March 9, 2011

Dear Linsey,

As you may know, C.A.R. has been working on numerous efforts to address your concerns about the difficulty of working with short sales.

To that end, I want to give you advance notice of perhaps one of our most visible activities to date, and one that may be a first in C.A.R.’s 100-plus-year history.

Tomorrow, C.A.R. is placing an open letter advertisement in California’s seven largest daily newspapers, calling on lenders and industry regulators to streamline and improve the short sale process.  C.A.R. is taking a leadership role in this effort by getting this letter published and pointing out lenders’ and servicers’ unworkable short sale processes.  We’re also appealing to various constituencies, such as regulators, elected officials, nonprofits, business organizations, companies, and individuals to join us so that more families are able to arrange a short sale, rather than lose their homes.

In the letter, I write, “With the number of homeowners who owe more than their mortgage is worth hovering at 30 percent, experts predict there will be many more foreclosures in 2011 and 2012.  Unless we take immediate, aggressive action to assist these homeowners, any meaningful recovery in the housing market and overall economy will continue to be delayed.”

The open letter will appear in a full-page advertisement in tomorrow’s Los Angeles Times, San Francisco Chronicle, San Jose Mercury News, Sacramento Bee, San Diego Union-Tribune, Bakersfield Californian, and Fresno Bee.  If you live in one of those areas, I hope you can pick up a copy of one of those newspapers tomorrow and read the open letter.  If not, we’ll be sure to post it on car.org.

Help us spread the word further by leveraging your relationships with your local paper and asking them to publish it.  Or post it on your website, if you have one, to reach your clients and other consumers.

Sincerely,

Beth L. Peerce
2011 President
CALIFORNIA ASSOCIATION OF REALTORS®

 

Later I received another email from C.A.R. Newsline that goes to members stating,

“The open letter addresses the following topics: The benefits of doing a short sale rather than a foreclosure; the inconsistencies with short sale processes at banks; the challenges of working with multiple lien holders; and the slow and/or nonexistent communication by banks and servicers to REALTORS®, homeowners, and buyers.”

Scratching My Head

While I applaud the effort to address the issue, there are a few things that leave me a little perplexed.

First, the negative equity situations, and need to negotiate short sales for sellers, began in 2006 and certainly began in earnest in 2007.  We have seen four years of sellers, buyers, and the real estate community suffering through long, painstaking processes that have seen very little improvement during that time.  After four years, the fact that C.A.R. has resorted to taking ads out in major newspaper publications implies that C.A.R. is finding that they are out of alternatives to influence significant change.

Secondly, it’s interesting to me that the Orange County Register has been omitted from the newspapers they chose to utilize for this outcry.  Given the fact that 30 to 50% of the active listings (depending on city and price point) are short sales, this sizable market seems be a place to have had such a discussion.

I’ll be interested to see the piece when it comes out tomorrow.   Ms. Peerce says that the attempt is to appeal to ‘various constituencies, such as regulators, elected officials, nonprofits, business organizations, companies, and individuals’, as well as banking institutions and servicers.  But this problem has been well known by all of these folks for a very long time.  If earlier attempts to streamline haven’t made any headway, I’m not sure how this will improve things.

But, there’s no question, I’d be happy to see it.

The Sale Price Tells a Story

I decided to pull up some individual tracts to find foreclosed homes, short sales, and traditional or equity sellers to compare the sold pricing.  In an effort to make the comparisons meaningful, all of the following examples have closed in the last 90 days and are close to, if not exact model matches.  The tracts were selected solely on my ability to pull up enough properties for a full comparison.  All provided sale data comes from Socal MLS.

*worth noting standard sale highly upgraded

So why aren’t the bank owned homes selling for the deep discount that some of the media describes?  With the current inventory in some of our South County cities in the range of 2.5% to 10% for that type of sale, there is hardly a ‘glut of inventory’. It’s interesting to note that two of the 4 bank owned homes in the examples sold for over asking, which may indicated multiple offer circumstances.  The number of foreclosures may increase, but throughout this housing crisis, we have yet to see a significant influx of foreclosed homes on the market in Orange County.

