Tony Card's Big Bear REO Blog: September 2008

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In 2002 the Realtors in Big Bear sold 911 pieces of property and the Real Estate boom was off and running.  In two years, the sale of property in Big Bear jumped from 911 units to 1913 units.  By 2007, the number of units sold dropped to 797.

In that time span, everyone was getting a loan.  Loans ranged from conventional loans where the buyer was putting 20% down to loans that would allow the buyer to finance 100% of the mortgage.  Some buyers preferred a 30 year note with a fixed rate.  Others were using Adjustable Rate Mortgage's, (ARM).  These loans were structures so the buyer would start off with a low interest rate for 3-5 years.  After the 3-5 years, the mortgage would reset and you would be paying a much higher rate.  At that time, the average turn over on homes in Big Bear was every eighteen months.  The home owner would hold on to the cabin for a year to eighteen months, sell the cabin and turn around and buy a nicer cabin with the appreciation.  Another loan that we saw was the interest only loan.  In these loans, the buyer would pay interest only for 3 to 5 years.  Like the ARM, after the 3 to 5 years had passed, the mortgage reset to a much higher rate. 

What happened when all of these ARM's matured and reset?  So many people who bought in that time frame used the ARM because it gave them the lowest house payment.  As it turned out, many of these people could not afford the increase in the house payment once the mortgage reset.  Many home owners either didn't think about how the reset would affect them,or they planned to refinance the mortgage before the time came for the reset.  Unfortunalty, when these home owners went to the bank to refinance the home, they quickly found out that they now owed more on their home than it was worth!  This took away from them the only option that they really had. Now they had to figure out how tomake their house payment.  Here is a good example of how this reset can affect the home owner.

A typical borrower who took out a 2/28 mortgage in 2004 or 2005 has been paying an average interest rate of 7.6% for the first two years. Once that introductory period ends, the interest rate is reset every six months for the remaining 28 years of the loan at a margin over an index.  When they do adjust, these loans typically limit the first interest rate increase to around three percentage points. That would bring the monthly rate to 10.1%. Monthly payments for a borrower with a loan of about $150,000 would rise to about $1,315 from $1,000. Assuming interest rates stay around current levels, the rate would jump again to about 11% within six months to a year, bringing the monthly payment to $1,400, or 40% higher than the initial payment.

By 2007, the sale of homes in Big Bear dropped 60% from 2004.  We went from a high of 1913 homes sold down to 797 in 2007.  

Present

Let's fast forward to the present and take a look at the changes that have taken place in the Big Bear Real Estate market. 

1. Inventory is high.  In the past, the number of homes on the market going into winter is much lower than the 1175 homes currently listed.
2. Many of the homes on the market in Big Bear are REO's (Bank Owned Properties)  We have seen that the banks list their homes at much lower prices than the competition.  In many cases, the REO stands out as being the best deal on the market.  It is very hard for the home owner to sell his home unless he is prepared to compete with the bank owned, REO properties.
3. There is no such thing as 100% financing or loans with only 5 percent down. 

Mortgages are much harder to get in today's market than in the past.  Lenders are requiring more down payments and higher credit scores.

I'm a first time buyer. Does this mean that I can't get a mortgage? 

If you are a first time buyer and want to buy your home, the first thing I would suggest is to speak to a lender.  There are many loan programs are available and a good lender is going to be able to advise you on what is best for you.   You also need to know how much you qualify for.  There is no sense looking at homes in the $300,000.00 range if you're only approved for $150,000.00.  Ask the lender to "PRE APPROVE" you.  The lender might tell you that they can give you a Pre Qualify letter.  In today's market, with so many homes being REO's,  you will find that the"PRE APPROVAL" Letter will make for a much stronger offer.

Let's say that you have found a home in Big Bear that you want to buy and you find out that it is a REO.  Do you use your friend who is a Realtor in Newport Beach to represent you?  You're best bet is to speak to a qualified Realtor who represents the Big Bea area.  The local agent is going to know if you are paying to much for the house.  They know the area and know what is a good deal and what is over priced.  Once you are in escrow, the local Realtor is going to be able to recommend a good home inspector who is familiar with issues relating to mountain homes.

