Neighbors Helping Neighbors

With so many homeowners facing financial challenges these days and the threat of foreclosure, good Samaritans in communities around the country are stepping forward to help.

An article in the Chicago Tribune, distributed by RISMedia provides examples from around the country of community groups and individuals that are volunteering to personally visit homeowners who are behind on their mortgage payment and offer assistance in preparing the paperwork necessary to obtain loan modifications. According to the article an “estimated 3.2 million delinquent borrowers nationally that may be eligible for a mortgage modification under the federal government’s Home Affordable Modification Program”.

In a similar effort, Bank of America is enlisting community minded homeowners in Chicago to counsel their neighbors who are delinquent in their mortgage payments to seek loan modifications. Bank of America reportedly has an estimated 990,000 home loans in danger of default nationally.

Could a program of this nature work in the Chico area? Perhaps a local civic group, fraternal organization or church group could mobilize to the cause, or maybe adjacent homeowners – concerned with the well-being of their neighbors and the declining neighborhood home values that come with nearby foreclosures could be affective in helping.

What is House Flipping and Will it Work in Chico?

The term house flipping conjures up images of a judo move, but actually the pejorative term applies to the practice of buying a home at a low price and quickly reselling it at a higher, profit making price. House flipping is in the news right now as the conditions for it are ideal…for those who have cash and some courage!

Conditions are perfect for house flipping because of the high rate of distressed properties available. While pre-foreclosure and bank owned properties can be flipped for a profit, the competition for them is usually intense, which can drive the price up just enough to make them to risky for flippers. The flippers dream is foreclosures, those homes that are sold by auction, often on the steps of the county courthouse (as is the case in Butte County). Here is where the real deals are had. Because the auctions require cash or immediate proof of it’s availability, the competition is greatly reduced. Those with ready funds can often buy foreclosed homes for pennies-on-the-dollar, leaving lot’s of upside when they go to resell.

Buying foreclosures is risky business though. To be successful buyers must carefully research the property they will be bidding on for unseen liens and easements that can come back to make the property unprofitable or unsellable. They should also inspect the property physically for defects and possible repair costs. Potential buyers should work with a Realtor to get the most relevant ‘comparable sales prices’ for similar properties, so they have a clear picture of what price they will have to put on it to resell it quickly, and a real estate agent can help assure the property receives the proper marketing to flip it in the shortest amount of time.

With proper research, preparation, cash and nerves…and the help of a Realtor, houses can be flipped as profitably in Chico as anywhere in the country!

Realtors Give Regularly

When you go to your doctor do you ever ask him to discount his fee? How about your attorney? CPA? Your child’s teacher?

Have any of these professionals volunteered to help you with costs associated to their services? Does the doctor ever offer to pay for part of your prescription? Your CPA help you pay your taxes?

Enter your friendly Chico Realtor. Like your doctor, attorney or CPA your professional Realtor runs a small business. We have professional and association dues, continuing education costs, advertising bills, office fees and more. Each agent or office sets their commission based in part on what their expenses are. An agents commission gets divided up many different ways, generally every commission: 1. is split 50/50 between the buyers and sellers agent 2. is split again between the agent and their broker 3. has franchise fees, title company fees and errors and omissions insurance deducted from it. and 4. pays back advertising costs, vehicle expenses, professional dues and other costs.

Unlike other professionals Realtors are often asked to reduce their fee by their customers. Depending on the situation Realtors sometimes give up a part of their income to help make a transaction work for their clients. More often they assist by helping either the buyer or seller with some of the costs associated with selling or buying a home, like paying for an inspection or a repair. These contributions come directly out of the Realtors household income.

Realtors representing buyers often spend weeks and months showing their clients homes. Sometimes these clients end up either not buying or not using their agent to buy a home in the end. In cases like this the agent has worked long hours for no pay.

To better appreciate how generous Realtors are, try asking any other small business person if they will give you 20% off their advertised price, or only charge you if they win your case or cure your illness… And Realtors never make you wait in the exam room for a half an hour!

Cash at Close For Repairs?

Just this week while representing a buyer I ‘re’learned a lesson about repairs. My buyer is purchasing a resale south Chico home using an FHA loan. We have completed our inspections and, while the home is basically sound there is one troubling area of potential problem – the Heating/Air Conditioning unit is about 26 years old and (according to the inspectors report) this type of unit has a normal life expectancy of about 20 years. The inspector said we should be concerned about hairline cracks that develop allowing dangerous gases to permeate the house!

