So if you have been paying attention to the news you may have noticed a settlement has been reached by the big banks and government officials regarding the robo-signing debacle. It’s being touted as the largest settlement of its kind and a huge win for homeowners and foreclosure victims across the country. However the benefit of this program I think will be very negligible and in some cases will hurt homeowners and housing markets trying to muddle their way to recovery.

Full disclosure I am focusing on the Florida market and specifically South Florida as that is where the majority of my personal experience comes from.

Now, let’s explain:

First there is the initial cash payment that will be made to homeowners that have been foreclosed upon. Approximately 750,000 people will be receiving a one-time payment 1500-2000. This which is actually being downplayed by everyone I have read is probably the best part of this settlement. Though it is not a very large sum it does provide immediate cash which will help many people cover some additional expenses and will also dump some additional money into local economies which is always a good thing. That’s really it for that. It’s not a life changing event for most people but it will be a nice thing for those who receive their check in the mail.

Now on to the second part of this program which sounds great in practice but in reality may not end up being all it’s cracked up to be. This is the mortgage reduction part of the process. The banks have committed somewhere in the area of 17 billion dollars to write down mortgages that are underwater. That sounds like a pretty big number but let’s put it in perspective. The total estimated amount that US homeowners are underwater on their mortgages is approximately 700 billion dollars. This means the banks have agreed to write down about 2.5% of the outstanding underwater debt. That’s a drop in the bucket but let’s focus on some other figures. The average payout is supposed to be around $20,000. This means approximately 850,000 homeowners will receive some kind of principal reduction again since 1 in 5 mortgages is under water this is a very small percentage. The most recent information I found says 11 millions mortgages are underwater and 3.5 million are delinquent so we are looking at about 8% or 24% depending on how you look at it.

So the thought is to say well at least they are receiving some benefits it is a good thing for those homeowners that get selected. In some cases maybe, but in many cases this will actually hurt the market and homeowners due to lack of understanding. Again focused on South Florida and the short sales we complete here at our office $20,000 is almost never enough to bring someone’s value to par. It’s a band-aid fix that is going to cause people to avoid the inevitable in hopes that they will be one of the few that actually gets help from the settlement. Most will not realize that they are only going to receive a 20,000 write down which will not truly help them. Instead of pursuing a short sale which is the best option in most cases they will wait for their write down from the bank all the while still not paying their mortgage and headed towards impending foreclosure. This hesitance will slow down the real estate market which has been surviving on distressed properties. Since they are only offering the incentive to borrowers that are delinquent this may also be a catalyst to send current borrowers into default in an effort to write down their loan.

The worst part is that the banks are incentivized as part of the agreement to help mortgage holders that are in worse condition. This is a waste and is backwards thinking. If I am 200,000 underwater on my mortgage and you write down 20,000 it doesn’t help me at all. The focus should be on those that are closer in value to actually bring the houses up to par. Allow the homes that are way underwater to short sell and reset. Instead of writing down the worst cases focus on borrowers that are struggling to remain current and would be helped by a 20,000 reduction. There is still an opportunity to make this effort work by refocusing with a strategy that props up homeowners that can actually use the help. I just hope the confusion this will surely bring does not cause many borrowers who are debating their best option wait too long and end up in foreclosure.

It’s been a little while since I posted. Maybe I had nothing to say or maybe I was just too busy putting together all of the great new things we plan on doing this year. 2012 is looking like a solid year for South Florida Real Estate and Exclusive Title Company is ramping up to be a big part of it. Over the last 4 months we opened a new office in Downtown Fort Lauderdale and began planning for our offices in Orlando and Coral Gables. As a part of the expansion plans our offices are upgrading servers and going to one of the most advanced title processing softwares in the industry. These changes and many more will allow us to take our current level of service and move forward by great leaps the way our clients deserve.

As of now our first app for iPhone, iPad and Android is already on the market. It’s a free download that provides basic closing cost information to realtors so they can quote costs to clients while out in the field. Expect upgrades soon as we add additional features to make the app a complete solution for when your customer asks the question: How much?

