foreclosure Archives - Page 4 of 4 - Real Estate News and Commentary

June 24, 2007October 5, 2019

Looking for Blame in the Mortgage Crisis

The daily media reports of abuse, fraud, and other problems in the sub-prime mortgage industry attempt to make sense of a real estate industry in turmoil. It appears that the problems in the real estate industry are similar to those in Big Business. Like many of the recent business scandals, schemes and wrongdoing are carried out because the financial rewards seem greater then the risk. Those who are caught usually point their finger at their boss claiming that they were told to do so in fear of losing their job.

The present mortgage crisis is similar to some extent. Sensationalized media accounts of what went wrong and who is to blame seem to be in the daily headlines. The blame of the present crisis was first placed on the lenders and investors, who with their lenient underwriting guidelines, allowed many to borrow beyond their means. The new focus in the crisis is on inflated appraisals and how appraisers are “forced” to provide these appraisals in order to maintain business. Additionally, there has been some discussion about the loan officers who originated the loans, without regard to the consequences to the borrower.

The story of inflated appraisals on the mortgage industry is about how some appraisers are “forced” to provide appraisals with an inflated price or they will lose business. For a real estate appraiser, the pressures of complying with lenders’ requests to inflate appraisals are inherent to the business, but not necessary. To demonstrate the extent of the problem, the Baltimore Sun reported (April 10, 2007) that appraiser groups are asking regulators to crack down on the lenders who pressure appraisers for inflated appraisals.

On the other hand, not enough has been said about the loan officers who originate these loans. Many loan officers who originate sub-prime mortgages are mortgage brokers and are paid on commission; they only get paid if the loan closes. Most mortgage originators act ethically in the borrower’s best interest. However, some will say or do just about anything to get the loan to close, including making unrealistic promises to the borrower as well as pressuring others to ensure loan closure. Unless there is blatant fraud, loan originators are not usually held responsible for a “bad loan.”

There are reports of possible federal investigations of mortgage misrepresentation and non-disclosure of loan terms. A recent MSNBC article (April 10, 2007) reports that many sub-prime borrowers who were deceived by mortgage brokers and loan officers are filing law suits for violations of the Federal Truth in Lending Act. These borrowers include those who were misled to believe the terms of their mortgage, as well as others who were misguided to obtain a high interest rate mortgage when they qualified for a more favorable loan. Under the law, the full terms and conditions of loans must be disclosed to consumers. Additionally, some have interpreted that any misrepresentation, written or verbal, is a violation of this law.

Although most real estate professionals are reputable and act within the guidelines of the law and the ethics code of their profession, unfortunately some do not. Like Big Business, it appears that some of the problems in the real estate industry exist not just because of a lack of ethical behavior, but a lack of character as well.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of April 23, 2007. Copyright © 2007 Dan Krell.

May 1, 2007November 23, 2021

How to buy a foreclosed home

by Dan Krell © 2007
Google+

With changes in the market, we have seen an increase in the amount of bank owned homes on the market. What’s happening? Foreclosure rates for the entire country are up over forty percent since last year (MSN real estate). However, in the Bethesda-Rockville area the foreclosure rate only increased above four percent and decreased in the Baltimore area. If you live in Northern Virginia, the foreclosure rate increased over fifty percent since last year.

Putting the numbers in perspective, although the numbers seem high for our area, the home owner behavior relatively the same. The difference is that those who are in trouble do not have the parachute of the expanding real estate market.

In the last few years, when a home owner fell behind in their mortgage payments it was almost assured they would be able to sell the home quickly and realize a net gain in their sale. If they were not able to sell and the home went to auction, hungry home buyers and eager speculators were ready to purchase sight unseen.

Boy has the time changed! First of all, many home owners who are in trouble with their mortgage are not in the position to sell as the home value is less than what they may have purchased the home for. Additionally, if they have some exotic mortgage, there is a good chance that the interest has eaten into any equity they may have had, in addition to late fees as well as attorney fees (the mortgage company will charge the defaulting home owner for the cost of foreclosing).

If you have fallen behind in your mortgage recently, you know that banks are becoming more difficult to deal with. I have heard stories from home owners who have been told by a bank representative that because there is equity in the home, the bank is looking to foreclose and resell at a profit. Have the banks become greedy?

No. The banks are the same way they have always been, looking for ways to make money. What has changed is real estate market and technology.

A year ago, a bank owned home on the MLS was almost non existent in the Montgomery County area. Today, there are over 25 active bank owned homes on the market just in Montgomery County. Among the listings are a couple of good buys.

Bank owned homes used to be priced for quick sales. Today, bank owned homes are priced at full retail prices, even though the condition is less than perfect. Additionally, the banks may not entertain a lower offer until the home has been on the market for a while.

Technology has been a driving force in the real estate industry for over a decade. As technology changes and gets better, the valuation models the banks use will also get better. Presently, I believe the banks and REO disposition companies have fallen behind in the curve such that the valuations they are using are skewed to because of higher home prices from last year.

As the market stabilizes, we will see an increase of bank owned homes for sale. Eventually, bank owned home prices will also find their mark as market conditions and home condition are taken into account. If you are in the market for a bank owned home, talk to your Realtor and keep an eye on the bank owned inventory.

October 11, 2006April 21, 2019

Finding a real estate bargain

Many first-time home buyers and investors whom I encounter typically ask about foreclosures and handyman-specials. Essentially they are looking to buy a real estate bargain. When is the best time to by a real estate bargain?

