Sweet Home Chicago

Bankers/Lenders Holding Up Real Estate Market Recovery - Part III

Please read my prior two posts for more on this topic.

The Foreclosure Dilemma

When a bank forecloses on a home, the homeowner is usually in a very bad financial situation.  They didn’t just wake up one morning to find their banker knocking on the door to take possession of their home.  In Illinois they usually have missed at least a year of payments before the bank will actually move forward with the foreclosure process (though by that time they have already sent several legal notices and warnings).  So it should not be a surprise to anyone that some of these home owners go take unusual steps to get some cash.  It is not uncommon to find a bank-owned home that is missing things like doors, door knobs, appliances, lighting fixtures, etc.

I was working with some buyers that found a terrific bank-owned home that was in fairly decent condition, except for the kitchen.  The former home owners had hired someone to remove everything from the kitchen and sell it so they could get some cash.  All that remained in the kitchen was the walls and hookups for gas, water and electricity.

My buyers were actually happy about the kitchen because they were planning to start building their dream kitchen immediately after the closing.  Unfortunately, their financing fell through just days before the closing.  The bank they were working with denied the loan because there was no kitchen in the house!  The buyers were willing to put money in escrow for the kitchen build-out, but that did not change the banks’ position – no kitchen, no mortgage.  I’ve learned that this is a fairly common issue these days when people try to purchase a foreclosed home.  And of course the bank that owns the property has no plans to put in a basic kitchen in order to get the house sold.

The only buyer that will be able to purchase this home is someone that has cash or someone that can get a construction loan.  I’ve learned that a construction loan requires a higher down payment and has a higher interest rate than a conventional, FHA or VA loan.  There does not appear to be a lot of buyers in this market that are in a position to get a construction loan.  And so this house will continue to sit on the market and the neighbors will continue to be concerned about the vacant home on their street, and the bank that owns the property will continue to rack up holding costs while the value of the home continues to decline.

Why can’t someone at one of these banks make an exception to their rules in order to get this house off of the market?  The bank that owns the property can put in a few basic appliances, cabinets and a sink, and then the home will sell and they can get it off of their books.  Or, why can’t a bank give a mortgage to a qualified buyer that is willing to put money in escrow for the kitchen build-out?  The buyer doesn’t want/need a construction loan – they are just building a new kitchen.  I really don’t see how  this is different from a home that has a very old out-of-date kitchen that a new buyer is going to rip out and re-build.  I just sold a home like that – they buyers are going to re do the kitchen before they move in.  If anyone knows why this is a GOOD reason to block the sale of a home, I’d love to hear about it.  It makes absolutely no sense to me.  And given all of the foreclosures out there in the same or worse condition, there has to be some logical way to get new owners into these homes quickly.

Your comments and insight are welcome!

Thank you for reading!

Bankers/Lenders Holding up Real Estate Market Recovery, Part II

As a real estate agent the scenario that I described in my last post is very frustrating on a personal level.  Many agents, including me, find themselves going through the sales process multiple times for each buyer.  Unfortunately, we only get paid when there is a transaction.  This is a real hardship for the agents. 

Unfortunately the real "crime" here affects the whole market.  There are many of these short sale properties sitting on the market and the banks still have not figured out how to improve the process so that these homes can be sold in a timely fashion.  It is perfect example of the lack of understanding the banks have for the real estate market.  Once a buyer finds a home that they want to buy, they are not usually willing to wait for several months to find out whether or not they CAN buy it. 

Here is my next story about "banks behaving badly"

The Short Sale Side Step

I was representing a seller of a short sale property.  We had several offers that were very low, and then finally one offer came in that was more reasonable.  We sent the offer into the bank with the short sale package.  In this case there were two banks involved (1st mortgage and second mortgage).  After months and months of negotiation with both banks about a short sale deal that would be acceptable to everyone involved, we finally had a deal.  But then in the 11th hour, the bank with the first mortgage backed out of the deal and decided to just go forward with the foreclosure instead.  Why?  Well, it turns out that someone in managment at the bank with the 1st mortgage decided that they didn't want to do a deal with the other bank - they didn't "like" them and didn't want to do business with them! 

And now the house is foreclosed and the value has gone down further (it is almost 10 months since the original offer, and about 5 months since the bank denied the short sale).  They former owners are about to move out, and the home will be vacant.  The buyer from the short sale still wants to purchase the property and has asked me to represent him.  He would prefer to buy it as soon as possible so that the amount of time that the property is vacant is minimized. We submitted a written offer to the bank immediately after the foreclosure for the same amount as his offer 10 months ago.  (Now that the property is foreclosed there is only one bank to deal with.)  Since there is only one bank, and my buyer offered to pay ALL of the closing costs for both sides, this would be an incredible deal for the bank.

