THE ADAMS TEAM
Rothwell Gornt Companies
Las Vegas Real Estate Agent Robert Adams Las Vegas Real Estate Blog
Beginning in 2007, foreclosures rocked the real estate world. Like an
out-of-control freight train, they began decimating the market, peaking in 2009.
Myths and rumors began propagating like mushrooms
as consumers struggled to understand the new reality. Although many
misconceptions have come and gone, we still encounter five myths on a regular
1. There is going to be a flood of new foreclosures to the market.
This rumor has appeared every year since 2008 and has been routinely debunked. However, recent announcements that the
Feds reached a settlement over the robo-signing scandal have reignited
speculation. The idea is simple: Since the cork is now out of the foreclosure
bottle, we’ll soon see another flood of REOs inundating
My personal opinion: don’t hold your breath.
Banks have learned that if they control inventory, they can affect local
prices. By releasing homes in measured amounts, they realize higher prices than
if they released a glut of homes. In addition, they’ve learned that if they can
mitigate their losses by agreeing to a short sale, everyone wins.
2. You can go directly to a bank to buy a foreclosure.
Every few weeks I’m asked how to buy foreclosures
direct from a bank. Someone knows a friend being foreclosed on and they want to
step in and grab the house before it hits the market. Don’t we all? In reality,
banks have a simple system – they first offer properties on the courthouse
steps. The rest they assign to asset mangers who then hire local real estate
agents to put them on the market along with all the other homes. Want an REO?
Pay cash at the courthouse steps or get in line witheveryone else when they hit
the local MLS (Multiple Listing Service).
3. You can get a killer deal by submitting lowball offers on
You would think this myth would be dead by now. Unfortunately, like Elvis
sightings, it just won’t go away. Here’s the truth: Banks want REOs sold in 30
days or less, so they typically appear on the market priced slightly under
comparable properties. If the property doesn’t sell quickly, the bank will lower
the price after about 30 days. Lowball offers are ignored and are, quite
frankly, a waste of everyone’s time and effort. You might get a deal by offering a lower price on
a foreclosure that’s been sitting on the market for more than 90 days, but
remember that there are good reasons it’s gone unsold for so long. And even if
you have cash, your lowball offer won’t be accepted —seriously.
4. You can’t use foreclosures when doing an appraisal.
Or short sales, for that matter. That is no longer true. In fact, in many
neighborhoods, that’s all that’s there. Therefore, foreclosed or distressed
sales represent the actual value of homes in the area and HAVE to be used to
appraise other properties. Don’t like it? Get over it. Times have changed and
the ways neighborhoods are valued have changed as well.
5. Foreclosures are only affecting the bottom end of the market.
This used to be true. However, while foreclosure rates on the lower end of
the market have actually decreased, they’re actually increasing on the upper end.
According to Daren Blomquist, vice president of RealtyTrac, the market share of
foreclosed homes under $1 million is shrinking, but those among properties
valued over $1 million are rising – up 115% since 2007. And foreclosures on
properties valued upwards of $2 million have increased by 273%. While some
well-known jet-setters have melted down and lost everything, others are choosing
to strategically default. They see it like
liquidating a poorly performing portfolio – they have enough resources to cut
their losses and move on. Historically, banks have been reticent to foreclose
high-end homes and absorb a large loss, but defaulters are now forcing their
hands and mansion foreclosure rates are moving on up.
Myths control behavior, and this has never been truer than in the housing
market. Savvy agents will work hard to educate their clients, debunk myths,
explain market trends, educate with solid facts – and actually close
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The government's $25 billion settlement with the nation's five biggest mortgage servicers over so-called "robo-signing" practices could boost short sales, as loan servicers will receive credit when they approve sales that include forgiveness of a portion of underwater homeowners' debt.
Although the settlement is only expected to help a fraction of homeowners who owe more their properties are worth -- perhaps one in 20, according to one estimate -- it will also help bring certainty back to housing markets by removing some of the obstacles that have been keeping homes stuck in the foreclosure pipeline.
Announced last month, detailed terms of the agreement between mortgage servicers and a coalition of state attorneys general and federal agencies were filed today.
Broadly, the settlement calls for mortgage servicers to pay $5 billion in fines and commit to a minimum of $17 billion in homeowner relief, including principal reductions. Another $3 billion is earmarked for helping underwater borrowers refinance.
"We will see an increase in short sales, because lenders and loan servicers will get the same credit for doing a short sale, as if they did a loan modification or principal reduction," said Rick Sharga, executive vice president of Carrington Mortgage Holdings LLC.
The Wall Street Journal reported Sunday that the structure of mortgage write-downs was a major point of contention in the year-long negotiations leading to the settlement.
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Allowing debt forgiveness on approved short sales to count against the required $17 billion in principal reductions helped secure a settlement that will reach more borrowers, the paper said. Loan servicers will also get partial credit even when it's investors, rather than the banks themselves, taking the loss, the Journal said.
A researcher at the Brookings Institution told the Journal that the settlement could help about 5 percent of underwater borrowers, or about 500,000 homeowners.
"We will probably see a short-term increase in forcelosure activity, because the servicers and lenders at last have a sense of certainty about what they can and cant do," Sharga told Inman News. Part of that increase will also be among loans that don't meet the criteria of the agreement.
For loan servicers to get credit for a principal reduction, a loan must be at least 30 days delinquent, have a pre-modification loan-to-value (LTV) ratio of at least 100 percent, satisfy specified debt-to-income ratios (DTIs), according to an analysis of the settlement by the lawfirm K&L Gates. At least 85 of occupied properties must have had an outstanding principal balance at or below the highest Fannie Mae and Fanni Freddie conforming loan limit cap as of January 1, 2010.