I had a client come in today to see me and he was surprised to see how many homes we sold this month.  With all of the negative news regarding the financial markets, he was shocked to see that we are still selling Real Estate and closing escrows.  If you are looking to buy Real Estate in today's market, you will succeed as long as you have the following:  1)  20% of the purchase price for a down payment, 2) 3% of the down payment available now for the good faith deposit, 3) Fico scores at 720 or better.

If you have any questions about how the mortgage crisis has affected your ability to buy a Big Bear cabin, give me a call at 909 229-5326 or send me a email at tony@tonycard.com

I chose to write this blog because of an issue that has come up in one of my escrows.  I really didn't give this any thought, until I heard another agent in our office having the same issue.  As it appears that this is not a isolated incident, I felt it was worth discussing in my REO Blog.

My clients found the home of their dreams, a REO property in Big Bear City, and after some negotiations with the bank, got an agreement and we went to escrow.  As with so many REO's this house needed some repair work.  We really didn't know the extent of the work needed until after the home inspection.  The repair list wasn't to bad and my clients are still moving towards the close.

Unbeknown to me,  the lender asked my client to send them a copy of the home inspection, and it was then that things got a little more complicated.  As I mentioned, the home needed some work, work that my clients planned to do once the escrow closed.  The lender had other plans.  They told me that because this was an REO property, they wanted certain things taken care of through escrow.  Knowing that we can't do any work on the property until escrow closes, the lender has asked for bids from licensed contractors to make repairs.  They plan on having my client bring in to escrow 1.5 times the amount of these bids.  Once escrow closes, they will be asking the contractors to go in and complete the repairs within 30 days.  Once the work is complete, any extra funds will be refunded to the buyer.

I understand their thought process in dealing with an REO property, but this is going to cause some other issues.  The biggest problem we are going to have to work through is that the cabin needs a roof.  Normally, that's not a big issue.  You call the roofer and he comes out and replaces the roof.  But, when you live in Big Bear, you have to watch the weather reports, especially once we hit October 1st.  So, the escrow is set to close on October 10th and the roofer is going to have 30 days to tear the old roof off and install a new one.  Roofers don't work when it snows and anytime after October 1st, we can have snow.

The second issue that this has caused is this.  My clients knew that the REO that they are buying is going to need work.  This is work that they plan to do once the escrow closed and before they move into it.  The work that needs to be done is work that my client says he can do.  So, why should he have to pay a contractor to do the work that he is qualified to do.

It doesn't matter if you are a buyers agent or a buyer.  I think this is something that you need to know and consider when you buy a REO property.  Not all lenders are the same and they might not all be asking for money to be held in escrow for repairs.  But again, please keep it in mind when you are ready to purchase a REOproperty and be prepared for it.

As your Big Bear REO Specialist, I can assist you with the purchase of any REO home in Big Bear.  For more information on REO properties in Big Bear, please give me a call at 909 229-5326 or send me an email is tony@tonycard.com. 

That was a question that was asked of me today.  My client wants to sell her Sugarloaf cabin and wanted to know 1) How much she could get for her cabin, and 2) Was it even possible to sell the cabin in today's market.

I think that the biggest point that I needed to make to the seller is that she needs to  understand who her competition is.  Who is she going to have to compete with in order to be successful in the sale of her home?  Off hand, you would think that the competition is going to be the other home owners who are also trying to sell their homes.  To a degree that is true but her real competition, the properties that she needs to really focus in on are the  REO or bank owned properties.  You ask why?  According to Data Quick, 46% of the homes that sold in California last month were REO's.  Quite simply, the bank owned properties are being listed for sale at very attractive prices.  The result being, the REO's  are selling very quickly.  So, in today's market, you need to take a good look at the  REO  properties when pricing any home that you are placing on the market.  That is your competition.