No problem thought I, we’ll ask the seller (in this case it is a bank owned property) to provide us with a ‘credit’ or ‘rebate’ for repairs, which the buyer will use to make the repairs once they take possession of the house….WHOOPS! The other agent quickly stated his belief that to rebate funds to the buyer is “illegal”. While I can find no evidence that to do so would be illegal the reality is that most lenders do not allow money for repairs to be paid to the buyers at the close of escrow. The FHA goes further in stating that any conditions affecting the ‘Safety, security or soundness’ dictate that “appropriately registered/licensed trades person, as applicable, must provide documentation that all deficiencies have been acceptably corrected upon completion of repairs”. And those repairs must be completed before the loan is funded aka close of escrow.

The reasons for this is are understandable: 1. the lender doesn’t want to know that the house has problems, cut a check to the buyer to fix it and find out later that the money was used for a trip to Hawaii! and/or 2. the lender wants to know that the buyer has used all of their own funds (or approved gift funds) for the down payment and closing costs and is not using the repair rebate money to pay back a loan shark that lent them the money for their down payment (thus increasing the buyers monthly obligations).

Sooo… back to the conference room to draw up a differently worded request – this time we will probably ask the seller to pay for a new Heat-A/C unit to be installed prior to the close!

A Home For The Holidays?

According to the National Association of Realtors as reported by RISMEDIA “existing home sales rose again in November 2009 as first-time buyers rushed to close sales before the original November 30 deadline for the recently extended and expanded tax credit”.

In Chico however the strong jump in sales occurred in September and October, while November sales actually declined slightly. We’ll have December’s figures for the Chico area in early January.

On a nationwide basis existing home sales–including single-family, townhomes, condominiums and co-ops– rose 7.4% to a seasonally adjusted annual rate of 6.54 million units in November from 6.09 million in October, and are 44.1% higher than the 4.54 million-unit pace in November 2008. Current sales remain at the highest level since February 2007 when they hit 6.55 million.

Lawrence Yun, NAR chief economist, attributes the healthy sales to the homebuyers tax credit “This clearly is a rush of first-time buyers not wanting to miss out on the tax credit, but there are many more potential buyers who can enter the market in the months ahead,” Yun notes that the extended (through April 30, 2010) and expanded (to include existing and prior home owners) tax credits should have a similar effect on 2010. “We expect a temporary sales drop while buying activity ramps up for another surge in the spring when buyers take advantage of the expanded tax credit, which hopefully will take us into a self-sustaining market in the second half of 2010. In all, 4.4 million households are expected to claim the tax credit before it expires and balance should be restored to the housing sector with inventories continuing to decline.”

Walking the Walk in Chico

One of the newest trends to emerge in residential real estate development in recent years is the concept of ‘walkable neighborhoods’ aka “homes located within walking distance of amenities such as schools, parks and shopping”.

Here in the Chico area New Urban Builders has been methodically educating home buyers on the advantages of so-called new urbanism. Doe Mill Neighborhood, built in the early 2000’s near 20th Street and Bruce Road surprised those accustomed to sprawling acre plus ranchettes by quickly selling out block after block of craftsman styled homes on small lots with front porches, narrow streets and almost no yards!

The developers much anticipated Meriam Park Project, on hold until current economic conditions improve, continues the evolution of ‘walkability’, envisioning a “range of housing types, sizes and prices, a mix of civic and commercial uses, and a network of connected slow-speed streets”.

As a fringe benefit to the lifestyle advantages that this sort of neighborhood provides, there is evidence that this type of development will also lead to higher resale home values later on when it comes time to sell. According to Amy Hoak of MarketWatch as reported on MSN.com, homes in walkable neighborhoods are “worth more than homes in neighborhoods where driving is the rule”.

According to a report entitled “Walking the Walk: How Walkability Raises Housing Values in U.S. Cities," which looked at 94,000 real-estate transactions in 15 markets, higher levels of "walkability" were directly linked to higher home values in 13 of the 15.

How to Fight a High Property Tax Assessment in Butte County.

Depending on how long you’ve owned your home you may find yourself with a tax assessment that is significantly lower, or significantly higher than it’s current value.

If it is lower, thank 1970’s tax crusader Howard Jarvis, relentless promoter of Proposition 13. Prop. 13 limits the amount your property taxes can adjust upward to a maximum 0f 2% per year, even if property values are appreciating at 18% a year as they did between 2000 and 2006. If you purchased your home before those years, chances are it is still assessed at less than it’s current value.

