Bankruptcy problems for homeowners in distress

At a luncheon seminar yesterday, even the guest speaker Attorney didn't want to touch the bankruptcy question since he didn't specialize in the area. So I can't and won't even provide an opinion on whether bankruptcy is an option for you if you're home is under water and you can't afford to keep up with payments. However, if in that situation, you ought to consult with a bankruptcy attorney to find out if it could provide any relief.

Unfortunately, per this New York Times op-ed piece from a Professor of Law at Columbia, it doesn't sound like there is much bankruptcy can do since 2005 when Congress changes bankruptcy rules.

This from the professor "the reforms created a system that makes it harder to file for Chapter 7 while doing nothing to make Chapter 13, once the savior of homeowners, useful in this sort of mortgage crisis."

He also says there's been a significant increase in paper work making it a "lawyer- and paperwork-centered system" which costs filing homeowners much more than before.

Still, the additional fees the Op-Ed talks about are less than $1500. In San Francisco with our high cost real estate market, that may be chump change for those facing larger than normal financial issues so a call to a bankruptcy attorney is warranted if you're considering a Short Sale or strategic default foreclosure.

Out from the Shadows: an REO hits the market

1817 California #2E was in the "shadows" for over a year.


Per tax records 1817 California St #2E received a Notice of Default in February 2008 and a Notice of Trustee's sale in May 2008. But not until September 2008 did it get recorded as a Foreclosure. Whether one counts the NOD or the NOT or the REO as "shadow inventory", it's still a long, long time from yesterday when #2E hit the San Francisco MLS. There was an attempt to sell as a Short Sale leading up to the REO recording. That was for $498,000 so we'll see if the new price of $454,900 makes a difference.

The last MLS sale was 2005 when it sold for $650,000. It's a 2 bedroom 1.5 bath and per tax records only 787 SqFt. The 2005 listing claimed it was 1,000 SqFt. That's a huge issue for 2BR's. Under 800 SqFt would feel tiny whereas 1,000 SqFt would be acceptable.

But the kicker here is that a bank held onto this puppy for over a year. And THAT is why some fear shadow inventory. What took them so long, and do they have a lot more of them?????

3 tips for delaying foreclosure

Need more time to get that Short Sale to go through? Or to come up with the money to get current on your loan? 3 tips for delaying foreclosure video:


The "Ask for the note" strategy is being billed by some as a way to prove the lender doesn't even own your home. As always, if it sounds too good to be true, it is. If you wonder out loud "why isn't everyone doing this" it's probably because it isn't true and doesn't work.

Also, "remind the bank" that they lose 30% more in a foreclosure vs. a Short sale is dumb. This is one EVERYONE does ALL OF THE TIME. If you say it too, they'll probably hold the phone 3 feet from their ear and not bother to listen to what you really need to talk about.

Finally, these are delaying tactics. They won't stop foreclosure.

One tip from us.... print out your credit reports and scores NOW when your credit is still good. You'll be able to prove to future landlords, employers and others that you were a good credit risk until you got caught up in a bad investment. www.AnnualCreditReport.com is the government's site. Don't use the ones advertised on TV unless you want to be sold a bill of goods and spammed relentlessly.

Beacon REO: 250 King St #810

250 King St #810, The Beacon, a banked own "REO" San Francisco condo with a past due offer date. What happened?

Per the San Francisco MLS "All offers due 2/25/10 @ 5pm". Yet the condo is still "Active" on the MLS a week later. I noticed it because even for The Beacon it looks like a "deal".

In 2006 it sold for $675,000 - this for a 1 bed, 1 bath with 822 SqFt. I called that "north end of town pricing" and told my clients when I could not make sense of values. But now? At $408,900 I would have at least expected someone to put in a low bid. So either we have "offer deadline-itis" where everyone stays away because they don't want to compete for fear of over-paying or simply wasting time. Or we have an out of town Listing Agent without direct access to the MLS who can't or won't get the status changed a week after accepting an offer.

But if you're in the market for a 1 Bedroom near AT&T Park, let me know and we'll give them an offer appropriate for a failed offer deadline.

Marina District Foreclosure Auction: 3157 Baker St

3157 Baker Street in San Francisco's Marina District had a scheduled for Foreclosure Auction on February 18th. Obviously that didn't happen because it is currently listed For-Sale on the San Francisco MLS.

Built in 2007 it had a recorded mortgage of $2,283,000 on April 23, 2007. Tax records show a default date of July 13th 2009.

It was listed for-sale in September 2008 for $5 million. That was probably an unrealistic number even before the financial crisis became national news later that month. It expired that December, and was just re-listed 3 weeks ago by what appears to be the owner of the property. This time at $3,695,000.

The home is 4,000 SqFt, but has no yard. It's also on Richardson - otherwise known as highway 101 - a very loud location nearly 24/7 but especially during rush hour.

