California Dual Tracking Ban

California’s “Homeowners’ Bill of Rights”, which became effective January 1, 2013, prohibits banks and mortgage servicers from “dual tracking” when a homeowner is pursuing an alternative to foreclosure.  However, the dual tracking prohibitions are quite different, depending on whether the homeowner is seeking a loan modification or if he is attempting a short sale.

Dual tracking is the practice by lenders of continuing the foreclosure process while at the same time negotiating with the borrower over a foreclosure alternative.  Regrettably, the real estate lore of recent years is replete with horror stories of foreclosures taking place within just a few days (or less) of the borrower being told that he has been approved for whatever foreclosure alternative he had been seeking.

So it is a good thing that the California legislature adopted bills that, among other significant measures, prohibited the practice of dual tracking.  But it is not so good that they treat loan modifications and short sales so differently.  In the case of the latter, the dual tracking prohibition is of considerably lesser value.

In the case of a loan modification, the servicer cannot record a notice of default or notice of sale, or conduct a trustee sale, if the borrower’s completed application for a loan modification is pending a decision.  To be sure, seasoned agents will notice that the application must be complete, and they will wonder how or when that will be determined.  There are also too many stories about various applications (both for loan modifications and for short sales) that were never complete because this or that document was missing.  Even though it had been sent numerous times.  At least, under the California legislation, there is now a procedural requirement that the receipt of documents be acknowledged. And there are other procedural rules that should help.

So, let us say that a loan modification application is complete.  At that point, the foreclosure process stops.  Moreover, if the application is denied – and it must be done so in writing – there is then a thirty-day period during which the borrower may appeal the decision.  No foreclosure activity may occur during that period either.

In short, a person who applies for a loan modification may, after a complete application is submitted, has a period of about sixty days during which no further foreclosure activity may take place.

What about the borrower who is attempting to accomplish a short sale?  The provisions are considerably different.

Unlike applying for a loan modification, when a borrower applies for a short sale the stop on foreclosure activity does not begin when the application is complete.  It doesn’t begin until the application has been approved, plus other requirements.

Not only must there be written approval from all lien holders (e.g. 1^st, 2^nd, and mortgage insurer, as applicable), but also “proof of funds or financing has been provided to the servicer.”

Now, in a good short sale, you might have 1^st and 2^nd lien holder approval within 45 – 60 days.  Of course it could be triple that.  Then, and only then, would the buyer be likely to engage in the actual process of applying for loan approval.  These days, that could be another 30 – 45 days.  So, not until both of those things had happened (roughly 75 – 105 days) would the stop provisions apply to foreclosure activity.  All of which is to say, a foreclosure could easily occur during the attempt to bring about a short sale.

California short sale sellers who are counting on the Homeowners’ Bill of Rights to give them a break from dual tracking should be aware of this.  So should their agents.

5 Tips for Sellers From Buyers

It is a rare occurrence these days to have a home’s buyer and seller sit down around the kitchen table to make a deal. In some areas, they do still sit around the attorney’s boardroom table to close the deal, but by that time, the deal is done and the ship has already sailed on any avoidable mistakes.

So in the vast majority of home sales, buyer and seller never connect in person, never talk, and never exchange insights or information except in the most formal, written formats - despite being effective business colleagues in one of the single most important transactions of their lives. And here’s the rub: buyers sit on a wealth of knowledge that sellers crave to know, most of which could be filed under how to attract buyers and make them want to buy a home (or at least, not turn them off).  So, since buyers and sellers can’t get together, allow me to reveal a handful of helpful insider insights that the buyers I’ve worked with and connected with over the years would reveal to sellers, if they could.

1.    You should see what your home looks like online.  No, really.  If you did your due diligence before listing your home for sale, met with agents and reviewed their marketing plan they use for their listings, chances are good that you chose an agent who takes online marketing very seriously and said as much during your listing interview. But somehow, there are still hundreds of listings in every major city that receive a failing grade on their online presence, once the home has actually been listed.  

Every day, online listings are activated on Trulia and all across the real estate web with:

• only one or two pictures
• no pictures at all
• multiple photos that represent the home very poorly or show it in its worst light, in terms of the shots selected and included in the listing (e.g., photos focusing on the dumpster in front of the house, or the messy breakfast dishes on the table), or
• listing descriptions that bemuse us buyers, but would befuddle and even anger the homeowner, like the homes whose descriptions start off with the attention grabbing: “This place is a mess!”

