The Ohio Prompt Notification of Short Sales Act may seem like a dream come true, but be careful what you wish for. Rather than a knight in shining armor, we may be getting a squire in aluminum foil riding a donkey instead of a stallion.

Foreclosure may be less common in recent months, but the frustration level among home owners who are upside down on their loans has not subsided, and a lengthy short sales process fuels the frustration. The Prompt Notification of Short Sales Act proposes that when the bank receives a contract on a short sale, they are required to respond within 75 days. That sounds great but it misses the boat.

If this type of legislation goes through, it is not going to suddenly make the bank feel pressured to make a determination that will allow more short sales to close in a shorter amount of time. On that 74^th day, the bank is going to realize that they have not processed your short sale contract yet. The bank would much rather send you a denial letter cancelling your short sale, rather than violate the 75-day deadline; instant denial, without even getting to know you. Ouch. This is what banks have done in the past, and this is what they will do again.

In April 2011 a similar legislation was proposed in Congress, with a deadline of 45 days instead of the currently proposed 75 days. This was presented in the House, but that legislation never made it out of the committee. Once the laughter faded, it was never heard of again. People may get excited about a possible answer to our pleas, but there has not been a law proposed or enacted that actually works.

The biggest problem with the short sales process is the length of time it takes to process the sale, but legislating a deadline for banks is no real answer. The biggest issue with the length of time a short sale requires is that the buyer usually walks away before the bank responds, and right now it is taking about 4 to 6 months for a short sale approval. Unfortunately, buyers do not have that kind of time. Who does? There are simply so many short sales waiting to be approved, that with the current system, the bank cannot possibly get to them all in a timely fashion. Lohan will easily be on to her next act of public disgrace before you have the opportunity to sell your home.

In Closing –

This may not be the star you want to waste your wishes on. There is only one true answer to this predicament: banks need to equip themselves with the necessary staff within their mitigation departments to speed up the process. We are crossing our fingers in hope that the banks will realize that they can’t possibly own every property in the neighborhood; they have enough foreclosures on their hands right now. They need to wake up to the need for short sales, because this new legislation is not going to get us anywhere. Even criminal offenders have the right to a speedy trial.

Scott Stevenson

These houses are like a treadmill in a McDonald’s – useless. When a bank is forced to foreclose on a property, the ejected residents sometimes take out their frustration on the home, damaging the property prior to departing. Empty homes are targets for vagrants and squatters; banks end up with homes that sit empty, deteriorating, valued at less than what is owed to them. These distressed properties don’t just hurt the banks; they hurt everyone who lives in the same neighborhood whose property values are impacted by the eyesore.

For the do-it-yourselfer, now might be a great time to consider investing in one of these properties, especially now that the real estate market seems to be regaining a bit of its former buoyancy. And banks, realizing the conundrum of being responsible for so much property, are starting to get creative, to avoid more foreclosures and more bank-owned properties.

Did you know that it costs a bank $32,000 to foreclose on a home? Many times, the amount owed to the bank in back payments by the home owner is less than the cost of foreclosing on it. Why would a bank want to spend $32,000 to take something they don’t want? Lenders are racking their brains to come up with ways in which they don’t actually have to own any real estate and thus be responsible for selling it, offering more lenient refinancing or an adjustment of payment terms.

If you have been struggling to make your mortgage payments but you haven’t moved out yet, the bank might try and work out an arrangement, such as a lease, that will benefit you both.  Instead of walking away from the property or going through foreclosure, banks are allowing property owners to lease the property for a period of time.  It is a win-win situation: banks are not being straddled with additional homes they can’t maintain or sell, and homeowners can normally get better payments, avoid destroying credit, and have the ability stay in the home and neighborhood.

In Closing  -

Banks have far too many properties. Their focus is shifting to finding ways to avoid becoming the owner of even more properties, using creative ways to keep properties in the hands of the people who are most likely to take care of them – the people who live there. Distressed properties may seem like a handful, but they can be the stress reliever that a home owner’s been looking for.

Scott Stevenson

—     Clint Black

Clint Black was singing about autumn changes, but there are changes in the air that are putting me at ease right now. The warming trend in temperatures this winter seems to have brought a warming trend to the Ohio housing market. The first quarter of this year has given me reason to believe that the housing market is starting to turn.

Last year Ohio weathered one of the most dismal first quarters I have experienced in this business, with almost no activity in real estate until mid-way through the year. But based on the data I’m seeing now, the market is over the hump. One of the early indicators that I’m seeing in Ohio is a change in lending.

For the past few years investors have been sitting on the sidelines while their money is making paltry returns of a half percent or two percent maximum. These investors who are looking for a better rate of return are setting their sights on real estate in central Ohio and are finally seeing opportunity. What is most encouraging is that the financial institutions are following suit. I am seeing small banks from other parts of the state support investors and lending large sums of money to purchase and renovate property.  Ohio real estate is being valued as a good return on investment because the property can be bought at a low price with cash to spare for renovations and increasing re-sale value. The prices are also attractive for start-up businesses looking for commercial rental space.

This is how the change starts, with large commercial investors putting money into Ohio housing. This money is what will help the market and our economy rebound. This is the environment we’ve been waiting to see. And it’s not just me who is seeing this change in lending and interpreting it as a positive signal; people in other parts of the country are looking at central Ohio and sensing a good opportunity in real estate.

In Closing –

We are starting to see the light at the end of the tunnel. What we’re seeing in the lending market is the beginning of a rebound in the real estate market. As the market returns, I hope to see a slow and steady growth. What the market can’t handle is a sudden sharp spike in investing; we’ve seen in the past where that leads. If real estate in Ohio continues on this path of slow growth, we’ll see an impact ripple through the economy.

Scott Stevenson

It’s the same reasoning when you refinance your home. Many people see a lower interest rate and lower payment and think it’s going to cause the heavens to open up, but if they would check the math they’d see it’s not heaven that’s opening.

Don’t worry, it doesn’t take Einstein and a super computer to figure out if refinancing is right for you. A quick overview can keep you from packing on those financial pounds from a refinance.  The primary reason people want to refinance their loan is because they want to save money – either immediately or in the long run, through a lower monthly payment or a shorter term on the loan.

Most people like the idea of having the lower payment and keeping that extra $100 or $200 a month in their pocket. That’s a few tanks of gas…or the way things are going, almost a tank of gas…each month.  But before you go signing on the dotted line, you need to find out how much the total price of the loan is actually going to cost you.

Banks, like salad dressing makers, may try to load the loan with as many tasty, but unhealthy, ingredients as possible. You can’t look at the math if you don’t have all the information, so ask the bank for a good faith estimate. It requires a bank, within 24 hours of meeting with them, to provide you with a  written estimate that shows you your interest rate, monthly payment, whether there is mortgage insurance required, the terms of the loan, plus the estimated costs that the bank needs to guarantee will be the same, or near the same, when you show up at the closing table.

After taking a look at the numbers and comparing them to the current rates, both long and short term, your decision needs to be based on how long you plan to stay in the home.

If you are planning on selling the home in the next 2 or 3 years, then there is little chance you’re going to get your money’s worth on the refinance. If you plan on being in that house for a few decades, then you’ll definitely work off all of those refinancing pounds.

In Closing -

Interest rates are still very low, and it’s enticing people to try to lose those extra mortgage pounds through refinancing. You need to take a look at your situation before and after the new rates to see if refinance is worth it. Dropping some of those extra mortgage pounds may sound easy, but you need to do some research and calculations before going on any type of financial diet.

Scott Stevenson

Before the CFPB began coordinating the efforts of HUD, with the treasury department and other agencies, borrowers had no simple way to compare terms from different lenders. All of the banks had their own forms. They each had a different way of defining costs so they disclosed estimated costs differently. Even the government found it impossible to compare one bank’s estimate to another’s. The new standardized form enables you to request a good faith estimate from multiple lenders, and banks are required to provide these estimates within 24 hours. Then you can lay the forms side by side and compare them apples to apples.

