I have had a few people email me regarding the story of the transaction that started out as a short sale - and closed as a regular sale last week.

How did that happen?  The deal started out as a short sale - the seller owed more on the house then the sales price, thanks in large part to a nearly $10,000 prepayment penalty (more on that later).  With most prepayment penalties, they are typically put on some loans (usually the infamous sub prime variety) to discourage payoffs or refinancing.  Most prepayment penalties are equivilant to 6 months of mortgage interest.  In this case, that prepayment penalty, which Countrywide refused to remove, was the difference between the short sale and a regular conventional sale.  The fact the seller had a unique property on land in what is a lower price range in this area worked in the sellers favor.

Luckily, the seller's two year limit on the prepay was up, so during the course of what turned out to be a 90 day escrow, that was removed.  In the meantime, it was my opinion the seller would be able to sell the property for more than the original price, and in fact given the number of calls I received on this particular property during the escrow period, that the seller was justified in asking for a higher sales price, not to make money, but to eliminate the need to go short sale.  I know this is an unusual situation that would not happen to most properties.

Long story short....the buyers to their credit who hung in there, agreed to a higher price, and with the skills of two very experienced professional Real Estate Brokers, an easygoing seller, and patient buyers, we were able to close what turned out to be a learning experience for all involved.

If you are a buyer reading this, my advice is make sure the loan you get DOES NOT HAVE ANY PREPAYMENT PENALTY attached to it.  Ask your loan officer, and make sure when you are signing loan papers at the closing, that you read the fine print.  I have heard stories of buyers finding out the hard way what they were told and what they signed were two different things.

The other piece of wisdom I want to impart to buyers:  Get preapproved, and you were preapproved already, contact your loan officer again because the financing world is upside down at the moment and loan programs are vanishing; buyers that were qualified a month ago are finding that loan programs are no longer available.  Stated income loans are still there (minimum 20% down and 700+ credit) but going bye-bye.  Stated income, stated asset, gone.  100% financing, going, going...

Thanks for reading my blog.

It's 8:00 AM and I had my first call of the day from an inquiring buyer of one of my listings that is pending and scheduled to close tomorrow (that story will be my next blog).  I get lots of calls from prospective inquiring buyers on my listings.    All the doom and gloom one reads about the world of real estate and two facts unarguably remains: 1).  People have to live somewhere  2).  They ain't building more land, especially along the coast. 

I understand people are nervous about the economy.  Gas today is $4 a gallon in Humboldt Co. Food prices going up.  War, economy, unemployment going up.  Lots of negative press. Financial markets in turmoil.  Is this the first recession in the 232 years since our country was founded?  NO.  Will it be the last.  No way.  It was much worse in the 1990's in so cal....people were losing their jobs by the thousands and subsequenty losing their houses....different dynamic today.  Agree with me or not, its all about confidence in the economy.  I sense the country is tired.  It needs new energy.  My humble opinion is no matter who gets elected, a fresh change will help get the confidence level back and right the economy.  As I say to buyers, buy in a buyers market now because prices are down and interest rates are still very attractive.  Financing has dried up for marginally qualified buyers but that means lenders are going back to basics of credit, income, and down payment....that will help the real estate market in the long run once this sub prime mess washes out, which it eventually will.  Am I unrealistically optimistic?  No.  I have been around long enough to remember different ebbs and flows of the economy and real estate markets, unlike many in this business who never experienced a "buyers" market.  I just fall back to points one and two above, and add a third:  The population in California is getting bigger, not smaller.

 Thank you for reading my blog.

I have been following a little bit of the politics behind the foreclosure "crisis."  While I have empathy for people who lose their property because of circumstances sometimes out of their control, is it reasonable and fair to expect the government to bail people out?  In an election year I guess the answer falls somewhere between maybe and yes.  Hillary proposed spending $30 billion so the government could buy back foreclosed properties and as I recall, she did not say whay they would do with those properties, how they would maintain them, who would buy them, and how the sale of government owned properties would affect (it would kill) property values in surrounding areas.    Every bargain hunter would salivate at the thought of government owned repos.  I have not followed what the others have said because I am fundamentally against the idea of government bailouts of any kind in any industry.  Bear Stearns CEO earned $38 Million in "compensation" in 2006.  Government bailed out Bear Stearns recently cost tax payers $30 BILLION.  The average person could'nt be happy with that trade.

In the real estate business like many sales jobs, we work on straight commission - if we don't sell we don't get paid.  If we have a bad few months and no income coming in, does anyone feel sorry for the realtor?  I doubt it. I don't expect or want sympathy.  Would I expect the government or my mortgage company to bail me out?  Hardly?  What happened in southern California in the early to mid 1990's is happening nationwide today - people in foreclosure losing their home, markets soft, and things in some turmoil.   What will happen eventually:  Markets will recover, confidence will improve (watch after the election for confidence levels to go up - the people want change), sellers will be able to sell and buyers will complain that prices are too high and that homes are unaffordable.  The one big difference I note between so Cal and now is back then people were losing their jobs and losing their house.  From what I have read, many of the people losing their houses these days are still working (exceptions in Midwest), they just got bad loans.  I do like the idea of people in these sub prime loans being able to refi into an FHA government insured loan.  That would be an excellent option. 

