Tenants in Foreclosed Homes

Effective immediately, an REO lender or buyer who acquires title through a foreclosure sale must give at least a 90-day notice to terminate a tenant as defined. A 90-day notice to terminate is sufficient for a month-to-month tenant or if a new owner will occupy the property as a primary residence at the end of the 90 days. Otherwise, a tenant with a one year or other fixed-term lease with a remaining lease term exceeding 90 days can stay in the premises until the remaining lease term ends. This new 90-day notice requirement applies to foreclosures of a federally-related mortgage loan or residential real property, except for properties under rent control, rent-subsidized programs (such as Section 8), or other state laws that provide additional protections for tenants. This law expires on December 31, 2012.
Speaking of state laws, there is a bill pending in Sacramento about this very situation.
AB 603 (Price) Statewide "Just Cause" for REO Property - This bill would prohibit anyone who acquires foreclosed rental property from terminating a tenancy unless the new owner has owned the property for a minimum of one year or can demonstrate a "just cause" (e.g., non-payment of rent, etc.) for the eviction. AB 603 would apply to ANY property that is being leased by a tenant prior to the completion of the foreclosure proceedings, and includes single-family detached homes, condominiums, cooperatives, duplexes, apartments and townhomes. The provisions in AB 603 would sunset January 1, 2013. The California Association of Realtors opposes this bill because it will create a disincentive for ANY buyer to purchase an REO home, and will only serve to further delay the recovery of California's housing market.

Be Careful Out There

A notice came a couple of days ago from my manager:
One of our agents was holding an open house at Seven Springs last weekend and suddenly her purse was missing. She called the police and while they were at the house taking her statement the officers got a call from a different agent at another open house, whose purse had also been stolen. The owners of the Seven Springs property later found our agent’s purse behind a couch. Fortunately she had kept her wallet in her car. The likely suspects are a pair of women, one of whom appears to be pregnant. They spent a great deal of time in the house. Just a word of caution!
This morning at the Realtors' meeting, the second agent who was robbed added to the story. She told us that there were actually two couples involved...the two women and two men, also. While one woman kept her busy talking about the market to a "potential buyer," the others were probably busy themselves, taking the wallet out of her purse. She later had a call from her credit card carrier asking about a string of purchases at the Mountain View Target store.
I had heard about people taking expensive shoes from the front of the "Shoes off, please" houses. This is a new one. I always tuck my purse away in a cabinet, but I suppose I'll have to lock it in the car.

When Your Home Loan is Tranferred

I remember years ago when our home loan was sold several times, and we had to look at the payment stubs to find out our present lender's name.
The Truth in Lending Act now requires a lender to whom a mortgage loan is sold or transferred to notify the borrower in writing within 30 days. The notice must include the new lender's identity, address, telephone number, authorized representative's contact information, and other relevant information. This measure should help alleviate the problem borrowers often face in determining who owns their mortgage loans.
Other provisions of the Helping Families Save Their Homes Act include a 4-year extension of the $250,000 FDIC deposit insurance to December 31, 2013.
There is also a new law called the Fraud Enforcement and Recovery Act (FERA) which authorizes the Department of Justice to prosecute mortgage fraud crimes against private mortgage brokers and companies that previously were not regulated by the federal government. FERA also earmarks almost $500 million for federal enforcement agencies to investigate and prosecute mortgage fraud and other fraud crimes.

Expensive Houses are Selling, Too!

Most of the news lately has been about sales at the entry level, where multiple offers are becoming the norm. The median price, although increasing slightly in April over March in the Bay Area, had previously been falling due to the heavy activity in foreclosures at the low end. It's important to contrast this with what we're seeing at the branch office level at the other end of the market. Here is an incomplete list of some of our Coldwell Banker Bay Area closings just this past week:
$7+ Million – Atherton
$5+ Million – Portola Valley
$4.8 Million – San Francisco
$3.2 Million – Santa Rosa
$3 Million – Hillsborough
$2.9 Million - San Francisco
$2.9 Million - Belvedere
$2.6 Million – Los Altos
$2.2 Million - Menlo Park
$2 Million - Los Altos
$2 Million – Monterey
...and many more in the $1 to $2 Million range
You won’t likely be reading about this activity in the local newspapers, because their focus is elsewhere. Besides these recent closings, nearly every office is reporting ratified offers and new Pending Sales in the higher end in the past week or so, which is not what we were seeing a few months ago. I can't call this a trend yet, but it's nice to see strong activity and confidence in the high end.

