Monthly Archives: November 2008

Windermere’s Web Site Strikes Back

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I’ve been way too busy at my current day job during the past year to play real estate mash up games at the level Galen has been playing at. However, it appears Windermere has decided to up their game and yesterday they released an improved & simplified property search feature on their web site.

On the plus side, I like the improved site’s ability to see multiple photos of listings alongside the Virtual Earth map-based interface. It addresses one my persistent complaints that most map-based real estate search sites tend to share. I also like how they embraced what appears to be a trend of starting a property search with a textbox of a city name (ala Redfin & Estately) instead of a byzantine array of list boxes & check boxes.

On the minus side, the site only showed me properties when my search returns between 1 and 100 matches. I hate limits, especially small ones. I have a big monitor and a pretty fast net connection. My hardware could handle a thousand pushpins on the map if you let it. To channel Jerry Maguire – Show me the listings! I have Windermere’s competitors on the other browser tabs – John L Scott’s limit is 300 (good), Redfin’s limit is 500 (better), and Estately shows me a 100 at time, but w/ no upper limit (I like the no upper limit part). I also missed the wide array of features & data that I’ve come to expect from Redfin or Estately. However, given Windermere’s design priorities for this release were simplicity, rather than power & flexibility; I can’t fault them too much for accomplishing their goals.

In any event, if you write real estate web apps for fun and/or profit, you owe it to yourself to read the Windermere Tech Blog. If you merely use real estate web apps, you should check out the new Windermere.com.

Did the recent market shift affect Hitler too?

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This recently discovered (by me) video on YouTube hits a nerve when it comes to how many are affected by the current market dynamics around the country.  I found this a bit funny, if not unnerving, considering how many people I’ve been talking to lately that are in short sale position.  The discussions are because I’m not just acting as an agent but because of my involvement in a real estate investment group that is buying these kinds of properties. 

What I’ve noticed while doing research is that an oddly large number of agents have been hit by the issue of needing to short sell – you’d think that these would be the people prone to seeing the fallacies of some of these loan products and how they’d impact them in a market downturn, but I’m not going to point fingers since I know as independent contractors and small business owners we are tied to these loan products that got misused during the market hey-day.  Even with my own great credit score, I know that today I probably couldn’t qualify for a loan in today’s market because as a business owner, I must go stated income.  I’m thankful that I was able to change my situation before things went nuts in the industry.

If you decide to watch the video, know that my linking to it here is only to provide a bit of levity to a not so fun situation for everyone right now.  I feel blessed that my business is doing so well right now and that many of my choices to downsize last year seemed to be a lucky break ahead of the curve of what is happening to many right now.

Question for Attorneys: Federal Tax Liens & Foreclosures

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tax lienCould someone with Foreclosure sale experience answer the question below?  Or, at least discuss the possible outcome?

Scenario:

A homeowner has a Federal Tax lien against the property.  The homeowner is delinquent on their mortgage and it goes to Foreclosure.  At the Foreclosure sale, the property then goes back to the lender because there were no bidders for the home.

1)   Is the Lender required to pay off the Federal Tax lien at Foreclosure or resale of the home?

2)  If the Lender pays off the Federal Tax lien, what recourse does the Lender have against the borrower?

3)  If the Lender pays off the Federal Tax lien,  has the delinquent borrower just handed off their tax burden to the Lender and walked away with no liability?

Thanks!

A buyer's right to do "an additional inspection"

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This is a “real estate is local” post, as it refers to an option generally afforded to buyers in our local standard inspection clause (Form 35 item 1) b. on page 1).  Here in the Seattle Area, a buyer usually has the right to do “additional inspections”, IF the original Home Inspector recommends in writing that there be an additional inspection by a “specialist”.

When I am at an inspection I am listening very carefully to the inspector and waiting for him to red flag an item that needs an additional inspection.  It is the ONLY time I tell an inspector that I need him to say that, in writing, in the report.  They usually get mad when I do that and I try not to interfere with the inspector and his written report.  But if he says the buyer should get an additional inspection, but does not include the wording I need to invoke the “additional inspection” clause in the Inspection Addendum, we have a problem.

