As a former Social Worker I am reminded of Elizabeth Kubler-Ross book “On Death and Dying’ and the five stages a terminally ill patient goes through when informed of their life threatening illness.

The five stages she identifies in her book are:

• Denial ( this isn’t happening to me!)
• Anger( why is this happening to me?)
• Bargaining ( I promise I’ll be better person if…)
• Depression ( I don’t care anymore)
• Acceptance ( I’m ready for whatever comes)

As I reviewed these five stages and relate them to Sellers I have worked with or am currently working with I am drawn to how these same stages are exactly what sellers go through when selling their home in a short sale.

Stage 1 Denial:

Many sellers who are falling behind in their mortgage payment often do not get help or seek help because they are in total denial. They often think nothing is going to happen to them even after the bank has sent them the Notice of Default letter.

Stage 2 Anger:

This is a very difficult stage. Many homeowners remain angry through the Short Sale/Foreclosure process. Reports of homes being trashed and appliances missing are usually the signs of people who have a lot of anger and direct this anger onto the property.

Stage 3 Bargaining:

This is the stage where sellers exhibit a lot of ambivalence. They do not want to loose their home and will do almost anything to keep it. Some sellers will contact their lenders and try to negotiate a loan modification while you are doing a short sale. You have to be aware of your seller in this stage because they are very vulnarble and will sabotage any efforts you have initiated because they have not truly accepted the need to sell their home.

Stage 4: Depression:

Sellers in this stage just stop caring about the house and will withdraw from you as their agent. It is important to maintain contact with your sellers during this stage and give them support and assure them that what they are doing is in their best interest.

Stage 5 Acceptance:

This is when you see your seller come out of their shell and begin to prepare for a life after the Short Sale.

 Will Hafa be a success or failure?

The National Association of Realtors has new numbers on existing home sales for the month of January and they are not good.

The First Time Home Buyer program is due to expire April 30, 2010. How many more months will it last. If home sales are down with the stimulus what will happen when the stimulus is no longer available to new home buyers.

FHA guidelines are changing and many people looking to buy are not going to qualify for FHA loans.

Unemployment continues to be the number 1 problem. If people do not find jobs more mortgage defaults are learching around the corner

Pre-foreclosure (Short Sales) and Bank owned (REO’s) represent 34-39% of all  home sales.  Yet buyers, agents that I talk to are all frustrated because pending sales are taking too long.

Short Sales can take anywhere from 6 months to a year to close.

On April 5, 2010 HAFA will go into effect. The question is “How many lenders will participate in the program?”  Will it streamline the process of Short Sales and Deed in Lieu or just be another beurocracy created by government.

We will have to wait and see if the glass is “HAFA” full or “HAFA” empty.

http://www.thinkbigworksmall.com/mypage/player/tbws/23088/1556915

What is HAFA?

It is a new Foreclosure prevention program designed to streamline the Short Sale and Deed-in-lieu of foreclosure process.

• Those homeowners who are not eligble for the Home Affordable Modification Program (HAMP) can apply for the HAFA program. Those who do not qualify for HAMP and wish to avoid foreclosure can do so by applying for the HAFA program.

Who is Eligible for HAFA?

• Home owners who are delinquent or in default on their mortgage on their principal residence.
• Loan must have origination date  January 1, 2009 or sooner.
• Amount of loan cannot exceed $730,000
• Current mortgage exceeds 31% of homeowners gross income.

What are the Steps?

Borrowers  expresses interest in HAFA program.

Servicer has 14 days to determine Net Proceeds they will accept in Bank Directed Short Sale. This amount is expressed as a :

•  % of current market value;
•  % of list price;
• fixed dollar amount.

Step 2:

A Short Sale Agreement is put into action with a written agreement between lender/servicer and borrower. This agreement shall include:

• List Price/ Allowable Net proceeds to lender
• Guarantee 120 days or greater before lender can pursue foreclosure.
• Homeowner must agree to pay 31% of gross income while Short Sale is being considered
• Maximum Real Estate Commission of 6%. Realtor must also agree that out of the real estate commission a % or $ amount will be paid a third party vendor.

Step 3:

Borrower must provide evidence within 14 days of Short Sale Agreement (effective date)

• A signed copy of a Broker Listing Agreement at Approved List price.
• Information regarding any Subordinate Liens.
• Market the property 120 days or greater
• 3 business days to submit all offers
• Servicer has 10 days to approve all offers.
• Buyer has 45 days to get financing and close
• Borrower has 45 days to move out of the house from date contract has been acccepted.

HAFA Agrees to  the following Payments :

• B orrower to receive $1,500.00 for moving expenses.
• Servicer to receive $1,000.00 for processing costs.
• Investor to receive a $1,000.00 back on maximum $3,000.00 paid to all subordinate liens.

Advantages to HAFA:

• No hidden administrative fees can be asked from borrower from servicer.
• The investor must waive all rights to seek a deficiency judgement.

Disadvantages of HAFA:

• Subordinate liens may not agree to $3,000.00 maximum payment.
• Investor owned property does not qualify.

I think I have broken the record for the longest short sale ( 499 days) from listing date to close date.

When representing sellers in Short Sales you have to be prepaired for anything. In this particular sale we were up against all odds but got it done.

By we,  I am including my Negotiator Rob Jacobs, of Short Sale Pathways and my attorney Mari-Kay Zarraza. Without them I would not have closed this Short Sale. 

Thank you Rob and Mari-Kay.

This Short Sale had multiple liens and each had to be negotiated seperately. The more liens a property has the more difficult and time consuming the Short Sale can be but it can get done.

We were threatened on numerous occassions that the Short Sale was going to be denied and we were able to postpone the foreclosure date every time.

Short Sales should never take this long and hopefully with HAFA they will be streamlined. To read more about HAFA go to  the heading  “Short Sales”

My friend Jafer Hasnain of Lifeline Assets has written an article on the HAFA program and I am glad to share his article here on my website.

Thank you Jafer…

By JOHN COLLINS RUDOLF

Published: December 22, 2009

The author of the Craigslist posting in Las Vegas made no effort to disguise his or her intentions. Skip to next paragraph“Stripping House — Before Foreclosure,” the ad declared, offering potential buyers the cabinets and countertops, the sinks and toilets, the doors, the appliances, the sprinklers. Even the palm and citrus trees in the yard were for sale, with a catch. “You dig,” the author advised.

In Nevada and other states hit hard by the housing crisis, stripping fixtures and appliances from homes in foreclosure has become commonplace. Craigslist, the Web site for classified ads, functions as a bazaar where stripped items are sold openly. Often, the stripping is not done by strangers. It is done by the owner, just before the bank forecloses on the mortgage and takes the property back.

If that seems like a situation tailor-made for the police, it is — at least in Arizona, where the Federal Bureau of Investigation has used Craigslist to arrest a handful of people for stripping homes and trying to sell the goods, charging them with felonies under a state fraud statute.

In other parts of the country, however, the police are stymied. As it turns out, several troubled states, like Nevada, have no specific criminal prohibition against stripping fixtures from a property before foreclosure. Mortgage contracts do prohibit such behavior, requiring that homes be kept in good order. But violating those provisions is a civil matter, not a criminal offense.

“If the homeowner sells the components to the house while they still own the house, that’s not a crime,” said Officer Bill Cassell, a spokesman for the Las Vegas police.

So too in Florida, another state swamped by foreclosures. Several prosecutors and police agencies there said that unless laws were modified, such behavior would have to be sorted out between borrower and lender in civil court.

Even in Arizona, which has an applicable law and where thousands of homes have been stripped, convictions are rare. There, to make a charge stick, law enforcement basically has to catch people in the act, said Julie Halferty, a special agent with the F.B.I. in Phoenix and head of a mortgage fraud task force.

“This window of time can be quite short,” Ms. Halferty said in an e-mail message. “Once homes are abandoned, arguably any number of people can get access and strip the fixtures.”

Statistics on foreclosure stripping are elusive, and experts disagree on just how widespread the practice is. Yet even those who play down the number acknowledge that the problem is serious, particularly in housing boom-and-bust areas like central Arizona, southwest Florida and the Las Vegas region.

“Clearly it’s happening, and it’s happening with some frequency,” said John A. Courson, president of the Mortgage Bankers Association.

Banks are largely powerless to stop a homeowner determined to strip a property. Lenders can pursue such homeowners in court, but the expense and difficulty typically outweigh the gain.

Though the efforts are scattered and feeble, law enforcement officials are trying in places to stop the practice.

Last April, Randolph Guzman, 42, of Phoenix, was arrested while trying to strip appliances and fixtures from an investment home he owned, shortly before a bank was to hold an auction.

Mr. Guzman posted an ad on Craigslist and found a married couple interested in buying the air-conditioners, kitchen cabinets, ceiling fans and a light fixture for $2,300. They met at the house, in Surprise, a distant Phoenix suburb, and Mr. Guzman accepted a down payment of $400 in cash.

Then he was handcuffed and read his rights. The couple, he discovered, were police officers working undercover with the F.B.I.

Mr. Guzman pleaded guilty to defrauding a secured creditor, a felony. If he completes 18 months of probation, the charge will be reduced to a misdemeanor, he will serve no jail time and pay only a few hundred dollars in court fees.

David Michael Cantor, Mr. Guzman’s attorney, called his client’s offense minor when compared with the thousands of homes that have been thoroughly stripped by their former owners.

“I understand why they want to crack down on this stuff, but Randy is small potatoes,” Mr. Cantor said.

After the F.B.I. publicized the arrest of Mr. Guzman and a handful of others caught stripping homes, the number of ads for stripped goods on Craigslist in Phoenix dropped sharply.

“That was our objective — to get the word out that stripping a foreclosed home is illegal,” Ms. Halferty said.

(Craigslist does not vet the postings created by its users, and a spokeswoman, Susan MacTavish Best, said the site had not been contacted by law officials about ads for stripped merchandise. “One wonders how one would know the provenance of each fixture and appliance,” she wrote in an e-mail message.)

The police in Las Vegas would like to follow the lead of those in Phoenix, but Nevada law hinders them. “We don’t have the tools to prosecute,” said David Roger, district attorney for Clark County, which includes Las Vegas. “It’s obviously an issue that the legislature should address.” Not all legal experts agree that existing law is insufficient, given that homeowners who strip a house are violating their mortgage contracts. General fraud statutes might be stretched to apply. Yet so far, few prosecutors or the police — dealing with budget cutbacks — are making arrests or bringing cases.

The key to reducing the number of homes being stripped, experts suggest, lies not with the law but with lenders.

“If banks focused more on prevention, everybody would be better off, particularly them,” said Kenneth Thomas, a banking consultant in Miami.

Already, some indicators suggest that mortgage servicers are starting to delay the final step in a foreclosure — seizing the home — in part to limit the number of homes being stripped and vandalized.

Yet for some areas, it is too late. In several Phoenix suburbs, the stripping of homes appears to have peaked, but not before taking a heavy toll.

In Maricopa, a distant Phoenix suburb that had rapid growth before the crash, new developments were stripped one after another, often in the order they were built, according to Shawn Schlegel, a real estate broker who publishes a weekly community newspaper.

“The same way they built the city is the same way the city got stripped out,” Mr. Schlegel said. “It’s gone through every neighborhood.”

In Florida, the online trade in stripped goods is brisk, no doubt encouraged by the low profile of the police. As in most of the country, sympathy for banks is running low, and opportunism is running high.

Some see an upside. Justin Cellini, 29, spent the last year being rejected by lender after lender in his quest for a home loan. Finally, with cash from relatives, he was able to buy a four-bedroom, two-bath house in Hollywood, Fla., that had been stripped by its former occupants.

He paid $111,000. “I’m actually thankful that they stripped the house,” Mr. Cellini said. “It wound up costing me a lot less money in the end.”

He has been refurbishing it on the cheap — by buying fixtures and appliances off Craigslist.

The two day Seminar was quite impressive and the discussions were even more interesting. 

THE   PAST: 

Home ownership was considered the American Dream.  As desire to own a home increased  the building boom soon followed. As new homes were being build, new buyers entered the housing market.

 New Buyers created a demand for new mortgage products.

 The rapid appreciation of home values fed the the second boom in housing demand.

As more buyers entered the market,  mortgage lenders competed with one another and tried to attract these buyers with exotic mortgage products ( sub-prime, Adjustable Rate, Intrest only, 100% financing) with teaser rates.

The combination of new buyers, higher risk loans, and higher risk capital all created a very competitive housing market. 

Loan originators had no risk because they did not hold onto the loans. They pooled and sold these mortgages to the Secondary Mortgage Market. 

There became a market demand to bundle these high risk loans as security instruments and sell them to investors on Wall Street.

 Private-Labeled securitzation fueled the demand for high risk lending. Sub-prime and Alt-A2 mortgage backed securities increased from $98 billion in 2001 to $814 billion by 2006.

Investors who bought and sold these securities felt home values would compensate for any risk associated with the loans. If a loan went into default the homes value would more than cover the cost of the loan.

 PRESENT:

 More homeowners are falling behind. One in four homeonwers are delinquent on their mortgage. 

Foreclosures are at an all time high and home values are declining as a result.

 The  Government  program to modify loans  “Making Home Affordable Modification Program” (HAMP) has been a failure to date.

Only a fraction of the mortgages on a national basis have been permanently modified.

 Nationally there are over 9 million homeowners in default and to date there are only 728,000 active modifications. Only 31,282 mortgages have been permantly modified across the nation. This means a majority of the modifications remain as trial mortgages.

It is predictated that most of these mortgages will re-default.

Finally, more homes are just being abandoned and left vacant. These vacant buildings cause more crime, continue to lower home values for  neighborhoods.

Future

Most of the experts predict the foreclosure crisis and larger financial crisis to continue well into 2010 .

New Option Arm Loans are due to reset next year, and unemployment will cause more homeowners to fall behind on their mortgage.

Home values will continue to decline and more people will owe more money than their home is worth. 

As more people go into foreclosure neighborhoods, cities, and regions are impacted.

 Vacant buildings that are neglected cause siginificant concern for most city officials. Not only is crime a problem, but the cost to cure the problems is a major concern.

 To address this problem communites are using Neighborhood Stabilization Program (NSP) dollars to buy up foreclosures in the community, demolish homes that are not salvagable, and rent and sell homes to qualified buyers.

It was recommended and generally accepted by most people who attended the seminar that it was best to keep homes occupied.

More effort  is needed to modify loans and keep people from loosing their homes to foreclosure.

The current “Extend and Pretend” policy of lenders needs to be abandoned. As home values continue to decline current mortgages should be re-set at the current market values. 

 Lenders will be required to write-off the difference between what is owed and the current market value in order to keep people in their homes.

 Until this happens, communites most affected will have to find ways to assist people and keep them in their homes.

Better foreclosure prevention programs need to be developed.

 Pilot programs like Annette Rizzo’s court in Philadelphia, where homeowners and lenders are forced to negotiate in a court room, needs to be explored and reviewed to see if it really does help people and stop foreclosure.

Better Credit counseling programs need to be developed where people are taught how to save more money.

Creating New Zoning ordinances and Urban design to help families work and live and prosper together.

On Wednesday December 9 and Thursday December 10, 2009 I will be attending a Mortgage Foreclosure Conference in Chicago. This event is being sponsored by The Federal Reserve Bank of Chicago, The Chicago Community Trust, John D and Catherine T. MacArthur Foundation, Neighborhood Housing Services of Chicago, and the Woodstock Institute.

The conference event is titled ” Mortgage Foreclosure Policy: Past, Present, and Future”. The conference will discuss the evolution, current impact, and likely outcomes of foreclosure on homeowners, lenders, housing counselors, secondary mortgage market, and local governments.

As I prepare for this conference I decided to do a little review of the foreclosure market from a point of view as a realtor. I decided to do research on five counties ( Cook, Lake, McHenry, Dupage, Will, and Kane) in Illinois. I plan to bring along and discuss this data at the convention.

The information is deemed to be reliable and comes from both my local MLS and Record Information Services of Illinois.

Single Family Home Sales data from January 1, 2009 through December 3, 2009:

The table above shows foreclosures are dominating the Real Estate Market in terms of total sales. Foreclosures out number the number Short Sales in every county.

Single Family Foreclosure  from January 1, 2009 through December 3, 2009

The table above is showing total number of foreclosures in each county and then subtracts the number of foreclosures put back on the market and re-sold to new buyers and the number of remaining foreclosures unsold to date. As the data suggests there are more foreclosures that are going to be coming onto the market for re-sale.

Single Family Pre-Foreclosures from January 1, 2009 through December 3, 2009

The Table above shows the number of homes who have received some sort of Pre-foreclosure Notice.

Typically a homeowner has to be 90 days past due or delinquent on their mortgage to receive such Notice of Default (NOD).

While many of these homeowners may be trying to modify their mortgage with their lender and never go to foreclosure there are many homeowners unable to modify their mortgage because they are unemployed.

As the data suggests if these pre-foreclosures do become foreclosures and are added to the already unsold foreclosure on the market the combined total will exceed the total sales of single family homes for 2009.

As a realtor it is difficult to see how  the real estate market is going to keep pace with the number of foreclosures. There isn’t enough buyers out there to absorb the number of homes that could potentially come on the market in 2010.

I decided to write about one particular middle class community. This community is a microcosm look at the 2009 real estate market. As we look back at the year we will notice some challenges this community faces.
These challenges are not unique to this community but emphasize the struggle most communities struggled with in 2009.

The information above provides the basic information on a typical middle class community. The name shall remain anonymous for many reasons. The name is not important, what is important is how a typical middle class community is being affected by foreclosures.

2009 Real Estate Market (Information is deemed to be reliable and comes from the MLS)

As we can see from the table above 17% of all active listings are either Short Sales or Bank owned properties and foreclosures represent 38% of all sales during the last year.

According to Record Information Services, a Real Estate Service that searches public information and tracks foreclosures in all counties in Illinios, there were 42 homes in this community that went into foreclosure.

Only half of these homes 22 have come back on the market and have re-sold according to the MLS. Another 20 homes are waiting to come on the market.

If all of these foreclosures were to enter the market at the same time the number of Active Foreclosures would increase from 17%  to 30% of all Active listings.

What affect does this number of foreclosures have on a middle class community?

Well it will definitely bring down prices of homes.  According to the MLS the average sale price of a home has declined 15% in this community in  2009.

What will the outlook be for 2010? We will just have to wait and see…