… has a new condo in Bellevue at the Meritage, you might have thought he would slow down the pace of his condo blogging at Urbnlivn. But no chance there… instead he unleashes the urbnlivn forum for the Seattle-area Market. Very cool. It’s a little quiet at the moment (the site is brand new), but I’m sure under Matt’s guidance, it won’t stay quiet for long…
Also a belated, but HUGE, congratulations to Matt on your new condo!
Here is a scenario bouncing around in my mind. Complicating this problem, imagine this scenario occuring two days prior to closing. What would an attorney think?[photopress:j0402451.jpg,thumb,alignright]
The facts:
A buyer who happens to be a real estate managing Broker-owner is purchasing new construction from a builder. The buyer (Broker) asks for a discounted escrow fee because buyer (Broker) has a history of referring business (sellers or buyers) to escrow company handling this closing. The escrow company refuses to discount buyer escrow fee. The seller (builder) receives an estimated HUD-1 Settlement Statement which shows an escrow fee based upon each party paying an equal 1/2 of the total escrow fee, in full compliance with the local Northwest Multiple Listing Service (NWMLS) Purchase and Sale Agreement (PSA). After reviewing the settlement statement, the builder-seller calls the escrow company and requires escrow company to reduce the escrow fee because it is “tradition” or the seller (builder) will refuse to close. Learning of this, the buyer wants the same fee as the seller. To comply with the law, the escrow company must comply with the terms of the purchase and sale agreement, in addition to complying with RESPA. Locally, the Northwest Multiple Listing Service Form 21 Section ‘H’, line 56, provides that:
Seller and buyer shall each pay one-half of the escrow fee unless the sale is FHA or VA financed, in which case it shall be paid according to FHA or VA regulations.
Escrow raises this issue and asks parties for clarification because the purchase and sale agreement in question has no other addenda indicating disclosure of builder-seller receiving a discounted escrow fee. Once again, the seller (builder) immediately requests escrow to discount escrow fee or they refuse to close and further escalates the issue by threatening to move the transaction.
This problem raises a few issues.
All you Perry Mason’s, looking forward to your comments…..
I’m constantly amazed at how many people don’t get renter’s insurance when they are renting a house or apartment. Did you realize that if a major catastrophe happens to the property you’re renting that the landlord is not responsible for your belongings? You should.
Renter’s insurance is relatively inexpensive for the peace of mind that it will give you. Not only are you covered if a major issue happens to the property and damages your belongings, you can also check to see if the policy will cover you in the event of a break-in. Most people don’t consider the fact that a water heater might blow out and cause flooding to the interior of a property. This event could damage clothing, furniture, or more. The landlord will likely be responsible for fixing or replacing the water heater but they won’t be responsible for your stuff.
A while back we were representing a buyer on the purchase of a 20-unit apartment complex. There were 2 buildings with 10 units each. For some bizarre reason the seller decided to replace the roofs mid-contract. Unfortunately for her it rained right at the time the new roofs went on and 4 units were ruined and more were damaged – along with the tenant’s belongings. Thus began a nasty fight between her and the tenants – several moved out, resulting in lost rents, and others started attempting to boycott the property and prevent others from moving in to replace those that chose to move.
The majority of these tenants did not have renter’s insurance. More landlords are getting savvy and are adding provisions to their lease agreements that spell out a requirement for renters to show proof of insurance within a short period of time of moving in. My own lease agreements have similar language and it states very clearly that I’m not responsible for their stuff if something happens. Nature can impact a property at any time – I had this happen when a neighbor’s tree smashed into my duplex roof a couple of years ago. Thankfully my tenant’s didn’t get impacted but they could have since the tree punctured holes in the roof. Thankfully we got the roof repaired pretty quickly so no major damage occurred but it could have been ugly.
New condominium buildings are also requiring owners and tenants to have contents insurance. For owners of these units the requirement is that the policy cover up to the deductible of the homeowner’s association policy. Frequently that amount is roughly $50,000.00. These are good things to know. Many of the condo sales require proof of insurance at closing so be sure to contact an insurance company prior to the end of your transaction if you’re in the process of buying. One guy I know that can handle this for you is Gerald Grinter of Gerald Grinter Insurance. He can handle policies for condo owners and renters.
