The Foreclosure and Short Sale update you have been waiting for. I'm Connor with HONOR MacIvor and this is a video I produced that talks about the current housing market, but focused on foreclosures, VA loans and lending plus why you wanting to buy a Fixer Property at a discount may not be possible.
I have had the video transcribed by Temi and it's great - but it is a computer. While I do my best to speak correctly, sometimes words fall short.
Watch the video or get into the radio shows that we publish with the audio component of the video updates that we produce.
Connor with HONOR (00:01):
That's a lot of cheese. I hope everybody's having a fantastic week. Here we are gonna look at the date, February 19th, 2020 today's Wednesday. This is our typical foreclosure and hump day broadcast. I'm Connor McIver, Santa Clarita home experts. You can find me at Santa Clarita, home experts.com also, if you Google my name, you'll find a bunch about me as well. Most good. Connor con, N O R. MacGyver, M. I VOR California Dre license numbers zero one two three eight two five-seven. Glad to be a service. Now let's talk a little bit about the real estate market here in the Santa Clarita Valley. I know I did a YouTube video like what's going on today. We're going to talk about foreclosures and bank-owned properties, specifically short sales, so when you have distress properties, people are always looking for those because they're like, Oh my gosh, this is going to give me the best bang for my buck.
Connor with HONOR (00:53):
This is going to stretch my dollar as far as it can go. And you know what, and I've heard this thousand of times, I don't mind doing a little work myself. That's cool. And I'm glad you don't. In some cases though, because of the loan type, they won't loan on a property unless it's in a certain, at a certain level of condition. So for example, veteran loans, VA loans, do a lot to protect the VA borrower and the loan itself is good. Some of the entities that sell that product maybe are a little greedy. So you have to watch out for that. You see the commercials all the time. They want you to pull money out of your, your home, that equity that's been sitting there. So you can go out and buy that next BMW, Mercedes or whatever. Be careful with that.
Connor with HONOR (01:40):
Don't they say it's easy money? You earn that money, you bought that house, you made those mortgage payments. That equity doesn't come easy. And as you see, this is just a little cautious throwing caution in the wind here for my veterans out there. As you see the cycle, real estate cycles are they change all the time. So it could be depending on the election, depending on the future, depending on the economy, depending on a lot of different factors that some of that equity gets removed by no fault of your own. It just happens. When we talk to people about real estate, they asked should I be buying? Now the way that we look at it is this, the interest rates are ultra-low. If you have a loan program that's going to stay the same until the house is paid off. I like that. If you have a loan program that's going to start to adjust after a number of years, not a big fan, whatever fits for you, but make sure you understand the penalties that exist depending on the loan program you're going to get.
Connor with HONOR (02:36):
Now, back to these foreclosure and short-sale properties. In a healthy real estate market, you're looking at about 1% of the available inventory being distressed in nature foreclosures. They're not the only bank-owned foreclosures or real estate owned foreclosures that would indicate a bank or a lending institution owns that asset, but they're also regular people. If you and I go out there and buy property together, Connor and bill, we buy this property and we say we're going to go ahead and rent it out. So we have all the paperwork drawn up, we have a lease agreement in place, all this fancy stuff and you and me are the purchasers of that piece of property. Let's say the people in there decide not to continue and let's say you and I don't have the wherewithal to float that property. They're going to sit in that property and they're going to eat up time with our lender, which is horrible.
Connor with HONOR (03:26):
And if you and I don't have the money to invest in the proper channels like lawyers and such to evict those people. And if we then, if we, let's say have the money to do that, but then they totally tear up the property, ruining the value, like pulling the kitchen out, pulling all the piping out, all of these things that we've seen happen to pour quick setting all the drains, this could finish us. And in essence, the bank that we have our loan from would come and they would take back that property if we quit our obligation by making those payments because we were investors, we hoped we had a tenant in play that was going to do the right thing. Unfortunately, it didn't happen that way. Now all of a sudden we have a foreclosure and the entity that takes it back as the one that originally loaned us the money or the entity that picked up that loan and bought it.
