So, what is my property worth anyway? Is the market up or is the market down?  Whom are we to believe?

It seems as if you can take your pick of economists to whom you listen. Some say we are coming out of the doldrums. The big announcement today said the recession ended in June…and yet other economists say the other shoe is yet to drop, they foresee another 18% drop in home prices.

Part of it is political, it’s almost believe what you want to believe at your own peril. Caveat emptor prevails!

That leaves the home seller/homebuyer in a real quandary. Don’t believe the national media, they are slanted to whatever political perspective they subscribe. The markets are regional, areas which did not see the escalating increases in prices between 2003 and 2008 and remained fairly stable, are still stable.

Areas like Arizona which saw a 45% plus overall increase in housing prices within three years are still reeling from the deflationary impact.

But, there are parts of Arizona, and in particular Tucson, (which is the market I serve) that are harder hit than other areas.

In order to truly value a home, one has to look at what is happening locally, and that is by zip code, and sometimes by subdivision. Those subdivisions which faced overbuilding during the frothy times of 2003-2008 are in far worse shape than areas where homes are older and do not turn over rapidly.

I took the better part of an afternoon to compute the numbers of bank owned properties and the numbers of short sales in every Tucson zip code as of August 30, 2010. I then computed the percentages of each and the combined percentages and found that more than 50% of the homes on the market in some zip codes are distressed properties.

Generally these are places where large master planned communities were being built; Gladden Farms, Star Valley, Rancho Del Lago, Sahuarita, Quail Creek, the Irvington Road/Escalante area, Cortaro Farms near the highway, and Corona de Tucson.

And there are areas where there are less than 20% of the properties in distress; the 85704 area which includes some of Oro Valley and the Casas Adobes area, the center of town near the university in 85716 and 85719, the Diamond Bell Ranch area, Saddlebrook and Catalina,  Mount Lemmon,a portion of the Catalina Foothills, some of Green Valley, and the prize goes to 85646, Tubac with only 7.143% of the homes underwater.

When you are pricing your home to sell, make sure your Realtor® knows the numbers and knows the trend in the area in which you live. I priced three homes today and pulled the numbers from the last six months for the zip code. The pricing differential in all three areas was significantly different. One was in 85747 where 43% of the homes are distressed; one was in 85704 where 19.5% of the homes are underwater, and one was in 85745 where nearly 35% of the homes have problems.

You as the buyer and or seller need to know this because the appraiser is obligated to take distressed properties into consideration when appraising your property.  As someone once said, “the distressed property in this area is the market” and unfortunately everyone suffers whether or not they are in the same predicament.

   Short sale and foreclosure scammers come out of the woodwork when opportunity presents itself, and in today’s market, when as many as one in four homeowners are underwater in some areas, “foreclosure expert” scammers see the tree ripe for picking.

   Understandably homeowners will buy in when a person or “company” says they can make the problem disappear.  That is human nature.  The first red flag is when the “foreclosure consultant” asks for money up front.  If you, or someone you know,  has been victimized by such a “forclosure consultant”, gather as much information as possible and report that to the Better Business Bureau, a local and state Consumer Protection office,  and the Attorney General’s office.

   These “experts” prey on people who have little understanding of the law and are adept at presenting a believable case.  Always ask for credentials and write that information down in case you need it later.  Ask for as much information as possible and if that information is not forthcoming, cease dealing with that person. 

      Many of these people are high powered salespeople, and they may present information to you which you thought was confidential.  Remember, many documents relating to real estate are public information. Any liens, late taxes, the date the home was purchased,  quit claim deeds and other documents are in the public domain. 

    If the homeowner is going to pay up front money up, he/she is better off hiring a competent attorney for up to the minute legal advice.  Many attorneys will not charge an “upfront” fee, but will bill when the problem is resolved.  An attorney on board, can advise whether filing for bankruptcy is prudent, and can direct the homeowner and often postpone have any foreclosure action postponed.  

    Several states have laws on the books, or are passing laws, banning upfront fees.  Consumer fraud divisions are rift with complaints and are burdened by cumbersome consumer fraud laws when apprehending and bringing these people to justice.

    A CDPE (Certified Distressed Property Expert) or a Realtor with the National Association of Realtors Short Sale, Foreclosure Resource (SFR) designation will not ask for up front money.  They will present their credentials and lay out a plan.  These are people licensed by the state, and in many instances, fingerprinted, and they do not get paid unless the transaction is consumated.  It is easy to check with the State Department of Real Estate to make sure the person is licensed which can often be done on line.

    The HUD.gov site has information about non profit organizations which are approved by HUD to give information about loan modificaitons, short sales, and foreclosures. 

    Know with whom you are dealing.  That is your best defense against fraud.

Resources:

Department of Housing and Urban Development – housing counselorshud.gov/portal/page/portal/HUD/i_want_to/talk_to_a_housing_counselor

Certified Distressed Property Expert:  http://www.cdpe.com/find-cdpe-results.html

National Association Realtors:   http://www.realtor.org/home_buyers_and_sellers/

Arizona Foreclosure Workbook from the Arizona Attorney General’s Office:

http://www.azag.gov/consumer/foreclosure/documents/StateTaskForceWorkbook.pdf

   Additional options exist for homeowners who are facing financial difficulties and are, or believe, they will be unable to meet mortgage payment(s).  Gone are the days when the person who defaults on a mortgage is considered a “deadbeat”.  Most people today know a hard working person who has defaulted because the challenge of one situation causing financial hardship, was one too many.

