Real Estate Investing

Homes in default are up 140 percent from 2006.  One-third of all home loans that closed in 2006 were considered subprime loans - or loans given to buyers with a credit score of less than 680.  The number of homes entering into foreclosure is expected to top one million this year, with 60 percent of those being subprime mortgages, according to Freddie Mac.

Yesterday at our sales meeting, a speaker from a title company gave us these facts and figures in an effort to help prepare real estate agents for what is expected to be a flood of short sales.  Why would a lender forgive part of the homeowners debt through a short sale?  Because on average, if a lender puts a home back on the market it will cost $62,000 for them to sell it.  If a lender can stand a loss of just $10,000 they’re in.   Further, many times a lender will offer the seller/homeowner CASH to leave the home in good condition - ranging from $1000 to more than $5000.

A pre-foreclosure sale (PFS) might be an option when a home is worth less than is owed and the homeonwer has demonstrated financial hardship (loss of job, flat out inability to pay because ARM went sky high, medical problem, etc.).  But if a homeowner is in trouble, they’ll hae to submit all required documents proving this information within a very specific time-frame.  If they’re an hour late, the short-sale (or pre-foreclosure sale) could be over before it even begins.  Also for a PFS to work, if there is a second mortgage (a junior lender), they will have to be agreeable to accept little or nothing as a result of the short-sale.

Things You May Not Have Known

Everything is negotiable in a preforeclosure sale!  You may be able to preserve your credit rating - or at least not take a nasty dive - if you negotiate it and if you’re NICE.  The average drop due to a foreclosure is 250 points, the drop to a preforeclosure sale is 100 points.  But if you negotiate how it will be reported, the credit score drop could be as little as 25 points.

If your home does go into a preforeclosure sale, it will have to be appraised.  Ask the lender to pay for the appraisal - they generally will if you just ask.  If you have an escrow account with the lender, be sure also to ask for a refund of your insurance and taxes that have been paid.  Technically, that money should be yours so the mortgage holder should not hold it.  If they resist, talk to a tax or real estate attorney so they can clearly explain your rights.

There may be tax implications if your home is sold as a short-sale.  Uncle Sam considers the $20,000 in loan forgiveness as earnings, so you might owe taxes on the $20,000.  Again, talk to a tax expert for advice about this.

Want to buy?

If you’re interested in buying a short-sale home, the Pensacola Real Estate News site has some great information.  Karl quoted someone from the Active Rain community about short sales,

“Here in Florida many of us agents have been throwing cash and buyers at the short sales to no avail. There are not enough processors.  What I am being told is that they cannot find enough “qualified” people to make decisions and that the board of director’s only meets once or twice a month to make these decisions.”

Do your homework before selling or buying a home through a short sale!

Most excellent photo from the Pensacola site.

California is getting closer to having one state-wide MLS system, according to the San Francisco Chronicle.  Expected to be available in 2009, 66 local REALTOR® associations and three regional MLS groups — representing 60 percent of the market in California — have signed nonbinding letters of intent to participate in CALMLS so far.  Read more from Realtor.org.  In my own MLS area, we’ve faced challenges simply to get the various associations to embrace on preferred lock box … this will be very interesting to see how one MLS works itself out.

Donald Trump is lending a helping hand to Ed McMahon who has been facing foreclosure of his personal home following health issues.  He is buying the home so he can lease back to McMahon.  Says Trump, “When I was at the Wharton School of Business I’d watch him every night,” the mega-developer said. “How could this happen?”

Austin, Texas is set to recover from the real estate slump faster than the rest of the U.S., according to the Austin Business Journal. 

In the coming year Austin will outperform the rest of the country in job growth and in the health of its housing market, according to Mark Dotzour, chief economist at Texas A&M University’s Real Estate Center.

Finally, ghost towns are popping up all over the country due to halts in new construction developments.  According to MSNBC,

The Colonial-style brick home had four bedrooms, three-and-a-half bathrooms, and designer touches and offered everything they expected in a town known for great public schools and homes fit for Ford execs. 

Everything, that is, except neighbors.

When the MacDonalds arrived, there were fewer than 15 homes in Kirkway Estates, where 179 were planned. Their home was the only one built thus far on a cul-de-sac with six lots.

I’ve seen many developments that look like this.  There’s a monster-sized subdivision near where I live and I’ve seen that construction has come to a skidding stop.  I have to wonder what all those workers are now doing to earn a living.

I found this video a year or so ago and it’s one of my favorite things “out there”.   If the video doesn’t embed, go to this link and enjoy the ride!