting less than they are owed in order to avoid ongoing maintenance.  The investor who works with the mortgage holder will usually find a ready, willing and able lender.

Meanwhile, the owner avoids foreclosure and is generally forgiven for the remaining indebtedness.  The homeowner’s credit may suffer but the damage is less than would result from foreclosure.  With the unemployment uncertainty plaguing the nation, short sales are often the lesser of necessary problems and can often provide win-win-win scenarios.