Making Offers on Short Sales: Things Buyers Should Know

If you are actively looking for a home either as first time homebuyer or a move up buyer, you might have come across properties for sale that say short sale or short pay off.   The term ‘short’ makes our head turn, equating the adjective to ‘cheap’, ‘discounted’, ‘bargain.’  Yes, properties sold as a short sale have deep discounts, but it pays to know about the situation of the seller of a short sale, before putting an offer on one.

Selling a property on a short sale means that the homeowner is selling the property for less than what is owed to the lender.  Short sale is a foreclosure alternative that has gained widespread acceptance, and 2010 is considered to be “Year of the Short Sale.”

So, how do you go around putting an offer on a short sale? 

These are the things you should know about the property, the seller, and the lenders involved:

Full documentation needed on the part of the homeowner

Proving financial hardship on the part of the homeowner is key to a lender’s acceptance of a short sale request.  Job loss, divorce, death, furlough, cut work hours/overtime- these are the most common reasons that will qualify as ‘ financial hardship’.  Homeowners are required to submit current paystubs, tax returns, disability/unemployment letters, etc to support their claim.  In the same way that a loan application is treated nowadays, which is full documentation, a lender approving a short sale requires that the homeowner provide every single documentation required.  An incomplete submission will usually delay the processing and decision making on the viability of a short sale request. 

Homeowner’s Lender – Who Owns the Loan?

Short sale approvals are subject to the guidelines of the entity who owns the homeowner’s note/mortgage. Heard of Fannie Mae, Freddie Mac? These are government sponsored enterprises (GSE) who work in the secondary mortgage market, primarily by issuing debt securities in the domestic and international markets.   Once a loan has been originated by a bank, say, Wells Fargo, the GSEs buy the loan and re-sell them in the secondary market.  In this way, the funds are replenished and banks are able to sustain making mortgage loans to other borrowers.  GSEs and non-GSEs have their own guidelines for short sales, and the approval of a homeowner for one will definitely need to go thru the ‘investor.’  There are key differences & similarities to the criteria for short sale approval, especially now that the HAFA Short Sale program has been implemented.  For a seller, it pays to know who owns their loan so that they can take advantage of the many benefits that the HAFA program is offering, if they will qualify at all.

Condition of a Property in Short Sale

Properties offered as a short sale are sold as is, since lenders will not credit a buyer for repair costs.    Before submitting an offer, demand to see the interior of the property, and do employ the services of a professional home inspector, during the contingency period. 

The homeowner will usually not do further repair and maintenance, because they will be ‘leaving the house soon, anyway.’ Therefore, be ready to take on repairs, though, with the help of an experienced real estate agent, the homeowner might be persuaded to repair whatever they can do, with their resources.  Note that the sellers of short sale properties are in financial difficulty, and usually can no longer afford to spend further.  Pushing the homeowner too hard can kill the deal, so, know what you are willing to let go during the contingency period. 

Unfavorable Terms for the Homeowner

There are cases wherein a homeowner would rather not go thru a short sale, because the lender demands that they sign a promissory note, which is made part of the terms of the short sale approval.  The promissory note asks the homeowner to pay the remaining balance in staggered amounts.  A homeowner in financial distress will usually decline this, since a promise of future payment cannot be kept.  When this happens, the short sale deal usually falls off, and the homeowner goes into foreclosure.  The months you have spent waiting on the approval is just wasted. 

Rejection of the Offer Price

Most lenders will counter the offer price you have put in, especially when the offer is below fair market value.  The series of going back and forth in between buyer and lender lengthens the short sale process even more so, HOA dues are piling up, property taxes are added, homeowner’s financial documents expire, and the lender will ask again for updated documentation.  One virtue a buyer of a short sale must possess is PATIENCE. 

So, what should a buyer do prior to submitting an offer on a short sale?

Have lots of patience.   The short sale process can take anywhere from 2 months to a year, depending on the lender’s volume of short sales getting processed, and the type of short sale the homeowner is doing.  The new HAFA (Home Affordable Foreclosure Alternatives) Program promises to streamline the process across all lenders, and can take anywhere from 2 to 4 months. 

