When combing my Google Alerts tonight, I saw that Rep. Herkes, the Chair of the Consumer and Commerce Committee, had submitted an editorial piece to the Star Advertiser, Hawaii’s largest newspaper, and Star-Advertiser would not print it. I think Rep. Herkes makes some excellent points, so let me share his perspective and comments and add a few thoughts of my own further down the page:

Last Thursday, this paper (referring to the Star Advertiser) reprinted old news about Act 48. We already knew the foreclosure rate dropped 50%-60%. We already knew the banks are foreclosing through the courts to avoid penalties for fouling up the new non-judicial process. We can only speculate why the repeat messaging and why this paper is so intent on spinning Act 48 as a failure. Their editorial last Monday provides some clues. Its title, “Reform law to let lenders, borrowers settle homes fairly” presumes Act 48 isn’t “fair” to lenders. What they’re really talking about is a loss of privilege. In light of all the illegality, we were obligated to limit their license to self-police.

Remember – almost half the other states disallow non-judicial foreclosures. Banks only started foreclosing non-judicially in Hawaii after a law was passed in 1998. But there’s a twist to the legislative history – which this paper aptly explained in 2010: the 1998 law was so defective, it went unused – only to revive an arcane law from 1874. The Star Bulletin reported the 1874 law was created to drive Native Hawaiians off their land. Title insurers resigned to work with that law and helped lenders develop a non-judicial “practice” that was palatable to them.

After the economy tanked, the mainland banks became desperate for capital and our so-called “law” made Hawaii a perfect target. Act 48 stopped the hemorrhaging under the 1874 law and fixed the 1998 law the banks pushed so hard for just fourteen years ago. That’s all the time it took for lenders to consider the 1874 fast-track their right. How rude of us. Here’s another strange statement from the editorial: “While delinquent homeowners might have been helped by the resulting sharp decline in foreclosures, the change in recent months could prolong the negative effects on the housing market.” Huh?

Let me break down the cause and effect. Act 48 guarantees third-party oversight in owner-occupant foreclosures – in court or dispute resolution. No more free rides on the 1874 express. The new express train requires banks to show their legal standing to foreclose – or they’re thrown off. That frightening prospect resulted in the sharp decline of foreclosure activity. By slowing down the rate of wrongful, fraudulent, and avoidable foreclosures, we’ve stopped a flood of inventory from dragging down home prices and keeping folks from going further underwater. I doubt Hawaii’s homeowners view this as a “negative.” In fact, that is a “negative” our Federal Reserve is trying to achieve. The prestigious Council of State Governments also recommended that states enact their own Act 48.

Simply asserting there are “negative effects on the housing market” without explaining what they are is an insult to readers. Ironically, the editorial was printed the same day Paul Brewbaker lectured the legislature on Hawaii’s economy. He spoke at length about Hawaii’s housing market, emphasizing that Oahu’s prices are slowly stabilizing and that neighbor island prices are tracking the market on the mainland. He didn’t mention any “negative effects” specifically created by Hawaii’s Act 48. There are more colossal market forces at play.

I have grown tired of arguments that rely on fabrications and baseless doomsday scenarios. We cannot ignore the rule of law because someone affected (a realtor, banker, mortgage broker?) claims it’s bad for business. Resolution to this crisis cannot rest solely on the simpleton’s question to troubled homeowners, “did you pay your mortgage?” We also need to be asking the banks, “did you cheat?”

Pay attention this legislative session. We’re going to apply what we’ve learned from Act 48′s shake-out – and do what is best for Hawaii’s people.

I’m glad to read Rep Herkes comment. He understands well that the banks have been negligent, abusive, and disrespectful to American homeowners and he’d like them to be held accountable. One thing I do not understand in his column though, Rep. Herkes implies 3rd party oversight in judicial foreclosures. Has MFDR process defined in Act 48 been applied to the judicial proceedings? Have the judges in all our counties attended any seminars or workshops from the nations foreclosure defense and fraud experts to learn what exactly to look for when the proceedings come their way?