Coming Soon:

By the end of the month our new software will be fully installed which will allow our clients to follow the progression of their Short Sale & Traditional Title files online from beginning to end without having to navigate two different systems. This will help streamline our closing process as well and lead to much faster closing times once short sale approval is reached on a file. We will also be adding the ability to communicate directly with lenders through their native loan processing software giving us complete paperless integration with them as well as all of our current vendors.

By mid-2012 expect our second app to be released that will allow our clients to track their closing and short sale progress directly from their iPhone or Android handset. This should increase efficiency for our processors as well as be one more step in making sure that our clients are the most informed well cared for clients in the industry. Also in mid-2012 we will be unveiling a new joint marketing program and finalizing our journey to a nearly paperless office. Being a title company you can’t go 100% or we would!

As with any growth and change there has been and may be some additional growing pains that go along with it. To all of our clients thank you for sticking with us so far as we make our changes to improve your customer experience. To all of the new clients we expect to see in 2012 know that everything we do is an effort to make your closing experience a great one and if you ever have any suggestions we are always happy to hear them. We look forward now to a prosperous 2012 in South Florida and hope to see many of you succeed as the year goes by.

I was having a conversation today with a client (realtor) and the subject of buyers on short sale properties came up. I used to say with all honesty that I feel sorry for buyers on short sales. Its a tough market to look around for months to finally find a property that you like only to spend 6 months in negotiations with the bank and have them decline the offer because you can’t reach an agreement. That hurts and I do honestly have a softspot for people that have been through that process. Lately though my opinion has started to change. Let me tell you why.

The market in its current incantation has been around for a few years and short sales are not the new kid on the block anymore. Not that they ever were the new kid on the block, I mean they have been around for years its just they weren’t always so prevelant. Anyway just like any other aspect of the real estate industry there is now plenty of information and prior experience out there for any buyer to make an informed decision on what property they are purchasing and who is part of that transaction. This goes the same for sellers by the way but thats a whole other issue that requires a post of its own. So now the question is; Since short sales are going to be a major market driver for at least the next couple years what can a buyer do to make things smoother or at least more palatable?

The answer: Be informed, very informed.

Ask the right questions when putting in your purchase contract.

Who is/are the bank(s) involved?

Is the Association past due?

If so by how much?

Take this information and do some research. Ask your agent what the timelines are based on the answers. If you are an FHA buyer purchasing a property with 2 mortgages and 20k in unpaid association dues you are most likely wasting your time unless you have written agreement from the seller that they will cover the unpaid costs. You have to do what you can to avoid the unexpected. The unexpected being waiting for 6 months for someone to tell you an additional 10K in cash is needed to close. That someone is likely my company and its a phone call or E-mail that unfortunately has to go out.

What buyers truly need to understand is that sometimes there is nothing that can be done to get everything paid by the bank. If you’re a cash buyer and your offer is 25% below market this may not be that big of a deal. You can pay the excess and still get a good deal on the property. Even then though you should be prepared. It kills me to see everyone work on a file for months and then have it fall apart at the end because the primary lender is only willing to give 4K to the second but they won’t release for a dime below 8k. Being informed doesn’t reduce this possibility but it does make it easier to deal with when you know its coming. We close hundreds of short sales a year with all sorts of buyers. The most succesful ones understand what they are getting into. They understand what type of buyer they are and how much they are willing to spend. They also understand what is involved in a short sale and how the particulars of their specific property will effect the final outcome.

I guess what I am saying is that the information is out there for buyers to make an informed assessment. It doesn’t mean if you do your research that everything will work out as expected but every little bit helps. Decide what kind of a buyer you are and make purchasing decisions based on that profile. If you don’t understand how to do this there are plenty of great realtors who have plenty of experience that can help. If you don’t know one give me a call I know quite a few I can refer you to.

One of my favorite things to talk about when doing short sale appointments and seminars is Timeline to Recovery. It’s one of those key issues that I think is not discussed enough when people are considering what to do with their property and how they are going to move forward with their life after shortsale or foreclosure.

