Why am I posting so many times on the same issue - financially distressed homeowners?  Unfortunately, that’s where the market still is and will be for some time to come.  The number of contacts I have had recently pertaining to this issue has put this topic at the top of my mind.  It is important for people who are in fear of losing their homes to know that there are people in the real estate industry they can trust to discuss their situation.

I’ve mentioned in a previous post that many homeowners who are behind in their payments do not talk to anyone before being foreclosed on.  It is embarassing.  They didn’t expect to be in this situation.  They don’t know where to turn.  They don’t want their friends and family to know they are in trouble.  They think they can find a way out on their own.  But homes are being foreclosed on without any attempt to stop the process.  What they need to know is that there are options available.  If they wait until the last minute, it’s almost impossible to save their home from the public trustee’s sale.  One place to start is CDPE.com to find trained Realtors in the homeowner’s city.  Other training is becoming available to Realtors.  NAR now has the SFR (Short Sales and Foreclosure Resource certification).  If you don’t find a CDPE trained Realtor in your city, look for a Realtor with the SFR certification.  These Realtors have taken the time to educate themselves on the short sale process.

But the real reason for my post today is to warn you about scammers that take advantage of homeowners who are in default and who also take advantage of Realtors who don’t know what they are doing when it comes to short sales.  Everytime there is a crisis, creative criminals find ways to take money from well-intended individuals.  In this economy there are short sale scams, loan negotiation scams, you name it.  Here are some questions to ask before starting to work with any self-described short sale company.  I want to thank Brandon Brittingham of Maryland for his post of these tips on BrokerAgentSocial.

1.  Ask if the type of short sale practice they use is legal in your state.  Different states have different requirements.  Check your state laws and local laws or common practices and thoroughly research any company you are considering.  If they say they are short sale experts, what experience do they have to support that?  How many short sales have they closed?  Are they willing to give you legitimate references?  Do they work with reputable real estate brokers, lenders, and title companies who can provide those references?

2.  Are they asking for money upfront?  Some legitimate companies do charge upfront, but it isn’t the norm.  Realtors who are short sale specialists only get paid at closing and their payment is outlined on the HUD1 Settlement Statement.  How is the short sale company you are considering getting paid?  Are they accountable to the seller’s bank, who will be approving a short sale, or to anyone else?  What recourse do you have for getting your money back if they don’t do what they say they will?

3.  Be wary of companies that have no affiliation with a real estate company.  Companies Brandon says he has run across that are running scams or offer no real service are not affiliated with a real estate broker for a reason.  Real estate brokers and agents that are members of NAR are required to abide by the Code of Ethics of the National Association of Realtors.  Any licensed Realtor is required to abide by the laws of the state in which they are licensed.  If you aren’t a licensed real estate broker or agent you don’t have to follow these laws or codes.  So be cautious of companies who are not affiliated with legitimate brokers.  Do your homework to see if they are legitimate companies and provide the services they claim to offer.

Let me add one last caution.  In a short sale, the seller’s bank is agreeing to take less than is owed to allow the homeowner to sell their home.  Therefore, they have to approve the sale.  Some short sale or real estate investment companies do what is referred to as a double close.  An investor buys the property at the first closing and then shortly after (the same day) the investor sells the house to another buyer the seller has never met at a second closing and takes a profit from the transaction.  Do you think there is room for fraud in this type of activity?  Very much so.  If the seller could have gotten a higher price to begin with, don’t you think their bank would like to know that? 

There are people in the marketplace who want to take money out of the deal without putting down any money of their own or getting their own loan for the first closing.  Oftentimes the company you are talking to is the investor.  Please know there are legitimate investors who close and then sell to someone else.  And legitimate real estate investors are a group that will help get us out of the real estate mire we are currently in, but they do things according to the rules.  If the buyer won’t have their own hard money on the table at the first closing, be suspicious and cautious.  This same caution goes to buyers who know there is an intermediary between them and the seller.  Work with a reputable Realtor who can spot suspicious activity and help you avoid it.

As always, if we can help, we are here to do that.

Remember my post on March 16th that discussed people in distress paying off their credit cards and letting their mortgage payment go.  Well, that strategy may come back to bite them if they try to sell their home as a short sale later on.  Lenders are now checking to see if sellers requesting short sales are also delinquent on their other bills.  If not, they might not be as anxious to approve the short sale.  Another example of unintended consequences.  Beware.