When Ardell suggested that I post rates on Friday, I was a bit reluctant to do so. Why? Because it promotes rate shopping and I don’t believe that is the best way for consumers to select the professional who will be advising them on one of the largest financial transactions they will make in their lifetime. But I must admit, the posts have created a lot of very interesting comments and kudos to Ardell for putting me on the spot to post rates.
Recently, one of RCG’s frequent readers added a comment on Mortgage Rates for Friday Morning that brings home why you should not shop mortgage professionals by rates and that you should select your mortgage professional by referrals instead:
I got a GFE from a broker recommended to me by my boss. She was smart and knowledgeable, but not particularly personable.
I also got one from a guy who worked with my Realtor who called himself a Home Mortgage Consultant (with BIG BANK Mortgage). Personable, but not that sharp.
I also called a few other brokers off the net and paper – straight APR shopping.
The first broker, the one recommended, had the best rate. Because I liked my Realtor, I gave the (Bank) guy a shot to match her rate, which he did.
He made numerous mistakes, and I was forced to go over my docs repeatedly with a fine tooth comb to make sure they were correct.
In retrospect I should have gone with the recommended broker, though perhaps not, given that she was angry with me and showed it.
In the end, however, I am going to go with the reputable person who gives me the lowest rate in an apples-to-apples comparison. A quarter point could mean 10s of thousands of dollars over the life of a loan. That’s going to trump loyalty every time, and you are fooling yourself if you think otherwise.
There are many issues with shopping lenders by rate:
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How much is the market influenced by the fact that it stays light longer on weekdays?
We all know it’s true that people tend to look at property more on weekends, unless it gets dark later on weekdays. We all know the second and third quarters of each year are stronger than the first and last quarters. But how much does that have to do with it getting dark earlier and staying light later?
Well, this is a good year to test that, as tonight is the beginning of daylight savings time. For the first time in, I guess my life, we will turn our clocks forward, one hour, tonight, March 11, 2007.
Compare that to April 6 in 2003, April 4, in 2004, April 3 in 2005 and April 2 in 2006, and we are adding about 36 days to the real estate high season. Will be interesting to see how the March 2007 stats compare to previous years. I think they will be stronger due to DST being pushed earlier.
Maybe that will transcend into April. Maybe sellers who would have listed May 1, will be able to spruce up the home’s exterior earlier this year, with a few hours of daylight after work each night, and get their homes listed a couple of weeks earlier than expected.
I’m just happy that the daffodils are in bloom, I see pink trees everywhere, and starting tomorrow…it will get dark later. One of Seattle’s main claims to fame, is our long, long spring and summer days. And this year, we will have even more of it! Enjoy!
[photopress:futurama_bender.jpg,thumb,alignright]Recently, the Center for Realtor Technology and Jim Duncan’s Real Central VA had blog posts on the desire to have MLSs’ add another column to their schema that indicated the broadband access status of a property. I think this is an idea whose time has been a long time coming. When I moved from my old home in Carnation to my new home in Issaquah, the new owner of my old house wanted to know everything I could tell him about the home’s local ISP (I believe he was a network engineer). Similarly, one of the major reasons I moved into my current home, was that it had bandwidth to spare (my ISP’s top of the line plan is currently 8 M download / 2 M upload speeds). In the Emerald City or the Bay Area, this information is probably second in importance only to the list price of a home or its location. Simply put, a home’s high speed internet capabilities is an increasingly important factor in your purchasing decision.
However, as long as the MLS DBA is mucking around with database schema and typing in ALTER TABLE Residential ADD Internet varchar(50) and other SQL DDL commands, why should we stop there? Here’s what I’d like to see when the MLS gets around to enhancing it’s database schema.
Use Links. Why not enhance school, local government, builder & utility information in the MLS to have both names and urls? When I move to a new home, usually the first thing I need to do is contact all the local utilities and let them know I’m in a new place. Having links to Puget Sound Energy, Issaquah School District, Specialized Homes, and King County Government in the MLS would save me time. Finding contact information and phone numbers is a much bigger pain than it should be at times.