I was out today looking at  REO properties and the one thing I walked away with after my previewing is that the banks are giving these homes away.  One REO I was in today last sold in 2005 for $349,000.00 and is now listed for $300,000.00.  The property was in a great neighborhood and was very clean. (Not your typical bank owned)  Who ever buys that home is going to do very well.  I then went and previewed another home that had just listed today.  It was a smaller cabin that was situated near the national forest.  I believe it was a 2 bedroom, 1 bath cabin with 760 square feet of living space.  The last time that cabin sold, it went for $189,000.00.  The bank listed it for only $129,000.00 

These are just two quick examples of some of the many  REO  properties for sale in Big Bear.  So, if you plan to list and sell your home in this kind of market, these homes are going to be your competition.  You need to keep this in mind when you price your cabin.  The client who wants me to list and sell her Sugarloaf cabin is lucky in that she has owned the cabin for 20 years and she has plenty of equity in it.  She also understood that if we are going sell her cabin, we are going to have to price it so that it stands out as deal, no matter who her competition is.  It does me no good to take a listing in this market that is overpriced.  All that is going to lead to is a very upset client in six months.  They're going to be upset because after six months, their cabin will probably still be on the market,  and it won't be worth what is was when I took the listing.  That being said, I would rather walk away from a listing if I can't get it at the price that I know it needs to be to sell.

There are a lot of buyer's out there right now and they are looking to take advantage of this market. They are all looking for the deal.  It doesn't matter how good a deal the house is based off the asking price, they still want to push the envelope and try to get more.  Sometimes this tactic works and other times it doesn't.  Just a few weeks ago a property listed in Sugarloaf that was a fantastic deal at the listed price.  I called my client and told him about it and after reviewing photos and video that I took of the place, he instructed me to write the offer.  Now, this guy has been looking at property for quite some time and knew that this cabin was already a good deal, yet against my advice, he chose to squeeze the bank for even more concessions.  I asked him to think about the offer and to reconsider his position.  He refused and told me to present the offer.  Consequently, he lost the deal and he is still kicking himself for, as he put it, being so cheap.

You have found yourself in the same position as thousands of people through-out the United States.  You're mortgage has just reset and you can no longer afford to keep your Big Bear cabin. 

Let's start this conversation with some options available to you and then we will look at the ramifications set forth by Fannie Mae regarding those options.

You can no longer afford to make the payment on your Big Bear cabin.  You're getting further behind every month with missed mortgage payments.  You're credit is suffering as a result but there doesn't seam to be anything that you can do about it.  After speaking with a couple of Realtors who specialize in Big Bear you quickly learn that you owe more on the cabin than it is worth in today's market.  What do you do?

Option One

Let the bank foreclose.  It's that simple.  You have stopped making your mortgage payments and in time the bank will simply take the cabin back

Option Two

Deed the property back to the lender and walk away.  This option is not that common in this market simply because so many home owners owe more on the property than it is worth.  But, if you owe what the home is worth, then this is an option for you.

Option Three

Your third option is to sell the house short of what you owe.  This is commonly known as a short sale.  In a short sale situation, the lender agrees to take less than is owed against the property.  Not all lenders are going to be open to a short sale, so if you find yourself in a situation where you think a short sale will be of help, contact your lender's loss mitigation department and discuss it with them.  One of the key requirements that you must be able to prove is that you are in a financial hardship.

Losing your Big Bear cabin is not the end of the world and in time, you may be back in the market for another home, either here in Big Bear or maybe somewhere else.  Depending on how you handled the loss of your cabin will dictate when you will be able to buy another cabin.

Based off of the new Fannie Mae guidelines that just came out, If you let the bank take the property back in a foreclosure, it is going to be 5 years before you will be able to qualify for a new loan.  On top of the 5 year wait, there will be other credit and down payment requirements that will stay in place for 5-7 years.

If you choose to deed the property back to the lender and walk away, you will find that you will have to wait 4 years before being able to get a new loan.  Along with the 4 year wait, there will be tighter credit and down payment restrictions that will be in place for 5-7 years.

Fannie Mae has said that if you short sale your home, the only consequences will be a 2 year wait before being able to get another home loan. 

Based off of the time frames that Fannie Mae has placed on foreclosures, deed back to the lender, and short sales, your best option appears to be to short sale your property.  If you are thinking about a short sale, it is always best to discuss it with your attorney and or tax man as you want to be well informed before making such a choice. 

Once the choice has been made to sell your home short, you want to find a qualified and experienced Realtor in your area who has a tract record of closing short sales.  There are a lot of Real Estate Sales people who are happy to take a short sale.  But if the person that you choose to represent you is not experienced in the short sale market, then you may be wasting your time.  Be sure to ask questions when interviewing an agent to sell your short sale. Make sure they he or she has experience with short sales. 

