Strategic Default -  Walking Away From Your Mortgage

Record numbers of homeowners are walking away from their mortgage. They are doing what's called "Strategic Default" or better known as "walking away from their mortgage". Being a licensed real estate broker, it's not my place to be offering advice to people telling them to walk away from their mortgages. I'd leave that up to the CPAs and real estate attorneys. However, I can totally see why someone might want to consider this option.

I spoke to a buddy of mine the other day who bought a home in 2006 for $250,000. The house is worth probably $160k-$$165k in this market today. This puts him pretty far underwater. Now his situation is that he can certainly still make his payments just fine, however, he doesn't want to anymore. Last year he got transferred to a different office further south which increased his commute time by an extra 45 minutes each way for a total commute time of over 3 hours per day. Under normal circumstances he would consider just selling and buying something closer to his new job location. Unfortunately, since he is able to make his payments and has no documentable hardship, the bank will not consider a short sale unless he comes to the closing table with the $80,000 deficiency. Well who has a spare $80 grand laying around? Not I.

So what's he thinking of doing? He's considering strategic default. Now in many situations this is a horrible idea because you could have a judicial forclosure and be in deep do-do for way more money than just the deficiency. But in Washington State, with deeds of trust, you're facing a non-judicial forclosure at a trustee sale. If you only have ONE mortgage with no 2nd, then this means that they can't come after him for the deficiency if he simply lets them foreclose!

This is the case for my buddy. He figures he simply will stop making payments, drag the bank along as long as he can while he saves the money he would have spent on it and use it for paying off other debts. In the state of Washington the bank (if they even get the time to get around to it) is required to post the sale notice 90 days before the date of the trustee sale. So at MINIMUM, he gets to save 3 months of payments, walk away from the debt and the deficiency, and become a renter with the worst being that his credit will take a nasty hit for the next 7 years and he will have to rent.

In another scenario, I have a short sale listing in which the names on title are my client and her brother. She had since then gotten married but the husband was never put on title. This one is a bonefied hardship short sale but unfortunately its a middle unit, second floor condo which makes it an insanely difficult one to place with a buyer. What's more is she's more than $100k underwater. We could drop the price but then the bank might not approve and their is always still the chance they could request the seller sign a deficiency note which I know she would never do for that huge amount. If she sells as a short sale, her credit will still be effected, altough not quite as bad. With her unique situation, she could strategic default then still buy a home with a non-government loan and have her husband take title as "married as a separate estate". They could walk away from their mortgage and still be homeowners with a NEW home! Gosh it's almost a no-brainer.

So if the bank made a business decision to give these people loans, do you blame them for considering a strategic default and walking away from their homes as a sound business decision for themselves?

IMPORTANT...Anyone considering walking away from their mortgage payments and doing a strategic default should always consult a real estate attorney and CPA for legal and tax advice, ESPECIALLY if you have more than one loan or live in a state which does judicial forclosures as opposed to trustee sales..

 Obama throws a lifejacket to underwater homeowners

It sounds like white house is trying to at least make another attempt to help the current foreclosure crisis. As of today, appairently, the Obama administration is launching an plan of attack to help the over 1.5 million homeowners who are under water down on their mortgages.

Under this new plan, if the lender agrees to forgive at least 10% of the original mortgage amount, the Federal Housing Administration will allow lenders to give these owners refinanced loans.

It would be an understatement to say that previous efforts to help fix our foreclosure crisis by the Obama administration have fallen short of expectations. Will this one be better? I don't know but it certainly can't make it worse I suppose. The plan is expected to help at least half a million people so I guess we'll see.

Tell me what you think.

A well written article about a change in the commission incentive for mortgage brokers and the new requirements for the mortgage broker businesses which will likely put most of them OUT of business, limiting the options and competition for borrowers.

Here's some excellent food for thought. I've seen this happen before and I have had my closings delayed for various reasons. Being prepaired with a plan B is ALWAYS a good idea!

How is my FICO credit score determined and what factors effect my credit score?