The buyer usually has X additional days to do the additional inspection (buyer pays for it), and the inspection response in its entirety is extended.  BUT the buyer must respond, in writing, by the end of the 1st inspection timeframe that they are doing a 2nd inspection, in order to gain the extended timeframe.  That request must include the portion of the 1st inspection that indicated the need for an additional inspection by a specialist.  There is a response form where you check a box noting that you are invoking your right under the original addendum section 1) b. to do an additional inspection, and you attach the 1st inspector’s recommendation regarding the need for a specialist inspection.

Everyone’s Inspection Addendum will be different as to the number of days you have for the 1st inspection and for additional inspections, so read your Addendum carefully.  The default in the forms I use show 10 days for the 1st inspection and an additional 5 days for additional inspections, but your contract may have a different amount of days written in the blank spaces.   The additional days are not automatic.  You must respond within the timeframe of the 1st inspection, and indicate your intention to do an additional inspection, in order to gain the additional days.  I can’t say this enough and so apologize if I have repeated it.

I don’t want to get bogged down in the forms here.  I want this to be a practical guide that focuses on how these situations actually play out.  The items that I have seen that required an additional inspection are:

Heater (“recommend the heater be checked by a qualified HVAC contractor)”

Roof (“recommend that the roof be inspected by a qualified…”

Septic System, Drainage Expert (evidence of water in crawl space or basement, either current or old water line mark), Structural Engineer for foundation cracks, fixes and shifting evidences, electrical, etc…

Generally speaking, an additional inspection involves a very costly item that is not obviously, currently, defective.  When a hot water tank is past its life expectancy, an inspector usually calls for it to be replaced, and not that it be inspected by a specialist.  When a heater or roof is nearing the end of its life expectancy, even if it is currently functioning adequately, the inspector usually calls for an additional inspection by a specialist.

The heater is often easier to deal with than a roof, in my experience.  The inspection cost in most cases is under $100.  I usually call for the specialist to service AND inspect it, as the service cost is about the same as an inspection cost, and includes an inspection.  I need the seller’s permission to service his heater, but I have yet to have a seller object.  If there is nothing wrong with it except that it is old, then a general home warranty that covers many items including the heater, is often part of the resolution to the heater being old.  The specialist will install new filters and note any parts that should be replaced.  Pretty simple stuff.

A roof is harder to deal with for many reasons.  Replacing the roof is not usually part of a home warranty like a heater is.  Some home warranties include leak patch work, some don’t deal with a roof at all, and I have yet to see one cover roof replacement.  Even if a roof is not currently leaking, the first inspector is often calling for a second inspection based primarily on the age factor.  Roof Math = Life Expectancy of that particular roof minus it’s current age.  A 20 year shingle that is 18 year’s old is often worse than a 35 year shingle that is 18 years old.  So age alone is not the issue, nor is currently defective or not defective  the only parameter that needs addressing.

Even if a roof is not leaking, if the 1st inspector says that the buyer should “plan for roof replacement” within 3-5 years, often the buyer wants the seller to address the issue.  Sometimes the buyer wants to STOP after the 1st inspection, and just ask for a new roof or a new heater or generally ask for all items to be replaced or fixed, when they should be moving to the “additional inspection” phase.

How you handle the matter is between you and your agent and the seller and the seller’s agent.  If the roof or the heater is 30 years old, often everyone agrees it needs a new one, even though it is not currently “defective”, without the need for an additional inspection.  But it often takes time to negotiate these things, and having a 2nd inspection gives you additional time and also pinpoints the actual cost involved.  The original inspector may give you a ballpark replacement cost, but a specialist will give you an actual “work order” and a cost the seller is more likely to consider valid.  The seller can then get his own estimate during his response timeframe to counter your request and estimate.

Jumping to asking for a repair based on the original inspector calling for an additional inspection by a specialist, is usually the wrong way to proceed, unless you know the seller is aware of the issue and has already anticipated it.  Sometimes the buyer wants the seller to pay for the additional inspection.  The contract indicates that the buyer pays for the additional inspection.  The seller should pay for any subsequent inspections that are needed for his counter proposal.  Say you submit a request for $17,000 for a new roof.  The seller would pay the cost for an additional inspection to counter with a different amount, attaching the work order from a different specialist.  He has a timeframe to respond in the original inpsection addendum as well.

There is no one right answer except TIME IS OF THE ESSENCE.  If you don’t want the house even if the seller fixed the problem, then you can cancel without calling for an additional inspection.  But if you still want the house as long as the seller adequately address a specific item, buy yourself that extra time to negotiate, by calling for and doing an additional inspection.

