Marvin de la Vega

Marvin's $0.02 on foreclosures - they're all cheap and easy to buy, right?

Here's a recent conversation I had with a client (Lauren B. from Minnesota, interested in La Jolla condos); just my opinion and I'm sure there are many others out there. For those of you out of the area, La Jolla is a little above average in San Diego home pricing. Think of it as San Diego's "Beverly Hills By The Sea".

For now, be informed and judge for yourself:

92037 Foreclosures - Trulia.com

Lauren B (LB): Marvin, Is this site a real site and are these homes really in foreclosure? Or is this a gimmick site?

Marvin (Md): Well, there actually are a lot of answers. I'll be as brief and clear as I can. As for gimmicks, this is a real site with pros and cons for the end users out there. As in most real estate sites they can be a lead gathering mechanism for the agents that advertise or post their opinions there. I looked at a few of the listings in the link. They want more of your info in order to give you more info. When you see the word "foreclosure" in real estate marketing there are two types: pre-foreclosure and actual foreclosed homes.

Pre-foreclosure. There are a few different ways to find out about homes in this phase. Homes listed proactively in the Multiple Listing Service with a broker (typically a short sale), notice of default lists (via public record), notice of trustee sale lists (public record), private individuals and 3rd party lists compiled by sites like Trulia and Realty Trac (input personal info and/or money in exchange for more property details).

Here is the process of how they become foreclosed, also known as bank owned or REO (real estate owned by the bank). These properties were at the county courthouse auction but no one bought them at public sale, literally at the courthouse front steps, so ownership went back to the bank. What most people don't know is that the bank assigns a trustee to sell the property at the county courthouse long before they actually foreclose and take the property back. Banks don't want to foreclose - another lecture. A short sale can avert this catastrophe called foreclosure. The low prices you are seeing at the Trulia site are likely to be the default amount in public record notices (NOD = notice of default). Stay with me, this might be confusing. In some isolated cases if the property has gone to auction and the lender sets this super low price as the opening bid it will most likely be purchased in a bidding war. The reason why I say "isolated" is because the banks will know what the properties are worth and will set the opening bid higher than a low default amount, but lower than retail pricing just in case a smart buyer has been watching it. In many cases Trulia is reporting the estimated bid. This isn't always the opening bid because the bank does their homework before they set the opening bid. The bank can foreclose which wipes the 2nd lien holder out of the running so that when they own it and sell it as an REO, they don't have to share any proceeds with the non-existent 2nd (unless the 2nd is foreclosing - again, another complicated lecture). All proceeds go to the first lien holder. To summarize, a default amount is not always the same as the opening bid. You are looking at estimated bids which are not the same as opening bids.

So now it's foreclosed - bank owned, repo, REO. This is where the bank owns it and lists it with a local broker some you will see in the many sites listing foreclosures. It's a normal retail sale at this point. Homes everywhere else besides La Jolla are seen as super cheap (many are trashed). We've seen a few relative deals in 92037 but they're probably not near the water with a view. These properties listed elsewhere in the MLS can be easier to purchase. I wouldn't recommend a courthouse purchase. Personally I don't think foreclosures are a great deal unless you are open to buying the ugliest house in SoCal in a so-so neighborhood for 70-95 cents (95 is common, 70 - rare) on the dollar at auction when one actually sells to a 3rd party. Expect to pay the leftover unpaid taxes, rehabbing it and either hanging on or flipping it. There are seasoned investors out there who know this process very well. I've been to the downtown foreclosure auction; La Jolla homes (as well as most coastal areas) rarely make it that far because it's La Jolla, the "jewel" of San Diego. But it does happen, most investors are jockeying for position on these if the price is low enough (again, low/cheap is rare in 92037). This might be as clear as mud but I'd be happy to explain this to you tomorrow on the phone.

LB: Thank you for your thoughts. What you wrote makes a lot of sense and follows the old adage, if it sounds too good to be true, then it is. Obviously, I am still trying to see if I can make something work. I am closer to the point of understanding that it is not possible, especially in La Jolla, which also makes sense. I especially appreciated your thoughts on the 'real' value of foreclosures. You have saved me a lot of time with your knowledge. Again, I am thankful.

