As the year winds down, it is time to take a look at the market and get some ideas what to expect going forward.

IT’S NOT A PRETTY PICTURE FOR UPSIDE-DOWN PROPERTY OWNERS

At the start of 2011, I believed that we would get through most of the residential foreclosures by the end of the year and that the market would focus on commercial foreclosures and loan workouts. That turned out to be way too optimistic. Ongoing troubles in financial markets in Europe, the United States, and particularly California coupled with confusion and instability amongst lenders have kept the possible buyers wary of committing. As a result, the “shadow inventory” of distressed home mortgages remains at an all-time high, even though over-all numbers are slowly dropping. Lender Processing Services (www.lps.com) reports that currently there are 6,298,000 mortgages going unpaid in the US. Standard & Poor’s estimates that at current rates, it will take at least 45 months for all of these properties to clear the system either through sales or foreclosure. A deteriorating housing picture, coupled with an increase in expenses and a drop in consumer confidence, led to a sharp decline in consumers’ financial health during the third quarter. The nonprofit credit counseling agency CredAbility puts out a regular quarterly index measuring consumer distress. Between July and September, the gauge recorded its largest drop since the third quarter of 2008. CredAbility’s data show the average consumer has been in distress for 12 straight quarters now.  As reported on my earlier Blog on November 1st, the government’s various programs to help upside-down owners have remained ineffective. Loan Modifications remain as hard to get as ever and short sales are facing resistance from junior lienholders who may find better recourse by forcing a foreclosure.
The bottom line: we cannot expect the market to truly get back on its feet until 2014 or later.

IT’S A GREAT TIME FOR BUYERS AND INVESTORS
While any market turndown means disaster for some, it also means opportunity for others. Given the extreme depth of this economic recession, the result is unprecedented opportunities for those who can act:

1) Property Prices are Down – Prices in California continue to fall. DataQuick (www.dqnews.com) reports that home prices in Sacramento County are down 9.68% from 2010 with California overall down 6.8%. REO’s and short sales make up more than ½ of all sales. Expect further declines in the short run as BofA and other distressed lenders seek to offload the high number of bad loans on their books. Their dramatic increase in foreclosure starts over the summer will skew the numbers further downward but only until they catch up with other lenders who didn’t stall foreclosures after the robo-signer debacle of Fall 2010.

2) Loan Costs are Down - On November 1st, the government raised FHA loan limits through 2013 to 125 percent of local area median home prices, up to a maximum of $729,750 in the highest cost markets. The loan limits for Fannie Mae- and Freddie Mac-backed mortgages, however, will remain at 115 percent of local area median home prices, up to $625,500. That means loans as low as 3.5% down payment for a 30 year fixed rate at 4.0% interest rate.

3) Rents are Steady & Rising – a study by www.ApartmentRatings.com indicates that rents in Sacramento have been climbing in 2011. Our experience was that there has never been much decline throughout this recession. The high number of foreclosed homes has meant a large increase in prospective renters, typically people that know how to care for a home and who will work hard to rebuild their credit so they can buy in again two to three years later.
The bottom line: Get your hands on property now – not for quick flipping but as a steady and stable investment in your future at prices and loan costs we have not seen in a great many years.

Having been a real estate investor, manager, broker, and developer for over 30 years, I’ve survived multiple economic crashes… scarred but with more knowledge to move forward. If you’re upside-down or ready to move forward with property acquisition, we can help.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260. In addition to handling all legal needs you may have, our attorneys are skilled in real estate purchase and sales, lending, property management, and negotiation.  Let BPE be your resource for real estate and business opportunity.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

As reported in the Sacramento Bee and various financial news outlets, on Monday, October 24th, President Obama announced the administrations latest effort to help troubled homeowners, a revised Home Affordable Refinance Program, commonly called HARP.  Two big questions loom over the aministration’s latest bid to help troubled homeowners: Will it work? And who would benefit?

By easing eligibility rules, the administration hopes 1 million more homeowners will qualify for its refinancing program and lower their mortgage payments - twice the number who have already. The program has helped only a fraction of the number the administration had envisioned. In part, that’s because many homeowners who would like to refinance can’t because they owe more on their mortgage than their home is worth. But it’s also because banks are under no obligation to refinance a mortgage they hold - a limitation that won’t change under the new plan.

