Beth Mergens

Recently I was finishing up a Broker Price Opinion for a bank and needed to input the latest statistics for Folsom, CA and I discovered much to my surprise that Folsom's average decline in price from 2007 to 2008 was just under the 7% range. On average the Sacramento market declined around 23% with some areas really hurting above 35% so I was delighted to see how well my hometown is getting through this mess. The hard part is that although the pricing is holding up better than most the rate of short sales is at 63% which means 2 out of every three homes on the market is in a short sale status in Folsom.

It seems the banks are finally geared up to deal with the short sales and the time it takes to close is shortening. News on the street is the moratorium on filing Notice of Defaults has been extended until June so I don't expect to see the flood of foreclosures we expected in late Feb. which explains why the short sales process is seeming to go faster. I just hope that by the time the moratorium is lifted we will have sold many of those short sales and will be able to absorb the onslaught of new listings.

Loan Modifications vs Short Sales

February 16th, 2009 categories: Foreclosures, REO, Real Estate, Short Sales

Does hiring an attorney really help?

The past couple of years have re-introduced to the real estate community the short sale that has helped many people sell their homes and keep some semblance of credit worthiness, and now attorneys have found a niche with loan modifications.

We last saw the short sale in the mid 1990's when the market had a similar fall due to the overbuilding and investor inflation created by a rising real estate market. In essence, the seller was able to sell his house without having to satisfy the debt he owed to the lender and the new buyer was able to purchase a home with a clear title even though the previous owner owed more than the new buyer paid.

Now attorneys are introducing their services to help homeowners obtain a loan modification. Real estate loans can be obtained from a variety of sources i.e. banks, mortgage brokers, mortgage bankers, credit unions, investment firms, private funding, etc... so is it necessary to hire an attorney to get a toxic loan re-negotiated? That depends on a couple of factors but most importantly it depends on the reason you are seeking relief from your loan obligation.

How much you owe vs. what you can afford to pay for a mortgage is the primary reason most people find themselves in this situation in the first place. There are exceptions for loan fraud and in those cases an attorney would be a good choice however, the majority of people now seeking relief accepted a loan at a teaser rate knowing it would adjust. They were hoping the market would continue to increase and that they could re-finance at a fixed rate after their minimum period expired. Your ability to qualify for a loan modification is the same criteria lenders use to qualify any buyer for a loan.

In a loan modification the goal is to re-negotiate the loan to something that the homeowner can afford. The best case scenario is to get in touch with your lender and begin the discussion of loan modification prior to missing any payments. The labyrinth of departments make this an intimating situation and can seem overwhelming. Attorneys capitalize on these fears and extract more money from the homeowner which exacerbates their financial situation.

I recently had a conversation with one loss mitigator from a bank I was working out a short sale for one of my sellers. He said his bank requires that the attorney, the loss mitigator and the homeowner have a three-way phone conversation explaining to the homeowner that the hiring of an attorney was not necessary to negotiate a loan modification. He then asks the homeowner why he hired an attorney when he could save himself the money and the usual answer was fear. This was the reason most people were willing to go further into debt with no guarantee that they would get their loan modified. Again, the primary factor in obtaining a loan modification is your ability to qualify for the loan in the first place.

Some law firms specializing in loan modifications have "working relationships" with investors who will purchase your home should you not qualify for a loan modification. Essentially, they are structuring a short sale with the law firm doing the paperwork on behalf of the seller. This is where I have a problem because the seller is being charged for services a Realtor would provide FREE. Since the seller did not qualify for the loan modification they are now forced to sell their home or face foreclosure but they now have attorney fees to pay. Talk about fear!

My suggestion to people who are upside down on their mortgages is to first talk with a Realtor who is familiar with loans and short sales. Find out if you qualify for a new loan and what your home value is in this market. If you suspect loan fraud then get a referral from your Realtor for an attorney who specializes in real estate. Paying for the learning curve of those attorneys who are exploiting people's fears is not going to help your situation.

For more information see these articles: Now Is The Time To Renegotiate With Banks

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There's this great website that a client of mine sent me that shows the market trends over the past 5 years in the Sacramento Valley. It's put out by the Sacramento Bee and you can select any area and see how much the values have changed.

This past week at the Realtors board meeting there was a presentation complete with charts reflecting the decline of our market in relation to the loans people took out on their homes. The best part was that the numbers show that we've been through the first wave of loan re-sets and are starting the second which some say could be the last for this buyers market.

According to the recent stats the Sacramento area has dropped to values last seen in 2001. The Folsom area has been hovering around the 2003 price point which upholds the old adage of keeping location paramount. The percentage of bank owned homes in Folsom is about 63% compared to some areas which are close to 100%.

I recently had a conversation with an agent in the bay area where there have not been any fair market sales for the past 6months. According to DataQuick prices are down 50% there and we usually follow the bay area. The upshot is that the investors are starting to come back. It's not unusual to hear of agents writing a dozen to 20 offers hoping to get 6 houses for their clients.

Right now we have low interest rates, plenty of property to choose from and little competition...sounds like a good time to go shopping. The real key is trying to guage when & where the bottom of the market will be. There are indications that this year will be the last decline and things will begin to level off but you need to remember that there won't be anyone who will ring a bell to alert us.