The judicial system appears (I cannot be sure) to be moving slower than ever with an ever growing load of judicial proceedings. On my little island of Kauai, all 300 plus non-judicial proceedings were cancelled and all are slowly beginning again in the courts. Yes, we’ve slowed down the banks a lot, but I thought the law’s intention was to help Hawaiian homeowners stay in their homes for good. By placing leverage on the banks, the banks would need to be more reasonable with homeowners. I can testify that this is not and may not happen. This law is just buying a lot of time for homeowners and sometimes free time. Modifications have NOT gotten any better.

In fact, it’s well known that if the owner of the note has heavy insurance on the secured trust where the loan is setting, the loan will NOT be modified. It’s not in the financial interest of the noteholder to do so. Kudos to Rep Herkes and his peers for their efforts, but it’s going to take more than Act 48 to keep Hawaiian homeowners in their homes that have lost 30-50 per cent of their value since 2008.

And as far as the market is concerned, the Oahu market is very different from the neighbor islands. As long as there are a large amount of pending foreclosures and some shadow inventory (those homes already foreclosed on, but the banks are still reviewing if they did the process properly and have not released the properties for sale), the market won’t recover.

I’ve seen reports that we won’t return to 2006 prices til 2023. Yes, the market is at the bottom, and it’s probably a deep and wide trough that will be here for several years to come. Act 48 WILL NOT help our real estate market to recovery. That’s my 2 cents.

Related posts:

1. The Mortgage Foreclosure Dispute Resolution – Foreclosure Mediation in Hawaii
2. Hawaii Foreclosure Law Passes – Will it Help the Consumer?
3. Hawaii’s Act 48 – The Foreclosure “Buzz”

My newest short sale listing is in this Wailua Houselots home for sale.

The houselots are only a few minutes walk to Wailua Bay, a good beach for swimming or kite surfing. It’s a simple, single wall construction home with multiple lanai and a carport. The lender is Wells Fargo and with Wells’ use of the Equator short sale system, things move fairly quickly, which makes it good for all parties to the transaction.

Buyers need to understand that in a short sale, the servicing bank (Wells Fargo) and any additional stakeholders like the investor (who owns the loan), or the mortgage insurers (whether the seller’s or lenders) may have requirements that effect the transaction. So, buyers must be patient while all these stakeholders weigh in.

Priced at $269,000, it’s a great way to get into the Kauai single family home market and so conveniently located (MLS# 251238).

For a greater understanding of short sales and REOs, download my Foreclosure Facts and Opportunities Toolkit. It’s FREE!

Related posts:

1. Just Listed – $399K Short Sale in Wailua Homesteads (Kapaa, Kauai)
2. Deal – $299,000 Wailua Bay View Condo For Sale on Kauai’s East Side
3. $475,000 Wailua Homesteads Home on the Market – Nice Kauai Home with a Pool

The latest financial and economic report from UHERO (University of Hawaii Economic Research Organization) highlights the ongoing slowdown to the state’s recovery from the economic crisis, which began some three years ago.

The report highlights a reduction in velocity of the travel industry despite a strong 2011 beginning. Travel revenue is generally a reflection of the pricing of oil, and the overall economic and spending climate. Many families can take vacations that are more affordable than traveling to the islands and our overall statewide numbers reflect this.

New construction permits, although better on Kauai than other neighbor islands, are at levels not seen since the 1980′s, and the comments in this financial report on the housing market notes a substantial foreclosure overhang, equal to at least two months of inventory.

Read the entire article about “Hawaii’s Economy in Pause Mode” from one of the leading authorities in the State. If you have an interest in purchasing property in Hawaii’s stagnant economy, check out my Foreclosure Toolkit, available for free download.

View the Kauai Foreclosure Gallery.

Related posts:

1. The Mortgage Foreclosure Dispute Resolution – Foreclosure Mediation in Hawaii
2. Hawaii Foreclosure Law Passes – Will it Help the Consumer?
3. Rising Delinquencies in Hawaii Home Mortgages

“New Law Flounders!” That was the headline in last week’s Honolulu Star Advertiser. Here’s the back story: When Senate Bill 651 was signed into Act 48 on May 5, 2011, Hawai‘i legislators thought they were taking a powerful and effective step in helping homeowners to deal with their banks.

The 101 page bill was intended to force lenders to make better efforts at negotiating loan modifications with borrowers through a mediation program overseen by the state’s Department of Commerce and Consumer Affairs (DCCA).