Housing Affordability Highest in 18 Years

For quite a while, I’ve been saying that this is one of the best times to buy a home in decades. This week the National Association of Realtors underscored that fact –stating that nationwide housing affordability jumped 10 percentage points during the first quarter of 2009 to its highest level since the series began 18 years ago, according to the National Association of Home Builders/Wells Fargo Housing Opportunity Index (HOI). The HOI showed that 72.5% of all new and existing US homes sold in the first quarter of 2009 were affordable to families earning the national median income of $64,000, up from 62.4% during the previous quarter and up from 53.8%during the first quarter of 2008.
Locally, the story is even more dramatic. In the San Francisco-Peninsula area, 32% of all new and existing homes sold in the first quarter of 2009 were considered affordable to families earning the area’s median income of $96,800. That’s up 60% from the previous quarter and up an incredible 146% from a year ago, when the index was only 13%... one of the lowest affordability ratios in the United States.

Identity Matters

I met my seller today to sign off on his escrow that will be closing next week. One of the papers was the Preliminary Title Report, and he was one of only a few sellers lately who didn't have to fill out a statement of information for the Title Company beforehand, probably because both his first and last names are unusual. There are often judgements and liens that show up in a search that do not belong to the owner, but to someone else with the same or similar name. This identity affidavit can clear up any errors that may "cloud" the title. Even when the owner is the correct party, there may be a lien that has been paid but not cleared from the property record, and by submitting the paperwork early, last minute problems can be avoided.

Progress in Cupertino

Last week, Cupertino Economic Development Director Kelly Kline returned to our tour meeting and gave SILVAR members a brief update on commercial and residential development in the city.
There’s lots of good news about Cupertino, according to Kline. She noted Forbes magazine ranked Cupertino fifth among the top 25 best towns in which to live. Not surprising, she said, for a city with a population of 54,000 people, over 150 restaurants at last count, and a surprising amount of development activity in light of the current economic situation. Another piece of good news is the city is fiscally healthy and one of a few that is operating without a deficit for now.
“We have weathered the storm better than most cities,” said Kline.
Kline also said office vacancy is at 12 percent, one of the lowest in Silicon Valley. She explained the number looks more troubling than it really is because of two new buildings, “but everything is fairly under control.”
The 17-acre “Main Street Cupertino” project proposed by Sand Hill Properties at Stevens Creek and Finch Avenue has been approved for retail/commercial use, office space, an athletic club, senior housing, a .75 acre park and a 5-story hotel at the corner of De Anza and Alves. New stores in Cupertino include Staples office supplies, the Marukai Japanese grocery store, the organic store Yogi House, Cupertino Square’s international food court and the Visual Performing Arts Center in De Anza College. More good news is Apple Inc. continues to purchase land for its campus and lease new buildings to accommodate its work force.
Kline said while the future of the Vallco Mall is still on hold due to pending court cases, the AMC 16 Theater is doing quite well and among the top 10 of 81 theaters in the Bay Area.

When is a House Really Sold?

An important mandate in our Realtor training is that all offers must be presented.
But the activity on recent bank-owned properties has been such that agents are beginning to cut off offer receipt after a certain point...either refusing to look at more offers (as they did on a recent area 11 listing priced under %299,000 which had 70 offers before they decided that enough was enough)...or changing the MLS status to "pending sale" even before an offer is accepted.
An important point to remember is that there is a fiduciary duty to the owner, whether it is an individual seller or a bank, and that an unreviewed offer might be better than those already seen, either in price or terms. This activity is such a blatant disregard for our code of ethics that the Association of Realtors will probably fine the agents.

Weekly Market Update

The rash of activity and multiple offers in our Cupertino office is not unique. Good news is beginning to permeate the local market.
Our San Jose Almaden office reports all 10 sales this last week were distressed properties; mostly REOs (bank owned). Many of these are receiving 10-25 offers. Banks are jamming the list prices down in an effort to stimulate activity, and it's working. Those properties are often selling at 20% or more above asking price.
The buyers seem to be a lot more comfortable in taking the step into home buying, and our open houses are very busy with a lot of traffic as well. Listings are slowing and sales are increasing, although most multiple offer sales are occurring in the lower price range. Agents are now challenged with the lack of inventory for the first time in a long while.
In short, it seems buyers are finally starting to get the sense that now is a good time to buy and that if they wait, they may lose out on one of the best times in California history to purchase real estate. Now, if we could just get more listings. Do we sound like we are never satisfied? Oh well, what a difference a year makes!

