RadarLogic reports:

The month of March usually brings a seasonal boost to home sales, but this year  the seasonal uptick was smaller than in years past. Over the last ten years, the RPX Composite transaction count has increased an average of 16.5 percent during the month ending March 24. This year, it increased 11.5 percent, the smallest increase during the period since the beginning of Radar Logic’s dataset (see Exhibit 5).

Investment buyers, many of whom purchase multiple homes with all cash, are still  very active, while ordinary buyers are largely sitting on the sidelines. Investors are chasing foreclosed homes, which motivated sellers (i.e., financial institutions and foreclosure trustees) are pricing at a 39 percent discount to all other homes. They have largely ignored the rest of the marketas ordinary sellers (i.e., sellers who are not financial institutions or foreclosure trustees) have not yet lowered their prices to levels at which investors feel confident they can make an adequate return on their investment.

Ordinary buyers have been largely absent from the market so far this year for a couple  of reasons. First, widespread negative equity is reducing demand from current homeowners. Underwater homeowners are deciding to stay put rather than buying a new home because they are either unable, or unwilling, to pay their lenders the difference between their current loan balance and the price they could  currently fetch for their homes. Second, apart from FHA loans, lenders are now requiring significant down payments and ordinary buyers are wary to put up their hard-earned capital as equity in an environment where home prices are widely expected to fall  over the next 12 to 24 months. Investors, who are typically managing other people’s money, are more willing to take the risk, especially if  they can purchase foreclosed homes at significant discounts to their perceived value.

The punishment lenders inflict on strategic defaulters are lighter than most realize, and likely to lessen as lenders need customers in the future.

Trust me,
Believe me,
It’s all in the art of stopping

Wire — In the Art of Stopping

There is an art to strategic default. There are many options, and some have stronger consequences than others. Does the borrower want to maintain some lines of credit? Will selectively defaulting on certain debts hurt their credit score more than others? Will strategic defaulters need to declare bankruptcy?

Now that millions have defaulted on their mortgage, we have anecdotal data and research studies on what really happens to those who quit paying. The results will surprise some and inspire many.

Eroding the Fear of Foreclosure: New Research Shows Strategic Defaulters Experience With Post-Foreclosure Credit

Posted on May 12th, 2011

One of the most cited deterrents of deciding whether or not to foreclose or strategically default is the fear of a catastrophic and irreversible hit to one’s credit score, leading to an inability to rent, purchase a new car or home, or open a new credit card.  After polling some of our 5,000 clients nationwide, YouWalkAway.comhas discovered it’s a fear that may be blown way out of proportion.

Susan Edwards is a client of YouWalkAway.com, a company that walks defaulting homeowners through the foreclosure process.  Edwards recently walked away from a property in Southern California.  “Prior to missing our first payment, my credit score was 805,” Edwards stated “I checked it again in June after we missed the 5th payment and it was 680.  At the time, it was commonly reported that the average foreclosure would lower your credit score about 150 points.  I had assumed it would stay in that range for up to 7 years.  I was wrong.”

So, what is Edwards credit score now?  According to Edwards, after only 3 months following the foreclosure auction of her property, her credit is back up to 734 and climbing. Fortunately, the hit taken to her credit was not nearly as bad as most people, including those who claim to be experts, might have depicted.

If this woman’s credit score gets back above 740, there will be no real ramifications for her default. Most lenders don’t have a super-duper category for those with FICO scores over 740, so the borrower with a 745 is getting the same rate and the same treatment as someone with an 805.

Edwards is not the only YouWalkAway.com client to see her credit rebound so quickly.  New York resident and YouWalkAway.comclient Jodi Romanello has walked away from two investment properties in Florida.  While she has never closely monitored her credit score, Romanello has yet to see any negative repercussions of a credit drop.  “When I first skipped payments on my first foreclosure, CitiBank Diners Club abruptly canceled my card due to ‘undesirable changes in my credit rating,’” Romanello explained.  “I got very upset because I hadn’t thought this would happen, but to my enormous relief none of my other cards did this.  I have a high limit with American Express Gold, Visa, MasterCard and a lot of store cards, and Amex just renewed my card with an invitation to go Platinum.” Romanello continued to explain how she staved off the negative credit effects of two foreclosures, “I am careful to pay all other bills instantly when I receive them, I run no balances on any cards month over month.”

