Several readers have suggested that the CA Homeowners Bill of Rights has been the cause of the slowing foreclsoure activity – and now Barclays agrees. Fromdsnews.com:
The California Homeowner Bill of Rights (HBR) is the main driving force behind the recent slowdown in foreclosure sales and short sales in the Golden State, according to a research report from Barclays. In addition to stalling the foreclosure process, provisions in the new bill, which took effect January 1, 2013, have also led to an increase in litigation risk for servicers, analyst at Barclays found.
According the report, short sale activity and foreclosure sales have been dwindling over the past few months, as indicated by foreclosure-to-REO and foreclosure-to-liquidation roll rates. At the same time, roll rates in other states appear to be steady.
As a result of the HBR, Barclays believes “servicers have become significantly more cautious when carrying out foreclosure sales” in the state. While the bill offers several protections to homeowners, one particular provision that allows borrowers to sue servicers for “material violations” of HBR could result in additional costs for servicers.
Violations of the HBR include dual-tracking, failing to provide a single point-of-contact, and neglecting to deliver proper notice of loss mitigation options.
The report explained that prior to a foreclosure sale, homeowners can seek injunctive relief to halt the foreclosure process. If a homeowner secures an injunction, the borrower can pass all legal costs to the servicer through the HBR, even if no material violation of the HBR is proven later, the report explained.
“Our understanding is that securing an injunction may require only a declaration from the borrower that a material violation of the HBR has occurred and some reasonable justification for further investigation into the alleged breach. It is possible that multiple consumer rights attorneys will offer their services on a contingent basis to borrowers facing foreclosure, effectively providing the homeowner with a zero-cost option to pursue litigation,” the report stated.
If the request for an injunction is granted, legal costs could easily rise to the thousands as the court looks into the allegations. The process could also add another 6-12 months to the foreclosure process, according to the report.
“Furthermore, borrowers are much more incentivized to demand a copy of the promissory note, the chain of mortgage assignments, and the borrower’s payment history to collect evidence that a breach of HBR occurred, further stalling the foreclosure process,” the report explained.
Even though California is not a judicial state, analysts suspect the increase in litigation risks and the extended foreclosure timelines might cause servicers to pursue more judicial foreclosures, which are exempt from the HBR’s provisions.
Ken compared some of today’s tactics to those used at the peak:
They’re back after barely a decade: escalation clauses in real estate contracts, “naked” contingency-free offers and low-ball-priced listings designed to pull in dozens of bidders and turn routine sales transactions into auctions.
I hope listing agents put their foot down about the escalation clause. Every buyer would pay an extra $1,000 if that is all it took to win, so it isn’t a fair way to determine the winner. Listing agents should demand that each buyer commit to a specific price, because those deals are more likely to stick.
No-contingency offers are great for the buyers with loads of money and guts, but wouldn’t you offer less than your maximum to compensate? To encourage more buyers to go this route, it would be smart for sellers to provide a home inspection report at time of listing. The goal is to sell the house, not to collect deposits from failed escrows.
You don’t have to list your home below market today to attract a crowd, just pricing it at the comps will put you ahead of other seller nearby. Either way, make sure your listing agent has specific and adequate strategies on how to conduct a bidding war.
Here are other ideas – for sellers:
1. Provide unlimited access to the property immediately.
On the Manzanita listing, I told the sellers to leave town on Friday, and come back on Monday prepared to make a decision. We communicated over the weekend in case there was a reason to change course, but the strategy worked great. We reviewed offers by email as they came in, and asked all eight to make their highest and best offer. By the time the sellers got back on Monday, we had the H&Bs and picked a winner.
2. Make sure your agent is ready, willing, and able to field inquiries.
The buyer-agents start calling, emailing, and texting within an hour of hot new listings hitting the MLS, if your agent is out to lunch they will burn the most precious first few hours and days of peak urgency.
3. Put an attractive price on it.
Buyers have no problem over-bidding, so resist the urge to tack on a few extra bucks. Chances are good that you added some icing to your cake already, so avoid the pricing overdose! You want/need max bidders so your bidding-war strategy can work effectively – there is nothing worse than having only two low offers, and when you try to get them to bid up, instead they bail. An attractive price will bring 5-10 bidders, and put more heat on them, not you.
Here are other ideas – for buyers:
1. You need a teflon memory.
If you keep remembering comps from last year, you won’t be buying a house anytime soon. I regularly see houses selling for 20% to 40% more than last year’s comps – it is a new day, and you can accept it, or wait.
2. Flash your cash.
The listing agents are telling the sellers to take the strongest offers, determined by who has the most cash. Prepare to provide a bank statement to substantiate your strength, and get fully pre-approved in advance if you want to utilize paragraph 3k.
3. If you want to sell your old house concurrently, you have a problem.
If your agent can do some fancy dancing, you might be able to pull it off. But it is so competitive, it would be a shame to miss the perfect house because you didn’t have this part handled in advance.
Admittedly, it is a quandry – if you sell first and rent, you have to move twice, and you could get priced out if you can’t find a replacement quickly and the market keeps moving.
The other options:
A. If you list your home for sale with an open-ended seller contingency to find suitable housing, you might lose some buyers and sell for less – and if you didn’t find a house to buy, you would have burned up your precious first-time-on-market urgency.
B. Have your house ready to sell, and when you find a suitable replacement, list your house for sale in the same hour and hope your agent is lucky!
C. Make an offer-to-purchase, contingent on selling your existing house – but don’t be surprised if most sellers send you to the back of the line.
Your agent should be able to address the options and offer some advice on the best choices.
“If the seller is fully informed and provides written consent not to place their home on the MLS, then I’m not concerned,” said Betty Graham, president of Coldwell Banker Previews International/NRT, the Realogy franchise’s luxury brand. “But I’m not sure that’s the case in many of the pocket listings I have seen. The fact is that our first responsibility is a fiduciary responsibility to act in the seller’s best interest and with a pocket listing there is a great potential to violate that fiduciary responsibility.”
An agent had a new listing scheduled for the typical open house in RP this weekend, but abruptly cancelled it, and withdrew the listing. These were her confidential remarks – apparently the sellers were overrun:
OPEN HOUSE CANCELLED! Multiple Offers Received over asking. No more showings. Thank you to everyone who tried to get offers to us in time. Sellers reviewing offers received & make a final decision by Saturday evening. Seller Requested that property be removed from MLS due to unauthorized visits to the home.
To cancel an open house just because you have multiple offers is a dis-service to everyone – there probably were people coming to see it who might have paid more. But if buyers/agents were busting down the doors, you might have to cancel everything just to survive?
More bubble talk inthis articlefrom the latimes.com – an excerpt:
More investors are buying homes to quickly sell again at a profit.
“Everybody I know is trying to do flips right now. It’s like the day trading of the 1990s,” Nordine said. “We went straight from Armageddon to speculation; there was nothing in between this time.”
Still, Nordine is advising clients to buy now if they can, citing low interest rates and low risk of another foreclosure crisis.
“That is how the American economy works now,” he said. “It seems as if we just go from one bubble to the next.”
There is a distinct difference between the home price run-up of the last decade and the current upswing. During the previous boom, listings abounded and sales soared. Now, rising prices are driven by a shortage of supply. And although underwriting standards may be relaxing, they remain tight when compared to the days when lenders issued enough subprime loans to crash the U.S. economy.
Christopher Thornberg, founding partner at Beacon Economics, said today’s market remains rational, despite a rise in prices.
“It’s not a bubble by any stretch of the imagination,” he said of the recent price gains. “If you can’t borrow, you can’t speculate — that is the primary thing that will prevent this from happening.”
One of the reasons that the $1,000,000+ market feels bloated (NSDCC = 634 actives today, 111 sold in last 30 days) is that any property worth $800,000+ gets puffed over $1M by the seller and agent, just in case.
If you are buying, make sure you know the difference:
For the daredevil sellers who recognize that this is an ideal time to sell, yet want to wait and see if the market will goose itself higher, what are the indicators to watch?
1. We’ve been tracking the NSDCC active inventory this year, and it hasn’t been growing much – the new listings that are coming on the market are being matched by new pendings. If the active inventory starts to grow, then we know that buyers are hesitating about the pricing.
2. The average-days-on-market is your buyer-desperation index. How quickly are homes flying off the market?
We have ramped up to warp speed currently, but if this starts to falter, you know that buyers are catching their breath about the pricing.
3. The number of sales is a great leading indicator, but their close date is actually 30-60 days past the decision date. New pendings aren’t that reliable either because they can fall-out.
Let’s just compare sales to the same average-days-on-market, and call the difference the desperation gap:
Sales are remarkably higher, and the average DOM is dropping sharply.
Let’s call the current condition the full-tilt boogie!
On a side note, it is refreshing to see that open houses – once the scorn of realtors who thought they were good for nothing – are now being utilized as the most effective way to expose a new listing to the market.
A former Fannie Mae sales associate who allegedly promised to provide listings to a real estate broker from the mortgage giant’s REO inventory in exchange for kickbacks has been indicted on three counts of wire fraud.
Armando Granillo, 44, worked out of Fannie Mae’s Irvine, Calif. office as a real-estate owned (REO) specialist, reviewing applications submitted by real estate brokers seeking to list properties foreclosed on and repossessed by Fannie Mae.
Late last year, federal prosecutors said Granillo asked a Tucson-based real estate broker to pay him a percentage of the commissions — later pegged at 20 percent — that the broker earned for selling Fannie Mae properties.
The broker alerted federal law enforcement officials, and during a meeting in February, Granillo travelled to Phoenix to meet with the broker, prosecutors said.
At the meeting, which was recorded by investigators, Granillo allegedly said kickbacks were “a natural part of business,” and arranged to receive an $11,200 payment from the broker.
Granillo was arrested on March 5 after allegedly accepting the payment from the real estate broker, who was working with investigators from the Federal Housing Finance Agency’s Office of Inspector General.
Granillo was freed on $5,000 bond and is scheduled to be arraigned next month in U.S. District Court.
Each wire fraud count alleged in the indictment carries a statutory maximum penalty of 20 years in federal prison, prosecutors with the U.S. Attorney’s Office for the Central District of California said.
The perception of affordability, combined with the fact that home prices compared with rental rates are at levels last seen in the early 2000s, is making it tempting for people to think now’s a good time to buy a home.
“We are currently in a carnival funhouse mirror,” says Stan Humphries, chief economist at Zillow. ”Homes seem quite affordable when at base they are not.”
Humphries says there’s a lot that worries him. The main tool the Federal Reserve uses to fix the broader economy—lowering rates—”could, if it hasn’t already, reinflate a bubble in the housing sector.” If incomes start to grow more, home values could move more into line with historic norms, but that’s not likely.
More likely, in his view, is that as rates rise and push mortgage payments higher, people are going to realize that homes—and not just mortgage payments—are overpriced for what the nation as a whole earns, which in turn could send home prices tumbling again.
Humphries’s outlook is unsettling. He says many people think that once home prices corrected from their overinflated bubble levels, the market would be back to normal. But that’s not the reality he sees. “It’s really a period of oscillations that will be disorienting for buyers and sellers, and I think we are far from done.”
If the request for an injunction is granted, legal costs could easily rise to the thousands as the court looks into the allegations. The process could also add another 6-12 months to the foreclosure process, according to the report.
