Some Ironic Justice on the Housing Front

Last year when Beth and I were looking to buy a home, we had one lined up and ready to go--all we were waiting on was for my townhouse sale to close.  Due to a bad buyer and his awful mortgage broker, my sale didn't close until nearly two months after its contracted date, costing us that potential home when the seller decided to go with another offer he'd received.

As we kept searching for the right home, we noticed a month or two later that there was now a "for sale by owner" sign in that same home's yard.  Our agent found out that the sale which had bumped us to the curb had subsequently fallen through, and the seller had given his agent the boot.  We decided not to go down that route again--the seller's refusal to budge on the price despite the continuing-to-plummet market factored less in the decision than the fact we'd already lost out twice on that same home.

In the end, we waited out a short sale and bought Chateau Papillon, where we've been quite pleased and have settled in.  Here's the ironic justice in this story: Beth was out walking the dogs through the neighborhood yesterday and noticed that the home we'd tried to buy had been hit by a tree!  No major damage appeared to have been done, but nonetheless, the owner (who is currently renting the place out, I believe) who missed out on a sale to us now has to deal with repairs, too.  I guess we ended up in the right place after all.

Chateau Papillon

Monday morning's closing went off without a hitch--so we're now the proud owners of "Chateau Papillon!"  After months of waiting (between the three-and-a-half months it took from our initial offer and winning acceptance from the seller's bank for the short sale to the month of getting ready to close--not to mention our other misadventures in real estate), we're chomping at the bit, so to speak, to get our new home ready and to move in.

First things first: this is, after all, Chateau Papillon, so we've several steps to make it a friendly home and yard for Didi and Chance.  We've gotten a few bids for fence construction and are moving forward with a privacy fence (both for our sanity and that of the neighbors--we want to prevent as much barking as possible!), compliments in part of Beth's mom, P.A.T., who wanted to give us a fence as a housewarming gift.

Next, the carpet has to go; once either doggie or any of their friends mark, it would become a sponge for pee.  The basement is getting environmentally friendly, sustainable cork; the bedrooms are either getting their existing hardwood refinished or will be receiving a new coat of solid bamboo (again, a "green" floor--sense a theme?)  Beth and I will be doing all the work, so within the limits of our finances, we'll largely be going with new floors vs. refinishing (it's actually cheaper that way--refinishing can cost an average of $5/sq. ft. and is a task we'd contract out, whereas our bamboo and cork cost, respectively, $2 and $3/sq. ft., and is a task we'd tackle on our own).

And there's repainting; not necessarily a task done for the benefit of the papillons, per se, but something we want (and in the case of the pink princess rooms, need for our own sanity).  And let's not forget the many small details that need to be addressed with any new home.

I can't wait to get back from my last business trip of the year and get to work!  Beth's already hard at painting prep and painting itself for the basement, and there's so much carpentry I have to get to, too.

Chateau Papillon!

More "Bank Time" Is Giving Me Ulcers

Beth and I are scheduled to close on our home purchase on November 10th.  Yet I'm still in a state of constant anxiety and stress over the whole thing.  Why now?  "Bank time" again rears its ugly head.

You see, we still have not gotten the loan commitment from our lender.  Despite assurances from everyone involved that this is a "clean" and "vanilla" loan and that it could be done in "10-14 days," we're now well over 20 days and still don't have the commitment in hand.

I've wired my closing funds to the settlement agency; Beth has gotten the rest as a cashier's check.  We've gotten insurance; we've arranged for the changeover of utilities.  Beth is even ordering some cork flooring to be delivered to the new home so that we can get the order in place in time to get several discounts before they expire.

Worse, the investor approval of the short sale expires on the 14th.   You see, in a short sale, the home sells for less than the sellers owe on their mortgage, meaning the bank (and its investors) will take a loss.  Thus they have to approve the sale, and the terms of the approval for this one are good through next Friday only.  Now, it's quite possible to get an extension; that's not impossible and comes up fairly often in short sale transactions... but given it took three months to get initial approval, I don't want to risk additional delays and potentially losing the entire transaction!

Why the delays?  Our lender claims their underwriting department is "swamped" with closings from last month (apparently themselves delayed!)  Fine--but we have to have ours in place; we can't just delay at this point.  Everyone involved claims there are no problems, but Jesus Christ!  Give me a break, people!  If there are no problems, commit the loan--the funds HAVE to be wired to settlement in time for Monday, or we can't close!

I hate real estate.

Chateau Papillon, Here We Come!

Anyone who's kept up with this blog will know it's been a long, stressful summer as my wife and I have worked to buy the perfect home.  For the past three months--all visits to view "backup" homes aside--we've been waiting out a short sale.  That is, the sellers want (or in this case, need) to sell their home, but it's worth (significantly) less than the outstanding mortgage balance(s), and the bank must approve the "short" payoff of the loan as part of the sale.  That payoff is the only short thing about a short sale: our offer was in front of the bank for over three months.