The key to keeping a high credit score is to selectively default. Some people who strategically default stop paying on all their debts, often as a precursor to bankruptcy. Anyone hopelessly overloaded with debt is probably wise to follow that path. However, for those who can afford to maintain other credit lines, and feel the need to do so, can simply stop paying their mortgage and keep paying everything else.

When I first reported that borrowers were defaulting on their first mortgage and keeping their second mortgages current, I was shocked. I conjectured most borrowers would default on their second mortgage and keep the first mortgage current to prevent a foreclosure because it’s unlikely an underwater second would foreclose. That isn’t what people are doing.

Most borrowers are defaulting on their first mortgage and keeping other debts current which is helping their credit scores.

According to the study, credit cards, car payments and student loans are the most common forms of additional debt, with personal loans and medical loans rounding out the bottom.  Surprisingly, only 23% of those surveyed have ever defaulted on any other debts.  Many YouWalkAway.com clients have never even had a late payment on their record prior to strategically defaulting from a property.  Although, 91% of underwater homeowners surveyed are facing other debts in addition to their mortgage, YouWalkAway.comhas seen these recurring trends amongst many clients.  Those who have handled the foreclosure strategically by closely monitoring their credit and other debt are fairing much better financially after the foreclosure.

Lenders should be thrilled that borrowers can’t seem to kick the habit. People want signatory debt, and they would rather walk away from their underwater house than default on their other debts. Personally, I think people should get rid of all their debts and live on the positive side of the financial ledger, but that isn’t what most borrowers are doing.

Even borrowers who opt for a short sale have seen quick restoration of their credit.  San Diego Real Estate Broker, Jeff Grant can attest to his credit recovering after a short sale of his investment home which was upside down by more than $200K.  “After my own short sale, missing a total of 8 mortgage payments, my credit went from 729 to 679. But it quickly recovered to 728 a year and four months later!”

Less than 18 months after a short sale, and his credit score is basically unchanged. Why would anyone fear the credit implications of a short sale?

Following in suite, Wynn Bloch’s house in Palm Springs, CA sold at foreclosure auction in March 2010.  As a result of the foreclosure, her credit score fell just 45 points – from 780 to 735.  “It didn’t hurt me really at all,” Bloch stated, “In fact, I was foreclosed upon last March and just bought a new house in December!”  While it may be unlikely for all defaulting homeowners to purchase a home so quickly, 51% of YouWalkAway.com clients polled do wish to purchase a new home within 5 years.

From foreclosure to homeowner in less than a year. Perhaps lenders should be tougher on these people, but the need for warm bodies to sign a loan document is prompting lenders to forgive and forget.

In reality, many YouWalkAway.com clients are more than happy to shed the excess baggage of their underwater homes and downsize to a rental.  Nearly, 100% of clients report saving money by renting, and 52% chose to rent a house smaller than their previous one.   Jon Maddux, CEO of YouWalkAway.com explains, “Eighty-one percent of our clients have experienced no issues renting after a foreclosure or short sale.  Only, 18% were asked to provide a slightly larger deposit.”

As Susan Edwards shares, “I love being at our new house.  I can imagine my dogs in the yard and our family sitting at the table for Thanksgiving.  Funny,” she continues, “but I’m more excited for [my new rental] than I was when we bought this house.  It really is a new beginning for us.”

Renting is a huge relief to people escaping a huge mortgage payment. Home is where the heart is, it doesn’t require a big loan.

Edwards, Romanello and Bloch are not exceptions to the rule or lucky strategic defaulters who have fallen through the credit reporting cracks.  They are living proof that if homeowners continue to keep on top of other debts and their credit scores, they can rebound much faster than initially predicted.

Maddux continues, “There has been a lot of misinformation regarding the effects foreclosure has on one’s credit.  More often than not, it is those who have an agenda to deter homeowners from walking away who use scare tactic phrases such as, ‘Foreclosure will destroy or decimate your credit.’

That is exactly why lenders try to foster the perception that default will be harmful. It’s only harmful to those who want to use credit, and apparently it isn’t very harmful to those who want to get another home loan.

Due to the nature of how credit scoring works, I prefer to describe the effects of foreclosure as wounding one’s credit.  Blemishes will heal on their own as long as one continues to keep other lines of credit current.  Seeing it first hand with our own YouWalkAway.com clients, a homeowner’s credit will improve over time as the delinquent payments move further into the past.” …

Lenders want to keep the millions who would benefit from strategic default in a state of fear and confusion to compel the borrowers to keep paying. They would prefer to publicly endorse borrowers most macabre fantasies of strategic default while quietly soliciting new customers behind the scenes. Prior to the blog era, they might have been successful.

