I spoke with an attorney who works in a title company I use.  He told me that banks can pursue deficiency judgments against foreclosed homeowners in Missouri.  He said that he had represented banks who did so.

As always, the information here is not to be assumed to be legal advice.  Consult a real estate attorney for the real scoop on legal questions involving real estate.

In states like Florida, this can be big numbers.  Say you had a house with a mortgage of $500,000 but now that the market has gone south it’s only worth $250,000.  When the bank forecloses and sells your home, they can come after you for the remaining $250,000.

In places where the market value has plunged off a cliff, some homeowners are walking away and letting banks take back their homes.  But in states that allow deficiency judgments, banks may start playing hardball.  Deficiency judgments vary by state, so always seek legal counsel in making your decisions.

Here is a link to a website outlining Missouri foreclosures.

Here is a link to a website outlining Kansas foreclosures.

photo credit: Aaron Gustafson

The tax credit clock is ticking for buyers.  To qualify, you will have to have a contract by the end of April 2010 & close by the end of June.  But I just read that the IRS just “clarified” the qualifications.  They said that a binding contract must be signed by all parties that need to authorize the sale. In the case of a short sale this could mean that even now it is too late.

Some lenders move to approve short sales at the speed of a dial-up modem.  A signed agreement today might take well past the end of April to be approved for a short sale.  You can read more on this subject by clicking HERE.

If you are looking to cash in on the tax credit, work with a realtor who can advise you on the realities of the market and get your home closed in a timely manner.

Disclaimer:  I’m not an attorney or tax adviser so these comments are not to be taken as legal or tax advice.

Termite damge to window frame

Termites can eat the equivalent of a two foot 2 x 4 in a year.  But they don’t eat all that wood in one place.  They leave paper thin remnants to use as a highway to the rest of the house.

A potential buyer told me about a house she had her eye on.  It was a foreclosure, so I went by to have a look.  The first thing that hit me when I opened the door was the odor of cat urine.  The carpets looked clean–perhaps they had been shampooed.  But whatever number of cats who had lived here previously didn’t see fit to use a litter box.  The pee was somewhere in the carpet, the pad, and probably the sub-floor.  If it’s in the sub-floor, even new carpet won’t help.  You have to strip out the carpet and pad, put an odor-killing sealer on the sub-floor, and then install new carpet.

The odor was severe, but treatable.  The rest of the house was in dire need of updating.  But could be fixed as well.  But if I were thinking of making an offer, it would be significantly less than the asking price.

But when I went outside I saw where the termites had been.  They had eaten the

Termite damage on siding.

siding and around a window frame.  It was more than just cosmetic damage here.  I saw the wall bowed a bit right under the window.  I’d seen termite damage like this before.  Long ago I set out to repair what looked to be a small amount of termite damage and ended up replacing all of the floor and 2 exterior walls in a living room.

If I were ever to buy a house that has termite damage, I would give myself a large margin for error when estimating repairs.  The problem with termites is that the damage is hidden.  You really don’t know what you are getting into until–well, until you get into it.  You have to start demolition before you know how far the damage goes.

With the amount of other good deals on the market, I’d much rather just go down the road and find a house that’s not at risk of being a money pit.

Remember the 8-second rule: That’s all the time you have to create a winning first impression. Here are some simple yet significant ways to maximize your home’s appeal.

Exterior

* Keep the grass cut and remove all yard clutter.
* Weed and apply fresh mulch to flower beds.
* Apply fresh paint to wooden fences.
* Tighten and clean all door handles.
* Clean windows inside and out.
* Powerwash home’s exterior.
* Ensure all gutters and downspouts are firmly attached and functioning.
* Paint the front door.
* Buy a new welcome mat.
* Place potted flowers near the front door.

Interior

* Evaluate the furniture in each room and remove anything that interrupts “the flow” or makes the room appear smaller. Consider renting a storage unit to move items off-site.
* Clean and organize cabinets, closets and bookshelves.
* Clean all light fixtures and ceiling fans.
* Shampoo carpets.
* Remove excessive wall hangings and knick-knacks.
* Repair all plumbing leaks, including faucets and drain traps.
* Make minor repairs (torn screens, sticking doors, cracked caulking).
* Clean or paint walls and ceilings.
* Replace worn cabinet and door knobs.
* Fix or replace discolored grout.
* Replace broken tiles.
* Replace worn countertops.

Special details for showings

* Turn on all the lights.
* Open all drapes and shutters in the daytime.
* Keep pets secured outdoors.
* Buy new towels for bathrooms.
* Buy new bedding for bedrooms.
* Replace old lamps or lampshades.
* Play quiet background music.
* Light the fireplace or clean out the ashes and light a candelabrum.
* Infuse home with a comforting scent, such as apple spice or vanilla.
* Set the dining room table for a fancy dinner party.
* Vacate the property while it is being shown.

FHA announced it is temporarily lifting this restriction–with some qualification–in order to allow buyers to more easily purchase homes being sold as a result of foreclosure.  This is a good move on the part of FHA.  It is good news for the real estate market in general.  From what I’m hearing, we are likely to be seeing foreclosures continue to flood the market.

Doing away with the 90-day requirement will help the coming trend that shows the foreclosure problem is beginning to move up market as well.  As more “middle class” owners face layoffs and unemployment, higher priced homes are coming on the market as foreclosures.  For an investor, the higher value in a house the greater the risk of loss and the more need he has to fix it and sell it quickly.  These new guidelines will allow investors to fix and flip these higher value homes.

There are some restrictions aimed to limit the predators while allowing legitimate investors to show how they increased the value of a property and justify their profit.  This new p0licy will likely not get the media attention the tax credit received, but I believe it may prove to be as effective at helping the market absorb the continued flood of foreclosures.

Click HERE for the full report on the HUD website.

Specific details of this temporary policy are available on the HUD website.

photo credit: fPat

Some lenders are starting to write down the principal for some homeowners in trouble, according to a story in this weeks edition of Business Week.  Mortgage work-out solutions in the past have just addressed the interest side of loans, giving very little to homeowners who now owe significantly more than the present market value of their home.

Banks can either forgive part of the principal or merely defer it.  If principal is deferred, the homeowner must pay back the full amount of the loan when he sells the house.  If the house doesn’t sell for enough to cover the balance, the homeowner has to pay the difference.  Such a solution may just push the problem down the road for many people.

It is still rare for banks to forgive or defer principal.  But in the 3rd quarter of 2009, 3% of the total mortgages that were modified included principal modification–either reduction or deferral.

The writers of this article didn’t mention the effect of mortgage write-downs on the homeowner’s credit.  It is likely such a new concept that the rules of the game have yet to be established.  I will venture a guess, however, that the effect will be similar to that of a short-sale: that is, it will not be the train wreck that foreclosure can be.  But it will have a significant impact on the credit score.

photo credit: greeblie

Notes from a presentation given by the chief economist of the National Association of Realtors:

1.  The market is at the bottom.  For those who have been waiting, this is it!

2.  Mortgage defaults will continue.  For buyers this means prices should stay at a bargain for at least a little while.

3.  Foreclosures are moving up the ladder.  People who are underwater on their mortgages may walk away rather than keep paying.

4.  Mortgage rates are going to rise sometime.  As the market gains strength, rates will rise to combat inflation.

5.  The buyer’s market won’t continue in all areas.  Inventories are starting to shrink.

6.  There may be a new loan modification plan coming down the pike.  The present one isn’t working as well as hoped.

7.  FHA may tighten their standards.  Possibly FHA will start requiring a higher down payment.

8.  The overall recovery will begin showing in the last half of 2010.  (Although there are other experts who say just the opposite.)

9.  The tax credit will not be extended again.

10.  Residential real estate will start to recover, but commercial real estate and lending will likely not recover until 2012 or after.

photo credit: alan.stoddard

The Kansas City Star recently reported about Kyna Franklin who received help saving her home from foreclosure.  (See full story here.)  The details aren’t specific, but part of this foreclosure appears to have involved a request for a loan modification.  The Obama administration instituted a program to encourage lenders to modify loans–usually by lowering interest–in an attempt to curb the growing foreclosure problem.

But some lenders have used this program as a way to “steal”  homes that have a good deal of equity.  Here’s the scenario that happened to a friend of mine:

He was current on his payments with a good credit score and about $20K in equity, but he is self-employed and his income has dropped.  He contacted the lender and asked to do a loan modification.  He was told that mortgage payments couldn’t be received by them while his request was being processed.  He made his payment anyway, but the lender returned it.  At the end of the month, he received a call from a friend who buys foreclosures at auction.  His house is being sold at auction by the lender, who has foreclosed on his home.

Unfortunately, he found that he is not alone.  This lender did the same thing to many others in Missouri.  The attorney general is looking into it, and pressing charges.  But in the meantime, I had to help my friend move out of his house into a rental.  His credit dropped over 100 points, and he’s left wondering how something like this could have happened.

My friend’s story may not be the norm.  There may be lenders out there who aren’t preditory.  But it gives me pause.  I think that anyone thinking about asking for a loan modification should do some research about the process before jumping into waters that may be teeming with sharks.

This is good news for buyers because there are still good deals to be had.  Interest rates remain low and the tax credits offer a good incentive to get moving on finding a home.

Sellers will continue to face buyers with lots of choices.  Staging and curb appeal is vital to get buyer’s attention.  Most buyers want a home that’s move-in ready.  If you have the HGTV or Better Homes & Gardens house, you’re going to stand out.  A prospective buyer will say to himself, “Why should I buy a house that needs work when I can buy a similar one in the neighborhood that’s already done?”  And the buyers who are willing to do some fix-up after they move in are going to ask for hefty discounts in the price.  Often they ask for more than the cost of repairs because of the hassle of having to take on both moving and home improvement projects.

No matter whether you are  a buyer or seller, a good Realtor can help you get the best deal possible.  The outlook is good.