I got a call yesterday from an out of area agent who wanted to get some information about short sales because he searched on the web and found me as one of the top San Jose Short Sale Agent.  Like many Real Estate Agents, he did not really understand and did not want to learn about short sales, so he wanted to get some information that he could pass along and refer the relative to me.

One problem: a Trustee Sale date was scheduled one week ago.  For those who are not familiar, a Trustee Sale is also known as an Auction Date.   The homeowner wanted to stop the foreclosure but the Agent was not aware of the Trustee Sale Date.

This illustrates and highlights an issue I want to discuss today: when dealing with foreclosures, inaction leads to action.  Being afraid of the prospect of losing one’s home is understandable, but allowing that fear to transform us into acting like a deer in the headlight is not an option.  You must take action one way or another.

In the case above, the homeowner was afraid and did not know what to do and that fear led her into inaction.  But we must remember, she had months of notice as to what was eventually coming.

The typical non-judicial foreclosure process looks something like this in California (remember, this is a simplified description for illustration purposes only, each case and timeline will be different):

• Homeowner misses 2 to 3 mortgage payments.
• Lender sends Notice of Default – giving 90 days to re-pay delinquent payments plus interest and penalty or will lead to Trustee Sale or Auction Sale
• Typically within 21 days of missing the deadline issued on the Notice of Default, a Notice of Trustee Sale date is scheduled at the courthouse steps
• On the scheduled date and time, the property will be put on auction for sale

In a typical scenario like above, we are looking at minimally 6 months, from missing the first payment, before an auction date is set to sell the property; sometimes it takes much longer.   During this time, in addition to the numerous phone calls, letter and the actual notices are sent to the homeowner’s mailing address.   The homeowner had plenty of notice as to what was eventually coming, so whether she wanted to pay off the delinquent monies, or request a loan modification or do a short sale, she could have contacted the lender to slow down the process or find out alternative options available to her.  There are methods to delay or extend the trustee sale date.

What is my point?  She knew she wanted to stop the foreclosure, but by the time she decided to do something about it and reached out to someone for help, it appears, it was too late.

The lenders generally do not want to foreclose on a property because they can make more money using other foreclosure prevention methods. So if the intention is to prevent a foreclosure, the homeowner must take action, reach out to the lenders to request a loan modification or to a Realtor to do a short sale, or call me and I can answer questions you may have if you are in Silicon Valley, but take some sort of action before the trustee sale  date is scheduled.   In a foreclosure situation, by not doing anything, you have actually chosen to expedite the foreclosure process.

However, we are better off than the rest of California which was at 12.5%.

As everyone knows, the volume of FHA loans funding first time home purchases has increased dramatically in the past two years.  It went from 3% to about 50% of the mortgage market today.  It is a great product for first time home buyers who want to capitalize on the current first time homeowner tax credit offered by the government.

However, because the down payment requirment is 3.5% of the purchase price, many buyers who use this product often have limited access to additional cash that may be required to address some of those unforeseen situations that sometimes arise when purchasing a home.  This is especially true when they are trying to compete on multiple offer situations and they need additional funds to later for repair work.    From my own experience, most FHA buyers walk away from certain homes they like because they simply do not have funds for repair work.

However, this does not necessarily have to happen.  What their agents are failing to inform them is, there is something called a FHA 203(k) loan which was designed specifically with this type of need in mind.   The 203(k) is a repair program which can be rolled into one single loan.  It is the lifesaver for those who want to buy a home that may require repair work.

I am a real estate expert, so I will not get into the specifics of this loan product, but a good loan agent should be able to explain thing in detail about this wonderful product which escapes the radar of many home buyers.  If you are in Silicon Valley and don’t know a good loan agent who can explain this useful product to  you, then contact me and I can set up introductions.

Until January 31, 2010, it is forbidden for a property to be purchased using an FHA loan if the property had been owned by the seller for less than 90 days (unless you are a bank trying to unload an REO property).  In a nutshell, it was very difficult for buyers to purchase a home which was remodeled for a flip by an investor; or simply from an investor who just purchased it with the intention of re-selling it quickly.    (We won’t get into the rationale behind the prohibition here today.)

Given the amount of interest in the marketplace for first time homebuyers trying to use the tax credit incentive to finance their first purchase, it was quite challenging to find good properties for buyers to purchase here in Silicon Valley.  This also contributed to lots of properties receiving multiple offers.

As of February 1, 2010, that prohibition will be lifted for one year.  (Click here for the specifics).    Now buyers using FHA loans (which according to some stats say represents up to 40% of all financing) can have access to a source of properties which was not available until now.

This change should: 1) encourage investors to purchase more properties from distressed markets knowing they can turn around and sell them immediately without incurring additional carrying costs and/or 2) encourage FHA buyers to purchase more properties from these investors.

Either way, this act along with other proposals should help deplete the inventory of distressed properties out there, so we can more quickly lead back into a normal housing market.

Someone asked me today why I didn’t mention anything about the Deed In Lieu of Foreclosures (or simply Deed in Lieu) portion of HAFA (Home Affordable Foreclosure Alternatives) in my previous post.    The answer is simple: because of the requirement to be free of  liens.

A Deed in Lieu simply means you are telling the bank that you can no longer afford to keep up with the mortgage payments, so you offer to turn over your deed to the lender in exchange for you getting out from underneath the note.  If you can find a lender who agrees to this, that may be a quick way out of the impending foreclosure mess, but the hitch is that the property must free free of liens.   Free from liens means you cannot have a second loan against the property or have any other liens like unpaid property taxes or unpaid HOA dues.  A big problem for most distressed homeowners.

In expensive California (and more specifically here in Silicon Valley), a majority of  homes are purchased utilizing a combination of  first and second loans.  Many people who could not afford to come up with the 20% down payment, financed the down payment with a second loan.    The vast majority of people who are in distressed situations now are those who have both first and second loans.  But to add insult to injury, once people are unable to pay their mortgages, they are often also equally unable to keep current on their property taxes or HOA dues.

So for most of Californians, when we talk of HAFA, we really are talking only about a Short Sale because it is the only viable option with no restrictions against having liens on properties.

Article

The above article boldly declares that foreclosure activities have dropped 18% reduction in Notices of Default being issued and 11.5 % reduction in Notices of Trustee Sales last month in Silicon Valley.  On its face, that seems like fantastic news, but we have to now consider something which happened today. How will the law which enacted a moratorium to stop foreclosures ending impact the activities in the coming months?  Of course only time and data will tell…….

However, the above question may be a moot point unless the two root  causes of foreclosure are addressed in California: unemployment and  the looming option ARMs problem.   Unless these powerful forces are somehow resolved or mitigated, we may be looking at years of foreclosures to come.