Copy for Real Estate Guide Column for 7-16-10
REAL ESTATE PATTERNS
By Ken DuVall

MORTGAGE TRIMMING AND FLIPPING

California is going to use Federal money to pay down the loans of struggling homeowners. The California Housing Finance Agency (CalHFA, known as “Chafa”)) has announced they will spend $420 million to trim individual mortgages by up to $50,000 each. Borrowers who owe more than their homes are now worth would qualify. Lenders will be asked to match the amount, a deal which could make thousands of existing mortgages newly affordable.

The program will launch November 1st and run on a first-come, first-served basis under CalHFA’s “Keep Your Home” initiative. Unfortunately, they expect much more demand than supply. Specifics on the selection process are still being worked out but they will exclusively fund applicants in the low to moderate income households.

Borrowers will have to be already delinquent or in imminent danger of defaulting, but must show adequate income to continue making their payments after getting the help. People who are currently struggling to make payments now shouldn’t wait for the program to start but should contact lenders and loan counselors now.

CalHFA, the State’s affordable housing bank, estimates this program will help 40,000 households avoid foreclosure over the next 3 years. In all, the agency received $700 million for relief programs, part of a $1.5 billion Federal initiative to curb foreclosures. Chafa is in hopes that the banks will match the $700 million. “We’re asking lenders to come to the table with us on this. We can’t force them to, but many have already indicated they will happy to cooperate.”

They could alternatively receive up to $15,000 to catch up on delinquent payments. And could also get $1500 month “unemployment” coverage while looking for work for 6 months to help make house payments. Finally, borrowers could receive up to $5000 for moving expenses if they can’t afford their mortgage under any of the above loan modification scenarios.

In another vein: Uncovering unexpected tax liens, finding major home components missing, and paying occupants $1000’s of dollars to vacate. This is the exiting new world of house flipping. Yet in the Sacramento region alone, some brave investors earned $1.4 million for less than a month’s work.

They buy severely discounted houses repossessed by banks at auction. Then, in less than a month, they resell them. Average gain: $40,000 per house. Homes with troubled histories get bought, repaired and resold, generating cash for them again and again. It’s something that has taken off in many markets.

You have to pay cash in full. You don’t get title insurance. You don’t get to inspect the house. You may have to evict the current occupant. You may be buying a big headache. That’s why these homes are being sold on the courthouse steps at huge discounts.

One investor discovered the prior owner was a drug dealer and had committed suicide in the home. Even though he sold it for more than he paid, he still lost money after clean up and an unexpected $12,000 tax lien. Not for the faint of heart, folks.

Ken owns Ken DuVall & Associates, REALTORS at 3rd Ave. & Mangrove in Chico. Ken was the 2001 President of the Chico Assn. of Realtors and the 1995 Chico Realtor of the Year. See Chico MLS listings at www.KenDuVall.com and call Ken at 345-3700 for all your real estate needs. Free consulting.