To give you confidence in moving forward with a lender, you should know that there are rules the banks are required to follow when putting together good faith estimates. Estimated costs must include the interest rate and monthly payments. For a set period of time, certain sections of the form are guaranteed. Other sections can be adjusted by up to 10%, but the banks must inform you of these changes before you sit down at the closing table. This process breaks down fees so you can fully comprehend what you’re signing.

If you’re looking to refinance or purchase a home, I encourage you to shop around. Go to multiple local banks and request a good faith estimate. Banks are allowed to charge a nominal fee of about $25 to provide the estimate, but most of them don’t because they’re more interested in doing long term business with you. They’ll then check your credit and other financials in order to create the estimate. Once you have these forms in hand, review them section by section. A client of mine recently saved over $1000 because he compared Good Faith forms and went with the lowest title insurance cost.

In closing -

The Good Faith form was standardized so you can get the best rates out there. It surprises me to hear people saying they chose a lender because they’ve worked with them before. While it may seem easier to stick with a lender you already have a history with, taking a few days to shop and request good faith estimates from multiple lenders will help you make sure you’re getting the best offer around.

Scott Stevenson

Convenient parking, convenient locations, convenience foods — who doesn’t love convenience?

(Yeah, OK, maybe the Church Lady on old episodes of “Saturday Night Live”: “Well, isn’t that conveeeeenient?” But guess what? She’s fictional).

It’s no surprise, then, that our desire for convenience has led to, among other things, the one-stop shopping experience and products being provided by affiliated businesses. And it’s spread to the real estate industry as well. Nowadays, it’s not unusual for borrowers to get calls from their banks saying, “We already have your information, you’ve been pre-approved for a streamlined refinance, and we have an in-house title company here for your convenience. All you have to do is come in and sign your papers, and you’ll get a lower interest rate.”

Now, I don’t have a problem with the concept of affiliated businesses, but what I am concerned about is cost. Is there an actual savings by going through these big banks’ streamlined refinance processes? More specifically, do consumers save money letting a bank’s in-house title company handle their closing and title insurance?

The answer is an unqualified maybe. It really depends on where you are. See, the problem with these big banks is that they’re operating on a national level rather than a local one.

For example, a previous client of ours who had purchased his home through us was contacted recently by one of the big lenders asking if he’d like to refinance and get a lower interest rate. The refinance would be very streamlined, he was offered an attractive new rate, and he liked what he saw on his Good Faith Estimate (which you definitely want to take a look at). But then he noticed that the title company would be charging a little over $2,000 for closing costs. He gave me a call to find out what Northwest Title would charge. I ran the numbers, and it turned out our costs would be $1,000 less.

Why is that? Well, nationally, $2,000 going toward a title insurance company may be a very reasonable fee. But locally here in Columbus it’s not. The amount they were charging for the streamlined closing and title work was not really in line with what people are paying here in central Ohio.

Besides the fees, I also feel that service is a little bit better on the local level. I think going through one of these national groups tends to take longer, and they’re not as concerned about doing what’s right for the customer.

In closing -

The first and most important thing borrowers need to know is that they have the right to choose who handles their closing and title insurance, whether it’s for a refinance or a purchase. That’s what my former client did in the earlier example — he shopped around. You have every right in the world to do this, and I would definitely suggest that people check among their local title companies to find the best deal possible.

Otherwise, you just may be throwing your money away — like buying time in a bottle.

Scott Stevenson

 It’s all the evidence I need that we’re coming out of the housing slump in central Ohio; you can just feel it. We’re so confident that we’re looking to hire 2-3 people this quarter, something we haven’t done in a very long time.

Realtors we work with are reporting good news too, things like 20 people attending an open house where only two or three came through the year before. Another good sign is for the last few years real estate agents have taken their listings off the MLS after Thanksgiving and not put them back until late January or early February. Business was that slow. Not so this year. Sales have been that good.