Here are some of the major questions and answers about the administration’s initiative:

Q: What is the program?

A. The Home Affordable Refinance Program, or HARP, was started in 2009. It lets homeowners refinance their mortgages at lower rates. Borrowers can bypass the usual requirement of having at least 20 percent equity in their home. But few people have signed up. Many “underwater” borrowers - those who owe more than their homes are worth - couldn’t qualify under the program. Roughly 22.5 percent of U.S. homeowners, about 11 million, are underwater, according to CoreLogic, a real estate data firm. As of Aug. 31, fewer than 900,000 homeowners, and just 72,000 underwater homeowners, have refinanced through the administration’s program. The administration had estimated that the program would help 4 million to 5 million homeowners.

Q. Why did so few benefit?

A. Mainly because those who’d lost the most in their homes weren’t eligible. Participation was limited to those whose home values were no more than 25 percent below what they owed their lender. That excluded roughly 10 percent of borrowers, CoreLogic says. In some hard-hit areas, borrowers have lost nearly 50 percent of their home’s value. Another problem: Homeowners must pay thousands in closing costs and appraisal fees to refinance. Typically, that adds up to 1 percent of the loan’s value - $2,000 in fees on a $200,000 loan. Sinking home prices also left many fearful that prices had yet to bottom. They didn’t want to throw good money after a depreciating asset. Or their credit scores were too low. Housing Secretary Shaun Donovan acknowledged that the program has “not reached the scale we had hoped.”

Q: What changes is the administration making?

A. Homeowners’ eligibility won’t be affected by how far their home’s value has fallen. And some fees for closing, title insurance and lien processing will be eliminated. So refinancing will be cheaper. The number of homeowners who need an appraisal will be reduced, saving more money. Some fees for those who refinance into a shorter-term mortgage will also be waived. Banks won’t have to buy back the mortgages from Fannie or Freddie, as they previously had to when dealing with some risky loans. That change will free many lenders to offer refinance loans. The program will also be extended 18 months, through 2013.

Q: Who’s eligible?

A. Those whose loans are owned or backed by Fannie Mae or Freddie Mac, which the government took control of three years ago. Fannie and Freddie own or guarantee about half of all U.S. mortgages - nearly 31 million loans. They buy loans from lenders, package them into bonds with a guarantee against default and sell them to investors. To qualify for refinancing, a loan must have been sold to Fannie and Freddie before June 2009. Homeowners can determine whether their mortgage is owned by Fannie or Freddie by going online: Freddie’s loan tool is at freddiemac.com/mymortgage; Fannie’s is at fanniemae.com/loanlookup. Mortgages that were refinanced over the past 2 1/2 years aren’t eligible. Homeowners must also be current on their mortgage. One late payment within six months, or more than one in the past year, would mean disqualification. Perhaps the biggest limitation on the program: It’s voluntary for lenders. A bank remains free to reject a refinancing even if a homeowner meets all requirements.

Q: Will it work?

A. For those who can qualify, the savings could be significant. If, for example, a homeowner with a $200,000 mortgage at 6 percent can refinance down to 4.5 percent, the savings would be $3,000 a year. But the benefit to the economy will likely be limited. Even homeowners who are eligible and who choose to refinance through the government program could opt to sock away their savings or pay down debt rather than spend it.

Q: How many homeowners will be eligible or will choose to participate?

A: Not entirely clear. The government estimates that up to 1 million more people could qualify. Moody’s Analytics says the figure could be as high as 1.6 million. Both figures are a fraction of the 11 million or more homeowners who are underwater, according to CoreLogic, a real estate data research firm.

Q: Who will benefit most?

A: Underwater homeowners in the hard-hit states of Arizona, California, Florida and Nevada could be greatly helped. Many are stuck with high mortgage rates after they were approved for mortgages with little or no money as a down payment and few requirements. The average annual savings for a U.S. household would be $2,500, officials say.

Q: When will it start?

A: Fannie and Freddie will issue the full details of the plan lenders and servicers on Nov. 15, officials say. The revamped program could be in place for some lenders as early as Dec. 1.

