NOD Filings Plummet!

Did the market suddenly move from 50+ Notices of Default filed per day to 3? Is the market miraculously fixed overnight?

I was at a meeting this week where we were discussing the market, foreclosures and Notices of Default.

Up until September 6th, NODs were being filed at a rate above 50 per day and sometimes hovering around the 100 per day mark. September 9th there were 3 NODs filed.

We were trying to figure out this huge drop off in NOD filings. We came up with all sorts of ideas ranging from the fannie/freddie take over, changing market, etc. but it all boils down to recent legislation that makes it harder to foreclose on a borrower in default.

SB1137 is legislation that requires lenders to give the consumer an extra 30-day notification prior to filing the NOD. The lender is now required to meet with the defaulter in person or via the phone to "explore options" to avoid foreclosure. Loans originated 2002 and earlier do not have the 30-day requirement and could proceed with their NOD filing. Using the 3 filings vs the 50/day prior minimum, 94% of the loans in trouble were originated post 2002.

I have mixed emotions about SB1137. On one hand, I like to see lenders working with borrowers in default. On the other hand, lenders have [mostly] realized that foreclosing on a borrower is MUCH more costly than working something out. Even Fannie and Freddie recently issued a press release basically saying that they were actively working on loan modifications wherever possible. Lastly, the crisis that we are having is one of liquidity. Loans are more and more difficult to get, even with big downs and good credit. If California makes it more difficult for the lender to get their money back, no one will be lending here. Not a good idea given the current climate.

I have heard of properties selling 3-4 times because of problems with loans. Have you heard of or experienced this? Do tell!

More About Short Sales

I have a friend, in the middle of a divorce, that's liquidating everything. Unfortunately, his investment property, that he bought for appreciation, was underwater and he asked me to help him sell it.

It started off like any listing; here's where we should price it, I'll put a sign out front, is there a tenant there now? This is where it starts to get interesting. His soon-to-be-ex has been living in the property with her new boyfriend and oh-by-the-way she hasn't paid the mortgage for six months! Crap!

I took the information and started getting in touch with everyone; the almost-ex, the lenders, the Home Owner's Association. The ex was civil to me. The lenders passed me back and forth and the HOA never called back.

This went on for a few months before the mortgage meltdown hit. The few buyers that were in the market couldn't get financing now and the number of sales dropped 75%. The Seller and I sat down to have a heart to heart. The only people buying right now are sharks looking for blood in the water, you aren't getting any money out of this property anyway, let's get this thing sold before it's a REO. He agreed to a DRASTIC price reduction and we got an offer within two weeks.

This is where the real work begins. We had submitted short sale packages to the lenders showing the Sellers insolvency and the market conditions for the subject property. The lenders had done their own valuations and their appraisal came in 10% higher than our sales price. I worked and negotiated and reasoned with both lenders for a month before lender #1 refused to take a short payoff.

Then the Notice of Sale was posted. Now I had great ammunition for lender #2; if you work with me you'll get some money back, if you don't you'll lose it all.

They finally saw my point and agreed to the shortsale - after reducing my commission and if you can get it done in 10 days - including the holiday.

I was pissed about the commission. I feel like I have been working twice as hard on this as any other listing and now my paycheck is a revenue source! When I calmed down I realized the truth is I have been blessed with lots of great clients that have gone overboard to get me a commission. Now, here is a buddy that needs my help, so I conceeded.

We got the Seller signed off, loan docs in title and then the payoff came in. We were $1500 short to close - and we were 4 days from sale.

I went back to the second lender, begged for their help, and got them to take care of the shortage. The new lien recorded, the payoffs were sent and my client won't have a foreclosure showing up on his credit report for the next 15 years.

It's a lot of work, you never know if it's going to fall into place or not and you don't get paid well. Welcome to real estate.

How to Buy a Short Sale

Being in California, I have had very little exposure to foreclosures - until the last few months. Now it seems like everyone I run into needs help selling the home that they owe too much on.

I remember the pyramid schemes of the 70s, if you were in first you got your money back. If you were a late adopter, you got the privelege of paying the early adopters. This translates over to real estate of these last few years as the stragglers finally jumped on the bandwagon just as it was going off the cliff.

So, in a short sale, the owner owes more than s/he can sell it for.

As the Realtor®, I get to market and sell the property as usual, then I get to negotiate with the overwhelmed bank for 2-4 weeks only to get a proposal back from the bank either accepting or rejecting the offer. And, oh by the way, the bank often thinks the realtor commissions are a profit center for them so, I get paid poorly or not at all.

Why would any business person deal with this kind of sale? Simple, I do it for my clients. As the buyer agent, we can negotiate some rockin deals. As the Selling agent, I have a client that is in trouble and I am much more skilled at negotiating a decent resolution that the client/owner.