Md: I forgot to mention a major point. All purchases at the courthouse are cash (cashier's checks), no financing accepted, no due diligence period, no "cooling off" period or "I changed my mind"...you get what you get, as is, where it is plus the other baggage (trashed, liens, back taxes, former owners/tenants that don't want to move). I've got access to clean up crews, tax advisors, attorneys and title companies that can help with these issues. Also, with regard to possibilities in La Jolla, it is possible to find a smokin' deal in La Jolla, just not as numerous and easy to procure. You have to be quick with your research and your cash/financing. I am helping other investors but they only look at the zip codes and short term return on investment - they're not afraid of ugly properties. There are many other subtle nuances I can share with you if you are really interested in this type of purchase, just ask. I hope all this helps.

LB: When you write 'they are not afraid of ugly properties', what do you mean?

Md: Ugly as in total cosmetic fixers, some needing roofs, kitchens, bathrooms and termite work, landscaping front and rear, general updating, etc. These are all over the county, typically east of I-5 and older construction. La Jolla properties are generally in pretty good shape, relatively speaking of course. Although I have seen a few coastal train wrecks. Remember, for purposes of this one real estate agent's illustration, ugly is in the eye and wallet of the beholder.

Like I said, be informed and judge for yourself.

I'll post a follow up, stay tuned.

Md

Let me set the stage, the house in this conversation was built 4 years ago, sellers at one time were downsizing to move into this new home. Typical story, they refinanced the bigger home, took out cash for the down payment on the newer/smaller house, carried the two homes for a while then decided to sell the big house just a little too late. When the big house hit the market, sellers were on the higher end of price spectrum AND pressed up against break even for the time; if priced any lower they would have needed to pay the difference or sell short. This was almost 3 years ago. How they stayed afloat since then has been a small miracle. In the meantime, they decided to sell the newer, smaller home via short sale. It is very clean, in a great neighborhood, has all the upgrades (custom kitchen, granite, stainless steel, flooring, crown molding, cat-5 cable & TV cable everywhere, custom lighting, speakers in almost every room, 6 bedrooms, 3 baths, custom garage, 2655 sq ft...). Now the horrifying part - they paid (financed) $795k, now on the market for $409k. So now we have multiple showings, multiple offers and the price has gone above the list price.

The conversation went a little something like this:

Marvin (M) - Good morning, this is Marvin.

Buyer's Agent (BA) - Marvin, it's Mike checking status of our client's offer on your listing. What's the latest?

M - Well, the holidays have come and gone so now the loss mitigation negotiators for the bank are back from their brief hibernation; they're back to the overwhelm they left behind on December 19th. Essentially, I don't have anything new to report.

BA - I know what you mean, my own listings are the same, negotiators are still either in denial of wanting to make a deal happen or are sticking to their "company guidelines" in reclaiming lost assets.

M - So you understand, even though we call them nearly every other day to be squeaky wheels, sometimes it's counter-productive and we get pushed back even further. Meanwhile I had another buyers agent call me to say their client had moved on, the banks were taking too long to approve the short sale.

BA - Oh, sorry to hear that...

M - Stuff happens, I don't blame the buyers out there that just want to move in. Meanwhile, I've got to keep plugging away at the banks, which is what we'll keep doing with this one.

M - With regard to your client, you haven't changed positions - no new offers, no word from the bank and your client is still way down below the highest offer we have. So you're still in a back up spot, 4 buyers have to go away in order for your client's offer to emerge on top. Truth be told, you're not going to hurt my feelings if your client is looking at other property and writing offers on others, you're just doing your job, right?

BA - So what is this with all the banks and the listing agents, I think it's a bunch of B.S. that we have to jockey for position, deal with overbidding, write multiple offers on other properties and wait for the same answer from agents like you, which is basically no answer.

M - Mike you've gotta remember, the banks are dealing with so many short sales and bank owned properties. The sheer number of homeowners in trouble is astounding. I'm watching 300-500 new Notices of Default hit the public record in San Diego every week. As for us listing agents, we're working not only for our clients but also the banks, you and your clients as well. If we're not banging on the phones to get these deals to go through, my client won't dodge the foreclosure bullet, the bank will have to re-list a month or three from foreclosure for less than the offers we brought to their table. Worst of all, your client is peeved that they still can't land a house with you. So what do you do? Keep calling me for an update and I'll tell you everything I know as I will be with everyone else in line. Keep showing them houses and writing offers. You'll land one eventually. Until then you can only do what you are hired to do, keep looking and keep them informed. You know Mike, your client could raise some eyebrows at the seller's bank if you blew away the competition with a higher offer...

BA - (silence)

M - Mike...Mike, are you there?

Guess he didn't get the joke. (Click, dial tone...)

Here's a real conversation I had recently with a well known home inspector in San Diego County. I rely on him heavily for my dumb agent questions relating to physical condition of homes.

Philippe,
I have a small handful of clients that actually like older homes and are actively looking at these with me. Most of these are where I sell throughout San Diego, many are postwar era, say 1950's to 60's. As you and I know, a lot of these homes haven't been upgraded and if they have, not recently.
So here's a question, and I'll set the stage for you. My client is standing there next to us and says, "I like this house but it looks like it needs a little upgrading. Before I put a small fortune into the aesthetics of this house, what things should I pay close attention to, with regard to the structure and systems of the house? I mean, it's old, it's gotta have some quirks right?". To which I say, "Funny you should ask, I have Philippe Heller of San Diego Real Estate Inspection Company, President and Chief Inspector here. Philippe, knowing that we Real Estate Agents know a lot but not everything...stop laughing...how would you answer that question?
Thanks, Marvin de la Vega - Real Estate Pros, Inc.
P.S. This is a real scenario and I'm asked this question often. Md

Marvin,

We get that question all the time, too. And it is a valid question. All homes are not the same. Just like a vehicle, technologies evolve over time. Theconstruction methods and safety items are continuously improving.Older homes may have components that are, well, old.

We inform clients that if they are buying a house that was built more than 40 or 50 years ago, there are some things you must consider so that you are not disappointed once you move in. Your home inspector should identify certain components of the house even if they are functioning properly. They may be old, consist of old technology, or may not be sufficient for today's modern families. These components include electric service panels, ungrounded circuits, furnaces, insulation, windows, etc.

Older electric panels can be under-sized. An electric panel that provides less than 100 AMPs may not provide enough electricity for your family. In the 1950's a house may have had one TV - if they were affluent. In the kitchen, countertop appliances consisted of a percolator and maybe an electric can opener. That's it! Today it is common for a house to have multiple large TV's, AV systems, microwave ovens, large refrigerators, multiple computers, ceiling fans, hair dryers, hot tubs, etc. These items use a lot of power. If the electric system of the house has not been upgraded, it may not be grounded (not as safe!) and may not be able to accommodate your electrical demand. You may need to budget for an upgrade of the electrical system.

Older furnaces have several problems. Due to the moderate climate in San Diego, we often see original furnaces in old houses. They may still be functional, but these old units are inefficient, noisy, and a fire hazard. They lack many of the safety features that are now built into furnaces such as overheat protection and panel cover shut off switches.Old furnaces use much more gas because they still have a pilot light instead of electronic ignition. Furnaces are expected to last 20 years.

Old heating systems may also include components that contain asbestos. Determining the presence of asbestos is beyond the scope of a home inspection. But your home inspectorshould have the knowledge to identify components that may contain asbestos. Replacing ducting that contains asbestos can incur added costs.

Another system that may be near the end of its useful life is the plumbing system. Older homes were plumbed with galvanized steel pipes which do rust over time. Old cast iron drain lines have a life expectancy of 40 - 50 years. Often these pipes may look OK, but a video scan is recommended. The cast iron drain lines rust from the inside. Upgrading the drainage system can be costly. A video scan is highly recommended in addition to a home inspection as home inspectors do not perform video scans of the drain lines.

Older homes in San Diego may also be lacking any insulation, and older windows are not as thermally efficient as modern windows. Many incentives and tax credits exist to upgrade the components of your house. Be sure to ask your home inspector to report on the age and condition of these items as they can be very expensive to replace. To learn more about what should be included in a thorough inspection, please visit www.sdinspections.com

Philippe

Hey Philippe,
Thanks for the info, priceless. Good plug at the end, I've already gone to the site. I especially liked the video on FLIR (Forward Looking Infra Red camera to find moisture in walls); you know me, the military guy that likes military related toys. Did you get that Hummer for your inspection vehicle...?
I'll definitely pass this on to my clients and readership. Let me know if you have any updates as well.
Marvin

Here's what it is not:

--Half price off boxers.
--Goods/services sold by persons under 5'-6".
--After Christmas store hours from 8:00 AM to 9:00 AM only.

