Zillow published a report today showing in fast relief just how out of touch the average home owner is when it comes to evaluating their own homes value.

Zillow’s survey says that half of home owners think their homes are worth the same as they were a year ago. 32 percent believe their home went up in value and 17 percent feel their home decreased in value.

Compare this to the reality that about 75% of all homes lost value since last year…we see just how delusional home owners really are.

It’s hard for me to fathom how the American public with hour after hour of news coverage on the real estate crisis, could still be so colossally blind to the truth.

Are they burned out…are they sticking their heads in the sand?

Is it too much to take to recognize the house you paid $400,000 three years ago is really worth only $200,000 today?

It just so happened a few minutes before reading the Zillow survey, I’d heard a pundit on CNBC say, “All across the US, the only real estate market is the foreclosure market”…meaining the only sales being executed were those done between banks and investors on foreclosures. He mentioned in some locales 80% of all resales were foreclosures.

If home owners’ perceptions are so glaringly wrong about the values of their homes, I can see why the “only the real estate market is the foreclosure market”. Folks who can’t face the truth don’t price their home to sell and the market shouts the truth at them…usually in vain.

It dawned on me if home owners don’t get their expectations in check, put their homes on the market at realistic prices, it won’t matter how loose or tight mortgage underwriting is or whether Bernanke can get mortgage reform passed.

It won’t matter because, there will be no one standing in line to borrow!

This is potentially more dangerous than a banking crisis. It’s like have a party and no one shows. Bernanke and Paulson are busy saving the banks and mortgage securitizers so the mortgage industry can stay operational for all the new borrowers once this hiccup is solved. But what if after all that, American’s can’t find a house to buy at a market price and sit on the sidelines?

It’s what happened to Japan when they hit the wall. Their central bank dropped rates to zero and still couldn’t get people to borrow.

What if the banks, now that they have government support, hang on to their foreclosure properties deciding to wait for a better market in which to sell? Between asleep homeowners and greedy bankers, the real estate market could be the next big “freeze”.

There is only one thing worst than dropping home values…frozen home values. At least if they are dropping, an end is coming. With frozen home values, a state of limbo exists.

This would really be the nightmare scenario everyone is trying to avoid. This is why Congress is having such trouble putting money in the hands of foreclosure victims. They don’t want to do anything that will stall the dropping of home values. They’d better watch out. If they give the banks too much support, there’s no motivation to liquidate foreclosed homes either.

As the Zillow report reminds us, you can’t legislate intelligence or awareness…and without it, our housing market could be in for the freeze no government or banking official can do anything about.

Yikes!

If you're new here, you may want to subscribe to our RSS feed or sign up for our real estate social network. Thanks for visiting!

Tags: bailout, foreclosure, housing bailout, mortgage, REO

Buying a short sale can be a great way to make a smart real estate purchase, given the conditions in today’s market. More frequently, home buyers want to look at nothing but foreclosures, REOs, and short sales during their real estate search. However, just because a property is being sold as a short sale, or some other form of a distressed asset, does not mean that it is necessarily a good purchase. This article will focus on the top three mistakes to avoid when buying a short sale as a residence.

Short Sale Mistake Number 1 - Don’t Fall in Love with the Property

Real Estate is an emotional purchase. As a matter of fact, most purchases are emotional purchases. When we make emotional purchases, we do a funny thing. Many people don’t realize this, but when we make emotional decisions we tend to justify those decisions with logic.

For example, I want to buy a four door Jeep Rubicon. I like them. I want one. The other day I thought to myself that it might be time to buy that Jeep solely based on the fact that our economy was in such bad shape. I started thinking that I could probably get a really good buy right now. I even started thinking that if I end up waiting a few years that I will probably end up paying more for the same Jeep that I could buy now. So I should buy one know. In my head, I am trying to logically justify an emotional decisions.