Bottom-line:  Will it help or is it just more political hype? - Market watcher DSNews.com notes that since HARP was rolled out in early 2009, approximately 1 million homeowners have refinanced their mortgage loans through the program. FHFA estimates that with the revised guidelines, another 1 million will be able to take advantage of the program.  If you are part of that additional 1 million, the revised HARP may enable you to save your home.  However, a big restriction will be the requirement that borrowers be current on their loans. For many, they’ve been told that to prove a “hardship” they must stop paying, ie: how can you really have a hardship if you’re still current on the loan? Since lenders are not at all compelled to participate in HARP, why would they want to take on additional risk for a borrower that is current on their payments?  So, looking at this from a purely business-decision view, HARP is not likely to benefit those who need it most. 

In all of these “solutions” to the debt crisis, what has remained absent and sadly will most likely continue to be absent is any significant push to compel lenders to reduce principal balances to enable borrowers to keep their homes. Common sense would suggest that if a lender is going to recover only 50% of the principal through a short sale or a foreclosure, they would be better off cutting the principal balance by 25% and keeping the borrower in their home. Unfortunately, common sense has never prevailed. HARP will effectively shift the refinanced liability to the taxpayer.  Similarly, many States are using stimilus money, ie: taxpayer money, to help homeowners pay their loans.  Nothing forces the lenders to actually bear the cost of a home-saving solution. 

While the revised program seeks to lower mortgage payments for underwater homeowners, the program does nothing to address the core problem — owing more than the home is worth. Though borrowers may save hundreds of dollars a month in lower payments by refinancing, they routinely owe tens of thousands of dollars more than their homes are worth, even after receiving aid. “In most cases people would probably be better off walking,” said economist Dean Baker, co-director of the Center for Economic Policy and Research.

If you are a California property owner, consider our $200 Attorney Consult program that will help you determine all of your options and choose the best strategy to enable you to move forward as intact as possible.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260. 

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

It’s hard to believe but it has been one year since news of the “robo-signer” scandal broke.  In their rush to foreclose defaulted loans, lenders were filing false foreclosure notices and fraudulent legal actions.  In the immediate aftermath, some lenders stopped foreclosing but the pace soon picked up when lenders realized that Washington wasn’t going to do anything about it.  Since then, the only sanction has been lawsuits by the Attorney Generals of several States against the lenders. Settlement negotiations have been going on for six months with no resolution in sight since lenders are demanding immunity from future prosecution.

Throughout all of this, despite all the hype, there remains no effective help for upside down homeowners who are frustrated and angry at unfulfilled promises such as the HAMP Program which remains mostly ineffective at reducing loan costs to overwhelmed debtors.  Instead, lenders seem to prefer foreclosure even if that results in less of a money recovery for their investors. As reported on foreclosureradar.com, Notice of Default filings in California are up 69.5%. In Sacramento, August NOD’s were up 85% over July.  Much of this increase is Bank of America. Market watcher Dataquick.com reported that BofA foreclosure filings in California increased 200% between July and August!

As I have written before, I have concern with BofA’s survivability as they continue to deal with the incredible losses from their Countrywide purchase. In July BofA reported an $8 billion 2nd quarter loss and there’s billions more of losses yet to go.  A BofA spokesman stated that even this increase may not be enough. BofA appears committed to forcing as much bad debt off their books as they can as quickly as they can.  Meanwhile, lawsuits continue to mount.  Insurance giant, AIG, filed a $10 billion lawsuit against BofA in early September; and FNMA is reportedly about to file a $20 billion plus lawsuita against BofA and others.

What all of this means is that we’re in for more troubling financial times as lenders try to rebound from the deep recession caused by the collapse of the real estate bubble. Added to this is continued economic instability in California, nationally, and in fact world-wide all of which is causing buyers and investors to question whether now is the time to buy.  California Association of Realtors (CAR) is predicting that sales will remain flat through 2011 and that property prices will fall 4%. They further project a small, less than 2%, price growth in 2012.  CAR’s chief economist, Leslie Appleton-Young, stated: “the best decription of what can be expected next year is the market will be bouncing along the bottom.” … “One of the biggest uncertainties in today’s market is what are the negative equity homeowners going to do going forward and how big a percentage will end up in the foreclosure process”.

So the bottom line is insecurity on the economy and continued efforts by lenders to clear defaulted loans off their books.  This means more short sales, more foreclosures and more REO properties.  For some, this will spell an opportunity to acquire good properties at a low price with cheap loans.  For others, it will be wait and see how low the markets go.  None of this is good news for upside down owners hoping to save their homes.  Looking forward to a 2012 Presidential election years, it is not at all likely that any further relief for homeowners can be expected befor2 2013.