Finally, this past week, we started to get good signs the sale might actually happen.  Technically, the listing agent had promised we'd have everything in writing over a week ago, and even took the sellers out looking for a rental home, but it wasn't until today that we got the official, ratified contract and short payoff approval from the bank.

(Long story there: Beth and I had done some courthouse sleuthing on the loan and property and found the originator had filed for Chapter 11 a couple of years back, but SEC filings for the mortgage lender showed the servicer... and though the listing agent would never share that with us, our sleuthing was indeed correct!)

So... we're moving forward to buying our first home together, which we've dubbed, appropriately, "Chateau Papillon."  Between our "deux Papillons adorable," Didi and Chance, I'm sure you can see the inspiration for the name.  Wish us luck as we go forward now; the only remaining snag could be if our loan appraisal comes in under the sales price (a real risk, given the falling market values in our area); if that's the case, we'll have to negotiate with the seller's bank for the lower purchase price--which might entail cutting the agents' commissions, something we don't want to see happen.

The Short Sale Black Box

A black box is a system for which you can see the inputs and the outputs, but cannot make out any of the inner workings; you can't tell what's going on inside the box, or how the things going in are turned into the things coming out.

Dealing with a short sale is like that systematic black box; we've got the inputs (our offer) and the outputs (eventual acceptance / rejection of said offer), but no way to tell what's going on inside. And that's incredibly frustrating.

Worse, because the inner workings are hidden, it's impossible to even tell what the effect changes in the inputs might have. Property values are falling--does that mean the bank will be more likely to accept our offer, knowing our FHA financing is only good if the property appraises for what we offered? Should we exercise our short sale contingency and issue 72 hour notice of withdrawl--will that have any effect?  What about factors well beyond our control, like the $700b Bush bailout package--will the asset managers who have to sign off on the deal wait and see what they can get from Uncle's teats, or will they move quickly to unload this property and deal with the devil they know?

It's impossible to know, and the opacity is only heightened by having to deal with a listing agent instead of directly with the bank.  We have to send our questions to our agent, who in turn calls up the listing agent, who has to poke and prod at his own black box of the bank's loss mitigation contact, and in turn funnel the answers back to us.  Each step obscures the process even more, cutting the signal to noise ratio exponentially and making it even more difficult to construct a picture of what's going on.  We have to rely on what the listing agent tells us, an added layer of abstraction from the already-opaque bank black box.

As I discussed in comments on a prior post, to any reasonable evaluation, our offer is quite sound and should be something the bank would be thrilled to accept (in so much as they'd be thrilled at taking any loss).  But despite my knowledge of the whole short sale process--something I've researched to the ends of the earth--it's impossible to tell where in the black box things actually are.  We at least found out several weeks ago that the mortgage insurer was reviewing the deal--something we'd not even thought part of the original equation--and now, the insurer seems to be in agreement... but we're still waiting.

We've asked whether the sellers are still current on their mortgage, something the listing agent has repeatedly refused to disclose (perhaps rightfully--though at some point, a default on their part will be a matter of public record).  Even if he were willing to speak on that point, though, it's really just another input to the black box, one for which we have no real notion as to the impact on the output.  On one hand, if the sellers are current, the bank will clearly be loathe to make a quick decision--so long as the cash is flowing in, they have less incentive to deal, after all.  But on the other hand, being current could be good in that their mortgage may be classed as less distressed than so many others, and thus less likely to be quickly sold (via bundled securities) to Uncle Sam, something that would likely be an effective death sentence for our chances of buying the home.

So it's back to the waiting game, and bank time.  The listing agent is touching base frequently with the bank; the bailout bill is now law, though its impacts and mechanisms are far from clear; and our agent will of course haggle the listing agent even as we continue to look at alternate properties as backup.  In the meantime, I'll try some more to stare into that black box and make out something of the shadowy gears that are turning (or not) toward some sort of output.

Screwed By the Bush Bailout?

Anyone who's read this blog will know my wife Beth and I have been trying to buy a home since May. First, I had to sell my townhome, and my buyer defaulted then finally closed nearly two full months past the contracted closing date--costing us at least two homes--one of which we'd had an offer accepted on, and another we couldn't even make an offer on due to the townhome delay. Next, we found the perfect house, but like so many on the market, it was unfortunately a short sale--and the only "short" thing is the mortgage payoff for the seller's bank; time-wise, short sales can drag on for months on end.