    The hardship can be as simple as a relocation to keep a job.  When a person owns a home and is relocated and then must carry two properties;  a home in the old location, and a rental property in the new destination, the additional cost can be enough cause financial hardship.  Yet the person had to move to keep his/her job.   Properties may not be selling in the old location for the price of the loan amount.  A short sale may be the only option. Prior to the move, the anticipated hardship may be sufficient grounds for the lender to permit a short sale.

    Members of our Military face hardship when they are redeployed for longer periods of time than originally anticipated.  The Service Members Civil Relief Act (SMCRA) provides protections and caps all interest for active duty military personnel, incurred prior to their active status, at six per cent.  This includes credit card debt, automobile debt, and mortgage interest debt.  Proof of active duty must be provided.  All active duty military personnel should review all of their debt obligations and invoke SMCRA for any debt carrying more than a six per cent interest rate.

    If the value of the property is greater than the loan amount, the property can be sold at a realistic price. In areas which continue to face depressed pricing, this is a viable option.  The price offered on a property a year ago (often which sellers turned down), seem ridiculously high in today’s market in many areas.  Pricing must be ahead of the curve.

     A controversial solution, and one not advocated by Realtors is “Strategic Default”.   Homeowners begin thinking about strategic default when their property has decreased in value 20 to 25% .  Homeowners are able and  continue to make mortgage payments, but feel they are paying for something which garners no value.  In many areas of the country, property values have decreased 30% or more.  Residents do not see values coming back for ten years or more.  Homeowners   “Walking away” is a deliberate personal business oriented move. 

     Moral and ethical considerations of strategic default are debated, against the dilemma faced by people who can afford their mortgages, but see people who have been irresponsible in their money management, get cash for keys (a program where the lender pays up to $1500 to the homeowner to vacate after foreclosure). 

    Regardless of the path chosen by the homeowner, credit will be impacted.  Foreclosure will cause the most damage.   It is imperative that people who believe they will face a financial hardship contact a Realtor to discuss options, or seek the advice of a credit counselor who will not charge any upfront fees. 

    I am happy to provide additional information:  e mail me at terry@terrybishop.com and put BLOG in the subject area.  If you need to find a qualified Realtor to help you, I can help.

Resources:

Service Members Civil Relief Act:     http://www.military.com/benefits/legal-matters/scra/overview

 Strategic Default:  http://en.wikipedia.org/wiki/Strategic_default

 Department of Housing and Urban Development:  http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure

Note:  Hud.com is a commercial site and is not the Department of Housing and Urban Development…make sure you go to HUD.GOV

      Short sales and foreclosures are not always the best option for the homeowner.  If the situation which curtails income is temporary, the homeowner can ask for “forebearance”. 

     Forebearance involves negotiating a repayment plan for the amount of payments missed, usually with penalties and interest.  The missed payments can be put at the end of the mortgage amortization or an extra amount each month can be included in the regular mortgage payment.   The lender will want to be assured of the homeowner’s ability to repay the newly negotiated amount and will ask for evidence such as pay stubs.  The newly negotiated amount is in force until the deficiency is made current, and then  the payment will revert to the amount prior to the default. 

    Reinstatement can occur if the homeowner is expecting funds which can be used to bring the delinquent loan current.   An insurance settlement, an income tax refund, an inheritance, any anticipated source of funds which can be paid at one time to the lender to bring the loan current is called reinstatement.   The homeowner should talk with the lender and explain these funds are anticipated and will be used for the loan.  Reinstatement is a good option when one or two payments have been missed because of some extraordinary circumstance where restitution will be made.  Like all other plans, the lender will want documentation of the event. 

     If the homeowner has the funds available and can qualify in today’s market, a refinance can be a good option.  Rates are still very low and especially if there is an Arm (adjustable rate mortgage), very often a homeowner can cut the amount of payments.  Remember however, that if the homeowner has owned the property for six years and refinanced to another 30 year mortgage, the clock starts ticking again for another 30 year mortgage.  However, this option may provide the breathing room necessary but the homeowner should be sure to request a fixed rate mortgage to avoid further surprises.  Homeowners must provide all the documentation necessary to the lender including pay stubs, tax returns, assets and liabilities, divorce decrees, etc.

     A Deed in Lieu of Foreclosure also called deed in lieu, is another homeowner option.  The property must be worth more than the note on the property.  The homeowner negotiates with the lender and agrees to send the keys of the property and turn the property over to the lender so the lender will not foreclose on the property. 

    If you need additional information, contact me at terry@terrybishop.com.  If you are looking for a Realtor in your area who understands distressed properties, contact me and I will find you a competent, knowledgeable Realtor in your area.

Resources:

Department of Housing and Urban Development:   http://portal.hud.gov/portal/page/portal/HUD/topics/avoiding_foreclosure

Freddie Mac:  http://www.freddiemac.com/singlefamily/makinghomeaffordable.html

Fannie Mae:   http://www.fanniemae.com/kb/index?page=home