Make sure your financing is in place.   Once your offer gets accepted, the short sale approval has an end date, and lenders are strict on giving extensions without charging a per diem per day that escrow doesn’t close.  Start the prequalification process early, so as to minimize delays in the underwriting of your loan application.  The lender approving the short sale will require that the seller submit the buyer’s pre-approval letter, and proof of funds.  Secure your financing, so to speak. 

In today’s market, six out of ten properties will be a short sale, the other four, could be bank-owned, probate.  A regular sale that does not involve a lender’s approval is very rare, and if they do come by, these are usually investor-owned properties who are turning around after purchasing them from a public auction.  These ‘rehabbed’ properties will usually have a higher price tag. 

The year 2010 saw a lot of improvement in the processing of short sale applications among lenders.  The guidelines are getting to be pro- homeowner, therefore, pro-buyer.   Short sales are here to stay.  Your choice to gear up and get into the game is yours.  The risks are evident, but, every after risk comes success. 

Good luck!  

California Foreclosure Timeline - Beat The Auction Date!

     Highlights:

• Average foreclosure timeline is 5 to 8 months
• Loan Modification does not stop foreclosure process
• Short sale with purchase offers can postpone scheduled foreclosure auction dates

For many homeowners out there who have made a decision to do a short sale, the question I usually encounter is: “When is the best time to initiate the short sale process with my lender?”   The best way to answer this question is to present the foreclosure timeline in California that homeowners in pre-foreclosure should be mindful of.  Whatever stage of foreclosure/pre-foreclosure one is in, the time left to sell the property will be the most important factor to consider, given that marketing times differ, depending on the marketability, property condition, competing homes for sale in your area/city.

Note that when we speak of foreclosure in the state of California, we mean to refer to non-judicial foreclosure, which does not require court trial, and lender gives up the right to pursue a deficiency judgment.  Non-judicial foreclosure is what we know as the trustee’s sale.  A court trial/judicial type of foreclosure is rare in California. 

For loans originated between 2003 & 2007, the following summarizes the foreclosure process in California:

Pre-Foreclosure

The very first mortgage default initiates the pre-foreclosure stage.  From Day 1 of the default, the lender contacts the borrower and offers alternatives/payment plans such as forbearance, refinance or loan modification.   After the missed payment, the lender waits a few weeks to months (1 to 5 months) before starting the foreclosure process.

Foreclosure

Usually on the 30th day after the missed payment, a Notice of Default (NOD) is filed by the lender at the county where the property is located.  A copy is mailed to the borrower within 10 business days after recording.  The NOD details the attempts of the lender to contact the borrower and arrange for foreclosure alternatives. It is at this stage when a lender expects a borrower to make contact and initiate a short sale. 

Trustee’s Sale/Public Auction 

Three months after the NOD filing, a lender may record a Notice of Trustee’s Sale (NOS).  NOS are published in the newspapers under Public Notices, once a week, for three consecutive weeks.  The actual sale date is 20 days from the first publication of the NOS.  A copy is also posted at the subject property.

On the day of the auction, the property is sold to the highest bidder.   If there are no bids, the property reverts back to the lender automatically, lender markets it, at this point, the property is known to be bank-owned or REO (Real Estate Owned).

This chart below summarizes the various stages a homeowner can be at any one time, and the minimum time left to sell the subject property before a trustee’s sale kicks in:

Stage of Foreclosure/Pre-foreclosure	Minimum Time Left to Sell
Homeowner missed mortgage payment for the 1st time	6 to 8 months
A Notice of Default is filed & recorded	4 months
A Notice of Trustee’s Sale is filed and recorded	5 days before trustee’s sale

A common misconception many homeowners have is that the foreclosure clock stops once there is a loan modification or a short sale request in place.  This is not true, because the clock ticks from Day 1, whether a homeowner takes a proactive step towards foreclosure prevention or not.  

LOAN MODIFICATION

There is, however,  an additional 90 days ‘cooling off’ period beyond what is already given before a lender files a Notice of Trustee’s Sale.  If a homeowner has a pending loan modification request, this California state law (ABX2 7 and SBX2 7) was enacted on February 20, 2009 and took effect on June 15, 2009.   Not all lenders, though, are subject to such state law- lenders who have implemented a comprehensive loan modification program can file for an exemption.

Here is a list of mortgage lenders/servicers who have been granted exemption by the DRE, and therefore, could file a Notice of Sale against your property without the additional 90 day cooling period:

http://www.corp.ca.gov/FSD/CFP/pdf/ExemptList.pdf

Foreclosure Timeline from 1st missed payment to NOS (with additional 90 day ‘cooling period’ for homeowners with pending loan modification) 8 MONTHS

Foreclosure Timeline from 1st missed payment to NOS (without additional 90 day ‘cooling period)   5 MONTHS

SHORT SALE

Since a pending loan modification request does not stop the clock from ticking, it is almost always necessary to proceed to short sale, when the loan modification is not going anywhere and will not seem likely to be approved.  The months spent waiting on loan modification could have been used to market the property as a short sale, where in, more often than not, a seller could be granted postponement of the trustee’s sale, to give the seller time to generate an offer. 

Credit Impact of Short Sale, Foreclosure & Bankruptcy

Every consumer who is undergoing a short sale, foreclosure or bankruptcy worries about the future ability to obtain credit.   Lines of credit vary, but, for purposes of real estate discussion, the question I will pose on this article is:  “What are the guidelines for a home loan after a short sale, foreclosure or bankruptcy?”

FICO SCORE EXPLAINED

A FICO score is a number representing the credit worthiness of a consumer.  Established by Fair Isaac  Corporation in 1958,  the FICO score is the most used by lenders, though there are other credit scoring systems such as NexGen & VantageScore.  There are three credit reporting agencies namely: Experian, Transunion and Equifax -  at any given time, a consumer will have three different credit scores as these bureaus gather information from different creditors.  Credit agencies sell these information to the lenders, and a FICO score is the measure of a consumer’s probability to pay off a home loan.  The higher the credit score, the better.  

What’s in a FICO score?

Payment history, amounts owed, length of credit history, types of credit & the number of credit inquiries affect the overall FICO score of an individual.  The combination of all these, when factored in, are used by the scoring system to determine the risk of loaning to a consumer.   The following link breaks down the components that go into a FICO score, with payment history accounting for 35% on the overall scoreboard.

http://www.myfico.com/CreditEducation/WhatsInYourScore.aspx

BANKRUPTCY & FICO SCORE

Regardless of the type, bankruptcy has a very negative impact, for the whole time that it is showing on your credit report.  From the date of filing, one can expect to have this derogatory remark in the credit report, as follows:

1. Chapter 7 & 11- up to 10 years
2. Chapter 13 – up to 7 years

http://www.myfico.com/crediteducation/questions/Bankruptcy-Types.aspx

The impact of a bankruptcy filing depends on a consumer’s overall credit profile. Someone who has a high score and spotless credit should expect a huge drop in points. On the other hand, someone who has other negative items on the credit report will have only a modest drop in score.

Bankruptcy filing will usually include more than one account, like a credit card & an auto loan -  it should be noted that the more accounts filed in the BK, the more negative the impact is, on one’s credit.

Credit After a Bankruptcy

How long is the time period after a bankruptcy filing before a consumer can be eligible to obtain credit for a home loan?

Fannie Mae says:  for a Chapter 7 or 11 bankruptcy, is FOUR years from the discharge or dismissal date of the action.  For a Chapter 13 bankruptcy, it is TWO years from the discharge date and FOUR years from the dismissal date.

SHORT SALE, DEED-IN-LIEU, FORECLOSURE  & FICO SCORE

The impact on credit after a short sale or deed-in-lieu of foreclosure, is no better, from a credit score standpoint.  Though these foreclosure alternatives are tools being used by lenders to avoid the costly process of foreclosure, on the credit report, a short sale/DIL shows up as ‘ not paid as agreed,’ and is therefore, still derogatory.

http://www.myfico.com/CreditEducation/Questions/foreclosure-alternatives-fico-score.aspx

Credit After a Short Sale/ Deed-in-Lieu

How long is the time period after a short sale/preforeclosure has been completed before a consumer can be eligible to obtain credit for a home loan?

Fannie Mae says:  after TWO years from the date of completion of the preforeclosure sale, with consumer required to make a 20% downpayment ( or 80% loan to value); after FOUR years, the consumer is required to make a 10% downpayment ( or 90% loan to value); after SEVEN years, the consumer is limited to the loan to value ratios set forth in the Eligibility Matrix.

https://www.efanniemae.com/sf/refmaterials/eligibility/pdf/eligibilitymatrix.pdf

Deed-in-lieu, is another foreclosure alternative where a homeowner ‘deeds’ back title to the lender.  Under new HAFA guidelines, a DIL could be included as part of the short sale approval, only to be resorted to if the property does not sell within the time specified in the short sale.

For more information on the HAFA program, click here.

FORECLOSURE & FICO SCORE

Foreclosure hits one’s credit in the same way that bankruptcy does.  However, since foreclosure has only a single item defaulted on (home loan),  the impact is much less, compared to a bankruptcy.  Foreclosure remarks remain on the credit report for SEVEN years, but in as little as TWO years, FICO score begins to rebound, for as long as other obligations and loans are in good standing.

http://www.myfico.com/crediteducation/questions/Foreclosure-FICO-Score-Affect.aspx

Credit After a Foreclosure

How long is the time period from the date of foreclosure can a consumer can be eligible to obtain credit for a home loan?

Fannie Mae says:  after SEVEN years from the date of the foreclosure sale was completed, except, under extenuating circumstances, a consumer can apply for a home loan after THREE years from the foreclosure sale date.

• Extenuating circumstances refer to non-recurring events that has led to the consumer to default on the mortgage, such as, divorce, medical / hospitalization, job loss, death in the family, etc. Proper documentation is required to qualify the consumer obtaining a home loan after a foreclosure.

Note however, that lending guidelines for other types of loans such as FHA, VA are different from conventional financing.

Life doesn’t stop after a short sale, foreclosure or bankruptcy.   Planning and keeping a good credit standing after these events will definitely pay off. A second chance at homeownership is not at all impossible!

Loan Modification, Short Sale, Foreclosure or Bankcruptcy: WHAT IS BEST FOR ME?

Due to the tough economic times, you have stopped paying your mortgage. You start getting these phone calls from your mortgagors, and you ask yourself, "What should I do?". There are a lot of things floating around from friends, neighbors, TV ads, etc but the information are overwhelming. With all these options, you don't have to stick to one, why not try them all?

Loan Modification

The question you need to ask yourself is, "Do I want to keep this house"? If you answer no, then skip this portion and go straight to Short Sales; but if your goal is home retention, you may want to try loan modification.

Loan Modification is when you work with your bank to make a mortgage payment better suited for your budget. It is not necessary to hire an attorney to do your loan modification. I suggest it best that you do it yourself, because if you are already having problems paying your mortgage, you can save thousands by doing loan modification yourself.

The process is, you call your lender, and ask for their loss mitigation team. Most of the time, if you are on time with your mortgage, the loss mitigation team will not even entertain you. Now that you have missed payment, they are more willing to talk. Make sure you document all your phone calls with your bank, and list down who you talked to. They will ask you for some documents, and once that is satisfied and you are a qualified candidate, they may put you on a trial modification.

A successful trial modification will lead to a permanent loan modification, which is fixed for the life of the ‘new’ terms. The mortgage could be a slash in interest rates, a cut in payments for a few years adjustable after a set period, or in rare cases, a discount in the principal amount.

Some drawbacks include having to negotiate with multiple banks if there in your property. It is also concerning that the failure rate on loan modifications is 70%. Which means, if you really would like to keep your home, you have a 30% chance for success. This is worth a try if your goal is to retain and keep your home.

Short Sales

If your loan modification failed or you just want to get rid of the house to solve your problems, then Short Sales should be your next step.

A short sale is where you sell the house less than the amount of the loan. So a house with a loan of $500,000, is put on sale for $300,000 due to market conditions.

You will need to hire a professional realtor who has experience in short sales. The realtor who sold you the house 5 years ago, may not be equipped with the right skills to do a short sale, so do your research diligently.