The recent financial crisis in the United States and the subsequent bailout plan proposed by the Bush administration--where the US Treasury Department would buy up troubled, often "toxic," mortgage-based assets from banks and investors to help ease the logjam in the credit markets--was something I initially viewed as disastrous for our chances of buying the home we wanted. Banks were rubbing their palms together in anticipation of Uncle Sam buying up their distressed assets and securities at far above market prices (which had fallen so severely to as nearly be inestimable), meaning, I suspected, the banks would suspend their short sale deals in the hopes of getting more from the taxpayer's teat than from any other buyers.

However, as the public and then Congress balked at simply plunking down a trillion taxpayer dollars on a blank check, I personally thought the banks would rush to make the deals they could and deal with losses they could put to paper, and not the vague possibilities of a better (or now likely worse) deal from the government.

Indeed, the listing agent felt so confident in making the deal work for our home purchase that he guaranteed our agent a steak dinner should he fail to deliver by this past Wednesday. (Note that was not exactly his first promise; neither I nor Beth felt particularly confident in the agent's bravado, as he'd previously promised a deal "by the end of the week" and then at the end of that very week complained our agent was harassing him.)

Of course, Wednesday came and went with no deal, and when our agent got hold of the listing agent on Thursday, the listing agent expressed the belief that now the bank was hesitant to sign on anything while uncertain about the bailout plan.

That brings us full-circle; two weeks ago when the Bush administration first came forward with their plan, I despaired that the Treasury Department had sunk our chances of buying, yet over the next weeks grew more confident the terms would be so poor for the financial institutions that we'd end up with a deal soon. Now, the listing agent himself has stated those same fears.

At this point, even if a deal passes today in the US House of Representatives, the impact will be unclear, and if the bank is truly waiting on the bailout, it could be several weeks before the terms of the bailout are known. And if (this is a big "if") the government purchases the security backed by our seller's mortgage, it's a whole new ballgame; no one knows how long it will take the government to establish any notions of how to handle the sales of individual homes, if at all.

So... we may be screwed, on a very personal level, by George W. Bush and his administration, the last in a long line of disastrous mismanagements by our "first MBA President."

Sigh--Delays, Delays, Delays; Or, Working In "Bank-Time"

I haven't posted an update on the house hunt in several days--largely because there hasn't been anything to update.

A couple of weeks back, we found out that the bank has mostly agreed to our offer, but were negotiating with the mortgage insurance company. Now, I'd thought given what we knew about this home and its mortgage situation (having done courthouse research on that very topic) that there likely wasn't mortgage insurance involved; the owners were sub-prime borrowers, after all, and refinanced their 80-20 mortgages (both of them ARMs) into a single adjustable-rate mortgage a couple of years ago. Apparently, they financed at 100% (or more), and even though the bank in question (California's failed OwnIt Mortgage) wasn't known for asking for mortgage insurance because it so quickly sold every loan it originated, the owners ended up with PMI.

That throws a bit of a monkey-wrench into a short sale. Why? Well, if the bank were to foreclose, they'd collect on the mortgage insurance policy, which typically insures up to 17% of the loan's original principal. That could mean that the bank might get a better deal by foreclosing than they'd get with a short sale.

Depending on the policy, the mortgage insurer may have to cover a portion of the bank's loss even in the case of a short sale, not just for a foreclosure (this is a pretty common situation from what I understand). Thus, the mortgage insurer has to okay the terms of the short sale, too. And that's where we stand at present.

Now, to me the negotiations should be simple. The bank says to the mortgage insurer, "Look, we're going to either do this short sale or foreclose. You're paying one way or the other." I would assume the only point of negotiation from the insurer should be how much they're willing to pay; in other words, "Hey, bank, you're taking a smaller loss with this sale; how about we pay a proportionally smaller claim, too?" (Aside from this, the insurer can go after the owners and ask them to sign a promissory note for the insurer's loss in paying the bank's claim, or otherwise hold the owner financially responsible in some way--though a good bankruptcy attorney will deal with that unsecured promissory note in short order...)

So I don't get why we're still waiting, two weeks and counting, from when we learned the insurer was involved in negotiations. The math is simple; by my calculations, the bank is approximately $30,000 better-off taking our short sale offer than foreclosing--a figure which grows every day, mind you, as the uncertainties of the housing market drag down the value further; Zillow estimates for the value of the home have already fallen $4,000 in the time we've been waiting on a decision.

Worse for the bank is the fact that the sale has to satisfy the FHA; the FHA isn't going to approve our loan if they're paying more than the property is worth. And every day the bank delays lowers the chances the FHA will be able to approve the upper end of our offer. With falling prices, the bank not only increases the loss they'll face at foreclosure but increases the chance our offer will no longer be available to them.

