FOR SALE: East Bench Bargain Short Sale

I recently listed this home at 1545 26th Street in Ogden.  It is 3 Beds 1 Bath with a 1 car garage.  The home was constructed in 1916 in the Craftsman style and has a sizable 2300 SQFT floorplan with possible expansion in the basement.

We have priced this home aggressively as a short sale.  CONTACT ME for current pricing and to view the property.  The new buyer will need to plan on installing a new lateral sewer line.  It has failed and needs replacement.

FOR SALE: South Ogden Short Sale Condo

I just listed this condo located at 1091 Country Hills Drive in South Ogden.  This one is unit #207.  List price is $49,900. 

The unit is 2 bedrooms and 1 bath and located conveniently close to Weber State University. 

The property was updated in 2007 and has granite surface countertops, updated cabinets and stainless steel appliances.

The unit has 1140 SQFT and one covered parking space.

This property would make a great investment or first time home.  Monthly payments are incredibly low.  If you are interested in learning more about this great opportunity, please email me or give me a call.

Hungry Hungry Repos: Banks Take Preemptive Possession

One of the things I do as a Realtor is help folks sell their homes on short sale.  To find these clients, I use one of the oldest prospecting methods in the book...the door knock.  Usually, I show up and let the owner know their home is headed for foreclosure and then discuss some options with them.  As you can guess, it's a sensitive conversation.  However, it has been a source of business for years. 

While I was scouting homes today I noticed a curious thing.  Of the homes on my list, 60% of them had keyboxes on the front door with notices from bank-contracted asset management companies saying that the home was vacant.  This is very interesting because the banks do not own the homes.  Yet, somehow the property has been deemed vacant by the lender and the property has been rekeyed...all before the property is even returned to the bank via trustee sale.

How would you feel if I rekeyed your home on a whim while you are on vacation?

I wonder if these folks participated in a deed-in-lieu of foreclosure with their lenders.  Either way, to find 60% of my prospective short sale list "pre-possessed" by banks is a pretty alarming development.

I inquired with Bill at CalculatedRisk to see if he had any insight.  From his response, it appears that most trust deeds allow a bank to protect the collateral on their loan in the event that a home is in danger of being damaged.  Winter weather can pose a real threat via plumbing which might explain the preponderance of pre-possessed homes.

Let's see what happens when I contact the owners and let them know their homes have been re-keyed.  

Short Sale Flatline: Wells Fargo Foregoes Defribulator

I have been working on a short sale recently that experienced an untimely death.  In the beginning of July I listed a home in Layton that had a week left before the first scheduled foreclosure auction.  Upon submitting the file to Wells Fargo (the 1st mortgage) for review, they postponed the auction.

I listed the property at $169,900 after a CMA showed the AS-IS value at around $160K-$170K.  By my estimates, the home needed approximately $15K in repairs and was valued at $195K on post-fixup.  We quickly received two cash offers.  One at $155K and one at $158K. 

Upon submission of the offer we were assigned a negotiator and she ordered a BPO (broker price opinion) on the property.  It was handled in about three days.  About a week and a half later a I get an email from the negotiator saying:

Counter offering to $195000 or best and final offer ************************** * Counter offer acceptance is subject to senior management approval, mortgage insurance and /or investor approval * No sale transaction is accepted until lender signs written contracts *

She then attaches paperwork with the counteroffer price of $155,000...the original offer price!  Whoa?  I emailed her to clarify the discrepancy for me.  After several days, I received no response.  So, we kindly filled out the paperwork accepting their $155,000 and sent it back to see if anyone in their office was manning the store.

It took about ten days but the negotiator that sent me that email was suddenly no longer working on our file.  Instead I got an email from a new negotiator.  After several paperwork tasks, I get an email saying that they are countoffering again at $195K but this time they had the right paperwork to back it up.

