Inspect foreclosures before you buy
It’s no surprise that buyers are looking for a bargain but now even more people are gaining interest in the growing foreclosure market. According to Trulia.com and RealtyTrac, a recent survey shows that 55 percent of U.S. adults are at least somewhat likely to consider a foreclosed home when buying real estate. That’s a nearly 10 percent increase from November 2008.
However, many buyers are a bit leery of foreclosures because approximately 85 percent said they can’t identify negative aspects of the properties. That figure also rose by 5 percent from the last quarter of 2008. Among the top concerns are hidden costs, a risky process, and further de-valuing of the foreclosed property. Buying a foreclosure doesn’t have to be a scary and unknown process if you take the right precautions. Inspect before you buy is a good motto for any real estate transaction but even more so with a home that has been foreclosed and possibly sitting vacant for long periods of time.
“A lot of the foreclosures that I have inspected have had fires, usually due to the heating equipment. And it’s predominantly because somebody just wasn’t taking care of the equipment—not because they were trying to set the house on fire because they were upset—it’s just poor maintenance,” says Frank Schulte-Ladbeck, a home inspector based in Houston, Texas.
He says the trouble with foreclosures is what happens to the homes during the foreclosure process. “People who are getting into the point where they’re going toward foreclosure usually don’t have money for maintenance,” says Schulte-Ladbeck. Consequently, sometimes important housing needs are let go or, potentially worse, the former homeowners unsuccessfully attempt to do their own repairs.
“You see weird plumbing or wiring set-ups that can sometimes really cause a problem down the road, like with the electrical [system] causing fires or the plumbing causing leaks,” says Schulte-Ladbeck.
Another big concern is when the previous homeowners used various items in the home as replacement for something that had broken. Schulte-Ladbeck says because homeowners who are facing foreclosure frequently cannot afford to fix something in the home, they go without it but that can cause more problems. “I saw one [foreclosure] home, that didn’t have any heating so they were using their fireplace but they weren’t using the fireplace correctly—they had closed the damper and it was allowing the smoke to get into the room. So there was all this smoke damage inside.” How about that terrible smell? Many buyers think it’s only due to mold. But Schulte-Ladbeck says it could be a different cause as was the case with a townhouse he recently inspected. “The water out of the bathrooms had drained out the P-Traps [the pipe that is under sinks and contains water] so you started getting a really awful sewage smell in the house. A lot of people associate that with mold but it’s actually the P-Trap which prevents the [noxious sewer gas] from backing up into your house. When a foreclosed home is sitting for six months or a year, that water will dry up. So then you need to pour water back into that drain to clear away the smell,” says Schulte-Ladbeck.
The best thing you can do if you’re considering a foreclosure is to have it inspected. Just make sure that the property is ready to be inspected or you could be doing yourself a huge disservice. “The one thing that I really suggest to buyers is that a lot of times they have me go in and inspect the foreclosure when it’s still winterized which means that all the power is off, the gas has been turned off, and the water has been turned off. But there’s just no real way to properly check the home to see if something has gone wrong without those things being on.” “Have everything turned on because that’s when you might start seeing things that are wrong like leaks and electrical problems. You could see problems with the heater or the water heater, ovens or cook tops that use natural gas,” says Schulte-Ladbeck.
Seeing is believing and, with inspections, the only way to know for sure is to have everything operating in order to gain the most knowledge about what things will need repairing.
How long does loan modification take?
Understandably, homeowners who apply for a loan modification tend to get a little antsy and perhaps even annoyed when they apply for a loan modification and then fail to hear anything for several weeks, especially if they continue to receive late payment notices and nasty phone calls from collection agencies. Many homeowners wonder, “How long will it be before I hear anything?” and “What should I do while I’m waiting.” The following information should help answer those very pressing questions.
How long will it take? The loan modification process typically takes 30 to 90 days, depending mostly on your lender and your ability to efficiently work through the process with your attorney or other loan modification representative.
