CalHFA and Short Sales

I wanted to share some thoughts on CalHFA short sales. They are different from other lenders, and are very strict on how the calculate hardships. I’ve heard, time and time again, from colleagues, that CalHFA never approves short sales. If a borrower’s income has not been effected, they will most likely not grant a short sale. It’s very black & white. But it appears that this is slowly changing. I’m in the middle of negotiating a short sale with them now and my client and I have gotten past their front lines: the Collections Department. Now we are in talks with the short sale department and even though my client has not suffered from a loss in income, we have demonstrated that her increased mortgage payment along with her other expenses far outweighs her income. If the investors approve this short sale, it will be a sign that they are slowly changing their position and will be more amenable to work with financially challeneged borrowers.

Sitting on the Market

Everybody is hearing stories of listings selling in days, even before they hit the market. There are multiple offers, reminiscent of the good old days. “There’s no inventory,” is the common cry lately. Then why are there still properties sitting on the market for 4 months and longer, much longer? Well, I’ll tell you… they are overpriced. This is a strong indicator that although we have a ton of buyers out there, and there are feeding frenzies on some properties, buyers are sill resistant to over pay. It may feel like we are back to 2005 in many ways, but buyers have more self control. They are not throwing money blindly at a home just to get in the market. (This is what helped inflate the market so quickly last time.) No this time, we are going to see slow growth. And while inventory is “soooo” low, buyers are not going to throw caution to the wind. Good!

Home Buyer Tip of the Day

When negotiating a contract on a home, everything must be agreed on or you don’t have a fully executed contract. Well, actually almost everything. There is one clause in the contract that if one party initials and the other party does not, you still have a deal. This is the Arbitration Clause. If there is a dispute between buyer and seller, they have agreed, per the contract, to go to mediation. If mediation fails, then there is the option to go to arbitration. If both parties agreed to the arbitration clause in the contract, then you are required to go to arbitration if mediation fails. Arbitration is binding whereas mediation is not binding and is usually an effort to come to a mutually agreed upon compromise. I have heard different things about arbitration. It may or may not be more expensive than going to court. The key is if you don’t sign the arbitration clause, you can always decide to go to arbitration later if there is a dispute. But if you do sign this clause, then arbitration is mandatory in the event that there is a dispute and mediation fails. If you don’t sign, you leave your options open for later.

House Hunting Tip of the Day

Not only is it a good idea for buyers to check the permit history on a home before they buy, but sellers are wise to check the permit history on their homes before putting them on the market. This way, they can correct any permit issues before the listing goes public.

Some cities require building reports to be pulled on properties before they are sold. There is a cost to pull the report, but it should be under $100. Normally, the seller pays for it, but like everything else, it’s negotiable.

I just had a situation where the building report was delayed. When we finally got it, we were a week away from the close of escrow. The report indicated that there was a permit for use of the frontage of the property. Apparently, the city owned the first 20 feet from the street onto each lot. Each homeowner had to pay a permit for permission to use this footage. This permit was required to be transferred from one owner to the next at the cost of $700. Fortunately, the buyer and seller agreed to split the cost of the permit so they could close escrow.

2023 Voorhees Ave in Redondo Beach Auctioned Off

2023 Voorhees Avenue went to public auction (a trust sale) this past Saturday. It’s a 3 bedroom, 1 bath on an approximately 4,500 sq. foot lot with a detached garage. A fixer to say the least, but it’s in a great neighborhood. 25-35 people showed up but only 4-5 parties placed bids on the property. Listed on the MLS at $549,000, but there were no takers at this price. Bids started in the $300,000s and ultimately sold just under $400,000.

The run down on AITDs

All Inclusive Trust Deeds were big in the 80s and 90s. They are starting to see a resurgence today. Bbut there are some major downsides to AITDs that you should be aware of. Here’s a little background on it. In the 80s interest rates reached incredible highs up to 18%. It was so expensive to get a loan that many buyers and sellers found a way to work around the high interest rates. The buyer would take on the seller’s loan (which was at a much lower rate) and then they would get a second loan to cover the difference between the 1st mortgage and the sales price. The 2nd loan was wrapped around the first hence the term “wraparound mortage” or AITD. The title would transfer to the buyer, but the seller would remain on the first loan; the buyer would just make the payments. In the 90s, banks responded by including a “due on sale” clause in their loan documents. This clause stipulated that if there was a transfer of title, the bank would have the right to “call” the loan or in other words, require the borrower to pay the loan in full.

In the past several years, interest rates have been so low that there hasn’t been a need for buyers to do a wraparound mortgage. However, today we have more and more sellers who are underwater. They don’t want to short sale, but they don’t want to continue to make huge mortgage payments either when they have lost so much equity in the property. Voila, the return of the AITD. A buyer can come in and take over the current loan. Again, the title is transferred but the seller remains on the mortgage. It sounds like a win-win for everyone. But so many things can go wrong. The buyer may decide he doesn’t want to make any more payments. The seller then is on the hook for the mortgage and he doesn’t even own the house any more. Or the lender could do a random check (which they do) and notice that there is a change in title. The “due on sale” clause kicks in. The bank can decide to call the loan. The bank will come after the seller for the money, and ultimately the the bank can foreclose on the property. An AITD sounds like a great way for a seller to remove himself from a mess, but if anything goes wrong, and there are so many different scenarios not discussed here, that I would recommend to stay far away from AITDs. If you do consider one, please consult an attorney.

New Manhattan Beach Listing Not on the Market Yet!

I am putting a house on the market after the holidays. It’s a single family in the Hill Section of Manhattan Beach. 4 beds. 2 baths built in 1960. It has 1,958 sq feet and is on a 40×144 lot. It’s priced at $1,350,000. This is an incredible opportunity it get into the Hill Section. It’s a mid-century modern house or a “post & beam”. It has great lines and offers a fabulous footprint to refurbish. To top if off it has spectacular city views. Please call me if you would like to see this property. I can set up an appointment even before it’s officially on the market.