It’s unlike anything I’ve seen and a lot of it is due to the pent up demand in people who have been sitting on the fence. They’ve probably had the resources and the desire to buy a home, but were waiting to see how low prices and interest rates went before they started looking. I think it was the thirty year fixed rate interest under 4% that convinced them. I haven’t seen that since, well I can’t remember when. That and the increased availability of jobs.

It’s just not local to the Columbus market either. A February 27, 2012 Associated Press article reported that the number of Americans who signed contracts for homes rose in January to the highest level in nearly two years, and that sales of previously occupied homes are at their highest level since May 2010. The article also pointed out that the supply of homes fell last month to its lowest point in nearly seven years. That usually pushes home prices higher, which is all the more reason to buy now.

In closing -

We’re not totally out of the woods, but there is evidence that the local and national housing market is healing. It’s a slow process that will take a lot more than one good quarter or year. With unemployment above 8% and the constant drum beat of weak job growth, many potential buyers are hesitant despite the recent reports of increased hiring. Couple that with new lending rules for larger down payments and stronger credit scores to qualify and you have built-in constraint. But I’ll take the good-news sign as welcome relief from a dismal 2011 and hope for the best. I hope you will too!

Scott Stevenson

A few weeks ago, I got an urgent fax from one of my dad’s neighbors saying, “Your house has been broken into. You need to come down here, and hurry.” It turns out they were actually talking about a rental property of my dad’s, and since he was away on vacation, the neighbor had contacted me.

I met a police officer at the house, which is currently vacant, and he determined that somebody had broken a window and probably accessed it a couple times already. Then the officer told me, “You’re lucky. Normally, we see them go through a window like this and then they rip out all the copper pipes and anything of value and carry it all out the back door.”

After filing a report, I found somebody to fix the window, went to get some lunch, then returned to the property to meet the repairman. When I pulled into the driveway, though, I realized there was a guy in the street, sitting in his car, just kind of checking me out. All of a sudden, he gets on the phone, and I actually see him do a couple lines of cocaine in his car. I’m thinking, “Oh, great. Dennis Hopper’s going to jump out of the car and accost me.” Then it dawned on me: That dude is staking out this house.

He stayed for about 10 minutes, looking sort of nonchalant, then finally left. Later I saw him driving in the alley behind the house, and after that I saw another group of three guys in a car, circling and checking me out.

All I could think was, “Holy cow. I think I just stopped them from breaking into the house and finishing the job.”

In closing -

While this story ended relatively well, it points to some disturbing truths. The neighbors — thank God for their help — explained to me that when empty homes in the area look vacant — say, they’ve fallen into disrepair, or a bank has slapped a foreclosure notice on the door — they’ll immediately be stripped by thieves. (In our case, what tipped off the burglars was that there were no blinds in Dad’s house – something worth keeping in mind.)

This is happening everywhere. Virtually everyone loses: the homeowners, the neighbors watching the properties around them become unsalable, and the banks. Everyone but the criminals. That’s why bank debt restructures and government programs like HARP are so important — they help keep distressed borrowers in their homes. It’s better for them, it’s better for their neighbors, and it’s better for our communities.

Scott Stevenson

]]> http://inclosing.net/2012/that-vacant-look/202/feed/ 0 http://inclosing.net/2012/managing-the-escrow-with-our-financial-roomies/200/ http://inclosing.net/2012/managing-the-escrow-with-our-financial-roomies/200/#comments Mon, 05 Mar 2012 12:52:24 +0000 Scott http://inclosing.net/?p=200 All of us have come to expect some surprises in our monthly bills. Perhaps our 16-year-old son sent 735 too many text messages in January or our Aunt Betty turns the heat up to 82 when she stays over for the weekend. We scoff and stomp our feet; we yell a little about responsibility and what does and doesn’t grow on trees. Then, begrudgingly, we pay the bills.

However, some surprises demand a more focused response. When our monthly mortgage bill increases by $200, we need sit up straight, pull out the calculator, and figure out the problem.

In most cases, our mortgage company owns a majority interest in our home. It can be tempting to vilify banks, but in reality they are our partners in home ownership. They believed in us, believed we were a good investment, and lent us the money to live the dream of home ownership. Both the bank and the homeowner need to protect that investment – most directly, with homeowner’s insurance, but also with timely property tax payments (to avoid tax liens).

