A Few Tips To Help You Navigate A Short Sale Purchase

Not all that glitters is gold… and not all homes that are marketed as short sales can actually be sold as such.

I received a call this morning from a buyer who couldn’t understand why she couldn’t buy a particular home that was offered as a short sale. She was told that the bank would not approve the short sale and the home went to the county courthouse steps for auction.

While I couldn’t tell her exactly why her particular deal fell through, I could give her some possible reasons as to why it might not have been approved. The price seemed reasonable, but there were several variables that she could not address.

The first variable was that of hardship. She had no idea as to why the seller could not keep the home. If the seller can not demonstrate hardship, why would the lender help the seller avoid a foreclosure by permitting a short sale? Think of a short sale as the opposite of getting a mortgage - you must prove you can no longer afford the property.

Another variable was that of time on the market. Most lenders prefer to see that a home was marketed - by a Realtor - for at least 90 days. In this particular instance - it was not. It’s not a deal killer by itself - but  it’s also not helpful.

Most lenders - particularly with FHA loans - want the owner to occupy the property during the process of negotiating the short sale. When lenders discover that a property has been abandoned, they are likely to enforce a provision of the mortgage that allows them to secure the property after 15 days of observed abandonment. This property was indeed vacant.

When second mortgages are involved, it can sometimes be difficult to negotiate the release of the second mortgage. The second lien holder usually wants more than the first lien holder will allow - and the matter is complicated if the second mortgage is a HELOC (home equity line of credit), as the nature of that particular loan allows the debt to follow the borrower after foreclosure just like a credit card.

This buyer also had no idea as to what the foreclosing lender’s valuation of the property might have been. When a short sale package is delivered to the seller’s lender(s), the lender(s) will order a BPO (broker’s price opinion) to help establish the market value of the property.

Sometimes, the BPO comes in high - as the BPO agent might be hoping to get a foreclosure listing by showing the lender that they believe they can get more money for the property if the lender decides to foreclose. Sometimes it comes in high because the BPO agent - who earns just $45 - $90 to do this valuation - is simply in a hurry and is careless.

Since I was not involved in this transaction, I can only speculate as to why the lender did not accept this particular agreement.

As a buyer, you can get a very good deal when purchasing a short sale, but your agent needs to understand the mechanics of a workable deal for the bank - lest you waste a few months of your time. If your agent is not well-versed in short sales - you might consider finding another agent to represent you.

If the listing agent is not proficient in performing short sales, there is no law that prohibits the buyer’s agent from selecting a short sale negotiator and specifying that this selected negotiator be permitted to conduct the negotiations. While there is no guarantee that the seller will agree to this - a reasonable offer and an rapidly approaching foreclosure date can sway an otherwise reluctant seller.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

The Georgia Dream NSP (Neighborhood Stabilization Program) was created to encourage the purchase of foreclosed properties in select Georgia counties that have been affected by high foreclosure rates. All metro Atlanta counties are currently eligible for this program.

The program provides up to $14,000 (up to 10% of the purchase price) that is disbursed in the form of a second mortgage lien - with no interest or monthly payments. This lien is released after a period of five and a half years.

The funds may be used for down payment and/or repairs and rehabilitation. The funds may NOT be used for closing costs; discount points; or prepaid items such as tax and insurance escrows. The funds may not be used to purchase a manufactured home.

To be eligible, you must occupy the property as an owner-occupant and must participate in an eight-hour in-person home buyer’s counseling course offered by a HUD-approved counseling agency. You must also have a total household income that is less than 120% of the median income for the county of which the property is located.

For home buyers who have not owned a property for the last three years, the federal government also has a refundable tax credit of 10% of the purchase price that can add up to another $8000 in incentives - and add up to another $1800 in tax credits from the State of Georgia.

All together, the incentives can add up to $23,800 in incentives - but these incentives are available only for a limited time.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

Some Indicators Are Beginning To Show Strength

NEW YORK (AP) — There is a clear trend U.S. home prices declines are moderating — another sign the beleaguered housing market is stabilizing, according to data released Tuesday.

While the Standard & Poor’s/Case-Shiller index of 20 major cities tumbled by 18.1 percent, it marked the third straight month the decline was not a record. And yearly losses in 13 metros improved compared to March.

"The stock market bottomed in March and measures of consumer confidence have turned upward. This report shows that these better spirits are also appearing in the housing market," said David M. Blitzer, chairman of the S&P index committee.

Eight of the 20 metro posted price gains from March, with Dallas recording the largest increase at 1.7 percent. And every city except Charlotte showed some kind of improvement month-over-month.

Still, a housing recovery is distant on the horizon. The 20-city index is off almost 33 percent from its peak in the second quarter of 2006, which means home values are now around 2003-levels.

Hardest hit remain Phoenix and Las Vegas, where home prices have lost more than half their value since their peaks.

The Case-Shiller index tracks repeat sales on a specific group of homes in each city. Sales between related parties, such as family members, are excluded.

We are seeing some anecdotal evidence that supports this theory - particularly with newer homes that are in relatively good condition.

