Category Archives: Investing

Escrow Trenches: nutty funding conditions

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Recall those episodes where Jerry Seinfeld grits his teeth and in one exasperated and frustrated breadth says, “Neeeewman!”

Similarly, so do title and escrow staff in dealing with lender funding conditions and other challenges that seemingly are for no other purpose but to drive us to the closet for our straight-jackets.

Unfortunately, some conditions cannot be easily met at the moment the request comes over the fax or e-mail.   Some require work that delays closings.  Or, in extreme cases a condition can completely shut down all other transactions you are working on for a couple of hours to work feverishly to meet conditions or do a workaround when parties to a transaction become completely uncooperative.

Here’s a couple funding conditions pulled from our short list posted on our blog:

  • “Prove that the borrowers are not married.” (hmmm)
  • “Slight variance in borrower’s signature from others of the same borrower, need borrower to re-execute documents.”  (can cause escrow people to find a new profession.  Who’s signature is the same after signing an FHA loan package that is 119 pages long and 1.375 inches thick?)
  • “Borrower signed on the line adjacent to the one provided where the name appears.   Please re-execute the document.”  (resulted in a re-sign after tracking down the borrower).

While these are humorous after the fact it also paints a picture of what goes on behind the scenes.   Another thing that creates grins for title and escrow staff:  When there is a “rush” on a request and that request involves the collaboration and cooperation with a government agency.

What’s Happening with the $8,000 homebuyer credit?

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Post Updated based on Info available as of 11/5/09 – No significant changes, but a few minor ones, so if you first read this back when I wrote it on 10/29/2009, take another look at the updates.

$8,000There are a lot of rumors flying around suggesting that the $8,000 credit has been extended. While that is not the case, as nothing has been signed yet, there seems to be strong support for:

1) Extending the $8,000 credit for 1st time buyers, including people who have not owned a home for 3 years

2) An added $6,500 credit for move up buyers who have owned their current home for at least 5 consecutive years of the last 8 years. (this provision is still under heated discussion and most subject to compromise before the bill is passed.) Updated 11/5/08

3) Expansion of the income requirement to $125,000 for an individual and $250,000  $225,000 for a married couple.

4) Extension to contracts entered into by April 30, 2010 that are also closed by June 30, 2010 (before July 1, 2010)

The most credible “rumor”/story going around [IMO] is CNN Money’s “$8,000 Credit Still in Play“.

In my opinion #1 and #4 make the most sense in that it seems senseless to drop the credit at the end of “Spring Bump” vs. just before 2010 “Spring Bump”.  Closing the door on the credit on Nov. 30th never made any sense, as seasonal factors will make it appear that the credit going away is having more of an adverse affect than it really is, given November through February sales are almost always lower as to price and volume.

Cutting the cord on the credit at the end of April (end of March even better) makes perfect sense, and gives the market the opportunity to compensate during its most robust season.  If the market can transition from 1st quarter 2010 with a credit, to 2nd and 3rd quarters without a credit on a flat market basis, it will be easier to get rid of it altogether. And yes…eventually…it really must go away. I certainly hope the industry isn’t going to keep lobbying indefinitely for its continuation. That would NOT be a good thing.

While it seems that “Senator’s Have Agreed” this credit is still not signed sealed and delivered, (Update 11/5/09 at last step, needs to be signed by the President) so stay tuned for the final version as I think the wheel may still be spinning with regard to the $6,500 move up buyer credit, as well as the expansion of the  income requirements.

Buyer Beware – “great deals” may come with other “issues”

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big new houseWhen you get the opportunity to buy a house “worth” over a million dollars, for fifty to seventy cents on the dollar, you have to ask yourself if you can “afford” it before you say WooHoo!

#1 –  Real Estate Taxes may be too high

Often people ask why so many pending sales don’t close.  There are many reasons, one of which is that lender pre-approvals show a purchase price vs. a monthly payment.  Reality is that your lender is NOT qualifying you for a purchase price, but for some reason they think it is easier for you to understand a price vs. a monthly payment. They then make assumptions as to other costs, and convert their communication to you, the agents and the seller, to a Purchase Price. (This was not so when I started in real estate, and someone should change that.)

So you have a pre-approval to buy a house for $650,000 with a 20% downpayment.  What that really means is the lender “assumed” taxes of approximately $6,500 a year and homeowner’s insurance of $650 a year. Now you go out and find an amazing, super-great deal! You have the opportunity to buy a house assessed at $1.2 million for “only” $650,000! WooHoo? Maybe not.  The annual real estate taxes are $11,000 a year vs. $6,500 a year and the homeowner’s insurance is $1,100 vs. $650. That means your monthly payment is $412.50 more each month for that particular “$650,000 house”, than your lender assumed when you were pre-approved.

