“Foreclosure sales are pretty devastating,” said Faith Schwartz, executive director of Hope Now, a resource for homeowners facing foreclosure. “We’d much prefer a modification, but if [homeowners] don’t quality, then the next best alternative is deed-in-lieu or short sales.”

Short sales, in which the lender agrees to let the owner sell the home for less than the amount owed on the mortgage, and foreclosures both climbed in 2010, but while short sales rose by 26,000 this year, the number of foreclosures fell by 255,000, according to Hope Now. Short sales, along with deed-in-lieu of foreclosure deals in which the lender takes the deed essentially as payment for the mortgage, still upend families, torch credit ratings and hurt neighboring property values, but they’re far less toxic than foreclosures.

Short sales are better for homeowners. They can stay in their homes, and the quicker process means they can begin rebuilding their credit sooner. Credit scoring firm Fair Isaac Co., which developed the FICO score, says foreclosures and short sales slash the same number of points from a homeowner’s credit score. Homeowners with short sales may be able to obtain a loan sooner than foreclosed homeowners, though, which can improve their credit.

In some states, mortgage lenders can pursue a delinquency judgement against homeowners for the difference between the amount due on the mortgage and the purchase price at a foreclosure auction. A delinquent homeowner engaging in a short sale has an opportunity to negotiate away the bank’s right to sue for that judgement.

The biggest plus for banks is that they stand to make more from a short sale than a foreclosure. According to foreclosure specialists RealtyTrac.com, the average price of a foreclosed home in the second quarter of 2011 was $164,217, while the average price of a short sale was $192,129.

Besides yielding less, foreclosures also cost lenders more in legal and administrative resources. “The incentives against foreclosing are even larger now,” Karen Dynan, co-director of the Economic Studies program at the Brookings Institution, said via email. “Servicers are facing enormous staffing constraints because they are trying to deal with so many distressed properties, so it is probably even harder now to find the staff to do the paperwork for the foreclosure.”

Lenders are also spending more on due diligence, she said. “Servicers and lenders are being heavily scrutinized right now so they probably are more worried than ever about making a mistake in a foreclosure that could subject them to legal liability in the future.”

Neighborhoods also benefit from short sales rather than foreclosures. “Short sales typically sell at less of a discount than foreclosure sales do,” Jed Kolko, chief economist at real estate website Trulia.com, said via email. “Also, foreclosed homes often sit vacant while short sales are re-occupied more quickly. For both these reasons, short sales tend to depress neighboring property values less than foreclosures do.”

Another issue that plagues foreclosures is vandalism, either from opportunistic criminals preying on vacant homes or from disgruntled homeowners. “It’s often not a friendly process so you frequently have cases where people deliberately vandalize homes,” Dean Baker, co-director of the Center for Economic and Policy Research, said.

Baker added, though, that lenders facing years’ worth of legal wrangling and costs to execute a foreclosure may be more willing to accept a buyer’s offer in a short sale.

The other caveat is that short sales aren’t an option for all distressed homeowners. Short sales are contingent on the ability of sometimes multiple lenders to agree on a price that a buyer is also willing to pay. For people who took out multiple mortgages or have other liens, this presents a challenge. “It’s just a little more complicated when you have more parties involved,” Schwartz said.

Source: Associated Press

CityPlace fell behind on its $150 million loan in March, and an entity  affiliated with LNR Partners of Miami Beach on Thursday filed a foreclosure  suit in Palm Beach County Circuit Court.

When contacted, CityPlace Partners said: “CityPlace Partners continues to work  closely with the special servicer to realign the loan and ensure the  continued long-term success of CityPlace. Those talks are ongoing.”

Real estate experts say it’s unclear whether the lender would seek to take  back the property.

“I would think they’re going to try to work it out,” said Tom  Prakas, a restaurant broker who has negotiated a number of leases at  CityPlace.

The foreclosure suit names CityPlace Retail LLC, an affiliate of New  York-based Related Cos. Related is led by Miami Dolphins owner Stephen Ross.

