We have recently been asked more and more frequently what alternatives there are for people to try to maintain their homeownership under tremendously stressful situations. Correspondingly, many prospective buyers are “looking for a deal”, and think that it may be found in all situations where a home is being marketed as a short-sale. The short-sale of property occurs when the market value is less than the loan currently owed by the owner. The issues are complex and not simple to explain. The following gives an overall picture of the current market conditions.
The recent history behind the current foreclosure problems is well-known and it may appear that the problems are getting worse. A lot of the pressures are the result of five-year adjustable rate mortgages (A.R.M.s) that have been and are adjusting to higher rates of interest between 2008-2013. Additionally, job losses have contributed to even more pressure on homeowners even in Pacific Palisades. We have identified 10-12 bank-owned properties (R.E.O.s) in the Palisades which have not yet come on the market. The impact of such a small number will not likely affect market prices very much, although if the prices of these sales are significantly lower than previous comparable sales they eventually will have an impact on appraised values. More significantly, there are more than 30 additional local properties in various stages of pre-foreclosure which could present challenges to local market values later this year. Pre-foreclosure means a notice of default (N.O.D.) was filed against the property to indicate an owner is 30+ days late in making their mortgage payments. The lender could schedule a trustee sale within 120 days of the date the N.O.D. was filed. The trustee sale enables the lender to either sell it to a third-party buyer or buy the property themselves if no acceptable offer is made on the date of the trustee sale.
When homeowners experience financial stress, it is critical to identify a real estate agent who is knowledgeable and experienced in helping people become aware of various alternative solutions. Those who do not seek help in a timely manner quite often end up having even greater challenges down the road. A few of the local bank-owned homes were foreclosed at values significantly below the market value at that time. Some of these properties could have sold at higher prices and would have prevented the owners from having a foreclosure on their record had they been appropriately informed. The foreclosure could also delay their ability to purchase any other real estate for approximately seven years).
We were all surprised by the magnitude of the problems that have occurred and many people are experiencing serious challenges. Some agents have become expert in working with lenders on behalf of their clients toward various solutions. Some of us have had numerous experiences in actually negotiating short sales with lenders, and there are certifications that real estate agents can now qualify for to more expertly help their clients in these types of situations.
Not everyone facing a foreclosure can qualify for a short-sale. Those who don’t qualify for a short-sale may still be able to negotiate what is termed a “work-out” with their lender whereby they agree to pay the balance of their debt in a renegotiated manner. Contacting a real estate agent or attorney knowledgeable in the negotiation of short sales will start the process and help to identify which of these alternatives is an option available to them. There are many guidelines that can be utilized, and it is highly advisable for individuals considering a short sale to seek an experienced real estate agent’s advice regarding the feasibility of proceeding in this manner as soon as possible. Any real estate agent involved in this work must be organized, highly focused and, if possible, certified in working with people who are in a financially distressed situation.
Some real estate companies have prepared extensive informative materials to aid in educating people about the different alternatives available, procedures that must be followed, and guidelines for agents to maximize the probability of being successful in negotiating with the lenders on their clients’ behalf. The process is complex and challenging due to the tremendous log-jam of files that the banks’ loss mitigation personnel have to deal with. For this reason, it is also vital that any negotiations be done with great care and thorough adherence to the procedures that are essential for success.
While some buyers find excellent short sale purchase prices, it is not for those who are faint of heart or needing closure quickly. Although several lenders have streamlined the process recently, it can easily take up to several months for some to complete the approvals. Buyers who are not willing or able to be patient with this process may lose interest and withdraw their offer prematurely.
Bank-owned property sales differ from short sales in several respects. Buyers purchasing bank owned properties need to be prepared to take action swiftly, often pay more than the initial listing price, and unconditionally purchase the property in its present condition. Competitive bidding is not uncommon, and thinking they can get “a deal” because it is a bank sale is often a frustrating exercise.
The potential overhang of such types of properties in Pacific Palisades may be small enough that at the current rates of sales the increased inventory will be absorbed by the market without much negative impact. If dozens of foreclosures come on the market in a short period of time, however, there could be a fairly significant impact on prices.
For the past 24 years Michael Edlen has provided real estate counseling services to prospective buyers and sellers. More tips and information are available on MichaelEdlen.com. He can be reached at 310.230.7373 or Michael@MichaelEdlen.com.
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