I often get asked if we see short sales and Foreclosures in Danville? The answer is yes. In fact, they’re everywhere not just Danville! If you are a little confused over what these two are, let me take a brief moment to explain them and help clear up any confusion.

A Short Sale occurs when the proceeds of your home sale falls short of the balance owed on the property.  In a short sale, the lender agrees to let you sell your home for LESS than the loan balance due to an economic or financial hardship that either will or has already lead to default on mortgage payments.

This negotiation is all done through communication with a bank’s Loss mitigation department & your Real Estate Agent. The home owner lists their home and sells the mortgaged property for less than the outstanding balance of the loan, and turns over the deficient proceeds of the sale to the lender. The lender has the right to approve or disapprove any offer.  Extenuating circumstances influence whether or not banks will accept a short sale process. These circumstances are usually related to the current real estate market climate and the individual borrower’s financial situation.

A short sale typically is executed to prevent a home Foreclosure. For the home owner, the advantages include avoidance of having a foreclosure on their credit history and the partial control of the monetary deficiency. Additionally, a short sale is typically less expensive than a foreclosure for the lender.  Most often, in today’s market, Short Sales occur when the homeowner is already in default by missing mortgage payments , or will soon default on payments due to hardship.

It is important to understand that this situation can happen to anyone. It can be caused by loss of employment, medical hardship, financial hardship as well as short term sub-prime loans that are re-setting at higher rates. If the “Short Sale Listing” does NOT sell within the bank specified amount of time (schedule), the bank will foreclose on the property by repossessing the home as security against the defaulted loan, with the intention of selling the property on the market. This property now becomes known as an REO.

REO – means “Real Estate Owned” by the lender. This is another term often heard today, that refers to properties that have gone into foreclosure and are now repossessed by the lender and for sale to the general public, (usually listed by a Real Estate Co. or investment company).

FAQ:

Do Short Sales and REO sales affect the selling price of my home? Yes they do, unfortunately.  The title companies record with the county, the closing price of these homes just like they do those of a private sale. They are in the numbers!  In fact, they are probably the single largest factor in the decline of our home prices over the past three years.

Will I get a great deal buying a short sale? You can!  A few things to consider though.

1.  A short sale can take 90 days or MORE to get full approval from the bank.

2.  If there is a first and second mortgage on the property – both lenders need to agree on the terms before it is approved. So while you may get a good price, the process demands a considerable amount of patience and waiting.

Will I get a great deal buying an REO? You can! In fact, the REO sale is generally a much quicker process than the short sale, because the former owner and a possible second lender have been removed from the equation. The bank will often times approve or counter an offer within a week. The caveat? Some banks will sell the home “as is” and will not pay for any repairs whatsoever. In this case, the buyer needs to make sure they conduct their inspections during the contingency period so they can make an informed decision whether to proceed or withdraw while they have that contingency window in their favor.

Some interesting statistics:

38% of all homes for sale on the market in San Ramon are either short sales or REOs.

55% of all homes PENDING in San Ramon are either Short Sales or REOs.

California Association of Realtors reports that Year to date 2008, the number of homes sold in the 94582 zip code increased +12.4% vs. 2007.

IF YOU THINK YOU MAY BE IN A SITUATION  LIKE THE ONE ABOVE AND NEED HELP UNDERSTANDING YOUR OPTIONS…. GIVE US A CALL. DON’T WAIT!!! ONCE YOU HAVE BEGUN MISSING PAYMENTS THE TIME CLOCK BEGINS TO TICK, AND YOU HAVE ONLY A SCHEDULED AMOUNT OF TIME TO GET YOUR HOME SOLD BEFORE THE LENDER TAKES POSSESSION OF IT.

AMERICAN HOUSING RESCUE AND
FORECLOSURE PREVENTION ACT OF 2008

The “American Housing Rescue and Foreclosure Prevention Act of 2008″ (H.R. 3221) was signed by President Bush on July 30, 2008. This measure provides mechanisms to help the troubled housing market as well as tighten lending practices and reform financial institutions.