CityPlace’s retail occupancy stood at 93 percent earlier this year, according  to a report from Fitch Ratings. Tenants include Macy’s department store,  Barnes and Noble Booksellers and Muvico Theaters

Despite its high occupancy and bustling traffic, CityPlace hasn’t been immune  to the effects of the economic downturn. A recent appraisal of the property  listed its worth at $143 million, down from a boom-time value of $233  million.

CityPlace’s net operating income fell from $9.3 million in 2006 to $5.2  million in 2009, according to an analysis by Trepp LLC, a New York firm that  tracks commercial real estate.

While CityPlace can boast high traffic and a healthy occupancy rate, real  estate brokers say a number of tenants pay very little rent to occupy space.  The move makes the center appear lively, but it doesn’t add revenue to  CityPlace coffers.

CityPlace was built on land leased from the city of West Palm Beach, and  CityPlace hasn’t missed any payments to the city, said West Palm Beach  spokesman Chase Scott.

Scott said he expects CityPlace to survive its financial issues. So does  Joseph Schober, president of the CityPlace Tower Condominium Association.

“It’s not going to go away,” Schober said. “It’s a very viable  place.”

Schober said the lack of a convention center hotel has robbed the center of  much-needed traffic.

Sources close to CityPlace say its partners put at least $20 million in equity  into the project, making them reluctant to walk away when the center began  having problems paying its mortgage.

“They had real money in that place,” one real estate source.

Source: floridarealtors.org

Short sales allow the cash-strapped seller to repay the mortgage at the price that the home sells for, even though it is lower than what is owed on the property.  With plummeting property values, this can save many people from foreclosure and even bankruptcy. More and more lenders are willing to consider short sales because they are much less costly than foreclosures.

In the West Palm Beach area, more than 1 in 5 homes are in danger of foreclosing. It is happening in all price ranges. Local experts say that even high-priced homes are not immune.

“This CDPE designation has been invaluable as I work with sellers and lenders on
complicated short sales,” said Pearl. “It is so rewarding to be able to help sellers save their homes from foreclosure.”

Alex Charfen, founder of the Distressed Property Institute in Boca Raton, Fla., said that Realtors® such as Brian Pearl with the CDPE designation have valuable training in short sales that can offer the homeowner much better alternatives to foreclosure, which virtually destroys the credit rating. These experts also may better understand market conditions and can help sellers through the emotional experience, he said.

The Distressed Property Institute opened in January 2008 and provides training on-site and online. The CDPE is the premier designation for Realtors helping homeowners in distress and handling short sales.

“Our goal is to educate as many people as possible so we can help as many homeowners as possible,” Charfen said.

For more information about distressed properties, including short sales and foreclosures, go to Brian’s website www.pearlrealestategroup.com/shortsales
or email him at brian@pearlrealestategroup.com.

Copyright © 2010 Sun Sentinel, Fort Lauderdale, Fla., Paul Owers. Distributed by McClatchy-Tribune Information Services.

Satisfaction with national real estate companies among home buyers has improved while satisfaction among home sellers has declined in the last year, according to the J.D. Power and Associates 2010 Home Buyer/Seller Study, released Thursday.

J.D. Powers collected 3,000 evaluations from 2,817 respondents who bought or sold a home between March 2009 and April 2010. Overall satisfaction with the buying experience is determined by rating satisfaction with the practitioner, the office they represent, and a variety of additional services. Four factors are examined for the home-selling experience: the quality of the practitioner’s performance, marketing, the office they represent, and other services.

“Among both home buyers and home sellers, the importance of [practitioners] and salespersons has increased substantially in 2010, compared with 2009,” said Jim Howland, senior director of the real estate and construction practice at J.D. Power, in a statement.

“Buyers are increasingly relying upon negotiating skills of [practitioners] and seem to be satisfied with the purchase prices they are obtaining. Despite the fact that sales practitioners appear to be doing a good job of negotiating and marketing on behalf of home sellers, the tough economic conditions are negatively impacting their overall satisfaction with real estate companies,” Howland added.