Cell phone reception information. If you don’t have good cable or DSL internet access, knowing how strong Sprint’s or Clearwire’s signal is would be nice to know. I suspect real estate agents and other professionals that increasingly depend on wireless internet access would find this information very helpful.
More accurate and fewer errors. OK, I’ve complained about this before. Still, is it really too much to ask? If a property doesn’t geocode, somebody may not find it when they use a popular map based real estate search engine.
Embrace RETS. Enough said.
Richer media. OK, so the MLS allows you to upload 10 or 20 small photos (or whatever the number is). Why not allow larger photos, MP3 files, video files or PDF flyers? As broadband takes over the world, the stuff is a lot more practical. Although, the idea sounds nice in theory, I’m not sure agents are ready to hire professional audio engineers or videographers when many haven’t learned the value of high quality photography yet. I also think the MLS IT infrastructure isn’t ready for this kind of load (frankly if you can’t handle the bandwidth demands of digital photography, you should probably outsource to Amazon S3 or Flickr Pro before it’s too late), and it’s going to make life more a lot more interesting for us IDX vendors.
So, if you could change the MLS database, what would you like to add or change? What information do you wish was there, but isn’t? Is built green home information and information on low flow toilets something today’s home buyer wants to be able to search for? Do you think more information would pose an undue burden on agents or brokers (those MLS listing forms are one step removed from a tax return), or do you want more, more, more? What would you like IDX vendors to do differently, regardless if the MLS changes or not?
I just installed a long requested plugin that allows a user (YOU!) to subscribe to comments on any given post. The idea is that after you’ve written a comment you can opt to also be notified via email every time a new comment is added to that post. It is not for everyone, but if this is your cup-of-tea, then try it out and let me know if you’re having any issues…
Inspired by Doug Walker of Rock Paper Scissors fame (and looking for a way to get Bart’s rear off of the top of RCG now that Inman is sending us a bunch of traffic!), I thought I’d share my celebrity look-alike profile from MyHeritage…
I’m thinking the technology still has a way to go… 🙂
A short sale is when a homeowner in financial distress owes more against the home than what the home is worth, and the homeowner MUST sell.
If the homeowner does not have to sell, or does not want to sell their home, there are MANY options available to homeowners. They could [photopress:shorts_1.jpg,thumb,alignright]move into a more affordable home and rent out their existing home, they could take on a roommate, they could refinance (although this is not always the best path. Homeowners in a short sale situation are often in financial distress, which means higher rates and fees because you’re seen as a higher credit risk to a new lender), they could talk with their existing lenders to re-configure the terms of the loan. Homeowners who do not want to sell or do not have to sell ought to seek out a HUD-approved housing counseling agency that offers default counseling. Why? Because at bare minimum, SOMEONE, in this case our federal government, has deemed the housing counseling agency competent. What a homeowner should not do is to blindly trust that the signs by the side of the road are from reputable folks. In fact, the assumption ought to be that if a deal looks and sounds too good to be true, it is. There are no angels on earth. Homeowners, you can be easily taken advantage of by these folks. Wake up and keep reading.
Selling short means you’re asking the underlying lender(s) to accept less than their payoff in order to facilitate a sale of the home, instead of foreclosing on the home.
Foreclosure is expensive for a mortgage lender. Mortgage lenders are not in the business of foreclosing on houses. Banks and lenders are in business of making loans. They don’t want the house back. This is a business decision for the lender. Which means it has to make rational, logical sense.
Homeowners, you will be asked to prove financial distress. This means you will have to submit proof that you don’t have the money to make up the shortage. If you do have the money, this is no longer a short sale, the industry calls this a “seller to bring cash in at closing” sale. If you ask your real estate agent to help you in hiding assets, an agent cannot assist you with defrauding a lender.
[photopress:bartangel.jpg,thumb,alignleft]If an “angel” investor offers to ‘take over the payments’ and lets you pay rent until you’re back on your feet, and then asks you to sign a quit claim deed, transfering title to the investor, stop everything and go get some legal advice immediately. You might be thinking: I’m in financial distress; how can I afford legal advice? Contact your local bar association for a referral to free legal aid. A quit claim deed transfers interest but not liability. This means you are still liable to make sure the mortgage is paid, and further, transfering yourself out of title means your lender might decide to call your note due and payable. There are many foreclosure rescue scams to be careful of. If the rent is set too high, thus not allowing you to really get caught up at all, this has a name: equity skimming. Go see an attorney.