Study: Mortgage-only defaulters may be safe credit risks

By Julie Schmit, USA TODAY

People who default on their mortgages — but no other debts — are not as risky as expected, according to a new study from credit monitor TransUnion.

TransUnion’s research shows that those who only default on mortgages are less likely to then default later on new car loans or credit cards than are people who default on mortgages and at least one other debt at the same time.

The study results, to be released Tuesday, also show that mortgage-only defaulters saw credit scores rebound faster than people who defaulted on multiple loans, which could include people who went bankrupt.The mortgage-only defaulters “are less risky than they appear,” says Steve Chaouki, TransUnion vice president. “Lenders will want to lend to these people in the future.”

There you have it. The already light punishments for strategic default will be lessened even more in the future, provided the strategic defaulter is calculated and selective in their default.

TransUnion, like other credit-management firms, is seeking insight into mortgage-only defaulters, who could prove to be a big market for lenders. In the past five years, almost 4 million U.S. homes have been lost to foreclosure, says market researcher RealtyTrac. A chunk of those were “strategic defaults,” in which homeowners who could afford to pay their mortgages walked because home values had tanked so much.FICO, keeper of the widely used FICO credit score, last month released one of the first credit studies on strategic defaulters and found them to be savvy about credit, with better credit histories than other mortgage defaulters.

As with FICO, TransUnion did its study — “Life After Foreclosure” — after enough people had defaulted and results could be considered valid.TransUnion’s research should diminish expectations that mortgage-only defaulters will join the ranks of habitual defaulters, Chaouki says.

Fear of being lumped in with the riff-raff is largely what prevents many with good credit for defaulting. Information like this will likely push many off the fence and into a new rental.

For instance, 5.8% of mortgage-only defaulters examined in the study were at least 60 days delinquent on new car loans which were opened after they defaulted on their mortgages. But 13.1% of the multiple defaulters were at least 60 days delinquent. The mortgage-only defaulters also had lower 60-day delinquency rates for credit cards, 11.4% vs. 27.1%. Both measures were taken at least 120 days after mortgage defaults.Credit scores for mortgage-only defaulters bounced back quicker, TransUnion also found. For instance, consumers with Vantage credit scores — a competitor to FICO scores — in the 631 to 650 range saw their scores rise a median 8 points 12 to 17 months after defaulting on mortgages. People in the same credit score range with multiple defaults saw their credit score drop by 2 points. Vantage scores range from 501 to 990. …

People considering strategic default who wish to maintain their credit use should default only on their primary mortgage. The punishments aren’t that bad, and they are likely to be lessened as time goes on.

Although, there are some consequences….

Most owners contemplating selling resist the idea in a declining market. Today’s post looks at the arguments in favor of selling now as opposed to waiting.

Seems like I’ve been playing your game way too long
Seems the game I’ve played has made you strong
When the game is over I won’t walk out the loser
I know I’ll walk out of here again
I know someday I’ll walk out of here again

Bruce Springsteen — Trapped

One of the more annoying lies realtors push on wouldbe buyers is “buy now or be priced out forever.” In the Great Housing Bubble, I described it this way:

When prices rise faster than their wages, people can obtain less real estate with their income. The natural fear under these circumstances is to buy whatever is available before there is nothing desirable available in a particular price range. This fear of being priced out causes even more buying which drives prices higher. It becomes a self-fulfilling prophecy. Of course, the National Association of Realtors, the agents of sellers, is keen to exploit this fear to increase transaction volume and increase their own incomes. If empirical evidence of the recent past is confirming the idea that real estate only goes up, the fear of being priced out forever provides added impetus and urgency to the motivation to buy.

Once prices begin to fall, the fear of being priced “out” forever changes to a fear of being priced “in” forever. A buyer who overpaid and over-borrowed will be in a circumstance where they owe more on their mortgage than the property is worth on the open market. They cannot sell because they cannot pay off the mortgage. They become trapped in their homes until prices increase enough to allow a breakeven sale. This puts the conditions in place to reverse the cycle and causes prices to drop precipitously.