Recently I read an article that discussed a new paradigm occurring when people can’t pay everything and decide what bills to pay.  More and more they are choosing their credit card bills over their mortgage.  But isn’t homeownership sacrosanct?  Don’t you keep a roof over your head first?  This doesn’t appear to be the case for a growing number of homeowners.  The reasoning behind the latest statistics is interesting and easy to understand.  With 1 in 4 homeowners who have a loan on their home being underwater (they owe more than the house is worth), with fears about job security, and with a low savings rate in the USA, maintaining credit is important to people who do not feel financially secure.  Therefore, they are letting their mortgage payments go and paying their credit card bills first so that they can keep that credit line if they need it.

With the banks so overwhelmed with foreclosures and short sales, many homeowners going through foreclosure get to stay in their homes for many months after they are notified they are in default.  It takes time for the process to work.  Waiting for eviction, not knowing when it will happen, and being locked out of your home is not something people want to experience, but it is happening as mortgage payments aren’t being made.  With credit cards, borrowers can lose their ability to use credit within 60-90 days if they do not make payments.

The sad thing is that many homeowners who are in default never talk to anyone to see if they can be helped.  The government HAFA program, which provides payments to the investors who provide mortgages and homeowners who are in default moves forward in April, 2010.  If you know someone who needs help, have them talk to a real estate agent who is a CDPE designee and understands what options may be available to a financially distressed homeowner.  They may be able to help lift the burden of an underwater home from the homeowner’s shoulders.  I have a team of CDPE agents who work with me and continually educate themselves on all the changes surrounding these issues.  Let us know if we can help you or someone close to you who is struggling with the decision of which bills to pay.

I love it when a plan comes together!  As you may know, I read a lot of articles and listen to a lot of speakers whose content pertains to the real estate and investment markets.  I want to make sure I’m on top of the latest information for the benefit of my clients and readers.  Today I read my new Realtor Magazine Online and half the articles happened to be on subjects I’ve thought about recently.  That’s where my plan comes in - I have a tendency to see trends rather than follow them and want to share those insights with you.

One of the current articles is on a topic critical to any seller in the current market or who is thinking of taking the plunge.  How to price homes in the MLS.  ONLY HIRE A REALTOR WHO KNOWS YOUR MARKET AND WHO WILL BE HONEST WITH YOU!!  Did you know that 90% of pricing is based on location and size of the home?  Did you know buyers want all the great stuff you put in your house, but at a steal of a deal?  Did you know you are competing with foreclosures and short sales and those distressed sales are anywhere from 30-75% of all sales in many communities?  Colorado Springs is currently at about 30% with that number expected to increase to between 40-50% of sales as ARM loan rates reset.

All too often, I see homes listed way above where they are selling in that neighborhood (like one right now in my own neighborhood - $35,000 too high).  Why?  Do the sellers really want to show their home for months on end and then have the listing expire?  It is hard enough to get a sale when the price is in the right range but prices keep dropping because of financially distressed properties nearby.  You can decide for yourself why people would do this to themselves.  Share your thoughts if you’d like to.

My team and I are honest about what sellers can expect to get for their home in this market.  Not only that - we tell you if things are changing so you can change your expectations as well.  This market is not static.  Some day we hope to be able to tell you it is improving month after month, but that’s not now.

Here’s the link to the article from Realtor Magazine that prompted my post today.  Colorado Springs is listed as a market that is on track.  Homes are being priced for the most part to reflect recent sales and the amount of inventory is staying fairly steady.  That’s good for current and future sellers.  If you have questions about your neighborhood, we’re only a phone call or email away.  What are you going to do to sell your home after the home buyer tax credit goes away?  Let us help you come up with your plan.

I like to stay in touch with past clients and one of the most frequently asked questions I get is “How’s the Colorado Springs real estate market doing?”.  In the past week I had the opportunity to hear Alex Charfen, founder of The Distressed Property Institute and the Certified Distressed Property Expert (CDPE) real estate designation, speak to our company and my response to a recent client inquiry reflected what I heard Alex say.  We are not out of the woods yet.

My family built a new home in Colorado in 1988 and it did NOT appreciate for 5 years until MCI opened their headquarters in Colorado Springs in 1993 and did massive hiring.  Many new jobs followed in the technology and service sectors.  Colorado Springs grew.  Our home has appreciated nicely since 1993, even though those first years were not good, but we didn’t build our house intending to rake in appreciation in 12 months, 18 months, or even 3 years.  Many people had that mindset as they bought between 2004 and 2007.  It hasn’t worked out for them as we as a nation have experienced a devastating recession and billions of dollars of wealth has been lost.  What does it take to get positive home appreciation?  Jobs!!!  Until we see the job situation improve, we will not see a robust real estate market.  Does that mean you shouldn’t buy now, or sell and buy a nicer home?  Absolutely not.  Over a lifetime, home ownership has proven to be an amazing vehicle for wealth accumulation compared to renting and paying someone else’s mortgage.  But you do have to pay attention to your personal financial circumstances and lifestyle and decide whether you can afford to not have any appreciation for the next 2-3 years.  That is what we will probably see locally and nationally.  We expect Colorado Springs to improve ahead of many markets, but there is no guarantee when that will happen.