But we're in "bank-time" now, a strange quick of quantum mechanics and special relativity which twists what should be a decision of hours and minutes into weeks and days. I dealt with "bank-time" in the sale of my townhome, where Wachovia spent days on end on an "emergency rush" loan twiddling their thumbs and not getting the appraisal scheduled, so I'm no stranger to the concept, unfortunately.

I'm not going to even go into what the troubles at insurer AIG along with the uncertain prospects of the Bush and Paulson bank welfare act ($700b - $1t of taxpayer money on a blank check--pay no attention to that man behind the curtain; look at the monkey!) might mean in terms of delaying our home purchase. I can only hope the bank (and its insurer) haven't said, "Hmm, let's suspend short sale approvals for the time being to see what we might get from Uncle's teat." They'd be fools to take the certain numbers of our offer and trade them for the uncertainties of some government bailout.

Of course, there's also the risk now that the joys of the collateralized debt obligation (CDO) world and their mortgage-backed securities will result in the sale, as part of a large group, of the loan to another bank altogether, meaning we'd get to start over.

Sigh.

No, Real Estate DOES Still Suck

Still no progress on the home we want to buy at short sale; the listing agent keeps promising "a few more days" on the bank's decision, yet gets snippy with our agent for "bugging" him when he doesn't return calls. I'm beginning to have my suspicions that the sellers are still making their mortgage payments and have yet to go delinquent.

If the bank is Litton Loan Servicing (and from courthouse research the last mortgage deed of trust was with a bank which went under shortly thereafter but whose SEC filings show Litton as servicing their remaining loan portfolio), I have read that they often encourage prospective short-sellers to keep making payments and that they'll go ahead and consider/approve the sale. NOT! This is a lie by the bank to keep getting a few more dollars from the sellers before foreclosure--though you can't blame the bank for trying to make more money when you're asking them to take a loss. But if the listing agent has advised them to keep making payments, listening to the bank's "advice," he's a fool, and we could be in for a long wait indeed. The bank has absolutely no incentive to approve a short sale while the loan is not delinquent.

Anyway, that rant aside, Beth and I did a drive-through of the neighborhood we're targeting and checked up on several of the homes we've followed, including the one we lost twice due to my bad townhouse buyer. You see, that home had never shown up in the Fairfax County land records as having been sold, despite the seller kicking us to the curb in favor of another offer despite our assurances we could close on-schedule and that the townhouse sale closure was imminent (the buyer's bank had, after all, committed the funds; it was only a matter of getting a few papers signed and the checks disbursed). So we were understandably curious what had happened.

Lo and behold, we noticed a "For Sale By Owner" sign out front, along with a "For Rent" sign, and a search of Craigslist showed the original seller was indeed trying to rent it out! Why hadn't they checked back with us to see if we were still interested, we wondered?

Our agent did some checking, and indeed, the sale they'd kicked us to the curb with did fall through, because the seller refused to compromise on the price (and, in retrospect, he's overpriced by at least $18k for the current market, given some of the work that needs to be done like a new breaker box and upgraded electrical service, insulation, and double-paned windows).

Needless to say, this information does not thrill me in the least. Though our originally-targeted home could now be our backup should this short sale drag out much longer, there is absolutely no way I am going to give the seller the price he wants; materially, it's too high given the work that needs to be done (and that doesn't include cosmetic stuff like removing the wall-to-wall carpet he for some reason installed over decent wood floors, refinishing the floors from the carpet installation's damage, erecting a fence around the yard, etc.) And I feel somewhat vindictive as well that we were kicked to the curb twice on that home by the seller; once for a lower-priced offer simply due to our sale-of-home contingency, then again for another lower-priced offer despite assurances (in writing, including the funds commitment letter from my buyer's lender) that we would be able to remove said contingency within a matter of days.

Sigh. Real estate still sucks.

Still Waiting on the Bank

Just a short entry today to update the home buying situation. Mainly, we're still waiting to hear from the bank and get the contract ratified so we can get the real business in gear. Our agent had thought we might hear something this past Friday, and I thought perhaps today, but nothing yet.

We did the home inspection today, something of a risk for us in that we had to fork out $450 on a home we might not end up buying, but still a necessity since our contract had no home inspection contingency associated with it: banks tend not to consider offers contingent on inspections, and regardless won't fix most problems found anyway--so we had to know what we'd be getting into.

The good news is that there weren't any serious faults found: a missing shingle here, a slightly bent vent pipe there (both leading to the potential for water damage, and with evidence of some slight water entry but nothing serious). But the roof was fairly new (4 years old), nothing structurally at fault was found, and only a few safety issues the FHA would require be corrected before backing our loan. Pretty much all the other faults I can fix on my own, or with the assistance of some general contractor relatives.