How is my credit score determined? Let's face it. In this economy a lot of people have lost their jobs for a period of time and ruined their credit. Well now that they are back on their feet, the million dollar question is "How can I improve my credit score?" or "How is my credit score determined?"

Firstly, what IS a FICO score? FICO stands for Fair Issac Company. Fair Issac Company is the company who created the scoring model and methods used by the credit bureaus to determine your score. The short version is that your FICO score is a number between 300 and 850. The higher the better. This score is used to determine how likely you are to pay back a loan and make the payments on time.

As you can imagine, this number is extremely important to anyone who might be considering giving you a loan for something like a car or a mortgage. It's a form of risk assessment. Over 5 billion pieces of data is reported each month to the 3 credit bureaus: Experian, TransUnion, and Equifax. This data is gathered from creditors and public records which they can use to sell back to the consumers or to businesses who want to evaluate your credit for business dealings.

Your credit score is determined from a RISK perspective not from a FINANCIAL perspective. Just because a credit card company might be making a lot of money off of you, does not mean you'll have a good score. Rather, your score is a reflection of the risk that a lender is taking when they open a loan for you. Your score is a number between 300-850. For a home loan, scores over 700 are generally considered excellent scores and most lenders will gladly approve you for a loan. Scores under 600 are generally considered lower scores and may be more difficult scores to obtain a loan. Actual minimum score requirements can vary over time and by type of loan.

But How is my credit score determined? Well, their are 5 categories that are used to determine your FICO credit score. They are Payment History, Amounts owed, Length of credit history, Types of credit, and New credit. Each of these categories holds a different weight as to the effect they have on your credit score. Each category is explained below the graph.

35% - PAST PAYMENT HISTORY: This is the most important category and has the most effect on your credit score. The more recent a negetive item in this category is, the more negetive weight it will have on the score. Most commonly, these are things such as late payments. An item with several months late will have a more detrimental effect and a more recent item will have a more detrimental effect than something from years ago. Bankruptsy, Judgements, and Tax Leins will fall into this category as well. Remember, the amounts are not nearly as important here so much as how long ago the occurance happened. The older it is, the less of a negetive impact it will have. Also of note, if an account is sent to collections, the date of being opened is usually reset by the collections company and this is something that can be disputed to correctly date that item to the original date.

30% - AMOUNT OWED: Your outstanding debt utilization is the second most important category in determining your credit score. This is based on how much of your available credit you are using. If every credit account you have is maxed out, then this is having a severe negetive impact each month. If you owe $1000 on a card but your limit is $4000 then your debt utilization is 25%. The lower that percent, the better. For this reason, consolodating your credit onto one card is generally NOT a good idea. It is better to have small amounts spread out over several cards than to have a large amount on a single card. Also, if you must take a home equity line of credit, consider getting the line of credit for 3 times more than what you will actually be using so that your utilization ratio remains under 30%.

15% - LENGTH OF CREDIT HISTORY: The length of time that you have had credit is also a factor in determining your FICO credit score. The longer you have had credit open, the better you will score in this category. Do NOT credit card surf for better rates. New accounts will have a negetive impact while accounts with long history will help. Do not open new credit cards and do not close out your seasoned long term cards. The tendancy for people trying to improve credit is to pay off a card then close the account but this is a bad idea. Leaving that old paid off account open is usually a better idea.

10% - TYPES OF CREDIT BEING USED: This is a minor category when it comes to determining factors of your credit score but it can make a difference. You should not have a lot of accounts of the same type. As an example, if you open a lot of department store cards to get a sale, having a large number of department store cards can have a negetive impact. By the same token, if you have 6 different car loans, that could also have the same effect. Diversify your types of credit and don't have too many of any one type.