One bit of advice I give to buyers who are nervous and influenced by the negative press: Buy in a buyers market like today's market, plan to hold the property for 3-5 years minimum.   

Thank you for taking the time to read my blog.

Most Realtors in today's market at one time or another will get requests for foreclosure properties.  The vast majority of people who ask about foreclosures have little to no experience about the nuts and bolts of the foreclosure process and assume that foreclosure property is the equivalent to stealing property or at least getting it dirt cheap with little to no cash out of pocket.

This blog is meant to be a quick primer on foreclosures.  In California, the timeline on getting a house foreclosed in goes like this:  1). Owner misses payment.  2). Company servicing loan send out Notice of Default (NOD) letter to owner. 3). NOD letter starts 90 day clock ticking.  4). If owner does not pay back payments within the 90 days then. 5).  Lender or servicing company sends another letter, a Notice of Trustees Sale to owner starting another 21 day clock and. 6). After 21 days if owner has not paid back what is owed then lender takes back or forecloses on property.  So there is a 90 day clock plus a 21 day clock in the foreclosure process in California.  That timeline can get delayed if the owner files Bankruptcy or is trying to work out a repayment with the lender.

So, how does one purchase foreclosed properties?  There are typically 3 ways to do this.  The riskiest way by far is at the end of the 21 days at the Trustee's Sale, which is typically held on the courthouse steps in public or at the offices of the title company, and another way is through the typical channels of a local realtor and the third is directly from the bank.

Buying a property at a Trustee Sale is not for inexperienced buyers and requires a great deal of homework and knowledge of the market in the area as well as cash on the barrelhead.  First of all, let's say the foreclosed property has a market value of $250,000 and there was a loan balance of $300,000, the negative equity is <$50,000> and no one will bid on the property at the Trustee's Sale since more is owed on the house than its worth.  If no bids are received, the property reverts back to the lender who eats the $50,000.  The lender will typically list the property with a local Realtor.   Most foreclosed properties are subsequently purchased this way because once the lender takes the property back then sometimes they clean it up, title is clear, and the house becomes easier to market and sell and conventional financing is available at this point.

Here is the other scenario.  Trustee Sale, loan balance of $250,000 and house worth $300,000, so there is positive (+) equity of  $50,000.  Saavy investor's look for properties like this to bid on at Trustee's Sales, although most properties that are foreclosed on have negative equity. 

At the Trustee Sale (which is held the same as an auction) the bank representative will announce whether anyone is there to bid on the property.  Since it is an auction format, one or more bidders could bid, raising the price and lowering your return quickly since in this example the starting bid was $250,000.  Let's assume there is only one bidder.  Congratulations.

Here is where buying a property at a Trustee's Sale requires a great deal of experience, knowledge, and cash.  Using the above example, the winning bidder must procure a cashier's check on the spot for $250,000, since properties bought at a TS can't be financed (unlike properties purchased after they are listed).   So you must pay with cash.  Unless the property had been on the market, you are buying the property sight unseen.  What if the foreclosed parties are still in the house?  Now getting them out is the buyer's problem.  You can see buying property this way at a Trustee Sale auction is not for the faint of heart or inexperienced or undercapitalized.   

There are many books and websites on this subject.  In most areas there are Realtors who work REO's (real estate owned) bank properties.  There are buyers who track REO's and then try and contact the lender directly before it goes to a Broker for sale.  Unless the foreclosing lender is a small local bank, it's hard for the public to get to the decision maker, and easier to wait for the properties to get listed or sale.  I could write a lot more on this but this is a basic primer on different ways to buy REO's.

Lastly, if you are a buyer in this or any market, getting pre-approved is more important than ever.  Don't even consider making an offer on a bank owned (or any property) unless you have done your homework, because there are a lot of buyers looking for "deals" and the ones who get the deals are the ones who are prepared and ready and qualified. 

A few folks have been following the saga of a short sale transaction I have been involved with since January....what makes this unsual is the seller was short but not tens of thousands short which is typical.  In addition, the seller had a prepayment penalty which expired giving the seller more wiggle room to negotiate.  The bottom line was in order to avoid the short sale altogether required renegotiation and flexibility on behalf of the buyers and their agent.  Luckily also the market in Humboldt County is better than most and the property is unique enough that I could resell it if need be.  Maybe the moon and stars will align on this deal.

So the bottom line is we are back in escrow as a standard transaction and can hopefully close in 30 days.  Waiting on appraisal and inspections.  I hope this has a happy ending. I will keep y'all posted.  What this deal reminds me of brings back memories of the 1990's real estate in southern California when short sales and difficult transactions were the norm.....This is my feeling regarding working short sales:  I like helping people as much or more than the next guy, but I also want to get paid for my work.  I don't think that is unreasonable.  My plumber makes $75 an hour, a good attorney in this area makes $300-$350 an hour.   I have 21 years experience in the real estate business and offer clients a great deal of skill at what I do. With short sales, the odds of getting paid as well as the odds of closing the short sale for the buyer are against them.  Personally, if a buyer wants to make an offer on a short sale property against my reccomendation, I believe the buyer compensate me for my time and expertise if the deal does not close.  Its only fair.  Who wants to work for free?  I would be interested to hear what buyers and other agents think.  Thank you for reading my blog and visit my website www.humboldthouses.com to see great listings in Humboldt County, CA.