Mike Miguelez

Is it the right time to buy a house?

American politics certainly brings out the worst in the politicians running for office. Unfortunately, it seems that the general consensus among politicians is to show the worst in themselves by trying to point out the worst in their opponents, and unfortunately we are bombarded with it. Naturally this makes it seem as if our financial collapse is imminent (unless we vote for them, naturally).

In reality, are things getting better or are they getting worst? Is our economy better than it was in 2008? Earlier this month realtor.org had an interesting article highlighting 10 key facts about today's market.

1. The economy is growing. It's growing slowly, but the trend is improving. Based on the GPD Annualized Growth Rate we bottomed out in the fourth quarter in 2008. The economy started to show positive growth in the third quarter in 2009 and has remained positive since that time.

2. The private sector is creating jobs. The monthly net private payroll job changes follows the same trend as the Annualized Growth Rate.

3. Even though consumer confidence is low, it has continually improved since March of 2009.

4. When have you ever seen lower rates on 30 year mortgages?

5. Nationally, median home prices are stabilizing.

6. The Case-Home Price index also shows stabilization.

7. The Home Price-to-Income Ratio is better than it was in 1999.

8. Economist are optimistic.

9. Recent loan origination are performing well. Even though the approval being more difficult, borrowers that stay within their budgets stand an excellent chance of approval.

10. The Median Family Net Worth continues to grow.

So is it the right time to buy a home? Well that's a question that must be individually answered by every person considering a home purchase. It seems that the worst is behind us. Interest rates are at historical lows. There is a large inventory available with low priced homes (even lower priced if you're willing to look at buying a short sale). Maybe it is the right time and the sky isn't really falling.

If you are interested in learning more about Rock Creek or Superior, Colorado, we are at your service.

Are you ethical with your short sales?

I recently read a good article in REALTOR magazine regarding short sale ethics and avoiding temptations.

Real estate agents are in one of the few organizations who's members sign-off on a code of ethics and are required to take periodic update courses on ethics. As a refresher, ethics are defined as a system of moral principles, a philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.

As short sale fraud becomes more prevalent it's good to look at some ethical considerations we should keep in mind when serving clients.

• Do you consider your clients wishes first? If your client states that they want to keep the house, do you provide them with information of what they may do and who they may contact? Not counseling your client on how they may investigate keeping the house is short sided. Even though the majority of loans are not modified, if you're able to assist someone in keeping there house, don't you think that that act of honesty will be appreciated? You may have lost a short sale today, but you probably made a friend. Priceless.

• Make sure that the hardship letter is accurate. Not everyone qualifies for a short sale. The hardship letter should explain what hardships occurred that have lead to an inability to pay the mortgage.

• There are a lot of investors buying short sales. When an investor is improving a property and adding value, that's a valid transaction. If an investor is buying a property, because they already have their own buyer to quickly flip the property to, without improving the property, without intent to rent it, that's called fraud. The bank was cheated out of the extra money that the second buyer was willing to offer.

• Some junior lien holders are negotiating deals that are not on the HUD in order to approve the short sale. Advise your client to say no to any transaction that is not on the HUD, which can be constituted as mortgage fraud.

• Although it's appropriate to provide information for the broker price opinion (BPO), it's wrong make the BPO low, just so you can get the house on the market for less than it's worth.

Avoid temptation, deliver on your fiduciary responsibilities to your client, and do the right thing (you know what that is) and you'll do fine helping people avoid foreclosure through a legal short sale.

What to include in a Short Sale Hardship Letter.

There are a lot of details that need to occur in order for a short sale to be successful. Although the documentation sent to back in a short sale package may vary slightly, one common item in every short sale package is the short sale hardship letter.

Sometime distressed home owners are confused why a the short sale hardship letter is required. Let me try to clear that up.

It's important that the short sale hardship letter is accurate and also details what has changed in the homeowner's condition that has created this hardship. The short sale hardship letter can make or break the possibility of a bank accepting a property as short sale.

Get your ideas down on paper. It can be a random order (sort it out later), but what you want to focus on is answering several questions from the perspective of the lender. Remember that a short sale is not the solution (or even a possibility) for homeowner that simply wants out of their mortgage because the value of their home has dropped below the amount they originally invested. There has to be some sort of hardship, a change in living situations, that explains why the homeowner is no linger able to make payments.

Write down every thought that comes to mind. If you're stuck, here are some questions to help you move forward:

• Why can you no longer afford the house payments?
  
• Why are you having financial difficulties?
  
• Has there been a loss of a job?
  
• Have taxes increased on the property?
  
• Has an adjustable mortgage payment become unmanageable due to an increase in interest rates?
  
• Is there a divorce going on?
  
• Has credit card debt made finances unmanageable?
• Has there been a medical situation?
  
• Was the mortgage not explained properly or correctly by the mortgage loan officer?
  
• Is there a chance the hardship may change in the near future?

Now that you have some ideas, order them in a logical manner, a time-line of what occurred to create the hardship. Make the letter a formal business letter. Open the letter by detailing what has changed from the time you were originally approved for the mortgage until now, when the homeowner is no longer able to make the mortgage payments.

