What should a buyer expect when a property is sold "As-Is" in Sacramento?
The technical meaning of as-is in California is in reference to 'no warranty' from the seller after close of escrow.
In fact, the California Residential Purchase Agreement (RPA) is incorproated into all contracts by default...
9. CONDITION OF PROPERTY: Unless otherwise agreed: (i) the Property is sold (a) in its PRESENT physical ("as-is") condition as of the date of
Acceptance and (b) subject to Buyer’s Investigation rights; (ii) the Property, including pool, spa, landscaping and grounds, is to be maintained in
substantially the same condition as on the date of Acceptance; and (iii) all debris and personal property not included in the sale shall be removed by Seller by Close Of Escrow.
Sellers often promote properties 'as-is' suggesting buyers inspect carefully and offer based on no repairs. It has no legal significance regarding a buyers ability to inspect, request repairs or cancel. The as-is clause is always subject to inspection.
The reality for my clients is that no buyer will invest the time and money to completely inspect an Sacramento homes for sale before they have an accepted contract. Then plenty of inspections and requests for repairs as needed.
I do, however, caution buyers that the seller has indicated they do not want to make repairs and to write offers accordingly. Don't be surprised when a seller says "no" to a reasonable request.
REO's are a good example... I prepare my buyers not to expect the bank to agree to fix damage that is obvious on an initial walkthrough. You can ask a seller to fix anything, but if requests are unreasonable, a buyer will likely be put on a short leash from that point on.
I had a client (buyer) recently submit what I believed was an unreasonable request for repairs on a short sale. Of course, I did my best to explain my position and what would likely happen. He was getting a great buy (I'm surprised the bank approved) and was asking the owners to paint and patch a variety of things around the home, including upgrading a very large carpeted master bath with tile. The home inspector said bathrooms really should be tiled and while I agree, I wouldn't expect a short seller losing their home to pay for the buyer bathroom upgrades. The sellers who may well have done a variety of smaller items, were offended and ran an angry escrow from then on. This included a zero tolerance for the buyer... notice to perform, demand to close escrow. No slack whatsoever.
Repairs always remain negotiable until the right is released. But good judgment under the circumstances will get a better home for less money.
President Obama Targets Mortgage Securitization Abuses
President Obama announced a new task force during Tuesday's State of the Union address focusing on Mortgage Origination and Securitization Abuses. The unit will be co-chaired by New York Attorney General Eric Schneiderman and will focus on investigating the financial institutions responsible for the housing collapse.
In the address Obama asked that federal prosecutors and Attorney's General work together to expand the investigation.
I bet some people start losing sleep
“This new unit will hold accountable those who broke the law, speed assistance to homeowners and help turn the page on an era of recklessness that hurt so many Americans,” Obama said.
In theory, this group will determine who broke the law, compensate victims and provide relief to homeowners. while I remain skeptical about the about the ability to provide adequate compensation and relief to those harmed, I am encouraged that this is not being forgotten and wrongdoers could face consequences for their actions.
Surviving The American Dream
If you are not aware of the fraud and abuse of the housing market, check out my post at http://www.sacramentobill.com/0-home-page/2012/01/surviving-the-american-dream-is-it-ok-to-walk-away/
Sacramento housing has been extremely hard hit and local residents have suffered as much or more as any around the country. What has been missing is any apparent interest by Washington to identify and address any wrongdoing. That appears to be changing.
This initiative is one that deserves our attention and support.
Available homes for sale in Sacramento county are in decline.
The chart on the right shows the steady decline in available homes over the past year or so. These are alll homes incuding traditional sales, short sales and REO's.
You can also see fairly steady Sold figures, maybe even a slight incease if you squint a little.
What does this mean?
It means fewer homes are coming on the market through traditional channels. What isn't known is whether this means we are working through the volume of foreclosures (less likely) or these homes are being held (hard to tell) or if they are being disposed of in some other manner such as rented or sold in bulk to investors.
What it does mean to the home buyer is that your selection is diminishing and you will be fighing with a consistent pool of buyers to choose from fewer and fewer homes.
For the time being, buying a house in Sacramento County seems to be getting harder.
In Mike Coopers post on the 'Short Sale of Convenience' he touches on what I believe to be an important but controversial subject, strategic default (ending in either short sale or foreclosure). I was most surprised by the vast majority of comments concluding that anyone that can afford their mortgage payment on an underwater home should 'do the right thing', stay in the home and honor the commitment. Perhaps my views are in the minority, but the arguments against strategic default are based on perceptions of the legal, moral and ethical issues of what still appears to be a poorly understood subject.
Is it OK to 'Walk Away'?
Is it ok to walk away (short sale or foreclosure)? ie; deliberately default on an underwater home without a financial hardship? While some would argue that owning a grossly underwater home is a hardship, and I would agree, I am referring to an owner/borrowers that can afford the home at the existing mortgage payment.