Act 48 reformed and redefined the foreclosure process in Hawaii. This law sets up a MFDR (Mortgage Foreclosure Dispute Resolution) mediation process that is now apart of the non-judicial foreclosure process. Here’s the problem: If the banks do not use the non-judicial foreclosure process, there is no mediation required. 

So, if the bank does not pursue non-judicial foreclosure parts I or II (there are two styles of non-judicial foreclosure in Hawai‘i) what do the banks do? They file a judicial foreclosure. This is in the Kaua‘i civil court system. The local lenders have always pursued their foreclosure in the court system, so this is nothing new.

However, last week alone, 20 new cases were filed on Kaua‘i. What does this mean? The majority of these new judicial foreclosures are the result of the mainland foreclosing banks, cancelling their former non-judicial proceedings, only to start them over in our Kaua‘i courts.

The mainland lenders are now, post Act 48, simply choosing the safer (for them) judicial process. This is not necessarily good for the homeowners. Deficiency judgements are a key issue. No homeowner wants to lose their home and then have their assets pursued by the lender. Under Act 48, in a non-judicial foreclosure, the bank can no longer pursue a deficiency judgement. 

However, in a judicial foreclosure the bank can and will most likely pursue the deficiency judgement. That means if the borrower owes $300,000 and their foreclosed home sells for $200,000, the bank will then file a deficiency judgement against the homeowner for $100,000. This judgement is good for ten years and can be renewed for another ten years.

When this bill was being discussed, Hawai‘i attorneys who participated on the state’s Mortgage Foreclosure Task Force warned legislators that this switch to all judicial foreclosures could be a repercussion of Act 48. Apparently, the legislators did not heed the warnings. Since May 5th, there has not been a single non-judicial foreclosure completed on Kaua‘i. All foreclosures are being restarted in the court system. This was not the intent of the law.

Are the banks bypassing Hawai‘i’s Act 48? Or did the legislators, in their rush to defend homeowners, pass a law that left the banks no choice but to protect their assets in a judicial proceeding? 

If there were a way for the chief justice and the state’s judges to integrate the mediation process into the new judicial proceedings (a process the state has now spent hundreds of thousands of dollars on) perhaps homeowners would have a face-to-face opportunity to work out a solution with their lenders. Then, homeowners would have the respect that the state legislators intended them to have when dealing with their delinquent loans, underwater properties, and mainland banks.

More Information

The article below was printed in a special Foreclosure and Short Sale Buyer’s Guide in The Garden Island on October 30, 2011.

For more information on Hawaii’s Act 48, check out my previous blogs.

Related posts:

1. The Mortgage Foreclosure Dispute Resolution – Foreclosure Mediation in Hawaii
2. Hawaii Foreclosure Law Passes – Will it Help the Consumer?
3. Act 48 From the Trenches – Fannie Mae Going Judicial

Aloha to all of you. As we enter the fourth quarter, typically not that strong a quarter in the island sales market, we take a look at the data from our 3rd quarter of sales on the island of Kauai. The information comes to us courtesy of Hawaii Information Services.

Monthly and quarterly, our MLS provides three key statistics:

1. Number of Sales—the total number of transactions in a given period.
2. Sales Volume—What is the dollar volume of business transacted? For instance, for the 3rd Quarter (July through September) there was $96,268,840 sold in the 3rd Qtr. of 2010, but only $75,734,504 sold in this same quarter in 2011—a decrease of 21.33%
3. Median Sales—This is defined as the number where there are an equal number of sales above and below this number. It is NOT the same as the average price. While the 3rd quarter sales volume was down on Kauai, year-to-date the total sales through September 30th on Kauai is $279,905,323. That $279K number is within one half of a percent of the total number through the 3rd quarter of 2010. For those of you who are not as familiar with our tax map key system, our island is divided into five zones, starting on our southwest side and working counterclockwise around the island. The map of our zones is below, so that you might better understanding the median value analysis to follow.

The five zones: Waimea • Koloa • Lihue • Kawaihau • Hanalei—notice the sections, the smaller numbers within each zone

Now, let’s take a look at the median prices through the 3rd quarter of the three different categories of property: single family homes, land, and condominiums. Through the end of September, there have been 268 sales of single family homes, 213 sales of condos, and only 70 parcels of land have changed hands. Land has typically been the softest component of the market and not every lender will loan money for land or the associated construction costs.

When you look at the median price of single family homes, you’ll notice there’s not a lot of change in the median prices in Waimea, Koloa, or even on the north shore in the Hanalei district. The median sales price of a single family home in the Hanalei district, from Kilauea all the way to Haena, is down a mere 1.03 percent, or basically flat.

On the other hand, the median prices in both Lihue and Kawaihau, the two largest population areas on island, are noticeably down from last year. This is mostly a function of the numbers of foreclosures and short sales, and those properties’ effect on value pricing in those towns.

In terms of raw land transactions, the biggest market adjustment is on our north shore; farm and mountain lots in Kilauea are selling for a lot less. Smaller lots in Princeville are selling for less too. In the area known to local residents as Queen Emma’s Bluff, lots which formerly sold for $600,000-$700,000 are selling for almost half of that. The last lot to close on that street sold for $345,000 and that was recorded on October 11, 2011. Sometimes though, as evidenced in the above graphic of the Waimea district, when there is only a transaction or two for a time period, one sale can have a dramatic affect on the pricing.

And in this final chart below, notice the dramatic adjustment in the median price of condos in both the Kawaihau district and the Lihue districts. The median price of a condo in the Kawaihau area, which includes all of Kapaa and Wailua, is down almost 24% from last year to a current median price of $127,500. And wow, how about the Lihue district where the median price is down a whopping 56 percent from last year at a median price of $65,000? Such a dramatic number, but do you know why? It’s relatively easy to explain those two dramatic adjustments.

For one, both the Kawaihau and Lihue districts have the highest foreclosure rates on our entire island, and the bulk of that shift in median price comes from the sale of Islander on the Beach units in Kapaa and Kauai Beach Resort units, which are technically in the Lihue district. Most of these condos were sold to investors and speculators at a time when investors and lenders asked way fewer questions.

At the Kauai Beach Resort, some of the mauka-facing units are selling for between $30,000 and $40,000 dollars. These are “condotel” units which sold back in 2006 for between $225,000—$325,000 dollars. The Islander units used to sell for $350,000 for oceanfront units. No longer. Prices at these complexes are down dramatically and are pretty much relegated to cash transactions. No lenders really want to loan on these condotels without kitchens, fondly referred to as ”lodging units.”

It is surprising that with interest rates in the low 4 percent range or even into the high 3 percent range, there is not an increase in sales volume from last year. However, the great rates and programs are making it more and more possible for local families to purchase their first homes, and get an affordable mortgage to go with it. That trend is not likely to change any time soon. Remember, our island and market are small.

Currently, one home in Hanalei Bay is listed at $18 million dollars. When that home officially records, that one sale will of course dramatically affect that number in the Hanalei zone. Still, the numbers don’t lie. The market is pretty much status quo and the largest amount of transactions occur below $300,000. That was not always the case. The market favors the buyers. If you are thinking this may be a good time to enter the home market as a buyer, you are probably right!

Related posts:

1. Kauai First Quarter Finishes Strong – No April Fools’ Here
2. 2009 Second Quarter Oahu Real Estate Sale Statistics
3. Kauai Weekly Foreclosure Update and Kauai Market Statistics

The Mortgage Foreclosure Dispute Resolution (MFDR) procedure, as defined in Hawaii’s Act 48, went into effect on October 1st. I monitor the conversation about Act 48 because it is so important to Hawaiian homeowners and to the many sellers and borrowers that I represent.

All through the local news I read press releases about the beginning of this “MFDR” process that will be implemented by the DCCA. Hawaii News Now reported on it, Honolulu Magazine reported on it, and Pacific Business News reported on it, but who is telling the real story, I wonder?

Since May 5th, when Act 48 went into effect, there have been ZERO non-judicial foreclosures on our island. Many mainland lenders have started refiling their foreclosure proceedings in the courts as judicial foreclosures. Just as I am unsure how many homeowners understand their options in non-judicial, I am unsure how many homeowners understand the repercussions of a judicial foreclosure, where the foreclosing lender is entitled to a deficiency judgment by Hawaii State Law.

So, in a state where the local lenders like Bank of Hawaii, First Hawaiian Bank, Finance Factors, Central Pacific Bank, American Savings Bank, and others have always pursued foreclosure through our court system, the mainland lenders are now following suit. And this begs the question that I presented to our legislators back in June at the Act 48 informational briefing, “Just who is going to be using the MFDR?”