The inspection also gave us a chance to go through the house again; it was a good refresher as to the layout and let us both get a better idea for what we'd do upon moving in. I took photos, and Beth grabbed measurements of the windows and rooms; we've quite a stock of curtains bought as our local Linens 'N Things went out of business with no real idea as to where they'd go or how many we'd need.

Of course, the listing agent hadn't informed the homeowners. They were out, fortunately, and our agent let the inspector in via the lockbox. Right as we were finishing up, though, the owners came home to the surprise of finding all of us in their home! Nothing new there, I guess; the listing agent hadn't let them know we were coming on either of our previous visits to look the place over. They apologized for the "mess" (if you consider a near-Zen existence "messy") and were understanding, anyway. I feel bad for them losing their home; they're very nice folks... but I'm also going to be selfish enough to realize they're in danger of being foreclosed, so better Beth and I get a chance to buy the home than it go to a bank. Either way the owners will lose the home.

Hopefully, we'll go under contract in the next couple of days. I have to think if the bank wants the place off their books this quarter, they'll have to sign on the dotted line this week to give us any reasonable time to close and the sellers time to move. Then again, with the upcoming holiday weekend, who knows if the decision makers will be available until next week?

Progress at Last? (Or: Could Real Estate Not Suck So Much?)

Yesterday evening, I got a call from my agent with an update on the home Beth and I want to buy (recall from a prior post the home is a "short sale," and thus can take a looooong time to even get approval to purchase). Tentatively, I'll chalk this up as "good news."

Gene told us that the listing agent had at last gotten feedback from the bank, and that the bank was likely to accept our offer and want a 30-day closing, and that the listing agent wanted to confirm we were still interested & ready to buy (as if getting weekly calls and needling from our agent didn't confirm that interest, eh?)

The closing date isn't unexpected, either, assuming the bank does approve the sale. Why? It's August 19th now, and the bank will want to complete the sale before the end of the quarter to get it off their books (carrying defaulted or endangered loans hurts the bank's quarterly reports, to make a long story short). Assuming it takes the bank another week to churn through the approval process, that would put closing right at the end of the quarter. And it works well for us, assuming the sale is approved soon, as it could mean we don't even have to extend our apartment lease at all (yay!) and might only have another month and change there.

Unfortunately, due to other offers having been made on the home, we had to include an escalation clause in our offer (a bidding war in a "buyer's market"--go figure, huh?), and the listing agent said he thought the bank was going to accept exactly the top figure of our escalation clause. Again, not really a surprise; I'm just hoping the bank doesn't say, "Well, they were willing to offer $10k more in escalation over their offered price; maybe they'll be willing to go a bit higher still?" and counter us, because we don't have time to get involved in extensive negotiations with them at this point--particularly if it meant going into the next quarter, as the bank might then take their time well into late November or early December waffling and waiting for more offers.

Our agent has suggested we go ahead with a home inspection even without the bank's ratification of the contract--a slight risk, as we could be out the $400 or so is the bank declines the sale. I agree with him, though; we had to remove the inspection contingency from our offer previously because banks tend not to allow them (after all, the bank is already losing money on the sale; they don't want to spend more money fixing problems found in an inspection). So if there are any problems to be found, now is the time to do so, before the bank agrees to the sale. (Technically, any bad problems would cause our loan to be declined by the FHA underwriters, so we'd be "safe" even without the contingency provisions, but we'd have to go through the whole loan process to get there first.)

Looks like things could be looking up for us, and that Didi and Chance may finally get a Chateau Papillon! I'll be cautiously optimistic for now...

Adieu, Vienna

It was a great three years living in Vienna, Virginia, but the weekend saw the end of our time on Tapawingo Road. We'll certainly miss the neighborhood and the yard, though we're also looking forward to buying a home and finding a place we can really make our own.

Our time in Vienna was somewhat bittersweet, though, seeing the passing of all three of Beth's "dingoes": long-haired Dachshunds Agi, Ziggy, and Geronimo; along with our cat Moon, and several "bappies," or baby birds, which the cockatiels had tried to hatch and raise. And though I don't believe in the supernatural, I will say something seemed a bit "off" at the house at times, something not unlike I'd expect a haunted home to feel.

Malevolent presence walking the nighttime halls? Unquiet spirits reaching out for the living? Coincidence and over-active imagination, most likely, but still something which has inspired my creative side with several horror story ideas.

Haunted or not, though, we'll miss the home in Vienna and the times we spent there. Wish us luck and speed in finding a new home!

Waiting Out a Short Sale (Or, Why Real Estate Sucks, Part 3)

Previously, I blogged about our initial frustrations buying a home, which largely were due to the delays brought on by my townhome's buyer (who missed his contracted closing date by nearly two months). The good news is that my wife and I found another home to buy, one we actually liked better than the ones we'd missed out on due to my negligent buyer. The bad news is that the home is offered as a short sale.