In District 7 - Pacific Heights, Cow Hollow, Presidio Heights and the Marina - 5 single family homes have sold since the beginning of the year between $2 million and $5 million. 5 are in contract, and 15 are for-sale. That's a reasonable 6 months of inventory, but over $1,000 per SqFt seems severely over priced. I can't see a family spending over $3 million for a home with no yard and on a street you'd rather not have them crossing very often. And interestingly enough "Former residence to celebrity chef, CEOs, professional athletes". But how many wealthy, single or no-kid pro athletes are there - I hear Tim Lincecum lives in the Marina, but I doubt he wants to spend some of his $23 million on a 4,000 SqFt house on a busy street.

With a loan under $2.3 million, I'd try to get closer to the $2.6 million that 2312 Gough St is asking and walk away with at least a little cash - otherwise I think foreclosure will steal 100% of the equity.

ABC report: "Triple whammy" for real estate market

Listening to this Channel 7 ABC report they list 4 reasons home prices may drop - clearly not good with math since it's a "triple whammy" headline.


1. Shadow Inventory - California 80,000 homes, and 5 million nationally over the next 2 years according to two studies released yesterday. Both from currently banked owned that haven't hit the market, and those delayed in becoming foreclosures because the owners are trying to get loan modifications right now.

2. Rising interest rates when the government stops buying mortgage backed securities

3. Home buyer tax credit expiring

4. Jobs - I guess this wasn't a "whammy" in this report, but as one interviewee says, it could be the only item that really matters.

The caveat here - right now there is a lack of inventory and high demand. We're hearing a LOT of multiple offer stories, and the above ABC report quotes offers going 5% to 10% over the asking price on the Peninsula. I have several very frustrated buyers here in the City because they can't find what they're looking for. So... Sellers... IF you believe the above report, now is the time to sell.

Tracking San Francisco foreclosures (REO's)

San Francisco foreclosure update - Banked Owned properties on the SFAR MLS:

In wondering if REO's are up, down or flat in the City the most interesting finding is just how down total homes for sale are - not much pickings out there for Buyers.

Today's Jan 19th 2010 update:
Homes = 38 REO's of 368 total listed single family homes for-sale. So 10.3% of all current listings are REO's.
Condos = 19 REO's out of 422 condos listed for sale or 4.5%

Here's the chart with previous reports below it:




The last REO update on Nov 25, 2009:
Homes = 37 REO's of 484 total listed for-sale or 7.6%
Condos = 15 REO's of 606 condos or 2.5%

Homes = 31 REO's of 578 total listed for-sale or 5.4%
Condos = 29 REO's of 668 condos or 4.3%

On July 18th 2009 San Francisco MLS listed foreclosures were:

Homes = 31 REO's of 578 total listed for-sale or 5.4%
Condos = 29 REO's of 668 condos (not including TIC's etc this time) or 4.3%


My February 2009 update included TIC's and lofts
Homes = 44 REO's of 570 total homes listed for-sale or 7.7%
Condos = 23 REO's of 949 condos/lofts/TIC's/coops (condo only number is a better metric - and I estimate at least 220 were TIC's of the total) so 5.2% of San Francisco condos were REO's

Foreclosure vs. Short Sale - which is best

Foreclosure vs. Short Sale - which is best?
Well neither is good. But there has been a lot of noise that Short Sales are so much better for owner/sellers than Foreclosures. From what I can tell some of the claimed advantages just aren't true. There are some advantages though.

Firstly, reviewing pages 3 thru 5 at eFanniemae.com's 2008 0816 announcement which describes underwriting rule changes in how Fannie Mae treats bankruptcies, foreclosures, short sales and other negatives transfers. If you go through a Short sale, they won't loan to you for 2 years. If you go through a foreclosure they won't loan to you for 3 to 5 years depending on whether you had "extenuating circumstances".

But the "noise" I am referring to about foreclosures supposedly being better than Short Sales is that from all indications your credit rating will get severely damaged in either scenario, and it's probably unlikely that your credit score will be high enough in 2 years time to qualify for any decent loan.

So is a Short Sale really better than a foreclosure? I think that's a case by case question.... and one you probably need to discuss with an attorney especially since one of the biggest questions is when and how a lender can go after you for a "deficiency judgement" on the amount owed.

REO offer rules - don't bug the Listing Agent

I lift this "comment" from "JimtheRealtor's" blog in San Diego. It apparently is verbatim instructions from a Listing Agent sent to all interested properties in his REO listings. It just goes to show how hot the low-end foreclosure market is in areas outside of San Francisco like San Diego.

Enjoy:
"Thank you for your many emails, phone calls and dropped off and faxed offers. Thanks for your patience as you have filled up my email and phone services. The agents receiving your calls thank you for your courteous manners as well.

We have received 12 offers thus far. The majority are cash offers well over the 200’s. FYI- After working with this client for over 7 years, This client prefers cash and quick closes and large, non refundable earnest deposits, CLEAN OFFERS!!!. (This is a hint, I don’t make the rules).