Connor with HONOR (04:14):
And I don't know if you've, if you've owned real estate at times you'll get the notification that your loan, the loan that you had originally on, that home was sold to another entity and they bought it. So as you're making the checks out, instead of us bank, now you're making them out to Citibank or now you're making them out to some other entity out there. So just be aware. So foreclosures aren't always bank-owned. It could be that we, uh, that I have a property that I financed through my uncle, my uncle if I quit paying him, he's playing bank. He could foreclose on the property as well. Usually, foreclosures aren't torn apart. In the last market, we did see quite a few of those properties that were torn apart. Uh, the reason being is because people felt slighted and very, very upset about the bank and they thought they'd take it out on the property because those properties made the news.
Connor with HONOR (05:08):
You saw them publicized, you saw the pictures of the missing kitchens and we had several assets that we were handling for the bank that was utilizing us at that time. And during the time, it was unusual to see, but people would deliberately harm those properties, but they just made the news. There weren't that many that did that. I would say probably 10% or less actually put the effort into destroying, to actually trying to break up at banks, a portion of whatever profit or whatever they're going to get back on that property. So we did see that happen. But with a foreclosure, just like any other property, when it is on the market, you want to make sure that you're looking at the comparables. You want to make sure where that property is listed at. You want to see if it's a good deal because in essence, just because it carries the tag foreclosure, it's not a good deal.
Connor with HONOR (05:57):
Now let's move into a short sale. So this is something that came up here recently. Here we are. February 19th, 2020 few weeks ago, had a property listed for sale, came on the market. My phone started ringing off the hook. My email started blowing up. People that were going to Santa Clarita home, experts.com and who had registered for an account had seen this property pop up. It was great. Three car garage, four-bedroom configuration, 2,400 square feet or so priced at $390,000 in sagas three 83 90 whatever it was, but it was very, very low. A property like that in reasonable shape probably go out six 50 $700,000 in it at that time, at the time that that was listed for sale. So everybody that called me saw this massive discount, $300,000 at least. Oh my gosh, let's go look at it. So I pull it the listing wondering what's going on.
Connor with HONOR (06:56):
Turns out to be a short sale. Okay, so look at it and then I call the agent, no callback. I look where the agents located sometimes somewhere down in Los Angeles working for some kind of an investment group and it also says in the multiple listing service that the property is not going to be shown to anybody except after a contract or an offer has been accepted, vague and ambiguous because with a short sale, although the person selling the property "short", the person that's about to default, the bank, that person typically signs the offer that comes in that's going to be submitted to the Pank. Ultimately in a short sale, it's the bank that approves the offer. At the end of the day, they're the final deciding factor. Here's the point, whenever people are looking at these properties, even my clients, I said, the bank's not going to lose money on this.
Connor with HONOR (07:55):
If the other properties and it comped out at $750,000 that's where the bank's going to set that price. So the people that are trying to sell the property short might accept a contract of $390,000 or whatever that price was. Ultimately all of the information that the banks going to require to allow the short sale to progress that actually closes a short sale has to be done. Those due diligence elements, so it's going to come in and they're going to get the paperwork on the property eventually if they get everything that they need from the seller. Financial returns, tax returns, financial statements, bank statements, a letter of the reason why they're having to default on the property, why they don't have any reserves to be able to continue to make the payments or whatever. All of these documents, once they're submitted, and typically the bank wants to also have a notice of default recorded against the property, that would mean the sellers haven't made their payments for several months.
Connor with HONOR (09:01):
They can record a notice of default after the first. Usually, banks wait for three or four months. In the last cycle, we saw banks waiting a very long time because they were so overwhelmed by the sheer number of properties people were to faulting on. So that was a whole different game today, probably 90 days. So once the bank sees all of this, it's all in a package, they assign it to someone. Back in the last market, they had actual short sales managers that banks had opened up these large departments that all they did were short sales. So at that particular time, they would look over the entire package and if everything looked good, they would probably communicate back and forth with the agent like they would do now say, listen, we're missing this. We need an updated employment letter. We need these sorts of items. So if the agent was doing their due diligence and the people that wanted their property sold short for less than what they owe, that's what it means.
