The last time Southern California  experienced the current level of Short Sale properties for sale was in the mid 1990’s.  Back then, Short Sale and Foreclosure activity was due primarily to massive job losses and a glut of new and existing homes for sale.  Today, the main culprit is a correction in local home prices coupled with many highly leveraged, adjustable rate mortgage loans that were made in the past 4 years.

Using a Short Sale to sell your home is a difficult transaction, but is a much better alternative then out-right Foreclosure or Bankruptcy.  A Short Sale occurs when a homes sales value is less then the outstanding mortgage debt plus sales costs (sometimes called an “upside down Mortgage”), and the mortgage bank(s) has agreed to write off a portion of the outstanding loan debt in order to consummate the sale.  For example, if a home sells for $600,000 with $20,000 in total sales costs, and the total outstanding loan balance is currently $620,000, then the lender(s) would have to agree to reduce the mortgage loan debt by $40,000 in order to close the deal.  Lenders often entertain such an option for in the long run, they will usually receive a higher percentage of their principal back as compared to forcing the property into Foreclosure and run the risk of property neglect or damage, and additional delays and costs, and the possibility of property owner bankruptcy. 

Today, the “upside down Mortgages” are due mostly to the risky, highly leveraged loans in which the home buyer purchased the home with little or nothing down, with an interest-only or worse yet, negative amortization loan in which the loan balance gets higher every month.  Combined with the softening of home prices that have now decreased by as much as 25% in some areas. 

These factors are causing many home owners to consider a Short Sale to solve their financial crisis, but this is a  difficult real estate transactions that requires additional paperwork and intricate negotiations between the real estate agent and the mortgage banker(s).  Basically, the real estate professional must prove to the mortgage bank(s) that the homeowner has a financial hardship.  In other words the home owner is unable to keep up with the current mortgage payments, and has minimal bank account savings, or other investments.  This financial duress can be due to job layoffs, illnesses, divorce, or even the unexpected large increase in mortgage payments due to interest rate resets. 

Many lenders today won’t commit to a Short Sale until their is a valid and firm purchase offer in hand from a qualified new buyer, and a knowledgeable broker/agent who can negotiate the deal. It’s imperative to work with an experienced real estate agent for they will need to prepare a professional and complete Short Sale package.  This package includes the purchase offer contract, buyers detailed loan qualifications, a realistic and detailed analysis of the fair market value of the home, current local real estate market conditions, and financial information and hardship letter from the homeowner.

In addition, there may be income Tax consequences if the home was refinanced.  Technically, the difference between your home’s value and the balance on the mortgage is considered a forgiveness of debt and this amount may be considered taxable income if the loan(s) were not purchase money, but were refinanced. If one can prove financial insolvency, then this tax consequence may be forgiven.  It is imperative that one consult with a Tax accountant regarding these matters.  This potential tax issue is the same regardless of whether the property was sold via a Short Sale or taken back in Foreclosure, so a Short Sale is still a much better choice then Foreclosure. As a side note, Congress recently passed a bill (Mortgage Cancellation Relief Act of 2007 ) that essentially eliminates this tax issue for purchase money mortgages. 

If you are a home owner that is falling behind in your payments, or potentially facing foreclosure, or a prospective home buyer who is entertaining the purchase of a home that is in Foreclosure or a Short Sale, please feel free to contact me with any questions or concerns that you may have at:  800-353-1610 or scott@cov4homes.com

Demand for Orange County housing is growing.  As of April 224, 2008, 2374 houses and condominiums had gone into escrow in the past 30 days, a 23 percent gain vs. a year ago.  This is a strong hint that, when these deals that are in the works are completed in the next two months, the county will see a mathematical end to the home buying slump.  According to DataQuicks tracking of closed deals, it’s a 30-month losing streak that started in September 2005.

Calculations show that it would take 6.55 months for buyers to purchase all of the homes for sale at the current sales pace. That compares with 6.77 months just two weeks ago, and 7.75 months one year ago.

Another interesting statistic is that in the eight week period that ended Thursday, a net average of 75 distressed properties per week were added to broker listings vs. an average of 138 the previous eight weeks. That is a 46% dip.

There is a large wave of first-time home buyers and investors coming to the table now that prices have finally fallen to a point that they can afford, and are willing to purchase.

We are excited to announce that this week we have integrated Google Street View imagery to all of our MLS listings (where available). Take a tour by searching the MLS, click on the maps tab about 3 quarters of the way down, and then scroll down and see the street view of the house.

While I think it’s a really, really cool feature, there are limitations. First and foremost, it’s (obviously) only available in areas where Google has street view imagery. For example, just because we service the Riverside MLS doesn’t mean that Google has street view there for all locations. Second, the placement and centering of the street view imagery is an inexact science at the moment but very close.  All that said though, it’s still an absolutely amazing technology that we are very grateful to Google for.

Take a tour and check it out!

The National Association of Realtors reports that “Existing-home sales – including single-family, townhomes, condominiums and co-ops – rose 2.9 percent to a seasonally adjusted annual rate (1) of 5.03 million units in February from a pace of 4.89 million in January, but remain 23.8 percent below the 6.60 million-unit level in February 2007.”

“The national median existing-home price … for all housing types was $195,900 in February, down 8.2 percent from a year earlier when the median was $213,500. Because the slowdown in sales from a year ago is greater in high-cost areas, there is a downward pull to the national median with relatively fewer sales in higher priced markets.”

Click here for the full story:  National Association of Realtors

Welcome to our NEW BLOG! Stop by here often to catch all the latest new and highlights from the Sothern California Real Estate market and Mortgage industry news. We welcome the open, candid, and heartfelt discussion of what is happening in OUR real estate world.