10% - INQUIRES FOR NEW CREDIT: This category is much less important than a lot of people think. It holds very little weight on your actual score. A common belief is that every time a credit check is run, your credit score is impacted but this is NOT true. Their are two type of credit pulls. Promotional inquires, your own personal inquirys, inquires by employers, existing account reviews by banks, etc do not have any effect on your score. The only type that has a negetive effect are inquires which are used in the persuit of new credit. Additionally, with reguards to car loans and home loans, their is a deduping rule that states if you apply for the same type of loan within a 45 day period, it only effects your score ONE time. Unethical or uneducated lenders may try to scare people by telling them not to have anyone else pull their credit report because it will hurt the score. Knowing this, if you ever decide to go rate shopping for a car or home loan, do it all within the same 45 day period so it only counts one time.

Last but not least. Remember that you are entitled to a free credit report by law. The ONLY website you should use is the official site www.AnnualCreditReport.com. Other sites will charge you or require paid subscriptions but this one is free ONCE per year. It is recommended that you pull your report from one of the 3 bureaus every three months and rotate through them so you can monitor your report for accuracy and dispute anything that is inaccurate.

I hope that helps in answering: How is my credit score determined? Now you know and... "KNOWING IS HALF THE BATTLE!" - GI JOE

Is an open house a waste of time?

"Is my Realtor just lazy or is he telling me the truth? Is an open house a waste of time?" As a real estate broker, I sometimes hear this question, or something similar, from sellers. A lot of people have heard at some point along the way that doing an open house is a waste of time. But is it true?

Well, lets look at all the major reasons that a real estate agent would hold an open house...

• To potentially find a buyer for the home
• To expose the home to the market and increase local awareness of the listing
• To appease the seller / gain the listing / justify their commission
• To meet new potential clients

Obviasly some are more beneficial for the agent and some reasons are more beneficial for the seller. It really depends on which benefit you focus on.

An agent who does not want to hold the listing open, will often focus on the last bullet point and point out to a seller that it's really only used as a fishing hole for the Realtor to find buyers for other properties and explain that it is a waste of time. I tend to disagree yet agree. What I mean by that is I feel it is a case by case basis. I've held many open houses on everything from inexpensive apartment style condos, to single family homes, to million dollar estates and I can tell you that it really truely depends on the home.

Let's say that your listing is a run down townhouse that is burried deep in a shady neighborhood. This would be a horrible listing to hold open for several reasons. Firstly, million dollar homes breed million dollar shoppers and dumpy homes in bad neighborhoods bring in a whole different breed of people. Certainly most agents are not looking to market to low end buyers who have bad credit that are looking for a dump. This listing is also a bad one to hold as an open house because of the safety issue. If its in a bad neighborhood, it may make that agent feel uncomfortable or unsafe being alone in the home with strangers walking through. Most importantly, if the home is not right near a major road, you'll be much less likely to get traffic to it. People won't drive way out of their way to follow a bunch of signs and find the house.

I have literally had homes that I have held open houses at 3 or 4 times and had a grand total of ZERO visitors, while I have had others that get 10+ guests every time I even think about slaping an open house sign out front.

So how do you know if your listing is a good listing for an open house or a waste of time? Well, you simply have to evaluate the home based on these criteria...

1. Is the home in an AMAZING location? This is the #1 most important thing. If they have to turn more than once or twice off of a major street then it's not a good location for an open house. Close to major intersections is a plus. Excellent locations to put A-Board signs is a must!
2. Does the home have superb street appeal? Getting them to drive by is one thing, but getting them to come inside is another. Does the home look interesting and inviting? If you have a problem with people just driving up and taking the flyers then leaving, try removing the flyers during the open house.
3. Is the home INSANELY clean and spotless? Agents are embarassed to hold open homes that have dirty carpets, clothes all over, dishes in the sink, and junk all around. The house should be furnished and cleaned for SHOWING CONDITION! This may not be your ideal living condition, but it is what will show off the home the best.

A lot of people think that price is important here but I completely disagree. The price of the unit has absolutely nothing to do with an effective open house. An effective open house was well advertised, had good signage, was in a amazing location, had good street appeal, and was in superb showing condition. That's it. That's all you need! If you have all that, then your open house shouldn't be a waste of time.