A year ago, there was an incredible selection of new construction available - much of it in the form of bank foreclosures. Builders who couldn’t sell their homes in 2007 saw much of their inventory sell as foreclosures in 2008 - and the trend continues.

The selection is not nearly as good right now, as much of the new construction has been purchased - and fewer homes were built in 2007 and 2008, so fewer new homes are left.

Additionally, many buyers are looking  to take advantage of low interest rates coupled with federal and state tax incentives - up to $9800 in Georgia - which could further explain the firming of certain sectors of the real estate market.

With energy costs rising - and the fear of additional taxes added to those rising energy prices - consumers are wary of purchasing older, less energy-efficient homes… and that reluctance is reflected in the lower demand for those homes.

If you are trying to time the market in Atlanta, the time to start paying close attention might be upon you.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

A fear among buyers these days is that of buying a property that will be worth less next year… or next week, for that matter.

Since many homes are now selling at discounts of 30% - or more - off their prices back in 2006, and there is no evidence that prices are ready to turnaround and rise - it’s a fair fear.

As many of you know, I’m not a cheerleader who goes around telling everyone that the best time to buy real estate is NOW.

It’s just not my style… and I’m not Nostradamus.

Prices could continue to tumble for several more years, for all I know. However, if history is any guide, I can make the argument for a purchase in today’s Atlanta real estate market.

With the current economic policies of the Obama administration, we are in for some very high inflation. Some believe that at the rate that U.S. currency is being printed, we might even see hyperinflation if the presses aren’t stopped.

When inflation runs rampant, interest rates must rise - and that includes mortgage interest rates. When Jimmy Carter entered office, mortgage interest rates were around 9% - but Mr. Carter printed a lot of money… and interest rates rose substantially. By the time he left office four years later, rates had jumped to more than 14% - and didn’t peak until two years later at 18%.

But Jimmy Carter was a mere piker compared to Barack Obama.

When you consider that the money supply is being doubled this year - you can only imagine where interest rates are going. One thing is certain - the rates are heading up. Big time.

Let’s look at a $200K mortgage at today’s rate of 5.25%. The monthly principle and interest payment on a 30 year fixed rate note would be around $1104. If property values dropped another 40%, but interest rates jumped to 10%, that same property with a $160K mortgage would have a monthly payment of $1404.

Now let’s look at it another way. The property with a $200K mortgage today was probably worth at least $260K a few years ago. The price would have to fall more than 50% off the high to $126K to have a similar payment of $1106 with an interest rate of 10%.

When you consider that mortgage interest rates are very likely to go much higher than 10% - and that hard assets like real estate become very desirable as a hedge against inflation - you can see why "catching a falling knife" could be your best move.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here. 

In a time when the very fabric of our free nation is at risk of being torn by those who want our country to be more like a European - or Middle East - nation, I appreciate the service of my fellow military men and women more than ever.

Perhaps I feel differently about this day because I am a U.S. Navy veteran. Like many others who have served, I get a little choked up on this day. To me, it’s not simply a day of celebration - it’s a day of solemn observance.

I truly appreciate all of those who gave their lives or limbs to help create and protect the greatest country in the world. Most of us will never know the sacrifice that these great men and women selflessly endured so that we could live in freedom - and sadly, many do not appreciate the freedom of which these patriots gave their lives.

While today is a day of remembrance for those who have fallen, every day is a day of appreciation for our uniformed men and women. When you see a man or woman in military uniform - go shake their hands and thank them for their service. Since 9/11, every single one of them is a volunteer during wartime - and they deserve our respect and praise. 

Cutting Through Some Of The Tax Credit Misinformation

Fellow Bloodhoundblogger Tom Vanderwell is trying to make some sense of the first-time homebuyer’s tax credit here:

http://www.bloodhoundrealty.com/BloodhoundBlog/?p=8412

It is reported that over 500,000 first-time homebuyers have taken advantage of this program since its inception - and if you are a first-time homebuyer interested in Atlanta real estate, you might want to keep an eye on these developments.

Buying A Home In Atlanta Remains A Highly Personal Choice

Home prices in the greater Atlanta area are now as low as they were five years ago - and in some cases - ten years ago. Home mortgage interest rates are at near all-time lows. It is a buyer’s market, no question about it.

In spite of these factors, the economy is soft - and there is no evidence that the housing market is firming up. Home prices could continue to fall - or rise - in response to market forces.

What is the potential buyer to do?

If you are hoping I’ll say "Now if the best time to buy!" - allow me to apologize, as I can’t be your cheerleader. Many buyers are cautious and skeptical right now - and who can blame them? No one wants to catch a falling knife.

The real question is "are you right for the market?"

Many potential buyers are not good candidates right now. If you are not secure in your job or source of income, this might not be the best time for you to buy. Just because you CAN buy a home doesn’t mean that you SHOULD. After all, that’s what got us into this global economic mess.

If you are willing to buy and hold for the longer term, then your biggest hurdle will be finding the best property in the area of which you want to live - and paying the right price. In our current market, it is essential that you get into the property at the lowest possible price to protect yourself from potential loss.