The same thing happens for home buyers, only the emotions when buying a home are a lot stronger (typically) than when buying an automobile. Some common logical justifications for emotional home buying decisions that I hear are:

• The house is pretty expensive but it is closer to work and we can save money on gas
• We might lose money when we our current home now, but we can make it up on the purchase of a new home
• The house is smaller, but that makes it easier to clean
• That extra bedroom would be great if (fill in the blank) ever had to come to live with us

Don’t Be in a Hurry

Dont’ Overpay

Real estate riches are commonly created when people by real estate below market value. Market value is easy to determine, if you have the data. If you do have the data, market value can be found by looking at two factors: what is currently for sale, and what has recently sold. If you don’t have the data (or are working with an incompetent agent) then market value may be determined (or mis-determined) with false data sets. For example, here is a list of things that don’t affect or indicate value, but are commonly referenced by “experts”:

• Unpaid pricinpal balance: what is owed on the property has nothing to do with what it is worth
• The Tax Assesment: what the property appraiser says a property is worth means nothing (unless he is buying the property)
• Property sales that are more than 90 days old: the current real estate landscape changes so fast, a comparable sale from six months ago is no longer comparable. 

I suggest considering the home values from 2002-2003 when buying a home. The values from these years generally indicate “pre-boom” values. They are more closer to “normal”. These values should not be solely considered, but should be referenced as a sanity check. If you can buy today, at the price from 2002, then you are most likely looking at a relative good buy. This happens fairly regularly in a short sale transaction. Lenders know to discount the properties to a point that makes them attractive to buyers. This usually means discounting them to “pre-boom” values.

Tags: foreclosure, real estate, REO, short sale, short sale mistakes

Great. Taxpayers now own banks, investment houses, probably an auto company or two before long, and the British have shown that, despite having lost their empire, they still know a thing or two about handling a financial crisis that the U.S. and others can take lessons from…

But does this mean that people who were on the cusp of being kicked out of their homes are all of a sudden safe –if not sound–once again?

The wolf may not be at the door, but he is still lurking just around the corner, for sure.

We keep being told that these massive government measures are aimed at helping Wall Street as well as Main Street–and, to some degree, this is certainly true.

And yet, we still do not have a firm plan in place that has as its primary purpose the preservation of home owners facing foreclosure. The housing plan passed earlier this year by Congress still hasn’t had much of an impact. And, one can only wonder whether the government buying stakes in troubled banks will actually force them to amend the mortagage terms of their most troubled clients?

If banks are really going to use their new financial lifeline provided by taxpayers to extend a helping hand to home owners, why are they still so vigorously opposed to changing the bankruptcy laws to allow judges to amend mortgage terms to help people stay in their homes? Most experts think that is the best way to ease the housing crisis, so why are they trying to block it at every turn?

One can’t help but wonder whether the big banks will take the money and help themselves while giving the cold boot to the rear ends of cash starved homeowner/clients?

90 days?
Barack Obama is proposing a 90 day hold on any pending foreclosures, but is that really going to help much? Seems a bit like a band-aid being applied to a cancerous mole. But McCain’s notions don’t really seem better. So, on this front, it may just end up being a draw.

What should have Americans really worried, if they are not already, is the lack of political leadership across the board. Neither Obama nor McCain have exactly been ahead of the curve on this one. And, the Bush administration is apparently taking its bailout cues now from the U.K.–talk about Masterpiece Theatre!

The more things change, the more they stay the same?

The other day, I received in the mail an invite of sorts from WAMU–now Chase–telling me how I could, if I qualify, get a nice, cheap mortgage at incredible rates. Odd, isn’t this how we sort of got into this mess allegedly in the first place? I know, the bank will no doubt say that what has changed is that it will now actually try and make sure that it only lends money to those likely to pay back. But, one can’t help but wonder, what with the US government pumping billions into these institutions, whether or not they won’t quickly revert to their past practices? That WAMU letter I got would suggest that is a real possibility.

If it does start getting easier to get credit, then, it would stand to reason, those cheap homes now on sale all over the country should be bought up fairly quickly.

But homes prices are still expected to drop so , even if credit become more available, buyers may still elect to stay on the sidelines waiting…which would only bring home prices down more.

Also, some economists are now predicting–even with this massive bank rescue plan–that U.S. unemployment may rise to more than 8 percent this coming year! Not great news for the housing market, either.

Don’t let the current excitment fool you. We are not out of the woods. Not by a long shot.

Photo Credit: kyz

Tags: bailout, banking, banks, Economy, government bailout, mortgage, REO

On Saturday at my local REIA meeting (everyone should be going to ALL of the REIA meetings in your area), I was talking with an investor who had received a nasty phone call from a homeowner who was not happy that they received a letter in the mail. They wanted this investor to know that they “did not want to sell their house and never to send them another letter ever again.” This investor was new and of course this phone call upset them. I reassured the investor that this happens and is the nature of the business.

