With over three decades of real estate experience, I have a perhaps old fashioned perspective on the real estate business. Personally, I’ve never used a transaction coordinator. I’m a hands-on broker who feels that if you want to ensure something gets done right, you should do it yourself. With that said, I can see the benefit of using a TC especially for very busy agents, as well as new agents who may not be fully aware of the required timelines and forms required to ensure a timely close.

To me, it’s always been the broker’s duty and responsibility to not only negotiate the sale, but to ensure the escrow runs in a timely manner. If you delegate part of your responsibilities to a pseudo-employee, it only seems reasonable that you should pay for this service. After all, you cannot delegate away the responsibility for insuring the quality of the work by the TC. *To view the full post, please visit the San Diego California real estate market blog.

When a Home Foreclosure Bargain Costs More Than it Should

By Bob Schwartz, Certified Residential Specialist, California Real Estate Broker

If the news is correct, there are bargains to be found in buying foreclosure homes in California.  To be sure, a savvy investor can find a gem among the ruins of the real estate market bust.  A good sales price is not the only dollar figure to keep an eye on, though.  You must pay attention to your other costs!

It behooves you to always seek professional representation by a real estate agent but that is still no guarantee that you won’t over-pay by hundres, or even thousands of dollars, in unnecessary costs. 

The insidious implementation of a new rip-off tactic makes it extremely difficult to discern until after the sale has closed. Even when closed, your own real estate agent may not want to bring this to your attention, because they too will suddenly realize the lack of due diligence on their part, has cost you, the buyer, unnecessary costs and fees.

Currently, these buyer rip-offs are occurring on bank owned foreclosures and short sale properties. Typically, in these transactions, services such as escrow, title, and natural hazard disclosure are selected by the seller or seller’s agent. The vast majority of buyer’s agents do not counter the services because they don’t want to jeopardize acceptance of their offer. In normal situations the fees for these services are very similar from one company to another.

In California, title companies are tightly regulated, as are the escrow companies that they control.  But, independent escrow companies do not have their fees regulated.  This non-regulation of fees is a key to this rip-off.  The term rip-off is used here quite liberally, but if the fees are properly disclosed and the buyer is aware that they are extremely high, and it is their decision whether to move forward with the transaction,  in that case, there’s nothing wrong.   A buyer likely won’t be happy over-paying escrow fees but if they believe they are getting a steal on the value of the property, then they may proceed just to insure their purchase.

It is not so much the exorbitant fees being charged by independent escrow companies that constitute a rip-off but the charging of the exorbitant fees without timely, proper disclosure that is a problem.  Presently, this has been seen mostly in the Orange County and Los Angeles areas.

Exactly what are these exorbitant fees charged to buyers? The main fee is the escrow fee that the buyer is required to pay. I was told by one major lender that the buyer’s escrow fee on a $265,000 bank owned foreclosure was $1400. Typically, the buyer’s portion of the escrow fee on such a sale would be approximately $680. Some other high fees are: E-doc fee of $150, which would normally cost about $75; a notary fee of $250 to notarize the loan documents in the escrow office; in one case a mobile notary was required for a fee of $350 and lastly, a loan tie-in fee of $300, when typically it runs about $100.

Typically on a bank owned property and or short sales the lenders require certain boilerplate, documentation to accompany any offers or they provide this documentation as part of a counteroffer. It’s in this documentation the lender states which companies they require for the various services necessary to close the transaction. To my knowledge, the amount of fees these lender selected companies are going to charge is not a required disclosure.

The buyer’s real estate agent should not put too much credence in the fact that the offer they drew up states that the escrow fees are to be split 50-50.  In the boilerplate, lender required documentation; it may state that the escrow is to go through XYZ Escrow Company. Another document will state that the XYZ escrow company is an affiliated or bank owned subsidiary.  In this case, though technically the bank and the buyer are both paying an exorbitant escrow fee, the bank is actually paying their half of the fee to themselves.  Although I have no documentation, it could also be that the required vendor boilerplate documentation states that the lender’s maximum contribution for the escrow fees will be a specific number and anything above that will be picked up by the buyer.