HUD Passes RESPA Reform, New GFE Coming in 2010

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Now I know that true miracles happen. We have all been waiting for RESPA reform for as long as I’ve been in the industry, which has been over 25 years.  Here’s what the new Good Faith Estimate will look like.  Everyone has all of 2009 to get their systems ready because the new form won’t go into effect until Jan of 2010.  The winds of change are blowing in favor of more consumer protection and more duties owed to the consumer by retail mortgage lenders.  Didn’t I just say this was going to happen? From HUD:

Brian Montgomery, HUD’s Assistant Secretary of Housing, Federal Housing Commissioner, said, “We have carefully considered the concerns expressed from every corner of the mortgage market in developing this rule. I am convinced that we successfully balanced the needs of consumers with those in the business of homeownership. None of us can lose sight of the fact that millions of Americans simply don’t understand all the fine print of their mortgages and this, in many respects, is at the heart of today’s mortgage crisis.”

Since 1974, little has changed about the process Americans endure when they buy and refinance their homes. Now, HUD’s final reform will improve disclosure of the key loan terms and closing costs consumers pay when they buy or refinance their home.

What I like about the new three page Good Faith Estimate (GFE):

Page 1:
Important Dates: “your interest rate may change” notice
Loan Summmary: Easy, plain language, Yes or No explanations
Page 2:
Understanding Estimate Charges: explains credits better than most verbal explanations I’ve heard over the past year.
Breaks down other charges that the homeowner can shop for, in order to receive a lower fee
Page 3:
Further explains pages one and two and makes it crystal clear what charges can and cannot change at closing. 

What I do not like about the new GFE:

Where’s the Yield Spread Premium (YSP)? 

Some state laws may not comport with this new federal law and will have to be revised, hence the year waiting period before we begin using the new form.

Links
Housing Wire HUD Revises RESPA Rules
HUD Press Release

Fannie and Freddie to Announce Mass Loan Modification Program

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From the Wall Street Journal:

Fannie Mae, Freddie Mac and U.S. officials are expected to announce plans Tuesday to speed up the modification of hundreds of thousands of loans held by the housing finance giants, marking the latest effort to try and prevent more foreclosures, people familiar with the matter said.

The announcement could mark the government’s most assertive use of Fannie Mae and Freddie Mac to help homeowners since the companies were taken over in September.

The streamlined effort will target certain loans that are 90 days or more past due, these people said. The program will aim to bring the ratio of mortgage payments for these homeowners to 38% of their income by modifying interest rates and in some cases forgiving portions of principal debt, these people said.

Borrowers would have to provide a statement or affidavit showing that they have encountered some sort of hardship that has impacted their ability to pay their mortgage. It would only apply to loans made on or before Jan. 1, 2008, and borrowers will be disqualified if they file for bankruptcy. The homes must be owner-occupied and escrows for real estate taxes and insurance must already be set up.

U.S. government officials plan to encourage big banks that hold loans in their portfolios to take similar streamlined modification measures.

The announcement is expected to come at a press conference at 2 p.m. at the Federal Housing Finance Agency, which temporarily has Fannie Mae and Freddie Mac in conservatorship because of their shaky financial condition.

Spokespeople for the companies, the Treasury Department and the Federal Housing Finance Agency weren’t immediately available for comment.

Servicers are expected to be paid $800 for a successful modification and loan investors are expected to reimburse servicers for certain fees associated with the modification. There will be a 90-day trial period, and if borrowers successfully make payments for those 90 days the modification will be formally approved. 

This is the beginning of massive government intervention to try and slow foreclosures. On a positive side, Fannie and Freddie could provide a template for servicers to follow which may help homeowners receive a “yes” or “no” answer faster.  On the down side, this may also slow the recover of the housing market, prolonging the decline of home prices. Currently 40% of loan modifications re-default. This may also further erode investor confidence in residential mortgage backed securities, the impact being even tighter underwriting guidelines than what we’re now experiencing.

I’d like to see provisions in there regarding proof that the homeowner did not commit fraud when receiving the original loan, and proof that the homeowner has the ability to re-pay the modified loan.  But these things take time to ascertain.