Whole House Fans and Energy Conservation

I attended a meeting on Sunday, and despite the nearly record-setting temperatures, the house was pleasantly cool. I thanked our hostess for having the AC running, and she explained that it was only her attic fan.
Coincidentally, I had a recent email from Mr. Handyman on the subject:

That hole in the ceiling for the fan comes in handy in the summer when you want the hotter air in your home to rise into the attic and then vent to the outside. The purpose of the fan is to move the hotter air up into the attic (and bring the cooler air in from outside) faster. They are all great at doing this.
But.... Many whole house fan manufacturers don't mention that for some makes and models the hole in your ceiling stays open all winter, while you are spending money having your heating system heat your inside air. It's like having an open window in your ceiling all winter.
That is why when shopping for a whole house fan, you should be very concerned with how well they seal up when they're not turned on. If they don't seal up, move onto another make and model. If you need to add something to make them seal up (some makes and models have accessory insulating covers), he also suggests that you move on, because in the autumn, you might forget where you stashed the cover.
His favorite is the AirScape series from HVACquick.com, precisely because they seal up very well. If you prefer Tamarack Fans, stick to the HV-1000 or the HV-1600 lines.
Every little bit of energy conservation helps,

Maybe Short Sales Won't be so Impossible Now

The level of stress and frustration seen in many of my colleagues is directly proportionate to the number of short sales they attempt, and the number of REO (bank-owned property) multiple offers they are involved in for clients. So far, I have managed to avoid the fray.
But yesterday, the Obama administration announced a Financial Incentives and Uniform Process for Short Sales, with new incentives and uniform procedures for short sales under its new Foreclosure Alternatives Program (FAP), part of the administration’s Making Home Affordable plan.
Loan servicers may now consider short sales or deeds-in-lieu of foreclosure for borrowers who do not qualify to have their loans modified on a permanent basis under the Making Home Affordable Loan Modification Program.
Borrowers/homeowners qualify under the FAP if they meet minimum eligibility requirements for the Home Affordable Modification program, but don’t qualify for a modification or do not successfully complete the three-month trial period. Before proceeding with a foreclosure, servicers must determine if a short sale is appropriate.
Incentives include: $1,000 for servicers for successful completion of a short sale or deed-in-lieu of foreclosure; $1,500 for borrowers/homeowners to help with relocation expenses; and up to $1,000 toward the cost of paying junior lien holders to release their liens (one dollar from the government for every $2 paid by the investors to the second lien holders).
The program will include streamlined and standardized documents, including a Short Sale Agreement and an Offer Acceptance Letter. The goal is to minimize complexity and increase use of the short sale option.
Servicers will independently establish both property value and minimum acceptable net return, in accordance with investor requirements. The price may be determined based on an appraisal or one or more broker price opinions (BPOs), issued no more than 120 days before the date of the short sale agreement.
In the Short Sale Agreement, servicers must give borrowers/homeowners at least 90 days to market and sell the property, or up to one year, depending on market conditions. Property must be listed with a licensed real estate professional with experience in the neighborhood. No foreclosure may take place during the marketing period (at least 90 days) specified in the Short Sale Agreement.
The Short Sale Agreement must specify the reasonable and customary real estate commissions and costs that may be deducted from the sales price. The servicer must agree not to negotiate a lower commission after an offer has been received.
Servicers may not charge fees to borrowers/homeowners for participating in the FAP.
The program is in effect through 2012.
With a mass of defaults coming up....this should help.

Strange Additions Delay a Sale

I showed a house today that had a poorly done addition. It was a shame, because the home was located on a pleasant street in an excellent school district. The original three bedrooms and two bathrooms were in good condition...in fact, the kitchen and both bathrooms had been remodeled, and the rooms were all spacious. But the owner had added another bedroom (or perhaps a large study) along with a third full bathroom to the front of the house. Even though quality materials were used, I very much doubt that an architect was consulted. The entry hall was long, strange, and dreary, even with the addition of several skylights, and what had been the exterior of the house was on one side, including a kitchen window, which now faced the hallway instead of a garden. The addition was located on the right of the entry door, followed by this same hallway, which led to double doors that opened into a large dining room. None of this showed in the MLS photos.
The original house would have sold right away, but this configuration will be a hard sell.

When Will the Sunnyvale Downtown Be Finished?