And, to our amazement, the bank declined the offer.  The department that we were dealing with tossed the file to another department and is letting them handle the next steps.  They made it sound like they didn't want to have the loss on their books, so they are pushing it off to another department.  It appears that the bank is going to list the property with another realtor (not from the area) though I have not been able to confirm.  This is not over!  In the end, I am certain that the bank will have lost much more on this home than they would have if they had taken the original short sale that was offered or the more recent offer immediately after the foreclosure.  Meanwhile they have had to pay property taxes and if the property is listed they'll have to pay commission to two Realtors instead of one, not to mention closing costs.

Tomorrow, another tale of bankers' misguided actions...

Thank you for reading!

To see any home for sale in the Chicago area click here.

To get information on foreclosures anywhere in the USA click here.

Bankers/Lenders Holding up Real Estate Market Recovery

You've heard that the inventory of bank-owned home is at an all-time high, and that it is going to grow even more in the coming months.  And, you've heard that this is going to cause prices for all homes to remain low and possibly decline further.  But what you haven't heard is that the action (or inaction) of many banks is preventing the timely sale of these properties and making the problem much worse than it needs to be.

Over the next couple of days I will be sharing some examples of the irrational and inept behavior of some banks that I have encountered. Here is the first one:

The Short Sale Shuffle

My buyers put in an offer on a home that is a known short sale (owner owes more to the bank than the property is worth).  The homeowner accepts the offer and then submits the offer and a short sale package to their bank that holds the mortgage.  The short sale package is documentation from the homeowner to show that they cannot make up the difference between the contract price and the amount owed to their bank.  The next step is to wait for the bank to approve or disapprove of the short sale.

Typically the banks are taking as long as 3 months to make this decision.  So what happens during this waiting time?  The buyers find something else to buy.  This has happened to me several times - I end up "selling" the buyers two or even three houses before they actually make it to the closing table. 

And what happens to the short sale homes? After a while, if the owners are having financial difficulties and they cannot get a short sale to stick (in part because the banks take so long to make a decision), then the home ends up in a foreclosure.  I've seen several foreclosed properties that have been vacant for an extended period of time before the banks put them on the market.  By then the homes have fallen into disrepair (most typical issues around here are mold and/or water damage) and the value plummets.  Eventually the bank sells it for even less than they would've gotten at the short sale, and they've also had to pay additional holding costs including property taxes and utilities.

In my opinion the banks are shooting themselves in the foot by not getting on the ball and making these short sale deals a priority.  Also they need to be more realistic in determining what price they will accept for these sales.  They can hire and train temporary staff to get the work done in a timely fashion - I am sure that there are plenty of unemployed people that could be trained to do this AND I am sure this would have a better impact on their bottom line than the status quo.  While it is true that they are losing money in the short sale scenarios, by the time a property goes through foreclosure the losses are even greater.  The goal should be to minimize their losses.

Thanks for reading! Your comments are welcome.

By the way, if you are interested in foreclosed properties, go to my new site:  North Shore Foreclosures to get info on foreclosures anywhere in the country. 

Wind Turbine on Highland Park Home

I have been working 'round the clock lately and havne't had much time to post new articles.  I came across this recent Chicago Tribune article on-line and thought I would share it. 

Highland Park homeowner installs wind turbine on his roof
Lisa Black
July 28, 2009 
 
The wind turbine saves Doug Snower $10 to $15 monthly on electricity bills. (Photo by Andrew A. Nelles, Chicago Tribune / July 27, 2009)

Doug Snower's neighbors in Highland Park stared hard when the silver and blue wind turbine first appeared on his garage roof.

While it could pass for a kinetic sculpture, the shiny, spinning device he installed a few weeks ago has generated low-voltage electricity and a steady hum of conversation.

Unlike the monstrous bladed commercial turbines that have drawn controversy over their noise and environmental impact, Snower's gadget is a quiet and modest 600-watt affair, working alongside a solar panel to supply a bank of four batteries. He uses it to power his electric lawn mower, the family's laptops, phones, cameras and a small fridge.

Snower figures he saves about $10 to $15 monthly on electricity bills and is eligible for a 30 percent rebate on federal income taxes. But he intended the $5,000 investment as more of an educational tool for his teen daughters -- as well as for curious passersby.

"At least six neighbors have come to look," said Snower, an architectural photographer who plans to serve as a Midwest distributor for the turbine's Chinese supplier.