If you find yourself in the above situation and you own any property within the Big Bear Valley, I can help you!  I have successfully closed a number of short sales and have the experiance to help you get through the process.  Please give me a call at 909 229-5326 or send me a email.  My email address is tony@tonycard.com

The question, My home is not worth what I owe, can I short sale it is asked quite frequently in today's market.  In the past, most home owners had a tremendous amount of equity in their homes. Things would come up and they pulled the money out for one reason or another.  Many of them are now in a situation where they owe much more on their home than it is worth in the current market.  But just because you owe more on the home than it is worth, that alone does NOT automatically qualify you to short sale your home.

What is a Short Sale?

A short sale is when a bank or mortgage lender agrees to discount a loan balance due to an economic or financial hardship on the part of the mortgagor. This negotiation is all done through communication with a bank's Loss mitigation department. The home owner/debtor sells the mortgaged property for less than the outstanding balance of the loan, and turns over the proceeds of the sale to the lender in full satisfaction of the debt. In such instances, the lender would have the right to approve or disapprove of a proposed sale.

As you can see from the definition of a short sale, the key to the whole process is there being a economical or financial hardship.   Just owing the banks more than the home is worth is not going to be enough to qualify you for the short sale.  There must be a economic or financial hardship in order to qualify for a short sale. 

How do I start the process of a Short Sale?

The first step you want to take if you find that you are going to have to sell your home as a Short Sale is to find an experienced Real Estate Agent who specializes in the Short Sale Process.  Your Real Estate agent will be able to negotiate with the bank or lender on your behalf.  An experienced Short Sale agent will give you a much better chance of a successful short sale.

An experienced Short sale agent will tell you what you need to do to get the house ready for sale.  Don't get to worried about the price he places on the home.  There is a reason for that.  Short Sales can go as long as four months and you want a buyer who is willing to stick around through a long escrow. 

You will want to get all of the documentation together for the bank.  From my experience, every bank has their own requirements, so you want to talk to the loss mitigation department.  They will send you a Short Sale package.  In that package, the bank will be wanting a hardship letter explaining your financial hardship.  They will want to see your bank statements, tax returns, and pay stubs from your current employer.  They may want to see your current budget as well a financial statement.  The bank may have you send all the information in to them, or they may ask you to give it to your Real Estate agent.  If the later is the case, then the Real Estate agent will submit all of your information with the offer.  In some cases a release of second trust deed may be required.  This normally comes into play if you have a second mortgage and that loan is not with the lender who holds the first. 

As I mentioned earlier, don't get to worried about the price that your Real Estate agent places on the house.  If he is an experienced Short Sale Specialist, he has done his homework and he knows where the home needs to be priced. His goal is to price the home so that it stands out against the competition as being a great value, but is still a price that he can support with comparable sales. 

The first thing the bank is going to do it to order a BPO (Brokers Price Opinion) and so it is important that the price can be supported by the comparable sales.

If the BPO comes back to the bank at a price that is very close to the offer, it is normally accepted.  But both the buyer and seller needs to be aware that the back doesn't pay the fees that are considered normal and customary.  An example of this is a bank may only offer $1,000.00 towards any second mortgage and that is all they will pay.  Another fee the banks don't normally pay for is the buyers home warranty.  I know, this is only a few hundred dollars but the bank is taking a loss and won't pay for anything that they don't have to.

If you find that you are having a financial hardship holding on to your home and it is located in the Big Bear Valley, I can help you.  Simply email me at tony@tonycard.comor call me at 909 229-5326.  I will be happy to assist you with the sale of your Big Bear property.

If you are a buyer or investor looking to take advantage of the the short sales or bank owned, REO properies in the Big Bear Valley, please give me a call or send me a quick email.  There are some great deals in the Big Bear valley and I would be happy to help you with them.

As long as I've been selling Real Estate in Big Bear, land has always sold well.  It was not unusual for the neighbors to start calling in as soon as the sign was placed in the ground.  In a lot of cases, the neighbor would jump at the opportunity to buy the land next door.  He may have wanted it for a expansion, maybe a garage, or just so no one could build next to him.  It didn't matter, land sold and it sold quick!

That was until this year.  Very little land is selling in the Big Bear Valley. The land that has sold this year was sold at a substantially reduced price. 

