Strategic Default? Should You Do It?

I recently talked with a very good friend of mine who I listed a property almost 2 years ago. My friend and his wife are both top tier professionals who make a good living with great income.  Back then I remember how the wife was scared to lose her credit because the home will go through a short sale procedure. The husband urged his wife that this is a smart move financially they are planning to do. Right at their kitchen table I asked them for the reason of selling the property. Their response was that since the home has been underwater (loan greater than home value) for quite some time now, they would rather let it go now, save, rent, and then buy another home within the next few years. Sadly, they were my first Strategic Foreclosure clients.  Since then, many more individuals passed through my company with the thought of letting their home go now and buy another home later at a much lower price. 

My Question is, if you are a homeowner, should you do it too?

Now of course, everyone has different situations that will undoubtedly provide a different response to this question.  But as a Real Estate agent, let me shed some light on what I have seen to those who chose or not choose to do so. 

The Definitely-make-financial-sense-to-do-so indviduals:
I've had a few people that sold homes with me that fit this category.  Many of them are underwater by atleast $100,000 dollars of negative (this is Nevada you know!) equity and in their financial sense it is just plain smart to let go of something with no value.  The questions comes to being, "Why would I keep paying the bank for $300,000 when my home is only worth $150,000."  It is definitely hard to argue with this reasoning especially when you consider that most mortgage payments actually double in value once every payment is calculated.  The $300,000 loan amount after 30-years of payment is actually closer to $600,000 with interest, taxes, and insurance. It sure is hard to argue thier logic if we are plainly talking dollars and cents. 

The I-Love-Our-home-and-too-much-memory-on-this home-individuals:
Now, I believe that most people who jumped in to buy their home typically did not do it for investment purposes. Most of my clients decided that it was time for them to achieve the American Dream of owning a home.  Families, friends, kids, and memories are put into play for years on the home that people bought.  For good or for bad, I do know quite a few people in this category.  Many are emotionally attached with their home plus the promise and obligation to keep paying a debt in their belief is the right thing to do.  The thought of not paying or the thought of a foreclosure under their name seems too stressful and outright embarassing.  And again, the thought of losing a home that their daughter and sons grew up in is too much to bare.   

Now as I have said earlier, different circumstances give different results in a family's decision to do strategic foreclosure. I may never convince one or the other individual for merits of their decisions.  But i do want to share with you this; Strategic Foreclosure is definitely rising.

According to the Las Vegas Sun In Southern Nevada, The 2,591 sales of single-family homes in February were 3.3 percent higher than January and 8.4 percent higher than February 2010, the Greater Las Vegas Association of Realtors reported today. The median price of those homes was $128,000. While up 2.4 percent or $3,000 from January, the price fell 5.7 percent from February 2010.
That downward trend may not stop soon. The median price of new listings was $134,900 in February, up 1.4 percent from January but 10 percent below where it was in February 2010.


According to Reno Gazzette Journal, Washoe County reported 383 sales of existing single-family homes in February, up 6 percent from January and 13 percent from February 2010.

"February was the highest volume in unit sales for a month of February in the history of the MLS," RSAR president Sherrie Cartinella said in a statement.

Median sales price, however, continued its up-and-down trek toward bottom. Washoe County's median price for existing single-family homes was $161,000, up a percent from January but down 5 percent from February last year.

Of course the reason for these increase sales does not necessarily mean an increase in Strategic Foreclosure; but I definitely do feel it contributed to it.  2007 brought about the sub-prime mortgage mess that brought down the biggest banks and wall street institutions and almost totally crash the U.S. economy.  2011 is 5 years from 2007 that last saw the 5-year arm note. The problem I see in this is how would homeowners who have maturing 5-year arm note refinance with negative equity home values?  Most, if not all banks would probably not refinance homes with this situation in Nevada and anywhere else in the United States.  Guess what, many homes who took a 5-year Arm (again for Adjustable Rate Mortgages) will soon face increases in mortgage payments while looking at a bleak U.S. economy.  I know a few people who asked for extensions and have been denied by their loan servicing company.  A work-out for a loan modification was a choice, and many lost their credit score during the process.  With No credit score, an underwater home value, and an increase in mortgage payment, their choice now become to keep on paying, short sale, or do strategic foreclosure and save money until their home is taken by the bank.  A cycle of distress that no one should be in, in my opinion. 

In conclusion, I believe the reason why we still have a downward price trend in both northern and southern Nevada is because there are way too many bank owned forclosed homes entering the real estate market than those who are able to buy.  The shadow inventory (homes that are delinquent, in pre-foreclosure, auctioned, REO) are rapidly increasing which further decrease the price of homes when they are released.  And I bet 1,000.00 many of those homes were let go by teachers, businessmen, doctors, lawyers, retail store owners who decided that it is best to walk away now from the huge house debt and buy themselves the same type of home for a much lower price.

The scary thing is, if Strategic Foreclosure becomes a trend on why people walk away from their home, this could cause a second wave of financial disaster in the US.  Our leaders better find more ways to work with people in keeping their home to avoid a mass exodus of people opting for Strategic Foreclosure.  Lets not repeat the start of 2007. Only time will tell.

The Great Recession 2008-2009 and the present.... REVISED March 2011

The Number 1 Questions that I get asked regarding Real Estate and the Nevada economy in general is the question:
"When are we going to recover?"   Well, I usually say "Its hard to predict, but it may take a few more years." I don't just say this to give an opinion, I say this because of numerous statistical Nevada Data.

Nevada Unemployment... # 1 at 13.6% Nationally!!
Nevada Foreclosure... #1 Nationally!!
Nevada Federal Aid jobless Benefit... 500 Million and Rising!!
Nevada Banckruptcy... #1 Leading the nation in filing!!
Nevada Credit cards... #1 in Leading the nation in credit card deliquency according to Trans Union.
Nevada Divorce Rate... #1 in the Nation!!

Ohh boy.. Atleast where the state I live, we are #1 in something  =(

So many things have gone wrong with the Silver State (Nevada) in the last couple of years.  A few years back, we practically lead the nation in employment and source of increase wealth though Real estate.  Now, as you can see, things have mightily turned around.  1 in 4.5 person in Nevada are either going through Divorce, Banckruptcy, unemployment or foreclosure proceedings; this is the scariest statistics of all. Before, most the homes I list are due to people wanting to upgrade from their current homes.  Not anymore.
Just in Retrospect to Nevadans reading this blog, let me ask you a few questions:


 Are you currently behind in your mortgage payment?
Are you contemplating on short selling your home?
Are you considering Bankruptcy?
Are you fearing of being let go from your Job?
Are you fighting more with your spouses?
Are you having problem paying your credit card bills?


If you said "Yes" to any of these questions, you are not alone.  Just recently in the Reno Gazzette Journal Website, Nevada was voted "the most Stressed State" in the Union.  I have met many people who often blame themselves on why they are in their current lack of money situation.  I usually tell them that what they are going through are very common nowadays. People should not get embarassed if they file for bankruptcy or sell their homes because they could no longer afford the payments; it is just the sign of the times.  Also, Strategic foreclosure (homeowners letting go of properties because of the negative loan balance compared to the market price) are now rampant.  Now, this perspective is brought on because I am in the Real Estate business where the source of the downturn occured.  This perspective may not be shared by other fields of employment, however, as the Nevada statistics show, the perspective are more likely shared by other professions as well.

What is the solution?  Here are a 11 tid bits:

1. Well, TIME. As the old saying goes "what goes down, must come up."

2. The solutions is accepting the situation as what it is. Accept that money is a little bit more elusive than in previous years then work harder and smarter to catch it. Try not to pretend that things are going smoothly, accept the hardship and learn from it. 

3. Talk with your spouse and explain to them why things are not what it used to be and prepare them for the road ahead.

4. I want to say "save for a rainy day" but the fact of the matter is, It is pouring hard our there.  So to this, use your money wisely on the things you necessarily need, and forego on the things that does not contribute to your livelihood. 

5. Try not to think the grass is greener on the other side; the other side may not be that green to begin with.

6. Try not to think you are alone on this; you can talk with close friends and family for support.

7. Keep looking for opportunities; opportunities does not necessarily comes in a form of an hourly job but rather in opportunities that you feel you may excel at.

8.  Stay positive; when your feeling down and crappy  take deep breaths and go out and do something that may relax you until you can re-focus yourself again.

9.  Visit a church or your spiritual guidance counselor.  Trust me, it works.

10. Read motivational books and attend motivational seminars; knowing that there are groups of people who are also searching and wanting to be motivated can refresh and add fire to what you do best.

11. If you want people to be impressed, tell them about your accomplishments. If you want people to
understand, tell them about your mistakes and experiences.  Talk with people you want to connect with and share your failures and experiences with them.  More than likely, they will share theirs and create an emotional bond with you.  Trust me, this is a good thing. 


