So Cal Real Estate News

Living in Earthquake Country

(July 29, 2008)  I experienced my first Southern California earthquake as an infant almost two years of age.  It happened at night, and my parents rushed in to check on me.  I guess we California natives just come wired for these things:  I’m told I was perfectly calm, lying in my crib singing “Rock-a-Bye Baby!”

I’ve experienced dozens of earthquakes here in the Los Angeles basin since then.  To me, they’re kind of fun, as long as nobody gets seriously hurt.

While quite a few of those earthquakes provided a real “E-ticket” ride, only a few of them were very significant.

Perhaps most memorable for me was the 1971 San Fernando Valley quake which I rode out on the top floor of UCLA’s Rieber Hall dorm one morning.  As we swayed back and forth seven stories above the gound I quickly figured out that a bookcase over a dorm bed isn’t a real good idea in earthquake country.

We were living in Lakewood when the Norwalk quake struck nearby.  It wasn’t a big one, but it was close enough to knock a lot of things off of shelves and damage a few chimneys and walls.  It struck in the morning as I was about to go out the door for a jog.  I stood in the middle of our kitchen, pushing cabinet doors shut and trying to keep things from raining onto the floor.  Our elementary-school aged daughter did what she had been taught and stood under a doorway, and then called upon me to do likewise.

That Norwalk quake went on for a fairly long time and knocked out the power, but never got real violent.  Still, it panicked one of our friends, who ran out into the middle of her street half-naked.

Earthquake Preparedness:  No time like the present!

Ironically, I had just printed up about 500 “What to do in an Earthquake” flyers to pass out in my “farm.”  (A “listing farm” is a specific neighborhood a Realtor, known as a “farmer,” cultivates with regular flyers, gifts, and notepads.)

So, as soon as I figured out how to get into the vault-type garage when the electricity to the opener’s off, I went on my jog and passed out the flyers as I went.  Back then it took about a week to get a good flyer printed up, so folks wondered where I got the inside tip about the quake.  The response was so good that for a while I just kept an earthquake flyer ready to pass out after the next one.

Maybe “Mother Nature” provides us these modest tremblors to spur us to do the needed preparation should that legendary “Big One” ever hit close to home.  In any case, now’s a good time to check your earthquake preparedness.  Some steps are real easy, and they might not be the ones you’re thinking of, either:

• Do you have comfortable shoes, a blanket, flashlight, some first aid supplies, and an extra half gallon of two of water in the trunk of each car?  (Some granola bars aren’t a bad idea, but lack of water’s a much bigger threat for most of us than lack of food in an emergency.)
• Got a working flashlight and sturdy slippers by every bed in your house?
• Is anyone in your home sleeping next to a bookcase, heavy wall hanging, etc.?
• Does everyone know how and when to shut off the gas and is a shut-off tool or large wrench wired to your gas meter?
• Is your water heater strapping up to current standards?

Additonal Online Information:

California Dept. of Conservation on “What to Do Before, During, and After an Earthquake,” with additional links.

L.A. Fire Dept. Emergency Preparedness Guide

Los Angeles Building Dept. has an pdf file on steps to strengthen your home structurally .

Please feel free to suggest helpful links you might have found by adding your own comment at the end of this post.

How Big a Risk?

I much prefer living with earthquakes than the floods, hurricanes, and tornadoes that plague other regions of the country.  Not to mention the humidity or the cold.  A little preparation goes a long ways to minimizing the risks.

But if you’re going to worry (which is never a good idea), chloresterol, fat, and bad drivers are far bigger risks than earthquakes.  Actually, worry’s a greater threat than an earthquake!

So shake it off and get on with your life!  Right now it’s about 2 p.m. and a blamy 77 degrees with a pleasant breeze, and the Angels have beaten the Red Sox six games in a row.  Why on earth would I ever want to live any place else?

Today another chaotic day on the world’s various “Wall Streets” coincided with mop-up operations for me on a six unit apartment building. By the end of the day I was reminded that the basics work in any market.

As Solomon put it 3,000 years ago, “Be sure to know the condition of your flocks, give careful attention to your herds; for riches do not endure forever. . . .” (Proverbs 27.23-24).

Or, in my case, to the condition of your fire extinguishers. Today I figured out that my procrastinating on some fire prevention upgrades on this building may have contributed to the loss of four of the units and to making five families temporarily homeless. Fortunately, there were no serious injuries.

As I walked through the rubble with the insurance adjuster this morning, what saddened me most was the ruined possessions of the families that lived there. Ash covered family photos and drawings taped to the charred walls. A heart with a child’s printed “I love you” tossed in the rented dumpster. Clothing & furniture tossed, by residents I knew had no renters’ insurance to reimburse them.

Then came the conversation with the the resident who attempted to put out the grease fire on his neighbor’s stove. “If only we could have found a fire extinguisher, we might have been able to limit it to the stove,” he told me.

Ironically, three hours before the fire started, I was in a fire prevention store ordering fifteen fire extinguishers. Delivery is scheduled for next week. I’d intended to get around to it months ago. I thought we had some extinguishers in the office, but also thought we should try some wall mounts outside, in cases, to see if we could make them more accessible while minimizing vandalism.

I had been thinking about mounting one just outside the door of the unit where the fire started. A $60 expense that might have prevented a $100,000 loss. Solomon got it right–pay attention to the basics. Know what’s going on. Don’t get so caught up in what the market’s doing or in what’s new to neglect the basics.

We still need to keep up with current trends. We’re getting more resident leads from Craig’s List today than from newspaper ads, for example. But the basic, unglamorous things like fire safety, grounds keeping, resident selection and screening, cost containment, client satisfaction are still what will make or break any business. That goes for rental property and for home ownership.

Part of the problem is that the Urgent is rarely Important, and the Important is rarely Urgent. But that “stitch in time” still can save nine stiches later.

The city Fire Chief recommended 5 pound (net) rechargeable fire extinguishers with metal heads & spouts, rated ABC (trash/wood, grease, & electrical fires). Actually at least 2A10BC. Around $40 at Lowes, slightly less in quantity at Maintenance USA. Roughly another $35 for the safety case. You might want to pick up one to keep near your kitchen or garage at home. And at least one more for any rental properties you own.

The same principal applies to what’s much more important than possessions: Family, relationships, health, friendships, our walk with God. Pay attention! Don’t neglect the important for the urgent. Keep your priorities straight. Do some preventative maintenance. It’s easier to install fire extinguishers than to gut & rebuild apartments, but apartments can often be rebuilt much easier than relationships. It’s far easier to fix ruined buildings than ruined lives.

That’s not to say there isn’t hope for even the most hopeless situation. That’s just one of the many wonderful messages of Easter. Just today I passed a church with a sign, “Nothing is Too Hard for God.” Guess someone knew I needed that today. Just like eleven discouraged disciples 2,000 years ago, after their Messiah was arrested, unjustly convicted, and crucified. But, as one of my favorite sermons says, “It’s Friday, but Sunday’s coming!” God can redeem any situation if we let him.

But the first step could be to prevent the situation from getting any worse. Take it from someone who learned that lesson the hard way!

(Updated 8/8/08) (Lucky you!)  With home prices down 15- 35% in Southern California, we are increasingly encountering clients who don’t know what to do when they need to sell or refinance in today’s troubled real estate and mortgage markets.

Of course, if you’ve got enough equity in your home, selling or refinancing is not such a problem, although you’ll net less cash out than you would have a year or two ago. We’ve got lots of ways to help sellers maximize their net in today’s market, but that will have to wait for another post. (If you can’t wait, call us at 562 822 7653 or post a question in the comments below & we’ll give a brief summary)

The real crunch comes when you owe more than 90% of what your home’s worth. For refinancing, that’s because 100% refinance loans have largely disappeared.

For sellers, it’s because the total cost of selling a home today generally runs between 8 - 12% of the sales price (escrow, commission, termite, title, home warranty, & often points and incentives).

