Open House: Not Always Exciting

Empty house. No furniture. No chair to sit on. I sat on the floor…on the carpet…with my back against the wall…and began to read. I always bring something to keep busy in case the open house is slow. I make sure that it is business related, like a real estate magazine, so that visitors don’t think that I am bored and reading lite-weight stuff because I would rather be somewhere else.

 Next thing I know, a voice says, “Hello? Excuse me?”

I AWOKE to find a visiter who was wondering what she had walked into! Embarrassing? Yes! She took it in stride.  I swore that it will never happen again!

B of A + Countrywide!!!

This is a major commitment to the mortgage market by a leading US financial institution. Bank of America is putting its corporate weight, and its money, where its mouth is. By making this acquisition, BofA is saying that they are in the mortgage market for the long run. They will most likely be stuck with some very large losses that are still hiding in the Countrywide portfolio but they will be able to overcome the problem that has caused the cessation of business for many mortgage lenders. Funding! If you are a lender and you have a qualified borrower, but you can’t find cash to fund the loan, you have a problem. BofA has and will continue to have the funds required to be a major player in the mortgage market. My guess is that they bought Countrywide for a price that will make the BofA shareholders very happy in time. Other mortgage providers will be forced to take agressive steps to remain competitive. 

Kim DiBenedetto, a REALTOR with Alain Pinel Realty in Carmel, Ca., seems to agree that competition among lenders will grow. 

This is good news for the real estate market.

For another opinion about the importance of the move by BofA, check out what Darryl Glade, a New Orleans RE/MAX agent has to say.

WORD OF THE YEAR…SUBPRIME!

In its 18th annual words of the year vote, the American Dialect Society has named the word “subprime” as their Word Of The Year for 2007!

Who knew that there was a society dedicated to Dialect but the organization is apparently 118 years old. I wonder why it took them so long to come up with an annual Word Of The Year program since this is only the 18th annual. But, why quibble. 

“Subprime”—an adjective used to describe a risky or less than ideal loan, mortgage or investment—was also named as the winner of the brand new 2007 category for real estate words.

“Subprime” beat out other contenders—green- (used as a prefix); surge; Facebook; waterboarding; Googleganger; and wide stance (to have a)—for the prestigious (?) honor.

Read their press release for all the entertaining details. For instance, do you know what disgraced Senator Larry Craig and “wide stance” have in common?

I have to admit that I need to expand my personal vocabulary. Many of us have heard about liar loans (money borrowed from a financial institution under false pretenses), but I have to admit that a NINJA loan (No Income, No Job or Assets) and ’scratch and dent loan’ are new ones for me.

“Subprime” joins the ranks of former winners of the Word Of The Year award, some of which are chad, Y2K, red/blue/purple states, and metrosexual.

I want to wish a belated Happy Kwanhanamas to all. (Designated as winner of the most unnecessary word of the year.)

A “SHORT SALE” IS NOT A QUICK SALE

My wife was happy when I told her that I was writing an offer for a client.

“The property is a ’short sale’ ” I told her.

 ”Great!” she said. “That means that your commission check will  come quickly. Why don’t you do more transactions like that?”

 Well…she assumed that ’short’ meant short-time-wise. Not so! Short, in this usage, means short of money. If this property sells for the price for which it is listed, the owner will not receive enough money to pay of the lender (or lenders, in many cases) who hold a deed of trust(s) (lien or liens) on the property. If the buyer expects get a grant deed to the property in their name, the lender must reconvey their deed of trust. Since there will not be enough money to repay the lender, will the lender reconvey?

You have heard he expression, “I am short of cash.” Exactly! In this transaction, the cash is short of the amount needed to gain ownership of the property. In order for this transaction to work, the lender will have to agree to forgive part of the debt. The lender will take what they can get, forgive the difference and reconvey the deed so the new owner can have clear title to the property. This means that the lender will take a partial loss on the outstanding loan. The amount forgiven will be the difference between the purchase price and the amount of the outstanding loan.

 In more and more cases, the lender will, in fact, reconvey (release) the property because (a) the property has dropped in value and no longer provides adequate collateral for the existing loan and/or (b) refusing to co-operate in a short sale transaction will only lead to the lender’s eventual need to foreclose on the property and/or (c) failure to accept a short sale offer will lead to delay in selling the property…perhaps after foreclosure…and risk of further deterioraton in market value for the property.

If the lender must foreclose and become the owner of the property, then the lender becomes responsible for upkeep, taxes, insurance and other carrying expenses. Then, the new owner (the lender) still has to sell the property in a market which is continuing to deteriorate for properties of this kind. Lenders do not make money on foreclosures! They make money by lending money and earning interest…which assumes that the loan is repaid. Repayment is not happening in a short sale.

The lender is in going to take a beating on a problem loan. The owner can not/will not pay. The lender’s income/loan repayment stops. The lender can accept a short sale and take a beating. The lender can wait, foreclose, incur carrying expenses and sell the property to take what may be an even worse beating. Maybe the first beating-the short sale-is the lesser beating.

In any event, the lender is in charge, not the owner of the peoperty. It is the lender who makes the decision to accept the sale price, not the owner. The owner is “upside down” in the property and gets nothing from the sale. The owner has no equity and has probably stopped making payments.

Not a pretty picture for the lender (Why did they make this loan, anyway? But that’s a whole different issue?) or the owner. We have not covered numerous other details relative to short sales: credit harm to the owner/seller, tax consequences to the owner for debt forgiveness, lender’s pursuit of repayment from the owner on a deficinecy basis…and more.

This may be a real good deal for the buyer…or did the buyer just buy a house at its current value in today’s market?