For the seller, the process of short sales will look like any regular sale. The same guys are there, the banks, escrow, real estate agents, open houses, etc. plus a few complicated additions.

A plus in doing short sales is you don't pay sales commissions to Real Estate agents**. Your Realtor will negotiate their compensation from the mortgagor. Short Sales take a long time to complete, but the new HAFA rules promise to speed up the short sale process. Just like in a regular sale, you can stay in your house until it gets sold. It is possible that your house will get sold and you don't have to spend a penny. A good realtor will negotiate to save you every single dime. You may even qualify for relocation assistance of $ 3,000, under the new HAFA guidelines.

Once your house gets sold in a short sale, your credit will start to cure itself. It is possible to purchase a property within 2 years after a short sale. I am currently representing a buyer-client purchase a new property, after a successful short sale we have completed 13 months ago.

Bankruptcy

A bankruptcy remark may stay in your credit for 10 years, but sometimes it is the inevitable conclusion to solving your problems after exerting loan modification and short sale solutions.

If you are being harassed by creditors, debtors, mortgagors, even a personal friend whom you owe money with, bankruptcy may be an option. You lose your debt, as well as a few friends, but it does give you some peace of mind and start on a clean slate. But with a wrecked credit, you may see a lot of opportunities like low interest rates, pass you by. You will also have to pay a lawyer upfront to do your bankruptcy.

After bankruptcy, it is possible to start buying properties with a loan after 2 years of good credit.  Still, bankruptcy is your best option rather than losing your home due to foreclosure. 

Foreclosure

Foreclosure is when the bank takes possession of your home. The credit impact is negative for seven years. This happens if your short sale failed, no buyers made an offer, or you decided to just ‘walk away’. Doing nothing will bring you to foreclosure and devastate your credit.

These are tough times, and I am very aware of how people’s lives are being affected by the bad economy. But all you need to do is to take charge and start doing something. Inaction will accomplish nothing. Do your loan modification yourself. When that fails, interview several realtors and several lawyers. Remember that they want your business, so when you talk to realtors and lawyers, you are the boss. You hire the person who you think will represent you best. You will be sharing with them the most important details of your life, so choose wisely.

In the challenges that you face in your life today, I wish you good luck. Though time can not be turned back, you can definitely start to find a solution today. Take a step now and claim your path to recovery.

N.B. ** If an agent who claims to be a short sale expert or loan modifier charges you an upfront fee, go the other way! Collecting upfront/advanced fees for loan modification and short sale representation is illegal and is sanctioned by the Department of Real Estate.

Rent or Buy?

I was reading the June/July Home Edition of Real Estate magazine, a California Association of Realtors (CAR) publication and found this article too good not to share. Entitled " Ask Yourself: Rent or Buy," the writer, Paula Hess, did a good job explaining that declining home prices has made the difference between renting vs owning, very significant. As compared to years past when home prices almost reached the sky and mortgage interest rates were high, now more than ever, the combination of low housing rates and prices has made it more appealing to buy, than rent.

Ms. Hess went further as to give a visual sample of savings on housing costs, as well as the tax benefits of home ownership, where property tax and mortgage interest rates are deductible. Surely, this presentation of savings should be able to tap on any renter's interest on owning right now while the market is favoring buyers.

If the mortgage on a property is lower than the monthly rent you are currently paying, a valid question to ask is, " Why not own right now?" Doesn’t it make sense to save and take pride in home ownership at the same time? So, if you are a renter, do ask yourself, buy or rent? I hope this article will start to let you seek the topic of home ownership further.

For a digital copy of this article, click on:

http://www.onlinedigitalpubs.com/publication/?i=40408&p=35

Happy reading!

Do It Yourself Home Loan Modification Tips

July 23-25 Asian Journal Weekend Edition

I get inquiries from homeowners who are thinking of doing home loan modifications themselves; some of them have already contacted their lenders, some are still thinking about it but are scared, while some are so dismayed with the long process and just abandoned the application altogether. For those homeowners who have braved it and took the chance, am sure it took a lot of sweat and second thoughts before you sat down and said, “ I will call my lender today.” If you did and you are currently waiting for a representative to return your call, great job! Whatever the outcome is, you would not know if you did not persist.

