I wish I had a fountain!

I went to two fascinating seminars recently – 1 put on by Wells Fargo regarding Short Sales (when the listing price/home value is less than the mortgage amount) and REOs (Real Estate Owned by banks) and another held by Century 21 regarding REOs.

The Wells Fargo seminar consisted of a panel of 4 of their VPs of REOs, Short Sales, Government Programs and Sales Manager, with about 400+ real estate agents and brokers attending.

We’ve all heard how home loans are hard to get and that banks are sitting on property so they can sell it later and make more money in a better market. 

True, home loans are harder to get.  Previously, the mortgage world was practically giving loans away:  no money down, no papework required to prove level of income, lowlowlow mortgage payments for a few years, then boom! higher payments than you can afford.

All of this helped create a large group of properties where the owner cannot possibly afford their homes.  It doesn’t matter if they try to get loan modifications, they still can’t – never could, no how, no way – afford their mortgages.

I feel for those people.  They were naive and, yes, some mortgage brokers took advantage of them.   I’m not talking about people who paid their mortgages up to now and have been laid off, but the ones who bought (were talked into) a larger mortgage than they should have. 

Some owners will be able to have the loans modified so they are more affordable, but others are simply unable to afford a home.  They are currently going through the loan mod process but, ultimately, will be forced out of their homes and back into renting a home.  If the loan is underwater then the  property will be listed as a Short Sale and, if it doesn’t sell, then it will become an REO.

Now, we have a great number of properties for sale and a lot fewer people looking to buy, so supply and demand requires that list prices get lower in order to attract buyers.  Luckily for buyers, interest prices are low, too, and expected to remain low for 6 more months or so although they might go up an itsy bit.

Believe it or not, I know someone who had a backyard like this!

Wells Fargo assures us that they aren’t holding properties until prices get better.  It costs them too much money to hold them.  One of the reasons they held the seminar was to help agents understand what was going on and what to expect when dealing with these properties.  Some of us have been reluctant to deal with those types of properties, that’s for sure.

You might think that you should hold off and not buy yet, because prices will go lower.  Well, if you pay attention to the list price vs the sale price, you will notice that many properties are selling for GREATER than the list price…yes, people are bidding on the properties, multiple offers being submitted for them.  You can wait, if you want to, but, don’t let moss grow under your feet.

What happens to a Short Sale offer?  It is analyzed by each party that has an interest ($$) in the property.  This takes awhile…every bit of the offer is analyzed by each party involved in the loan.  I’ve heard stories where the offer was made and close of escrow was 8 months later!  5 or 6 counteroffers, paperwork lost…  Buyers get tired of the runaround and the delay, they find another property and let this one go.  Poor underwater John Q Public is still waiting for his property to sell.  (FYI, if the property does sell as a Short Sale, John must wait 2 years before he can buy another piece of property.  Its better for John that it sell before it becomes an REO.)

Really...someone's home...

Is the loan holder waiting for a better offer?  Who can say?  No one is speaking for those guys.  The companies servicing the loans for those ‘other investors’ just say that it takes time and each investor has their own agenda/criteria.

If the mortgage is held by only one company, then it doesn’t take as long.  Wells Fargo said they take about 37 days to approve them.  Properties with mortgage insurance and/or other loans/liens on the it will means delays as each party inspects the offer and has their own counter-offer ideas.

REOs, on the other hand, are more straightforward.  Banks want to unload them, but won’t take a ridiculous price for it, well, unless the house should be scraped off the lot!  Wells Fargo said they aren’t delaying Short Sales to make them become REOs, supposedly they see a better return on the Short Sales.  Remember they aren’t getting all their money back (which is, I know, a relative term) in either type of sale.  Do I know for sure, no, but I try to think positively about people…Pollyanna that I am.

The bank'll fix this...

The bank'll fix this...

Banks sell REO ‘As-Is’, although certain types of repair will often be done to make a marginal property livable – like replacing broken windows, adding missing stoves or potties.  Items considered a safety or health issue, things like that.  Sometimes, they’ll spruce up a house or yard so that it isn’t a blight on the neighborhood – part of the National Community Stabilization Trust  http://stabilizationtrust.com

If you are considering an REO property then you can count on a couple things:

1.  Escrow can’t be less than about 35 days because of issues related to making sure the Title is clean.  So the fact that you are offering cash and can close in 12 days doesn’t matter to the bank, at the end of the deal they get cash anyway, don’t they…

2.  If the appraisal comes back less than the amount of the offer, you will be expected to make up the difference in cash, or you may walk away, often without loss of the security deposit – which was about 1% of the sale price.

3.  The bank holding the mortgage will probably require that all offers presented to them be pre-approved BY THEM.  Yes, you read this right.  You must be pre-approved by Wells Fargo or Bank of America or whomever, in order to make an offer for a property held by that bank.  The process is free, as simplified as possible, with quick TAT on their part and you don’t have to provide them with a bunch of documentation.  Go ahead and get pre-approved by a few banks, Wells Fargo and BofA being the most prevalent in this area, I’m told.  Have it done all at the same time and you’ll see a minimal hit on your credit score.

This mess is pretty similar to what I saw...

One most recent Short Sale home I was in looked as though the people had fled in the dark of the night.  Dishes in the kitchen, the master closet was still filled with clothing!  All the furniture was gone and one of those PODs was in the driveway, but there were still pictures of a baby on the fridge.  Luggage, clothing and tarps in a bedroom, makeup and toothbrushes in the bathroom, it was eerie.  Trash EVrywhere…someone was trying to clean up because the big recycling tote was in the kitchen.  Its so sad to be in these homes.

Those ‘in the know’ say that we are living the new ‘normal’.  Don’t buy property thinking you can make a killing in a couple years.  There’s a glut of property on the market, which depresses high hopes for quick fix-up and quick sale.  Buy for the longer haul – 10 years or more.   So put aside your ‘get rich quick’ schemes, they weren’t making you happy anyway, were they?  😉

Pictures from http://www.thereIfixedit.com and http://uglyhousephotos.com/wordpress/?cat=23