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July 16, 2009

Real Estate: Backward and Forward

Michael Kurtianyk

Foreclosures have been on the rise in recent years, and we’re seeing an increase locally of properties being foreclosed. A foreclosure is defined as a legal process by which the lender seizes property of a homeowner, usually due to the homeowner not making timely payments on the mortgage.


This is different from a short sale, which is defined as the sale of a house in which the proceeds fall short of what the owner still owes on the mortgage. Many lenders will agree to accept the proceeds of a short sale and forgive the rest of what is owed on the mortgage when the owner cannot make the mortgage payments.


By accepting a short sale, the lender can avoid a lengthy and costly foreclosure process, and the owner is able to pay off the loan for less than what he owes.


 And this is different than a “deed in lieu of foreclosure,” which occurs when a homeowner can't make the mortgage payments and can't find a buyer for the house. Many lenders will accept ownership of the property in place of the money owed on the mortgage. Even if the lender won't agree to accept the property, the homeowner can prepare a quitclaim deed that unilaterally transfers the homeowner's property rights to the lender.


For those keeping their heads above water in this real estate market, foreclosures and short sales have definitely become a niche in the real estate industry. It has also become a niche for many state, county, and city governments.


Frederick County is offering a loan program called the Neighborhood Conservation Initiative, which provides down payment and closing cost assistance loans so that a buyer can purchase a foreclosed home. The foreclosed property must be in what is called a “Priority Funding Area” (PFA). In Frederick County., there are currently four zip code areas that fall within the Priority Funding Area: 21701, 21702, 21703, and 21716.


A base loan of $15,000 would be provided for the homeowner who purchases a foreclosed home in a PFA. An additional $5,000 would be added to the base loan if the foreclosed home is purchased in a PFA-targeted area: 21701, 21702, and 21716.


Finally, there would be a final $5,000 loan provided for a targeted employee working fulltime for a designated employer or designated volunteer. These include: Frederick County Government; The City of Frederick; The City of Brunswick; Frederick County Public Schools; Frederick Community College; Frederick Memorial Hospital; Maryland State Police – Frederick Barracks; or Frederick County Volunteer Fire and Rescue Association – volunteers members that meet Length of Service Award Program Rules (LOSAP) requirements.


The homebuyer would have to fulfill certain requirements, including the following: work with a participating Realtor® and lender; have a maximum household income at or below 120% of the HUD area median income; complete an eight-hour “Homebuyer Education Program” through the Frederick Community Action Agency; obtain a mortgage for a minimum of 30 years; use this as a primary residence; and obtain both a home inspection and home warranty prior to settlement.


A note on the median income: Frederick County median incomes are based on the Washington Metropolitan Statistical Area (MSA) median income for a family of four of $102,700. These income limits are updated annually. Thus, the NCI maximum income limit for a family of four is $123,240.


I applaud Frederick County for taking the initiative to offer a program to help rid our area of foreclosed properties.


On a happier note, there were strong indications that the market is turning in Maryland. In May 2009, the two strongest selling areas in Maryland were in the following counties: Prince George’s, and Frederick. A closer look at the housing statistics provides insight as to why these areas are desirable.


With a 28% increase in housing units sold since May of 2008, Prince George’s County became the top-selling real estate area in Maryland.  Within the county, the towns of Bowie, College Park, Laurel, Landover, and Hyattsville showed increases in sold houses.


College Park is typically a vibrant community, with the University of Maryland being a large source of employment for people. As with any college town, there is typically an annual turnover in residents, with job changes and completion of degrees.


Landover is the site of FedEx Field, home of the Washington Redskins. It is not hard to imagine that this would be a desirable area for football fans. Another great attraction for home buyers in Prince George’s County is the National Harbor. This is an incredible 300-acre waterfront destination just minutes from downtown Washington, set along a 1¼ mile stretch of the Potomac River.


With a 20.1% increase in housing units sold since May of 2008, Frederick County was the second top-selling real estate area in Maryland. Frederick is Maryland’s third largest city and has the right mix of urban and rural settings. The city and county are known for the “quality of life”: excellent schools, excellent commercial and retail businesses, and easy access to all major roads. Anyplace in the county is within an hour of Washington and Baltimore, making Frederick County a bedroom community for many. Frederick County has long been known for its antique shops and historic homes.


Now, if we can only stop all of these short sales and foreclosures….


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