The buyers didn't want to budge on their price so the negotiator sent me this note:

The BPO completed on the property suggests $20,000.00 in repairs needed to the property even with the value at $195,000.00. Unless the buyer is willing to provide a higher offer, we will not be able to move forward and the offer will have to be declined. On a different note, I want to inform you that I will be out of the office beginning this afternoon through Friday 8/12. I will be back in the office on Monday 8/15 and will continue with any tasks upon my return. If the file is not moving forward, this would be the reason why. Thank you.

I was shocked to get this note.  It seems to me that the BPO agent checked a box wrong on their form.  Here the bank believes the home is worth $195K AS IS.  That is simply not what the market says.  I ran follow up CMAs to confirm and sent them to this negotiator.  Unfortunately, I sent them about an hour after this guy had left for vacation.

The following Monday I recieved this email from a new 3rd negotiator:

Please be advised that the Short Sale for the property above has been declined by Wells Fargo. If you have any additional questions or would like additional details concerning the Short Sale process, please contact Wells Fargo...

Any my immediate response:

What?! We are in the midst of a BPO dispute. [The other negotiator] left for vacation Friday afternoon. He has the BPO dispute findings sitting in his email box which were sent to him about an hour after he left town. So are you saying that the investor would rather take his chances at a trustee sale and/or marketing the place as an REO? I seriously doubt the investor would fare better. Please advise.

No response was ever received.  The home was put on the docket for foreclosure auction again.

The lesson learned here is that garbage in equals garbage out.  When a wild BPO gets done that is 25% over market value, your short sale will almost certainly be in trouble.  

Posted by Jeremy Peterson
Ogden, Utah Real Estate Broker
Mountain Real Estate Companies
801-390-1480

"Distressing" Follow Up On Two Ogden Cities' Charts

Last week I posted Tale of Two Ogden Cities: In Charts showing market metrics and trends for the East Bench of Ogden compared to the Trolley District area just east of Downtown.  One of the most remarkable charts showed the trend on prices.  Here is that chart again:

So what could be driving this decrease in average sale price?  To figure that out, I took a sample of all the homes that sold in these neighborhoods over the last year.  Here is a breakdown:

It looks like there are a significant amount of distressed sales (bank owned and short sale) occurring in both markets.  Here are the percentages illustrated:

So what does this mean?  Well, the red and blue categories are where you want to be buying investment grade "scratch and dent" properties.  The green category is where you want to be selling.

The non-distressed sales compete with the distressed sales in the market.  However, distressed sales typically are not in good physical condition in comparison to non-distressed sales.  Therefore, the distressed sellers will discount these beat up properties to move them off their books. 

What has happened, especially in the Trolley District, is that with half of all sales being distressed, and the price discounted accordingly, the average price is pushed down as we see in the chart at the top.  The average price for non-distressed homes has come down over time but is not nearly as much as the distressed sales. This math all gets mashed up together to produce our trendline in the top chart.

We can see that the East Bench has this dynamic going on as well but to a lesser magnitude. With the mix of distressed sales being diluted, that explains why the average price has not come down nearly as much as the Trolley District.   

Nevertheless, homes can and will be sold at top dollar in this market.  The catch is that the home needs to be free from deferred maintenance and in pristine condition.  Here is an example.  Patience is also necessary because market times are 4 to 5 months for these kinds of properties right now. 

JUST SOLD! Craftsman Bungalow Short Sale

Yesterday we concluded a short sale on this home I listed.

The sellers of this property were faced with an untimely relocation out of state and were upside down on the home.  I managed to work with the lender on a reduced payoff of the existing mortgage.  Fortunately, they were easy to work with. 

We received a cash offer of $50,000 in November but the buyers disengaged by January due to a lack of funds.  In February we received an offer of $60,000 from an owner-occupant buyer. The seller's lender quickly accepted the terms and we moved forward to closing. 

The buyer used FHA financing to acquire the home so the seller agreed to give permission to the buyer to make all necessary repairs.  In this case, the home and garage needed new trim paint which the buyer dutifully completed.  Congrats to both buyer and seller.