Fear is not a good emotion for making clear decisions. Whether that fear is being priced-out or priced-in, it isn’t an emotion a realtor should prey on if they truly want their clients to make the best financial decisions. Of course, we all know that realtors often are motivated more by commissions than they are by serving their clients.

The Case for Selling in a Falling Housing Market

Stan Humphries — Apr. 28 2011 – 10:20 am

The problem with the American housing market isn’t that too few of us want to move. We estimate that at least 4 million homeowners would love to sell their home and buy another one that’s bigger, smaller, better located or more affordable.

What’s holding back these “sidelined sellers?” Some can’t sell because they owe more than their homes are worth, of course. But many more are simply paralyzed by the fear of selling and buying again in a falling market. Often at root here is what psychologists and behavioral economists call “loss aversion.” We avoid accepting a grim loss on a current investment, and recent research suggests that we over-estimate the pain associated with a future loss (say, with buying a home that then loses value).

Loss aversion is paralyzing. The phenomenon is most apparent — and most dangerous — in securities trading. With a stock or other traded security, an investor can lose money by doing nothing. Selling for a small loss is often preferable to taking a risk on a very large loss. Most novice traders refuse to take small losses, and they end up allowing a few losers to grow out of control and wipe out their account.

So it’s understandable to want to wait for better days to sell, but—at least when it comes to your house—you’re probably making a mistake.

First, let’s dispense with the idea that better days are coming soon. The consensus among the 100 economists surveyed by Cambridge-based data firm MacroMarkets is that housing prices will slip 1.3% in 2011. That’s far, far too optimistic. At Zillow, we believe prices will tumble as much as 7% in 2011. After reaching the bottom, we expect real estate appreciation will remain in the doldrums for three to five years—something we’ve been forecasting for more than three years.

I think there is a bit of revisionist history going on here. I have been bearish for four and a half years, but I don’t recall Stan Humphries and Zillow being so bearish. In any case, he is rightfully bearish now — in fact, he is even more bearish than I am.

So we’re all going to have to make a little peace with falling prices.  But here’s the good news: If you run some numbers, you find that selling in a falling market is not always a bad idea. Especially if you’re thinking of trading in your current home for a smaller home or one in a less expensive neighborhood.

Check the math. Say you and your spouse own a nice two-bedroom condo like this on the north side of Chicago. You bought it in 2007 for $390,000, but it may only sell for $310,000 now.

Now say you’re feeling crowded in this condo because your two increasingly energetic kids have hit school age. You’ve got some savings and a good commuter car, and you think you can buy a 2,500-square-foot house like this one in a kid-friendly section of suburban Elgin for $370,000.

This is the oldest trade in the book—but here comes the loss aversion. First, you recognize that selling the condo means you’ll finally realize the painful $80,000 loss on your condo purchase. Then—and this is almost worse—there’s an anticipated loss on the new house. In February home prices in Chicago were down 10.3% from a year earlier,  and you’re convinced they are likely to continue that decline and fall another 5%. Buy the new house and in a year you could be sitting on another $18,500 capital loss. It churns your guts, and maybe you decide it’s better to stay put and take the 5% hit in a smaller home.

That is a reasonable way to look at the problem. If prices are declining for all properties, it is better to wait out the decline in a less expensive one. Of course, it’s even better to wait out the decline in a rental.

Trouble is, most of us wildly overestimate the benefits of waiting. We convince ourselves that avoiding a potential future loss is the same as saving money.

If you are a renter, avoiding a future loss is the same as saving money. Timing does matter. If you’re a home owner, you’re already exposed to whatever the real estate market has in store.

We underestimate the risks that we’ll face by waiting another year. And we totally ignore the real, measurable costs of staying in a home that’s too big or too small or poorly located.

Start with the $18,500 in savings that you thought you would garner by waiting another year to relocate to the suburb. Those savings will probably be offset by a similar decline in value on your downtown condo, which could sell for $15,500 less a year from now. Yes, by waiting you’ll also save $1,200 or so in reduced realty brokerage fees and closing costs to sell the depreciated condo. But add it all up and your total actual savings will be just $4,300.

That’s a couple of house payments, you may be thinking. That’s a solid down payment on second car—pretty handy when you move to a suburb. Wrong.

See, $3,500 of it that $4,300 would just be a net savings of home equity. It’s a paper loss you would avoid. The value would be on your family’s balance sheet, so perhaps it could serve as collateral for a loan. But it wouldn’t be real money in your pockets.