If you are an upside down homeowner struggling to hang on, don’t give up all hope.  Keep trying for that Loan Modification. Although most will not get one, many loans are getting modified. Just keep pushing.  If you can’t hold on, then get good legal, finance, and real estate advice on your options.  If you are a California property owner, consider our $200 Attorney Consult program that will help you determine all of your options and choose the best strategy to enable you to move forward as intact as possible.  To learn more, contact me at sjbeede@bpelaw.com or call us at 916 966-2260.

While we have all looked hopefully to an improving real estate market as 2011 progressed, it is now fairly clear that we’re in for continued uncertainty as financial concerns continue to rock the economy.

On the International level, the downgrade last week of the United States’ credit rating by Standard & Poor’s has triggered a dramatic sell-off in the stock market and raising the borrowing costs for the government. This means the cost of US Treasury bonds will climb and can be expected to push up real estate interest rates for new loans. Those borrowers with adjustable loans tied to Treasury rates can expect similar increases. The biggest fear is that this, combined with instability with European financial markets, will cause businesses to continue holding onto cash instead of investing in new jobs. Business confidence and job growth is needed to lift us out of this recession and avoid further declines.

On the National level, real estate foreclosure rates continue to climb. Lender Processing Servcice reports that 217,000 new foreclosures were started in June and that 4.1 million loans are now either in foreclosure or 90+ days delinquent. This is a 13% increase from last year. What this indicates is that efforts to assist upside-down borrowers continue to fail. Plus, we’re seeing an increase of defaults among borrowers who have interest-only loans which will convert to full-pay in 2012. Without an option to modify, refinance, or sell, many such borrowers are deciding to take the hit now. The key to making such a decision is knowing whether the borrower will be at risk of a lender lawsuit for recourse after a foreclosure or shaort-sale. BPE Law’s consult services for upside-down borrowers can answer these questions for California property owners.

California remains in disarray as borrowers, lenders, and agents still try to make sense of the recently passed SB458 which amended California Civil Code Section 580e. By barring junior lenders from either deficiancy recourse or contribution, the legislature suddenly made short sales an all or nothing situation. All lenders owe their investors a fiduciary duty to try to recover as much as reasonably possible. First lenders generally make more money from a short sale than they would from a foreclosure so, this change has not substantially affected them. But junior lenders now must weigh the nominal amount offered them by a first lender (typically $3,000) against what they might recover by suing the borrower for deficiency after the first lender forecloses. Unless the borrower is clearly a Bankruptcy candidate, junior lenders will increasingly find foreclosure more attractive than short sale. For Realtors, this means further declines in short sale closing rates, more REO properties, and continued market decline.

We have a long way to go and many hurdles to cross before we reach any kind of certainty. Huge lawsuits are being filed against lenders by their investors, most recdently AIG’s $10 billion suit last week against BofA. Meanwhile, the proposed Settlement of the Attorneys General lawsuits against lenders arising from the “robo-signer” scam remains in limbo. The battle-ground there is demands that lenders modify loans and cut principal balances. The lenders refuse… or at least refuse to agree to government-imposed loan changes. For upside-down borrowers, there is no indication that anything transpiring in the economy or in the courts will bring any more hope for homeowners nor will there be any government bailout.

In the long run, as with past recessions, it will take inspiring and effective political leadership to move us forward. Today’s political infighting in Washington and in the States - especially California - has not produced any sense of confidence in the US or the World that we have the political will to make the hard decisions necessary to put our economy on a path to recovery. Any path will be painful. How that pain is balanced will remain the battle-ground.

While the real estate recession lingers on, one segment of the market is hot and competitive: buyers seeking to snap up great deals. This has led to a situation we haven’t seen since the height of the real estate bubble: multiple buyers going after the same property.  While the winner is generally determined by whose purchase offer is accepted first, sellers and their agents are finding themselves in lawsuits by angry buyers who lost out yet who claim their offer was “accepted”.  To clear some of the confusion, the following analyzes the law in California on when is a purchase offer actually accepted and enforceable.

WHAT MAKES A VALID OFFER? - Real Estate law, indeed all contract law, is based upon a relationship of “Offer” and “Acceptance”.  To be effective, a real estate Purchase Offer must at a minimum identify: 1) the Subject of the offer, ie: the Property; 2) the Consideration, ie: the purchase price to be paid; 3) the Time for performance, ie: the closing date; 4) it must be in writing; and 5) it must be delivered to the Seller or their authorized agent.  Once a Purchase Offer is delivered, the Seller then has a “Power of Acceptance”. They can accept it as is; they can reject it totally; or they can respond with different terms, ie: a counter-offer.  In most instances of residential purchase in California, prospective Buyers use forms created by the California Association of Realtors (CAR) which provides for these terms as well as many other terms that generally must be agreed upon by Sellers and Buyers to reach a clear and unambiguos agreement and to comply with California laws.

AN ACCEPTANCE MUST BE UNQUALIFIED - To be effective, an acceptance must meet the terms proposed by the offer exactly, precisely, and unequivocally. It must be unconditional, and it cannot add new terms or conditions. A qualified acceptance is a counteroffer. An offer is not accepted if the acceptance adds a new condition. An offer qualified by new terms or conditions becomes a counteroffer and accomplishes a rejection of the offer. After a counteroffer, the original offer may not be accepted by the offeree.

A COUNTEROFFER MUST BE ACCEPTED IN FULL TO BE ENFORCEABLE - The counteroffer is a new proposal that must be accepted by the original offeror. A counteroffer that is not accepted by the original offeror-counterofferee has no further legal significance, and no legal relationship is created. However, on acceptance of the counteroffer by the counterofferee, a contract is formed that is binding on and enforceable against the counterofferor.  A counteroffer includes the terms and conditions of the original offer. When an offeree makes a counteroffer, all of the terms of the original offer are incorporated into the counteroffer, except as modified by the counteroffer. Effect of a counteroffer to two offerees - When a counteroffer is made to two or more persons, each has the capacity to accept the offer. A counteroffer to two or more offerees that provides for an acceptance by the highest bid is binding on the counterofferor.

METHOD OF ACCEPTANCE IS GOVERNED BY THE TERMS OF THE OFFER - When the method of communication is permitted by the terms of an offer and is reasonable under the circumstances, an acceptance, on being placed in the course of transmission, is legally effective to create a contract. To be considered “in the course of transmission,” the acceptance must be placed beyond the control of the offeree. However, an offeror can prescribe the method of acceptance to be used. Real estate purchase contracts, including the CAR contracts, generally specify a method of acceptance that must be followed.  When the method of acceptance is specified by the offeror, no other method is sufficient.  When an offer does not require a specific mode of acceptance, any reasonable and usual method is acceptable. If an offer merely suggests a permissive method of acceptance, any reasonable manner of acceptance is effective. The offeror can specify that an acceptance is not effective until received by the offeror. When an offeror does not want to be bound to a contract without knowledge and does not want to assume the risk of actual receipt, the offer can provide that the acceptance will not become effective until it is actually received by the offeror or the offeror’s agent. With such a provision, no contract is formed unless the acceptance is actually received by the offeror or the agent prior to the termination of the offer.

THE CAR RESIDENTIAL PURCHASE AGREEMENT (5/10) contains the following terms:

1) “Acceptance” means the time the offer or final counter offer is accepted in writing by a party and is delivered to and personally received by the other party or that party’s authorized agent in accordance with the terms of this offer or a final counter offer. 

2) “Delivery” means the personal receipt by Buyer or Seller or the Individual Real Estate Licensee for that principal (unless other terms are stated).  The means of that delivery can be by messenger, mail, e-mail, fax, etc.

3) “Terms and Conditions of Offer” includes the language: “Seller has the right to continue to offer the Property for sale and to accept any other offer at any time prior to notification of Acceptance”. 

BOTTOM LINE:  To create a binding and enforceable real estate purchase contract: 1) the Purchase Offer must be clear in its terms; 2) the Acceptance must be in writing and agreeing to the exact same terms; and 3) the Acceptance must be delivered to the offeror using the method stated in the offer.

WHAT IS NOT AN ACCEPTANCE:  The simple answer is any response to the offer that does not meet the above definition. For example:

1)  An oral acceptance does not create a contract for the sale of real estate (Statute of Frauds - must have a writing).  However, other types of contracts including rental agreements can be created orally;

2)  A phone call “I’m coming to your office to accept” - it’s just an oral acceptance;

3)  When there is no real meeting of the minds: the writing says it’s accepted but the communication conveying it states that there are other terms.