As we see it, homeowners with little, no, or negative equity have at least 7 options:

1. Live with your existing loan the way it is. If you can make the payments and plan to live there for a long time, you’ll eventually be fine. Depending on when you bought, what you put down, & when the market recovers, it may take 2 - 10 years, but inflation eventually should bail you out.

For our projections for Southern California housing, check out “An optimistic update on our projections of a home price bottom“  If you’re reading this much after 8/10, you might also want to click on  “Market Trends and Projections” under Categories a short scroll down the right sidebar.  There you can scroll through our latest projections posts starting with the most recent.

Why live with it? I’ll bet your car, clothes, appliances, and furniture are all worth less today than what you paid for them, and they’re not expected to go up over the next 2 - 10 years, either. However, if your loan is scheduled to adjust up to where the payments or interest rate is unreasonable, option # 2 is worth trying:

How to live with it? Spend less than you earn. That may be the very best-kept obvious secret to financial freedom.  It starts with a simple but realistic budget.

How to spend less? This is like flossing your teeth–everybody knows how & knows they should but nobody has the time.  If you’re behind on your mortgage, it’s time to make the time!

• Keep track of what you’re spending.  Write it all down–every penny, they say–for at least a month.  It may surprise you where your money goes.  At the same time, you can start with the next step:
• Find places to cut spending.  Some of these will be obvious as soon as you write them down or even before.  Do it immediately–even as you’re still tracking your spending.  Here are some to consider:
  • Eat out less.  Pack a lunch–even if it’s just yogurt.  Make your own coffee.
  • Drive less.  Carpool?  Ask if you can try  a 4 day 10 hour work week–or one day a week working at home.  Walk, bike, combine trips.  You know the drill.
  • Cut out or reduce luxuries.
  • Look for free or inexpensive entertainment or recreation.  The beach can be a lot more fun than Disneyland.  Friends can come over and watch the game on Tivo instead of going there.  With a delayed start and DVR you can save time & gas too!  Disc golf is easy to learn, almost free, and there’s rarely a wait for a tee time!
  • My favorite:  Go to an all cash basis.  No more plastic.  Ever.
  • My wife’s favorite:  Never buy anything that’s not on your list the first time you see it. Put it off at least 24 hours.  Even 6.  Give your brain some time to override your emotions and the professionals’ well crafted pitch.
  • These are just a few ideas to get you started–most of us spend way more than we need to.
• Make a budget:  a financial plan.  And stick to it.
  • Be sure to include categories for emergencies, savings, donations, and those two surprisingly unexpected annual budget busters, Christmas and vacation.
  • When Barb & I first did this we actually cashed my paycheck every month and divided it between evelopes, as budgeted.  When the envelope was empty, that spending stopped–or we had to cut back in another area.

How to earn more:

• Rent out a room or two.  Keep your eyes open for people that might work  Get the word out where you know people like work, church, civic organizations.  Maybe post at student housing offices at local colleges.  Use your head.  I might stay away from Craig’s list.  Shoot, here in SoCal you might even try an informal bed and breakfast arrangement.
• Add a part-time job.
• Get your spouse, co-owner, or working age child to increase their income or contribution.
• Make yourself more valuable to your employer. . . or another one.
• Ask for overtime. . . within reason.  There’s more to life than work!

This could and probably will grow to a seperate post, so for now we’ll move on to six other options:

2. If you’ve got one of those killer loans that’s already adjusted up or will shortly, try to negotiate with your lender for better terms. It’s never a good idea to just give up without at least trying to work something out. It doesn’t hurt or cost anything to ask. You might ask to have the interest rate reduced or held at the current low level until the home goes up in value enough to allow you to sell or refinance. Lenders are much more willing to negotiate if you have a legitimate hardship, but if you didn’t have a hardship you probably wouldn’t have a problem making the payments.

Bad loans had a lot to do with the current real estate mess (see “How We Got Into This Mess“). If your loan was misrepresented by your lender, you might mention it in a matter-of-fact, non accusatory way.