Actually, it would be real money in your pocket. If the timing is perfect, the savings would be real and tangible. It would be in a check at the closing. The fact that most people roll this equity into their new house doesn’t make the money any less real.

The issue for home owners is whether or not trying to save a few thousand dollars is worth staying in a property the family wants to move out of. Financially, waiting is clearly the better decision, but for other reasons, it may not be the best decision for the family.

Now consider the risks you would have to take to get a shot at that $4,300 gain. Because while the potential savings are mostly on paper, the potential costs are quite real.

For one, you took an entire year’s worth of interest-rate risk. There are wars in the Middle East, escalating energy costs and lots of talk of inflation these days. If 30-year fixed mortgage rates move from 5% to 6.5%, the payment on a $200,000 loan goes from $1,070 to $1,260. That’s an extra $2,300 a year in mortgage costs.

That is a fallacy. If interest rates go up and mortgage costs rise, the overhang of distressed inventory will simply push prices lower. I exposed that nonsense last year in The National Association of realtors Latest Scare Tactic: Rising Interest Rates.

Then there’s market-timing risk. Different neighborhoods don’t always snap out of a market correction at the same moment. Maybe demand for bigger suburban homes will snap back faster than demand for condos in the city. That house in Elgin could get more expensive while the condo’s value continues to slide.

The risk of different market segments moving at different speeds is very real. The condo market will be the last to recover because people don’t want to live in condos. The fact that the upper half of the market is crumbling shows the market is not at the bottom.

Then other, practical costs of holding the condo also creep in. Will you rent a storage space to hold the clutter that you would have shoved into the backyard shed in the suburbs? That’s at least $700 for the year. And what about the cost of sending two kids to private schools in the city for an additional year instead of sending them to Elgin’s public schools? That’s at least $10,000 per child. These costs won’t show up in the your house payment, but they’re real, measurable hits to the family cash flow.

Now he is bringing in bogus costs that could just as easily go the other way.

That’s just the math for a trade-up. Now suppose instead you want to downsize. The numbers become even more compelling.

Suppose you’re retiring. Say you dream of selling this home in Santa Monica for $900,000 and purchasing a significantly larger house like this 20 minutes away in Encino for $750,000.

Here, the costs of waiting to sell really pile up. If prices in Los Angeles fall 5% over the next year, the $150,000 difference in prices of the two homes will shrink by $8,000. And that $8,000 cost of waiting a year would not merely be a paper loss. You will actually have that much less money in your pocket after the sale of your home in Santa Monica.

I don’t understand how this magic works in one circumstance and not in another. Whether prices are going up or down, there is a closing with a check to the owner. That check contains real money. Whether this money is spent on a down payment for another house, either more or less expensive, doesn’t make any difference.

The $8,000 potential loss would be offset only somewhat by the lower commissions and closing costs you would face by waiting a year to sell your home in Santa Monica. But there would also be other costs involved in waiting for the trade-down. Like property taxes. Say you purchased your Santa Monica bungalow during the property bubble, when it was worth more than $1 million, and that your annual property-tax bill is roughly $13,000. That’s $3,000 to $5,000 more than you would have paid if you had moved to the Encino home.

Overall, it’s helpful to think of house prices as a river that flows forward and, on very rare occasions, backward. It’s natural for us to prefer to jump from one raft to the next when the river is moving forward—that is, when prices are rising, not falling. But even when the river is flowing backward, jumping rafts midstream can make sense. When the river is flowing backward, we tend to fixate on the speed of the next raft relative to the stationary riverbank (e.g., “My next home is going to fall 5% in value after I buy it”). We should focus instead on the speed of the two rafts relative to each other (e.g., “Both homes are going to fall 5% in value”).

He is right. Once a renter becomes a home owner, they are subject to the ebbs and flows of market prices, and when and where they move is not a big deal unless they are making a big change in the quality, price, or location of their home.

Here’s the bottom line. Of the three general classes of homeowner—first-time buyers, existing homeowners buying another home and existing homeowners exiting real estate altogether—only first-time buyers face a substantial risk when buying in a declining market. For homeowners seeking a trade, there are only real costs of selling now for people trading up, and even those are less than most of us perceive.

The broader housing market in the United States is heavily dependent upon first-time buyers, most of who should wait until prices stabilize. The failed government attempts at market manipulation simply delayed the real bottom by two years and made first-time homebuyers wait two years longer than they should have.

