Real Estate Darwinism

Yesterday I started to talk about foreclosures and short sales - there is way too much confusion about them, so I'd like to simplify things a bit.

I finished up by mentioning the case of owing more on your real estate then it's actually worth or "Being Upside-down".  How could that happen?

Several ways:

• Regardless of your loan type, if you live in an area with extreme depreciation, the value of your home could be going down faster then you can pay down the loan.
• If you have an interest-only mortgage, ANY amount of depreciation would make the home worth less then the loan balance since the principle never gets paid off.
• If you have been using the minimum payment on an option-ARM you would be experiencing negative-amortization - you're making monthly payments, but they don't cover the amount of intrest owed each month.  This increases the outstanding balance.  So even if your home's value didn't go down, the amount owed would be increasing.  If you're one of the many that has that type of loan, I hope your Broker / Lender made that perfectly clear.

Of course, the lower the initial Loan-to-Value (LTV) the safer you would be, regardless of the loan type.

So what is FORECLOSURE?

Let's start with PRE-FORECLOSURE - you've stopped making your monthly mortgage payment, now you are in DEFAULT on the loan.  A red flag goes up at the bank and they let you know that you had better get back on track, quickly.  At this point, get in touch with the bank DO NOT just ignore the problem!  The bank isn't going to say "You seem like a good person -  don't worry about it!" - but you could possibly work something out with them before the worst happens.

You could go the route of the SHORT SALE - it's called that because by taking less then what they are actually owed, the bank is taking 'a short'.  Here's where it gets a little complicated.  You can't sell the house for what's owed so you list the property and any offers that come up go straight to the bank to approve or disapprove - you as the owner have no say in the matter. 

The banks really don't want to take your property from you, they already have more than enough and then they have to pay their lawyers for their work, re-list the property and try to sell it themselves (and pay more agents).  So, yes, they will take less then what is owed in many cases - but how much less?

You might as well roll the dice and take a guess because if there really is a hard and fast rule they're never going to tell you & me!

As an example, let's say that the loan balance is $500,000.

    Case 1:  An offer comes in for $480,000 - will the bank take it?  There is a reasonable chance, because they really aren't losing too much.

    Case 2:  An offer comes in at $350,000 - if the bank took that offer, they would have a considerable loss - but instead of just saying no, they won't say ANYTHING - for several weeks, while they wait for a better offer to come in.  The usual turn around time for offers/counteroffers does not apply here.  After all, it IS their money.

Currently, if the short-sale works, you will have to pay tax on the difference between what was owed and what the bank finally accepted.

Lastly there is Foreclosure - the bank takes your house. It is then referred to as 'Real Estate Owned' (REO) and they will they try to sell it -

You can always contact me at 561-282-7406, but if you think you're headed for any of the negative situations I've described it's very important that you contact your Accountant and/or Lawyer ASAP so that you find out as much as possible.

I would like to talk a little about foreclosures and short sales today.

First of all - contrary to what the newspapers seem to want to you to believe, not every homeowner is in a financial crisis and not every home that is listed is being sold out of desperation!

Take a look at HAVE to Sell vs. WANT to Sell.

Are there foreclosures and short sales in Palm Beach Gardens?  Certainly - but its not the free-for-all that way too many people seem to expect.

Now that Im done with that, Ill cover the basics.

• You might own your real estate free and clear -GREAT!
• You could have a mortgage on the property - youre making the scheduled payments without a hitch.  Again, good for you.

The majority of people fall into those 2 categories.

Unfortunately, some homeowners arent (or are about to stop) making their mortgage payments.  The reason why does not matter - all the banks care about is: Are you or are you not making your scheduled payments?

This breaks down one of two ways:

1. Your house is worth more then what you actually owe on the home loan.  Youre not so bad off if thats the case because you can list it for sale and price it properly so that it actually DOES sell before you start missing payments.
2. You owe more on the mortgage loan then what the home can sell for.  Of course, this is the worst case.
   

Ill discuss how that could happen and what the next steps are tomorrow morning.

We've all seen HGTV's real estate reality shows, they're fun and entertaining and it's exciting when you hear that one of them will be hosted in your neighborhood. We were recently contacted by a customer telling us that HGTV was announcing a show for a house in Miami Shores (My House is Worth What?). He thought the show would benefit the sale of his own house in Miami Shores which we currently have listed.

This is how My House is Worth What? announced the show:

"We go behind closed doors, as three homeowners in three different parts of the country work with local market experts to strategize on maximizing their homes' value......Next, after three years, Christine and John are looking to sell their home in Miami Shores, Fla. and move to Tennessee so John can go back to school. They need to make enough money off the sale of the house to buy a new home and live off the proceeds."