Homeowners, you will be asked to pay back the shortage. That’s right, your lender will ask you to sign a brand new unsecured note in order for you to pay back the difference in monthly installments. If, out of the goodness of their heart, (don’t count on it) the lender “forgives” the debt, then the IRS sees this as a taxable event. Homeowners: Go see your favorite tax attorney or CPA for tax advice if you are in a short sale scenario.
Homeowners, the worst mistake you can make is to go into denial and stay in your “happy place” and not make those hard decisions. Let’s review. The best steps you can take are preventative. When you see yourself getting close to needing to sell in order to avoid foreclosure:
1) Decide if you absolutely must sell or if you’re better off riding out the financial tough road. If there’s a light at the end of the tunnel, and you don’t want to sell, perhaps you’re better off not selling.
2) Talk to a HUD-approved housing counseling agency that offers “default” counseling.
3) Don’t ignore letters or calls from your lenders. I recommend renting and watching the movie “House of Sand and Fog” to wake you up from your state of denial. Talk to your lender.
4) If you’re committed to selling, interview three licensed real estate agents. If one of them offers to purchase the house right there in your living room…..ask the agent if that’s ethical and legal and see what they say. Real estate agents have an obligation to put YOUR interests ahead of their own interests. State agency laws vary, but this is a core concept of agency.
5) Always seek legal counsel if you are a short sale homeowner. There are things attorneys can do that real estate agents cannot do.
Real estate agents: The best steps you can take are to educate yourself about how to present your firm offer to the underlying lien holder(s). In a short sale, title is transferred using a warranty deed (in some states it is called a different sort of deed like a bargain and sale deed) which means title must be clear of all liens and encumbrances (except for items that will run with the land like easements, real estate taxes, and the like.) This means you might have to present the firm offer to more than one lien holder. Example:
Sale price: 300,000
First mortgage payoff: 250,000
Second mortgage payoff: 100,000
Real estate agents: In the above example, if you’re trying to work with the first mortgage lender and they’re not giving you the time of day, it’s because they are expecting to get all $250K because they’re in first lien postion. Your work will be with the second lien holder, who has much to lose should the first foreclose and everything to gain by negotiating with you NOW, before foreclosure.
Real estate agents, check your local Multiple Listing Service (MLS) policies and procedures about disclosing the “short sale” terms to the other members of your MLS.
Real estate agents, the lender(s) will ALWAYS ask you to cut your commission. Always, always, always. It is their duty to mitigate losses. That means asking everyone to cut their fees. Don’t take it personally. So, should you cut your commission? These transactions are difficult, time consuming, gut-wrenching, and ulcer-inducing. Why on earth would you accept a low fee? When asked to slice your fee to the bone, say “no.” The lender needs you more than you need them; the lender does not want to foreclose.
Sometimes real estate agents tell me they wouldn’t touch one of these deals because of the increased liability and the hard work. To that I ask, “Well, what if you were the one who sold them the house?” Then the room usually falls silent.
Real estate agents should always ask the homeowner this simple question: “What are your plans for housing once the home sells?” If the homeowner is in financial distress, often their plans including moving in with relatives. If not, you may wish to connect the homeowner with social services sooner rather than later.
Try Wednesday’s webinar through Pensco Trust to learn how to protect your beneficiaries if you have taken advantage of one of the fabulous self directed IRA programs I’ve tried to introduce here.
With the stock market remaining unpredictable consider jinvesting some of your reitrements funds in real estate. I converted a SEP IRA, small Roth IRAs, and regular IRAs, rolled them all into a self directed Roth IRA, paid the tax due and began developing with the money. Now I’ve grown my net worth within a Roth IRA and all the growth is tax free. It’s well worth the rollover and paying back any Taxes you saved initially with the IRA if you know how to make your money grow.
If you want to know this great tax benefit, see the Pensco site, start taking the Pensco classes or give me a holler.