Sometimes, there’s just a glitch along the production chain that it takes to get a property marketed; other times, there’s an actual error in judgment that took place. But it’s free for you, seller, to hop online and just do a quick audit of the way your home is represented in the same listings, virtual tours, and property websites that buyers will see.  And it’s often the only way these glitches will get caught, brought to the agent’s attention and rectified.  So you should.

2.    If your home is seriously overpriced, I’ll wait for the price to come down before I even come see it.  You might be thinking the best plan of action is to list your home high, planning on the fact that prospective buyers will want to bargain the price down. And, in fact, this might be true for your area - your agent can brief you on what the standard negotiation practices in your neck of the woods are, and you two can then work together to factor them into your pricing strategy.  

That said, even in an area where homes generally go for below-asking, buyers are willing to do some basic negotiation. They are not, generally, interested in correcting a seller’s belief system about their home and its value that are clearly not based in the realm of reality.  That seems daunting and like too much work to do - as well, there are so many properties to see, and buyers have to invest so much time, energy and emotion in making an offer, they don’t like to do that in cases where the seller’s list price is so bizarrely above-market that the chances of coming to a meeting of the minds about price are slim.

If your home is dramatically overpriced, compared to the others in the area or compared to it’s market price range, most serious home buyers in the market for a home like yours will either (a) never come see it, because it doesn’t show up in the price range they are searching online, or (b) not come see it unless and until you drop the price, because it simply isn’t worth their time and energy until you correct your pricing into the realm of the realistic.

3.    There are a whole lot of fish in the sea - I only have to find one.  Agents and mortgage brokers talk to buyers a whole lot about compromising, and what they can expect on the market as a whole, and such. But my reality is this: home buyers are not in the business of market analysis.  They are in the business of finding a home.  Only. One. Home. 

Yes, ultimately, every buyer has to make some compromises. No home is perfect, and every person who buys a home eventually gets that. But even in a heating market like the one we’re in right now, there are lots of homes coming onto the market every single day. Any given buyer only has to find one that works for them. To buy your house - any house - that buyer really does need to feel inspired by it enough to feel like it could work for their family, their needs and their life as their home.  

If you take shortcuts when it comes to primping and prepping your home for the market, it becomes super obvious to buyers when they scrutinize it, even if it’s really priced well.  On the other hand, the homes that were well cared for, prepared and priced shine above the others, at every price point.

4.    If I nitpick your house, that probably means I like it.  Every buyer’s broker has a horrific moment, at some point in their career, where they realize their buyer has been trash talking a home - its nasty wallpaper, vomitrocious carpet, silly stylistic choices, etc. and so forth - and the home’s seller has managed to overhear this diatribe.  The pool boy who was at the property turns out to be the seller’s son, the sellers turn out to have been next door or in the basement through the entire showing, or the teddy bear-cum-Nanny Cam has advanced audio capabilities.

Here’s why this horrifies buyer’s agents: the buyer that goes to all that trouble to dissect precisely what they would do differently if a given house belonged to them is a buyer who is thinking about making an offer on that very house.

The more questions, critiques, nitpicks, “What I would do’s” and such a buyer rattles off about a home, the more likely they are to make an offer on it.  Of course, the occasional curmudgeonly amateur designer likes to just rip other’s decor choices apart for the fun of it, but many otherwise lovely individuals do this when they get serious about a home as part of the exercise of visualizing the property as theirs, and envisioning themselves, their families and their stuff in it.  This is how buyers take a place that might not be perfectly move-in ready for them, and figure out how they might be able to make it work.

So if you happen to overhear a nitpicky buyer dissecting your home and verbally tearing down walls or ripping up carpet, don’t despair.  They might simply be mentally “trying on” your home as their home.

5.    When it comes to staging, the bar is high. Really high.  HGTV. Houzz. Architectural Digest. All these outlets which constantly publish beautifully designed and decorated homes have influenced what the average American expects their home to look like - and yours, for that matter.  Additionally, all the do-it-yourself publications and shows along with the advent of home improvement stores which double as DIY design emporiums have given everyday people of modest means the power to live in beautiful and functional homes, without breaking the bank.  

Beyond all this, professional home staging has taken off in recent years, as data has repeatedly shown that staged homes sell faster, for more, and more certainly than homes that are not staged, nor well-prepared by their owners.  So not only is your home competing with the homes buyers are seeing on TV and in the magazines, it is also competing with professionally staged homes for sale right in your own neighborhood - homes that the very buyers who will come to see your home will also have seen, possibly right before or after they view yours!