FOR SALE: 2 Bed 1 Bath Short Sale

This 2 bed 1 bath home is approximately 975 SQFT and built in 1938.  Located in a quiet neighborhood at 2940 Fowler Ave in Ogden, Utah.  The interior condition is average.  The bathroom is in good shape but the kitchen could use some TLC. Original list price $39,900.  Call or email for price updates. This is a short sale so let me know what questions you have. Here is a video walk through of the property:

FAILURE: ModifyUtah

KSL reports that ModifyUtah, the mortgage modifier company based in Utah County, has closed it doors and is no longer servicing clients.  The article bemoans the loss of the company and laments all those homeowners negatively affected who may loose their homes now to foreclosure.

Why did ModifyUtah go out of business?  Here is what the story says:

According to a letter from the firm's attorney, Paxton Guymon, Modify Utah ceased doing business for several reasons, including "a significant portion of (its) customers have failed or refused to pay … for services provided, recently imposed restrictions impeding the company's ability to process or receive payments and lien holders unwillingness to work with loan modification companies.

The Federal Government's loan modification programs were an exercise in futility.  I know many people who applied for the program but I don't know any person that successfully modified their loan.  It was a bureaucratic mess and most of the folks couldn't qualify for the modification because their income was still too low for the payments.  This might also explain why customers didn't pay or wouldn't pay for services rendered.

That is why foreclosure is the best answer to this dilemma.  By wiping out the bad debt, house prices can be reset to affordable prices and those folks who lost their homes in the process can rent a home of equal caliber for less that their previous payments.  Foreclosure brings house prices (and their accompanying payments) back into the realm of affordability.  The situation may be stressful in the short term for these families but in the long term they will be better off.  This situation should also be a warning to all of us about the perils of excessive debt.       

Death of a Short Sale: Not With A Bang But A Whimper

This week I concluded negotiations with the first mortgage servicer on a short sale transaction.  I have been working on this short sale for over 6 months. Due to my clients' bankruptcy proceedings, we were unable to work with the bank on a short sale until the release-of-stay was issued by the court.  It took us two months to get the court to issue the release but then it took the mortgage company another two months to process the paperwork.

In the meantime, my clients' phone numbers were disconnected.  By a fluke, my clients contacted me via email and we able to delay the foreclosure auction just two hours before the scheduled sale by getting all of our paperwork turned in as requested.  However, due to the long delays the bank kept having us resubmit our file for review.

Finally they reviewed it.  I got a call on Thursday last week:

"Mr. Peterson, we have received your file and we are counter-offering your $80,000 offer at $95,000.  Please respond with an acceptance no later than Tuesday next week.  The foreclosure auction is scheduled for Friday next week."

I went back to the buyer and several back-up buyers and they all balked at the bank's counteroffer.

The bank proceeded to the foreclosure auction and it went up for sale today.  Let's watch and see what the bank lists the home at when it comes back as an REO property.

Flopping: Short Sale Businesses Under Scrutiny

There is a new term in the real estate world known as flopping.  We are all familiar with flipping: buying a home to fix and resale at a profit.  Flopping involves purchasing a short sale and quickly wholesaling it to another person at a higher price.

Apparently, this business model is under significant scrutiny as two indicted Realtors in Connecticut have found out.  For your consideration, please read Banks Face Short Sale Fraud as "Flooping" Rises.

Here are some key excerpts:

Sergio Natera and Anna McElaney are scheduled to be sentenced in Hartford’s federal court in August after pleading guilty to fraud. Their crime involved persuading lenders to approve the sale of homes for less than the balance owed --known as a short sale -- without disclosing that there were better offers. They then flipped the houses for a profit. 

Hmmm...how many investors do you know that do this here in Utah?  The article continues:

In addition to banks losing money, “flopping” may hurt homeowners who complete a short sale and face higher deficiency judgments as lenders seek to recover unpaid mortgage balances, Ann Fulmer, vice president of Interthinx, said in an interview today on Bloomberg Television.
...
Borrowers are “on the hook for larger deficiencies,” she said. “And there are indications that banks are increasingly turning to collection agencies and to civil lawsuits.”