Even though I do not have exact information as to how these exorbitant fees are being disclosed or if they are being disclosed, I am 100% certain that these exorbitant fees are being charged on many bank owned foreclosures and short sales.  The charges far exceed the norm, thus in my opinion, meet the criteria of a “rip-off.”

One major San Diego lender informed me that so far this year they originated new loans on about 30 bank owned or short sale properties. In every transaction, the escrow fees charged were way above the norm.

An easy solution is if California would control the independent escrow fees.  Even if motivated to do so, and not coerced by special interest lobbyists to look the other way, it won’t happen immediately.  For now, buyers’ agents involved in these types of sales must request up front disclosure of all buyer costs.  If the agent doesn’t automatically do it, then the buyer will have to stay on top of the representation and ask for disclosure of costs.  Contemplating the purchase of a California bank owned foreclosure or short sale? Caveat Emptor!

Read more of Bob Schwartz’s 'tell it like it is' real estate opinions & subscribe to his free RSS feed at: San Diego real estate market blog.

A recent research report from the University of Chicago’s Booth School of Business  and  Northwestern University’s Kellogg School of Management reports that of the large number of mortgage defaults across the country, 26% were what they call strategic. This report defines strategic as one in which the mortgage default was a calculated, done by homeowners who have the money to make the payments.  The owners decided that the homes negative equity position indicates to them it would be economically wiser to let the property go back to the lender.

According to another nationwide study, 22% of all homeowners had negative equity positions during the first quarter of 2009. This means the homeowners owed more on their mortgage, than the current resale value of their homes.  In some parts of Southern California, Nevada and Florida, it’s speculated that more than half of all homeowners now have negative equity.

Currently, we are just beginning of prime adjustable-rate loan activity called mortgage resets.  The number of these mortgage resets far exceeds the number of subprime loans. The findings from Northwestern University's study seem to indicate that the U.S. housing market is on the brink of another substantial rise in home foreclosures.

Keep in mind, that these are prime loans made to the middle and upper end of the housing market.  The people can afford to make the reset payments on their mortgages. A main reason that these people can afford the new reset payments is because of today's low interest rates hovering at around just 5%.  In a post, dated 1-20-09, ‘San Diego Negative Home Equity’ on my San Diego real estate market blog, I speculated about this exact situation.  The post was well in advance of this study's findings and all the more prophetic today.

I believe the importance of the mortgage reset will wake up homeowners to the harsh reality, and extent, of their negative equity position. Will they want to keep making mortgage payments?  Would you, if the current value of your home was $50,000 less than the balance of your mortgage? What if your home value was $100,00, $200,000 or even $300,000 less than the balance on your mortgage? Would you continue to make payments or let the bank take it over?

I recently sold only in La Jolla. That was purchased new in 2005 for approximately $1.6 million. My buyer, was able to buy this home for just $1.1 million. So, in just about three years, from the time this home was purchased, the original seller’s home value had declined by $500,000, or just over 31%. Now just imagine if this home was originally purchased with a 10% down payment. The original owner would have had $160,000 invested in the property at the start. Plus would have made three years of substantial monthly mortgage payments, plus upgrades and then found out that his original $160,000 equity position had deteriorated into a -500,000 position. Now, should the original purchaser, with the loan balance of $1,440,000 continue to make mortgage payments or let the bank take the property back?

In the Northwestern University study, among those without moral reservations, 63% of those homeowners with a negative equity of $300,000 or more would let the property go into foreclosure. For the other group in the study who had moral issues with letting their home go into foreclosure, if they could make the payments, 38% would let their properties foreclose if their negative equity position reached $300,000.

Another finding in the study showed that the higher number of foreclosures in the zip code, the higher the homeowners’ willingness to walk away from their properties. Plus, 82% of homeowners in the study were likely to have a strategic default when they were aware of others who had defaulted.

The bottom line from this study seems to show that the traditional assumptions that homeowners default on their mortgages because they can't afford their monthly payments, needs to be re-examined. Even with the new Fannie Mae and Freddie Mac 125% refinance mortgages, will these deep in negative equity homeowners really be enticed to refinance their homes, when financially, it looks like a foolish decision?