Everyone is alwasy focused on the financial issues. Bankruptcy, deficiency, 1099′s all these things are important and need to be discussed but also of great importance is this question. What do you plan on doing once your shortsale/foreclosure is complete? The problem is that most people do not want to think about this. They are looking at their situation and saying “I don’t care. It doesn’t matter, whatever I do I am screwed.” Now in some aspects this is true although gravely overstated but in actual practice the different actions people take have very different outcomes and effects on their financial future.

For instance: Timeline to Recovery

Most people look at the now and immediate future. Immediate future being the next 1-2 years. When you discuss credit issues their response is focused on where they are and what is happening in the immediate future. Hence the idea that “it just doesn’t matter”. What does matter though is that the difference between foreclosure and short sale could mean the difference between 1-2 years and 5-7 years of financial difficulties. Let’s walk though an example.

Sample Seller: 90 days past due, two loans on property.

Option A Shortsale:  The average shortsale takes 3-5 months but lets assume for our scenario this is a tough file and takes 6 months to complete. Fannie Mae has guidelines that say you cannot purchase a property using government  backed financing for 3 years. Most conventional lenders will lend to you in around 2 as long as you fix your credit which is possible in about 2 years anyway. So lets add it up:

90 day delinquency + 180 day short sale process + 2-3 years of recovery: total time of credit collape is between 2 and 4 years with 4 being when you could be fully repaired.

Option B Foreclosure: The average foreclosure is running probably somewhere around 20 months. This time may decrease as the court dockets get a little less crowded but for right now this is where we are. This is already a long time but the real issue comes after foreclosure when you are trying to repair your credit. Most lenders will not even look at a file until 4 years have passed since your foreclosure. For the next 7 years you will have to state on any mortgage application that you fill out that you have had a foreclosure. Doing otherwise would be considered mortgage fraud. So lets run the numbers again:

90 day delinquency + 20 Months in foreclosure + 4 -7 years of recovery: Total time of credit collapse is between 6 and 9 years with 9 being when the foreclosure is a completely irrelevant.

Now let’s put this in perspective. Imagine our sample seller is John and he is 28 years old. He made a bad investment when he was 26 and is ready to put it behind him and move forward. In short sale by the time he is 32 and most likely a little sooner his bad investment could be nothing but a distant memory. In foreclosure John will be dealing with the ghost of his foreclosure until he is 37. How much changes in a life from 28-37? Though John may know what his priorities are now its impossible to know what they will be when he is 37. Kids, marriage, new career a lot of things can happen. Unfortunately it is very difficult to focus on the big picture when things are blowing up in the now. The tendency is to say whatever is easiest today is what I want to do. Focus on the big picture though and you may realize that the decisions you are making are not the right ones after all.

Please note there are many other things people should look at when considering short sale or foreclosure. I have focused on one piece in this post. I will be posting many other factors and if someone has a specific question I will be happy to answer it as well.

A common question I have been getting lately from homeowners and realtors alike is; don’t we have to use the banks (title agency, realtor, etc…) if we want to short sell our property. This is a curious question because I know that some banks are putting out this information in an attempt to control this aspect of the market place. It’s up to us to make sure that doesn’t happen. Let me tell you how and why.

First let’s discuss the how. In a short sale what needs to be understood is that even though the bank has to agree to any short sale price the property is still owned by the individual who signed the mortgage. The lender only has rights to the property once they complete the foreclosure if that is allowed to occur. Therefore the lender really has absolutely no right to force you to use whatever service provider they are pushing. They may be able to say they will not approve a short sale unless it is submitted by a specific vendor but I have not seen any bank do that recently and hopefully they will not. So if you are informed by your lender to use a specific vendor it is completely within your rights to say no and use someone of your choosing.

Now for the real issue; Why?

Why if the bank says it will be easier using their preferred vendor should the seller and the real estate industry in general push back and not allow this to happen? The answer comes down to the simplest of terms that everyone should be familiar with. It’s in the best interest of your client.