When we watched the show we were a bit confused. We knew the house well because we had submitted an offer with one of our customers, but this was back in 2006. It was the same sellers, the same furniture, and the same selling price as over a year ago. You mean to tell me that HGTV is airing shows that are almost 2 years old?

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Separate Property - Whats Love got to do with it?

One of the pitfalls in relationships is that many eventually end. When real and personal property are involved it can be difficult to muddle through it all. There are ways to protect both your personal and real property - before this happens¦

How does Separate Property affect Long Beach Home Ownership?

Why do people combine households without understanding what is involved in the dismantling of these relationships? Whether you are getting married, combining households or registering as domestic partners, the issues involved with home ownership and personal property are quite serious. When these relationships do not work out it is critical to have your paperwork in order.


This is easier to say than to do, I understand. It is a difficult subject to tackle with somebody you are in love with and are thinking about spending the rest of your life with. How many relationships actually last forever? It is reported that the divorce rate in America hovers in the 50% range.


From: Divorcerate.org

The divorce rate in America for first marriage, vs. second or third marriage
50% percent of first marriages, 67% of second and 74% of third marriages end in divorce, according to Jennifer Baker of the Forest Institute of Professional Psychology in Springfield, Missouri.’

According to enrichment journal on the divorce rate in America:

• • The divorce rate in America for first marriage is 41%
  • The divorce rate in America for second marriage is 60%
  • The divorce rate in America for third marriage is 73%

LaborLawTalk.com states the average divorce rate for the state of California is 75.54%, based on Court Statistics Reports for 1996-2004. These are staggering numbers and should not be ignored.

What is Separate Property?

Nolo defines separate property: In community property states, property owned and controlled entirely by one spouse in a marriage. At divorce, separate property is not divided under the states property division laws, but is kept by the spouse who owns it. Separate property includes all property that a spouse obtained before marriage, through inheritance or as a gift. It also includes any property that is traceable to separate property ” for example, cash from the sale of a vintage car owned by one spouse before marriage-and any property that the spouses agree is separate property. Compare community property and equitable distribution.




Property owned prior to and brought into a marriage is considered separate property. In order for it to remain ‘separate property’it must never be commingled with marital or community property. Once separate property is commingled with marital or community property it becomes community property and cannot be undone.


Some states, such as California, have a separate property rule that says that all property brought into a marriage, including gifts and inheritance, which is kept separate and apart from community property remains the separate property of the spouse that owns it.

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There's a saying in the news business, "If it bleeds it leads", meaning sensationalism sells the news.  The press isn't interested in hearing that the real estate market is doing well in some places.  It's not news to them. If you look closely at the statistics being used by the media, they flip the percentages showing the negative above the positive. The press in the San Francisco market is guilty of this big time and I see it everywhere I look.

What do I mean?  Did you know that 2007 is on track to become the 5th best year in the history of real estate?  How can this be, you're saying?  It's estimated that over 5.5 million homes were sold during 2007 - a year that began the melt down of the mortgage industry.  The average sales price in the US has gone up consistently. Did you know that through November 2007, 95% of all mortgages were current in the United State?  But that's not news.  It's more exciting to say 5% of mortgages are in default.

Real estate markets have cycles of about 10 to 15 years and most real estate goes up over time.  Take a look at the past three decades of data courtesy of NAR and you'll see for your self.

In each of the past three decades, we have seen low and high numbers of homes sold.  The 1980's never quite recovered to the same level as the end of the 1970's.  But, by 1996, a real recovery took place.  During those decades we suffered recessions, rebounds, and even some inflation, but housing prices were able to ride it out and generally provide the owner added equity.  What you must remember is that a house is your home, and if it gains equity, great, but if it doesn't, you still have shelter above your head and you own it.  You can take the tax deductions for the interest you pay on your loan and for property taxes, and make your house all yours.  What else can you buy that affords appreciation over time?  Not much.

The only way you, the consumer, can be sure you are getting a fair deal is to use a first rate Realtor.  We're out there for you.  We can assess the local market for you.  We can help you find the best home for your budget and make sure you are working with a reputable lender.  Top agents work with the best in the industry and we do not work with bad lenders, bad title companies or bad brokerages.

Buying a house is the biggest investment you will ever make in your life. You owe it to yourself to work with the best people to be sure you are not taken advantage of, and are protected.  Ask questions.  Keep your eyes open.  Educate yourself.  Right now is a good time to enter the real estate market to buy a home to live in.  Money is available at amazing rates.  Just stop reading the newspaper, watching the news on TV and listening to the radio.  Look at the statistics.  Raw data does not lie. Talk to your Realtor and find out for your self.