So, if you want to and can afford to have your home staged, do.  If you can’t, you should still take the preparation of your home very seriously, and include your agent or a stager you hire for an hour of advice in the process, taking their input on things like:

• what furniture to get rid of
• which improvements will get you the most bang for your buck with local buyers
• and what paint, flooring and other finish materials will appeal to the broadest buyer segment in your area.  

These pros often also have contacts with local handypeople, painters, landscapers and other vendors who can get your home ready for market in a time and cost-efficient manner.

Low Supply Points to Price Increases of 5-10% In 2013

The low supply of housing stock recently reported is giving Capital Economics reason to believe home price forecasts under 5 percent are actually conservative estimates.

Realtors in December expected prices to rise by about 3.5 percent over the next year, while consumer estimates were more modest at 2.5 percent for the same time period, the analytics firm noted in its monthly housing report. The estimates show a growing optimism among those groups.

For example, in March 2012, Realtors expected prices to rise by about 2.5 percent and consumers projected a 1 percent increase, according to a chart in the report.

But, with the low supply of inventory, Capital Economics anticipates much bigger gains. Recently, the National Association of Realtors reported existing home sales in December fell to a 4.4 month supply, the lowest level since May 2005, while the new home sales report from the Census Bureau/HUD says there is a 4.9 month supply of homes for sale.

“At face value, the 4.9 the months’ supply of unsold stock currently on the market in December points to house prices rising by as much as 10% y/y. For now, our forecast is for a 5% rise during 2013,” wrote Paul Diggle in the report.

The tightening in supply is not expected to continue, however. Capital Economics says it expects to see a rebound in housing starts and for the number of willing sellers to rise, which means inventory will hit a bottom soon.

The firm also noted the three major house prices indices— Case-Shiller, FHFA, and CoreLogic —posted yearly price gains at around 5 percent and as high as 7.4 percent in November.

Winter Season Slows Home Price Gains

National home prices continued to post strong yearly gains in January as lower-priced homes drove activity in the housing market, according to a report from Clear Capital. At the same time, prices showed signs of weakening on a quarterly basis.

On a national level, January home prices increased 5.4 percent from a year ago, but inched up by just 0.9 percent on a quarterly basis, the data provider reported.

Out of the four regions, the West maintained its lead with yearly gains and quarterly gains of 12.9 percent and 2.1 percent, respectively. As prices rise and REO saturation decreases (the portion of REO sales relative to total sales), Clear Capital expects price trends to moderate. Over the years, REO saturation has fallen in the West from the peak of 52.5 percent in March 2009 to 17.2 percent.

The remaining regions all saw yearly gains, with the South experiencing a 4.5 percent improvement in prices, followed by 2.7 percent in the Midwest and 2.4 percent in the Northeast. However, prices were flat on a quarterly basis in the three regions: South (+0.7 percent), Northeast (+0.6 percent), and Midwest (+0.2 percent).

Dr. Alex Villacorta, director of research and analytics at Clear Capital, explained the softened quarterly gains suggest “the budding recovery is not immune to the slower winter season.”

“What remains to be seen is if home prices will continue to rise, or remain stable through the winter. Regardless of what trends play out in the near term, we expect home prices to continue on a positive trajectory long term,” he added.

Clear Capital pointed to the low tier priced segment as the “main driving force in markets across the U.S.,” more specifically, homes that sell for $102,000 and less. According to the report, many of these lower-priced homes are REOs, which are attractive to both investors and buyers.

“REO sales continue to make an impact on the overall health and recovery of the housing market,” the data provided stated.

On a national level, the REO saturation rate has fallen from the March 2009 peak of 41 percent to 18.4 percent in January.

After measuring price trends in metro areas, Clear Capital noted one surprising occurrence-no Florida metros made the top 15 list for price growth.

“On a more micro level, Florida metros, namely Miami, Orlando, Tampa, and Jacksonville, were all missing from the top 15 performing market list. Since September 2011, at least one of these markets made the list,” said Villacorta. “While this isn’t confirmation that the recovery is finished in the sunshine state, it’s certainly something to keep an eye on.”

On average, metros on the top 15 list registered yearly gains of 13.4 percent, well above the national average, but reported quarterly gains under 5 percent. Six of the top 15 metros were in California.

Top Five Markets
(Based on quarterly gains)

1. Atlanta (+3.2 percent)
2. Phoenix (+3.0 percent)
3. San Jose (3.0 percent)
4. Las Vegas (2.9 percent)
5. Birmingham (+2.7 percent)