The majority of calls that I get from these angry, crazy people is them wanting to know how I got their information, not believing it is a matter of public record, and wanting off my mailing list. One of my most memorable calls was from a Realtor who proceeded to scream at me that it was illegal to send out letters trying to buy her house, that she had been in the business 25 years and that she was going to sue me (obviously she must have been very successful if she thought direct mail was illegal…of course you can never argue with a crazy person…just ask any husband).

I can only think of one time where I was justifiably yelled at when it came to marketing — I got a message from an irate guy with every other word being the F word. Apparently, my bandit sign guy had put my sign up next to a funeral marker on the highway, where someone had recently died (yes, I told my bandit sign guy not to do this again and to use common sense when putting out my signs.)

Well, here is the point…you need to be immune to criticism when it comes to this business. If you are not getting people ticked off at you, then you aren’t sending out enough letters, you aren’t putting out enough signs and you aren’t closing enough deals. Who is going to get yelled at more, the guy who sends out 1,000 letters a month, or the guy who sends out 10,000? Also, please don’t take it personally when you do get yelled at…the person who is yelling at you doesn’t know you from Adam. They are simply yelling at some person who sent them a postcard or a letter.

Also, when you do get yelled at, remember the person probably is having a bad day, or has a crappy marriage, or a crappy home life or they are envious of you (and they just need to vent at someone.) Now, get out there and make sure you are getting criticized more often (yes…that means sending out thousands of pieces of direct mail a month and becoming successful sooner)!

Tags: direct mail, foreclosure, foreclosure marketing, marketing, NOD, pre-foreclosure, REO

Readers of this blog fully understand foreclosures are on the uptick and will likely to stay that way for the remainder of the year. However, some people may not fully realize the challenges being mounted against foreclosures from all fronts.

It seems the lenders/banks have it had too easy for too long and have become complacent in their obligations to prove their standing, i.e. right to foreclose. To compound the problem, some note owners aren’t even aware foreclosure is being carried out in their name.

The Decision
Probably the most publicity generated in this arena is the Boyko decision in Ohio. It seems fed up, is a mild way to describe the feelings of the property owners in this case.

This link is a 6 page pdf download of Judge Boyko’s opinion. It has far reaching possibilities and isn’t being taken lightly by people and organizations fighting against foreclosure as is practiced today.

An article in Cleveland’s newspaper, The Plain Dealer, explains the case and some of the rational in the judge’s opinion.

You don’t have to be a rocket scientist to determine this case just may become the precedent in fighting foreclosures and winning. Since loans are usually bundled and sold off to investors as far off as China, it becomes almost impossible to sleuth out who really owns the loan.

The Implications
If the judge is correct and only the owner of the note and not the note’s servicer, originator or original lender can foreclose, the implications are huge. To bolster the argument of the fight foreclosure advocates, The Home Equity Theft Reporter has several interesting articles here and here.

To Challenge or Not to Challenge
I’m not sure who the person doing the narrative in a video titled: Make Em Produce the Note is, but his message is clear. He is telling everyone who listens to challenge their foreclosure notice by making the foreclosing party produce the note.

What is especially interesting in this arena is the homeowner isn’t restricted to only federal court. The homeowner can start at the lowest rung of the state court system and file suit against the foreclosing party.

As a side bar, it appears this is true in trust deed states as well because once the foreclosure action is started in court, the foreclosing party is stayed from proceeding any further in the foreclosure process. I am not a lawyer and I am not giving legal advice. I am a foreclosure consultant who likes to be as knowledgeable as possible.

I present the above information and sites as references and suggest to anyone in this arena to perform their own due diligence. Above all, if these court cases and theories are on the mark, the whole foreclosure landscape in this country will dramatically change.

Tags: court case, deed, foreclosure notice, Foreclosures, mortgage, real estate legislation, REO

REO stands for real estate owned. This term is used when referring to a home that has gone through the foreclosure process, failed to find a buyer at the auction, and is now owned by the bank.