Now, you may be asking "What the heck?! How can a bank dictate what a buyer does with a property?  Why do they care, they approved the short sale right?  The Realtor doesn't represent the bank he represents the seller!  How can the banks acceptance of a low offer be fraudulent if the seller approved even if someone is willing to pay more for the property?"    

Well here is a good explanation:

By allowing broker price opinions, the Treasury exposes taxpayers to short-sale fraud after $49 billion of government bailouts for housing, Barofsky wrote to Congress.

“As constituted now, the program permits home valuation, the key vulnerability point for a flopping scheme, without a true appraisal,” he wrote. “No program of this type and scale can be considered well designed without robust protections of taxpayer funds against the predation of criminals, particularly given the inconsistent treatment of home valuation.” 

Uh oh!  After sticking his fingers in a very hot pie, Uncle Sam's fingers are getting burned and he doesn't like it.  Bank of America is responding:

“We have language in our short sale approval letter that prohibits the flipping of a property and after closing we will audit transactions to identify ‘flips’ or ‘flops’.  It’s not in the best interest of our investors or communities at large to encourage or allow flipping.”

Short sale flipping businesses have been around forever.  Until now, the market has been able to operate to everyone's benefit...buyers, sellers, and lenders.  I believe the only reason lenders are even interested in restricting sales now is that Uncle Sam is calling the shots and politicizing the daily business of mortgage lenders and investors.  Expect to see yet more scrutiny and restrictions on the free operation of our real estate market.  Any heavy clampdown will stifle short sales and force the banks to eat greater losses at the auction steps instead.  I am fine with that.  It will mean better bargains for my clients.

Scenes from the Land of Short Sales: OCWEN

I am working on negotiating a short sale right now. We are just getting started with the process. This particular property has a first and second mortgage that were originated as an 80/20 purchase loan. Both of the mortgages were sold to separate secondary market investors after the loan closed. The second mortgage is now with OCWEN.

Second mortgages will often lose everything if the home goes to foreclosure auction as an action of the 1st mortgage. Another interesting fact is that typically 2nd mortgages are recourse, meaning that the lender can go after the borrower for a deficiency in paying off the balance, if the mortgage was not part of the purchase of the home.  You see this alot with HELOCs and debt consolidation 2nds. However, in our 80/20 case, the second mortgage was definitely a part of the purchase and is therefore non-recourse.

I give you this background information because OCWEN sent me a short sale packet to fill out for my clients. One of the forms caught my attention:

Notice that there is not a check box for not signing a promissory note.  It's kind of like the options I give my kids at dinner:  You can have mash potatoes or you can have mash pototoes...its your choice. 

Getting into the short sale with OCWEN should be interesting.  Hopefully they will realize the loan is a purchase loan and waive the promissory note requirement. If they demand one, it may scuttle our success in accomplishing this particular short sale. 

Underwater With A Snorkel

A client referred me to a friend this week. The referral called me to discuss the possibility of selling their home. I set up an appointment to preview their home and discuss some ideas.

At the end of my inspection of the property we sat down to talk more about some ideas. I gave her my opinion on value and market timing. We also discussed the possibility of renting their home if they could not sell it by the time they needed to move. At the end of my presentation the referral says "Well, it looks like we are upside down. We owe $10,000 more than what you are telling us the market value of our home is."

For a moment that was a showstopper.  At this point prepared to discuss the negative implications that being upside down meant to their future financial situation. Then they explained to me that they had purchased the home with seller financing. This was great news. With that in mind, I explained that we three options:

1. We could rent their home out for market rate and have them subsidize the difference between rent and the motgage. They would lose approximately $200-250/mo. Hopefully in 5-10 years the appreciation and amortization would catch up to make them liquid and they could sell the home.

2. We could return the keys of the property to the private lender and thank him for letting the them live there for 2 years. 