Note: The loan modification timeline is not set in stone. The more complex your situation or the greater the degree of concessions needed from the investor, the longer the process takes. Borrowers with a lot of collateral issues can see their loans take longer than what has become the typical 30- to 90-day timeframe.
A professional can often reduce the amount of time required by processing your paperwork efficiently, presenting your application exactly the way the lender wants it, and knowing from past experience what the lender is able and typically willing to agree to. Although each borrower’s situation is unique, knowing the measures the lender is willing to take for similarly situated borrowers can be a real time saver.
Whether you are dealing directly with your lender or through a loan modification specialist, ask several questions up front:
- How long is the process likely to take? Find out the best- and worst-case scenarios and then count out the days and mark them on your calendar.
- When can I expect to hear something about my case? Mark this date on your calendar.
- If I don’t hear anything by the specified date, whom should I contact? Get the person’s name, employee identification number (if available), phone number, and any extension you need to dial to reach the person directly.
What should I do while I’m waiting? Playing the waiting game can be agonizing, particularly when you have no idea of whether your application will be accepted or rejected or what the lender will offer in terms of a workout. It feels like your future hangs in the balance, and you remain in the dark. Knowing the standard timeline for processing a loan modification can certainly help relieve some anxiety. In addition, you can continue to make progress on your own by doing the following:
- If you hired a loan modification specialist to represent you, do not speak with your lender or lender’s representative. Refer all matters to the professional who is representing you. Anything you say to the lender could confuse things or compromise your representative’s ability to negotiate the best deal on your behalf.
- Log all phone calls and correspondence between you and your lender or representative. Write down the number you called, the person you talked with, what the person said, and what you said – not word for word, just jot down the key points.
- Keep track of important dates. If you do not hear something back on the date promised, call the next day to find out what’s going on. Lenders almost never call you back with updates. If you hired a third party representative, they will (or should) keep you posted, but the lender simply doesn’t have the time to make follow up phone calls. If you’re dealing with your lender directly, you’ll have to be the one making the calls. Mark your calendar and schedule periodic update phone calls. Consistent follow up is paramount to a successful modification.
- Explore other options. If the lender denies your request for a loan modification or presents an offer that you cannot accept, you will need a plan B (and maybe a plan C and a plan D). In addition, other options may be better for you than a loan modification. Consult a real estate agent about listing your home for sale. Talk to a mortgage broker or loan officer about refinancing. Speak with a bankruptcy attorney to find out whether filing bankruptcy would be a better choice.
- Don’t be surprised if you continue to receive delinquency notices or late payment phone calls. Lenders rarely put a stop on the foreclosure process until a workout solution is fully in place. You should ask your lender if your attempts to negotiate a solution will stop or at least postpone other collection actions. If they do not, you should find out what that means for you. If the lender is able to foreclose in 30 days and a workout takes 60 days, there’s a slight timeline problem. Push to have all default and foreclosure actions put on hold while your workout attempts are underway.
When your fate is in someone else’s hands, 30 to 90 days can seem like an eternity. By doing your part to keep the process on track, remain informed, and explore other options, you not only improve your chances of achieving a positive outcome, but you can also reduce the stress that commonly accompanies the waiting process.
Investor Report: BANK OF AMERICA SHORT SALES
Investors looking to acquire houses through short sales just might be in for some good news.
One of the largest holders of second liens in the U.S., the Bank of America, says it’s relaxing its policy on payoffs connected with short sales.
That’s important because large banks have been major impediments standing in the way of thousands of short sales, demanding money for home equity lines and second mortgages that would otherwise be worthless if the short sale property went to foreclosure.
Bank of America had been among the least cooperative of all banks in agreeing to short sale payoff terms, according to industry critics.
The company’s policy was blunt: Pay us 10 percent of what the homeowners owed on the equity line balance or second mortgage, or we won’t sign off on the short sale, which is necessary for the deal to go through.
Now the bank has adopted what spokesman Terry Francisco told Realty Times is “a less arbitrary, more rational” policy.
“What we’re saying (to short sale proposals) is — give us an opportunity to participate and gain at least some of the savings” that will go to the first lien holder — the primary lender on the property — by avoiding the high expenses and losses of a foreclosure, according to Francisco.