If on the other hand your property tax assessment is higher, it is probably because you bought your home during those same ‘boom years’. The property was reassessed when you bought it AT the purchase price. Now that values have dropped steeply you need to check your tax bill and find out whether the county assessor has decreased the assessment of the value of your home. If not - you can asked that it be reduced and challenge the assessment if the county will not agree to your request.

The following is from the Butte County website:
“The property taxes you pay are based on your property's assessed values as determined by the County Assessor. If you disagree with the Assessor's value, you can appeal that value to the Assessment Appeals Board. Assessment Appeals are filed with the Clerk of the Board.
Prior to filing a formal appeal, you are encouraged to talk to the staff at the County Assessor's Office (530) 538-7721. The Assessor's Office can explain to you your assessed value, answer questions you may have about the assessment, and review additional information you may have to support your appeal. Often a disputed assessment can be resolved prior to filing an appeal. If you cannot reach agreement with the Assessor's Office, you may obtain an Application for Changed Assessment from the Clerk of the Board's Office by calling 530-538-7631.
The Assessment Appeals Board is an independent entity, separate from the Assessor's Office. Appeals Boards can lower or raise a property's assessed value, remove penalties imposed by the Assessor's Office, and/or reverse a change in ownership or new construction assessment. The Assessment Appeals Board cannot reduce your property's assessed value based on what your neighbors are paying for their taxes, remove penalties and interest for late payment of taxes, reduce taxes based on ability to pay, fix the tax rate, levy taxes, change tax rates, grant or deny exemptions, extend filing periods or rehear an issue already ruled upon.
The State Board of Equalization has prepared a pamphlet which details the Assessment Appeals process. You can view that publication at http://www.boe.ca.gov/proptaxes/pdf/pub30.pdf.
You can also view a video developed by the State Board of Equalization to provide information to taxpayers reagrding the appeals process at the following link: http://www.boe.ca.gov/info/AssessmentVideo/AppealAssessmentIndex.html
Should you have any additional questions, please contact the Assessor's Office or the Clerk of the Board's Office at the numbers listed above, or email the Clerk's Office at kmoghannam@buttecounty.net”

$44,000 Tax Assessment Increase in One Year?!

It would have Howard Jarvis turning in his grave! But that’s just what happened to a friend of mine that I spoke with this morning. She had just returned from a hearing of the Butte County Assessment Appeals Board. Her property assessment was raised $44,000 in one year, supposedly due to the in-ground pool she had put in her yard.

As far as she is concerned there are a couple of problems with this scenario: 1. Prop 13 dictates that no increase in property tax in excess of 2% may be levied from year to year. 2. Although the pool cost $44,000 to construct, sales data demonstrates that the market value of the house is only increased by perhaps 10-20% of the cost of adding the pool (pools are a poor investment if your goal is increasing your homes value, but that’s a topic for another day) .

The board it seems had a different way of looking at it. They wanted to know the actual current value of the home, which in this case is perhaps $100,000 or more in excess of the assessment. Is their reasoning based on Article XIII-A, which (from the Butte County Website) “requires the Assessor to reappraise all property at its full market value when any of the following occurs:

A change in ownership (with some exclusions).
New construction is completed.
New construction is partially completed on the lien date.”

The explanation of the county’s obligations under Prop 13 goes on to state “As long as there is no new construction or change in title, the base value is not increased more than 2% annually, regardless of the rate of inflation.”

Who is right? The three member Assessment Appeals Board has not rendered a final judgement in this case yet – stay tuned for the outcome.

Up next: How to appeal your tax assessment

How do Real Estate Agents Help in a Short Sale?

If a defaulting borrower feels that they have exhausted their options for keeping the home (loan counseling, loan modification, etc.) and are looking for a way to divest themselves of the property without the major blow to their credit that a foreclosure brings, short-sale may be a less damaging method. Borrowers often find the red-tape of dealing with a financial institution a daunting and frustrating process. A real estate agent can help by knowing and speaking the ‘language’ of the lender, and can often successfully mediate a satisfactory compromise between the lender(s), the borrower and a new buyer that will allow the home to be sold prior to foreclosure.

