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Prescott Area Market Report

The distressed real estate market in the Prescott area was busy again this week with 18 new homes coming on the market, about one in every five homes being listed in the Prescott Arizona Area MLS system.From the sales side they represented over half of the homes sold, and were over half of the sales that went into escrow.

The difference between what traditional pricing and Prescott foreclosed/REO and short sale properties per square foot remains with strong at a 23% discount.

Thinking about buying a short sale in the Prescott Foreclosure or Prescott Valley Foreclosure market?

See this article on my blog to get prepared:  10 questions for Prescott AZ short sale brokers

To get more information about any of these listings or any others in Prescott, Prescott Valley, Chino Valley or Dewey-Humboldt areas, feel free to contact me, or you can search by MLS number, address, or lots of other ways in our Search the Prescott MLS section.

New Listing Stats Last 7 Days*
	REO/Short Sale	Traditional
New	18	74	20%
List $/sqft	$108	$153	29%
Pending	17	15	53%
Closed	12	11	52%
Sold $/sqft	$90	$117	23%
	*Source: Prescott Arizona Area MLS (PAAR)

New REO/Short Sales listings are 29% less per square foot than traditional resales this week.

See the full report.

Search for Prescott area REO/Foreclosed and Short Sale Listings

Free Nationwide Foreclosure Search

One of the sections that will impact short sale sellers and REO agents nationwide is the prohibition of banks making the sale of a short sale conditional upon the lowering of commissions.

If you’ve ever listed your home for a short sale, you’ve probably seen the following statement in REALTOR remarks:

COOPERATIVE COMPENSATION OFFER SUBJECT TO COURT OR LENDER APPROVAL AND MAY BE ADJUSTED.

Well now it now also violates Fannie Mae guidelines for banks set forth in its Servicing Guide:

Servicing Guide, Part VII, Section 504.02: Contacting Selected Borrowers

No Negotiation of Preforeclosure Sales Commission

Effective March 1, 2009, closing of preforeclosure sales may not be conditioned upon a reduction of the total commission to be paid to real estate agents to a level below what was negotiated by the listing agent with the borrower, unless the fee exceeds 6 percent of the sales price of the property in aggregate. Servicers are reminded that they must continue to obtain any approvals that may be required by interested third parties in connection with preforeclosure sales.

New Fannie Mae Servicing Guideline

Link to the whole Announcement 9-03

Why do you care as a seller?  Isn’t it good to pay less commission?

This is good news for everyone:  home sellers, REO agents, consumers, and banks in the long run, because it removes a large impediment that some agents had showing short sales.  Not only are short sales difficult and painstaking, but there was also the chance that the selling agent would make less than the listed commission.

Please contact me if you need more information or see some of the related posts below.

Facing Foreclosure?

Often we are asked by Prescott, Prescott Valley, and Chino Valley homeowners about their options when they are facing foreclosure.

 We are not lawyers or accountantS and you should consult with professionals in those areas before making any decisions that will affect your credit for at least 7 years.

Here are some of the frequently asked questions we get:

1. I missed some payments on my property recently, am I in pre-foreclosure? 

There are a few options you have to avoid having a foreclosure on your credit history.

1. Contact your mortgage company and find out if you can reinstate the loan. Sometimes they will allow you to put any late payment fees and interest on the backside of your loan and bring you into compliance.
2. If you have had income adjustments or you will not be able to continue payments you should try to sell your home as soon as possible. Making contact with your mortgage company is important. They want to see the property being marketed. Be aware of time restrictions and market conditions. Also inquire about what you owe vs. what your property value is worth. A short sale may need to be negotiated. You should talk to the lender about the possibility of a sales price below what is owed on the mortgage and what steps will need to be taken.
3. If your situation has changed, refinancing through another program might be a good option. You will want to seek advice of other lenders and programs that may be available to you to lower your monthly payment.
4. There is a possibility of adding a 2nd mortgage and using that cash to help bring you current with your loan. This avenue should only be explored if there was a short term reason for the delinquent and missed payments.