In concept, it is an idea well conceived. Create a mediation process where the borrower and lender sit down with a neutral third party and see if there is a workout option that can help the homeowner to remain in their home.

It makes sense that a face-to-face mediation has better potential than the years most people spend sending their loan modification documents to the lender, only to have the lender continuously lose the borrower’s paperwork. It makes sense to bring some logic and accountability to the system, but the problem is, there is no MFDR setup in the judicial foreclosure process, and as far as I can tell, non-judicial foreclosure in Hawaii is a thing of the past.

So, will the Foreclosure Mediation begin as announced on October 1st, or will the DCCA staff who has spent the the last few months setting up the systems and understanding the mechanics of foreclosure and the challenges both parties have, be sitting idly waiting for something that won’t be happening? What do you think?

View all Kauai Foreclosure deals in my Kauai Foreclosure Gallery. I track the entire marketplace of short sales and foreclosures on Kauai and around the state.

Related posts:

1. Hawaii Foreclosure Law Passes – Will it Help the Consumer?
2. Update on Hawaii’s New Foreclosure Law, Act 48 – Judicial Foreclosures in Hawaii? Non-judicial is DEAD (For Now)
3. Act 48 – Will this Foreclosure Law Ruin the Hawaii Market?

Last Wednesday, August 31st, the Kauai Board of Realtors held their quarterly GMM (General Membership Meeting) at the Kauai Marriott Resort and Beach Club in Lihue. The GMM is a time for Realtors to get together and network and learn about changes in the industry, and compare views of the market.

Occasionally, one of the guest speakers is Paul Brewbaker, a brilliant economist who is kind of like a combination of a very funny stand-up comedian and an astute scholar. Formerly chief economist of Bank of Hawaii for many years, Paul now is on his own with TZ economics, and is one of the most compelling and popular speakers to the real estate industry.

When listening to Paul, I really need to pay attention because one moment I’m falling out of chair with laughter and then Paul delivers a zinger about the skew and kurtosis of the asset cycles and I’m like, “What’d he say?”

Interestingly enough, two other noted economists were delivering similar messages about similar data sets at the Kauai Chamber of Commerce meeting the following day. When the real estate market was booming, every time Brewbaker addressed the Realtor® community the question was, “When is this boom cycle ever going to end?”

Nowadays, the table is turned and everyone wants to know, “When is the market going to recover and turnaround?” It seems like from the most current information available (and your mileage may vary), while Brewbaker had suggested a turnaround by October of 2012, that prediction is being pushed out until the 20-teens. Is that 2015, 16? One can only speculate.

While it’s impractical to cover each of the 105 slides in Brewbaker’s presentation, there are a couple of highlights that illustrate and document where we are in the real estate cycle, and what we might anticipate in the future as residents and owners on Kauai. First, there is the median pricing of our housing. Was it realistic when the median price of a home on Kauai was above $600,000? Probably not.

Kauai median home prices through 8/31/2011

Right now, the median price of a home on Kauai is around $435,000. Median is defined as the price where half of the transactions are above that dollar amount and half the transactions are below the dollar amount.

While our residential market has retreated to home prices at the levels they were at between 2002-2003, when you look at the long term view of real estate in Brewbaker’s means graph, you still see the long term prognosis of real property is quite good, with condo prices increasing about 5.0 a year and single family homes 7.5% a year. Note that these numbers are seasonally adjusted.

When addressing the ongoing foreclosure crisis in the islands, Brewbaker likened the situation to a drain that was already clogged, and suggested that the residual effect of Hawaii’s Act 48, and the reaction to that was a bit like putting more hair and debris in an already clogged drain. Not a pretty image, but a good analogy.

While the recent numbers of foreclosures have decreased, it’s partially because the mainland lenders are busy switching their foreclosure proceedings into the court system. August brought 26 new judicial foreclosure filings on Kauai.

But it’s not all doom and gloom. Take a look at this interesting chart (below), which is indicating what percentage of existing mortgages are more than 90 days delinquent. It is key to note that not all of these delinquencies are bona fide hardships. Some of the delinquencies are simply homeowners realizing that the bank will not consider modifying their loan unless and until the borrower is at least 60 days behind on their mortgages. Once the homeowner stops paying the mortgage to engage their lender in the loan modification conversation, it is easy to get in the habit of not paying the mortgage.