"That's all fine and dandy Jeff but is MY house a waste of time or a good idea?" If your house fits all those criteria, then sure I would go ahead and do the open house. It's still good exposure and reguardless of the statistics that show only a 2%-4% success rate, it's still 2%-4% better chance of selling than if you did nothing at all right?

That said, if your house does not meet all those requirements, don't be surprised if your agent suggests forgoing the open house. Nobody likes wasting a sunday afternoon in a house that's not going to bring any buyers.

So is it a waste of time to do an open house? No, not always. I've been very successful at them in the past and I'm actually quite an advocate of them. But in at least half of the cases, it very well could be a waste of time. Evaluate your home and your situation and if you're not sure, just try one and see if you get much activity. And if you have a home that is perfect for an open house but your agent refuses to do one...get a new agent.

The "Buyer's Market" discount is already built-in

When I go to a restaurant I always tip my waitress. Don't you? Is it because she gave me excellent service? Not completely. Yeah I might give a bigger tip, but I've also been known to give at least a small tip even when service was poor. I guess I was just trained to always tip. My parents always tipped and so I do as well. It's a psychological thing. We just assume it's expected.

Why do I get the feeling that some people have this same type of psychological reaction to buying a home? How often have you had one of those buyers that has a perception of what a discount home is in their mind. This buyer sees a house and wants to offer 10% off list price. Then sees another house and wants to again offer a 10% discount off list price, and again and again the same thing. It's like they have it input into their brain that in order for them to feel the warm fuzzies of getting a "good deal" it therefor must be X percent off of the list price. While this may give that buyer the warm fuzzies they so desire, the logic in this is completely flawed, particularly in this transitional market.

That's right. I said it. TRANSITIONAL MARKET! What the heck does that mean? Well. It's certainly not a seller's market, and I've seen blogs arguing not a buyer's market either. It's certainly not equilibrium. Really, its the banks that are holding the power in this market and frankly I don't know what the heck to call it so I'm going with "transitional". What we are transitioning too is anyone's guess but there is clearly no well defined label for this crazy time.

So what's my point? Well, the media for the last few years has touted that this is an amazing buyer's market and the problem with this is that when a buyer hears this, it triggers that discount mentality in their brain. Buyers assume that because they feel it is a "buyer's market" that they should be entitled to offer well below list price, plus ask closing costs, and extras, and then ask for everything under the sun in the inspection. They feel they are only getting that "discount home" if they get all of those things. They are not considering that they are buying a home for $150k which the sellers purchased 4 years ago for $275k. If that's not already a discount home, I don't know what is. Buyers in "buyer's markets" simply assume this is acceptable given the current market being what they feel to be in their favor.

In this market, that is WRONG!

You see, in THIS market, we have sellers that are so desperate to sell that they have discountedand slashed their prices so low ALREADY, just to compete with all the REOs and short sales, that they have no wiggle room left. We have sellers who are selling because they can't afford to live there anymore and certainly don't have the money to do all those repairs your buyers want, let alone add a new roof for them. We have listing agents who are severely discounting short sale listings in hopes of simply getting any offer they can just so they can have something to present to the bank, only to get a counter offer back from the bank for $80,000 more. THAT is the market we are in.

So just because your uncle's cousin said its a "buyer's market" and you can get good deals. That doesn't mean those good deals are not already built into the listing offer price. A "discount home" is not always X% off of the list price. Many good deals are already built into the price and while sometimes their is wiggle room, it should not be assumed. A good agent in this market needs to be encouraging their buyers to look at every home on an individual basis to determine what each home is really worth and not just considering it a good deal if they get a discount off the list price. Perhaps this market is teaching agents to do things the right way that we should have been done all along?

Everett Hotels - Hotel List for Everett, WA

Need a Hotel in Everett, WA? Here is a list of Everett Hotels including average rates, ratings, locations, and phone numbers.

Please keep in mind that price is not always an indicator of quality. In general, you get what you pay for, but not always.