AVOIDING LAWSUITS - There is no realistic ability to assure that no-one will sue another to enforce what they believe is an acceptance.  Winning that battle is another thing.  Often the filing of a lawsuit can be strategic to scare the Seller and competing Buyers.  If there is some reasonable grounds, this can be effective especially since such lawsuits tie up the property’s title (Lis Pendens).  Such grounds can include:

1)  The terms of the offer state one method of acceptance but the Seller or their agent states another - this is not uncommon with REO sales where the terms require written acceptance of the offer by the Seller but requires communication to be e-mailed through Seller’s agent;

2)  Written acceptance was delivered to agent’s office but agent didn’t personally know of it.  Is the acceptance enforceable? Possibly, but not if the terms of the offer require delivery to Seller, ie: agent is not authorized to bind the Seller so acceptance is not valid until received by Seller (unless Seller has withdrawn prior counter-offer or accepted other offer first.

The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. The key here is that if you are a party or agent involved in a dispute over a real estate contract, get competent legal advice in your State immediately so that you can determine your best options.. If you’re an agent, be sure to check your E&O coverage for when you must report possible claims. You could get sued by both sides. 

Here at BPE Law, we have over 50 years experience assisting and representing brokers, agents, buyers, and sellers in real estate transactions and disputes of all kinds. We know what we’re doing and we can work seemlessly with your insurors if needed.  If you have specific questions about your transaction, feel free to contact me at sjbeede@bpelaw.com. Or give us a call at (916) 966-2260.

Across the country, real estate agents are reporting a dramatic increase of lenders rejecting short sales and pushing forward with foreclosures.  This change of practice seems to be most evidence with Bank of America although they certainly are not alone.  In one recent case in Washington reported on KATU.com, the lender (Flagstar) rejected the buyer’s offer as being too low and demanded a higher price. When a new buyer agreed to pay the lender’s price, the lender rejected the deal and foreclosed anyway.  In a similar situation in California, BofA rejected an offer that was substantially higher than comparable sales (realtown.com).  So what is driving this change?  It may be the interaction of several changes. Here’s what may be going on:

1.  Changes at Bank of America - it is no great surprise that BofA’s foreclosure rate would increase. As reported here on Feb. 9, 2011(Changes coming to BofA), this lender has now divided itself in two with one part holding their good loans and banking business, and the other part - called “Legacy Asset Servicing” - holding the bad. And they’ve brought in a veteran forecloser from One West Bank to lead it.  The expectation is that the two year plus lag times which BofA has taken to foreclose will soon disappear as they push to get these bad debts off their books.

2.  Changes at Fannie Mae and Freddie Mac - These government sponsored enterprises (GSE’s) are the actual investors in nearly 90% of all loans being made today.  As the investors, they have the control over whether a short sale offer is accepted or rejected.  Now that the government wants to get out of the lending business (winknews.com), there is a push underway to wind down the enormous amount of bad debt on their books. On February 23rd, Fannie Mae announced what it has called the “STAR” program which will actually rate lender servicers and provide rewards for those who perform timely and fines for those who don’t.  This could mean that lenders that do not foreclose timely will be fined! (see Bob Hertzog blog).

3.  Problems with Broker Price Opinions - The underlying cause of these rejections often is based upon the lender’s unrealistic opinion of the property’s value. When considering a buyer’s short sale offer, the lender has a responsibility to its investor to independently determine the value and for this they generally have their own real estate representative provide a broker price opinion, commonly called a “BPO”. While this should reasonably match up with what a buyer would be offering, it doesn’t always happen.  And sometimes it bears no relationship to reality.  Again and again we hear about lenders rejecting short sales and then opening the foreclosure sale with a bid even less than the short sale buyer would pay.  How can this make sense?  Well, there are some ways:

      (a)  Investor makes more money on a foreclosure - In many cases lenders’ and investors’ risk of loss is less than we might believe: (1)  lenders may have their own mortgage insurance policies in place that pay them only if there is a foreclosure;  (2) lenders may have some access remaining to TARP bailout money to offset bad loan losses; and (3) lenders such as One West who take over failed banks from FDIC may have government guarantees that pay them more if they foreclose (see: One West blog 8/2010).