 Read more of Bob's 'tell it like it is' real estate opinions & subscribe to his free RSS feed at: San Diego real estate blog Also visit San Diego real estate & San Diego real estate agents

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San Diego MLS home listings

In the San Diego housing market the undisputed hottest selling properties are bank-owned, foreclosed homes and condos.

Many San Diego home buyers are exhibiting characteristics of the famous Alan Greenspan term, “irrational exuberance.” Use of the terms, “bank owned,” “bank foreclosure,” “lender reposition,” “foreclosure sale,” etc., are sure to draw a crowd to view the property. If the property shows half-way decently, there will be offers, and sometimes multiple offers.

Adding my observation to the above facts, I note that a number of lenders have hit on a marketing ploy to create a buying frenzy which guarantees an almost instant sale. In the majority of cases the offer(s) exceed what may have been realistically expected if the property was marketed the traditional way.

Here are some actual examples of this technique for San Diego home sales. *To view the full post, please visit the San Diego real estate market blog.

After the government’s massive stimulus spending plans, the Obama administration is probably disappointed with the continuing and escalating home foreclosures. The Obama administration announced that they have conceived a new program that would convert potential foreclosures into rentals. A spokesman said it’s reasonable for policymakers to consider options for loan forbearance — allowing borrowers to delay, defer or skip payments — that are more effective than those currently available in the private sector. The idea is to turn mortgage defaulters into renters.

Such a plan would let borrowers who have fallen behind on their mortgage payments, avoid eviction by renting their homes. They’d give up all their equity (what equity?) and future claims on the equity, in exchange for getting to stay in the home. How brilliant! I can see the headlines now: Foreclosures Cut 75% – Obama rescues troubled Homeowners – Obama Cures Foreclosure Problem.

Perhaps the real benefit of such a program will be the banks. Banks, now showing these homes as non-paying liability, would be able to show them as a paying asset. Plus, tens of thousands of troubled homeowners would now be assured of voting for Obama’s re-election so they can insure their handout-living continues. Depending on how the plan works, the government would establish a rental Czar and thousands of government jobs in the new government rental management program. A real win-win situation for everyone . . . except for the taxpayers. *To view the full post, please visit the San Diego real estate market blog.

The Obama health care bill is mostly modeled after the Canada model. This video, shows in part how things are going for health care up north.

For another view on the Obama Cap & Trade bill, visit the San Diego real estate market blog.

If bad loans got us into this mess, can we expect more bad loans to get us out? The answer is YES if you are running the Fannie Mae or Freddie Mac government refinance programs. In a recent press release it was announced that the two government owned agencies will now refinance loans up to 125% of the current home's value!

Did we not learn anything from the current, and continuing), housing bust? All facts from the mortgage industry and government point to the fact that mortgage default rates take a huge spike upwards with high loan to value loans.

I would venture to say that many of the mortgage debtors (in trust deed states) may not realize that by refinancing through this program, they will be going from a non-recourse loan to recourse refinancing, in many cases.

My bet is that actions like this will give a false sense of recovery for awhile, only to have us fall further in the future, much like the stimulus money is currently doing.

In his statement FHFA Director Lockhart said, “The higher LTV refinancing will allow more homeowners to strengthen their finances.” Do you really believe this? If the government really wanted people to stay in their houses, they would allow them to go into foreclosure and help them find alternative housing. Moving them into a 125% LTV recourse loan is setting them up for disaster and setting taxpayers up to take on the resulting new losses.

Perhaps the government is not being 100% honest in their touting this 125% refinancing program as a way to help people stay in their houses. In reality, it may actually be a way to help banks keep from writing down assets while they earn enough money to increase their capital base.

Living in California, I'm a little disappointed in the fact that our state tax and spend government did not come up with a comparable plan before the Feds. The fact that California has no budget, is issuing IOU's and has upwards of a 26 billion deficit is no excuse. Just a few months ago California passed a new law giving new home buyers a credit of 5% of the purchase price up to $10,000. California set aside 100 million for this program. Now that the $100 million is almost exhausted, two new bills are pending in Sacramento to to double or triple the original $100 million.

San Diego homes for sales