A lot of people got into the real estate market during the bubble years. Lenders began issuing mortgages with 100% financing and no PMI (private mortgage insurance--the buyer pays to insure the bank, not the buyer, against a loss on the loan), coupled with low teaser-rates on adjustable-rate mortgages (ARMs). Many banks apparently felt unconcerned with the risks this raised; in part, they planned to (and usually did) sell the mortgages quickly, leaving themselves untouched should the buyer default and go into foreclosure. And, with skyrocketing home values, what problem for the bank would a foreclosure be, anyway? They could take the home and sell it at a profit that satisfied the mortgage balance... until, that is, the mortgage bubble burst.

Even worse, many banks allowed loans on a "stated income and assets" basis, meaning buyers didn't even have to prove their income levels. Appraisers were fudging property values, too. And because many of these loans were to people with either poor credit or were otherwise considered risky, the banks had to charge higher interest to be able to sell the loans to investors (because investors rightfully want a higher return, reflected by the higher interest rate, to account for the added risk). A general economic slowdown combined with resetting ARMs going to higher rates--often over 10%!--meant a good many people suddenly found themselves unable to pay their mortgages, and the real estate slowdown meant their homes were losing value, making them very difficult to sell since many people now owed more than the homes were worth. Finally, some banks came up with a totally dreadful idea: allowing borrowers to pay less than the interest accrued each month, backloading the difference onto the back of the loan (meaning the balance owed actually grew over time!)

Banks can foreclose on defaulting buyers and in millions of cases have; however, foreclosures can be costly and time-consuming for the bank (depending on the state), and the loss of market value virtually guarantees banks will not be able to sell homes they now find themselves owning at anywhere near the amount they (or the bank they bought the loan from) originally loaned the former owners. Banks don't like being homeowners; most have to keep up to several times the home's value on-hand as reserves while they try to sell the home, in addition to spending money on property taxes, maintenance, and so forth--and that's money the banks could be lending out and using to generate revenue.

This is where the short sale comes in. In a short sale, the bank chooses to allow the owners to sell the home for less than what is owed on it, usually dismissing the remaining balance owed as a loss. By doing so, the bank avoids the time and expense of a foreclosure and avoids keeping on-hand potentially millions of dollars per property while they try to sell the home they now own (many of which are damaged by disgruntled owners or by apathy toward maintenance by the stingy banks now owning the property). They still take a loss, but--and this is key--often nowhere near the magnitude of loss they'd eat in foreclosure and subsequent sale of the home.

The chief problem is that the people handling short sale approvals for banks--the loss mitigation departments, their asset managers, and ultimately the portfolio managers overseeing large packages of multiple mortgage-backed securities--are absolutely swamped by the real estate crisis. Some loss mitigation reps get literally thousands of faxes a day.

With all that lengthy preamble out of the way, let me get back to the specific situation my wife and I found ourselves in after the purchase of a new home fell through. We compiled a list of around a dozen properties for our agent to take us to see, and one really caught our eye: a great location (on a cul-de-sac near a county park, not too far from my office), in good shape (several places we viewed needed a ton of work--some to the tune of tens of thousands of dollars!), and within our price range. The downside: it was a short sale, and the listing agent seemed difficult to work with right off the bat.

Beth and I did a lot of research on recently-sold and still-on-the-market comparables in the neighborhood and put together a spreadsheet of comps, finding the property value to be right in-line with the asking price (but around $100k less than the mortgage by county property records). Plus, several of the comparable homes which had been foreclosed upon languished on the market, enduring several price cuts without selling. We put together a good offer and sent it to the listing agent.

Making an already-long story short (the particulars of which I may blog about sometime), Beth and I have had our offer for a short sale purchase in front of the bank for approximately a month now and have not yet gotten word on any approval or counter from the bank. Unfortunately, that's par for the course these days; some of the larger banks and loan servicing companies are taking over a month and a half just to get to a given short sale package, with some taking up to four months to approve or reject a short sale!

That leaves us moving to an apartment given our home lease is up later this week, as apartments seemed the only option for a short-term, renewable lease while we wait (hopefully not for long) to hear back from the bank about our short sale purchase offer. As we're offering above the current market value and within 90% of the tax-assessed value, we think our offer is good enough to win approval, but the wait is killing us, no matter how many "just be patients" we get from the listing agent. If the house weren't perfect for our needs, we'd have moved on and bought another place (likely a foreclosed property, which usually takes only a week or two on which to gain bank approval) already--but this place is worth waiting for, assuming we actually are able to get it.

And assuming mortgage rates don't go up to the point we get priced out of the market--a distinct risk these days with the Fed worrying about inflation and banks tightening lending rules and raising rates left and right to discourage what had once been bread-and-butter purchases.