He and his wife, Shari, added on to their house two years ago with the greenest of intentions. They are still experimenting with a partial grass roof to conserve water, a wood-burning masonry fireplace for heating and a natural air ventilation system.

About a week after Snower installed his turbine, ComEd workers replaced a transformer across the street.

"I've got them running scared," he said with a megawatt smile.

Short Sale Advice for Buyers

Most home buyers right now are looking for bargains.  And, there are plenty of them in the Chicago area - the North Shore is no exception.  The best bargains are "distressed" properties, here are the most common situations: 

• Bank-owned properties - These are homes that the banks had to foreclose,  and yes the North Shore is not exempt from foreclosures.
• Short sales -When the owner owes more to the bank than the property is worth on the current market it is a short sale.  The owner must either come to the closing with money to make up the difference, or they must prove to the bank that they have a hardship and cannot make up the difference.  If the seller cannot make up the difference, then the sales contract and all terms of the sale must be approved by the bank.  Since the banks really aren't in the real estate business, depending on the bank, the purchase process can be lengthy.
• Bankruptcy - The homeowner has declared bankruptcy and the sale of the home is being directed by the court system.

In general any distressed property will sell at a price below the market value.  This is particularly true in those cases where the property is not in good condition.  For short sales, the lower market value reflects the added inconvenience of purchasing a home that is a short sale, even if the home is in relatively good condition. 

If you are interested in purchasing a home that is going to be a short sale, here is what you need to know:

• The short sale process takes longer than a normal sale.  It  also takes longer than purchasing a bank-owned property or a home being sold for bankruptcy.  If you want to purchase a short sale, be prepared to WAIT between 30 - 120 days for the bank to approve the purchase.
• Do not wait until the bank approves the deal to do your own due diligence. You should have  home inspection immediately so that you can decide whether or not you want to go through with the purchase (usually these sales are for the property in "as is" condition).
• Ask if the homeowner's bank is offering special financing.  One bank that I am dealing with offers 4% mortgage rates to buyers that are purchasing their short sales.  Buyers still need to qualify with strong credit score and a downpayment.
• Hire a lawyer that has a successful track record with short sales.  You need a pro-active attorney that will work hard for you to make sure that the sale makes it to the closing table.  Some real estate lawyers just sit back to wait and see what happens with the bank - if your lawyer does this, the sale will most likely fall through.  Your lawyer needs to be in touch with the seller's lawyer and the bank to make sure that the process is moving forward.  The banks are inundated with short sales and foreclosures and it is very easy for these deals to fall through the cracks if at least one of the lawyers doesn't know how to work with the banks.
• Once the sale is approved, you will need to be ready to move quickly.  Typically, after the sale is approved, the bank will want the transaction to close within 30 days. This is another reason that you need a pro-active lawyer that can move quickly to make sure that nothing falls through the cracks.

I have a property for sale in Highland Park right now that is a short sale. This particular home is in great condition, and has had many updates.  Click here for more information on this home.

Thank you for reading.

nsk

Energy Saving Tips

Here are a few new tips that I came across recently:

• Keep a pitcher of water in your fridge.  This keeps the food in there cooler and will use less energy.  Another benefit is that you'll always have some cool water available and you won't need to use the disposable plastic water bottles as much.
• If you are leaving town for vacation, unplug your appliances and electronics before you go.  Unplugging cell phone chargers, DVD players and other electronics will save you some money.  These electronics draw power even when they ar not turned on.  For even greater savings, you can plug some of these items into a power strip and turn on the power only when you are using these items. 
• Now is a terrific time to invest in energy efficient home improvements because Uncle Sam is providing tax credits for improvements made in 1009 and 2010.  So if you are considering new windows, doors, insulation, roofs, water heaters, heating or air conditioning, click here for more information.  (NOTE: A tax credit is better than a tax deduction because it comes right off of the amount of taxes you owe.)
• Chicagoland Natural Gas Savings Program - This program is offering rebates of up to $750 on insulation, $600 on boilers, $450 on furnaces, $400 on water heaters, and $100 on clothes washers.  These tend to be items that you purchase when the one you have "dies."  So if you need to replace any of these items, check out the rebate program with your gas provider.  For residents on Chicago's North Shore, visit this site for details, or call 866-964-7345.

Thank you for reading - if you have any tips or ideas that I can share with my readers, please let me know.

nsk

Short Sales 101

Over the past several months I have had a lot of first-hand experience with short sales.  So now I am ready to share what I've learned with my readers.  I am not a lawyer, so don't take any of this as legal advice (I can refer you to a couple of terrific lawyers who can help you with your specific situation).  I have consulted with several lawyers that are experts in this area - so I will share with you what I have learned from them and from the school of hard knocks.

