If you are an agent that has never worked with borrowers in financial distress or if you need a...
The Skinny on Short Sales, Foreclosures, Unemployment, and the Real Estate Market
If you are like most residents of the United States, you are probably spending much more time at home—working, baking bread, and watching television. You are probably already aware that the extra $600 in unemployment benefits being paid out to the unemployed across the nation has just expired, and it may be several weeks before the government sorts out what to do next. There are lots of news articles reporting that people are reeling from the quick and abrupt change of circumstances—one day you are a restaurant manager, a fitness trainer, or the manager or a clothing chain and the next day you are furloughed until dates unknown. Then, your only lifeline to be able to make ends meet (more or less) is through government stimulus funds, which abruptly disappear.
But, how will all of this impact the real estate market?Without a crystal ball but with some experience in the pre-foreclosure market helping folks out of tough situations with their mortgage lenders, I can tell you that whatever happens with the government’s decisions on future stimulus funds (particularly unemployment) is going to have a very strong impact on the pre-foreclosure market, and ultimately your job as a real estate sales professional. On whatever date that the additional unemployment funds are cut off (whether it is July 31 or December 31), approximately 6-9 months later, we will see a significant rise in homes on the market, property values decreasing, and the beginning of short sales and foreclosures. Proactive owners will likely start the sales process earlier than 6 months, but those who are still unemployed with little hope of immediately jumping back into employment earning what they had earned prior to the pandemic will definitely need to “unload” their homes and move to more affordable rentals. Remember that the foreclosure process for most mortgages in California begins with a Notice of Default that can be filed after the third missed a mortgage payment. Then, there is another three months or so where the borrower has the opportunity to pay back what is owed or make other arrangements. After that six month period, a Notice of Trustee’s Sale can be filed and the property is sold at the courthouse steps or is returned to the lender and becomes an REO.
What is forbearance and can it help?What’s different about this economic depression (or recession–still yet to be determined which) is that the government is really trying to help. Banks have been told to offer borrowers forbearance programs of up to 1-2 years, in some cases. What this means is that your payments will not be required or due until the end of the forbearance period. And, in some cases, all the missed payments will be lumped together as a second lien and due at the end of the mortgage period or when the home is sold. Not every type of mortgage will have these options and each borrower will need to explore their options. Principally, this option is available for Fannie Mae and Freddie Mac loans.
What should real estate professionals do?If you are an agent working right now, one thing you might want to do is contact any homeowner who is considering selling but told you that he or she was waiting. I’d say that now is a great time to tell. In most parts of the US, there are not many homes on the market; it’s a seller’s market and multiple offers cause sales prices to increase. On the other hand, if a prospective seller waits, values may go down…. A LOT. At Short Sale Expeditor®, we can help you to process your bank short sale if your sellers are ready to go. If you or anyone you know needs a free consultation, feel free to contact our office.
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