Real Estate Agent with Re/Max Gold

By Steve Beede


According to the Sacramento Association of Realtors, there presently is a 6 week supply of homes on the market. That is down 20% from January. A normal market would be a three month supply. The predictable result is shorter sale times and multiple offers. The economic laws of supply and demand tell us that this competition should push prices up but it's not happening. The other result is that, with so little purchase opportunities available, demand for rental housing has increased and rent is at an all-time high.


So what's going on? It appears to be a conflict between several varied market forces.


First - Buyers fear more price reductions to come - Market watcher Core Logic reports that there are currently 11.1 million borrowers underwater nationwide. Lender Processing Service (LPS) reports that 5.5 million borrowers are 30 days or more delinquent, over 2 million of which are already in the foreclosure process. And while statistically foreclosure rates are actually down, 56,258 new foreclosures were started in California in the 1st three months of 2012. Many call this the "shadow inventory": properties in trouble but not on the market for sale. With the recent National Mortgage Settlement resolving lender fears of possible blocks to foreclosure, most market watchers expect an increase in the 2nd quarter. If so, prospective buyers fear that increased foreclosure activity may push prices down further.


Second - Prospective Sellers hope for Loan Modifications - Despite the reality that success in obtaining a loan modification remains less than 10% and mods with principal reduction are even less, upside-down owners continue to hope that relief may be coming to enable them to keep their homes. The National Mortgage Settlement will eventually produce up to $25 billion in principal reductions, although it is still unclear who will qualify for these. The Settlement only applies to Wells Fargo, BofA, Chase, Ally, and Citi but does not apply to FNMA and Freddie Mac owned loans. Those two GSE's own 60% of the upside-down loans yet they refuse to participate in principal reduction.


Third - Lenders are tightening lending standards - According to a recent report in DS News, over 30% of residential mortgage lenders report an increase in demand. In response, lenders are actually tightening standards for residential mortgage loans. While the availability of loans remains better than it was immediately after the onset of the recession, prospective home owners are finding it more difficult to obtain purchase funds. This prevents them from competing with the large numbers of investors and others purchasing properties for all cash.


Fourth - REO holders are bypassing the real estate profession - Increasingly, lenders are offering to sell their REO (real estate owned) properties in bulk to investor groups at a discount. For lenders, this removes large numbers of properties from their non-performing inventory at a lower cost; and for investors, this provides a very significant opportunity to buy already devalued property at even further reductions. However, these properties never come on the market for Realtors to sell or prospective buyers to buy. This trend appears to be increasing.


Taken together, these market forces are likely to keep market inventory down for the foreseeable future.



The Benefits of Short Sales:

Four very major benefits exist that make short sales the avenue of choice for upside down owners:


(1) Deficiency Judgment Avoidance - The passage of SB458 in July, 2011 bars deficiency recourse after a short sale for all lenders. In most foreclosures, junior lenders can still sue the borrower for a deficiency judgment;


(2) Debt Forgiveness Tax Avoidance - The Debt Forgiveness Tax Relief Act expires on December 31, 2012. Currently, foreclosures take an average of 10 months in California so a borrower defaulting this month would likely lose the Act's protection and become liable for the tax on any unpaid loan amount. Only a short sale can realistically be started and competed before the Act expires.


(3) Reduce Credit Damage - Both because of the reduced default time and the different credit reporting ("Settled" instead of "Foreclosed"), a short sale enables sellers to restore their credit earlier and get back into the market while prices and interest rates remain at historic lows.


(4) Avoid Job & Career Damage - For some debtors working in security positions (Military, Fire, Police) or fiduciary positions (Banking, Accounting, Investing), a foreclosure on their record and reporting on their Credit can cost them their job, stop them from further employment in a similar job, or even end their career. In contrast, a Short Sale avoids or at least substantially reduces these risks.


For most people in today's market, especially since the passage of SB458, short sales represent the best means of achieving the above-stated protections.... but it's not necessarily for everyone. If you or someone you know is struggling with an upside-down property in California and don't know what to do, our $200 flat fee Consultation Program can offer knowledge of what to expect and form strategies to either keep the property or move on with as little financial risk as possible. To schedule a Consultation, please contact our office at (916) 966-2260.


The information presented in this Article is not to be taken as legal advice. Every person's situation is different. If you are upside-down on your loan, especially if you're facing a lender lawsuit, get competent legal advice in your State immediately so that you can determine your best options.

Posted by

Ken Brazil
Broker Associate
Re/Max Hall of Fame
Certified Residential Specialist (CRS)
Certified Distressed Property Expert (CDPE)
Certified Investor Agent Specialist (CIAS)
Re/Max Gold
(916) 791-9073
DRE # 00829410

Roseville Homes For Sale

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