Because servicers won't get 100 percent credit for all types of relief that are provided, the actual amount of relief provided could total as much as 32 billion, state attorneys general said in announcing the settlement.
"In terms of the overall housing market , our position is this will have very little effect on anything," Sharga said. "Consumer advocates don't think it went far enough, and people who look at housing markets realize that the number of properties and the amount of money involved won't have a measurable effect on markets."
Federal housing officials addressed those and other concerns today.
"This agreement does not -- and is not intended to -- solve or resolve all the issues and abuses related to the housing crisis," officials with the Department of Housing and Urban Development blogged today. "This agreement is very narrow as to what it releases banks from. This settlement is intended to address the servicing aspect of the crisis, which did not cause the housing crisis."
The settlement doesn't prevent the government from punishing wrongful securitization conduct that will be the focus of the new Residential Mortgage-Backed Securities Working Group, HUD noted. State and federal authorities can also pursue criminal enforcement actions related to conduct by servicers, including civil rights, fair housing, fair lending and other violations.
Also, if the remaining six to 14 loan servicers sign on to the settlement, it would grow to about $30 billion with more than $45 billion in benefit to homeowners, HUD said.
Cade Holleman, executive director of the Irvine, Calif.-based National Association of Women REO Brokerages, said the day is fast approaching when brokers and agents who have concentrated heavily in real-estate owned properties will have to diversify.
Short sales, refinancings, and loan modifications are each "pulling REO inventory out of the game," he said.
"You've got to keep your eye on that process," Holleman said."You can no longer be 80 percent REO," but must diversify into short sales and property management.
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A rising trend of super-efficient, solar-powered new homes allows homeowners
to combat rising energy costs by giving back to the power grid. Some owners are
even realizing a small profit from their home’s power-generating capacity.
Intelligent house layout and design, and home features such as dual-pane
windows, air-tight ductwork and high-caliber wall and attic insulation, are
curbing energy consumption. And when coupled with solar energy, captured
through photovoltaic panels, these homes are becoming their own mini power
plants that feed electricity to the grid.
In 2009, U.S. homeowners paid an average $2,200 for energy use in their
homes, according to the U.S. Department of Energy. A growing number of
homeowners have the opportunity to erase that cost.
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Many people in the market today are first-time home buyers who would not have
been able to buy when home prices were higher. Enticed both by lower prices and
bank promotions, these eager hopefuls are have taken the signs of deals as the
best chance to make their first real estate move .
While all home
buyers need help with the short sale process, it’s especially challenging to
address the needs and concerns of a first-time home buyer who has decided a
short sale is the home for them. Here’s how to get answers to first-time home
buyers’ top three questions about short sales.
1. How long does it take
for a bank to approve a short sale?
This is the million-dollar question.
While it takes an average of three to six months, the timeline – and the
process – vary quite a bit from one bank to another.
approval timelines depend on the bank (some just take longer than others).
While each bank has different short sale guidelines, the short sale has to make
sense to the bank. The more sense the short sale offer makes to the bank, the
faster the approval process.
Here are some things that slow down the
process by several weeks or more – these usually involve more people or more
•Multiple liens on the property
•A third party negotiating the
short sale on behalf of a seller. Some states allow third parties to do this,
for a fee; some states, like Virginia, limit this to real estate licensees,
attorneys, and employees of attorneys.
•Private Mortgage Insurance (PMI)
on the property
Action: To make an accurate
prediction about the short sale timeline for a particular property, research
the bank’s general timelines, the property’s liens, and whether there is PMI
before writing the offer.
2. Will the bank make repairs to the property?
The short answer is, probably not.
does not have possession of the property and has no authority to make repairs on
behalf of the seller.
•Many short-sale sellers do not have the financial
means to make repairs.
•Many banks require the short sale to be sold
strictly “as-is” and do not allow the seller to pay for any repairs.
wouldn’t a bank allow the seller to make repairs? your buyer may ask. A short
sale is a sticky situation for a bank, and that the bank wants to avoid
potential liability. For example, if the bank allowed the seller to make
repairs and the repairs proved to be faulty, the buyer might potentially hold
the bank liable, since the seller doesn’t have money (which is how the
short-sale situation came about in the first place).
Action: Find out
how the bank and the seller feel about making possible repairs. A short-sale
buyer needs to understand that the home will most likely be sold strictly
“as-is” and all repairs will be at their expense.
3. How do other types
of debt affect the short sale outcome?
Many short-sale sellers are more
than just “house-poor.” Many have additional debts that place a cloud on title.
These include tax liens – income and property, medical liens, mechanic’s liens,
and child support judgments.
Depending on your state, some creditors
can try to collect debt by going to civil court and getting a judgment lien
placed on the property against the homeowner. These liens must be cleared
before the short sale transaction can be closed.
•Surprisingly, tax liens
are probably the easiest to clear off the title. The IRS has several avenues to
collect back taxes, and doesn’t want to become a real estate holding company.
Removing a tax lien can take up to 120 days, so it is imperative that this
process is started well in advance of the short sale.
•Medical liens can
usually be negotiated and a payment plan worked out. However, this is a
time-consuming process and needs to be started as soon as possible.
•Mechanic’s liens are a little harder to get removed. There is not much recourse
for tradespeople and bad debts.
•Child support judgments are also difficult
to remove because they usually involve government agencies.
additional debts can tie up the short sale process.
Action: Make sure to
ask the listing agent if a preliminary title search has been performed on the
property so you can advise your buyer about possible obstacles.
more information you can offer your first-time home buyer, the more confident
they can be about the transaction. The more confident they are about the
transaction, the more likely they will see the transaction through to the
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