2.  Should I wait for the mortgage company to foreclose?

Whatever you do, don’t wait for the mortgage company to foreclose. Contact a specialist right away to discuss your possible options. Be aware of individuals or companies that may try to profit off of your distress. It is always best to contact an agent or someone that will represent your best interest.

3.  What should I do if someone offers to buy my home?

If you have someone that wants to pay cash for your house, tell them that you will select an agent to perform a Broker’s Price Opinion (BPO) and they will need to pay $100-$150 for the report. Be aware of companies that will offer to buy your property and allow you to stay there. They usually offer to set you up on a lease to own option. Contact an expert to make sure this company is legitimate. There are many companies that will take advantage of your situation and it could create a much worse outcome.

4.  What else should I do?

Do Not Ignore The Problem

If you know you are having trouble making your payment and/or are receiving letters from your lender you must confront the issue. The further behind you become on your payments the more difficult it will be to modify your loan, so act fast.
 
Contact Your Lender

Did you know it costs the bank over $58,000 out of pocket to handle the average foreclosure? The lender does not want your house! They will often be willing to do a loan modification in order to ensure that you are able to stay in your home. Be sure to keep in contact with your lender, refusing to open your mail will not be excused in court.  If you need your bank’s phone number, check this list of mortgage company phone numbers: 

List of Loan Servicer Phone Numbers

Know Your Rights and the Laws in Arizona

Be sure to re-read your loan documents and make sure to educate yourself on the laws and process in Arizona:

Arizona Foreclosure Laws 

Arizona Foreclosure Process

Arizona Foreclosure Timeline

Arizona Attorney General’s Foreclosure Information

Contact a Housing Counselor

Try to find a HUD approved counselor. Often a HUD counselor will offer their service for free or at a very low cost. Additionally there are several businesses that can help you with your loan. You must beware of scams; there are plenty of businesses that claim to have the ability to get rid of your debt and mortgage burdens. Read everything carefully and understand that you should never sign anything you do not understand.
 
Cut Back on Any Excessive Spending

Create a list of priorities such as health care and your mortgage, and take a look at assets you have. For instance, you may want to give up your second car or sell off your life insurance policy. It is important to let your lender know that you are making an effort to pay your mortgage.

The most important step to avoiding foreclosure is to explore all of your options. Only by confronting the problem head on can you tackle the issue. Don’t let yourself become a statistic. Take the steps necessary to avoid foreclosure today.

More resources on the web:

 Options for Homeowners Facing Foreclosure

 Guide to Avoiding Foreclosure – HUD

Short Sales Tips

As many homeowners are facing tough decisions on what to do with their homes, many are being forced to consider which is worse for your credit score, a short sale or a foreclosure.

According to the folks over at the Fair Isaac Corporation, FICO, as we know them, there doesn’t seem to be much of a difference.

They are both bad:

How will your FICO score consider a foreclosure?

There’s no denying that foreclosures are considered a very negative event by your FICO score. With that said, it’s a common misconception that a foreclosure will make it impossible to rebuild your credit. In fact, if you keep all of your other credit obligations in good standing, there’s a good chance that your FICO score could begin to rebound in just 2 years. Try to pay your auto loans, credit cards and any other credit obligations on time to limit the effect of this foreclosure.

Are other options better for my credit standing?

Recently, several alternatives to foreclosure have become popular – some of these include “short sales” and “deeds-in-lieu of foreclosure”. These may be viable options for you, and you should definitely do research to determine if these options make sense for your situation. However, as far as your FICO score in concerned, there is no difference between foreclosures and short sales or deeds-in-lieu of foreclosures. Each of these actions is considered an account that was “not paid as agreed”, and will have the same impact to your FICO score.

How does a foreclosure or short-sale affect my score?

