Are All Deeds Since 2005 (Not Just Foreclosed Ones) At Risk?

October 13, 2010

Worms crawling out from under the rocks of foreclosures.I was listening to a radio program this week (The Kojo Nnamdi show on WAMU in Washington, D.C.) and the topic was–what else–the foreclosure crisis and robo-signing. OK, I thought, this might be interesting. And it was. Not from Kojo’s guests–who were OK but pretty predictable–but from one of the callers. It was a guy named Matthew (who I think is Matthew Weidner, a Florida attorney) who raised a scary point about the foreclosure mess.

Incidentally, Matthew Weidner’s blog has all sorts of fascinating information on it. Some of it’s a bit technical, and some of it’s Florida-specific (that’s where he is), but it’s worth looking at.

While robo-signing is the most recent problem to arise, a deeper problem is all the paperwork that accompanied all the purchase and sale transactions since about 2004 or 2005. Basically, the paperwork is a mess–severely flawed–since all those loans were sliced and diced over and over again to sell to investors. Heck, I even blogged about that–a book review called The Big Short by Michael Lewis. [Tip: Buy it. Read it.]

But caller Matthew’s point was that none of these properties–foreclosure or not–really can be said to have clear title. The paperwork’s bad on all of them. He called this “the elephant in the room” that no one wants to talk about. And, obviously, for good reason.

A lot of the problems with the foreclosure paperwork are coming to light because one of the parties (the owner) is highlighting the problem and using it to block further action. You don’t have the same situation in cases where you’ve got a willing seller, a willing buyer, and no bank in the middle of that transaction.

However, just because no one’s raising a fuss doesn’t mean the problem doesn’t exist. And as those rocks start getting turned over and the worms start wiggling out, someone’s going to notice that a lot of those worms are crawling out from supposedly “clean” sales.

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Better Indicator of a Quick Sale: Days on Market or Showings?

October 4, 2009

A home seller recently asked me: “What’s a better indicator of when our house will receive an offer: average length of time on the market in our neighborhood, or number of showings?”

Here’s how I answered:

Average length of time on market in your neighborhood doesn’t mean much; it all depends on how the houses are priced. Let’s say your neighborhood has very similar homes–same approximate age, size, lot size, condition, etc. And let’s say that the market price for such a home is $500,000. Well, if all the homes are priced around $575,000 and have an average of 200 days on market, then the houses are overpriced–as we know from our example. But if you put yours on the market at $500,000, it probably would sell reasonably quickly.

Another example. Same community. Three houses were on the market. One was priced at $500,000 and sold in 20 days. One was priced at $525,000, and sold in 100 days. One was priced at $550,000 and has been on the market for 180 days. So you could look at the averages: Average sales price of $525,000, average days on market 100 days. But that really doesn’t tell you anything. What you need to know is that houses sell quickly at $500,000. They take quite a while at $525,000. And they may never sell at $550,000.

So, days on market really is just a function of price and marketing.

Number of showings is a lot more relevant. You can assume that most of the people viewing your property are looking for homes that meet the general description of your home (number of beds and baths, etc.) in your general price range. To use the example above, the people who are going to be looking at those homes probably want to spend between $500,000 and $525,000 on your sort of house. So, a lot of showings means that your home is attractively priced for what it is and where it is. Few showings means that your home is overpriced.

So, if there’s nothing wrong with your home (some terrible odor, or backing up next to a freeway that isn’t apparent in the listing), the more showings you have, the more likely it is to sell sooner. It’s all a numbers game. I know some agents who have various rules of thumb, such as: An offer should come in for every 10 (or 15) showings. Obviously, the number varies. But you get the idea. If that’s not happening, then there may be some problem with the house that people don’t find out about until they’re there.

So, number of showings is a very good indicator. Average length of time in your neighborhood is a very poor indicator.

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Just Offering a Lower Price Doesn’t Mean You’re Negotiating

May 18, 2009

I’ve run into a number of situations lately in which potential (or prospective, or would-be, or maybe just wannabe) buyers have confused the act of offering a lower price with negotiating. In fact, there’s very little connection between the two.

For example, in my role as a Realtor I was showing some clients  some properties. They had pretty strict limits as to maximum price, condition of house, location, and so on. We’d looked at half a dozen the weekend before, and none fit the bill. Some were too old (mid-1970s). Some were too small. Some weren’t in good-enough condition. Still, we’d started with a list of perhaps 20 foreclosures and a few short sales. And most had been snapped up within 3-5 days of listing.