So what did I tell my client?  Here’s my response.  Do you agree with me?  Or do you believe the national press telling you all is good, no worries, things are looking up?  Stayed tuned for more facts in the coming weeks.  Then you decide.

We’re doing better with the number of sales than last year, but last year was the worst year in about 20 years in Colorado Springs.  The $8000 first time homebuyer tax credit is helping increase the number of sales for 2009 and 2010, but prices are not going up.  Rather we expect them to either stay flat or decrease again once the tax credit goes away 4/30/10.  It’s an awesome buyer’s market, but a lousy seller’s market.  My team and I are telling people that if they have to sell or they are looking for a great move-up deal and are willing to take a price hit on their current home to get the $6500 move-up buyer credit and great pricing and low interest rates on a larger or newer home, then go ahead and list their home, but if they just want to “try” to sell, this is not the market for that.  There is another wave of foreclosures coming as ARMs reset in 2011 so we don’t expect prices to improve locally for at least another 2 years.  We’re encouraging people to pay down their mortgages and pay in additional principal to build equity in the coming few years.

Are you considering taking advantage of the $8000 home buyer tax credit or the new $6500 move-up buyer tax credit?  The deadline to do so is April 30, 2010 with a closing by the end of June, 2010.  But what if you want to purchase a brand new home?  That is still possible also.  I have been working with clients who are building new homes in the past 6 months and the builders are eager to get you in a house.  Just recently Hallmark Homes notified me that they will guarantee a closing by the end of June and are offering finished basements in some areas.  I have found Classic Homes in Wolf Ranch to be excellent to work with and my clients feel like VIPs.  Thank you to Tina and Teresa for being exceptionally caring and communicative.  We all appreciate you.

If you want to look into this option yourself, I have a team of experts who can help you come up with a plan so that you can be in your own home in 2010 and hopefully take advantage of the tax credit as well.

During the recent market downturn, many owners of larger, more expensive homes are staying put because they would have to take much less for their homes than they would have received 3 years ago.  Those that do have their homes on the market are still having difficulty selling because buyers in the higher price ranges are still scarce.  A recent article I read from the Dallas Morning News states that 60% of Baby Boomers intend to stay in their current home when they retire.  With 40% considering a move, that still leaves a lot of buying power on the table.  For now though, many are waiting for the housing  market recovery before making the decision to downsize or change location.

Below is an excerpt from the Dallas Morning News article.  Many of the WWII Generation own their homes outright.  The percent of Baby Boomers who own their homes outright is less.  This generation has moved around more and bought increasingly larger homes as their incomes increased.  Builders will have to adjust to a new cost conscious perspective of Baby Boomer retirees.  Social Security is in trouble and many retirees will still work parttime in retirement and will be watching spending.  Many will be retiring later than they planned and their 401K and other investments aren’t as robust as they were 2 years ago.  The housing market isn’t the only part of the economy that is recovering.  A new more frugal outlook will drive a desire for smaller, more energy efficient, more affordable homes for retirees.  I personally believe this could mean a shift to smaller more affordable communities that have nice amenities and are close to good health care.

More than 75% of 55-plus buyers say they want a home in the suburbs. But that doesn’t mean they want a big house. Surveys show older buyers are more frugal about housing needs. “The 55-plus buyers are not interested in growing their house size,” Crowe said. “They are asking for about a 1,900-square-foot home” on average. “They’re worried about energy costs.” Most older homebuyers surveyed are holding down their cost expectations, industry research shows. “When we asked the consumer, ‘What are you willing to pay?’ they said $190,000,” Crowe said. “And when we asked the builders, ‘What are you building for this market?’ they said $287,000. “Obviously, there’s a real big problem there.”

Indeed, builders say they are in a quandary over what kind of housing to produce for 55-plus buyers. “The baby boomers are absolutely unpredictable,” said Andy White, a South Carolina developer. “There is no model to say what we ought to build.”

For the full Dallas Morning News article, click here.

