Be your best advocate; get to know RESPA


by Dan Krell © 2009

One of the most important pieces of legislation that home buyers need to be aware of is The Real Estate Settlement Procedures Act (a.k.a. RESPA). Although RESPA has been around since 1974, it’s a wonder that the professionals whom consumers depend on have had trouble understanding the law. And in some cases it’s more of a problem of following the law.

To protect the consumer, RESPA clearly spells out some of the many do’s and don’ts for those in the real industry. According to HUD (HUD.gov), RESPA is a “ …consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD…”

Of all the sections of RESPA, Section 9 appears to be the area that gets the least attention. Section 9 prohibits home sellers from requiring home buyers to use a specific title insurance company as a condition of sale. Seems simple enough, right? In an owner occupied resale transaction, a buyer may not encounter such pressure from the seller. However the number of Section 9 complaints from buyers may have increased in the last two years corresponding to the explosion of foreclosures and short sale transactions. Many MLS entries of such sales have remarks such as: “must use ABC title” or “settle with XYZ title,” which are direct or indirect statements that fly in the face of Section 9.

The first thought of a seller who directs the buyer to use a particular title agent may be one of kickbacks and affiliated businesses (which is regulated by RESPA Section 8). However, even if the seller may have a reasonable case to require the use of their title agent as a condition of the sale, the fact is that it is prohibited by Section 9 (caveat notwithstanding).

The reasons for a buyer to choose their own title agent include price and service. If a buyer has the ability to select their own title agent, they can compare prices for title insurance and affiliated services. Additionally, the buyer may also be able to compare title agents on their professional and service reputations. Having the title agent be responsive, file the correct documents, and distribute escrow funds in a timely manner should be taken seriously; title problems may plague you in the future if releases and mortgages are not filed correctly with the County.
Become your best advocate and get acquainted with RESPA. You can visit HUD’s consumer website to get further explanation on Section 9 and other sections of RESPA as well as the complaint process.

If you feel that the seller violated Section 9 and you were forced to use a seller’s title agent as a condition of the sale, consult with an attorney- you may be able to seek damages up to three times the amount you paid for the title insurance.

To enforce RESPA, HUD wants to know about your RESPA complaints by sending an outline of the violation and the violators name, address and phone number (along with your contact information) to the Director, Office of RESPA and Interstate Land Sales, US Department of Housing and Urban Development, Room 9154, 451 7th Street, SW, Washington, DC 20410.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 7, 2009. Copyright © 2009 Dan Krell

A step backward for affordable homeownership?


by Dan Krell © 2009

In a press release circulated on Monday, November 30, the FHA announced new proposed rules to “Strengthen Risk Management.” The proposed changes include increasing financial worth of FHA lenders, tighten underwriting requirements for borrowers, and require FHA lenders to take on the liability for the loans they originate.

FHA has a history of providing low down payment mortgages to millions of home owners since 1934. FHA sparked the resurgence of a very flat housing industry when it was created by providing affordable mortgages with acceptable terms at a time when mortgages had very stringent underwriting guidelines as well as very harsh terms. . FHA has played a major role in subsequent recessions and housing downturns to help stabilize the marketplace by assisting cash strapped home buyers purchase their first home.

FHA’s role in the housing industry has undoubtedly increased the value of homeownership by making homeownership affordable. Unfortunately, it seems as if FHA is another victim of the financial crisis as it no doubt suffered losses by bailing out troubled home owners through such programs as HOPE for Homeowners.

In a time when home buyer sentiment is wavering, increasing financial and credit requirements for potential home buyers will further diminish the value of homeownership. Increased financial and credit requirements in a time when recessionary forces have already reduced home buyer resources will undoubtedly affect the recovering real estate market and shift the consequences of the financial crisis to many potential home buyers by making home ownership less affordable.

This article is not intended to provide nor should it be relied upon for legal and financial advice.

Maryland Foreclosure Resources: Help with mortgage problems

by Dan Krell
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Daily reports of increasing unemployment, shrinking GNP, and increasing government deficits leave many worried about the economy. But it’s not just the economy; people are concerned about their jobs and finances as well. Needless to say, many are worried about losing their home.