A couple weeks later, we went out again. This time we saw 3 properties–an REO in a bad neighborhood that’d been on the market for 4 months ($160,000), an REO that’d been totally gutted before the rehab money ran out ($150,000), and a great home, nearly perfect condition, granite countertops/stainless steel appliances, for $180,000. The comps (for other REOs) in the same neighborhood, probably for homes in not-so-good condition, were about $230,000. It was a great buy. And the buyers had been prequalified up to $250,000.

They liked the house . . . enough to want to offer $160,000. Huh? I cautioned them that it’d sell fast, and was clearly underpriced. They said they really wanted the house. So, back at the office, they agreed to raise their offer to $165,000. I said that while I’d be glad to submit any offer, that the comps were well above $200,000 and the market for those properties had gotten hot lately. Still, they figured $165,000 was a good negotiating strategy.

Offers were cut off at 3 pm on Monday, after just 4 days on the market. Our offer was 1 of 8 submitted. Of the 8–I found out–ours was by far the lowest. The accepted offer was for $185,000, all cash, no contingencies. A much cleaner offer for $20,000 more. And the would-be buyers were “shocked” that they hadn’t gotten the hosue.

Second example: This past weekend, I was showing a property–a manufactured home. The comps are around $40,000. This one was priced at $25,000, and was in good condition. The owner was at home, and the potential buyers started talking to her. The owner was willing to come down to about $21,000–her real bottom line, since she needed the cash to buy another property. Remember: Comps are about $40,000. So the most they’re interested in offering is about $14,000. As they say in the South, “That dog won’t hunt.”

Look, negotiating’s great. And there’s nothing wrong in offering a low (or lower) price. But the two (offering a lower price and negotiating) are two entirely different things. Sometimes, as with the REO, there isn’t much room to negotiate. You just figure out what the best deal is . . . what your bottom line is . . . and make an offer. Those buyers could have offered $225,000 . . . been well within their affordability range . . . and had a good shot at getting the property. They chose not to.

In the case of the manufactured home, there were other areas that the seller indicated flexibility on. Plus, the home was priced (after the initial negotiations) at about half the comps. Offering 33% less, after getting a reasonable idea of the seller’s bottom line, isn’t negotiating. It’s just playing a losing game.


Affordable Home in Chantilly, Virginia . . . . And a Test of Animoto

May 8, 2009
Here’s a video of a property I’m currently selling. It’s a very affordable 2 bedroom/1 bath home in Chantilly, Virginia. Price: $15,999. It’s available with owner financing for only $1,199 a month for 5 years. That includes the purchase of the home and the monthly land lease charge. Plus, for “new home buyers” (someone who hasn’t owned a home in 3 years), it’s eligible for the “new home buyer” 10% tax credit.
I’ve included full information on the home below.
In addition, this was a test of an online service called Animoto. The idea is that you upload some photos, select some music from their online catalog (or choose your own), and the Animoto automatically makes it into a video. The service–with their branding and videos limited to 30 seconds–is free. If you want longer videos and no branding, that costs…though not too much. It’s simple to use, and if you don’t like the result the first time, you can edit the pictures and text . . . or just click “remix” and it remixes what you’ve already uploaded. Neat idea. Available at http://animoto.com
And for those of you familiar with real estate investing (which is what this blog is about), this is my first attempt at a “Lonnie Deal.” The strategy is: Buy low for cash. Sell for more on terms.
As for the Chantilly home, here’s the full information:

This home (2 bed, 1 bath) in great condition (built 2001) can be yours for just $15,999 (yes, that’s the right price). Plus, with just $2,000 down you can get owner financing with payments as low as $1,199 per month for 5 years. PLUS: If you’re a “new home buyer” (haven’t owned a home in the past 3 years), you may qualify for a 10% tax credit (a $1,600 credit) from the government! (Check with an accountant for details.)

Home Features

  • Large kitchen with modern appliances
  • Microwave
  • Vaulted ceilings
  • Central A/C
  • Washer/dryer
  • 2 bedrooms (approx. 14′ x 13′ and 11′ x 10′)
  • Modern bath
  • Neutral colors throughout
  • Wood trim
  • Parking for two cars
  • Exterior shed for additional storage

Community Features (all included in your monthly payment):

  • Swimming pool
  • All age community
  • Night time security
  • Snow clean-up
  • Tot lot
  • Basketball court
  • Fitness center
  • Clubhouse
  • Trash pick-up

Great location: Close to shopping, restaurants, Dulles, I-66, Fair Lakes, Fair Oaks, etc. Quick commute to Fairfax, Centreville, Reston, Dulles. Reasonable commute to Arlington, Alexandria, and D.C.

The cost: $1,199 per month. At the end of the 5 years, it’s yours. Everything is included in your $1,199 payment ($842 land lease plus $357 to purchase) except utilities. Move-in costs: Just 2 months’ security deposit or downpayment. [Buyer approval required, which includes credit and background check.]