3. We could "short sale" the property with permission of the private lender. The home would sell at market value.  The client would experience no credit problems because the private lender likely did not report the mortgage to a credit agency.  There would be virtually no negative credit consequences.

Of the three options, I believe option three would be the most logical. On paper, the lender has $60,000 profit coming to him if the referral sells at the note value plus commissions and title fees. The market simply won't bear that right now. The funny thing is that if the referral just walked away, the private lender would have the exact same problem trying to sell the property. Changing sellers doesn't change the value of the property.

So the question is: Would the private lender prefer to take about $30,000 cash at closing through a short sale or take the property back? We will find out as we get closer to preparing to sell the property. I am betting the lender would prefer the cash. I will let you know how it turns out.

Bowling for Short Sales

One of the interesting developments coming up in the distressed property scene is the new HAFA part of the HAMP program issued by the Department of Treasury.  HAFA regulations are supposed to help banks minimize losses by providing incentives for homeowners to either short sale thier property or deed it back to the bank in an orderly fashion.

As things stand now, owners default, live in the home payment free for a few months, then ding the place up on the way out.  The bank usually takes significant losses because the home is damaged, they incur legal costs to do a foreclosure, and they don't get to recover the lost payments while the homeowner lived there.

HAFA is supposed to encourage owners to short sale their property rather than squatting for the long haul. How does it provide encouragement?  Well, for starters, they will provide the homeowner a $1,500 stipend at closing to move on to another property.  The same goes for deed-in-lieu of foreclosure.  The catch is the homeowner must pay the mortgage company up to 31% of their monthly gross income as compensation while the process is in play. 

Another interesting caveat is that while this process may encourage homeowners to do short sales, there is a rule that prevents total commissions for a transaction from being greater than 6% of the sales price.  This 6% INCLUDES any short sale facilitators or other intermediaries.  Many of the mortgage servicing companies out there are creating their own "Facilitator Departments" to take advantage of this rule which will leave Realtors with about 4% or less to divide amongst themselves after the transactions are done.  Unfortunately, given the headache that short sales are, this reduced compensation will likely push many Realtors away from doing them.  Our government at work: one step forward; one step back. 

I remember in 2006 as the market began to run up, I had a short sale where the total compensation was 2% of the purchase price.  The selling agent and I basically were paid enough to purchase groceries for the week.  Given the fact that I put over 80 hours into the sale, it was a loosing proposition to focus my efforts on short sales after that.

Perhaps we may see a repeat of that experience as HAFA moves full steam ahead starting April 5, 2010.  Keep your eyes peeled.

Forecosure Rescue Clampdown

Yesterday evening I had the privilege of attending a political dinner. I chatted with Rob Bishop, shook hands with Governor Herbert, and was able to chat with some state legislators extensively. One of the topics that came up was mortgage fraud and new legislation to crack down on unscrupulous behavior involving "Foreclosure Rescue" and loan modifications.

I was very surprised to find out that the legislation that has been passed was in direct response to activities by someone with whom I am well acquainted.

The new law makes it illegal for anyone to participate in "foreclosure rescue" and loan modification activies without being licensed by the state. It also puts teeth into the law when it comes to disciplining wayward players in the market.

Lets take a look at some interesting points about the new law.

Here is the State definition of foreclosure rescue:

            61          (12) "Foreclosure rescue" means, for compensation or with the expectation of receiving
             62      valuable consideration, to:
             63          (a) engage, or offer to engage, in an act that:
             64          (i) the person represents will assist a borrower in preventing a foreclosure; and
             65          (ii) relates to a transaction involving the transfer of title to residential real property; or
             66          (b) as an employee or agent of another person:
             67          (i) solicit, or offer that the other person will engage in an act described in Subsection
             68      (12)(a); or
             69          (ii) negotiate terms in relationship to an act described in Subsection (12)(a).
           