In other words - you have to buy "below market".

So if you are secure, able to find a good suitable property and negotiate a below-market price - then I would say it’s probably a good time for you to buy a home in Atlanta right now.

If it is any consolation, U-HAUL has named Atlanta as the top destination for the second year in a row.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

As I scan the Atlanta real estate universe, I am often saddened by the news… and angered by the cheerleaders who are more interested in making a quick buck than protecting their clients.

When I speak directly to the public or my clients - I am cautious on their behalf. I often preface the hard, cold facts with, "Let me tell you how the cow eats the cabbage…"

Well yesterday a client asked me, "So exactly how does that cow eat that cabbage?"

That got me to thinking. Where did that saying originate? I’ve used it for at least 20 years… but never knew its origin, though I remember I picked it up in Texas. With the help of our friends at Google, I was able to find this amusing story for your enjoyment:

In Today’s Market - Mistakes Are More Costly Than Ever

Are you the kind of home buyer who wants to deal directly with the listing agent? Do you believe you’ll get a better deal if there is only ONE agent in the transaction? Have you bought and sold a few homes - and now consider yourself an "experienced" home buyer?

I suggest that even experienced home buyers can make some costly mistakes. Today’s case in point is a new home that I had under contract with a client back in December. The home was originally listed eighteen months earlier for more than $450K, but had been dropped to $385K when we first saw it.

Our contract price - minus closing cost - was a little less than $350K. My client, due to a change in finances, could not complete the transaction… and the home was brought back on the market.

For some unknown reason, the listing agent jacked the price up to $440K - which is quite a shock, since our real estate market has not improved over the last few months. And then it became obvious, as the home went under contract.

By raising the price, the listing agent could "get the buyer a great deal", as there would be lots of room for negotiation.

So I have patiently waited for the listing agent to show the listing as SOLD so I could see what the final sales price was. After several weeks following the proposed closing date, I checked the tax records to find that the home did sell - and sold for $430K.

To make matters worse, the buyers not only overpaid for the property - they put more than $80K down on the purchase… and they still need to sell their existing home (which seems to be overpriced, as well).

I could have saved this buyer more than $70K - which would still be in his bank account - if he had come to me before calling the listing agent.

To recap - the listing agent represents the seller. When you deal with a listing agent without representation - you can lose a great deal of money.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.

New GAR Rental Agreement Not Without Some Big Surprises

When most consumers review real estate documents, they assume that the pre-printed language is set in stone - and that everyone must agree to those portions of the agreement or you will have no agreement…. not unlike the Terms of Service you must agree to before using most software or certain websites.

In our last incarnation of the Georgia Association of Realtors Residential Lease Agreement, I find a pre-printed section that defies my best logic. Section 20 states:

Upon 24 hours advance notice to Tenant, Landlord shall have the right Monday through Saturday for 9:00AM to 8:00PM to access Premises of Property to inspect, repair, maintain the same and/or to show the Property to prospective buyers. In the case of emergency, Landlord may enter Premises or Property at any time to protect life and prevent damage to Premises and Property. In addition, during the last ___ days of the term of the Lease, and during any period when Premises is being leased from month to month, Landlord may also place a "for rent" or "for sale" sign in the yard or on the exterior of any dwellling on Property, may install a lockbox and may show Premises to prospective tenants or buyers. In the event a lockbox is installed, Tenant shall secure jeweelry and other valuables and agrees to hold Landlord harmless for any loss thereof. For each occasion where the access rights described above are denied, Tenant shall pay Landlord the sum of $_______ as liquidated damages; it being acknowledged that Landlord shall be damaged by the denial of access, that Landlord’s actual damages are hard to estimate, and the above amount represents a reasonable pre-estimate of Landlord’s damages rather than a penalty.

Since this is in the pre-printed portion of the agreement, it appears to be normal "boilerplate" language that the tenant might presume is applicable to all who rent property.

May I submit to you that it is NOT.

I would never allow a client to agree to this language before they fully understood the ramifications of this section.

First, let me say that I am not an unreasonable person. I understand that the Landlord needs provisions to protect his or her property… but this language can be used to destroy the quiet enjoyment that a tenant should expect to receive when leasing a home.

For example, this provision allows the Landlord to make daily incursions - without limitation - six days a week, eleven hours a day… marching prospective buyers (also known as strangers) through the home.

Keep in mind that the subject property is not the Landlord’s home… it is the Landlord’s HOUSE. It is the Tenant’s HOME.

If the Landlord wishes to market the property and conduct tours of the premises with prospective buyers - then maybe they should look into getting a House Manager, who will keep the property in showing condition and pay a substantially reduced rate of rent for the inconvenience.

A compromise that can help the Landlord sell the property while protecting the Tenant from unreasonable disruptions from quiet enjoyment is by writing language into the lease that provides for showings only to those buyers who have placed the property under contract, subject to an inspection contingency.

I would encourage anyone who is entering into a lease or purchase agreement to seek the advice of an experienced broker or real estate attorney.

As always, if you have any questions regarding real estate in the greater Atlanta area, feel free to contact me here.