That being said, Brewbaker quipped, “At least you guys are not Dade County!” In Southern Florida, that county has a delinquency rate five times higher than Kauai’s. Also notice that of the neighbor islands (neighbor islands have a higher percentage of second home owners than Oahu, which is considered the one “urban” market in the State of Hawaii), Kauai has the lowest delinquency rate.

In the final analysis, Brewbaker believes in the long term viability of real estate in the State of Hawaii. He demonstrated that by copying and pasting the trend data from the last real estate cycle on top of the current one, with the results indicating median prices in Honolulu could well be $1,000,000 by the year 2020. With a byline of “Kauai, you got what you wanted,” Brewbaker showed the data about residential building starts on our island, which have virtually ground to a halt.

In boom times, there was pressure on the county and council to stop the building and expansion from ruining our island. Once the economy turned, the economic conditions took care of building and expansion.

Yet, when we have another higher order moment that shifts the momentum and accelerates the buying velocity, Brewbaker believes the prices can only go up here because we simply do not have enough inventory to satisfy the demand. How long will we need to wait? “20 teens” or will some other unforeseen event adjust the economic predictions once again? Time will tell.

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View Kauai deals in my Kauai Foreclosure Gallery.

Related posts:

1. A 20 Year Kauai Market View – The Perspective From 30,000 Feet
2. The Real Estate Market is Doomed, Buy Property in Hawaii
3. Recession Over for Maui According to Paul Brewbaker

The recently released U.S. Foreclosure Sales Report from Realtytrac, generally considered the de facto expert on tracking our nation’s foreclosure market, statistically confirms a trend that is evolving here in the islands and on the mainland as well.

The report dissects and analyzes the sales of distressed properties in the 2nd quarter of 2011. Remember that distressed properties are compromised of two components:

1. REO properties that have been foreclosed on and are now owned by the banks
2. Short sales—properties that are being sold for less than the amount owed to the bank after all closing costs are paid.

Many short sales are properties in the foreclosure process where the homeowner has not been paying their mortgage. (If a homeowner is current on his mortgage, but a hardship is pending, a short sale may still be a viable option.)

Some of the key findings from the Realtytrac national report:

• A total of 102,407 pre-foreclosure homes (short sales) sold in the second quarter, an increase of 19 percent from the previous quarter.
• A total of 162,680 REO homes (foreclosures) sold in the second quarter, virtually unchanged from the first quarter.
• Short sales on average sold for a discount of 21 percent below the average sales price of non-foreclosure homes.
• REOs on average sold at a discount of nearly 40 percent below the average sales price of non-foreclosure homes.

“Maybe less evident, however, is the good news in this report for distressed homeowners looking to sell, and even lenders saddled with large portfolios of delinquent loans. The jump in pre-foreclosure sales volume coupled with bigger discounts on pre-foreclosures and a shorter average time to sell pre-foreclosures all point to a housing market that is starting to focus on more efficiently clearing distressed inventory through more streamlined short sales—at least in some areas,” James Saccacio, CEO of Realtytrac, noted. “This gives distressed homeowners who do not qualify for loan modification or refinancing—or who are not interested in those options and want to sell—a better chance of completing a short sale to avoid foreclosure.

Streamlined short sales also give lenders the opportunity to more pre-emptively purge non-performing loans from their portfolios and avoid the long, costly, and increasingly messy process of foreclosure and the subsequent sale of an REO—which may end up selling for a lower price than it would have as a pre-foreclosure short sale, and in the meantime, further stresses already overloaded REO departments.”

Stats show evidence that short sales get more $$$ for the lender in a short sale vs. in an REO

In our state and on Kauai, non-judicial foreclosures have been in a moratorium since May 5th when Act 48 was enacted. This moratorium will ultimately result in a dramatic reduction of our REO inventory as the foreclosures are put on hold and restarted in our court system as judicial foreclosures. Of the 62 recorded real estate transactions on Kauai for August 2011, a whopping 48% of the transactions were distressed properties.