Hotel ratings are based solely upon customer reviews and do not reflect the blog author's opinion. The author is not responsible for the ratings or any ommitted/incorrect/out dated information.

Everett Hotel: Motel 6 Everett North Average rate per night: $50	10006 Evergreen Way Everett, WA 98204	(425) 347-2060
Everett Hotel: Motel 6 Everett South Average rate per night: $54	224 128th St SW Everett, WA 98204	(425) 353-8120
Everett Hotel: Days Inn Everett Average rate per night: $59	1602 S.E. Everett Mall Way Everett, WA 98208	(425) 355-1570
Everett Hotel: Travelodge Everett Average rate per night: $62	3030 Broadway Ave Everett, WA 98201	(425) 259-6141
Everett Hotel: Travelodge Everett Mall Average rate per night: $66	9602 19th Avenue SE Everett, WA 98208	(425) 337-9090
Everett Hotel: Sunrise Motor Inn Average rate per night: $67	8421 Evergreen Way Everett, WA 98208	(425) 347-1100
Everett Hotel: Days Inn Everett Average rate per night: $69	1122 North Broadway Everett, WA 98201	(425) 252-8000
Everett Hotel: La Quinta Inn Everett Average rate per night: $85	12619 Fourth Ave. West Everett, WA 98204	(425) 347-9099
Everett Hotel: Quality Inn & Suites Average rate per night: $85	101 128th St. SE Everett, WA 98208	(425) 609-4550
Everett Hotel: Extended Stay Deluxe Average rate per night: $90	1431 112th Street S.E. Everett, WA 98208	(425) 337-1341
Everett Hotel: Holiday Inn Express Everett Average rate per night: $105	131 128th Street Southwest Everett, WA 98204	(425) 609-4000
Everett Hotel: Best Western Cascadia Inn Average rate per night: $105	2800 Pacific Avenue Everett, WA 98201	(425) 258-4141
Everett Hotel: Inn at Port Gardner Average rate per night: $114	1700 West Marine View Drive Everett, WA 98201	(425) 252-6779
Everett Hotel: Best Western Navigator Inn & Suites Average rate per night: $121	10210 Evergreen Way Everett, WA 98204	(425) 347-2555
Everett Hotel: Holiday Inn Downtown Everett Average rate per night: $128	3105 Pine Street Everett, WA 98201	(425) 339-2000

Considering moving to the Everett area? Contact Jeff Rainwater to discuss home buying options in the Everett, WA area.

Is the economy recovering?

If you're considering buying a home right now, you might wonder if the economy is recovering. Certainly you want to make a wise investment decision and you probably want to know if your home will be worth more or less in a few years. Well, certainly nobody has a crystal ball but we do have different sources of data that can help us answer that question "Is the economy recovering?" .

Well, in looking at the most recent data from the National Association of Realtors index (NEA), it looks like pending home sales were up an amazing 8.2% for the month and up 17.3% from this time last year. That pretty much blew all expectations out of the water!

Additionally, the National Association of Realtors appairently just released a revised long-term forecast. Their projections are that median home prices will be up 2.7% in 2010 and then up 4.3% in 2011 on existing homes. New homes are the same projection for 2010 but an even higher number of a 5.1% projection for 2011.

Fannie Mae recently did a new survey which showed that even in spite of the troubling economy in the last few years, 65% of americans STILL prefer owning a home. WOW!

Home values, at least in Washington state, still continue to remain up from what they were 10 years ago. Sure, if you bought in 2007, you've got a long way to go to gain that equity back but if you bought in 2002, you should still have made money. In fact, if you look at this zillow graph showing 10 year values in Snohomish county, WA, you can pretty much see that if the regular upward trends from 2000-2003 would have continued (shown by the red line), we'd probably be right about where we are now anyway. My take? So we had a big bump, who cares, move on. Pretend it never happened.

BUT WAIT, THERE's MORE! Even investors are helping us answer the question "Is the economy recovering?". They are starting to see signs of a recovering economy because stocks have even finished up for the past SIX WEEKS IN A ROW!