It turns out that in most scenarios, people who sell homes before the market bottoms do fine.

We devised this chart to show the potential loss (shown in amber or red) or gain (shown in green) you’d face in a year if you trade up or down in a falling market now. For example, trading up now to a house priced 20% greater than your current one in a market that you expect to decline by 5% over the coming year results in a 1.4% loss relative to waiting one year to buy that house.  Most people likely anchor their loss expectations around the expected 5% decline in home values when, in reality, the actual loss is much less.

Percentages make the numbers seem small and insignificant, but if you talking about 4% on a $700,000 home, that is $28,000. That seems like a lot of money to me.

The third group—people leaving home ownership altogether in favor of renting—should, of course, always sell as early as possible in a falling market. That way they’re most likely to preserve as much equity as they can. In reality, I think many of these sellers are holding out in the current market hoping for some recovery in home values in the near-term.  These people are waiting for Godot.

I agree that most discretionary sellers are holding their properties off the market waiting for better days that will not be coming any time soon.

My advice here doesn’t require you to be either a bear or a bull on home value appreciation. My chief point is that, when trading homes, future home value declines will matter a lot less than most people believe.

“I feel like this morning I’ve had nine different people tell me they don’t want to sell when the market is still falling,” Detroit-area real estate agent Jeff Glover says with a sigh. Glover wishes he could get more people into the leafy, prosperous suburbs west of the city, where prices have been falling now for nearly six years. He’s even got a catchy line he uses: “Do you want to wait this market out in your current house or do you want to wait it out in your next house?”

Most people ignore him. Maybe they shouldn’t.

It’s unfortunate that what could have been an honest examination of the pros and cons of selling now instead turned into a smoke screen of nonsense. There are legitimate reasons to sell in a declining market. Selling to rent instead being first and foremost among them. 

For home owners, the only real issue is the activity in the market for the existing home, and the activity in the market for the next home. If these markets are moving at different speeds, then either acting or waiting may be the correct decision.

For example, when the upper half the market finally does bottom, it will be better to get out of a condo and into a single-family detached. But right now with the upper half of the market falling and the lower half holding steady, it is far wiser to wait and stay in the condo until SFD prices come within reach.

Although there are good reasons to sell in a declining market, this article was not particularly convincing.

This is a must-read.

QBAMCO – Apropos of Everything I

Hat-tip Barry Ritholtz.

I’m wondering if innocent until proven guilty is a new concept to the Sacramento Bee. The Bee further states that in some pending court cases involving real estate agents, the accused has pleaded guilty. The implication in this situation is the accused is guilty, which might not be the case, either. Sometimes — hey, I watch crime shows — the innocent often plead guilty to cop a plea in exchange for a reduced fine or sentence. The case could get dismissed, too.

Of course, after conviction the DRE should revoke a license. Otherwise, what’s the point of maintaining an online database where consumers can look up an agent’s record? What’s the point of governing licensure if there is no discipline? The DRE, in its defense, says if crooks are in jail, they can’t operate so why revoke the license? Because you’re supposed to, I guess. The DRE should revoke real estate licenses of those convicted.

What I want to know is who is going after all those borrowers committing mortgage fraud? It’s still going on, you know. I recently closed a short sale transaction in Rocklin in which the contract specified that the buyers were to obtain an FHA loan with 3.5% down. I represented the sellers. A few days after closing, the sellers contacted me and asked why their former home was for rent. Oh, that’s probably a Craig’s List scam, I suggested. Because that’s pretty rampant, too. My short sale listings get swiped all the time and put on Craig’s List. Nobody’s doing anything about that, either.

No, the seller says. There is a property management sign on the lawn of their former home, and it is listed for rent on a reputable website. Well, I’m pretty certain then that the buyers obtained an owner-occupied loan with the intent of never occupying the property. If so, that’s mortgage fraud. I can only hope that lenders are doing drive-bys after closing because I am not the mortgage fraud police. I’m just a Sacramento short sale agent. My agency with the parties terminates at closing.

Photo: Big Stock Photo (is that police officer wearing a U.S. Post Office uniform?)

clear skies,   Doug Reynolds

www.SellWithDoug.com

Treasure hunting, demolition, forgery–even a telethon. Our picks for the top five most bizarre foreclosure rescue attempts. 

