Friday, December 21, 2012

Pre-Foreclosure Home Sales Rise in the 3rd Quarter

There was a rush of short sales or pre-foreclosure home sales in the third quarter of this year.  RealtyTrac reported that the Chicago area saw a 34 percent increase in pre-foreclosure home sales over the second quarter and a 65 percent increase year over year.

Bank owned properties sales rose to 5,731 in the third quarter.  This is a 45 percent increase from the third quarter of 2011.  Across the entire country, there were 98,125 pre-foreclosure short sales and 94,934 bank-owned properties sold in the third quarter.

An increase in short sales and bank-owned properties sales is a good sign for the real estate market and economy as a whole.  Potential buyers still express some concern that there is a “shadow inventory” of bank-owned properties that will eventually flood the market and drop prices again.  The number of sales suggests that banks are getting more and more of these distressed properties off the books in an effort strengthen their financial positions.  These sales also help prices increase in the long run.  Bank-owned properties tend to sell at a lower price than a similar property sold by an individual in a non-foreclosure situation.  This is referred to as the "Foreclosure Discount".  As the bank-owned properties get flushed through the system, the prices on regular non-distressed properties are beginning to rise.  The Foreclosure Discount has decreased in many areas of the country thus reinforcing the belief that the market is improving.

There are several factors behind the increase in pre-foreclosure short sales.  Banks are now better equipped to handle short sales.  Banks have now had a couple of years to work to streamline or at least improve the short sale process for sellers.  The horror stories about short sales dragging out for over a year are less common now.  The banks realized that pre-foreclosure short sales were a much better alternative than foreclosure.  Once they realized that, along with improving the process, some banks have even offered qualified sellers incentives to short sell their homes.  The foreclosure process can oftentimes take several months if not a year or longer to complete.  By that time, the property could have fallen into greater disrepair thus decreasing the amount the bank eventually gets through the sale.

The short sale option gives incentives to both the owner of the home and the lender on the property to get the property sold.  A short sale is not as devastating on a credit report as a foreclosure plus the seller can walk away with no debt in certain situations.  The lender sells the property sooner rather than later and saves the time and costs associated with repossession and a foreclosure sale.

Another reason why the third quarter of this year in particular saw the big increase in pre-foreclosure short sales is due to the fact that the Mortgage Debt Relief Act is set to expire at the end of the year.  This act does not treat the forgiven part of a loan or unpaid debt as taxable income.  Once this expires, if you short sell your home and are forgiven $20,000 in unpaid debt, you would owe taxes on that amount.  This is a huge motivation for individuals who are already under financial stress to get their homes sold and unpaid debt forgiven before the end of the year.       

See Our Related Blog Posts:
Bank of America Pays for Short Sales
The Tax Man is Circling the Block

Friday, December 14, 2012

Mixed Signs for the Illinois Real Estate Market

The month of November produced results that were met with mixed emotions.  Chicago areas home sales jumped more than 36 percent in November, but the Illinois foreclosure rate was the third highest in the country.

Good News

The Illinois Association of Realtors reported that 7,604 detached single family homes and condominiums sold in the nine-county Chicago area last month.  In 2011, there were 5,582 sales in November.  November marks the 17th straight month of year over year monthly increases in sales.

Several factors contributed to the increase in home and condominium sales.  Lenders have loosened up a bit for qualified applicants thus giving more people the option to buy.  Pre-foreclosure short sales are becoming relatively easier than in the past thus encouraging sellers to go this route if they can qualify.  Then there are those individuals who are simply worried about the uncertainty of the financial markets and who decide to park their funds in real estate.    

Not So Good News

According to RealtyTrac, one in every 392 housing units had a foreclosure filing in November in Illinois.  Only Florida and Nevada had higher foreclosure rates that Illinois.  This marks the 11th consecutive month where foreclosure numbers increased on a year over year basis.

The total number of foreclosure filings on properties, 13,520 was down from October and is a seven month low, but is still up from November of 2011.  Illinois continues to buck the national trend which saw a 3% decrease in foreclosure filings in November.

Daren Blomquist, vice president of RealtyTrac attributes the overall drop in foreclosure activity to a 71 – month low in foreclosure starts in November.  Blomquist explained that this is “more evidence that we are past the worst of the foreclosure problem brought about by the housing bubble burst six years ago.”

There is still a belief that more foreclosures are on the way.  It can take banks one or two years in some cases to get from the beginning of the foreclosure process to the end where they actually are able to put the home on the market.  This means that many homes that went into foreclosure in the last one to two years are still out there waiting to hit the market at some point in the future.  This bit of uncertainty about the exact number of properties in this situation continues to keep many consumers on the sideline.

It is good news that there has been an increase in pre-foreclosure short sales because that means that many homes heading for foreclosure were sold prior to that lengthy process.  That oftentimes means the homes were sold while they were still in relatively good condition thus helping improve the sales prices.  This helps strengthen consumer confidence in the shaky real estate market.

The mixed signs mean at the very least that there is a lot of activity in the real estate market.  Sales are increasing and many buyers are going the short sale route to get out of one bad deal so they can move on and hopefully qualify for a home purchase again in the future.  Lenders are not giving away money, but they are accepting applications and writing mortgages at an increasing rate for qualified buyers.  Illinois continues to lag behind with the third highest rate of foreclosures, but sales are increasing thus showing that things are improving.

See Our Related Blog Posts:         
The "Foreclosure Discount"
Short Sale Snafus

Monday, December 10, 2012

The Holiday Spirit

Happy Holidays from the Federal Government!   Government Sponsored Enterprises (GSEs) are suspending evictions nationwide for the holiday season.  This is an annual occurrence that the GSEs have implemented since the foreclosure crisis began a couple of years ago.

This is a separate suspension than the one GSEs granted to eligible Super storm Sandy disaster areas.  Fannie Mae announced temporary suspension of foreclosure sales and evictions in areas designated for FEMA assistance due to Super Storm Sandy until February 1, 2013.

Fannie Mae will suspend evictions on foreclosed occupied single-family homes and two-to-four unit properties that had Fannie Mae mortgages from December 19, 2012 to January 2, 2013.  Freddie Mac will suspend evictions on the same types of properties that had Freddie Mac mortgages from December 17 to January 2, 2013.

Legal and administrative proceedings for evictions will continue during this time period, but the families residing in foreclosed properties will be allowed to remain in the homes during this period.  Homeowners facing foreclosure proceedings should not forget about ongoing proceedings or deadlines because those are not affected by the suspension.  Homeowners need to stay in contact with their foreclosure attorneys despite time off from work or school to make sure that they do not hinder their defense by failing to turn over documents or make court appearances.  

The housing market continues to show positive signs of improvement, but foreclosures continue to be a problem.  The third quarter numbers show that overall foreclosures are decreasing as new loan originations increase.  New house starts are also increasing as builders crank up their machines and get back to work.    

Freddie Mac and Fannie Mae both seem to grasp the importance of spending time with family during the holidays.  Some homeowners might argue that it is just as stressful to face an eviction in July as it is in December, but the holiday season seems to grip the GSEs’ attention.  Freddie Mac and Fannie Mae have a track record of suspending evictions in times of crisis.  Home ownership has long been an integral part of the American Dream.  These government entities along with the federal government work to open up home ownership to more and more people each year provided potential buyers qualify.  The government’s actions show that it understands that sometimes homeowners are hit with circumstances beyond their control.  The two quotes below from Freddie Mac and Fannie Mae officials reflect their perspectives.

“We are instructing our foreclosure attorneys to suspending pending eviction lockouts on foreclosed homes in order to provide a greater measure of certainty to families during the holiday season,” according to Tracy Mooney, senior vice president of servicing and REO at Freddie Mac.

“The holidays are a chance to be with loved ones and we want to relieve some stress at this time of year.  We encourage homeowners having difficulty to reach out for help as soon as possible,” says Terry Edwards, Executive Vice President of Credit Portfolio Management, Fannie Mae.   

Despite the suspension if you are facing foreclosure, take action sooner rather than later to address the situation.

See Our Related Blog Posts:
The "Foreclosure Discount"
Waht is a Deed In Lieu of Foreclosure?