While the lion’s share of the 29 distressed properties sold on Kauai in August were REO properties, that number is going to greatly diminish as the REO inventory diminishes. According to a Moody’s report, compared to foreclosures, short sales are now a much “shorter wait” that helps loan servicers to mitigate the high loss severity associated with liquidating delinquent loans. Moody’s reports the incidence of liquidations through short sales “has increased dramatically” over the past two years from around 8% of all liquidations in August 2009 to 25% by midyear 2011.

If you are pursuing a short sale, whether as a buyer or seller, be sure to choose an agent who is well educated and experienced, so you will be satisfied with the results. For the buyer, the potential to get an excellent value is good, as long as you are patient. For the short seller, the potential relief from the financial burden, emotional stress, and forgiveness for the deficiency amount are some of the reasons that a short sale may be the best solution.

Certainly, the banks are becoming more familiar with this tune. My team currently services Oahu, Maui, and Kauai, and can provide you with a comprehensive list of opportunities to purchase in these markets. We are also here to assist sellers in successfully completing a short sale if you and we determine that is the most advantageous option for you. Give us a call, we are here to assist!

• Review homeowner options at Realtor Ron’s AVOID FORECLOSURE Website here.
  
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Related posts:

1. Hawaii Short Sales Assist Bank Liquidation Losses
2. Are Short Sales, Foreclosures, and REOs Really Good Deals?
3. Rising Delinquencies in Hawaii Home Mortgages

The reputation of short sales is that they “are not short,” meaning they take a long time to successfully complete. Conversations about short sales often revolved about how to make the process more efficient—meaning shorter, since on average it lasted anywhere from 60 to 90 days, though some short sales go on for over a year.

That worry may be becoming a thing of the past. According to a Moody’s report, compared to foreclosures, short sales are now a much “shorter wait” that helps loan servicers to mitigate the high loss severity associated with liquidating delinquent loans.

Moody’s reports the incidence of liquidations through short sales “has increased dramatically” over the past two years from around 8% of all liquidations in August 2009 to 25% by midyear 2011.

The primary reason why lenders, servicers, and borrowers prefer a short sale is loss mitigation. It results from the dual effect of technology and industry efforts that have helped reduce the short sale processing time and the foreclosure alternative.

The increasing foreclosure backlog, longer foreclosure processing time lines that may exceed months and even years, while legal costs accrue, are a strong driver. Especially in Hawaii, where the foreclosure pipeline is destined to become further clogged from the effects of Hawaii’s Act 48. “Servicers are increasingly opting to bypass the foreclosure process,” Moody’s said because they can liquidate distressed properties faster and also reduce some of their losses.

The report also shows the average loss severity on liquidated loans remained “fairly constant” over the past year, at least in part due to “a rising number of short sales through liquidations” that help reduce default loan losses.

In the past year, loss severity on liquidated loans averaged about 60% of the outstanding balance of the defaulted loan. As a result, currently loss severities are elevated, but stable. Moody’s finds that one of the factors that pushed the loss severity up was the longer time line between when the borrower defaults, or is 60 days or more past due on the mortgage, and the time when the property is liquidated keeps increasing.

If in January 2009 the average liquidated time line was at 15 months, by June of this year it increased to about 24 months. Data shows the increase has been consistent throughout 2010 and into this year. By January 2011 the average liquidation time line reached about 22 months, up from 17 months in January 2010. Similarly, by mid-year 2010 the time line extended to 19 months and further up to 22 months in June this year.

Another well-publicized reason is “the glut of foreclosed properties along with attorney general proceedings and litigation” that slowed down the foreclosure process in many states. In Hawaii, some banks are recalling non-judicial foreclosures where the final affidavit had not been recorded prior to the May 5th, 2011 enactment. This means, the bank may go through the entire foreclosure again, adding further delay and loss severity for the lender.

As a result, residential mortgage-backed securities trusts have faced higher expenses in advanced principal and interest payments on delinquent loans, tax obligations, and property maintenance costs—which in turn, increase losses when the loan is liquidated.

If you are pursuing a purchase of a distressed property that is a short sale in Hawaii, it’s a valuable asset to work with a buyer’s agent who thoroughly understands the short sale process and who can properly attenuate your expectations to avoid disappointment while going through the process. I’m here to assist both buyers and sellers in the short sale process.