As part of the process the lender will likely want to know that the property has been actively listed for sale on a Multiple Listing Service, and that there was an opportunity for showings. At some point they will require a Brokers Price Opinion (BPO) from a real estate agent who works in the area where the home is listed (though likely not the agent that has the home listed or who has submitted an offer on the home). The lender will also require a third party authorization, to allow the listing real estate agent to speak on behalf of the borrower in representing an offer. Some real estate agents prefer to hire a professional negotiator to assist them in presenting their case for the short-sale price to the lender.

If there is a second mortgage, like the City of Chico example in my last post, the real estate agent works with both lenders, and the lenders with each other to see if a compromise is possible. Typically when a short-sale is successful the holder of the first mortgage gets the majority of the available money from the sale to offset their loss, the second mortgage lender gets only a very nominal portion of what they’re owed and the real estate agent collects a commission for the work they’ve done in putting the sale together. If the holder of the first is receiving an amount within their parameters for loss they will normally give the deal their blessing, if the amount is insufficient they may let the real estate agent know what the minimum amount they will take is, or they may reject the offer outright and foreclose. If the lender ‘counters’ the price the agent must go back to the buyer (or buyers agent) and attempt to negotiate a higher offer amount. In the case of a second mortgage the mortgage holder is in a weak negotiating position and may have to agree to a very minimal return. If they reject the amount offered they can ‘kill’ the sale and allow it to be foreclosed, in which case they can try to purchase the home and resell it themselves or they can allow it to be foreclosed upon and lose all of the money they’ve invested. When possible, the real estate agent attempts to mediate a settlement that has buy-in from the second mortgage lender.

In some cases lenders may be able to go after the borrower personally in an attempt to recoup some of their loss after the foreclosure.

Anatomy of a City of Chico Short-Sale

Here are the factors that have lead up to one of the short-sale proposals facing the City of Chico Mortgage Subsidy Program (MSP). The homeowners name has been changed for this account.

-Sue (the buyer/borrower) paid top price for the home during a period of depreciating home prices – home was immediately worth less than purchase price.

-MSP loaned money in the form of a second mortgage on the home.

-Sue miscalculated her personal budget and ability to repay. Sue became late on a number of accounts and incurred fees and penalties which exacerbated her ability to repay mortgage loans.

-Already depreciating home prices suffered a steep decline.

-Sue goes deeper in debt, unable to find a solution to multiple past due mortgage payments and penalties.

-Sue consults with a real estate agent (me) for alternatives to foreclosure. I ask Sue if she has explored credit counseling, or loan modification. Sue feels all options have been exhausted. For the purpose of salvaging some of Sue’s credit I suggest a short-sale as a possible alternative to foreclosure.

-Home is listed as a ‘short-sale’ offering at or slightly below the current market value – in this case significantly under the original purchase price (about the same amount that was loaned by the City).

-Within 2 weeks a contract to purchase is secured with a new buyer.

-I contact the first and second mortgage holders and provide a 30 page ‘short-sale’ package that includes a copy of the new offer-to- purchase, a copy of the listing contract an explanation letter from the borrower, paycheck stubs, tax statements and other documentation of income and expenses to both.

-City of Chico Housing and Neighborhood Services Department schedules review of the proposal for late January.

What comes next?

Both the first and second (MSP) will seek a second opinion on the market value of the home. Based on that opinion, the first and second mortgage holders will negotiate with each other to determine how the funds from the sale would be divided – typically the first mortgage holder will offer the second a ‘token’ of what they are owed (1-2% of what they loaned). Based on the amount of the offer and how the split is negotiated, mortgage holders will decide whether to accept the short-sale offering or foreclose. As second mortgage holders the Chico MSP options in the case of foreclosure are 1.) to hope that the home sells on the steps of the county courthouse for more than what the first mortgage holder is owed OR 2.) to pay off the first mortgage and take title to the home. The City would then own a home worth significantly less than they just paid for it.

To be continued…

Short Sales Strike City Subsidy Program

The specter of foreclosures reared it’s head in Chico this week as the City of Chico Mortgage Subsidy Program (TMP) was presented it’s first default scenario… unfortunately not the last they’ll encounter.

The TMP is a well intentioned and popular program that in recent years has assisted numerous first time buyers of homes within the city limits of Chico in obtaining no-to-low interest second mortgages to help in dealing with upward spiraling entry level home prices. The program, administered by the Chico Housing and Neighborhood Services Department has been so popular in fact that it was recently discontinued as a result of all of the available funds having been loaned out. The first-blow to the program came on Monday of this week as the committee overseeing the program was presented with a ‘short-sale’ proposal from a defaulting home-owner.