Well, there are definitely more ways how people can cope during time of stress and distress. But one thing to remember, that no matter how you cope with the situation, always remember the song "Smile" by Nat king Cole:

"Smile though your heart is aching
Smile even though it's breaking
When there are clouds in the sky, you'll get by

If you smile through your fear and sorrow
Smile and maybe tomorrow
You'll see the sun come shining through for you"

 End

Where Have All The Buyers Gone??

Where have all the Buyers Gone??  Now a days, that is pretty much a question asked by many Realtors. In fairness, not every market suffer from a perceived lack of buyers.  In Reno, Nevada (Yes, I am in the #1 forclosure State), we are slowly witnessing a decline of active buyers looking for homes.  A great deal of explanation to this is the end of the subsidized Firsts Time homeowner tax credit.  This is a government program that enable home buyers to receive a 10% tax credit for a purchase of a home with a maximum amount of $8,000 for the 2009-2010 calendar year.  With a September 30, 2010 deadline, many home contracts that was purchased before April 30, 2010 are now scrambling to complete their transactions.  However, as the July numbers shows, Nevada just suffered a 15 year low in home purchases. We can only hope that succeding monthly data show an increase in home sales. 

Another explanation to the lack of home purchase is that most buyers are waiting if prices will continue to dive down in prices. Well, in my opinion, this could be a self-fulfilling prophecy.  As more buyers wait for prices to drop, more homes are left unsold. With more supply than demand, and banks lowering prices on recently foreclosed homes, prices will certainly drop.  Greed sets in, and market become depressed.  Food for thought, a depressed real estate market is never good for anyone; as we have experienced in the last couple of years with this Great Recession. 
Another explanation why more buyers are riding the fence is that they fear for their own job security and making a huge purchase at the moment is out of the question.  As of September 2010, we have seen a great deal of upswing and downswing of the paper market (stocks, bonds, mutuals).  There has been good news that the retail and the manufacturing sector of our economy are going through positive numbers.  Many people, in my opinion, are willing to spend more on necessities, and smaller priced items.  As the uncertainty continue, we will still see shaky confidence on buyers buying big items such as house.
I do feel that the Real Estate market has gone through its worst time.  however, I also believe that it will still take a few short years before most home buyers will feel a sense of absolute confidence to jump in and buy homes.  My suggestion however is not to follow the lemmings of this world.  When times are tough, that's when we find the greatest deals.  When buyers starts buying, thats when all the great deals are gone.  So, if you are one of the people who have the means to buy a home at this particular point in time, buy now and enjoy your home.

Real Estate Sales and Marketing...How Things have changed!!

By Erwin Sigua

The pursuit of Happiness Guy!!

Chris Gardner, the person played by Will Smith in the Pursuit of Happiness movie a few years back, exemplifies the very meaning and definition of what it takes to make it in sales and life. As a young man who practically raised his son by selling door to door medical equipments, he had limited choices and resources to make a "standard American Living". From Sleeping in subway bathrooms to homeless shelter, he never gave up believing that someday he will be somebody for his son and for himself. He walked the streets and sold on the streets. Until one day, he got his break by being in stocks with a financial service firm.
Selling and Marketing sure have changed from those days..

Before, It took heart, determination, and a sense of purpose to why we have to push ourselves out of bed each day and try to sell people the products we offer. Now a days, with the advent of internet marketing, we push a button and voila, we just sent over 500 email letters to random people we don't know and hope atleast one of them will respond to our inquiries. Back then, Chris Gardner had an intimate relationship with his clients, face to face, mano y mano. Now, we brag to our friends how we tweet our way in the afternoon and call it "Marketing".
My Question is, should we think that this "new generation" of sales and marketing replace the "old" ways of doing things?

As you know, I am a young guy myself (I'm in my early 30's) with a minor college degree in Computer Information Systems. Emails, Spam mails, websites, blogs, tweets, facebooks, etc, you name it I am on it. However, when I work in Real Estate, I find the fascination and excitement of what a face to face, relationship-building sales and marketing brings (Note to Geeks, i am not referring to online chats!!).

I sometime envy the Baby Boomers and watch them work the field of dreams (aka. Real Estate selling) and how they prioritize their clients. Many Boomers will go to their clients home, go present offers to other agents directly, and treat clients out for dinner. Now, the younger (not all) X'ers and Y'ers agents would just rather send email contracts across the web, while holding an X-Box Live controller. Many would rather send 1000 postcard emails of MLS homes and ask their client to view it virtual tours. Mannn... Isn't what Real Estate agents suppose to do is meet, greet, drive, and show???

How Things surely have changed...