How sad that the Sunnyvale Redevelopment Project is yet another victim of the current economic situation. Sand Hill Properties and project developer Peter Pau, are now saying that Wachovia, the bank that financed the first stage of the project, is refusing to come through with loans for the next phase.
At this point, the only construction that is happening is Sand Hill's portion of the Target project. The store has a planned reopening in November of this year. But the 110,000 square feet of tenant improvements (projected for December) and the 40,000 of additional retail(scheduled for March of 2010) are on hold...and only a miracle, or some benefit from the government stimulus effort, can save our new downtown.

Open Houses on Mothers' Day, and the Market

I was in Palo Alto for Mothers' Day brunch with my family, and was amazed by the number of Open House signs in every street corner as I drove home that afternoon. The inventory is really building in that city if there are so many homes open on a holiday. It was a different story in Sunnyvale and Cupertino where the inventory remains unusually low for this time of year, and multiple offers are becoming more frequent.
But it’s one thing for me to talk about a recovering market and it’s another when even the most pessimistic analysts are doing the same. Many of our offices are reporting similar stories, and as I talk with other agents, I’m hearing the same scenario: the market is heating up. The window of opportunity has been open and it has been inviting buyers in for months. With the speed that buyers are responding today, it may not be open long. Will there be people years from now who say “Why didn’t I buy more real estate in 2009?”

Federal Loan Modifications Expanded to Second Mortgages

Last week, the U.S. Treasury Department announced the expansion of the Making Home Affordable Program to help reduce payments on second mortgages. According to the Treasury Department, as many as 50 percent of all at-risk borrowers have second mortgages. Under the second lien effort, if the servicer starts a modification on the first mortgage, participating servicers will automatically reduce payment on the second lien in accordance to complex, but uniform, criteria. Servicers may even erase the second loan in exchange for a lump sum payment.
Homeowners now have the ability to submit questions to the Administration's housing team. Members of the Treasury and HUD staffs will periodically select commonly asked questions and post responses on MakingHomeAffordable.gov. To submit a question, homeowners can visit www.MakingHomeAffordable.gov/feedback.html. Selected questions from homeowners across the country and responses from the Administration will be available at www.MakingHomeAffordable.gov/asked-and-answered.html.

When in Doubt, call the School Board

We had our annual Homeowner Association meeting last night in the townhouse complex where I live. I sell quite a few units here, and was surprised to hear that the area had been redistricted, and a handful of buildings that had previously been in one school district (Cupertino) were now in another district (Sunnyvale.) Prior to this a street had been the divider between the two districts, but now we will need to check a map to see which townhouses are in what district. The present owners are "grandfathered in." and their children can stay in their current schools. Very confusing.
I questioned Dr. Benjamin Picard, the new Superintendent of the Sunnyvale School District, who spoke at our Realtors' meeting this morning, and he explained that these units had been taxed as if they were in the Sunnyvale district all along, and the error was recently found. He strongly recommended that we as Realtors double check the schools where any home for sale is located by calling the school district. Considering the impact that schools have on property values in our area...that's a good idea.

New Scam on Craigslist

One of our agents was called by clients who saw that a house he had listed for sale was in the Rentals Section of Craigslist. Not only was it advertised as a rental, (which it wasn't) but the monthly rental was only $950, with an equivalent deposit.
Wow! A real bargain if it weren't a total scam, considering that the house was over
2000 square feet and in a top school district. This is the second tome that he has had this happen with one of his listings, and even though he removed the ads, I wonder how many people fall for the "send me the deposit and rental agreement, and I will send you the keys" line. More local money headed to Nigeria from unsuspecting victims.

Favorable Signs in Many Markets

Last week I reported on positive indicators in the first-time home buyer market. New mortgage applications for home purchases and refinances were up 77 percent from the same week in April 2008. Mortgage rates continue to average well below 5 percent – 4.7 percent last week on average for 30-year fixed rate loans and 4.5 percent for 15 year loans. Rates like these are a major factor pushing applications. Nearly 600,000 home buyers have already claimed either the $7,500 tax credit from last year or the $8,000 credit for this year, according to IRS data cited by the National Association of Home Builders.
Statewide, CAR reported improvement in both sales numbers and median price. March existing home sales were up 64% from prior year, and median price had the first month-over-month increase since August of 2007. California’s inventory of unsold homes also fell in March to five months, down from 12.2 months in March 2008, making March ‘09 a three year low for existing inventory.
Our Cupertino De Anza office reports the highest number of pending sales for a single week in the last several years. I don't want to jinx anything, but things are looking up in Silicon Valley!
It seems that everyone is wondering if we have actually reached bottom...in terms of price declines. In South County the inventory of "very affordable" homes is shrinking quickly. Investors and first timers have swooped in and bought most of them. It would seem that prices are stabilizing (at least at the lower-end).
All in all, it seems it was a great week in SF Bay Real Estate – good activity in all price points.