Your income needs to be $15,000 to $18,000 more per year, for you to be able to afford that particular $650,000 house.

There are two possible consequences. One is that the loan will “kick out” early enough for you to get your Earnest Money returned, assuming you have a good Finance Contingency. The other is that you planned to buy with a payment of  $3,400 a month, but end up being approved for a payment of $3,800 a month, with no recourse.

It’s possible that you could appeal the assessed value with the County, but I’m not hopeful that will work this year. I clearly wouldn’t recommend anyone promising you can have the taxes reduced to a level commensurate with the lower Purchase Price,  unless you are buying in California. In King County Washington this is NOT a good year to bet that you can prove that the purchase price of $650,000 is a good reason for the County to lower your assessed value of record. Nor is it a good year to think that lower assessed value will equal lower taxes. The County has already notified owners that they are dramatically reducing assessed values (not taxes). 2010 is a particularly bad year to rely on being able to get that tax bill dramatically reduced, in my opinion.

The only sure course is if the bank-owner would have the assessment and taxes reduced prior to sale, in order to obtain a buyer for that home. But I strongly doubt that will happen. Anyone who can’t afford the $11,000 tax bill that comes with that “great deal”, should not be buying that house.

 

#2 – The “carrying costs” may be too high

When a lender pre-approves you for a Purchase Price of $650,000, they do not consider annual use and maintenance costs. Unlike real estate taxes and homeowner’s/hazard insurance, the lender makes no assumptions as to utility bills and other maintenance and repair/replacement costs. In King County a $650,000 house is generally about 2,900 square feet. A house for $1.2M is usually about 4,400 square feet, and often on a much larger lot.

Before you buy that 4,400 sf home on an acre+ lot for $650,000, instead of a 2,900 sf home on 1/4 acre, be mindful of the extra cost to heat and maintain that larger home on that larger lot, in good condition, over a period of years.

 

#3 – Cheaper, bank-owned, new construction may not be “complete”

Most recently we are seeing builders losing their construction projects to the bank. The bank then puts the house on market “as-is”.  Yes, the prices can be awesome! But will your lender finance the “new home” without it being completed? There are programs available to provide funds for purchase and rehab or completion, but are you ready to be your own “general contractor”? Even if you think you can handle it, will the new lender allow you to be your own “general contractor”?

Again, two possible consequences. One is you don’t qualify for the new financing, including cost to complete the home. Again, hopefully that consequence “kicks in” early enough for you to get your Earnest Money back under the Finance Contingency. Another possibility is that the things that need to be completed do not cause the sale to fail, but you end up with a house like the one pictured above. No landscaping, temporary construction fences or barriers, no garage doors…and no money to comply with the neighborhood rules to get your new home in good order in the timeframe required by the CC&Rs.

Once you enter into a Contract to Purchase, you may not be protected against “biting off more than you can chew”. Before you enter into a contract to purchase that “screaming deal”, make sure you can handle all the “issues” that come with.

Carnival of Real Estate

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Oddly the winners of the Zillow sponsored Carnival of Real Estate, did not win for the posts submitted. In fact even though I had two week’s worth of posts, there was almost NO winner of “The Carnival of Real Estate”. Did you ever watch The Oscars and wonder why there has to be an award for “Best Picture”, when none were actually worthy of the title of that category? Has there ever been an announcement “Sorry, no ‘Best Picture’ this year”?

Technically I should have TWO winners, since I am judging posts from both the week of August 28th and October 5th…and I do have two “winners”…but no”winning posts”.

“Winner” #1 is:

YG&B of “Foreclosed to Fabulous: A Journey Into Home Rehab”  I LOVE this writer, who is apparently a woman who possibly lives in Atlanta. Clearly not tooting her own horn, she says “I work for a non-profit that endeavors to take these houses from foreclosed to fabulous.” Her journey is well written, with fabulous details into the thought process on selecting which homes to buy and how to renovate them, and even some frustrations as to why no one may want them when they are finished in this post titled: “Crappy Old, Crap Crap Market. Crap” Her endless journey to find “a place to pee” in “4 Facts of Life of Low to No Margin Real Estate Work” is both funny and TRUE!

So Ms. YG&B, the post you entered did not win…but YOU clearly did.

Winner #2 is :

Bill Zoller, who submitted what appears to be his first and only post on US Inspect – Federal Pacific Panels and Are They a Danger?