EMAIL ALL OFFERS IN ONE EMAIL, RIGHT SIDE UP, (yes, I have gotted them side ways, upside down and the best, is 20+ emails one page for every email). If you are not learned on scanning please go to Kinkos).

ALL offers MUST include copy of the earnest deposit check, PROOF of funds, 8 page Purchase Contract and 2 page buyer advisory, Agency and WPA if seller paid termite work is being requested.

Please submit your buyers highest and best offer as the seller will not counter, only the 2 highest offers will be submitted (per seller instruction), one for acceptance and 2nd for a back up offer. CLEAN OFFERS ONLY. Bank owned are TDS and Statewide exempt. Submit only emailed offers (this email to all inquiries, this does not meant to suggest you did not email your offer). YOU MUST VISIT THE PROPERTY BEFORE SUBMITTING AN OFFER, REALLY!!!

SOLD AS IS- seller has no knowledge on ANYTHING, if you need to talk to me or have questions concerning this property, it is not the right property for your client. NO FHA OR VA OFFERS, because the MLS says so!!!!!

If I pissed you off, please feel to do what you must, I work for the seller and not you.

This email is intended to save me, agents and your clients from the frustration and time it takes to submit an offer on something they most likely will not be purchasing.

Thank You,"

Ahh - that is good stuff. Despite getting upset myself with an REO agent here in SF when I wanted to submit an offer and he wasn't cooperative, I now get it. We have so few REO's, but thanks to San Diego I now know what to do here in SF the next time a Buyer client of mine wants to submit an offer on an REO. Email it in sit tight. And don't send it faxed sideways one page at a time. Lesson learned :)

Good foreclosure news for some owners is bad for others

4 banks announced new moratoriums on foreclosures, Wells Fargo, Bank of America Corp., Citigroup Inc. and J.P. Morgan Chase per this article.

This may be great news for Single Family homes, but could have horrendous unintended consequences for Condo buildings. As I wrote a few days ago, condo buildings that have more than a few foreclosures are at risk of spiralling out of control as unpaid HOA dues add up. Once all possible common area expenses are cut, and the building is short on cash flow, dues must be raised, or special assessments must be made to raise money from the "healthy" owners.

Unfortunately some of those owners will likely be at the financial edge of a cliff... with any extra expense could push them into foreclosure... and you can just picture the snowball effect and possible avalance of foreclosures.

The moratorium on foreclosures is only going to lengthen the time HOA's will not get paid by defaulting owners, and that will force HOA's to pursue foreclosures themselves to try shorten the time period that HOA dues go unpaid. Of course there are legal costs associated with pursuing foreclosures, and if the owner in question has no equity then none of that money will be recaptured. The additional downside is that foreclosed units usually sell for less than market value, thus creating a new and lower market value for all other units throughout the building. As owners watch values decline, even more may default and the beat goes on.

So good news for those in financial straights may only cause more to join them, especially in newer condo buildings where everyone is underwater already.

Keeping track of foreclosures and REO's in San Francisco

The San Francisco Chronicle's SFGate.com site has a very user friendly way of tracking how many foreclosures are happening throughout the Bay Area. You can drill down by zip code or map to get to San Francisco's numbers.

The San Francisco site is: http://www.sfgate.com/webdb/quarterlyforeclosures/?appSession=064672608671036

This is just a tracking tool, not a site that provides details on the properties being foreclosed upon. But if you are curious about foreclosure trends in San Francisco this site will answer your questions quickly and easily.

Some Condo buildings may suffer more than others

The below post was primarily about Condo foreclosures in San Francisco in which I described a couple of buildings that could suffer more than others due to a snow ball effect of increasing foreclosures and declining prices. What I hadn't even taken into consideration are the effects of defaulting homeowners not paying their HOA dues. This New York Times article speaks to some unique aspects of New York City real estate, but the general issue is the same here in San Francisco.

Banks get the first crack at equity when a homeowner goes through a foreclosure or Short Sale, and in the buildings where owners have no equity, the HOA gets nothing back. As foreclosures mount, the HOA begins to get in trouble, and in many condo buildings that spend most of what comes in, it doesn't take long for the building to get in trouble. To save, repairs, cleaning, amenities, and anything else that can be cut gets cut, thus causing the building to deteriorate in other ways.

Worse, the HOA may have to raise a special assessment on remaining owners in order to make up any budget short falls, and that is unwelcome pressure on any owner who is barely squeaking by and could cause further foreclosures.

Older buildings tend to have many more owners with equity, so even if they were to get foreclosed upon, the HOA will collect delinquent dues with left over equity. So this really is a new building issue. In many newer buildings every foreclosure can have a major impact since no owner who gets foreclosed upon is likely to have any equity.

Once again I point you to the two buildings I mention in the below post... they have already been hit by foreclosures, so their HOA's may already be under pressure. And if they have resetting loans, or owners suffer job losses, or just need to move and can't afford to hang onto the condo, it could become one of the worst downward spirals in San Francisco.