Most big banks maintain escrow accounts to pay the insurance and taxes themselves in order to ensure timely payment, and we are seeing a trend where this is being done by credit unions as well. The mortgage bill is usually itemized in the slick, tidy way of the banks with principal payment, interest payment, and escrow payment. The escrow payment includes one-twelfth of the annual insurance premium and tax liability. When insurance premiums and taxes increase, as they inevitably do, the escrow portion of the mortgage payment also increases.

When the insurance company realizes your home is in a flood plain and needs additional insurance or when the city increases property taxes to pay for the new local library, the bank should send a letter that includes a reconciliation of the escrow account. The homeowner then has the option of paying the difference between what is accrued from monthly payments and the bill from the insurance company either as a lump sum or as a monthly increase. Like late night iTunes purchases, either scenario can add up fast, but I prefer the lump sum approach so I can keep my monthly bills lower and more predictable.

Need to save a few bucks for some smart phone accessories? Assuming you already have a competitive mortgage interest rate, homeowners are most likely to save a bit on insurance premiums. We can shop around and get the best rate for our budget (within limits set by the bank). Banks are also happy to provide insurance from one of their partners or subsidiaries.

In closing –

One thing we have learned from the economic slump is that we as consumers must do our homework and maintain a good relationship with our lender. If we are to afford all our gizmos and gadgets and unexpected visits from high maintenance relatives, we must read the correspondence from our lenders and watch the fees and any changes in our bills. After all, we can send Aunt Betty home after a few days, but we are going to be financial roommates with our lender for thirty years.

Scott Stevenson

And no wonder: According to a Core Logic report, nationally there were more than 10 million past-due mortgages as of the end of the third quarter of 2011. Here in Ohio, they estimate that probably 22.6 percent of all homes are underwater (borrowers owe more on their mortgage than the property is worth). And in the Columbus market, 35 percent of all 2011 residential sales were distressed, meaning they involved bank-owned properties, foreclosure sales or short sales.

Before you start reaching for the Jonestown Kool-Aid, though, consider this: By using new tools at our disposal and adopting new approaches to these problems, we — borrowers, banks and real estate professionals — can actually help one another and mitigate a lot of this mortgage misery.

For instance, traditionally a lot of us attorneys recommended bankruptcy or foreclosure to somebody in financial trouble. Nowadays, though, short sales, loan modifications and deeds in lieu of foreclosure often make more sense. Banks are realizing, “We can’t own every property in town that’s been foreclosed on. We need to change our stance. Maybe through short sales we can get people into these homes without having to go through the expense of foreclosure and maintaining the homes.”

Home vacancies don’t come without their own consequences. And contrary to what one might assume, attractive interest rates and a vast shadow inventory of low-cost homes don’t always translate to more home purchases. Interestingly, some people are telling their realtors they don’t even want to look at foreclosed or bank-owned properties anymore. They’re tired of wasting their time checking out unmaintained or vandalized houses that will need an exhausting amount of work just to become livable again.

Fortunately, there are tools to help avoid foreclosure. The Home Affordable Refinance Program (HARP) is a good solution for underwater homeowners, allowing them to refinance their homes at a lower interest rate so they can make their monthly payments. Short sales, meanwhile, are ideal for people who, while not completely in trouble yet, need to get out from under a home payment before it puts them in a bankruptcy or foreclosure situation.

In closing -

This notion that foreclosure might not necessarily be the best option for distressed homeowners may finally be getting some traction. A friend of mine in Arizona hasn’t been able to make his mortgage payments for years. Recently he was contacted by his bank and told that if he remained in the house a few more months while the bank completed its deed-in-lieu process, he’d get $1,500 when it was all done provided the appliances were still there and the house was in good condition. Clearly, the bank realized that keeping my friend in the house as long as possible was in both their interests.

A bit unconventional? You bet. Did it make sense for both sides? I’ll let you be the judge.

Scott Stevenson