Dealing with the bank in a short sale is a tenuous situation that could result in massive unmitigated debt if it is not handled correctly. Now as we all know people in general tend to cater to the person who is hiring them. Therefore it is hard to imagine someone who is hired/referred by the bank not representing the banks interests over those of the individual trying to short sell their property. I know personally that my company and the realtors we work with do everything we can to make sure that our clients are able to exit a short sale in the best possible position. The question is will the banks vendors do the same thing? I don’t think so. I think they will choose the path that will least upset their client; the lender. This is bad news for the seller and bad news for the real estate industry in general if it is allowed to happen. If you have any questions regarding this topic and how to handle it feel free to comment or contact our office and we will be happy to help.

Many people truly don’t understand what title insurance is or what that company who charged “X” amount of dollars actually did when they bought their home. The truth is if they did their job right you never will.

So, why pay them? Why spend the extra money if you don’t really understand what you are getting?

The simplest answer is you need it. We pay for insurances every day on just about everything you can imagine. In most cases that insurance is a hedge against the risk that something bad might happen. When you are buying your home the insurance you buy is a just little different. Its part of a service, a service that you pay for to make sure what for most people is their largest investment is truly yours.

Well if I paid for it then doesn’t that make it mine?

Sure it does, as long as your title company did their job correctly or at least put title insurance in place to cover any lien holders who attempt to claim rights on the property. See unfortunately as a property owner you are last in line when it comes to property rights. If someone has a valid lien that wasn’t paid off at closing it sticks with the house and without the proper insurance in place could end up costing you. Your only option is to attempt to collect from the previous owner which could be something tricky after the fact. Unless of course you dealt with a professional company that acts on your behalf and protects your investment. Then you can be part of the 1 billion dollars in claims that were paid out in 2010 by the title insurance industry to protect people just like you. A good title agent will have very few if any claims against their company. They do the research in advance to make sure of that. However in the event that something is missed you’ll be thankful you have that little piece of security that says “This house is mine” and if anyone disagrees I have a multi-million dollar company that I can contact to resolve the situation.

Well the preamble stuff is out of the way so let’s go with a basic Why Short Sale?

It’s the economy stupid!!

So, really I think we can devote pages to this topic and probably will but today I am going to just hit the surface. Primarily borrowers either short sale because they truly can’t make their mortgage payments or a business decision is made that says my house is underwater by “X” dollars and it’s more beneficial for me to short sell than maintain my mortgage. As far as I’m concerned both reasons are fine they just come with different pitfalls.  Either way there is major damage to credit and the possibility of some lingering effects. (deficiency, taxes) Either way the process is not something to be taken lightly as is any major financial decision. The fact is that in many cases it is a decision that needs to be made, don’t feel bad, you are definitely not alone.

Be wary though and make sure you understand what you are getting into. If someone gives you a guarantee that there will be no deficiency and no out of pocket costs then asks for upfront payment you have every reason to be concerned and do your research on them. I’m not saying these things are impossible to get, our company gets full deficiency waivers all the time for our clients. I am saying there are no guarantees, so be careful when people promise things that make everything seem rosy. Chances are the guy that is honest and tells you the truth instead of what you want to hear is going to provide the experience and service you need to make it through this complex process.

So, now that you are accustomed to our site let’s talk about the purpose of our blog. I don’t think there is going to be any general line.  It will just be ideas regarding the real estate industry and our take on the market. Our offices are in South Florida so most of the information will be tailored to that area but anything outside is up for discussion as well.

Right now distressed properties are the hot thing in real estate and our hands are deep in the mix so expect a lot of information and maybe a few complaints regarding. I love technology so don’t be surprised if I talk about the newest gadget on the market one week and what bank is changing their short sale forms the next. I’d like to thank you for reading our blog and appreciate any feedback on discussions now and in the future.

As the first post to our new blog, I decided we could talk about what we are trying to do with our online presence and the company as a whole. Our goal is to move into a majority digital company within the next 12-18 months. Updating the website is phase 1. On our new site you should be able to get any document required for our short sale processing services and submit online for title and/or short sale.

Coming soon will be full access to all case files online as well as pricing and quoting functions available via mobile web.  Next we will be exploring options for fully digital closings and online recording services. Hopefully by going digital and nearly paperless we can provide a more efficient and enjoyable experience with our company.

I look forward to the remainder of the year and all of the exciting changes in the real estate industry.