The initial foreclosure wave we endured was mostly due to those home owners who had exotic and questionable mortgages. However, the next foreclosure wave, which has already started, will also see an increased number of home owners who are casualties of a deteriorating economy.

The Federal Government has taken steps to create programs and initiatives to assist those who can no longer afford their mortgage or are already in foreclosure. Among the initiatives taken by the Bush Administration and congress include refinancing options for those in foreclosure through FHA (HUD.gov) and the creation of the Hope Now program (hopenow.com), which is a collaboration of HUD and mortgage lenders to provide foreclosure prevention assistance and loan modifications.

Local officials have also been busy to address the foreclosure problem. Local initiatives include partnerships with federal programs, such as the Maryland Hope Now program. Additionally, collaboration with non-profit organizations includes the Homeownership Preservation Foundation (995hope.org). These programs offer home ownership counseling and assist in dialoguing with your lender to facilitate a solution (such as a loan modification or short sale).

Additional state resources include the Lifeline Refinance Program offered through the Maryland Department of Housing and Community Development (mdhousing.org/Lifeline). The refinance loan program is described as assisting those who may be facing “unfavorable” mortgage situations. The program requires good credit and a mortgage in good standing, so if you are already delinquent they may recommend seeking other solutions.

In Montgomery County, County Executive Isiah Leggett and the county counsel have made funds available for additional housing counseling through the Latino Economic Development Corporation and Home Free USA (both non-profit organizations). Another local program is the Bridge to Hope program, which is a short term loan (up to $15,000) to assist home owners who need a financial “bridge” during an uncertain time. More information can be obtained from the Montgomery County government (montgomerycountymd.gov).

Recent additions to local foreclosure relief efforts include Governor O’Malley’s new initiative (announced November 7th) with mortgage lenders and servicers. The program reportedly includes such companies as HSBC, Ocwen, GMAC, ResCap, Litton Loan Servicing, AmeriNational Community Services and Citi Mortgage. The plan is highlighted in five points that includes: adhering to timelines for loss mitigation (which may include short sales); designating a network of employees for Maryland residents, called “Team Maryland;” participation of collection and reporting of data to facilitate the loss mitigation process; creating loan modification guidelines; and participation in community outreach.
Even though government foreclosure relief programs exist, many home owners are unaware of these resources. Additionally, the emotional toll of facing foreclosure can leave home owners feeling helpless and without hope (especially when their lenders have turned them away). If you know you may be nearing financial challenges that may affect your ability to pay your mortgage, contact one of these resources as soon as possible; if you know someone who may be facing foreclosure, please help them by providing the foreclosure relief information. Be proactive by contacting your lender as well as contacting one of the local approved foreclosure relief programs.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of November 10, 2008. Copyright © 2008 Dan Krell.

How do you know if you are ready to buy a home?

by Dan Krell
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Did you know that we are in the midst of the best home buyers market in since the 1970’s? Real estate guru and national speaker, Bernice Ross (Realestatecoach.com), thinks so and that’s why she proclaimed 2008 as the “best buyer’s market in thirty five years!”

Ms. Ross asserts that the combination of low interest rates and high inventory makes this real estate market prime for home buyers. She supports her claim by explaining that interest rates have not been this low since the seller’s market of several years ago (when inventory was very low) ; and previously in the 1970’s. Additionally, mortgage interest rates during the previous major home buyer markets were much higher (18 to 20% in the early 1980’s and about 11% early 1990’s).

Certainly, it may seem to be a time filled with home buyer opportunity: Housing inventory is at a level unseen for years, giving home buyers many homes to choose from as well as negotiating leverage in neighborhoods filled with homes for sale. Additionally, interest rates are relatively low making homes more affordable. Furthermore, home buyer tax incentives (including the recent tax credit of up to $7,500) as well as rising area rents may make home buying a viable alternative.