So should short sales be your focus for a good deal?  Possibly.  But be aware of a couple things.  There is a significantly longer process while one waits for bank approval, with no guarantees.  And very often the Homeowner’s Association dues are delinquent and in nearly all cases, it’s the buyer that satisfies those delinquencies in a short sale.

Bottom Line on Finding a Good Deal

Be clear about what you are looking for in a home.  When you find the right fit based on your criteria, try to keep from becoming too emotionally attached so that you can focus on negotiating the best price and terms possible.

Two Ways To Buy a Foreclosure

As noted in the piece, there are two ways one can purchase a foreclosure.  The first is to go to the courthouse on the date of the Trustee Sale and bid on the property.  In the television spot, they imply that you may have trouble getting a loan and you will need at least 5 to 10% down.  I’m not sure about other places in the country, but here you will have to show up with cashiers checks in hand.  These are cash purchases.

Additionally, you will be competing at those sales with professionals who are at those sales everyday.  They spend significant time researching the upcoming properties and the competition for the properties at the courthouse is significant.  You are also not guaranteed clear title and there is a fair amount of risk you will be assuming.  As GMA points out, you buy these properties sight unseen.  Many of the opening bids are well above today’s market value because the bank intends to retain the asset to sell on their own, leading to the second way to purchase a foreclosure.

The properties that the bank retains will generally be sold through a real estate agent and placed on the market.  The piece talks about the significant savings one can find by buying a foreclosure. The national median home price is $160,00 and the median home price of foreclosures is 28% less, or a $45,000 savings.  The fact is that the number of foreclosures in the lower price points is significantly higher.  That lower price point will certainly have a direct impact on the lower median price for foreclosures.It’s important to note that while you may achieve some savings, there is a flaw in implying that the 28% is due entirely to a ‘discount’.

I find the example discussed in the piece highly suspect.  The example property sold in 2005 for $300,000 and was purchased today for $175,000 which is 42% less.  That sounds about right in a lot of markets and is probably not far off market value.  They mention that is $100,000 less than nearby homes (putting them at $275,000).  Either the nearby homes have not seen much of a drop in value (which I doubt) or this home is likely smaller than the nearby homes, making the implied savings of $100,000 discount misleading.

Discounts for Orange County Foreclosures

There is no question, there is significant buyer interest in foreclosures.  Buyers are on the pursuit for a good deal, and rightfully so.  So what does that inventory look like in our South Orange County markets?  As of right now, there is a very limited inventory of foreclosures with Aliso Viejo at only 10% of active listings and as little as 2.5% in Coto de Caza.  With buyer demand for these properties, and very few available, the idea that discounts will be dramatic may be misguided.  And keep in mind, many of these will be in poor condition with cosmetic and/or structural work to be done.

So You Want a Good Deal

The available foreclosures is likely to increase.  But these are the current numbers.  So how do you find a good deal?

Short sales are abundant and in many parts of South County, they make up nearly 50% of the available market.  And don’t count out the equity seller.  Those that are listed today are well aware of market conditions and if they have decided to sell now, it’s because their personal circumstances have forced a move.    Most of them are very motivated and the upside of these transactions, there is no waiting for the bank.

Good Advice

The very last moments of the GMA piece advised buyers to get a Owner’s Title Policy when purchasing a foreclosure “in case someone comes along later claiming it’s theirs”.  Sound advice.

The chart is definitely worth taking a few minutes to look at for the zip you are living in or if you considering a purchase in an Orange County city.

Some of the worst performing zip codes continue to be those in Santa Ana.  In one of its zip codes, 92701, 23.3 of every 1000 homes is in foreclosure ranking it the worst in the county.  Ladera Ranch, the home to much speculative purchases and high loan to value lending, ranked 81 with a 34% fall in sales activity and 26% fall in prices.

Newport Beach is the number 1 zip code with zero foreclosures per 1000 and one of the few places where positive numbers are seen in sales and pricing, but I’ll be interested to see if they continue to remain untouched by these markets.  With the financial and economic woes becoming more widespread, we may see a ‘trickle up’ to this market in the coming months.