If a homeowner is not able to modify their mortgage, a short sale is a much more dignified exit than going through a judicial foreclosure. Remember, in the judicial proceeding the lien holder has a right to pursue a deficiency judgment. Got further questions, or thoughts on the matter? Please let me know…

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View Kauai Deals in my Kauai Foreclosure Gallery.

Related posts:

1. Hawaii Short Sales – Their Time Has Finally Arrived
2. Short Sales Are the New REOs
3. REO’s & Short Sales Dominate The Big Island’s Waimea “Green Side” Sales

Understanding the tax implications of your real estate dealings can be most useful to your financial future. Many times, by applying the tax benefits of home ownership, it turns out that buying a home is often less expensive than renting. When you acquire a home you are entitled to acquisition debt, that is, the debt you incur which is used for buying, building, or improving your home.

Since 1986, you have been able to have acquisition debt on your second home as well. The ceiling for acquisition debt that is eligible for tax deductions is $1,000,000. The debt ceiling (have you heard that term lately?) applies to the combined debt secured against both primary and secondary homes. Additionally, you can borrow up to $100,000 against your home, use the money for any purpose, and deduct the interest. You may have heard local lenders like Central Pacific, Bank of Hawaii, and KCFCU promoting their home equity lines lately.

When a buyer acquires their first home, it can be a great opportunity to investigate combining all or some of their debt into one loan. Since interest on the acquisition debt is deductible and interest on personal loans like credit card debt are not, consolidating your debt in your home acquisition will provide additional tax savings for the buyers. As you shop for a loan, if you are like most home buyers, most folks do not understand all of the individual terms and costs on the loan.

One of the disheartening things I see in working with many homeowners who secured homes through interest-only loans and pay option ARM loans in 2004-2006 is that most buyers did not understand the type of loan they were getting, and how much money the homeowner would ultimately be paying for the home.

One of the terms a home buyer will hear when shopping for a loan are “points.” “Points” are a term used to describe the cost of borrowing money and the charges paid in connection with originating a loan. Think of a “point” as a percent. If you are paying 1.5 points on securing your loan, you would be paying 1.5% percent of the loan amount. These points are considered prepaid interest and are fully deductible in the year paid. If you are fortunate enough to have the seller pay discount points on behalf of the buyer (this makes the home even more affordable for the buyer), this is also a deductible cost.

Let’s say you were purchasing your first home for $210,000 and securing a FHA loan, one of the best loans available today with a minimum down-payment. While the down payment is low, there would be PMI (primary mortgage insurance). Did you know that currently PMI is deductible as interest for the cost of financing your home? However, if your adjusted gross income is over $100,000, the deduction is reduced or even eliminated.

It’s a wise idea when purchasing your home to maintain a record of your costs of ownership. The average American family sells their home every six to seven years. When you purchase the home you establish your cost basis for the purchase. Over time, you may make capital improvements that will add to your cost basis. When you do get around to selling the home, you will need to calculate the gain on the sale, and by keeping a record from the beginning, you can have that information at your fingertips.

Ask your Realtor to provide such a form if they do not offer it to you first. When you calculate the gain after selling expenses and then subtract the basic (costs), and any exclusions, you will have your taxable gain (recognized gain). Fortunately, there is a homeowner exclusion for selling this principal residence as long as you have owned the home for five years and have lived in the home for two out of the last five years. The two years don’t need to be consecutive. There is no limit to how many times a taxpayer can take this exclusion, hooray! Single filers can exclude up to $250,000 of gain. Couples filing jointly can exclude up to $500,000 of gain. This is one of the most significant tax-saving opportunities for home owners. You can find out more information by navigating to www.irs.gov and downloading the Publication 523 – Selling your Home.

Statistically, 60% of American’s wealth is found in their home equity. By understanding the tax advantages and keeping good records, you’ll know where you stand with regards to this important asset in your fiscal world. If you would like an analysis of renting vs. buying a home here on Kauai, I’m happy to assist you in developing that financial understanding.

View Kauai Deals in my Kauai Foreclosure Gallery

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Related posts:

1. Buying a Home in Hawaii with a VA Loan – VA Mortgage Basics
2. Should I Buy Hawaii Real Estate Now or Wait? – Things to Know When Considering a Hawaii Real Estate Purchase
3. Pros and Cons of Selling Your Own Home