Connor with HONOR (09:56):
If they were responding fine and doing all of their due diligence, then the bank would eventually look at the numbers and they would want to verify the value of the property, not going to take my name for it. They're not going to take the agent's name for it that actually took the short sale listing and is processing it. They're not going to take any of our word for it. They're going to dispatch either an agent like myself that has expertise in evaluating a property, conducting something called a broker price opinion or a BPO or if the property is worth whatever their bottom number is. And in this particular case, I remember in the last cycle for properties worth are valued more than two 50 that you could see on paper $250,000 anything over that, most banks would dispatch a professional appraiser to the property so they could evaluate and go back to the bank.
Connor with HONOR (10:49):
So in this case, eventually the appraiser, if everything works out, we're talking months and months and months. If everything works out, the appraiser returns back to the people that hired them, the bank of record, and they give them the documentation that they worked upon the property, the appraisal report. What's going to end up happening is they're going to see that that property is worth a lot more than the current offer. So the bank's not heartless. So what they'll do is they'll come back to the agent typically and say, okay, well we have a little bit of a discrepancy here. What was your reasoning to price this property at $380,000 when we just had an appraiser come in and say it was worth 700 now if the agent's going to say, well, we were gonna use it for leads and then we changed our minds and then that's not gonna fly?
Connor with HONOR (11:37):
So the agent's going to have to come up with some other reasons besides greed in order for them to have prices property so low, the base then going to ask, who is this buyer? We see that they're preapproved at $380,000 or 390 we're going to reset this price at $700,000 that's what we want. So is this buyer capable of buying 700,000 and I'll throw this out there. Usually no. Usually, people are buying at their top-end comfort level. And I say comfort level because your approval level might be way outside your comfort zone. But usually not $300,000 four or five six, seven, right? $300,000 lower than where your comfort level is. So I would throw, I, I'd bet you dollars to donuts that these people that were in escrow probably haven't been told any of this by their agent. They've probably been told by their agent that yes, this is going to work, it's going to be awesome.
Connor with HONOR (12:39):
But in essence, there are so many things that have to happen for this property actually actually be sold short and for it to sell at that amount that's so far under the actual level of the market, not going to happen. So then the bank's going to come back. So then this agent will contact this other agent that has this buyer and they'll say, Hey Jack, tell me about your buyer. The bank came back with approval on the short sale. Yay. But they want $700,000 for the property. And typically Jack will probably say the other agent helm, my client, my client can't go there. So their contact, their client, a $700,000 is what they'll agree to their clients. Says, I can't float that. Sorry, I'm out. So then the agent's going to get a particular timeframe, amount of days in order to bring a new offer to the bank.
Connor with HONOR (13:31):
So now we have what's being advertised as an approved short sale. The question I had regarding the last one is on upon whose signature do they allow a person to go look at the property? My dad and I would never have you if he was still alive. Never have you buy something silent scene, you know a wrench, maybe a socket set. Okay, but a house that's hundreds of thousands of dollars, you should be able to see it. So my question to this day, when they ride in there no viewings of the home except upon an accepted offer, do they mean the bank's accepted offer? Cause it's not until that point that that offers really accepted and eight, even at that point it really isn't because the offer wasn't for what the bank ultimately wants or are they going to allow them to see that property when the human person that lives there, the entity that starting the short sale process, not the lender but the actual human being needs to sell that property shorter, they are going to allow them to see it after they sign it.
Connor with HONOR (14:38):
So there's a lot of questions with regard to that listing. When I first went on the market as is, uh, with other short sales out there. So if you're looking at distressed property, wanting to find it at Santa CLIA, home experts.com if you scroll down, there's a foreclosure button and there's not very many, I believe there's less than 20, and all of Southern California actual foreclosures. And I did put in there short sales into the mix so you can see those distress properties. The other thing, and I'll finish with this, foreclosures and short sales typically, well especially foreclosures, are evaluated on a future estimate of value. What I mean is this, if we're in a declining market, as we were from 2007 to the bottom of 2011 that's when the market actually bottomed up and started increasing in value from that point. So if we're in a declining market and the trends are showing this, whenever an agent is pricing a foreclosure for the bank or for anyone else, they're gonna want to see where that 90 day in the future estimate of value is.
Connor with HONOR (15:47):
So if we're in a declining market, you're looking pretty good because that short sale, that foreclosure is going to be put on the market at a 90 day in the future estimate of value. So if the market has been declining 4% per month, then you're 12% less than today's value. But then the question is how much more is the market going to decline? And if the crystal ball existed back in the day, I would have known the end of the the the end of the cycle was 2011 and I would have been like monopoly and I would have bought up every single property I possibly could have. Knowing that timing. Then after that, the market turn. So today the market is increasing a little bit, but still, on paper it's increasing maybe 1% per month or half a percent per month. So if you're buying the property today at a 90 day in the future value, you actually spend a little bit more than market value than the property's worth today.
Connor with HONOR (16:42):
Now, if the property doesn't get movement, if the property doesn't get an offer within the first 30 days or if it falls out of contract within the first 30 days, a lot of times the foreclosure banks are going to fire the agent that they had hired to sell it originally and want to hire somebody else. So look for that. In addition, they also do price reductions about that 30-day point as well. So if you have a foreclosure that's been on the market that you've been watching for 23 days or whatever, close to 30 your timing might be just right where you could go in there and offer them 10,000 or 15,000 or whatever it may be. Whatever you work out with your professional realtor. Not realtor, whenever, whatever you work out with them, your realtor, they will then be able to establish, Hey listen, let's undercut this property by $15,000 and if the bank's getting poised and ready to do that price reduction, you might actually get your offer accepted without them having to do the price reduction and without your having to compete with so many people depending on how attractive property is.
Connor with HONOR (17:50):
Right now in Santa Clarita Valley is still very low inventory. I did post up, um, an absorption rate chart and the absorption rate is how long it takes to sell the standing inventory without any new listings being put on the market. A healthy level, six to eight to nine months it would take to sell off the other inventory, everything available for sale at the current rate of it being sold. So six to seven, eight months. That's, that's healthy right now for the last three months of 2019 we were at two and this January as we closed that out, we were at three, so still very low levels of inventory out there. Usually the trend. We're going to see that increasing in March, February, February, the end of February, March. We're almost the end of February now. March, April. We'll keep you posted on that. Santa Clarita home experts.com you'll see a tab up at the top for the blog. Please check us out. Our radio shows there. You can find us by Googling wants, Stitcher one iHeart. We're on iTunes were just about everywhere. I'll take this transcription from this video and I'll plug it in and this will be become today's real estate broadcast, talking about our hub day foreclosures and the other short sales and distressed properties, news and events. I'm Connor MacGyver and I don't know why they just don't give the Astro sign back. Maybe I misunderstood that news snippet. Be safe. I'm Connor MacIvor over and out.
I have been representing buyers and sellers of homes since 1998. During that time there has been a change in real estate due to the advent of technology.
Today, there are systems that an agent can use to handle a lot more transactions per year.
The issue that comes up with all of the new "technology" is the communication with the clients falling short.
Clients don't like to be ignored, they will be the first to tell you this. They want to know where the process is and the best way in which to keep themselves protected.
By working on both fronts, a real estate agent may not be able to close as many deals, but they will keep clients that always refer to them for life.
I'm Connor with HONOR MacIvor and I'm glad to be of great service to you and your Real Estate needs. Call me when you are ready to have your real estate won!