Don't quit my day job? Good advice. In fact as a real estate agent what I have been doing lately is helping homeowners sell their homes short.

Here's what a short sale is:

--Sale of real property where the amount owed is higher than sales price.
--The lender accepts full proceeds from the sale minus fees and costs to close the transaction.
--Lender ('the bank") does not foreclose on the property.
--Seller receives no proceeds and in a well negotiated sale, lender(s) seek no further compensation from seller and deem the debt fully satisfied.
--Seller sustains a credit hit less damaging than a foreclosure.
--A successful sale depicts zero balance owed on credit reports.

A short sale is not always the answer for some homeowners. To arrive at the best decision for homeowners in distress, one must answer the question, "What do you want to do? Do you want to keep the property or not?". You might actually need to consult with an attorney, tax advisor, financial or credit advisor first. This will be the beginning point in a flowchart that could take several directions.

If the decision is made to keep the property then a viable option might be to re-negotiate the loan to arrive at a lower payment. Not all loan modification requests are granted since certain criteria must be met; all lenders, all homeowners/borrowers, all situations are different. Usually by the time I'm called to the scene (envision white chalk outline of a dead, upside down house on the pavement, yellow tape, cops, it's a mess...) , the homeowners decided not to keep the home or loan modification wasn't successful. That's when I explain the before, during and aftermath of a short sale.

Here's a snapshot (and I mean snapshot) of what I explain to clients considering selling short.

Before

Equate the beginning of the process to when you applied for the loan (minus giddiness). You'll need to gather pay records, tax returns, bank statements, mortgage statements. In certain cases a hardship letter (sing like a canary, an adult version of "my dog ate my homework" only it will make a hardened criminal cry) and an income/expense worksheet are requested by the lenders. Lenders will also require written authorization for someone else (other than borrower, usually yours truly) to talk to them on the borrower's behalf. If there is a Notice of Default or Notice of Trustee Sale filed, save the letter(s); these might come in handy.

Then comes putting the home on the market. Pricing is the most important issue in selling a home. Pricing right will result in multiple showings, more than one offer, maybe overbids. In our current market the sales trend is downward. Set the price where it looks like a killer deal for a buyer and within reach for the lender to approve the sale. In addition to pricing, other things to consider are carefully written contracts that protect EVERYONE, condition of the property, accessibility for viewing, marketing...these are normal components of listing a home for sale. Side note: For entertainment ask me for a few real examples of peak purchase price to short sale price spreads; you'll be flabbergasted.

During

When an offer comes in, you'll still be in a position to negotiate with the buyer. Just because you receive no proceeds from the sale, doesn't mean that you can give the house away. It is your responsibility to sell the property for as much as possible. The lenders will do their homework, more on that later. Guided by your agent, the offer will likely contain negotiable terms and conditions. Everything is negotiable. Just know that the short sale lender could deny certain requests. Once agreed upon between buyer and seller, an estimate is formulated with the help of a good escrow officer (procedures/players may be different outside of California, consult locally) and sent to the short sale lender(s). A loss mitigator / negotiator at the bank is eventually assigned to the transaction. Each lender has slightly different requirements for submission of a short sale package, refer to the stuff at the beginning of the "Before" paragraph. Add the purchase contract, listing agreements and any pertinent supporting agent generated documents. Attention to detail is paramount here.

The lenders will send their own representative to evaluate the property (not an appraiser but another real estate broker/agent) to verify price, size & condition of the house (among other things). That "broker price opinion" or BPO will aid the lender in approving the sale.

Simmer 1 to 6 months till done (approved by the bank); time frames will vary case by case. Two words of advice - be patient. The seller can still negotiate with his bank prior to full approval, especially the issue of all loans being fully satisfied by all lenders/lien holders - get this in writing! Another estimate is drafted, down to the penny, prior to approval. Once the sale is fully approved in detail by the short sale bank (in first lien position), buyer and seller now have a normal escrow period. Time frames begin here (if negotiated properly), buyer's loan is processed, inspections begin, disclosures are provided from seller to buyer - it's all a somewhat normal transaction at this point.