5. I pimped my yard to PETA.

This past March, “Octomom” Nadya Suleman was reportedly approached by PETA when word got out about her mortgage woes. The offer: A billboard sign urging pet owners not to let their dog or cat become an “Octomom” in a campaign to raise awareness about controlling the pet population. Suleman ended up letting PETA advertise on her front yard for $5,000. In April, Suleman reached an agreement with the mortgage holder for a sixth-month extension to pay off the $450,000 debt. 

4. God made me do it.

Earlier this month, a Montana man, Brent Arthur Wilson, was convicted for removing For Sale signs and forging ownership papers on a foreclosed home in a bizarre effort to keep a roof over his head. During his trial, Wilson claimed that “Yaweh,” or “the creator,” gave him the home. The jury was out for less than an hour before finding Wilson guilty. He now faces up to 30 years in prison and is scheduled to be sentenced August 19. 

3. Buy my T-shirt, save my house.

To raise the $250,000 he needed to avoid foreclosure on his Port Washington, Wis., pad, former Saved by the Bell star Dustin Diamond sold T-shirts with his photo and a caption reading, “I paid $15 to save Screeech’s house.” (The extra “e” in “Screeech” was to get around copyright laws.)

The down-on-his-luck comedian turned his money problems into a publicity ploy, telling his story on The Howard Stern Show and even scheduling an online telethon to raise more money. The appearance was canceled moments before it went on the air. Despite all that, it looks like Diamond is still going to lose his home. Wells Fargo started foreclosure proceedings in April. 

2. If I can’t live here, no one can.

This past February, Ohio carpet business owner Terry Hoskins decided that he’d rather bulldoze his $350,000 house to the ground than let the bank have it. Hoskins also basically confirmed that he’d do the same to his carpet store if he had to. Thankfully, it didn’t come to that. Although Hoskins didn’t technically break any laws, the bank did hold a sheriff’s auction of his business property to pay off the $600,000 debt he owed. 

1. Superman saved our house.

On a more positive note, a rare comic book (an Action Comic #1—the issue that introduced Superman to the world) was recently found in the basement of a couple facing foreclosure. Although it hasn’t been valued yet, Stephen Fishler, co-owner of ComicConnect.com, guarantees that the comic will bring in more than enough to pay off the mortgage at auction time. Other rare finds like this have been valued at more than $1 million.

The NATIONAL ASSOCIATION OF REALTORS® is dedicated to providing resources that help families facing foreclosure take every step they can to keep their home. To find out how to (legitimately) fight foreclosure, visit the HouseLogic Foreclosure Resource Guide.

I really enjoy Cathy’s company and wish there were more hours in the day. One of the first things she asked was my overall mood. Most of the time I’m in a pretty good mood. That’s because my attention is pulled in so many directions every day that the odds are lots of good things will happen. Of course, lots of bad things can happen, too. That’s the basis for when you calculate probability.

When the phone rings, for example, that’s an independent event. It could be a moron on the other end of the phone. It could not. 50/50, like tossing a quarter and calling it. When you’re a Sacramento short sale agent like me and Cathy, it might seem like the odds are increased that we’ll end up with a moron on the other end, but that’s not necessarily true. Some days we encounter more stupidity than others, but I’d say we’re successful because we don’t focus on the downside.

It may sound like a no-brainer to choose to gravitate toward the positive, but you’d be amazed at how many people dwell on the negative. Given the Choice A: feeling fabulous or Choice B: feeling miserable, the fact is a lot of people — and that includes regular real estate agents and short sale agents — choose Choice B. Intentionally. Does that make those people morons? Maybe. Maybe not. It’s not my place to judge because somebody holds a different belief. There could be benefits of which I am unaware to feeling miserable. It’s not just not a choice I make.

Which brings me to Wells Fargo. Specifically a Wells Fargo FHA short sale. Wells Fargo has initiated a program tailored to dealing with its FHA loans that are in short sale status. Wells Fargo will preapprove the sales price just like a HAFA short sale. The problem is the preapproved price in 2 recent instances has been incorrect. When I point this out to Wells Fargo, I get no response.

Finally, after bugging Wells Fargo on a certain Sacramento short sale for more than a month, Wells Fargo tells me that to contest the BPO, I need to find 3 comparable sales that sold before the date of the BPO, which has almost expired by now. That makes no sense. You’d think Wells Fargo would want recent comps. However, if I can produce a new CMA based on expired comps, Wells Fargo will allow me to lower the sales price of my short sale listing.