Slow Leaks Can Become Very Costly

We walked through a home for sale today in which the property inspection had showed moisture under the house...not surprising with all the rain we've had recently. It certainly warrants further inspection. These leaks may seem (or even be) minor right now, but when left unattended lead to expensive repairs down the road. Over the years we've seen this over and over. A $300 repair four years ago would have eliminated a $6,000 repair now.
When you find water in the house where there shouldn't be any, take care of it now while it's still a small repair. If you look at it as an investment, fixing small leaks early has an return on investment of a few thousand percent.

What Will the New Appraisal Regs Mean to Home Buyers?

This year is shaping up to be a great opportunity for buyers to get into the market or even to become a move up buyer if possible. Home values are down, interest rates are low, loan limits are up, and therefore affordability is the best it has been in 10 years or so.
There have been many changes in the loan process, but the appraisal rulings that took affect on May 1st may be some of the biggest. Now all lenders (bankers, brokers, direct lenders, etc.) are required to adhere to the HVCC (Home Valuation Code of Conduct). This new requirement is going to change the way they do their business and how they order and manage the appraisal process.
First of all, a mortgage professional can no longer contact an appraiser directly to order an appraisal, coordinate an appraisal, or even ask about comps. All appraisals must be ordered through a "centralized" appraisal management system. Once the appraisal request with all required documentation is completed, the buyer then receives an e-mail and is required to pay for the appraisal by credit card. This must be done prior to the actual appraisal order being completed. Once this is done, the appraisal order can be placed with an appraiser from a list of local appraisers. The turn-around time for to receive the completed appraisal is about seven days from payment.
It will be very challenging in the future to have any appraisal contingencies which are less than 10 days and any financing contingencies which are less than 14-17 days.

Buying An Investment in This Real Estate Market

If you're thinking about buying your first real estate investment, there's good news. There are lots of good deals out there. But even if a deal looks too good to resist, you need to be sure you have a firm understanding of the two significant elements that determine profitability: cash flow and return on investment (ROI). Otherwise, it's very easy to misjudge just how profitable the property will be.
Realtor Magazine explains it simply.
Cash flow is extremely important because it dictates whether the investment will cost you out-of-pocket money or put money back in your pocket on a monthly basis. To determine monthly cash flow, you must consider all expenses related to the property and then subtract this from the revenue being generated.
Finding the obvious expenses is pretty easy, but you may have to do some digging to uncover the not-so-obvious expenses. These line items are real and can significantly impact your monthly cash flow, so don’t leave anything out. They can include:
Vacancy-rate impact*Replacement equipment*Maintenance*Advertising*Tenant repairs*Late Payments
After you subtract all expenses from the revenue, you’ll know whether you’ll be making money or paying money. You may ask yourself: Why would I involve myself in an investment that is going to cost me out-of-pocket money? This brings us to the next important variable when evaluating your real estate investment decision: return on investment (ROI).
First, the technical definition: the rate of return based on an initial investment that generates a cash annuity for a specified time period...in plain English: ROI is basically the money going out (including your initial investment) banked against the cash flow that the property will generate in a given amount of time. This creates a net cash flow stream, and your return percent is calculated off of this figure.
Keep in mind that when compiling these cash flows, you must include all expenses related to the property, and the revenue stream must include all monetary benefits derived from it as well. ROI is heavily determined by the initial investment, because that is most likely the largest cash outlay related to the investment. All other variables held constant within the same scenario dictate that the bigger the down payment, the less return you will have on the investment.
So a new question emerges: If my return is less, why would I put a larger amount down? You must consider the trade-off between the amount of the down payment and the monthly cash flow. The more you put down, the more likely you are to have a positive cash flow — the investment paying you dividends. (and lenders are requiring larger down payments on investment properties, anyway.) There is a fine balance between cash flow and ROI. Depending on your current and future financial goals, you can determine the best scenario that suits your needs.
Whether your goal is to generate an annuity stream, prepare for retirement or create a college fund, real estate investments can be an excellent place for your money, if you do it right. With interest rates at record lows, profitable inventory and opportunities throughout the nation, it may be time for you to invest in property.