Close the letter by clearly reiterating why you can no longer pay the mortgage. If you do not see any other options, state that. Let them know what your intentions are – do you want to keep the home or not?

Make sure that your contact information is on the letter, as well as the letter being dated. Sign the letter and return to your real state short sale agent to be included in the short sale package.

If you have any questions or concerns regarding short sales in Colorado, please feel free to contact me or I invite you to find more information at our web site: www.ColoradoShortSaleAid.com.

What is the fair market value of a home?

For anyone selling a home, as well as anyone buying a home, it is important to understand what the fair market value of a home is.

Consider the fair market value to be the price that a property will fetch in a free marketplace, with a couple of stipulations:

• Both the buyer and seller are knowledgeable about the property.
  
• Neither the buyer nor the seller is being forced to buy or sell (neither is under duress).
  
• The transaction (and its negotiated value) are time-framed, meaning that a decision needs to be made or the transaction is voided past a specific deadline.

It's not an exact science, but if you carefully monitor the market and watch which way it's trending, educated estimates are possible.

A CMA (Comparative Market Analysis), performed by an experienced real estate agent, will help in determining market value. A good, experienced real estate agent will be able to provide a list price that ends up being fairly close to the sales price of a home. In order to do that the agent needs to be familiar with the local housing market. Are prices trending up or down? What's the average days on market before a house sells? How much inventory is in the market? How much higher priced are the expired listings compared to similar homes that sold? How does the condition of the home compare to similar homes for sale in the area?

The hard part for real estate agents (particularly in markets high in default scenarios: short sales, foreclosures, and REO's) is communicating to home sellers what we assess their home to be worth in the current market.

We are basing our estimate on an analysis of the area and what is happening in this market. If defaults are high, home values will be dropping. That's a hard truth. The answer for someone selling their home that is unwilling to accept the fact that home values have dropped might be to not sell and wait for the market to improve.

Distressed homeowners need to be aware of loan modification fraud and short sale fraud.

Homeowners that are trying to avoid Foreclosure need to be aware of two major types of fraud that are being marketed to distressed homeowners, namely loan modification fraud and short sale fraud.

In the loan modification fraud, a homeowner is told that for an upfront fee a loan modification program will be started on there behalf. A legitimate loan modification program is a program where is typically a program agreed upon between the homeowner and the lending institution holding their mortgage. It is designed to help the homeowner keep their house. Statistically, loan modification have had a low approval rate from lending institutions, in other words very few of them have been granted. There is never an upfront fee charged for the program.

With the loan modification fraud, a homeowner is asked for an upfront fee in order to start the program. In the best scenario, the homeowner's case is entered into a loan modification program, but the work is not done by the agency that charged the upfront fee, it is done through non-profit organizations or loan modification assistance programs that do not charge anything, and the homeowner could have just as easily contacted directly, and would not have had to pay for the service. At worst, money is collected an nothing happens.

The second fraud, the short sale fraud comes in two flavors. The first short sale fraud scenario involves a home going into foreclosure that has a first and a second mortgage against it. This fraud is perpetrated by the bank holding the second mortgage.

What is required for a successful short sale when a house has two (or more) liens on it, is that all subordinate liens must also approve the short sale, usually receiving a small percentage of what was initially borrowed. No approval means no short sale. In order to get approval, a partial payment is negotiated with the second lien holder (who realizes that receiving something is better than receiving nothing). The second lien holder is not required to accept the settlement, but they often do. This scenario is perfectly legally, and documented in the closing documents on the HUD statement.

What has not been legal and has started to happen is that unscrupulous second lien holders have allegedly been requesting money on the side from the real estate agent or the buyers in the short sale, in cashiers check, prior to the closing and not documented on the HUD statement (the latter is your red flag). That prevents the first lien holder from seeing it, which if they were aware of it, would kill the short sale.

The second short sale fraud scenario involves unscrupulous real estate agents that will withhold (not present) offers to the homeowner going through the short sale, but instead present there own, lower offer through an LLC or third party. Once this lower offer is accepted by the bank and the short sale is completed, the property (now technically owned by the LLC or third party) is sold to the buyer that made the higher offer. This usually happpens within a few weeks of the short sale having closed. The “extra” money is then pocketed by the LLC or third party (in addition to commissions paid by the bank for the short sale transaction).

Homeowners need to be aware of this. Here's a few things you can do to protect yourself:

• First, never pay an upfront fee. That's a huge red flag. A real estate agent gets paid a commission, from the bank, at the closing. The homeowner does not pay. A legitimate non-profit will not charge the homeowner.
  
• If you're listing your home as a short sale, check your state's real estate or regulatory web site for information on the real estate agent you're considering hiring (Search for Colorado real estate licensees here). Have there been any complaints filed against this agent? Has the agent gone through any disciplinary action?
  
• Work with a qualified, licensed real estate agent with a successful short sale record. If in doubt consult your state's regulatory department (use this link in Colorado) or consult a qualified lawyer (a lawyer that specializes in real estate law).
  

You may find more information on avoiding foreclosure and short sales at our main web site.