Bill ends his post with: “I encourage each person reading this document to go to the links I’ve included and do further research. And, please communicate to your business community, as a realtor, home inspector, electrician, handyman, etc., the presence of these types of panels must be removed/replaced. No other remedy is satisfactory.”

I especially liked that Bill highlighted the point that an inspector FINDING a problem is not good enough! The remedy is hugely important! How many times do we as agents see the exact same problem when the  homebuyer later sells the house?  Does a roof leak need a patch or a new roof? Does a hazardous electric panel need a few tweaks or full replacement? A home inspector points out problems. But it takes all of the people in the room to take that red flag and provide the appropriate and “satisfactory” remedy to the problem at hand. “It was that way when I bought it” is NOT a satisfactory response by a seller to a home inspection problem. So make sure the remedy fits the problem…or you may end up paying for that oversight as a buyer, when it is time for you to sell.

Honorable Mention #1:

Patrick of cashmoneylife –  Entry: Are Money Merge Accounts a Great Way to Pay Your Mortgage Quickly, or Are They a Scam?

There are many interesting posts on cashmoneylife, and so I give this post “honorable mention” to highlight the blog itself (if anyone can find a last name for Patrick, please let me know). Be sure to read the comments on this post, as many are of equal value to the post itself.

Honorable Mention #2

Jay Thompson of The Phoenix Real Estate Guy – Entry Home Buyer Tax Credit Extension: Yet Another Bill Introduced

When I want to know what is happening with the First Time Homebuyer Tax Credit, I go to Jay Thompson’s blog. There is no answer to the question, but Jay has been keeping us up to date on what exactly is not happening since back in June. To find out what is and isn’t happening…you have to read Jay’s post. I was especially impressed that Jay called Senator Isakson’s office, further proving that if you want to know what’s happening with the Homebuyer Tax Credit…stay with Jay on this one.

A few words about the other entries and entrants:

Reminder: You are supposed to submit your BEST (one) post written within the last two weeks.

NOT a DOZEN posts, written by someone else, that you hope to take credit for…

Not 5 posts, all of which amazingly warrant the name of your town in the post title, and first sentence, and repeatedly throughout most every blog post you “write”! That may make the Search Engines notice you…or not…but it clearly is “bad” blog writing.

A good rant is often noteworthy. But whining, whining, whining about smelly houses, or buyers who are “too reluctant to pull the trigger”, or why people think they can buy a house without “consulting a REALTOR”…is just getting old.

I understand the need to monetize a blog. But when there are FIVE ads between EVERY sentence of the post…well, I just give up on trying to find the post amid the sea of advertisements.

The winner is a gem of a writer, with so many excellent posts and observations that I couldn’t possibly highlight all of them. If she ever writes a book I’ll be the first one in line to buy it, and the first one in line to meet her and have it autographed. Mucho Kudos to Ms. YG&B!

New Rule on Home Blogging & Zillow

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There’s a lot of talk going on about the new mls rules regarding blogging about homes for sale. The same new rule can prevent agents from posting their listings on Zillow, or any site that has Zillow or another “AVM” feature as a complement to the information available on the same site as the home listing. Basically sellers will now opt in or opt out of these categories separately, when they list their home for sale with an mls member.

Below are links to conversations already happening regarding the new rule that will shortly go into effect.  No one has answered my one question yet in any of these conversations. Does the “new” rule pre-empt the old rule 190? In other words, if a seller clicks “yes” to allow his home to be blogged about, does that “yes” apply to ALL bloggers OR only the listing agent. If I see in the mls a “yes” as to blogging allowed by the seller…do I still need the listing agent’s permission per rule 190, in addition to the seller’s permission?

Seems to me the rule should have more options like “yes MY agent CAN, but no other agents cannot”.

None of these changes impact me or the way I currently blog, but given there is so much being said on the topic, a simple re-direct to these online discussions via the links below, should give you the complete picture. My guess is large brokerages will choose FOR their sellers by company policy, and the actual seller making the opt in and opt out decision will not really come to pass. So much ado about nothing.

FHA to Adopt HVCC-ish Guidelines effective January 1, 2010…Correction: February 15, 2010

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HUD recently announced in Mortgagee Letter 2009-28 dated September 18, 2009 that they are implementing “Appraiser Independence” which is very similar to HVCC. 

Prohibition of mortgage brokers and commission based lender staff from the appraisal process…. To ensure appraiser independence, FHA-approved lenders are now prohibited from accepting appraisals prepared by FHA Roster appraisers who were selected, retained or compensated in any manner by a mortgage broker or any member of a lender’s staff who is compensated on a commission basis tied to the successful completion of a loan….