Well, wish us luck. I'll post more on our home buying (mis)adventure as developments warrant.

Frustrations In Buying a Home (Or, Why Real Estate Sucks, Part 2)

In a previous post, I opined on the difficulties of selling a home today--problems in large part not even directly tied to the burst real estate bubble and current market conditions--but, fortunately, I did close on the sale of my townhome, freeing my wife Beth and I up to pursue the next phase in our house hunt: making the purchase of a home in what most would call a "buyer's market." No problem, right?

Unfortunately, wrong!

Recall from my prior ruminations that my buyer missed his contracted closing date by nearly two months. Since Beth and I don't have a huge amount of cash saved up and needed the proceeds from my townhome sale for our down payment, any offers we'd make would require a "Sale of Home Contingency," which for the non-real estate savvy out there means we'd have to wait for my home sale to close, and should my sale have fallen through, would have had an "out" for any place we'd contracted to buy. Needless to say, sellers do not much like contingencies of that sort, even in today's "buyer's market," because of the uncertainty their sale will be completed in a timely manner or at all with a contingent buyer. Keep that point in mind as we go forward.

Beth and I looked at several homes (special thanks to our agent, Gene Davis, for being so patient and showing us so many places!) in our price range. We found one which needed some TLC but which was otherwise perfect, located reasonably close to my office, with a nice yard for the dogs and a good layout inside for our needs... but it was bank-owned, a victim of the rash of foreclosures accompanying the economic woes and subprime mortgage meltdown, and banks simply will not consider contingent offers--thus, my wife and I couldn't even offer on it due to my buyer's slackness, and it soon went under contract to someone else.

The next home we found also needed a bit of work--chiefly, some upgrades to the appliances, new windows, and a fence for the back yard--and as we were getting encouragement from my buyer's agent that his loan was on track to close "soon," we made an offer with the necessary contingency but briefed the listing agent as to the situation. Still, another offer arrived (amazing, given the home had been on the market for several weeks without a nibble!) and was accepted over ours, at a lower price no less, due to our contingency.

Needless to say, I was at that point quite furious with my negligent buyer, and began exercising legal options to pressure him to pick up his pace (for which I was rebuked by him for "getting emotional" in a "business matter"). Luckily, the other offer on the home we wanted fell through... so we were back in business, if only my buyer would close.

Anxious days passed as my buyer and his mortgage broker and ultimate lender delayed (the most frustrating being the lender requiring a second appraisal be done in-house, which they kept promising to schedule--they eventually did a "drive-by" appraisal, far less valid than the in-depth one already on file!). On the eve of closing, the lender raised property tax appraisal questions that so frustrated the buyer's own settlement attorney that the law firm threatened to resign, as the issue had been addressed several times already.

Worst for us was that the seller for the home we were to buy now informed us he had a new contract, "a done deal except for the signatures," to buy the home from someone else. We urged him to reconsider and wait, as the lender had committed my buyer's funds, and we'd be able to remove the Sale of Home Contingency within days (waiting only for the checks to arrive at the settlement firm's offices). Nope--with no, "Hey, we've gotten another offer, can you remove your contingency first?" notice or other heads-up, the seller had gone with another buyer, and we lost out on the home for the second time. Though not required by law, ethically I believe the seller and his listing agent ought to have given us notice that they'd received a non-contingent offer and given us a chance to respond (had the contract been ratified, the kick-out clause the seller rightfully insisted on would have given us 72 hours).

So, my buyer's delays had now cost us three home purchases. More than a bit depressed, Beth and I came up with a list of around a dozen places to go and see that weekend, with the hopes of finding another home that met our needs. And we did find one that was a better fit than any we'd looked at before. The problem: it was a short-sale property, the drawbacks of which I'll discuss in a future post.

Ruminations On Selling a Home (Or, Why Real Estate Sucks, Part 1)

Since moving to Northern Virginia in 2004, my wife and I have been renters. We were lucky enough to ditch apartment life and find a great home whose owners have spent the last three years overseas, but like all good things, our time in Vienna is coming to an end as the owners return to the States. Coupled with the real estate market collapse and the ensuing "buyer's market," this seemed an ideal time for us to buy a home.

But first, I had to sell my townhouse back in Blacksburg, which I'd rented out the past four years. In my favor, Blacksburg's market is somewhat insulated from the overall burst real estate bubble by its nature as a college town, though that also means the peak period for sales is springtime, as people want to be able to close and move in before the start of the fall term in mid-August. I contacted the same agent who'd handled the purchase for me when I originally bought (Vicki Powell, a great agent in southwest Virginia), and we put the property up for sale.