One of the benefits of buying a bank-owned REO property is that investors can purchase the home free of title liens and other claims. Lenders generally expunge all second and third liens, as wells as delinquent taxes, HOA and mechanics’ liens. Another benefit of buying an REO property is that they are generally vacant. Investors can save a tremendous amount of time and energy because the eviction process has been taking care of by the bank.

Not all REO properties are available to the general public. Banks typically like to sell these properties to investors that buy million dollar portfolios of REO properties at one time. Scales of economies work in favor of both, the bank and the investor(s). Banks can move hundreds of properties at one time saving them time and money. The investors get a portfolio of homes at a substantial savings as opposed to buying them one at a time. Some of these portfolios start at as much as $5 million.

There are many opportunities for everyday investors to take advantage of these REO properties on a single home basis. Every city has realtors that work with the banks to list and sell their properties. Networking within your investor community can lead to these relationships. REO properties are great homes for investors to buy because they are generally paying below market for the home, and there is a lot of inventory and selection.

Financing REO properties is the same as any other investment property. Plan to contribute at least 10% or more toward the down payment. Do your due diligence to properly cash flow your investment; with this you will be able to weather any market volatility in the future.

Note from editor: For a directory of Banks offering REOs, visit our Bank REO homes page. Get involved in our REO discussion forum to discuss anything to do with these bank owned properties. Finally, if you’re interested, we also have a page with useful information about the foreclosure process.

Tags: bank owned property, bank-REO, foreclosure, foreclosure process, Foreclosures, real-estate-owned, REO

The real estate investing craze that falls just behind the business of buying directly from the bank with Short Sales or REOs is buying “subject to.” This non-traditional method is simply purchasing real estate subject to the existing financing. The financing that is held by the seller stays in place, the mortgage on the property stays in his/her name, and the title to the property is transferred to the investor’s name or company. With a swift transfer of title to the investor, there is an even larger transfer; the seller’s shift from dependency on self to dependency on the investor to make on time payments for the period agreed upon.

Everyday investors ask themselves, who would do this?

Apparently a lot of sellers are ready to move and don’t have time to wait around for traditional financing programs to fund the sale of their homes. As investors, we become so anxious to get deals that we overlook very MAJOR details when it comes to buying subject to.

What is the #1 question that an investor should ask when considering purchasing a property subject to the existing financing?
Is your mortgage fixed or adjustable? Bingo.

Believe me, this question doesn’t get asked enough because deals are being made in haste. The deals will be there because houses don’t have tires and they can’t run away. We must look thoroughly at our real estate dealings to ensure a smart acquisition and a healthy return on our back end.

So here is a quick story all about how a colleague of mine’s life got flipped up side down.

It is a very exciting day when you get your first real estate investment deal that you decide to HOLD. It is a big deal. You may have started in the business of wholesaling to build up the cash reserve to finally own something of your own and profit like the investors you have been selling to. If that was you then you are no different from my friend, Investorina (for the sake of the story). Investorina picked up a single family home subject to the existing financing and didn’t bother to pay attention to whether the mortgage was fixed or adjustable. In all of the excitement, it never dawned on him that a $400,000 home should never have a mortgage of $1,800. Hey sometimes we all make mistakes.

Well the property was purchased and payments to the lender were being made automatically through the business checking account of Investorina. Because of the preference for a paperless lender/investor relationship, the Investorina was a bit out of the loop when it came to the changes occurring on the adjustable mortgage product that he took over. While Investorina was paying $1,800, the mortgage rose to $2,200 and been that way for over 8 months. With the late fees, financing charges, and attorney billing; the outstanding balance on the account was all of the sudden $11,000. WOW!

A foreclosure date has been set for the 14^th of March 2008. Because Investorina’s name is not attached to the property in any way nor to the mortgage product, it is character that urges him to contact the seller and alert them that the house will be going to foreclosure sale on the 14^th of March.

In our real estate investing businesses, lacking attention to detail can hurt our business and it can ruin others’ credit and livelihood. Investorina is going to do a listing forbearance with the lender to save what can be salvaged of the seller’s credit. Remember that sometimes buying subject to existing financing can leave your seller subject to foreclosure if you don’t pay attention to the details of your investments.

Blessings to your Real Estate Investing Business,

Milton B. Yates.

Tags: adjustable rate, Buying real estate, creative, foreclosure, mortgage, real estate financing, real estate invest, real estate investing, REO, subject to