On a 1,000-point scale here are the scores in the home buyer segment:

1. Keller Williams, 817
2. Prudential, 811
3. Coldwell Banker, 805
4. Home-Buyer Segment Average, 803
5. RE/MAX, 801
6. Century 21, 798
7. ERA, 785
8. GMAC/Real Living, 765

Satisfaction ratings on a 1,000-point scale from home sellers:

1. Prudential, 760
2. Keller Williams, 751
3. RE/MAX, 744
4. Coldwell Banker, 743
5. Home-Seller Segment Average, 742
6. Century 21, 727

Source: J.D. Power and Associates (07/28/2010)

Many believe mortgage fraud is partly to blame for the wave of foreclosures that are swamping many housing markets. And a quick scan at national headlines speaks to the depth of the issue.

In early January alone, there were several high profile convictions:

• Six people in Boston were arraigned in a $2 million mortgage fraud scheme.
• A Naples, Fla. man was sentenced to seven years in prison and ordered to pay more than $11 million in restitution for setting up straw deals to obtain inflated mortgages.
• A Colorado man was sentenced to 31 years in prison after a mortgage fraud scheme.
• Two North Carolina men were sentenced for their part in a $6 million mortgage fraud scam.
• Two New Jersey men were convicted in a multimillion-dollar mortgage fraud and property flipping scheme.

Those are just a few of the many early January mortgage fraud headlines from coast to coast. Indeed, prosecution of mortgage fraud is on the rise as the U.S. Justice Department makes the issue a priority. U.S. Attorney A. Brian Albritton has publicly declared that “Mortgage fraud will not be tolerated.”

The Cost of Mortgage Fraud

When you examine the cost of mortgage fraud, it’s easy to see why the federal government is cracking down on the crime. Again, many believe mortgage fraud added to the financial crisis in the subprime mortgage industry and the fall of banks. Consider the latest statistics compiled by the Mortgage Asset Research Institute on the pervasiveness of mortgage fraud:

• As of March 2008, the Federal Bureau of Investigation (FBI) was investigating more than 1,200 mortgage fraud cases – that’s a 50 percent increase from 2006.
• The FBI also reports that about half of the mortgage fraud cases it is investigating report losses exceeding $1 million and some exceed $10 million.
• According to the Financial Crimes Enforcement Network, the number of suspicious activity reports (SARs) submitted relating to mortgage loan fraud increased 1,411 percent from 1996 to 2005.
• According to the TowerGroup, losses from mortgage fraud were about $2.5 billion in 2008 – and the firm expects comparable losses to continue for the next few years.

Although there is a level of fraud that exists where home buyers and/or their mortgage brokers falsify documents in order to get a loan approval, the FBI estimates fraud for profit accounts for up to 80 percent of the problem. That leaves 20 percent – or more – of the issue in the hands of consumers and mortgage brokers.

Keep Client Safe with the SAFE Act

As a real estate broker, you can help protect your clients. Relying on inflated appraisals, disguising purchase loans as refinances, or working with an exclusive appraiser are red flags and could be signs of potential fraud. The federal government has put measures in place, such as the Secure and Fair Enforcement of Mortgage Licensing, or SAFE Act, to discourage mortgage brokers from these practices. A key component of The Housing and Economic Recovery Act of 2008, the SAFE Act aims to better protect consumers and curb fraud by encouraging states to establish minimum standards for licensing and registration of state-licensed mortgage loan originators and has also established a nationwide mortgage licensing system and registry for the residential mortgage industry to increase the accountability and tracking of loan originators. If a broker is convicted, that conviction would be listed in the registry.

The bad news is the registry is not yet publicly available. The good news is systems are actively being put in place to protect homebuyers from dishonest mortgage brokers so the housing market will be less prone to negative impacts from mortgage fraud in the future.

Source: KW Blog