ABODE A Property Owner’s Survival Plan The “up” times in the local real estate market are a lot higher than the “down” times are low. Wise people can thrive at both ends of the market swings. June 2007

Judy Hazen

A number of area residents who have bought homes in the past few years have gotten themselves into trouble because of the softness that is currently in the local market.

Most of the troubles associated with the problems in the housing market can be reduced or avoided altogether through the application of sound advice and knowledge. In fact, people who are really in the know can leverage the dynamics of the market to their own advantage.

There are options that can help homeowners protect their investment and prepare them for a stable future. There are all kinds of possibilities according to your situation to minimize any problems with a property that is over-mortgaged in a declining market.

If you have property that has lost value, the best thing you can do is to just hang tough and do not panic. The market will inevitably come back. A principle operating in this business, especially in California, can be characterized as “What goes down must come back up.”

Everybody was getting into the market a few years ago and the people who made a lot of money were those who were selling at the time when everybody was buying. Now conditions have reversed. People who are buying properties now are putting themselves in good position to increase their equity substantially over the next few years as the market returns.

If for some reason you must move out of a property that you can’t sell for the price you must have, consider renting the property for a few years. Many realtors (like me, for instance) will advise you about this and even help you find renters.

Many homeowners are being caught in unpleasant situations due to the fact that, since rates are “adjustable” they will, in fact, adjust at some point catching homeowners off-guard when the adjustment goes up. If you are struggling with monthly mortgage payments call your bank. Or call me and I’ll hook you up with the right person.

You can head off future problems with your adjustable loans. If you are in an adjustable mortgage situation and act in a proactive fashion, you might be in for a pleasant surprise because the fact is that fixed mortgage rates are still near historic lows.

Call your lender or mortgage broker to figure out the term on your loan. For a fee — sometimes a relatively reasonable one — banks have been known to let property owners roll their adjustable loan over into a fixed-rate one.

Given the current low interest rates you might be able to negotiate your way into a fixed interest loan in which the interest is actually set at a lower rate than the adjustable rate you have been paying.

One of the reasons for sluggish home sales is that potential buyers are waiting for the bottom of the market.

In fact, now is a great time to buy a home. Especially is this a good time for you if you are planning to move up — selling your starter-home, perhaps, or moving into a large home with sufficient space for your growing family.

The fact that you will perhaps receive less for the sale of your current home than you might have sold it for last year is abundantly set off by the fact that you should be paying much less for the new home than you would have paid last year.

Think about it for a moment. Just to make the math easier, imagine that the market has declined ten percent in the past year. And imagine that a year ago your Byron starter home was worth $100,000 and your target Apple Hill property is worth $1,000,000.

All things being equal, that ten percent decline means that your home is now worth $90,000 and the Apple Hill property is worth $900,000.

On paper you are losing $10,000 on your property but are gaining $90,000 on the property you are trying to buy. In other words, you are going to have $80,000 more in your pocket than you would have had if you had done the transaction last year.

In this kind of market all things aren’t always equal — usually to your advantage if you are in the situation I’m describing. The Apple Hill property probably declined a greater percentage than your starter home.

Moving up to more valuable property will always have this kind of advantage in the current market, especially if you have a smart realtor on your side.

When Things Get Grim

Foreclosures provide the process for lenders to recover the amount owed on defaulted loans by repossessing the properties that were used to secure the loan. The important thing is to plan ahead so you can avoid foreclosure.

Even when a lending institution has begun foreclosure, the process can be derailed by borrower reinstatement. The lending agency by law must provide a grace period, known as pre-foreclosure, during which payment can be made.

Properties going through foreclosure are sold at auction giving third parties the opportunity of buying a property sight unseen on the courthouse steps and paying the full amount with a cashiers check.

The purchaser will usually buy the home for the opening bid, which is often the total loan amount including all penalties and back payments.

Realize that your lending agency is not your enemy. When you get into trouble your lending institution is likely to be on your side and will help you in any way they can. They don’t like the hassle of foreclosure so they provide for short sales, which is much more attractive to the distressed property owner.

In a short sale a property is sold to another party for less than the sum of the outstanding loans, which enables the property owner to pay off the debt and avoid having a foreclosure marring the owner’s credit history for the next seven years.

A Better Idea

There’s a great tool available to help both buyers and sellers move properties in the kind of economy we are facing. A project called MMAP allows participating sellers to contribute mortgage payment assistance as a means of attracting qualified buyers to their properties.

In other words, MMAP provides a win-win for people on both sides of the buying/selling table. The seller has to give up a little on the asking price, but the money is then converted into mortgage payment assistance for the buyer. So the payoff in exchange for the reduced asking price comes in being able to offer a truly remarkable incentive for potential buyers.

Here’s how it works: For two years following the home purchase MMAP provides buyers with mortgage payment assistance in the form of grants that vary in size, depending upon the value of the property, from $250 to $1,000 per month.

In other words, with a relatively low investment owners can move properties expeditiously, and buyers can move into home ownership with two years of assured subsidized home payments. Some things in life are just beautiful! MMAP is one of them.

People who make serious money in property investments are those who learn how to implement an investment strategy based upon the standard of buying when others are selling and selling when others are buying.

So, whether it is rising or falling, the Housing Market in East County is an exciting place to be involved in.

There is wealth to be made. It just requires more wisdom and courage than it did a few years ago. Plus, it is now more essential than ever to have a good team going to bat for you.

There are certainly protections for people who may have made purchasing decisions in the past that, given 20/20 hindsight, were not wise choices. Situations are seldom helpless, however. You just need to know where to look for resources.

Get in touch with accredited experienced professionals; let’s work on your challenges together. I’ll help you find the resources you need.

Cutting Through the Fog

Here are some points about each of the outcomes when a property fails to help you weigh your options:

Short sale/Pre-Foreclosure

Pros:

Cons:

Longer and more complicated process.

Foreclosure Auction

Bank-owned Properties (REO)

Cons:

For more information contact Judy at 925-392-4131 or judyhazen@kw.com.