FHA does not require the use of AMCs or other third party organizations for appraisal ordering, but does recognize that some lenders use AMCs and/or other third party organizations to help ensure appraiser independence.

Mortgagee Letter 2009-28 goes on to “affirm existing requirements” with regards to preventing improper influencing of appraisers.  And states that:

“A lender must not assume, simply because an appraiser is state-certified that the appraiser is qualifed and knowledgeable in a specific market area.  It is incumbent upon the lender to determine whether an appraisers’ quaifications, as evidenced by educational training and actual field experience are sufficient to enable the appraiser to competently perform appraisals before assigning an appraisal to them.”

AMCs (and the banks who own them) will have extra reason to party-on this New Year’s Eve.  This new requirement goes into effect on all FHA case numbers assigned on or after January 1, 2010 February 15, 2010. [Update:  HUD has extended the time period before the new guidelines in the above referenced mortgagee letter goes into effect…I corrected the title of this post too!]

FTC Considers Total Ban on Upfront Loan Modification Fees

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It’s about time.  I’ve been saying this is going to turn into a national crisis for a year now.  From the AP

The head of the Federal Trade Commission said Thursday the agency is considering banning upfront payments to companies that advertise help for borrowers who are in trouble on their home loans.

Government officials say scammers seeking to take advantage of borrowers in danger of default often charge upfront fees of $1,000 to $3,000 for help with loan modifications that rarely, if ever, pay off.

“If you are concerned about keeping your home, avoid any company that asks you for a large fee in advance. That is a real red flag,” said Jon Leibowitz, chairman of the FTC. Such upfront fees are already prohibited in 20 states.

Let’s ban all up front fees unless the service provider is a member of a State Bar Association. Attorney-backed loan mod firms charging upfront fees are not a good option either. That set up is typically a subprime salesperson boiler room. The California investigation found that with attorney-backed loan mod firms, never once did an actual attorney touch the file.  Read more about the loan mod mess in California here.

Third party loan mod salesmen should only be allowed to collect a fee once the loan modification is not only performed but also after the homeowner has made a specific number of on time payments.  This will rid the system of the Devil’s Rejects subprime LOs who act like they just walked off the set of a Rob Zombie movie and can only smell money. Let’s leave the real work to the people who can help homeowners figure out if they can actually afford to stay in the home or if they are better off selling. 

It seems there will always be a certain percentage of people who will believe anything and an equal percentage of people willing to prey on them.  But with a person’s home, the stakes are higher than an acai berry total body cleanse.

I predict that we will have the usual suspects crying that the FTCs actions will only raise the cost of hiring a third party loan mod company.  I call BS on that argument because homeowners have always been able to receive a loan mod for free by working directly with their lender, or receiving free help from a non-profit housing counseling agency or by seeking out free legal aid from their state’s Bar Association.

It’s September 17, 2009 and I still originate mortgage loans…

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For those of us to whom this statement applies there are a few obvious questions that immediately come to mind:  Why am I still working in this God-forsaken wasteland of an industry?

  • A) Nobody else is hiring in this booming economy,
  • B) I wanted to move to Nome Alaska but I couldn’t trade my upside down mortgage for a thatched roof yurt and a dog sled, or
  • C) The positive image of my career as portrayed by CNN makes me feel like a rock star.

Seriously, for the love of God Why!?

2009wampconnectIn all seriousness those of us that remain are not that different than survivors of a natural disaster. The clouds dissipate; the water level recedes and her we are – the survivors of the storm.  Not unlike the analogy the first thing that a ‘survivor’ must do is identify the resources that one needs to rebuild and restore one’s life. It is with this in mind that I invite you to WAMP’s Connect event coming up in Bellevue on October 5th and 6th

The Connect event offers each of us the opportunity to come together and meet all of the other survivors face to face. We’ll be able to reflect on what ‘once was’ and still more importantly the ‘what is’. As is the case in any disaster, the landscape we live in professionally is dramatically different than where we’ve been. The resources are certainly more limited – remember the days of quoting ‘hundreds of lenders and programs’? Now it’s more like ‘five lenders and programs’ – and we’re all using the same five!

Fewer programs and tougher guidelines are the realities of the aftershock and yet another reason to learn what others are doing to be more efficient and succeed in this new landscape. The Connect Event also offers the knowledge of how to seed your landscape for tomorrow. New technologies and lead sources like the Zillow Mortgage Marketplace, social network marketing (can you tweet for dough?), and the brace of brave new lenders that have sprung up alongside the resilient and steady familiar faces; they’ll all be represented at the Connect Event. The Connect Event will be nothing short of a meeting of survivors learning how to forge their professional landscapes for tomorrow – so don’t miss out!