Would economic turmoil put a damper on the excitement that would otherwise be generated by “the best home buyer’s market in thirty five years?” Some financial commentators say “yes.” For example, Luke Mullins states that you should not buy a home unless you have a compelling reason to do so (USNews.com, August 14, 2008). Steve Kerch of The Wall street Journal’s Market Watch (MarketWatch.com, September 24, 2008) reported that the best indicator of economic confidence is the purchase of a home.

The truth is that “the right time to buy a home” depends on the home buyer. Relying on broad sweeping statements (positive or negative) about the real estate market may not be helpful. Many personal and regional factors need to be considered and assessed. Before you decide to buy a home, you might want to examine such issues as (but not limited to) your personal and financial goals, your current financial condition, and your career outlook.

The question, “How do I know if I am ready to buy a home?” is answered by HUD’s (HUD.gov) “100 questions and answers about buying a new home.” If you can answer yes to the following questions, HUD believes you may be ready to buy home: Do you have a steady source of income? Have you been employed on a regular basis for the last 2-3 years? Is your current income reliable? Do you have a good record of paying bills? Do you have few outstanding long-term debts, like car payments? Do you have money saved for a down payment? Do you have the ability to pay a mortgage every month, plus additional costs? Other experts add these questions as well: how long do you intend to stay in the area, do you have emergency funds available, are you ready for the responsibility of homeownership, and do you live within your means?

In addition to consulting with your personal financial adviser and accountant, HUD recommends you attend home buyer counseling to help you determine if you are ready to buy a home.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of October 13, 2008. Copyright © 2008 Dan Krell.

FHA 203k; renovation loans are still available

by Dan Krell
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Are you considering purchasing a distressed property, such as a foreclosed home or a short sale, and need to make repairs on the home prior to moving in? Or maybe you have decided to stay in your present home for a few more years, but want to make updates or possibly expand the present space. The question you may have is, “how can I get a loan for these types of repairs and renovations?”

Even during the ongoing credit crunch, there are still renovation loans. One of the most popular renovation loans today is the FHA 203(k). Much like the FHA loan everyone is familiar with (FHA 203b), the FHA 203(k) loan can be used to purchase a home too! The difference is that the FHA 203 (k) provides funding for necessary repairs, updates and/or renovations on your new home; and it is all in one loan. Additionally, home owners needing funds to renovate, update, or expand their current homes can refinance with the FHA 203(k), as long as they have owned it for at least six months.

The FHA 203(k) was first introduced in 1978 through a change in the National Housing Act, section 203(k), which endorses the maintenance of the Nation’s housing. The FHA 203k is HUD’s primary device to meet their goal of “community and neighborhood revitalization” while expanding homeownership opportunities (HUD.gov). Additionally, HUD promotes the use of the FHA 203k to lenders and community organizations as a way to meet the goals of the Community Reinvestment Act.

Of course not all homes are eligible. Some of the eligibility requirements include that your home must be one to four units, the home must be at least one year old and meet neighborhood zoning requirements. FHA allows for major rehabilitation on homes that have been razed provided that the foundation still exists.

Improvements that are eligible for the FHA 203(k) include (but are not limited to) additions, unit conversions, and cosmetic repairs. However, luxury items and items that are not permanently part of the home (such as hot tubs) are not eligible. With the FHA 203(k), the home owner can add or expand a room, add a deck, convert a 1 unit home to a multi-unit home (up to four units), or convert a multi-unit home to a one unit home, and make cosmetic repairs (including giving your kitchen and bathrooms a facelift).

Do you want to make your home more energy efficient? Making your home “green” can save you lots of money down the road; however the transformation can cost quite a bit of money. The good news is that the FHA 203(k) loan allows for many “green” upgrades! Some items that may be eligible include replacing your HVAC and/or windows, waterproofing your basement, and installing solar panels.

The process of obtaining the FHA 203(k) is a little different than a standard mortgage, as additional underwriting requirements include architectural plans and repair estimates (materials and labor) from licensed contractors. The funds for the repairs/renovations are released in draws to ensure the work is completed as intended as well as meeting all zoning, health and building codes.

For more information about the FHA 203(k) mortgage, or to find a FHA 203(k) lender, you can visit the HUD website (HUD.gov).

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 15, 2008. Copyright © 2008 Dan Krell.