Credit bureau reports are limited in how they represent foreclosures today, so it’s generally not possible to tell from the credit report if a reported foreclosure is a short sale, deed in lieu of foreclosure, settled account, regular foreclosure, or some other variation. The FICO® score treats all of these descriptions that appear on credit reports as serious delinquencies, so they have an impact on the score similar to the impact from a charge off, tax lien or account included in bankruptcy.

How long will a foreclosure affect my FICO score?

A foreclosure remains on your credit report for 7 years, but its impact to your FICO® score will lessen over time. While a foreclosure is considered a very negative event by your FICO score, it’s a common misconception that it will ruin your score for a very long time. In fact, if you keep all of your other credit obligations in good standing, your FICO score can begin to rebound in as little as 2 years. The important thing to keep in mind is that a foreclosure is a single negative item, and if you keep this item isolated, it will be much less damaging to your FICO score than if you had a foreclosure in addition to defaulting on other credit obligations.

What about bankruptcy?

While both foreclosures and bankruptcies are considered very negative items by your FICO score, a foreclosure can be isolated to a single account (your mortgage account). Often, bankruptcies involve multiple accounts that are “not paid as agreed”, so bankruptcies have the opportunity to be farther reaching than foreclosures. However, if you’re unable to pay other credit obligations in addition to your mortgage, you may need to consider bankruptcy. Here’s a post on the FICO Forums that lists some good resources regarding bankruptcies.

What Should You Do If You Are Facing Foreclosure

Consult An Attorney:  If you are facing a financial crisis that may end in either foreclosure or bankruptcy, consult an attorney to explore what your best option may be.  The right decision may save you years of restricted credit in the future. 

Talk to Your Bank: Your lender might grant you a few months time to sell your house on your own, for instance, or banks might agree to a payment plan for your credit cards.  If your home is worth more than what you owe on your mortgage, you might give the lender your deed in lieu of foreclosure.  This means you will turn over the deed to the lender, who assumes ownership of the home. 

Know the Facts: Bankruptcy and foreclosure move forward in entirely different ways.  Check out our Resource Center and review the Tips to Prevent Foreclosure, Short Sale FAQ, Foreclosure Myths, Seller FAQ, and the IRS and Implications of Foreclosure.

Additional resources from the web:

FreddieMac Guide to Avoiding Foreclosure

After a foreclosure, bankruptcy or short sale 

Will a Short Sale Ruin Credit

What Happens With Two Mortgages on a Short Sale

Reasons to Sell on a Short Sale

Short Sales Tips

Short sales can be less frustrating if you start the approval process early.

Although most U.S. families continue to benefit from homeownership, a small group of consumers in areas where home prices have declined is facing a difficult situation. These owners find themselves upside down, owning more on their mortgages than the present value. 

When this loss in value is combined with accelerating loan payments or unexpected changes in a home owner’s financial situation such as job loss or medical expenses, some families may be faced with the possibility of foreclosure.

In a number of instances, a short sale is the answer to this dilemma. Many lenders will consider a short sale only after retention-focused workout options such as extending the loan term or reducing the interest rates aren’t sufficient to enable the home owner to afford the mortgage payments. In such cases, short sales are often the best option to help the home owner avoid foreclosure.

The challenge for many sellers and their real estate practitioners is finalizing a short sale quickly enough to prevent foreclosure. Short sales are complicated transactions that require approvals from a number of parties including the loan servicer, the loan investor, and the mortgage insurance company if there is one. If there’s a second mortgage on the property, it can take additional time to get both the first and second lien holders in agreement.

Because of these complexities, it can be challenging to keep the process on track and moving forward. For that reason, many real estate practitioners avoid transactions involving a short sale. But there are ways to expedite the short-sale transactions considerably. As much as three-quarters of the work needed to finalize the transaction can be completed before the first buyer’s offer is received.

Steps to Keeping Short Sales Moving

When considering a short sale, Wells Fargo Home Mortgage, like many lenders requires borrowers to provide an application package containing a signed and dated financial worksheet, a hardship letter explaining why the borrower is unable to pay the current mortgage, and a letter authorizing the real estate sales associate to access information on the borrower’s account. 