In 2006 a total of 365 parcels of vacant land were sold in the Big Bear Valley.  As of today, September 17, 2008, there have only been 56 sales of vacant land.

What does this mean for you the consumer?  It means much lower prices!  I could give you examples all day long, but I won't.  I'll just give a couple that show the savings that are just sitting there waiting to be taken advantage of.  In 2006, you were seeing asking prices of $349,000.00 for an acre of land in the Meadowbrook Estates.  Today, that same parcel of land is listed for $199,000.00.   In 2006 there were 38 lots sold in Sugarloaf.  As of today, there have been 4 sales.   5000 square foot lots, while listed at $50,000.00 and up, are not selling this year.  The only land that has sold in Sugarloaf have been 2500 square foot lots.  These are lots that were selling for $35,000.00 to $40,000.00 in 2006 and are now selling for as low as $15,000.00.  There are many more examples that I can give you, but I think these make my point. 

So many of my clients that bought land from me were contractors.  Contractors, who would buy the land, build a spec home and sell it.  In today's market with bank owned properties (REO) being sold for less than replacement value, it is hard for a builder to come out ahead with a spec build.  Here is a good example of what I am talking about.  A local builder bought a parcel of land in Big Bear City for $58,000.00  He then built a very nice spec home on the land.  That home listed for $325,000.00 and sold for $310,000.00.  About eight weeks ago, that home came on the market as a bank owned (REO) for $214,000.00.  That home sold for less than replacement cost!  This is a great example as to why the builders are not buying land and building.

While the builders are holding back on buying land, their loss can be your gain.  Have you been thinking about how nice it would be to have your own cabin in Big Bear?  Why not take advantage of the low land prices and buy your lot now while the sellers are ready to deal.  You don't have any time frame that is going to force you to build, so you can buy the land and just sit on it.  Once the market turns around, you will then have some options. Maybe you will want to build that dream cabin.  Perhaps the idea of having a builder build a spec for you to sell is something that interests you.  Or, maybe you sell the land and enjoy the profits from a smart investment.

In time any land investment in Big Bear will pay you dividends.  There is only so much land left in Big Bear and once it is gone, well....  it's gone!  The market may be soft now, but just give it some time.  It will turn around!

2159 Third Lane was built in 1964 and under went a major remodel in 2003.  This one bedroom, one bathroom cabin now has a log finish and large redwood decks on the front and rear of the cabin. 

Priced at $115,000.00 my seller is taking a loss.  His loss can be your gain if you act quickly.  This one is priced to sell and won't last long!  Please contact me at tony@tonycard.com with any questions.

The living room has plenty of room to relax while here in Big Bear.  The cabin has a real mountain feel with all of the wood and log accents.

The kitchen had new cabinets and counter tops, and flooring when my seller bought the cabin in 2004.  He bought new appliances which include the Refrigerator, Stove, Microwave, Dishwasher, and Stacked Washer and Dryer.  These are all included in the sale

The construction was completed on 272 Wabash when my buyer purchased it in March of 2006.  Once the construction was completed, my buyer ended up with a very nice 3 bedroom, 2 bath log faced cabin with a 2 car attached garage.  The 1050 square foot home has been a very enjoyable place for the owners to come to and unwind after a busy week down the hill.

It's now priced below what it sold for in 2006 and is a good deal for anyone looking for a newer home in Big Bear.

You can get to the deck from either two of the bedrooms or the living room.  The deck gets plenty of sun and is a great place to enjoy the mountain air.  The deck is completely enclosed with hand rails so you won't have to worry about the little kids falling off the deck or wondering off.

Whether it's just you and your husband, or the whole family, this deck has plenty of room!  Imagine sitting out side in the cool mountain air after dinner star gazing, or think of the great bar-b-que you can be having over the forth of July weekend.

No matter what you choose, you can't go wrong with this one!

Plenty of room to work in the Kitchen without getting in someone else's way.  This open floor plan allows you to be working in the kitchen, yet still being part of the fun that is going on in the living room.

Currently listed at $249,000.00, this home is listed for much less than the owner paid for it.  His loss can be your gain if you act quickly. 

For more information on this property, or any other property in the Big Bear Valley, please give me a call at (909) 229-5326 or send me a email at tony@tonycard.com