     (b)  BPO is defective - Just because a bank requests their agent to run a BPO does not assure that it will be accurate.  In today’s marketplace, real estate values vary widely. If the agent does not use comparative properties of the same size, location, and physical condition, the BPO may tell the lender to demand a higher price than a buyer would be willing to pay.  If this happens to you, request a review of the BPO and provide good detail on the subject property and the comps.  A full-blown appraisal would be better but no-one wants to spend the money on this, especially if the lender is not really motivated to short sell.

    (c)  Negotiator Opposition - Even when everything seems right, the Short Sale must still be approved by the lender’s negotiator and this can add an element that has nothing to do with market value.  We recently were involved in a short sale with Chase in which the seller stayed current on their loan to avoid credit damage (he was a banker). The negotiator refused the short sale because, since he was current on the loan he must not have a hardship. She wanted him to pay the entire deficiency even though he had no ability to do so. This short sale eventually succeeded by “appealing upstairs” to a supervisor but it was a battle all the way. 

IN SUMMARY - Overall, there are five generally recognized reasons that Short Sale offers get rejected.  Make sure that the short sale offer you submit satisfies each of these:

      (1)  Price is too low:  Make sure to supply a fully and accurate comparative market analysis or approasal.  Be ready to counter a defective BPO.

      (2)  Short Sale Package Incomplete:  Don’t expect a lender to tale a hit on the deficiency if the Seller has not provided full information required to evaluate a hardship application, including net worth statement.

      (3) Seller does not Qualify:  If the Seller has assets that they can contribute to reduce the deficiency but refuses to do so, the lender may reject the short sale.  Bridging this requires analysis of the impact that a foreclosure could have on the Seller and on the lender.

     (4)  Buyer does not Qualify:  As with any offer, the lender must be reasonably confident that the Buyer will be able to complete the sale so be sure to provide at least a Prequalification Letter with the offer. Also, make sure that this is a third party transaction. If the Buyer is a friend, family member, or business associate of the Seller, it will probably be rejected as being a sham “straw buyer” seeking to stick the lender and then getting the property back to the seller.

      (5)  Bank sold the Loan:  Banks have thousands of loans on their books. Short Sale offers are often submitted to the lender who is receiving the Seller’s loan payments.  But they may only be a servicer if they have sold the loan.  Seek to get confirmation quickly that the lender still owns the loan… they may not know for certain themselves.

Meanwhile, if you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if you’re facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

 In that matter, it turned out that the decision maker was the loan’s investor, FNMA.

Last Fall, controversy erupted nationwide when it was disclosed that lenders were falsifying Declarations legally required to foreclosure on defaulted property owners. The law requires that someone with personal knowledge of the facts declare under oath that the facts were true and that they justified the foreclosure.  In reality, banks were having staff members sign thousands and thousands of these Declarations without even reading them and with no personal knowledge of the facts they were swearing to.

Although the furor quickly died when banks promised to clean-up their acts, the Attorneys General of many States brought legal charges against the lenders. Last week, they unveiled a draft Settlement which contains a great many provisions which, if adopted, would end the abuses and inefficiencies which have plagued the loan modification process and led to the foreclosure of millions of homes.  Most controversial however is the requirement II.M. of the draft Settlement which would require lenders to consider and apply Principal Reductions as part of the loan modification process.  Opposition has been swift.

As reported in DSNews.com, almost as soon as the draft Settlement was released, Bank of America’s CEO, Brian Moynihan, spoke out against the principal reduction requirement saying “it would not be fair to underwater homeowners who have struggled to remain current”.  Senator Richard Shelby of Alabama stated: “This proposed settlement appears to be an attempt to advance the administration’s political agenda, rather than an effort to help homeowners who were harmed by a servicer’s actual conduct”.  And Iowa Attorney General, Tom Miller, acknowledged that “too generous a program might encourage homeowners to walk away from properties…”.  This was followed by the Chairman of the House Financial Services Committee, Spencer Bachus, who called the draft an effort to “transform the mortgage servicing industry and fundamentally change the rules that have historically governed relationships among borrowers, servicers, and investors”. He asked: “Will forcing servicers to fund principal reductions for underwater loans they service affect the incentive of mortgagors to stay current on their loans?”

Obviously the proposed Settlement is just a draft at this point and the final terms may vary greatly from the initial proposal.  But judging from the initial media reports, there is a widespread opposition to intervening in the lender-borrower relationship by compelling principal write-downs.  If the investors who provide their moneys to lenders to make loans cannot rely on their right to enforce the loan terms when there has been a default, those investors may decide to invest elsewhere. If so, the availablity of loans, especially for the riskier borrowers, will become much more difficult to obtain.  No matter what else happens, the political discussion created as a result of the Robo-Signer scam could potentially change the entire financial system for both the better and for the worse.

Please take the time to review the draft Settlement and let your Attorney General and House and Senate representatives know how you feel on this issue. Watch this Blog and others as the revisions occur.

Meanwhile, if you have specific questions about your upside down loans or real estate, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.

As any observer of the real estate market knows, property pricing remains in the dumps with most sales being either short sales or foreclosures and REO’s. While the economy in general appears to be recovering, real estate has been lagging behind. 2011 is projected to see increasing foreclosures as lenders clean-out their backlog of defaulted loans. Meanwhile, we’re just starting into dealing with upside down commercial properties. For this reason, many economists project we won’t really turn the corner on real estate recovery until 2014 at the earliest.  So why might this be the best time to buy?  

1.   Properties are Undervalued - As reported in DSNews.com,  based on the latest Case-Shiller home price index, a study by Capital Economics shows that in the fourth quarter of 2010, housing was 21 percent undervalued when compared with disposable income per capital. Looking at data included in the index published by the Federal Housing Finance Agency (FHFA), the firm found that housing in Q4 was 15 percent undervalued as measured against individuals’ disposable income. Capital Economics says its results illustrate “housing is exceptionally undervalued,” and the gap is getting bigger. In its third quarter 2010 report, the research firm pegged the Case-Shiller index readings as 19 percent undervalued and the FHFA index as 14 percent below what would constitute a balanced housing value in relation to income.  This downward pressure on prices will continue as the foreclosures clear out, opening the gap even further.

2.  Financing Remains Very Affordable - On top of low prices, mortgage rates have fallen back a bit in recent weeks, leaving them even further below the 20-year average of 7 percent. Last week marked the third consecutive week that rates have continued to decline. A national survey conducted by Freddie Mac shows that the average 30-year fixed-rate has dropped to 4.87 percent, while the 15-year fixed-rate has slipped to 4.15 percent. When you wrap declining home prices and historically low mortgage rates together, Capital Economics says, “The incredibly favorable affordability and valuation environment is the housing market’s one big positive.”

3.   Government Financial Support May be Ending - As my readers know, the future of FNMA and Freddie Mac is in jeopardy. These Government Sponsored Enterprises (GSE’s) were originally created to provide a funding source for socially desireable but higher risk loans. When started, GSE’s provided funds for 30% of all loans. Today, that number is 90% and steps are being taken in Congress to get government out of the lending business or at least scale it back.  Last week, Freddie Mac published a Memo that starting June 1st, they will no longer purchase loans with loan-to-value ratios of less than 5%.  As these GSE’s retract from the marketplace, interest rates and down-payment requirements are likely to rise making home ownership less achievable.

4.  Buy to Own or Invest, not to Flip - While there will always be opportunities for the knowledgeable and dilligent to make money flipping properties, declining prices and increasing loan costs will shrink the profit margins available as flippers find it harder to re-sell.  In contrast, those who buy for their home or for rental investment will benefit from 1) locking in the profit margin between current prices and actual value; and 2) potentially higher rental values as the ranks of renters swell with people who cannot obtain a loan to buy their own home. 

All of the above factors indicate that right now may be the ideal time to buy real estate, not for quick profit but for the long-term stability and financial growth that real estate has historically provided as a part of your overall financial plans.

If you have specific questions about real estate, investments, or any other legal issues, feel free to contact us at sjbeede@bpelaw.com.  We offer a $200 flat fee attorney consultation to review your situation and help you evaluate and choose the best opportunities. This can be done in person or by phone. If interested, please call us at 916-966-2260.

The information presented in this Article is not to be taken as legal advice. Every persons situation is different. If you are upside-down on your loan(s), especially if youre facing a lender lawsuit, get competent legal advise in your State immediately so that you can determine your best options.