Realtor.org posted this article and I thought it was interesting to see which communities seem to be the most attractive to today’s retirees.  Top of the list is Ft.Collins/Loveland, Colorado.  Both great smaller affordable communities with Colorado’s temperate climate - milder, sunny winters, and pleasant summers.  We do get a lot of retirees in Colorado Springs too.  I love Honolulu (tropical weather and island beauty), Tucson (great winters, lovely desert terrain, but hot summers), Santa Fe (great SW food and shopping, mild summers, but cold winters), and San Diego (gorgeous ocean vistas, great climate, but expensive).  I would consider some of the other cities  but…Michigan??  Those retireees must like cold and snow, but… property is probably very affordable there now.  Here’s the list of the top 15 cities provided by AARP and CNBC.  Looks like you can still catch the Tom Brokaw story on March 4th on CNBC to hear all the details.

15 Top Retirement Cities - Boomers are willing to move farther than previous generations when they retire, and they are choosing places unlike stereotypical retirement hotspots, says Tom Brokaw in his report on Boomer retirement, airing on CNBC, Thursday, March 4 at 9 p.m. ET.The top places listed by AARP and explored on the show are:

1. Loveland/Fort Collins, Colo.
2. Las Cruces, N.M
3. Rehoboth Beach, Del.
4. Portland, Ore.
5. Greenville, S.C.
6. Sarasota, Fla.
7. Ann Arbor, Mich.
8. Tucson, Ariz.
9. Montpelier, Vt.
10. Honolulu
11. Santa Fe, N.M
12. Atlanta
13. Charleston, S.C
14. Northampton, Mass.
15. San Diego, Calif.

Source: CNBC, Paul Toscano (02/05/2010)

There is a new trend in some areas that have been especially hard hit during the past 4 years - people who are current on their mortgages walking away and letting the bank take back their house.  In the early 1980s this phenomenon was happening in Houston, TX, where we lived at the time, because home prices dropped all over the city and surrounding communities and people who were unable to sell their homes for what they owed simply walked away.  Some neighborhoods looked like Phoenix and Florida do today with foreclosure after foreclosure lining the streets.  Here is a link to a recent article from Realtor.com about the risks in doing this.

I was looking at information for a client on a home listed in our MLS and realized this home and seller were representational of the worst case situations that have been happening in the past few years.

They bought their home in 1998 for a great price, enjoyed having it appreciate to a current tax valuation $116,000 more than they paid in 1998, and then drained it of equity in 2002 and then again in 2006 by taking out large 1st and 2nd loans.  I don’t know the reason they did this, but it is very sad.  Sometimes people lose their job.  Sometimes they have huge medical bills to pay off.  Sometimes they use the money for other investments.  And sometimes they just treat their home as an ATM and the money ends up wasted on depreciating cars, boats, furniture, and just stuff.  And when the market changes, they are stuck and end up in foreclosure because they can no longer afford their payment.

In this case, the owner borrowed what the house was worth and did it not once, but twice.  And they didn’t use just a single mortgage, they used both a 1st and 2nd loan each time.  Remember my last post about easy money?  They were put at risk by risky loans.  I wish I knew what their story is.  Why would they do this to themselves?  The refinance in 2006 was at a variable rate over 1.5% higher than their 1998 rate.  And what was wrong with their 2002 loans that they would refinance and accept such a high rate in 2006?  Was their 2002 rate even higher?  Were their 2002 loans even riskier types of loans they were trying to get out from under?  Did they just want another $28,000 out of the house that they got by refinancing in 2006?  Why did they trust the lender who put them into these loans?  Did they realize they were putting themselves at risk?  Did they care?  Was it out of desperation?

Their 1998 rate was  fixed and they put 5% down.  They did everything right when they bought the house, but then 4 years later, everything seemed to start going wrong.  They ended up filing for foreclosure in 2008, actually managed to get a loan modification, and then went back into foreclosure in 2009.  Which, by the way, is not an uncommon occurrence.

The sad thing is that if they had stuck with their original loan, by fall of 2008 they would have paid it down by over $23,000 and with over $100,000 in appreciation, they could have sold in 2008 and walked away with cash in their pockets.  Their loan to value ratio would have been only 54%.  They would have owned 46% of their home 10 years after buying it!  Even if they had taken equity out to update the home, they still should have had plenty of cash when they sold.  A very sad case indeed.  And now an opportunity for someone else who buys their foreclosure.  Watch for posts in February about my free consumer seminars to help you avoid being one of these sad cases and instead be a story of real estate success.