Bank of America is now asking for five percent of the sale proceeds on the short sale, net of realty commissions, closing and other costs.
The bank believes that should open the door to more successful transactions, as well as more fruitful negotiations with buyers and sellers to avoid foreclosures.
But not all short sale market experts are convinced that’s the case. Raffi Tal, CEO of Los Angeles-based I-Short Sale, Inc., one of the largest players in the field, says Bank of America’s new policy “will still jeopardize” many short sales that involve its second liens.
The bank’s previous 10 percent policy meant they’d demand $20,000 on a $200, 000 equity line balance, or they wouldn’t bless the deal. But their new policy still means “they want $15,000 if the net proceeds are $300,000″ on a short sale, Tal told Realty Times — even though the economic value of their holding may in fact be zero.
Bottom line for investors: If there’s a Bank of America second mortgage or credit line on the house you’re after in a short sale, work the new numbers. At least some of the time you might be surprised that the answer from the big bank is now ‘yes.’
And watch for other major banks to follow suit.
Who Owns My Mortgage?
When trying to contact your lender to work out a payment plan or some other deal, knowing who owns your mortgage can be very helpful. Unfortunately finding out is not as easy as it sounds. You should be able to call the phone number on your last mortgage statement or the number in your payment coupon book and connect directly with your lender. More often than not, this merely puts you in touch with the servicer – the business that collects and processes your payments. In some cases, the servicer is prohibited from divulging the true identity of your lender. In other cases, the person you’re dealing with has no idea who your lender is.
Mortgages are often sliced and diced and repackaged into mortgage backed securities (MBS’s) that are sold and traded on Wall Street. Many investors subscribe to an automated system called MERS (Mortgage Electronic Registration System) that keeps track of who owns the mortgage and note as it changes hands among investors, as well as who services it for that investor. MERS can provide another level of anonymity to the process. On many mortgages, the Mortgagee (the party that was granted the mortgage) is listed only as MOM (MERS as Original Mortgagee). No, that doesn’t mean you can call your mom to find out who owns your mortgage note. It means you have to try to look it up in the MERS registry. Customers trying to look up the investor on the MERS registry will not find it. MERS makes the name and contact information of the servicer available, but not the name and contact of the investor. That information is for the servicer or investor to disclose, not MERS.
To add to the confusion, the mortgage meltdown sank many banks and other lending institutions which were taken over by other banks or regulators.
So, what should you do if you’re trying to track down your lender? Take the following approach:
1. Call the phone number on your most recent mortgage statement or your payment coupon book. This will put you in touch with the servicer who may also be the lender who owns your mortgage or at least be able to tell you the name of your lender. (Remember, the person may not know or may not be permitted to tell you.)
2. If you have an FHA loan, contact FHA’s National Servicing Center to determine who owns your mortgage:
(800) CALL- FHA / (800) 225- 5342
Email hsg-lossmit@hud.gov
Department of Housing and Urban Development National Servicing Center 301 NW 6th Street, Suite 200 Oklahoma City, OK 73102
3. You can try to contact Fannie Mae. If they own the note, they may provide the identity of the investor: 1-800-7FANNIE (1-800-732-6643).
4. If the mortgage is listed as MOM or has a MIN (Mortgage Identification Number) assigned to it, you can search the MERS database by mortgage identification number (MIN), your name and social security number, or the property’s address. Dial the toll-free MERS Servicer Identification System at 888-679-6377 (an automated touch-tone system) or search online.
5. If you know the name of the bank or other lending institution that owns your mortgage but have no contact information for them, check out Hope Now .
One of the most important steps to saving your home from foreclosure is to get in touch with your lender immediately. Better yet, hire a qualified attorney with experience in foreclosures and loan modifications to contact your lender on your behalf, so you have legal representation on your side. I can guarantee that your lender has an attorney reviewing the paperwork. You should have one to watch your back, too.
Obama’s Mortgage Relief Could Bailout 9 Million Homeowners
The President Barack Obama administration’s “Homeowner Affordability and Stability Plan” could help as many as 9 million struggling homeowners, but largely those in lower-cost housing areas.
The $275 Billion Plan, with a March 4 rollout, includes a refinancing program for “responsible” borrowers who haven’t missed payments and whose loans are larger than the value of their homes, and a loan modification provision with incentives for lenders to voluntarily modify certain mortgages.
Many Californians and others in high cost areas may not see much immediate relief but federal aid earmarked for those higher-cost areas could come later.
Refinancing
Under the refinancing provision, homeowners with less than 20 percent equity in their homes, who now find it difficult — if not impossible — to refinance, will be able to get new loans at lower interest rates provided the new note doesn’t exceed 105 percent of the home’s value.
A refinanced mortgage replaces the old loan with a new one. The provision targets 4 to 5 million homeowners.
Struggling homeowners in California and other high cost housing markets will benefit less from the plan because the provision only applies to mortgages held by Fannie Mae and Freddie Mac.
During boom times Fannie Mae and Freddie Mac loans were only up to a maximum of about $417,000. The limit was temporarily raised to $729,750 in 2008, when fewer people were buying. This year, the limit went back to $625,000. The latest federal economic stimulus package (American Recovery and Reinvestment Act), which Obama signed in February, returned the limit to $729,750, at least for 2009.
An estimated 60 percent of the home loans made in California in 2006 and 2007 were larger than Fannie and Freddie loan limits. During 2008 about 33 percent of home loans were above those so-called “conforming” levels, according to the California Association of Realtors. Other high-cost regions experienced varied levels of “non-conforming” loans.
“When I saw ‘Fannie Mae and Freddie Mac’ I said his (President Obama’s) team needs to come to Silicon Valley,” said Quincy Virgilio, president of the Santa Clara County Association of Realtors.
“This isn’t going to help many people here,” he added.
Virgilio said the bulk of California’s home-owning population lives in major metropolitan areas where housing costs are high.
Loan modifications
The loan modification part of the plan targets 3 to 4 million “at-risk” homeowners, those with a high mortgage debt-to-income ratio and those with mortgages larger than the value of their home or “under water.”
A loan modification, unlike a refinance, changes the terms of the existing loan without writing a new one and could serve higher-cost housing markets better than the refinance plan.
Also called a “workout,” this provision is open to anyone including those who haven’t missed payments, but may be at risk of missing payments. A modification is designed to get payments down to 31 percent of the homeowner’s income. That could be accomplished by a reduction in the interest rates or principal, or an extension of the term of the loan, or perhaps a combination.
The modification plan is open to anyone with any loan that has a balance under Fannie Mae and Freddie Mac limits, which now as high as $729,750.
The modification program, also designed to standardize a hodge-podge of modification efforts by lenders, also comes with incentives for both homeowners and lenders.
Loan services get up to $4,000 for modifying mortgages and borrowers got a principal reduction of up to $5,000 over five years for paying on time.
Credit market boost
Obama’s plan also calls for an infusion of $200 billion into the government-owned Fannie Mae and Freddie Mac. The bundle should help lower interest rates and spur more borrowing.
Ken Rosen, chairman of the Fisher Center for Real Estate and Urban Economics at the University of California-Berkeley and the Rosen Consulting Group says more relief could come to high-cost areas.
Obama administration’s plan also seeks to change bankruptcy rules to allow judicial mortgage modifications to reduce mortgage balances to fair market value provided the borrower sticks to a court-ordered payment plan.
National Association of Consumer Bankruptcy Attorneys (NACBA)online casino applauded the judicial workout proposal.
“Ever since the mortgage foreclosure crisis erupted into the public view in 2007, a broad array of consumer, civil rights, housing, community, labor and other organizations, as well as economists, have advocated judicial mortgage modification relief as an effective approach to stemming the growing tide of foreclosures – a solution that, unlike every other solution being considered in Washington, comes at absolutely no cost to U.S. taxpayers,” said NACBA president Carey Ebert of Fort Worth, TX, in a prepared statement.