To recap:

  • Owner Financing/No Bank Qualifying
  • Buy for as little as $1,199 per month
  • Price includes all amenities (pool, exercise facilities, trash pickup, etc.)
  • 10% government tax credit ($1,600) for qualifying buyers

This is a great opportunity for someone just getting started, someone looking to simplify their life, or someone trying to rebuild their credit.

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Subject To Transactions: Can You Get Out?

February 4, 2009

Recently, someone asked me whether–as the previous owner–it’s possible to get out of a “Subject To” (or “Sub2”) deal.

First, let me explain what a “Subject To” deal is. Suppose you own a property and you just want to get out. More precisely, you just want to get rid of the mortgage. You don’t want to (or can’t) pay it any more.

An investor comes along and makes this offer: “Deed the house to me. Keep the mortgage in your own name. However, I will pay the mortgage for you. I’ll make up any missed payments. That will relieve you of the burden of paying the mortgage, and will help your credit. Then, in a year or two, I will refinance the property and your mortgage will terminate; I’ll have a mortgage in my name.”

The key to a “Subject To” is understanding that there’s a difference between a deed (or title)–that’s the document that conveys ownership–and the mortgage, which is the IOU to the bank. Usually, when you buy a house you get the deed AND a mortgage. But they’re two separate things. It’s possible to own a property without a mortgage–let’s say you paid all cash, or you’ve paid the mortgage off. It’s also possible to deed the property to someone else and yet still have a mortgage.

In a “Subject To,” you’ve deeded the property to someone else, but you’re still responsible (to the bank) for the mortgage. The buyer or investor promises to make those mortgage payments, but legally you’re the one responsible for them. It’s called “Subject To” because the buyer has bought your property subject to the existing mortgage.

“Subject Tos” often work out well. But it can be risky for the seller, especially if the buyer or investor doesn’t make your mortgage payments.

Back to the main question: If you’ve sold your house “Subject To,” what can you do if you want the mortgage taken out of your name? In the case of the person who asked me, the person wanted to buy another home. Problem was: The person still was responsible for the mortgage on the first home. It would be very difficult for him to buy a second home, and be responsible for a second property’s mortgage, when he still owed money on the first property’s mortgage. 

My answer: 

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The mortgage is still in your name. However, the investor owns the house. Basically, the only way out is for the mortgage to be put in someone else’s name. Among the options:

(1) The investor could refinance, putting the property into his name. (Not likely to occur, but you can ask. Many investors don’t like spending their own money. And in today’s economic climate, it’s very, very difficult for investors to own multiple properties–the limit in many cases right now is four–with the mortgages in their own names.)

(2) The investor can sell the property to someone else–either the current tenant or to someone else. (The investor might like to do this, but that depends on whether there’s any equity in the property. It depends on whether it fits into the investor’s business model, and whether the investor can find a buyer for the property at the right price.)

So, contact the investor and explain your situation.

The upside is that, I assume, the investor has lived up to his end of the deal. That he’s been making your payments on time. And, therefore, that your credit history–at least regarding the mortgage–is good. So there’s definitely been some value to the Subject To. Plus, I’m assuming you were in financial difficulty when you did the deal, and the housing portion of the burden has been eliminated. And that’s a good thing, too.

One other possibility–more creative–is for the investor to put the property into a land trust. For a variety of reasons, you’d retain 10% ownership in the trust; he’d have 90%. The advantage to you is that when the property’s put into the trust, though the mortgage remains in your name, there are various ways to communicate to lenders that the trust is responsible for the mortgage. (This isn’t the way it’s usually done, but that same question comes up when land trusts are used to acquire property and the seller wants to know whether he’ll be able to buy a new property. Answer: There often is.) For more information on that option, go to (or suggest your investor go to) http://www.landtrust.net. There are also other advantages for both you and the investor.
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Bottom line: “Subject Tos” can work out well for both the seller and the buyer. But you have to understand what you’re getting into. And you also have to look ahead and plan your “exit strategy.”


When Should A Seller Lower A Price On A Listing?

June 25, 2008

On another website–Trulia–I was asked this question:

Should home sellers continue to lower prices in tandem with the National/Regional trend were house value is going down or should you stick to a price and await offers?? The crux of the question is does lower price = more showings and offers??

 My response was:

Make sure your home is in the lowest (least expensive) 20% of the comps for your specific property. So, for instance, to oversimplify, if you have a 4 bed/2.5 bath home on 1/4 acre and the comps for similar homes in your neighborhood are $500,000, $505,000, $510,000, $515,000, and $520,000, then your house–to have the best shot at selling quickly for a reasonable price, should be priced no higher than $505,000.