By now, you must have read up on Making Home Affordable Program, the government’s initiative to help challenged homeowners modify their existing loans. Your decision to undertake your own loan modification or seek the services of a qualified professional, will depend on your personal circumstance and beliefs. If you choose to do it yourself, there are general approaches to the loan modification process that you ought to be familiar with, even before you make that first contact. Here are some tips:

Tip # 1: Treat the phone call to your lender as if you are doing business and you are poised to be awarded a contract. Do not call while you are on errands! Find a quiet time to call. The phone number on your mortgage statement is a good place to start. However, when you call for the first time, you do not need to tell the first person you talk to, your life’s story. Ask to be connected directly to ‘ loss mitigation’, or, ‘ pre-foreclosure’, or whatever department is handling requests for loan modification for that lender. Tell the Level 1 customer service rep that you are looking to modify your loan. Be sure to ask for the direct number to that department, and yes, WRITE IT DOWN! Have a pencil and paper ready, because you will need to make note of the contact information of the person you will talk to in that particular department (loan modification). While you are at it and you are now talking to the correct person, ask for his/her supervisor’s name and contact information. This will come in handy in case the representative who is assisting you has fallen deaf to your calls and emails. You may not be lucky to obtain this, but, try.

Tip # 2: Document preparation is key. Before you make that call, collect all pertinent documentation and be ready to answer questions on the following:

1. Mortgage loan statement- including mortgage balance, monthly payment, current interest rate, second lienholders, any delinquent payments, & amount of delinquency; know the terms of your loan- is it fixed or adjusting, is there a balloon payment & a pre-payment penalty, are you paying interest only, etc etc.
2. Income & Asset information - paystubs, W2s, 1099s, tax returns, pension & benefits statement, retirement statements, benefit & award letters
3. Information on Subject Property – primary vs investment property, current value, purchase price, equity amount if any, sold comparables, listing history ( if currently listed in the market)
4. Financial Profile- recurring expenses, any hardship ( unemployment, pay cut, furlough), available assets

If your mortgage payment is more than 31% of your current income, the counselor will ask you the following: a) is the property ‘ owner occupied’ 1 to 4 units? b) is the loan amount less than $ 729,750? c) is there a change in income and expense that has made the mortgage payment unaffordable?

If the above questions are all positive, then the loan counselor may qualify you for a trial modification and send you paperwork to fill up.

Tip # 3: Be persistent but patient! You may be placed on long periods on hold, remember that these loan counselors deal with hundreds of challenged homeowners like you everyday. They could get grumpy and tired and could be rude at times. Do not lose your cool, but be diplomatic.

Any homeowner facing difficulty with mortgage payment is encouraged to apply for a loan modification. Though there are standard guidelines outlined thru Making Home Affordable, practices and implementation will differ from lender to lender. Not all lenders are participating in this streamlined effort, so, be ready if help is not extended. There are foreclosure alternatives available if home retention through loan modification cannot be realized.

If you need worksheets to help you simplify the documentation, contact me via email so I could send you copies of a Financial Information Worksheet. It is wise to have all these worksheets in front of you while speaking to a loan counselor.

Useful Websites for Homebuyers

July 16-18 2010 Asian Journal Weekend Edition
Realty Connect
By Jo Ann Israel

The internet has obviously become the number one resource for any homebuyer who is looking to purchase a property either for the first time, or moving up for better housing opportunities. As a professional realtor, I also do research in order to provide my clients quality information and be able to direct them to useful sites that will eventually help them decide where to purchase (location), how much home they can afford( mortgage prequalification), etc.