After

If the real estate agent did his job, he recommended full understanding of what happens after a short sale before it started. Here are a few things that can be possible in the aftermath of a successfully negotiated short sale:

--No foreclosure on your record
--Credit score reduction, not as bad as a foreclosure
--Zero balance owed to lender(s) (unless negotiated otherwise)
--No follow on tax ramifications (again, this was discovered "before")
--No legal issues or deficiency judgement for balances still owed
--Potential for home purchase sooner than in the aftermath of foreclosure
--Potential for credit purchases (car?)sooner than in the aftermath of foreclosure
--Peace of mind

For detailed background info, Wikipedia has info, but don't put all your eggs in that basket. For real info, consult an experienced real estate agent/broker, attorney, credit/financial advisor and/or tax advisor. There are many, many more components to a successful short sale. I've only touched the surface here, heck I might've missed some points worthy of mention like "does ALL of the furniture convey with the house?" - real question asked by a buyer, in writing. Or, "Will the seller pay to repair this, that or the other?".

Here's my fave, a real email from a disgruntled buyer's agent excerpted, paraphrased, "Multiple offers? Overbid? That's deceptive marketing...!!". Okay, so I've left a few things out, purposely.

Here comes the caveat - good advice is priceless, get it, you'll need it.

Marvin

I know, I know, like opinions and certain parts of our anatomy, everyone's got one, a blog that is. Nonetheless, thanks for reading this far. If you're looking for a blog spewing forth about the riveting subject of real estate and only real estate, you're in the wrong place. There are many, many "blahgs" out there for that. I've reached a point in my life and career where there is life beyond the Multiple Listing Service, beyond email blasts looking for more business, beyond appointments, inspections, appraisals, contracts, sign calls, angry agents, inexperienced agents, marketing, prospecting, lions and tigers and bears...

I do work my behind off for my clients and my vision has slowly changed for the worse due to countless hours staring at the Mac (that's another rant, MLS doesn't work in its pure form on my Mac so I've got a PC at my desk too). I've focused on short sales intently for the past year, made a good hard earned living at it but more importantly saved many people from the the perils of foreclosure. And no, short sales have nothing to do with me being 5'-4" -Google it or call me. I've even sold several homes as a buyers agent too, often having to deal with how other listing agents run their short sales (and bank owned ones as well). Let me tell you, EVERYONE does it differently. But enough belly-aching about work, the whole reason for this blog is I've finally realized I have a life.

Here's what's different: I've got a wife and kids that I really like spending time with. My daughter is 10 and smart as a whip. My 4.5 month old boy smiles every single time I make eye contact with him, even when he's whining in a poopie diaper. I still surf, and I'll even schedule my appointments around prominent west or south swells, tide swings, and the evening glass off. Heck, if it's overhead and the Santa Ana's are blowing, I've got a board meeting to go to or maybe even a visit to my therapist for a saline treatment if you know what I mean. Note: For board meeting prep, go to www.surfline.com. I run 4 to 5 times a week, something I put on the shelf in recent years for no good reason. My tax guy had a heart attack at 38 - smoker, bad diet, tons of self imposed stress from work. Not for me - I haven't lost any weight but I didn't lose my lunch the other day after running in the hard packed sand for 2 miles either.

Although I've flown helicopters for the Navy for many years, the sound of aircraft overhead doesn't grab my attention as much as the distinct sound of a motorcycle rolling by. I ride long distance twice a year with friends that never grew up, right there with me. Last trip I logged 2600 miles in a week rumbling through CA, AZ, NM, CO and UT with an old Navy helo buddy. I've joined a coaching program, not just for real estate or sales training but a combo of training to keep me sharp and versatile in business. Just for fun, feel free to go to my Facebook site, not much real estate blah there, it's more of a reminder to myself that I have a life outside of work and some really great friends, new and old.

Truth be told, I've read "The 4-Hour Workweek" recently and was inspired not only to improve and streamline what I do with work, but to spend more time on things that matter. No, I don't work just 4 hours a week, but I do spend more time with my family, surf more, eat better food and exercise. To improve efficiency I've hired an assistant. I'm consistently being approached by other agents that want to work with me; I'll figure out how later since I'm a solo act at the moment. Don't get me wrong, you'll see my opinions, observations and experience in real estate on these pages. I'm still very, very dedicated to my clients, my skills and my industry. These entries will be a healthier mix of info for both you and I, and if anything, a mere source of entertainment for both of us. Read on friends, see you soon. And by all means feel free to call or write, especially if you'd like to schedule a "board meeting".

Thanks,

Marvin