Short-sales are a procedure designed to prevent foreclosure. Whereas foreclosure means that all loans other than the first mortgage are wiped out as the bank acquires the home and create a long-lasting credit hit for the borrower, a short-sale allows the home-owner to attempt to sell the home prior to the foreclosure (usually with the help of a real estate agent), saving the first mortgage lender the cost and risk of taking back the property, offering the chance of some return for second mortgage holders, and salvaging some of the borrowers credit.

At issue in regards to the TMP is the question of ‘some return for second mortgage holders’. With home prices depreciated by as much as 50% in some areas, when it comes time to sell the home there is not enough value to even fully repay the first, let alone ‘some’ funds leftover for the second. This second-place is the unsavory position that the TMP now finds itself in.

Options for the City are few. If the Home is foreclosed upon the City can pay off the first mortgage and take possession of the home, hoping to re-sell it and recoup some it’s investment, but this is a very risky proposition. The City will have costs involved in the purchase of the home, The City will find itself in the home ownership business and there is no guarantee that the City will be able to find another buyer for the home willing to pay more than the City itself has purchased it for. If, on the other hand, a ‘short-sale’ occurs the price may very well be so low that the City receives either nothing or only a token repayment.

Monday’s meeting focused on the first of at least two short-sale proposals before the city. The first scenario involves a $30,000 loan, the second, scheduled for consideration in late January for $50,000.

To be continued.

A Warming Trend No Matter How You Slice it.

Another way to slice up Chico Home sales statistics for the last 2 years is by Supply and Demand.

Clearly listing inventory (homes listed as available to purchase) dropped significantly in November, to the lowest level in 6 months. While seasonal factors (holidays, weather) may have contributed to the decrease in available listings, certainly the (mostly) steadily increased ‘under contract’s and ‘solds’ since February of 2009 has contributed to the depletion. June, July, September and October of this year saw especially energetic sales.

The longer view also suggests a warming trend for the real estate market. In November of 2007 there were 658 homes for sale in the Chico area with only 59 under contract. In the same month this year 67 homes were under contract while there were far fewer homes to choose from at 499.

As Days on Market Decrease - Prices Increase

A logical extension of the previous bar chart showing reduced time on the market is a corresponding increase in median sales price. The same increased demand that leads to homes being purchased sooner means that demand is up…as demand increases so does competition for the best deals. Competition equals multiple offers (in the entry level price range) and multiple offers drive up price. As this chart shows, the median price for a home in December rose nearly $20,000 over the preceding 3 months - to approximately $270,000.

In September I listed a 3 bedroom, 2 bath home on Ceres Avenue for $215,000. Within two weeks we had three offers. The competition among buyers drove the price up to what the market would bear - $222,000 with $1,500 in seller concessions. The home closed in app. 45 days.

If you’re considering selling your home allow me to assist you with a pricing and marketing strategy that will get you the best possible price for your home. If you’re looking to buy let me help you get the jump on the competition by providing you with immediate information on newly listed homes the moment they become available.

A Bar-Chart is Worth a Thousand Words

After three months of increased market time for Chico area homes to sell, ‘Days on Market’ (DOM) plummeted in November, 2009. This is a departure from the normal pattern of a holiday season slow-down in November as seen in the November 2008 DOM.

Indicative of a the success of the First Time Home Buyer Tax Credit? increased consumer confidence? or a general turn-around in housing sales? Only time will tell…

I'm on the road this week - more recent sales stats to come!

Is There Any Special Home Financing Available to me as a ?

This question was posed to me by a young firefighter considering using the $6500 Federal ‘existing homeowner tax credit’ to purchase his second home.

If you fall into any of a multitude of State or public agencies the answer is YES! According to Wikipedia: The California Public Employees' Retirement System (CalPERS) is an agency in the California executive branch that "manages pension and health benefits for more than 1.6 million California public employees, retirees, and their families”

The types of employees covered include California state agencies and universities, counties, cities, towns, special districts, auxiliary agencies, fire districts, and other government entities, school districts, national guard and more.

In addition to managing retirement savings for it’s members, CalPERS also has a home loan program. These loans feature a number of advantages over standard loans including controlled closing costs, reduced processing fees, discounted mortgage insurance, discounted title and escrow fees, free interest rate locks and more! Plus the CalPERS loan allows employees to borrow the money from their retirement for their down payment to reduce up-front costs.

If you work for a California or public agency and wonder if you can take advantage of all of the benefits of the CalPERS loan program, please call me today!