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Unintended Consequences

The California Homeowner Bill of Rights went into effect Jan. 1 of this year. It was promoted as a way to protect California homeowners against their lender foreclosing improperly before the homeowner has a chance to fully attempt a loan modification or short sale. Since it passed, we have seen a HUGE reduction in the number of foreclosures in California. But we’ve also seen a big reduction in short sales, too, as  loan servicers scramble to adjust their practices to conform to this new law. They are supposed to provide one point of contact for the borrower through the process. The loan servicers are also forbidden from what is called “dual tracking” where they work on a short sale or loan mod, but at the same time continue to pursue and then complete a foreclosure action. They are supposed to stop as soon as they receive a complete loan modification package or a short sale is approved. If the servicer violates this new law, it also gives the borrowers new powers to sue the servicer. One provision of the law that the banks were most worried about is that if the borrower has at least a “reasonable justification” to believe that the servicer violated a material provision of the law and then sues the servicer, the servicer may be responsible for all the research and legal costs. This is true even if at the end of the process it’s determined that the servicer did NOT violate the law. This could cost the servicer tens of thousands of dollars in legal fees and 6-12 months in delay even if they were foreclosing correctly and that is borne out by the courts.

Well, some legal experts are worried that the new law is so onerous against lenders that it could backfire in a way for some borrowers. There are two general types of foreclosure, a trustee’s sale and judicial foreclosure. Apparently this new law only applies to trustee’s sales. So the concern is that some lenders may opt for judicial foreclosure if that option is open to them. In some cases that can be really, really bad for the borrower but historically we rarely see judicial foreclosures. We’ll have to wait and see if these fears are valid or not.

SEEK LEGAL ADVICE FOR YOUR OWN SITUATION. I AM NOT AN ATTORNEY. If you have questions on any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Need To Expose The Home

First, I need to define some terms, and that would be an “efficient” market versus an “inefficient” market. An efficient market is one where all information is readily apparent to all parties and the price of the item in question is easy to determine. An inefficient market is the opposite. So if you had a shopping mall that had a Target, Wal-Mart, Office Depot and Staples side by side, the price of a 12 pack of Ticonderoga #2 pencils would be pretty easy to figure out.

Our real estate market is a horribly inefficient market. Not only are no two houses exactly alike but not all information is available to everyone. We can look at the MLS data for guidance, but the Solds are by definition “old news,” the Actives haven’t sold yet, and we don’t know what price all the Pending homes are pending at, or if they’ll even close. There are many, many factors at play and no one, I repeat NO ONE, can tell you exactly what a home will sell for, not to even within a few thousand dollars.

So here is where I get all righteous and climb up on my soap box. Let me first put on my helmet and shield to get ready for the arrows…OK, I’m ready. Based on the above, it is my contention that the best way to really find out what is the most that a home will sell for is to expose it to the open market, allow all potential buyers in to see it, then wait at least a few days before the seller responds to any offers to find out what the market will bear. Otherwise, if you take an offer WITHOUT exposing it to the market, or if you take the first offer through the door, you’ll never know if you are leaving money on the table if you had only waited a few days for another offer. This is why I’m not a fan of “pocket listings” where only I or my office knows about the home being for sale. Sure, the seller may save a little on commission, but I think the odds are high that you could “net” more money on the open market. If you are doing a short sale, this actually DOES apply to you because I believe you have a legal duty to only accept and submit a market value offer on your home.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Is Another Bubble Forming?

Inventory is low, rates are low and buyers are desperate. Homes that are in a good location, in good condition and priced appropriately will almost for sure get multiple offers within a few days of going on the market, and probably over the asking price. This is leading to rapid price escalation. It feels a lot like the early and mid 2000’s, when the last bubble formed. We all know how badly that ended. Are prices rising too rapidly? Are we forming another bubble that’s about to pop?

As of right now, I don’t think a bubble has formed. There is a BIG difference I see this time versus the last time we saw such a run-up in prices, and it’s that buyers are qualifying for their loan, or they are paying cash. Last time, buyers could “state” their income and also get a “toxic” loan on top of it in order to buy a home for MUCH more than they could really afford, all while putting almost nothing down. So the moment that the prices stopped appreciating or even headed down, the homeowner took a look at that payment they could never afford in the first place and many of them chose to stop paying, which lead to a foreclosure which dropped values even more and the whole thing imploded.

But this time (for the most part) buyers CAN afford their payment because most lenders are actually qualifying them based on their real income and based on the “real” payment, or the buyers are paying cash. So if prices stopped appreciating, or even were to drop some, these buyers may grumble a bit, but I don’t think they are going to walk away from their homes en masse like last time. Even with our recent price increases, home prices are still generally affordable based on the average income because mortgage rates are so low. Now this doesn’t mean that another bubble won’t form and then “pop” if prices keep escalating like they are and outpace the rate at which household income increases

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

Where Are All The Sellers?

Inventory of homes for sale in most areas around here, around the state and even around the country is very low. In some areas it is at historic lows. So where are all the sellers? There are many reasons that are put forth as possible explanations, and it’s probably a combination of many factors. Some people still think the banks are holding onto homes and not releasing them to the market in an effort to push prices up. Banks have vehemently denied this, and some people are starting to think that maybe there ISN’T a huge backlog of homes somewhere hidden in the bowels of the megabanks.

Another reason is that many people that were upside-down by $100-200K the last year or two are looking at the recent price increases and are realizing that they are now only upside-down by maybe $25-50K. So they may be thinking if they just hold on for another year or two they may be able to avoid a short sale. I’ve also seen many, many people get “good” loan modifications approved, even with some people getting principal reductions, so they are also holding on, hoping that prices continue to increase.

But there is one more reason that is becoming readily apparent in surveys that are done, and in my own conversations with potential sellers. They aren’t selling because they know there isn’t much to buy and they are worried about not being able to find a suitable replacement home. Or that by the time they sell and are able to buy again, home prices will rise to the point that they will get priced out. So it’s becoming a self-fulfilling prophecy in that there isn’t much for sale, which is causing sellers to refrain from putting their homes on the market, which leads to even LESS for sale…

If you are in this situation, one possible solution is to buy your replacement home FIRST, and then sell your old home later. Of course, you have to qualify with your lender to do that, and you run the risk of having two loan payments and/or that the market will crater AFTER you buy the replacement home.

If you have questions on this or any other real estate topic, call me at (925) 240-MOVE (6683). To search the MLS for free and view virtual tours of homes for sale, go to: www.SharpHomesOnline.com. Sharp Realty

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