How about unemployment? Certainly that can help us determine if the economy is recovering right? Yep! And it looks pretty good too! The diffusion index showed that 60% of industries ADDED to their March payrolls. Self employment and start-up businesses has grown by 452,000 per month in the last three months. Finally, the labor force grew at a 2.9% annual rate the last 3 months allowing the unemployment rate to stablize. When that drops down to 1%, it's expected that unemployment will actually begin to trend downward.

So is the economy recovering? Well...All I can say is that as of April 2010, the signs are looking positive. Nothing jumps out as any reason to not be optomistic about it, that's for sure.

(Shakes the magic 8 ball and asks "Is the economy recovering?"... "Outlook Good"...hmmm, works for me)

Ready, Willing and Able buyers

Ready. Willing and Able is actually an adjective defined as: "fully prepared to act, as in performing a contract."

It's important to be able to access whether or not the clients you are working with are ready, willing and able to buy. I'm not being a slimeball here. I'm just being real. None of us work for free and I think it's unreasonable to ask an agent to do all this work for you if you are not in fact ready, willing and able to buy. Seems fair doesn't it?

If you think about it, it's only worth working with those who are all three, right? If a buyer is ready and willing, but not able to buy, then that is an issue. If a buyer is ready and able but not willing to buy, that is also an issue. And certainly if a buyer is willing and able but not ready to buy, then that also is an issue. So this poses the question...How do you know?

Well, the easiest way is to simply ask. Some experts say the three most important questions you should ask a buyer are:

Most agents know to ask pre-qualifying questions to see if they are able to buy but many fail to ask these important questions to address the ready and willing parts. Agents then take financially qualified buyers out and show them house after house only to find that they don't plan to move for a few years or that they are simply not willing to make a decision.

Now the first two questions are easy to ask and are not very pushy. The third, however, I know can throw some agents a bit because if not asked correctly can come across as pushy or overly assertive. Be very careful when asking this one because you certainly don't want to get anyone upset. You don't want to sound like that used car salesman down the street that asks

"what's it gonna take to get you to buy this car today?".

Practice saying that third question in different ways, using different pauses, different tones of voice, and different facial expressions until you are able to get it to come across more conversational and less selly. If this is something that you are struggling with and you just can't get it down, then just go for the fall-back option of just prep-ing them for the question before you ask it. You can just say something like

"One of the things that I need to do is to kind of gague where you are in the buying process. Sometimes when I ask about this it can come across a little pushy but I'm simply trying to find out more about your intentions and your situation so I can best help you..."

then ask the question. That's not the best approach but if you can't do it any other way, at least do that much. But be sure to ask!

It's important to know that your buyers are Ready Willing, and Able because if they are not, then you're not only wasting your time, but you are wasting THEIR time as well. Asking those simple questions, and making sure your buyer is also pre-qualified (able) are ESSENTIAL before ever showing them properties.

Now I've heard from a managing broker of a different office that he will actually take them out house shopping ONCE before they are pre-qualified. The idea behind this is rapport building and learning their likes and dislikes. While I value his opinion, and I have done this myself as well, I do greatly disagree. I think that risks making the job harder later.

For example, what if you take them out and show them a house that is $300k, one that is $320k and one that is $315k. As you conclude your house hunting trip, you think you have a better idea about their needs and desires and you tell them to go get pre-approved. They sit down with a mortgage broker who pulls their credit and finds out that they are only qualified for $255k. UH OH!! Well now what? The problem now is that you'll now be showing them homes in the $200-260 price range and they may not like any of them as much because they'll be compairing them all to the $300k homes you were showing them before. Whoops. That's why I say pre-approval first, then at least you'll be looking in the right price range from the start. You'll need it for the offer anyway so it's better to have it ready to go when you find that right place.

So in conclusion, take the time to qualify buyers by asking the right questions to determine if they are Ready, Willing and Able to buy. Practice these questions so you don't sound pushy. The other option, don't heed the advice and learn the hard way later.