We also require that the home owner’s broker provide a fully executed listing agreement. An incomplete or inaccurate application can create processing delays, so it’s critical that practitioners counsel their clients on the importance of completing the packet accurately and quickly.

Removing impediments that can slow the progress on short sales is equally important. For example, if the appraiser has difficulty accessing the interior of the property, it will take longer to complete the necessary valuation process for the lender. Similarly, home owners may need to provide a promissory note indicating their willingness to reimburse the mortgage insurance company for part of its exposure.

In some cases, the purchase offer can create delays. If the buyer’s offer doesn’t reflect current market conditions and comes in under fair market value, it may not meet the investor requirements and be denied. If the offer requires too many concessions from the seller, a lender may also reject it.

It’s important to note that in some circumstances, market conditions are changing quickly, so what constitutes market value may shift. In addition, many purchase agreements have a 30-day time frame that allows buyers to withdraw an offer if it isn’t accepted by that time. For both these reasons, it’s critical to start the short sale approval process before the first offer comes in. 

Otherwise home owners risk the necessity of resubmitting the entire short-sale package or starting the approval process over again.

 Although short sales are seldom easy or stress-free, they definitely can be worth the effort for some customers. They can help provide home sellers your clients and our customers with a graceful exit strategy in an awkward situation.

Writer Cara Heiden is co-president of Wells Fargo Home Mortgage. She oversees the business and strategic direction of the mortgage division and is responsible for national consumer lending, correspondent and wholesale lending, loan servicing and post-closing, consumer marketing, customer retention, cross selling, and ventures.

She can be reached at shortsaleQA at wellsfargo.com.

Prescott Short Sales - Please be Patient

In an earlier post, Foreclosure/REO/bank-owned or short sale?, about the Prescott and Prescott Valley foreclosure and short sale markets, I was amazed to find how few short sales were actually closing in the Quad-City area.

After doing some more research on this, it seems that some agents are taking short sales without the right skill sets, and others, I know this may sound cynical, are actually pricing homes BELOW what the bank would actually take.  

While I used to shy away from short sales, now there are 10 questions that I ask the listing agent before my clients and I craft their offer:

1. Who initiated the short sale?
   
2. Has the homeowner stopped making payments on the property?
   
3. Has the bank received the seller’s short sale package including hardship letter and have they approved the homeowner for a short sale in writing?
   
4. How was the listing price arrived at  (BPO, CMA),  and has the bank approved it 
   
5. Are there any subordinate lien holders? Have all lien holders agreed to short sale?
   
6. Is their Primary Mortgage Insurance (PMI) on the 1st mortgage?
   
7. Have you received any other offers, and has a loss mitigator been assigned to the case?
   
8. How long do you estimate the loss mitigator will take to respond to our offer?
   
9. Has the loss mitigator ordered another BPO yet?  When will they?
   
10. When is the scheduled the trustee’s sale?  Has the bank postponed it in writing?

Now with the information from these questions, my buyers and I can create a more comprehensive offer, or decide to punt and go on to the next one without wasting any time or emotional distress.

Thanks to blog.franklyrealty.com for the:

Top 10 Questions Before Showing Virginia Short Sales

Some other posts on the subject from other nationwide blogs:

An Optimists View of Northern Virginia Short Sales

The Tale of the Short-Short Sale

And a Washinton Post Article, Where Short Sales Stumble

For more information about the short sale process, see my Short Sale FAQ in the
Resource Center on my website, or contact me.

Short sales and foreclosed properties are considered distressed sales, as both are the  result of the property owner’s inability to pay the monthly loan amount, forcing them to sell or default on the home loan.   While both of these types of properties can offer great value, the data shows that buyers in the Prescott area are much more likely to purchase a foreclosed property than a short sale property.  Consider the following:

As of February 3, 2009,  there were 138 foreclosed properties and 117 short sale properties for sale in the Prescott area MLS.  In the last 60 days,  58 foreclosed properties sold and 8 short sale properties sold.  Working through the numbers, we see that foreclosed/REO/bank-owned homes sold at over 6 times the rate of the short sales.

Prescott Area MLS Data

Why is there such a disparity?

The quick, non-technical explanation is that most short sales cannot satisfy the lenders’ needs and a foreclosure process is the only practical method a lender has available to recoup any of the loan.

The problem is that processing a short sale is much more complex and often involve agreement by different lenders with conflicting needs. Further, short sales attract many offers, all of which are being considered simultaneously. It is common for buyers who have made offers to wait weeks for an answer.  Finally, because short sales attract so many offers, even when the sale goes forward, there are usually many disappointed would-be buyers. 

An example of a short sale offer:  We represented a client earlier this year on the possible purchase of a short sale home in Kingswood Estates. We previewed the property, our clients made an offer and we waited. We were told that the bank received 4 offers, and they didn’t accept any of them.  

A foreclosure, on the other hand, is more straightforward. In this case, the senior trust deed holder (usually the primary lender) forecloses on the property that either relieves them of the property at an auction or gives them sole ownership of the property, clearing out the other equity holders. They can then determine sales criteria and list it for sale. The great deals on foreclosed properties sell quickly and have multiple offers.

Example of the sale of a foreclosed property:  We recently represented a buyer on the purchase of a foreclosed property in Diamond Valley.

The buyer was from California and had a friend preview the property for him and he made an offer the same day. The bank received a number of offers and asked the three best ones to provide their best and final offer. We helped our client draft the best offer, and he won the deal. It appraised for much more than the sales price our client paid.

Getting back to the data: The raw data cited above show it is six times easier to purchase a foreclosure than a short sale property. 

However, the data is blind to the large rejection rate, and our estimate is that the number of rejected offers or those withdrawn by impatient buyers would reveal that actual success rates are 3% or less.  Most (almost all) of the successful buyers give up the quest for a short sale and instead purchase a foreclosed or traditional property.

Another critical problem with some short sales in that its often a short-term project for the listing agent (as most banks have their own REO brokers), and the sales price is a fabrication between the listing agent and the homeowner.  Sometimes, it is very low and designed to attract buyers for the agent and not necessarily sell the home, IMHO.   The offers that do come in are typically below the fire sale price, so banks are non-plussed when they get these offers…remember they don’t own the property yet and are not in a dealing mode.

In summary, deals can be had on both REO and short sale properties, but buyers usually find more success and less frustration with properties that have already been foreclosed on and are not in the process.

See a post from Tucson:  Are Buying Short Sales Really A Good Deal After All?

Well, short sale price setting is not much different.

In general, most short sale experts say to price the property at or near fair market value, although a few will begin with the total payoff amount owned by the seller. How frequently prices are dropped will depend in part on whether the property is in pre-foreclosure. Most banks have a formula for what percentage under market value they will accept and might vary from 8 percent under to almost 20 percent under.

I usually try to  price short-sale properties in the lowest 20 percent of a neighborhood comps both traditional and REO properties to peak buyer interest and initiate buyer activity.  It’s the same 80/20 rule all over again.  80% of the activity is where sellers are pricing homes in the bottom 20%.  However, it is  important for seller and buyers to understand that the banks underlying debt is what drives their motivation.

Note:  Most lenders will get a broker’s price opinion or even an appraisal to see what the property is worth before the listing agent and the seller set a list price. One way to help ensure that the bank’s estimate of value is realistic is to offer comps of recent sales, both traditional and REO properties.

For more information on pricing your sale for a short-sale in the Prescott area, please contact me.

Market Report

Quick update:

There were 10 new listings posted to the Prescott Area MLS in the last 7 days. 

To see them, click here:

New Prescott Arizona area Foreclosured/REO/Short Sale Listings

Or visit our Main Prescott MLS Search Page