Excuse me? I ask you who owns the home? The seller or Wells Fargo? Well, the answer is the seller. But it’s Wells Fargo who will end up with this home after it goes to foreclosure, because that’s where this one is headed. I don’t need to toss a coin to predict this outcome.

Photo: Big Stock Photo

clear skies, Doug Reynolds

www.SellWithDoug.com

Carl Vogel, August 5, 2010 

Before you put your home up for sale, use the right comparable sales to find the perfect price.

Knowing how much homes similar to yours, called comparable sales (or in real estate lingo, comps), sold for gives you the best idea of the current estimated value of your home. The trick is finding sales that closely match yours.

What makes a good comparable sale?

Your best comparable sale is the same model as your house in the same subdivision—and it closed escrow last week. If you can’t find that, here are other factors that count:

Location: The closer to your house the better, but don’t just use any comparable sale within a mile radius. A good comparable sale is a house in your neighborhood, your subdivision, on the same type of street as your house, and in your school district.

Home type: Try to find comparable sales that are like your home in style, construction material, square footage, number of bedrooms and baths, basement (having one and whether it’s finished), finishes, and yard size.

Amenities and upgrades: Is the kitchen new? Does the comparable sale house have full A/C? Is there crown molding, a deck, or a pool? Does your community have the same amenities (pool, workout room, walking trails, etc.) and homeowners association fees?

Date of sale: You may want to use a comparable sale from two years ago when the market was high, but that won’t fly. Most buyers use government-guaranteed mortgages, and those lending programs say comparable sales can be no older than 90 days.

Sales sweeteners: Did the comparable-sale sellers give the buyers downpayment assistance, closing costs, or a free television? You have to reduce the value of any comparable sale to account for any deal sweeteners.

Agents can help adjust price based on insider insights

Even if you live in a subdivision, your home will always be different from your neighbors’. Evaluating those differences—like the fact that your home has one more bedroom than the comparables or a basement office—is one of the ways real estate agents add value.

An active agent has been inside a lot of homes in your neighborhood and knows all sorts of details about comparable sales. She has read the comments the selling agent put into the MLS, seen the ugly wallpaper, and heard what other REALTORS®, lenders, closing agents, and appraisers said about the comparable sale.

More ways to pick a home listing price

If you’re still having trouble picking out a listing price for your home, look at the current competition. Ask your real estate agent to be honest about your home and the other homes on the market (and then listen to her without taking the criticism personally).

Next, put your comparable sales into two piles: more expensive and less expensive. What makes your home more valuable than the cheaper comparable sales and less valuable than the pricier comparable sales?

Last week a Bank of America short sale negotiator told me no. Yup, she said my seller’s short sale was rejected. Not only by her but also by management. Denied, she said, your short sale is denied due to lack of hardship. Those words are not music to my ears. Those are not words I want to hear. Another agent might have backed off and let Bank of America close the file. Not this short sale agent. My seller has a hardship, darn it.

I looked through her hardship letter and studied the file again. There were a few points that were unclear. A little muddled. I called my seller, asked a few questions and suggested she rewrite her letter. I didn’t tell her what to say, I would never do that, but I reviewed her story with her. That’s what a hardship letter is — a story. Sellers need to be concise and clear about their troubles. I also asked the seller to put together on a sheet of paper a monthly income and expense statement. I resubmitted both to the negotiator.

About an hour later, the negotiator called to say her VP rejected the second submission. How could this happen? Call me a suspicious creature, but there was a strong possibility that this negotiator did not resubmit. What’s in it for her? More paperwork? A decision had already been rendered. And, if she did resubmit, then there was an internal mistake at Bank of America. I let her know I would take this to senior management for a second look. She said I was wasting my time because a VP had signed off. I shot the revised file upstairs. Unlike some short sale agents, I have faith in Bank of America.

Yesterday, I received a beautiful thing from Bank of America. A short sale approval letter. A short sale approval letter for 2 hard-money loans. A short sale approval letter for 2 hard-money loans on a non-owner occupied property.  A short sale approval letter for 2 hard-money loans on a non-owner occupied property that releases the seller from liability. No deficiency verbiage.

Yes, Virginia, it doesn’t get any better than that. Thank you, Bank of America.

Photo: Big Stock Photo