Joey Marino

It's pretty evident that this flood of REO listings is not stopping anytime soon. With unemployment rising and the sheer magnitude of available inventory, we haven't even seen the begining. Somehow these banks have to eliminate these properties from their books. They are in the business of lending money, not owning property. Letting a property sit vacant for a few years will only cause depreciation of value. What's the quickest way to sell property? Auction.

Think about it. If banks would let their foreclosed properties go up for absolute auction as soon as possible, they would get a fair market price immediately. No need to wait 9 months to get it listed and then overprice the listing while letting it sit vacant for two years until the price is competitive. It's an endless cycle of depreciating value. We all know the longer a property is on the market, the lower it's value becomes.

"I thought these homes are sold at auction?" You ask. Well, they do go to sherriff's sale, where most of the time, they are bought back by the banks to try and net more. The marketing for this sale is an address in the newspaper among hundreds of addresses, where a private auction would market more effectively and draw a better crowd because they are there for that property.

I have heard of foreclosure auctions happening occasionally, and I know the lenders would net more this way. The banks could even eliminate the legal fees involved with foreclosure by settling for a short sale at absolute auction before the foreclosure. So why isn't it being done more frequently? And real estate agents can usually co-broker an auction, so why not give it a shot for a garaunteed commission? Moral of the story is, something needs to be done about the amount of foreclosed properties on the market and here is yet, another solution.

Our office has been selling a great deal of properties at short sale since the market started turning, so we have many horror stories of working with loss mitigation departments. Many times the work and worry involved with the banks outweighed the compensation, but we always toughed it out and did our best. Recently, however, a few of these institutions are becoming short sale friendly!

To give one example, we recently received a call from a loss mitigation representative (shocking, I know!) for a property we have listed with great news. They told us that they would accept an offer at close to half of the current asking price! So we reduced the listing price to reflect the new bottom line. Last week, we received another call and the lender said that if the property sells, the bank will give the seller a $2,500 bonus!

So hopefully this trend continues. Of course there are still banks that make things difficult, but there's definitely a change coming.

We've all heard the familiar reasons to own instead of rent. "Build equity", "invest in your future", "stop paying someone elses mortgage", "forced savings plan", etc. I have constructed a list of own-not-rent motives that you may not have thought about.

10 (different) reasons to own a home instead of renting.

1. You can move in and out when you want to, you don't have to wait till your lease is up.
2. No one has to approve the colors you paint your walls.
3. You actually could be paying less monthly in your own home than similar rentals. Enough to make a difference.
   
4. You don't have to inform anyone that your living arrangement has changed.
5. Want new lighting fixtures? Not a problem.
6. Typically, your mortgage payment doesn't ever increase, unlike rent. (Unless you get an ARM)
7. Staying in your home longer, means you can become more involved in the local community.
8. You don't have to ask anyone to fix your shower head, just do it yourself.
9. Help build your credit by paying on time.
10. Most importantly: You don't have to ask anyone if you can have a pet! Please adopt.

When trying to avoid an imminent foreclosure, the borrowers should be aware of their options. I have found that currently there are two options to eliminate the loan, short sale or deed in lieu of foreclosure. The difference between the two really depends on the current market value of the home and the remaining amount owed on the mortgage note.

A deed in lieu, as we call them, is a deed instrument that allows the borrower to sign over the deed to the property to the bank to satisfy a loan in default. Most likely, a bank will only agree to a deed in lieu if the amount owed is less or equal to the value of the real property. This may be different now that the market has decreased, so anyone will want to consult a professional on deeds in their market.

A short sale is an agreement between the bank and the borrower to sell the property for less than what is owed. The borrower will have to be in financial hardship for the bank to agree to discount the loan. Short sales do affect the borrowers credit somewhat, but not as bad as a foreclosure. A short sale is seen as a type of settlement.

One thing to note is that every bank is different. One bank held my short sale sellers responsible for the remainder of the debt, which was a considerable amount of money and we got lucky to find a buyer willing to pay the asking price. Other banks will eliminate the debt. You may want to know your note holder's policies on short sales.

There are other options if the loan payment amount is just out of reach but you wish to stay in your home, such as loan modification, special forebearance, refinance, etc. Talk with your bank's loss mitigation deptartment (if you can get through), and see what options are available.

One possible scenario in the future is government interference. I really don't see this happening, but I also didn't see the fed buying $600 billion worth of mortgage-backed securities.

I know I've been guilty of it, I pay too much attention to it. Heck, my last 3 blogs have been about it. It's all this negative blogging and news stories about the real estate market that has us running for the hills. I actually don't look at it the same way many people are looking at it right now. Sure, prices are low, inventory is high, but this just means it's a great time to invest. Any other market, don't you buy when prices are low and choices are plentiful? There is so much media broadcasting that we haven't even seen the bottom of the barrel. How do they know? Hardly anyone was talking depression at the start of 2007. Maybe things will turn around? Maybe the fed is taking the right steps to turn this around as quickly as next year. We simply don't know.

Why do we want real estate prices to go back up? Isn't that part of what got us here in the first place? Sure, anyone that purchased property in the last 15 years or so may have over-paid. I know I did. It's not like we are talking a tremendously huge difference either. 15% in the last 2 years the price has dropped, what if that's the bottom?

I have always been told from my grandfater (also a real estate agent), "There is no investment on Earth, like the Earth itself" and "Land, they're not making any more of it". I have to agree, except they are kind of making more land. Land is a precious commodity. A shelter is a neccessity. This market is going to even out, because it's not only a fundemental of the economy, it's a fundamental of living.

I do have to admit, things are a little scary but only because we don't know what is going to happen. Things are going to change. Homeownership is taking a funny turn. I predict we will be certain about the direction of the market in the next year.

I for one don't want to stand by and let this amazing, once in a lifetime oppurtunity pass me by.