There are very few lifeboats in this economy. There have been far more casualties than survivors. Come and be counted among the living. Come to Connect and learn how to forge a better tomorrow for yourself and for the industry you work in. Face it – If we don’t see you at Connect we’re going to suspect that you traded the house for the dog sled and the yurt – Don’t be ‘gone missing’

What is NOT included in the home inspection?

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The other day I presented a request to the seller’s agent after a home inspection. The agent said “My home inspector never includes the deficiencies of outbuildings”  It reminded me that many home buyers rely on the home inspection, and yet there are many “area norms” that dictate what home inspectors do and do not do. All home inspectors are not the same, and cost of inspection should not be the main criteria when selecting a home inspector. The cost difference from one to another is often within $100…but the manner in which they inspect a home varies greatly.

Common sense does apply, to some degree. Most often the cost of the inspection is determined by the square footage of “the home”. One would think this might be a signal that an inspector who prices on that basis is looking ONLY at “the home”. Often that is appropriate, but sometimes it is not.

There is no hard and fast rule here. A good rule of thumb is “is it an item that adds or decreases value in an appraisal?” A fenced property most often will not appraise higher than a similar home without a fence. A small shed will not likely be noted in an appraisal. But the property in question for me the other day included a HUGE shop building with a roof, heater and electricity. I haven’t seen the appraisal yet, but seems to me that “the outbuiding” in this case was appropriately inspected as to deficiencies. In fact, there have been a couple of times over the last 20 years when my buyer client bought a property where “the outbuilding” was equally important to the decision to purchase as the home itself…sometimes moreso.

My personal opinion is that we should look at the inspection process from the standpoint of future buyer cost, vs. components in and of themselves. What every home buyer wants to and needs to know, is how much might it cost them to maintain this property after they become the owner of “it”. A new fence costs a lot more than a polarized socket or a GFCI, many thousands more. Yet most every home inspection will ignore a rotted fence and include a $15 GFCI.

This is a large topic, and I am on vacation in Florida at the moment, so we will revisit it from time to time. My hope in writing this post is to convey to home buyers that merely relying on “a system in place” to protect you, is just not appropriate. The system values “what you are buying” differently than you, as you should be looking at what costs you may have overall…because the system in place does not do that. There are many large cost items that are not included in the inspection or the seller disclosure.

All too often a buyer chooses a home based on interior features and then relies on the system to do the rest. Rarely does a buyer do a thorough inspection of the home and property (as much as they can) before making an offer. There are two remedies to this problem:

1) We can improve the system to incorporate all that a homebuyer really needs from it

2) Buyers should conduct a thorough inspection themselves either before they make an offer or during the home inspection timeframe (in addition to the home inspection).

Waiting for #1 to happen in the timeframe you need it to, is not likely going to service your immediate needs as well as performing both inspections via #2. Since a buyer is not as well versed on what a home inspector will be looking at, Kim and I often help the buyer look at those things that the inspector will not, prior to offer and continually through “the due diligence timeframe”. It is also possible to expand the scope of the inspection to include things normally not included, but to do that you need to know what is included and what is NOT included…before the home inspection and home inspection timeframe is over.

The system does protect you to a large degree, but area norms and customs limit your protections (vs. contract provisions) and you should be aware of which inspectors will only perform the minimum required, and which will go the extra mile.

Are you going? REBarCampSeattle and more…

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logoThere are a ton of great Seattle real estate events in the near future with RCG contributors playing a huge part, so last week I asked RCG contributors to let me know which events they were going to be participating in and I thought I’d give a quick summary…

REBarCamp Seattle, 9/8 (tomorrow!):

  • A gathering of passionate real estate professionals. A casual, open, and fun way to learn about cutting edge real estate marketing ideas.
  • RCG Contributors attending include: Rhonda Porter, Ardell DellaLoggia, Galen Ward, and Cortney Cooper

SCKAR Event, 9/22:

  • How how to use Social Media panel discussion with Rhona Porter, David Gibbons and Matt Heinz.  Moderated by Claudia Wicks.

Lenders Connect (WAMP), 10/5:

  • 18th Annual wholesale lenders conference
  • Rhona Porter, Jillayne Schlicke (speaker)

REbarcamp Bellevue, 10/6:

  • Rhonda Porter (organizer!), Ardell DellaLoggia

Washington State Association of Realtors Convention, 10/12 & 10/13:

  • Jillayne Schlicke (speaker)

Also, if you check out the event conversation on FB, you’ll see that there’s also a variety of courses being taught by RCG contributors in the near future!

And If you’re gonna be at any of these events, let us know to look out for you!