New Homebuyer Tax Credit - For qualifying home purchases after April 11, 2008 and before July 1, 2009, the Act provides eligible first-time homebuyers a refundable tax credit equal to the lesser of 10% of the purchase price of a principal residence or $7,500 ($3,750 for married individuals filing separately). The credit phases out for individual taxpayers with modified adjusted gross income between $75,000 and $95,000 ($150,000-$170,000 for joint filers) for the year of the purchase. A taxpayer is considered a first-time homebuyer if he (or spouse, if married) had no ownership interest in a principal residence during the 3 year period before the purchase of the home to which the credit applies.

Reduced Principal Residence Exclusion for Non-qualified Use Periods – For sales after December 31, 2008, the principal residence exclusion will not apply to the extent gain is allocable to non-qualified use. Non-qualified use includes a period during which the residence is not used as a principal residence by the taxpayer or spouse. In general, the seller will be required to reduce the exclusion amount by a ratio the numerator of which is the period of non-qualified use and the denominator of which is the period the property was owned. Certain periods of non-qualified use are not counted including any period before January 1, 2009, any non-qualified use arising after a period of qualified use, and certain temporary absences. This new rule will further limit the ability of an investor/owner to convert an investment property into a principal residence and qualify for the full Section 121 exclusion.

Government Sponsored Enterprise (GSE) Reform – This provision creates an independent regulator to oversee the GSEs and increases conforming loan limits to the greater of $417,000 or 115% local area median home price (capped at $625,500). The increased loan limits will be applicable to loans originated after December 31, 2008.

Federal Housing Administration (FHA) Reform – Increases permanent FHA loan limits to the greater of $271,050 or 115% of local area median home price, capped at $625,500; streamlines processing for FHA condos; reforms the Home Equity Conversion Mortgage (HECM) program and the FHA manufactured housing program. The down payment requirement on FHA loans will go up to 3.5% (from 3%). The effective date is immediate upon enactment, but the new loan limits will be effective on December 31, 2008.

FHA Foreclosure Rescue – Develops a refinance program for homebuyers with problematic subprime loans. Lenders who elect to participate will write down qualified mortgages to 85% of the current appraised value and qualified borrowers would get a new FHA 30-year fixed mortgage at 90% of appraised value. Borrowers would have to share 50% of all future appreciation with FHA. The loan limit for this program is $550,440 nationwide. This program is effective on October 1, 2008.

Seller-Funded Down Payment Assistance – This codifies an existing FHA proposal to prohibit the use of down payment assistance programs funded by those who have a financial interest in the sale; does not prohibit other assistance programs provided by non-profits funded by other sources, churches, employers, or family members. This prohibition is effective on October 1, 2008.

Veterans Affairs (VA) Loan Limits – Temporarily increases the VA home loan guarantee loan limits to the same level as the Economic Stimulus limits through December 31, 2008.

Risk-Based Pricing – Puts a one year moratorium on the Federal Housing Authority using risk-based pricing. This provision is effective from October 1, 2008 through September 30, 2009.

GSE Stabilization – Authorizes the Treasury to, make loans to and buy stock from the GSEs to make sure that Freddie Mac and Fannie Mae will not fail.

Mortgage Revenue Bond Authority – Authorizes $10 billion in mortgage revenue bonds to refinance subprime mortgages.

National Affordable Housing Trust Fund – Develops a Trust Fund funded by a percentage of profits from the GSEs. In its first years, the Trust Fund would cover costs of defaulted loans in FHA foreclosure program. In later years, the Trust Fund will be used for the development of affordable housing.

Community Development Block Grant (CDBG) Funding – Provides $4 billion in neighborhood revitalization funds for communities to purchase foreclosed homes.

Low Income Housing Tax Credit – Changes the Low Income Housing Tax Credit program to make it more efficient.

Loan Originator Requirements – Strengthens the existing state-run nationwide mortgage originator licensing and registration system and requires a parallel HUD system for states that fail to participate. Federal bank regulators will establish a parallel registration system for FDIC-insured banks. The purpose is to prevent fraud and require minimum licensing and education requirements.

These are highlights of portions of the “American Housing Rescue and Foreclosure Prevention Act of 2008.” To view the entire text of H.R. 3221, click here: H.R. 3221