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.

Some of the housing markets hardest hit by the foreclosure epidemic are seeing small signs of new life, thanks to eager bargain hunters seeking to capitalize on a golden opportunity. Home buyers in Detroit, Las Vegas, and Chicago are saving 30% to 50% by buying foreclosures, according to USA Today.

The article tells the story of Ruth Ahlbrand, a Las Vegas realtor who capitalized on her city’s tremendous foreclosure rate. Ahlbrand trained her agents in foreclosure deals, transformed her marketing campaign and even purchased a 40-seat bus to escort deal seekers around the city. Not only will bus tour participants see actual foreclosures available on the market, they will have the added bonus of hearing an agent on a loudspeaker lecture them on the ins and outs of buying foreclosures.

“It’s like a seminar on wheels,” Ahlbrand told USA Today. “Buyers are saving up to 30% or 50%. People are really looking for a deal. I’d almost call it a frenzy. We’ve hit the bottom, and Las Vegas is growing.”

Leading the pack in terms of reduced housing costs are Las Vegas and Miami with more than 19% reduction, Phoenix with around 18% reduction, Los Angeles and San Diego with more than 16% reduction and Tampa and Detroit with over 15% reduction. If ever you’ve thought of owning a home, now’s the time. Just don’t be afraid to wait out the seller or even pitch a low-ball offer. Amber Gilmore, one home buyer mentioned in USA Today, played the waiting game and earned a reward of $100,000 off her foreclosure purchase. While many buyers are still tentative about dipping their foot in the real estate waters, content to wait out the deals, it’s good to see that the really hard-hit cities could start seeing a turnaround soon.

Ah, it’s good to be loved. It seems yours truly was the subject of a “mini-rant” over at South Beach Condos Blog. There, it was kindly pointed out that they did not like my recent post on the future of Miami real estate, and furthermore, that Miami and Miami Beach are two separate cities (not that I ever stated otherwise).

So the following list is our effort to alleviate any further confusion and save the readers of blogland from future mini-rants (OK, well probably not, but it’s a goal):

DIFFERENCES BETWEEN MIAMI AND MIAMI BEACH

1) The city of Miami was incorporated in 1896, while the city of Miami Beach was founded in 1913.

2) Miami has 362,470 residents, according to the 2000 census, whereas Miami Beach only has 93,535.

3) Miami Beach claims the beaches. Period. There are technically no beaches in Miami proper. At least, that’s the word over at South Beach Condos Blog.

4) The official web site of the city of Miami Beach appears much more colorful and user-friendly than the city of Miami’s.

5) Miami Beach remains one of the most lucrative neighborhoods in the United States, according to Forbes magazine. In fact, property values in Miami Beach have escalated 1,532% since 1990, a faster appreciation than any other U.S. market. Property values in the city of Miami, meanwhile, still pretty much just stink. The city is facing a projected 15.2% market depreciation this year as it tops the list of worst real estate forecasts among major metro U.S. markets. However, to its credit, the city of Miami is spinning the grim news into a positive thing. Foreign Direct Investment magazine named the city of Miami one of the top five most cost-effective major cities in North America for developers. That sounds about right.