I used to feel that borrowers had the legal and ethical responsibility to honor the debt. It was your choice to buy a home and borrow the money, you made the commitment to others, you received the benefit and therefore you have the legal, moral and ethical responsibility to repay. Actually, I still feel this way under normal circumstances. I believe there are moral and ethical implications of a promise to repay a debt.
That said, however, I believe that the circumstances of the current mortgage crisis were not legal, moral or ethical to begin with. After a great deal of research about the causes of the mortgage meltdown, I have come to the conclusion that qualified borrowers that purchased during the boom were victims of massive abuses by investment banks in the mortgage and real estate markets. Trillions of dollars were lent to unqualified borrowers because the debt could be packaged and sold as a triple A security to investors worldwide. The reason lending standards were lowered so drastically was to create more debt. It didn't have to be repaid, just last long enough so it could be quickly packaged and sold to unsuspecting investors. In fact, some of these same investment banks would then purchase Credit Default Swaps from AIG FP and profit again upon the failure of the security they had just sold as the ultimate in safety. Pension and retirement funds, as well as private investors around the world having faith in the US ratings agencies and stability of the US mortgage and housing markets, purchased trillions of dollars in subprime Mortgage Backed Securities and Collateralized Debt Obligations (CDO's). They were lead to believe that these were investment grade securities backed by the relatively stable US housing market. With T-Bills paying 1%, investors were desperately searching for investments with higher yields that could outpace inflation.
Wall St. Magic: Turning Subprime Loans into a Triple A Security
Wall St. had discovered a modern alchemy by putting a veil around subprime loans and getting them rated Triple A. Lead could truly be sold as gold. However, they needed more lead, so the bar to qualify for a loan was lowered drastically. As a result of these 'fog a mirror' lending standards, genuine, qualified borrowers were forced to compete for homes with borrowers that would never be able to repay loans. With an abundance of money in the mortgage market and a mushrooming population of artificial homebuyers, prices naturally skyrocketed. It was a false and unsustainable housing economy.
The more conservative among us would argue that Federal policies on affordable housing pressured banks into making bad loans as the source of the problem. There were clearly pressures and expectations by bank regulators to promote certain, more speculative categories of loans. In my opinion, while this compounded the problem, it was more of a plausible distraction to the greater abuse by investment banks. The governments involvement made the increased availability of mortgage credit less suspicious and the rapid expansion of the housing market a credible event.
Regardless of whether you prefer to blame Wall St. or Washington for lending to people that could never repay, the housing collapse was not a result of responsible borrowers that simply bought a home at the wrong time. It was deliberate fraud and reckless abuse of a treasured American institution. Our industry, and in fact our entire economy, will take many years to recover from the damage that has been created. Many, homeowners will not recover financially in their lifetimes. The SEC complaint for Fraud against former Fannie Mae and Freddie Mac executives is hopefully just the beginning. I believe there should and will be more civil complaints as well as criminal indictments.
So, what should we expect as legally, morally and ethically appropriate from a homeowner that purchased a home under legally, morally and ethically corrupt circumstances?
Sacramento has thousands of families still trying to do the 'right thing' in homes that are $100k to $200k underwater. In my opinion, these owners need to do the math and really understand the financial impact of their decision to stay or leave. It is a decision with serious consequences... a choice between bad and worse.
For instance, an Elk Grove homeowner that bought a home in 2006 for $500,000 that is now worth less than $300,000 and still owes about $450,000 will be financially worse off by about $400k to $500k over a twenty year horizon if they choose to 'do the right thing' by traditional standards. This amount of money will change the character of their lives, their children’s education and their retirement. Is it reasonable to expect millions of Americans to sacrifice to this degree when the creation of the debt was under questionable circumstances? I think it's time to reevaluate what 'the right thing' to do is.
It's Time To Examine What Really Happened
I'm surprised so many in the real estate and financial services industries are so indignant about homeowners walking away. How much remorse and contrition should we expect from a homeowner that has been robbed because they had faith in the American Dream of home ownership and the financial and government institutions that make it possible? We played a role in this fiasco. I think we owe the clients we serve a better understanding of what happened and help them face a bitter financial reality. In my opinion, this wasn't done by the homeowner; rather this was done TO the homeowner... and the taxpayer, and millions of investors all of whom simply had too much faith in the system.
For anyone unfamiliar with the underlying causes of the mortgage and housing situation, I would recommend "All The Devils Are Here", "The End of Wall St.", "The Big Short" and the documentary "Inside Job".
While I am not trying to release anyone from their role in the housing collapse, including Realtors, Mortgage Brokers and the homeowner, I would say any homeowner that has stuck it out this long, overpaying for housing this many years, has demonstrated a more than reasonable commitment to honor the debt. In the final analysis, it’s time for us all to look deeper into the root cause and hold the real culprits accountable.
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