3. You could also try to negotiate for a reduced principle balance to allow you to refinance or to at least make the payments on the current loan. This is sometimes known as a “cram down.” If there’s no equity, they really don’t want your home back, & they could lose a lot more if they had to foreclose. As an added incentive, you might propose some sort of equity sharing arrangement as partial compensation, although I wouldn’t start off with that, & I’d try to keep it modest.

4. Negotiate a “short sale” with your lender. The lender reduces the payoff amount to allow you to close escrow with little or no out of pocket expense. Most lenders prefer this to a foreclosure, but they can be tough and sometimes unreasonable. Still, we’ve been able to negotiate payoff discounts well over $100,000 for a number of our sellers over the last year, just as we did during the 1991 - 1996 downturn. In fact, lenders seem to be more reasonable and more eager to deal this time around. If you’re going this route, you need an excellent, experienced negotiator on your side; the bank’s got plenty of them on theirs. Most real estate agents will tell you they can do that, but if they don’t have at least 15 years experience, I’d avoid them.

In fact, before talking to any agents, check out our post on “Top 5 Ways NOT to Pick an Agent.” You might also want to take a look at our experience & advice on “How to Sell Your So Cal Home for Top Dollar in 30 Days.”

5. Bring cash to escrow to enable a sale or refinance. During the last recession, we saw many sellers write checks to escrow for thousands of dollars to enable them to sell. This keeps their credit & their conscience clean, while allowing them to move on. For those with significant assets, it’s worth considering.

6. “Give the home back to the bank.” This is generally referred to as a “deed in lieu” of foreclosure, and it still saves the bank time and money over foreclosing. However, if there are other encumbrances (2nd T.D., equity line, judgements, tax liens, etc.) they may prefer to foreclose, to wipe out those junior liens.

7. Let the lender foreclose. In California, that give you a minimum of about 120 days you can live in the house without making payments from when the lender files their Notice of Default (you’ll get a copy!). That “N.o.D.” usually isn’t filed until you’ve missed at least two payments, sometimes a lot more.

Possible Steps to Determine which Option to Start With:

1. Pray, if you’re so inclined. In this case, it wouldn’t be a bad idea even if you’re not so inclined! We could all use some divine wisdom & intervention to get through the current mortgage mess! Like I said above, it never hurts to ask!

2. Get the facts on your loan. Review your last statement to find out exactly what you owe. Check your loan documents or call customer “service” to find out when your payment will adjust & by how much. (If you call, & you’ve got a big bump coming, you might want to try this when they tell you: Inhale sharply, then say “Oh no! I don’t know how we can handle that!” Then shut up & wait to see if they offer anything. Silence is one of the most powerful of negotiating tools, & whoever speaks first to break the silence usually loses.)

3. Get the facts on what your home’s worth. I suggest calling an experienced, honest, full time, diligent Realtor. We’d be happy to refer one, or possibly even help you out ourselves. 562 822 SOLD. Or e-mail RealtorDaveE at msn dot com. (Use the symbol @ for “at” and a period for “dot–” we have to be careful to avoid spamming web crawlers, sorry.) The agent can also give you a more accurate idea of your costs of sale and what preparation & staging would be best. We don’t recommend selling by owner or using a part-time or inexperienced agent in today’s market.

4. Consider the tax, credit, & ethical consequences of the various options. Tax wise, the recently passed federal Mortgage Forgiveness Debt Relief Act of 2007 can save thousands in tax for most borrowers exercising options 3, 4, 6, or 7 above in 2007, 2008, or 2009. Don’t ignore the ethical implications–I can’t think of anyone who’s ever regretted doing the right thing, but lots of people who’ve regretted unethical behavior. Credit wise, options 1 & 5 shouldn’t hurt your credit at all, neither should option 2 in most cases. Options 3 & 4 are generally considered less harmful than 6 or 7, especially if you continue making payments, but you’ll want to ask your lender if & how it will be reported to the credit bureaus.

Obviously, this post is general in nature & you should consult the appropriate legal, tax, real estate and other professionals for your specific situation & state. Our point is, you do have options, and doing nothing is generally considered the worst option of all. Good luck, & let us know how things work out!

As always, your thoughts & comments are welcome.