A foreclosure is a home that has been repossessed by the holder of the mortgage note, usually a bank. The process of foreclosure varies depending in which state the foreclosed home exists and what type of mortgage document exists on the home. To make a long story short, the home is either auctioned to the highest bidder, or the home is taken over by the bank to be sold on the market. The foreclosed homes that are put on the market are also called REO, which stands for real estate owned by bank.

Foreclosed homes can also be bought at auction. Auctions are usually conducted at the courthouse by a local auctioneer. These types of auctions are also known as a trustee’s sale or substitute trustee’s sale. If you are interested in attending an auction, you can find the advertisements for the auctions in the local papers’ classified section. To bid on the home, you must have the minimum deposit in the form of certified funds. The minimum deposit is usually posted in the advertisement. If you are buying a foreclosed home at auction, you are essentially buying it “as-is” without the ability to do a home inspection prior to close.

When the bank has taken title to a foreclosed home, a Realtor is usually hired to list the home on the Multiple List Service (MLS). In this scenario, you have an opportunity to view the home before you decide to submit your offer. The home is generally sold “as-is.” Hopefully, you will have a Realtor of your own to advise you of the value and general condition of the home.

Generally, the process of buying a foreclosed property can be bumpy due to foreclosure process. Sometimes the previous owner will damage the home (sometimes on purpose), or take valuable materials out of the home such as copper or other fixtures. Additionally, the home is locked up for months, often without utilities. Mold growth is typical due to water penetration, and/or other structural and environmental concerns.

A handyman special is a term that is often used when a home is sold by the owner. The home can have deferred maintenance or other damage. The home could be a rental property in need of “TLC.” Many times, a handyman special will require mostly a great deal of cosmetic work, such as painting, carpet, etc. Sometimes, there are some structural concerns, such as (but not limited to) replacing a roof, or fixing walls.

Overall, when considering a real estate bargain whether you will have to determine if the home is worth the price you want to pay. In addition to the acquisition cost, you will have to consider the total cost to repair the home, as well as the costs to make updates. It is also important to look at the recent neighborhood comparables to see if the price or adjusted price (price plus costs for repairs) is in line.

If the market is depressed or a buyers’ market, there may be some choices in a real estate bargain. However, if the market favors the seller, there are fewer bargains. In a sellers’ market, distressed properties can sell for close to market value.

October 11, 2006April 18, 2019

There are options if you are in Foreclosure

Popular culture has a way of taking an item or an event and making it over simplified for the lay folk so as the item or event becomes a trite expression of a generation or decade. You can spot this happening when certain new buzzwords fly about the air. The event or item becomes trendy and ingrained in the psyche, then eventually becomes passe. This has become the case of trying to buy a pre-foreclosure. A pre-foreclosure is when the distressed homeowner still owns the property, most likely is still living in the home and is facing a sure loss of their hard earned money and home.

As a Realtor, it used to be pretty common for a buyer to say, “Oh, and I am interested in buying a foreclosure,” at the end of the first meeting. Lately, it has become trendy for buyers to assert that they are looking for a pre-foreclosure because it is believed that the home is still in good condition. The main reason for these assertions is that buyers believe they are getting a great bargain. Unfortunately, it is far from the truth. Most people, who buy a foreclosed home, pay a premium because the market is very strong. Even when the home is distressed, the buyer will pay top dollar for a home is a particular neighborhood, knowing that they will have spend another $50,000 to $100,000 to fix the home. Certainly a pre-foreclosure will sell for market value.

The unfortunate player in this scenario is the distressed homeowner who faced a hardship or two and fell behind on their mortgage payments. Many people facing late payments or foreclosure usually lack information of where to get help. The U. S. Department of Housing and Urban Development (HUD) recommends that the first thing the homeowner should do is to call their lender if they are falling behind on their mortgage payments, or they know they will have problems making the mortgage payment. By calling the lender and explaining the situation, the lender will usually provide options to help the homeowner through the hardship. HUD also highly recommends that the homeowner call a HUD-approved housing counseling agency to assist. Information on the housing counseling agencies is available on the HUD website www.hud.gov.

According to BankRate.com, lenders want to help the borrower as much as possible. The last thing the lender wants is to spend thousands on legal fees to foreclose on a property then have to sell it. Some of the options that lenders extend to delinquent homeowners include a forbearance and mortgage modification. These provisions are usually more prevalent with FHA and VA backed mortgages, however, they are also offered for conventional mortgages as well. A forbearance is a special repayment plan where the lender arranges payments such that it will allow the homeowner to make mortgage payments after the financial crisis. Usually this is a fix for a short-term financial crisis.

If the homeowner is seriously behind on your mortgage, the lender can modify the mortgage. A modification is when mortgage payments that have not been paid are added to the principal of the existing mortgage. This allows the homeowner to essentially catch up and get back on track.

Recently, it has become common to see many pre-foreclosure sales. This when the owner has fallen behind in their mortgage payments or is even in the foreclosure process and sells the home on their own or through a Realtor. In most cases, this may be the last resort for the homeowner because they cannot pay the mortgage even with the modifications. Although the homeowner cannot keep the home, this is usually a good arrangement because the homeowner can pay off the mortgage and get the equity out of the home to apply it towards the purchase of a smaller and more affordable home.
If you or someone you know has the misfortune of falling behind on the mortgage, talk to the lender, they want to help.