Real Estate News and Commentary

October 27, 2010October 5, 2019

A developmental theory of home buying

The average number of lifetime home purchases by a home buyer.

Recently, a home buyer told me that it will take him time to find his “perfect” home. You see, he is looking for the perfect home because, as he put it: “I only have one more move left in me…” Although no one has ever calculated the number of homes an average home buyer purchases over their lifetime, someone once decided that people typically purchase a home every five to seven years. Keeping this rule in mind, he has at least two moves left.

Interestingly, with all the life planning people maintain for their finances, career, and estate, most people do not say things such as, “I will own four homes in my life…” For many, home buying and selling tend to revolve around life events and personal preferences that change during a person’s lifetime. Of course some people contently live in one home for their entire lives, and some never become a home owner.

If the National Association of Realtors® data regarding first time homebuyers is correct, then it very well may be that the average person may have three home purchases during their lifespan, notwithstanding life or financial crises or job relocation. According to the National Association of Realtors® Home Buyer’s Home Preferences (published by NAR, 2007), most people tend to move within a fifteen mile radius from their previous home; a majority of these moves are within five miles. These three moves may actually parallel the adult stages of Erik Erikson’s theory of human development.

The National Association of Realtors® Profile of Home Buyers and Sellers (published by the NAR, 2008 and 2009) states that a majority of first time home buyers fall into the 25 to 34 year old range with a median age of 30 years old. This is a time period that coincides with Erikson’s Intimacy vs. Isolation stage (ages 20 to 34) when people are forming commitments; people are beginning in their chosen careers and formulating family plans.

A person’s second home is purchased for various reasons. However, the National Association of Realtors® Home Buyer’s Home Preferences (NAR, 2007) states that most home buyers prefer newer homes; and of those home buyers, the greatest majority desire a newly built home. This time period may coincide with Erikson’s stage of Generativity vs. Stagnation (ages 35 to 65); when a person focuses on their societal contributions and their growth in public prominence.

Erikson’s final stage of Ego Integrity vs. Despair may coincide with a person’s third home purchase because it is a time when people begin to define their life and accomplishments. The third home purchase may be the “reward” for working many years; often focusing on amenities and luxuries. Even though many downsize during this stage, the home tends to be focused on making them comfortable; not only having home features that are a luxury to them but also convenient to local services.

So the buyer proclaiming having only “one more move” in him, may in due course decide he was wrong. Although he may be anticipating how the buying and selling process relates to his life, he is certainly looking for a home he will not outgrow. However, it may be that in seven to ten years I may again hear him proclaim, “I have only one more move left in me.”

Comments are welcome. 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 25, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

October 20, 2010October 5, 2019

The Good, The Bad, The Ugly; Lender foreclosure crisis

by Dan Krell ©2010

The current lender spawned foreclosure crisis is complex and could have far reaching consequences. As additional allegations of foreclosure fraud are brought about, a wider net that appears to be entangling lenders, attorneys, and others involved in the foreclosure process; some are now speculating that we can undergo something similar to what we experienced during the fall of 2008 when the financial crisis hit its peak (with the failure of Lehman Brothers) – if the worst case scenario is realized. The next several months will reveal how the mortgage industry will handle the legal aspects of the foreclosure process as well as how the court system and home owners respond to lenders. