Star Tribune had a good article today about the successes and struggles of Edina Realty and of our fearless leader, Bob Peltier, who suffered a severe stroke last year and has fought back every day since.
This story does not even scratch the surface on what both Bob and Edina Realty have done and are doing in the face of challenging times. There are many stories I can tell you of both first-hand experiences and those of my fellow agents that demonstrate the character of our leadership. Times are harder today but there are still so many opportunities too. I bleed Edina Realty Red because both the company and its leaders continue to demonstrate strength and fortitude in the face of ever-changing challenges.
I’m looking for guest bloggers for this site and www.TwinCitiesRealEstateBlog.com. I’m looking for original topical posts regarding the real estate market here (or comparisons to other cities). Beyond that, there will be almost nothing off-limits. If you disagree with my opinions and want to blog about it, that’s ok… though I will post a rebuttal!
If you have interest, give me a call: 612-251-5599
As I recently purchased a new home, I’ve been making a lot of trips to Home Depot as of late. Here are a couple tips I’ve learned:
I apologize that I have not been posting lately… things have been very busy indeed! In this market today I am so thankful to be at Edina Realty. Edina provides great management, the best networking opportunities, a fun office environment, and all the tools I need to succeed in my business. I’ve been working for the last 3 months to get a large loan servicer as a client and finally have the first 4 listings coming up now and without Edina Realty’s support and capabilities, there would be no way that I could have earned this client. Foreclosure listing agents be warned: I’m going to be setting a new Gold Standard in REOs.
The foreclosure process in Minnesota is a long one… often consuming an entire year from when the borrower first misses a payment until the time that the bank assumes control of the home. The Minnesota Home Ownership Center has put together a great flyer on the process and an average timeline.
Right now the Minnesota Legislature is considering a bill to “defer” the foreclosure process for up to an additional year if the borrower of an owner-occupied home makes partial payments (65% of principal and interest amount due). If this bill is signed by Governor Pawlenty, Minnesota could potentially have a 24 month disposition window for some foreclosures.
A lot can happen to a home in the 12 months from the date the borrower stops making payments. In many cases, the homes fall into disrepair as the borrower knows that any investment of time or money on the property will ultimately be lost when the bank assumes possession. Property taxes and municipal bills are also often neglected… I have seen delinquent water & sewer bills for a foreclosed property above $1000 and delinquent property taxes above $5000. These are all bills that will have to be assumed/paid for by the mortgage company. Also, often times there is a significant amount of trash/debris left by the borrower… it is not uncommon to see a large dumpster in front of these properties full to the brim. Add to all of that the year of non-payment of the loan and the legal expenses to the lender to complete the foreclosure process and it is likely that a lender already has a $10,000 – $20,000+ loss at the time they repossess it.
In Minnesota, we have 5 months of average low temperatures below freezing. If a home in foreclosure is vacated during these months, often the utilities are shut off before the bank secures the property and the home’s plumbing ends up freezing and pipes burst. In good circumstances the water was shut off at the meter or the street (sometimes done by the city from non-payment of the water bill) so that only the pipes need to be repaired, which could cost as little as a few hundred dollars or climb to several thousand, depending on the location and extent of pipe damage. In bad circumstances the water can literally fill the house and cause near complete destruction of the interior of the homes, which then become great incubators for mold when they thaw in the spring. In a house profiled by the Star Tribune, one house once worth nearly $700,000 was resold at auction for only $280,000… a loss of over $400,000… about 60% of the value of the home.
Once the bank has possession of the property, the previous owner has vacated, and any debris has been removed from the property, the bank can go about listing the home for sale. Based on a sample of homes sold in Plymouth and Maple Grove in the last 10 months, when the bank resells the property they will lose 23.4% from the value at the previous sale. All told, banks lose $10′s of thousands of dollars on the average property… and on some, $100′s of thousands!
While the banks are already overloaded with the huge numbers of foreclosures they have been taking on and are even more buried in their short-sale departments, where responses to offers can take months, the more proactive a bank can be with their defaulted borrowers, the more likely it is that they can recover a larger share of their investment.
Regulatory and industry efforts to create work-out agreements between lenders and borrowers has met limited success and while without these programs foreclosures would be higher, the number of foreclosures today and in the near future are still substantial.
The mortgage lenders are trying to ramp-up staffing for their short sale and foreclosure departments, but these efforts are not proactive, but rather reactive.
While it is in the banks’ best interests to work with their borrowers to modify the loan terms and keep the borrower in the home, there are many circumstances where no reasonable workout can be made. Instead of the banks letting these homes go through the foreclosure process, they should attempt to work with the borrower to get the home sold directly from the borrower to a new buyer, with the bank accepting a sales price that only returns a portion of what they lent back to them, which is called a “short sale.”
The approval of a short sale is a long and difficult process that can take a lender 60-90 days to approve once an offer has been submitted. The largest problem with short sales is that many buyers simply do not have the time nor the patience to wait 2-3 months for a response. Further, the process is not the most appealing for sellers either, since they receive no monetary gain from the sale, many borrowers see little value in the enterprise. These short sales are seller-initiated and more than 1/2 of the listings never close.
A New Way to Handle Foreclosures
Lenders can be more proactive with their defaulted borrowers by initiating a short sale process when the probability of foreclosure is high and the likelihood that a lender-negotiated loan modification that will allow the borrower to become current on their mortgage is low.
Based upon my analysis of sales in Maple Grove and Plymouth in the last 10 months, bank owned properties on average sold for 23.4% less than their previous sale but short sale properties sold for only 16.4% less than their previous sale. Taking into account many of the other costs I mentioned earlier in this article, the savings to lenders could easily be in the 10′s of thousands of dollars vs. letting the home go through the standard foreclosure process.
Here’s the overview of the concept:
To discuss a new way to handle foreclosures is not helpful if it ignores the realities in the market. Here are the biggest hurdles (as I see them) that could make such a plan difficult to implement:
Until these properties cycle through the system and are resold to new buyers they cast a negative effect on neighborhoods, other homes for sale, and other foreclosures too. Waiting for defaulted borrowers to complete the foreclosure cycle when it is all but a sure-thing earlier on in the process is not the best way to protect the investment but rather employing a proactive approach is something can benefit all parties involved and the housing market in general.
With so many short sale listings on the MLS in the Twin Cities right now, there are a lot of buyers that are “locked up” in offers on these properties for weeks… and months… with the high probability that they will ultimately not be able to purchase the house at the price they offered. See my previous article for more background on my short sale experiences.
Since many times the eventual response from the bank is a no or “you need to bring your offer up x%” or the buyer gets outbid by a later offer, these properties could be tying up significant numbers of buyers who would otherwise be purchasing (and closing!) on another property. This weekend I was told there were 4 offers on a short sale I was showing to my buyer. That means 4 houses with ready, willing and able sellers (“traditional sellers”) are stuck waiting for the bank to reject 3 or all 4 offers sometime in the next 30 – 75 days before they’ll get their chance at those buyers.
Today I received a call from a reader that wanted to first and foremost commend me for my blog, but also had a couple questions to ask. It’s great to get calls or emails from readers (there’s a lot of you out there!) and I’m always happy to answer questions as well.
If you need something, do not hesitate to call or email me.
Edina Realty has just kicked off their 2008 advertising campaign and has some very funny commercials they are running in Minnesota but also posted to YouTube… take a look:
Nerd & Model:
Biker & Mom:
Grandma & HipHop:
Hunter & Yoga Gal:
Nerd & Model Outtake 1:
Nerd & Model Outtake 2: