Hi, I’m Warren Oberholser. I’m a realtor in the East Bay Tri-Valley area in Northern California. My goal is to help both buyers and sellers get maximum results for one of their biggest investments, their home.
This BLOG is all about loan forbearance, short-sales and REOs in the Tri-Valley area. I’ve got a lot of material to cover, so let’s get started. In a little over two months, we’re coming up on our one-year anniversary of shelter in place due to our pandemic. Shelter in place rules of engagement have hit our service industry hard, particularly restaurants, hair salons, barbershops, gyms, etc. Losing income has made it difficult for homeowners to stay current on their loan mortgage. For this reason, many have decided to go into a loan forbearance arrangement with their bank.
Just a little background, Loan forbearance occurs when a lender has suspended a homeowner’s monthly payment for an agreed-upon time. During this period, the lender does not charge any late fees or penalties to the homeowner. This came out from the CARES Act and applies only to Federally backed loans. To learn more about loan forbearance, click on my loan forbearance video I posted last year.
For many in loan forbearance, their expiration period has been extended to the end of this year and possibly the beginning of next year. Many lenders are now offering loan modifications to those in forbearance. A loan modification can mean a few things:
Number one, the lender may roll the skipped payments and interest into the loan.
Number two, the lender may lower the monthly payments by extending the length of the loan. So if it’s a 30-year loan fixed, it could be extended to 35 or 40 years.
Number three, the lender may lower the interest rate on the loan. So a loan modification may be a viable solution.
However, it’s important that you understand the difference in guidelines between a loan modification and loan forbearance with your lender.
Now, if a homeowner in forbearance doesn’t see it likely that they’re going to be able to get back on track paying their monthly mortgage regularly, then they may choose to sell their home now, while we still have this aggressive seller’s market.
Remember, loan forbearance doesn’t mean the lender’s going to forgive the homeowner’s debt or reduce their loan balance. Therefore, the longer a person stays in loan forbearance, in other words, they’re not paying their monthly mortgage, will increase what is owed on their loan balance. Furthermore, you have additional expenses to pay like property taxes and homeowner insurance. So the sooner you sell your home will increase your net takeaway.
What happens if you don’t have enough equity in your home to clear your debt? Well, a short sale may be an option. A short sale is when a property sells for less than what the outstanding loan balance is. It can be just one loan or a combination of debt between the primary and second mortgage or mortgages. In order for a lender to approve a short sale, there’s a series of items that need to be handled first.
One, the seller submits to the lender, a hardship package. This will include a letter from the homeowners stating what caused their financial hardship. Two, the property must be listed for sale on the Multiple Listing Service or MLS website. Three, a purchase agreement from a viable buyer. In other words, they have to be qualified as having the resources to purchase the home. Four, transactions between the buyer and seller must be at arm’s length. This means the seller and buyer are a separate party. In other words, the seller cannot buy back his own property at a discount.
I want to point out that the bank or lender has to agree to the price the buyer will pay. There’s usually a long waiting period for the bank to approve the short sale. What can happen is, the bank will issue the approval with certain conditions. The two most common ones are, the purchase price needs to be higher than what the buyer’s contract states and the short sale must conclude by a specific date.
I’ve handled several short sale negotiations as a listing agent and I have represented numerous buyers for short sales purchases. And I can tell you the most common factor is, no two short sales are alike.
Back in the day when short sales were quite prevalent and the banks finally figured out how to work out all the details fast enough before the property could be foreclosed on. A typical time period to complete the short sale, from filing the short sale package to closing, was about three to six months. And there were a few that could take up to a year and longer to close.
The last subject is bank-owned real estate. This is when a bank forecloses on a property and puts the property on the market to be sold as an REO. REO stands for real estate owned or bank-owned real estate.
Last year, there were approximately 20 short sales and REO’s in the Tri-Valley area. The majority were REO’s. The good news is, right before recording this video, I did check the MLS and there are no short sales or REO’s in the Tri-Valley area.
So what are my thoughts on the current real estate market?
If you’re currently in loan forbearance, you need to have an exit strategy to get out of it. If you’ve exhausted all your remedies and you see no way you can get current on your loan mortgage and you still have equity in your property, then selling your property now, taking advantage of our aggressive seller’s market may be an option. If your property debts are higher than what you expect to clear when you sell your home, then you may consider a short sale.
I would also reach out to an attorney or tax consultant who specializes in loan forbearance or at least has a thorough understanding on the subject, so you can get their opinion. And of course, reach out to me for any real estate questions you may have (ask Warren). There’s a lot going on here, so it’s important that you do your due diligence first before making any big decisions. What can we expect in the real estate market for the next 12 to 18 months?
Let’s start off with the good news. Our local economy has now started to open up. Restaurants, barbershops hair salons, gyms are now opening on a limited capacity. In fact, I have a haircut scheduled for next week. Home appreciation is up and interest rates are still at an all time record low. We still have an aggressive sellers market, which has made it difficult for buyers, particularly the first time buyer. What we hope to see is more new construction properties added to the real estate inventory. You can bet I’ll keep you updated regularly as things progress.
I hope you enjoyed this article. Please let me know if you have any questions. Warren
Hello…I work with both buyers and sellers in the Tri-Valley area of Northern California. The Tri-Valley is comprised of 6 cities: Pleasanton, Livermore, Dublin, San Ramon, Danville, and Alamo. To better understand what each city has to offer, I have created a Pros and Cons video and BLOG for each – (Pros & Cons for Pleasanton, Pros & Cons for Livermore, Pros & Cons for Dublin, Pros & Cons for San Ramon, Pros & Cons for Danville and Pros & Cons for Alamo). If you are thinking about purchasing or selling a home, please reach out to me by text, phone, or email. If it is convenient, I can schedule a Zoom chat so we can discuss your home goals. Wishing you all the best on your home journey. Cheers!
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