Doing your own research and identifying priorities are important in the homebuying process. Trimming down the list of ‘must haves from those nice to have but can be sacrificed’ will eventually help you narrow down your choices of homes to choose from. At the end of it all, where you buy and what you buy will depend on what you value most. Let me share with you some useful websites that can help you trim down that list.

www.Realtor.com - ranks # 1 when you type in ‘ real estate’ in Google. As the official website of NAR ( National Association of Realtors), this is the place to browse thru active and current listings of properties in your search area. Sign up for BUYER ASSIST- as you do so, the freshest and newest listings will be delivered to your inbox, according to your search requirements, for free. Save precious time!

www.Walkscore.com - this site has become the ‘walker’s homebuying guide.’ The site enables users to enter an address, calculate from that address the distance to amenities like restaurants, grocery stores, movie theatres & public transportation. Today, walkable neighborhoods are not only situated in city centers, new developments are organized around main streets with stores and restaurants, & the town center being just a couple of blocks away. If you cannot compromise walkability, this site will help you trim down your search area.

www.Meganslaw.ca.gov - this site lists all registered sex offenders by name, ZIP code, with detailed personal profile on each registrant. Megan’s Law Database Disclosure is now part of a real estate transaction and buyers are advised by sellers & brokers to check this website during the buyer’s inspection contingency period. It is wise to check this site early on as a guide for your selection of a city/area.

www.Zillow.com - boasts of its Zestimate, which pulls public data to determine the square footage of a property, number of beds & baths, lot size, year built. The website then integrates these information to determine the Zestimate of a property in a particular area. The site, however, is limited to what it can pull out of public records, it will not be able to compute additional value for extra features like an added patio with permit, or upgraded doors and windows. In the same way for buyers, zillow.com can show you the estimate price range of properties in your target zip code. This working knowledge of price range can help you narrow down your zip codes based on affordability, especially when you have already obtained a prequalification and you have determined your maximum loan amount.

www.Bankrate.com – If you don’t own a mortgage calculator, this website will calculate for principal and interest payable monthly. Just enter a purchase price, interest rate and mortgage term in years. Bankrate.com is also a good place to look at daily prevailing interest rates not only for home loans but for auto loans, credit cards etc.

Homebuying can be a satisfying and an enjoyable experience, if you know exactly what you want, need and can live with. Make use of the information online. Given the maximum loan amount you will qualify for & your monthly desired mortgage payment, be open to possibilities but be decisive on your priorities.

Engage the services of a professional Realtor, who will represent you solely. The services of a buyer’s agent is free and would not cost you a penny. Complement what you have come to know about homebuying with the actual and hands-on expertise of a Realtor who will guide you every step of the way.

The Concept of Rent to Own: LEASE OPTIONS

Today, I thought of writing on lease options, the concept of renting to own. A close friend of mine asked me about this potential pathway to home ownership, and after giving it some thought, I started to wonder if there are “real” deals out there right now where a seller can rent out a property and offer an option to the tenant to buy it, after a set number of months. Renting to own looks enticing, especially to those who can’t qualify for a home loan just yet; with tightening financing guidelines, the idea of renting for two years can buy a potential buyer some time until his/her finances are in place.

What are the features of a lease option? Here are some of them:

• The lease option contract, to be enforceable, must first be in writing
• The contract price for the property is set at the beginning, thereby, locking the price at the time of signing. Two contracts involved, the lease option contract and the Residential Purchase Agreement ( C.A.R- California Association of Realtors’ publication)
• The lease option contract determines the rental amount, the duration of the rental period, and the time when the option to purchase the property should be exercised by the tenant/buyer. These contractual elements are always negotiable between the two parties
• Buyer/tenant pays the landlord/seller an option money, much more like a security deposit, for the right to later purchase the property. This option money is usually non-refundable, whether the tenant/buyer exercises his right to purchase the property later, or not at all. This could be refundable, though, if specified under the terms of the contract.
• The rental money paid monthly does not form part of the purchase price, but if agreed by both parties, can be applied to the total amount negotiated.

So, if you are the landlord/seller, what’s in it for you?

Giving out a lease option will definitely attract not only your average renter, but, a serious buyer who is saving up money and getting his/her FICO scores into the 700 range so that he could obtain the best mortgage rate. Any tenant under a lease option will mostly stay because if they walk out, the option money walks away from them, too. These tenants will surely take care of your property since they have a vision of owning it anyway. Maintenance and vacancy issues are kept to a minimum, that’s for sure. Should the tenant/buyer decide not to exercise the option after the lease term expires, you keep the option money and move on to the next buyer/tenant. Lease options are actually one of the most used investing strategies employed by seasoned investors owning multiple properties.

If you are the tenant/buyer, what’s in it for you?

Under a lease option, no one but you has the right to purchase the property, after your lease term expires. You will be motivated to keep your finances intact because if you don’t exercise the option, you will just throw your option money away. Following the years after signing a lease option contract, you will be more responsible financially speaking, because of a future potential loss of money.

This market maybe tough for any ‘ regular’ seller to move his/her property given the number of short sales and bank owned properties out there right now. In the same way, strict financing guidelines are discouraging first time homebuyers from pursuing home ownership. The meeting of a motivated seller and a potential buyer on a piece of contract called lease option might just as well be the answer.

To answer the question I posed earlier if there are real, legitimate lease option deals out there right now in these challenging times, yes, there should be good ones, no matter how few.

Short Sale Fraud on the Rise: BEWARE!

Just a few days ago, a client whom I have represented in 2006 for the purchase of a property in Eagle Rock, called me and said that a ‘ real estate’ agent knocked on her door on a weekend and offered listing services. The agent said she knows my client was under water and that there was a Notice of Default filed against the property already. True enough, my client has not been able to pay her mortgage payments for the past 8 months due to her husband’s loss of employment. She is a nurse, yes, she is paid well, but without another mortgage helper, a monthly mortgage of $4,300 is not something she can sustain forever. So, she let the agent in and decided to give the presentation a try.

Apparently, what the agent has proposed is to let her list the property in the market as a short sale, along with a promise that she and the family can continue living in it as renters, because her investor client will put forward an offer to purchase the property and that they will negotiate for the approval of the short sale. My client cannot believe her luck! Could this be for real? For days on end, she has been sleepless thinking about her family’s housing predicament. “ How do I get approved for a rental if my credit history is screwed? Where do I seek help?” Should I just walk away and let foreclosure slip in?”

It sounded to good to be true- this agent’s offer to list her property and allow them to continue to occupy at a rental rate that is half of their mortgage. The agent was ready with the paperwork, and then, when it was time to sign, the agent asked my client to issue her a check for $ 2,500, a flat free transaction for the marketing and listing services that she will undertake for her. Then doubt sets in my client’s mind. Why is this person asking me for an upfront payment? Suddenly, she remembered me and the advise I gave her when she attempted a loan modification a few months back, and that is, never to pay anyone an up-front fee, before services are rendered.At that moment, she stood up, and politely refused the agent’s request for a check. She said that she will think about it and will call if ever she finds the need for her services.

My client’s call came in timely as I was reading a C.A.R ( California Association of Realtors) publication that the State Bar of California has issued a warning to the public that short sale fraud is on the rise, statewide speaking.In the advisory, homeowners, buyers, real estate agents/brokers and lenders are advised to watch our for red flags that could suggest fraud, including: 1) a negotiator working without a license; 2) up-front fees being collected without prior permission from the Department of Real Estate, 3) adding hidden fees for buyers to shoulder when placing an offer on a home, 4) misrepresenting market conditions and submitting offers on the property from an affiliated buyer ( which in my client’s case, the agent has a ready buyer, an “ affiliated investor”).

It is not hard to miss that my client could have fallen victim in the hands of this ‘ agent’, given the elements of the red flags mentioned above are evident in her deal. I am glad that my client did not go thru it and signed her future away.

I see a variation of titles being used by short sale negotiators today. Loss mitigation expert, debt negotiator, short sale processor, short sale coordinator- to name a few. However which way they approach you and introduce themselves, it is wise to ask them to show you an active DRE license. Any real estate practitioner should always carry one and must be readily available when asked. Also, ask how many short sale transactions they have facilitated. I always carry a current inventory report of closed sales just in case a potential client asks for it. It is now the resume I carry around these days. Be vigilant in your choice of a short sale agent, if you are considering to do a foreclosure alternative. Seek one who is not only licensed, but one who is knowledgeable, short sale certified, and ethical.

If you or someone you know encountered a short-sale related fraud, complaints can be filed by calling the Attorney General’s Office at (800) 952 5225 or file online at www.ag.ca.gov/consumers/general.php.