Though the first offer was less than my asking price (by about 4%), the prospective buyer wanted to close in early May, which was ideal in that it gave my wife and I plenty of time to locate and buy a home before our lease was up in mid-August. After getting confirmation from the buyer's agent and lender that he'd have no problems closing on schedule, I accepted the offer. And thus began a months-long odyssey which has yet to have its final chapter penned!

I'm sure my situation represents an extreme, but it shows just how many things can really go wrong in real estate transactions. Rather than going off on a lengthy rant no one will want to read, let me make several points, or "lessons learned," I took away from the experience:

• Investors using conventional lenders for their financing (vs. "hard money" lenders) are NOT a good fit for sellers right now! Banks are really tightening their lending guidelines, and are giving investors (buyers who are buying a home they don't intend to live in) a really difficult time. And yes, parents buying a condo for their college students are considered investors.



• Mortgage brokers suck! (Especially mortgage brokers who also run talent agencies and are credited as Grandmaster Flash's "personal assistant" on his albums; more on that shortly.) I'm sure in better markets, mortgage brokers help their clients find the best available loans, but today, many lenders are shuttering their wholesale lending divisions, meaning there are far less options available to brokers. And as a seller, having a buyer with a mortgage broker means a lot more potential for delays--any requests for clarification or additional information from the actual bank have to pass up to the broker, to the buyer via his agent, then back through the same chain, sometimes adding days to the process for each instance--as well as significantly reducing transparency (meaning as a seller, it's much tougher to find out exactly where my buyer is in the approvals process).
  
  My buyer's mortgage broker was incredibly unprofessional. They never returned e-mails, faxes, or phone calls from me or my agent, despite the contract specifying the buyer allowed his lender to communicate with me regarding his loan. Worse, when I reminded my buyer of that, his mortgage broker actually called my agent and reamed her out, and stated they had advised the buyer not to provide the written consent I had requested (note: mortgage brokers should not give legal advice; what they had suggested would have put my buyer in material breach of the contract, not a place he wanted to be!)
  
  Being a good Internet sleuth, I soon discovered his mortgage broker's owner had a MySpace page--disturbing enough in itself; we're talking about the financial world, after all, where tattoos and shirts in colors other than white are frowned upon--and proclaimed only to be interested in people "making millions," as well as her dubious credit being the personal assistant to Grandmaster Flash and her other business as a talent agent for the hip-hop community.



• People listen to lawyers. The buyer completely ignored reminders his closing date (which he missed by almost two months) was a material consideration in my acceptance of his offer, and as such, he would need to pay a per diem or other compensation to reflect his not making good on his promise... that is, until I got lawyers involved. The only downside to lawyers is that they are like fraternity brothers, willing to be your friends after you pay them first--though I think my lawyer's fees turned out to be money quite well-spent.

I would have found the buyer in default (which I reminded him was the legal position he found himself in, many times), and delivered the required 72-hour notice to yank his contract, had his delays and promises not pushed us into early summer. Remember, in a college town, the market is almost dead during the summer; students already have their fall housing lined up by then, so if I put it up for sale again, I'd have to cut the price further to move it, etc., and still have had no guarantee of finding another buyer in a timely manner.

It's my opinion that my buyer never intended to make good on his contracted early May closing date. I'm not sure how much of a role his agent and his mortgage broker played; they both certainly had their share of unprofessional behavior and were complicit in the assurances the closing could be done on-time. I think he wanted to get the property under contract at a discount.

In the end, we did successfully close--and not a moment too soon, as it turns out! Within days of closing, his ultimate lender, Wachovia, discontinued the loan program he had used to buy the home, the "stated income and assets" pick-a-payment product which many have called the worst idea in the history of mortgages. And within weeks, Wachovia, following the lead of many other major lenders, shuttered their wholesale division entirely, meaning they won't work with mortgage brokers at all any longer.

Still, due to the buyer's and his broker's often inexplicable and always unprofessional delays, my wife and I lost the first home we'd found (twice, actually; more on this later), and I incurred quite a few additional expenses. For example, I paid two months' more mortgage interest, as well as two months' more FHA mortgage insurance (they don't pro-rate, so I actually had to pay for all of July even though we closed June 30th!), storage unit rental (again, more on this later when I blog about the frustrations of buying a home), legal fees, and incalculable stress and frustration.

If I ever sell real estate again, I will definitely do a lot more investigation as to the buyer's funding (though, contractually, buyers can change their funding source at any time so long as it causes no delays or damages to the seller). No small-time mortgage brokers allowed, unless they're willing to state in writing they will provide bridge funding as necessary to close on schedule. Investors vs. buyers looking for a home of their own will get extra scrutiny. And I'll get lawyers involved sooner, as well as having contract addenda explicitly spelling out the per diem and other damages the buyer must pay if he or she is late on closing.