First some definitions and explanations:

Short sale- In real estate, a short sale is when a piece of property is sold and the amount of the sale does not cover the outstanding mortgages AND all of the closing costs, including things like real estate taxes, state and local transfer taxes, condo association dues owed, commission to Realtor, lawyers fees, etc.  In today's market some of the properties that are being sold short are at risk of foreclosure.  It is important to understand, however, that NOT ALL SHORT SALES are at risk of foreclosure.  If the home owner has been paying their mortgage and home equity loan in a timely manner and their real estate taxes are current, then they are just "victim" to the market which is experiencing declining real estate prices.

Foreclosure - Basically foreclosure is the process whereby a bank or lender can repossess your home due to non-payment. Foreclosure laws vary from one state to the next.  Anything I am writing about is with regard to Illinois.  In Illinois the foreclosure process can take about 9 months, start to finish.  In some cases it can go much faster, or slower, depends on the situation.   The homeowner has several opportunities during the process to turn thing around - but don't wait until the last minute to try to do that - contact a lawyer as soon as possible if you have been notified by your lender that you are in default.  I will write more about foreclosures and the process in another post. 

Deficiency Balance - This term describes the difference between the amount of money that the home owner owes to the bank and the amount of money that the bank will receive at the short sale.

Short sales and forgiveness of debt

Just because someone's home is worth less now than when they purchased it, doesn't mean that they can just sell it with a short sell and walk away with no obligations.  The bank(s) won't let people off quite that easily.  Home sellers have to PROVE that they do not have the means to make up the deficiency balance.  The banks can and do expect sellers to come to the closing table with a check to make up the short fall.   If the seller does not have the funds to do that, then they have to prepare a short sale package for the lender. Usually there is a form to fill out, and plenty of supporting documentation, including pay stubs, financial statements, credit reports, etc.  And the seller usually has to write a "hardship" letter - this is a letter that describes why you can't come to closing with a check for the deficiency balance.

Typically if there is one bank involved (no home equity line, or the home equity line is same bank as primary mortgage) and they approve the short sale, then they will also forgive the deficient balance.  However, this deficient balance is reported to the government as income.  In the past people had to pay income taxes on this income - right now there is law in place that waives the requirement to pay income taxes on forgiven balances...but I believe this is a temporary situation through the end of 2009.

If there is a separate bank involved with a home equity line on the property, things get a little more complicated. I will write about that in my next post.  Also, coming in a future posts - what you should know about buying a property with a short sale.

Thanks for reading!!  If you have questions, feel free to post a comment or contact me directly.

nsk

To view all homes for sale in the Chicago area click here.

The Last Day of March

I received this via email from a friend, client and loyal reader of my blog.  I decided to share it with my readers...

Tonight, on my way home, the green sky did not become a tornado, and instead, I spotted a rainbow  and found that my house was centered under the arc, and the sun was at the perfect low angle which turns Chicago brick into gold, the whites of the birches blinding, and burned flash spots into my eyes reflecting off the rearview mirror. It's a nice image for the last day of March. I think I'll keep it.

I hope that all of you can find a rainbow over your homes in the coming months.

Thanks for reading.

nsk

Foreclosures and Real Estate Taxes

At our weekly office meeting this week we had a few guest speakers talking to us about the process of assessing residential real estate for tax purposes.  During this session I realized that many people are confused about foreclosures as they relate to real estate taxes.   There were some folks in the room that believe that the higher than normal foreclosure rates are going to cause an increase in real estate taxes for everyone else.  They seem to think that homes that go through foreclosure don't have to pay their real estate taxes...and so everyone else has to make up the difference.

So, I decided to clarify this issue for my readers.  There is one eternal truth with regard to residential real estate.  Uncle Sam always, always, always gets paid first.   When there is a foreclosure, the home usually goes up for sale at auction.  If someone buys the home at auction, then they are then liable for all real estate taxes due.  If no one buys the home, and the bank/lender takes possession of the home, then the bank has to pay the real estate taxes.  The same is true of a short sale; any real estate taxes due are paid out before the lender gets any of the proceeds from the sale.

This isn't my area of expertise, but I can tell you that foreclosure isn't the only way you can lose your home.  If you don't pay your real estate taxes for several years, you can bet that the government will put a tax lien on your property, and maybe even force you out of your home so that they can collect their money (the specifics can vary by county and/or state - there is plenty of info on-line for specific jurisdictions).  In fact, if you don't pay your federal income taxes, the federal government can put a lien on your property for that too. 

This just came to me - this is ironic - some of the TARP dollars that go to the banks could be used to pay taxes that distressed home owners couldn't pay!

Thanks for reading!

nsk

Real Estate Market Stimulus Package

I'm not an economist, and I don't play one on TV.  However, as a Realtor, I do have an opinion on what it will take to get all of the excess inventory sold everywhere.

The $8,000 tax credit

I applaud the $8,000 tax credit for new home buyers in the Federal stimulus package - however I don't think that this is going to do much in the short term.  If someone that is considering buying a home right now, they won't see that $8,000 tax credit until they file their 2009 income taxes next year.  That is a long way off, especially for first time buyers that could probably use the extra money for a down payment NOW.  In fact, I don't think that this tax credit will have an impact until Q4 of this year.

Subsidized interest rates

I'd like to see the banks use the money they've received from the government (or that they are going to receive) to subsidize mortgage rates for ANYONE buying a home.  A great incentive that would motivate buyers immediately would be a 4% interest rate. This type of program would help shrink the huge inventory of homes for sale - including the homes that are short sales, pre-foreclosures and bank-owned (foreclosed) properties.  Of course this rate would only be for qualified buyers.

Additionally, people meeting certain requirements that need assistance keeping their current home should also get access to this type of rate.  Unfortunately, someone that has purchased a home that is way beyond their means should just get out of that home and move on to something that is more realistic for their situation. 

Help for unemployed

Maybe banks could offer temporary relief for those that are recently unemployed (again meeting some specific criteria) to help them out temporarily until they get work.  I know so many people that have lost their jobs or have had dramatic pay cuts in recent weeks.  They shouldn't have to lose their homes due to these temporary situations.  This would prevent their homes going up for sale and adding to an already glutted market.

Short sale guidelines/subsidies 

A huge bottle neck with the excess inventory is short sale properties.  I've written a lot about short sales already, but here is my $.02 on what needs to happen to get rid of this inventory quickly,  The sooner these homes are off the market, the sooner the market will stabilize.

• The government needs to provide financial incentives for banks to shorten their short sale approval process from the current 12 - 16 weeks, to something more realistic like 2-4 weeks.  Buyers have no patience to wait 3 or 4 months to find out if the bank is going to accept their offer.  By the time that happens, many buyers have moved on to something else.

• Create subsidies or some other financial incentive for banks to approve more of these contracts (or maybe use some of the $ that they've received, or will recieve, for this purpose). Buyers right now are looking for great deals, and many short sales could satisfy that desire.  However, in addition to taking too long to approve these deals, they won't even approve some reasonable deals. And each bank has different criteria on what what is an acceptable deal.

• Create uniform guidelines for banks to follow for these deals.  If they follow the guidelines (which would be structured so that more of these deals are approved) then the bank qualifies for some some of the bail-out money, or a tax break, or something like that.

I  talked to one bank that said that they already "wrote off" the home equity line (in other words they've already assumed the loss on their books) on a home that is going through the short sale process, and yet they were still holding out for a larger amount of $ to release their lien on the property.  I understand that they are trying to minimize their losses, but if a home goes through foreclosure and/or the sellers declare bankruptcy, they bank won't get any money at all. So why not agree to release the lien and collect some $ from a buyer that is offering CASH to purchase the home NOW?  This way we can put someone into the home that can afford it and the home won't go into further disrepair (the current owner can't even afford to maintain it).

Loan restructuring

Let's say someone is having temporary financial issues and they know that in a month or two it will be difficult or impossible to make their mortgage payment.  If they call their lender/bank today to try to renegotiate their loan or ask if they can get some temporary relief (e.g. skip a payment or make partial or interest only payment with no penalty), the bank will tell them that there is nothing they can do unless the homeowner is already in default.  In other words they won't talk to you until you've already screwed up your credit score and missed a few mortgage payments. 

There needs to be some way for homeowners to negotiate with the banks BEFORE they are in default.  I realize that there is risk that some people would take advantage of this - there must be a way to do this to help some of the hard-working people that have been affected by the economic downturn.  These people have been playing by the rules, paying their mortgages and their other bills, and now the rug has been pulled out from under them.  A job that was secure only a couple of months ago is gone - or a self-employed person has seen their business drop by 60 - 70% within a few short months. These people need a little time to get their footing back, to find temporary employment or find a new job. (Hey, how do they apply for one of the new jobs that is being created with the stimulus money - give 'em a shovel?)

That's my thoughts for now.  Would love to hear your comments.

Thanks for reading.

nsk