Update from Calculated Risk:

Here is the press release from the FHFA. Note that this does not include principal reduction as a solution to create an affordable payment, and is limited to: “extending the term, reducing the interest rate, and forbearing interest”.

This is intended to help “thousands” (a drop in the bucket unless it is several hundred thousand), and seems to encourage homeowners to stop making payments until they are 90 days late.

Don't Pay Off Bad Credit

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Step three in the “Should I Buy a House Now” series is somewhat of a sidetrack.  In Step 1 people learned the difference in calculating your current gross income, especially if any part of your income is not guaranteed “salary”.  In Step 2 you were sent off on a long project of accounting for your past practices of spending that gross income.  By finding the money you wasted, and taking steps to waste less of your earnings, you were able to find additional monies to put towards housing payments.

Step 3) Start Improving Your Credit Rating This can take a long time, as does Step 2.  I am suggesting you do these simultaneously.  Don’t think that because you pay your bills on time, that you have good credit.  Paying your bills on time only accounts for 30% to 35% of your credit standing.

Get all copies of your credit history.  Generally there are three sources (or more) and you don’t want to get your credit score, you want full copies of your credit report.  Go through the reports and make sure the history pertains to you.  The more comon your name, the more likely you will have something of someone else’s on your report.  If you are divorced, you want to remove things that you are no longer legally responsible for by divorce decree, even if the item has a high rating.

Let’s assume you have at least one item that you didn’t pay well.  Don’t pay it off!  This is the biggest mistake I see people making.  You need to turn bad credit into good credit.  Paying it off does not remove it from your credit history, so paying it off simply locks in a bad credit item.  You want to “pay it as agreed”.  Sometimes you do that by agreeing to a new payment schedule and then paying the new payments on time for a year.  Sometimes you pay off the balance, but leave the card open, and charge one small item every month and pay that item off every month.  I’m not a credit expert for sure, but this issue goes back long before scoring was used.  All too often people pay off the balance on a bad credit item thinking they made it good.  No.  You locked in the bad long term.

Here’s a story from back when I was 25ish.  My Mom needed me to co-sign on a house.  I had a bad charge card at a department store that was charging me 3% of the balance due until it reached near the max, and then wanted 20% of the now higher balance each month.  There was no way on my income that I could pay 20% of the balance, so it got behind.  It was a ding that was potentially going to cause my Mom to not get the house and everyone panicked. 

I went to the store with the full balance due in my hand, and after a lengthy conversation with the credit manager, I was very angry and said I hated the store and would never buy anything there again.  The Manager said to me, “You can’t hate us.  In fact you have to buy from us.  You can’t just pay off the balance to restore your credit.  If you never buy from us again, that bad rating will sit on your report for years.  The only way for you to improve your credit is to buy more from us and pay off that more well.”  That made me angrier and I started to leave when a lightbulb went on.  I turned around and said, “Are you telling me that I can go downstairs right now and buy something on this card?  He said absolutely, please do.  I said can you give me a letter to that effect.  He said sure.  I took that letter to the mortgage company and said how can you deny my Mom a mortgage based on a bad credit item, when the bad credit item doesn’t think it’s so bad, in fact they invite me to continue shopping there on credit.  I handed them the letter from the Credit Manager on the store letterhead, they agreed and my Mom got the house.

Lesson learned:  Turning Bad credit into Good credit involves not simply paying off balances, but continuing to charge and pay as agreed until the credit rating for that item improves.  Then you can close it after it has a good rating.

I have to meet someone at a house shortly, so I’m going to end here though this post could be a 20 page short story, if I highlighted all the ways to good credit.  The point is EARLY in the process, here at Step 3, know your credit score, review your credit history from 3 credit bureaus, and improve as needed.  Even if your score is high, go through the detail and make sure you correct anything that needs correcting.  It takes a long time for the credit bureaus to reflect change…so don’t wait until the last minute to work on this step in the series.

2009 FHA Loan Limits for Seattle-Bellevue and Beyond

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King, Snohomish and Pierce Counties loan limits effective January 1, 2009 are:

  • Single Family: $506,000
  • Two Family:  $647,750
  • Three Family:  $783,000
  • Four Family:  $973,100

The new loan limit is lower than the current FHA Jumbo limit of $567,500 and is happens to be the same as the jumbo-conforming (aka high-balance) loan limits for our area for 2009.