Real estate is local. You’re competing against the comps for the buyers. So, from a purely pricing standpoint, you absolutely want to make sure that the buyers view your house, and that your house is priced attractively.

That also means the comps you use, in today’s market, should be as fresh as possible. Try to keep them within 3 months. Certainly no longer than 6 months. Then, every month, have your agent run the comps again.

The attractive price and good marketing will get more viewings. The final piece of the puzzle is that your house needs to show well. That’s the connection you need between “more showings” and “offers.” Make sure your house is in good shape. Consider using a home stager. Listen very closely to any suggestions your Realtor makes. You may not aesthetically agree with the suggestions of a Realtor, or even a stager. But a stager will make your home look good. And a Realtor knows what buyers are looking for.

A final point, obvious but necessary to state: There’s a relationship between price and how long a property takes to sell. That’s true even for reasonably priced properties, and even in warmer markets than we have now.

If you’re using a Realtor, ask the following question: “If I price my house at $X, how long do you think it will take to sell?” To use the example above, there’s no one absolutely “right” price. But it’s reasonable to assume that if you price your property at $499,999, it’ll probably sell somewhat faster than if you price it at $509,999. If you need the extra money or can afford to wait, perhaps price it higher. If you need to sell right away, or you don’t need to squeeze the last dollar out of the transaction, consider pricing it lower.

In a decling market, though, you absolutely don’t want to be “chasing the market.” Or, as is sometimes described, you don’t want to try to catch a falling knife.


Foreclosures and Short Sales: Are They Good Buys?

June 6, 2008

There’s a general belief that foreclosures and short sales represent good values. Especially in today’s market, a growing number of buyers are asking their Realtors to find foreclosures or short sales for them. Even–perhaps even particularly–first-time buyers assume that a short sale or foreclosure must be a bargain.

But are they the bargains many assume them to be?

Sometimes yes. Often no.

Let me get very specific. There’s a house that’s active right now in Woodbridge, Virginia. I ran across it when checking comps on a property recommended by an investor. (More about that in another post. That lesson, in brief: Always, always, verify claims as to value.)

The house that I ran across is a 3 bedroom, 1.5 bath townhouse. It was bought on January 18, 2006 for $285,000. In early 2007, it was on the market as a short sale at $198,900. Was that a good deal? Well, gee, that’s a 30% discount, right?

The bank foreclosed and took it back on July 3, 2007. It’s now an REO (“real estate owned,” or bank-owned), listed at $186,900. Now, THAT must be a bargain, right? That’s a 34% discount from the $285,000 purchase price. Ready to write a check? I hope not.

I ran the comps on that neighborhood today. There were 34 comps–3 bedroom, 1.5 bath townhouses in that subdivision–properties that had been listed for sale within the past 180 days. Of those 34, 4 had sold. Here’s the information on those 4…the only 4 to have sold. (Note the downward price trend):

4610 Whitaker Place
Close Price: $130,000
Seller Subsidy: $3,900
Close Date: April 14, 2008
Days on Market: 278

4747 Hedrick Lane
Close Price: $140,000
Seller Subsidy: $5,600
Close Date: March 26, 2008
Days on Market: 230

4682 Hercules Lane
Close Price: $172,000
Seller Subsidy: $13,760
Close Date: March 15, 2008
Days on Market: 71

4666 Prather Place
Close Price: $180,000
Seller Subsidy: $5,400
Close Date: December 10, 2007
Days on Market: 113

There are two houses in the subdivision under contract. Because they’re under contract, we don’t know the sale price or whether any seller subsidy was involved. However, we can assume that the effective sales price is below what the properties were listed for:

4646 Charlton Ct.
List Price: $134,900
Days on Market: 6

4728 Still Place
List Price: $94,000
Days on Market: 344

Among the active listings:

4667 Charlton Court
List Price: $120,000
Days on Market: 143

4645 Charlton Court
List Price: $125,000
Days on Market: 167

4675 Whitaker Pl.
List Price: $125,910
Days on Market: 65

So what’s that tell us? The fair market value of that REO at $186,900…that had been a short sale at $198,900…is probably in the neighborhood of $110,000.

And notice the “days on market.” Even the houses that are selling are taking months to sell.

Now, most of the other REOs in the neighborhood aren’t as badly overpriced. But others are priced at $139,000, $135,900, $129,900, and another at $129,900.

Are those good deals? Well, maybe when compared to what they sold for a few years ago. Maybe when compared to what they’ll sell for 5 years from now. But not when they’re compared to what’s selling…and not when you taken the downward price slide into consideration.

So: Don’t assume that just because a property is a foreclosure or a short sale, that it’s a good value. It may not be. Always check the comps.