Strait forward enough.  So what is and is not allowed for foreclosure rescue?  Here are the grounds for disciplinary action by the State:

362          (23) (a) engaging in a foreclosure rescue if not licensed under this chapter;
             363          (b) engaging in an act of loan modification assistance that requires licensure as a
             364      mortgage officer under Chapter 2c, Utah Residential Mortgage Practices and Licensing Act,
             365      without being licensed under that chapter;
             366          (c) requesting or requiring a person to pay a fee if:

---

             367          (i) the person is required to pay the fee before entering into a written agreement
             368      specifying what one or more acts of foreclosure rescue will be completed if the fee is paid; or
             369          (ii) in a case when the financing that is the subject of the foreclosure rescue is
             370      foreclosed within one year from the day on which the person enters into a written agreement,
             371      the person is required to forfeit the fee for any reason;
             372          (d) inducing a person who is at risk of foreclosure to hire the licensee to engage in an
             373      act of foreclosure rescue by:
             374          (i) suggesting to the person that the licensee has a special relationship with the person's
             375      lender or loan servicer; or
             376          (ii) falsely representing or advertising that the licensee is acting on behalf of:
             377          (A) a government agency;
             378          (B) the person's lender or loan servicer; or
             379          (C) a nonprofit or charitable institution; or
             380          (e) recommending or participating in a foreclosure rescue that requires a person to:
             381          (i) transfer title to real property to the licensee or to a third party with whom the
             382      licensee has a business relationship or financial interest;
             383          (ii) make a mortgage payment to a person other than the person's loan servicer; or
             384          (iii) refrain from contacting the person's:
             385          (A) lender;
             386          (B) loan servicer;
             387          (C) attorney;
             388          (D) credit counselor; or
             389          (E) housing counselor; or
             390          (24) for an agreement for foreclosure rescue entered into on or after May 11, 2010,
             391      engaging in an act of foreclosure rescue without offering in writing to the person entering into
             392      the agreement for foreclosure rescue a right to cancel the agreement within three business days
             393      after the day on which the person enters the agreement.

These are some pretty hard hitting changes to the law.  I know several investors who will be affected by this.  The foreclosure rescue process was so legally complex that there was plenty of room for unscrupulous players to take advantage of unwitting home owners in a legal (though unethical) way.  The "rescuers" just needed some good attorneys to write up the paperwork.  This legislation closes almost all those loopholes.  It should add much needed transparency and supervision to an otherwise cloudy part of the market.     

Short Sale Closing Ratios

I talked about the benefits of buying short sales in past posts. However, its important to understand that the advantages of purchasing such property come with a case load of inconveniences.

One such inconvenience is closing the sale. Because the seller's mortgage company has to agree to forgive the seller of a portion of their existing mortgage balance, the process is uncertain until that forgiveness is obtained. There are a myriad of variables that also contribute to transaction failure. I won't go into detail here though.

Since I am still sick, I did some more research this morning to answer this question: Where in Weber County do short sales have the highest probability of closing?

Here are our findings:


On average over time, only 33% of all initiated short sales actually close. However, an average is made up of highs and lows. I wanted to find out if there was a geographic link to highs and lows and if so, where were they. The chart above is very revealing in this regard. The cities left in white (except Ogden) are too low in total closings to give us meaningful information. Huntsville's amazing 100% close ratio is invalidated by only having 1 closing. The same goes for Riverdale's 0%. Ogden sits right at the average which is very consistent with our 33% Rule. Ogden has a broad variety of neighborhoods across all economic levels.

The green cities are the ones that caught my eye because of their exceptionally high closing ratios. Pleasant View is a high end area and apparently buyers are pouncing on the opportunity to buy bargains there while lenders are willing to take a significant loss. Roy is not as much of a surprise since its been the busiest market in Weber County for some time.

What is interesting on the low end is North Ogden. North Ogden is a stones throw from Pleasant View, yet no one can seem to close a short sale there. I would equate North Ogden with South Ogden in average price. Yet, for some reason, short sales are not being done successfully there.

This is very interesting information to absorb. Hopefully it will help you establish your expectations when working with short sales.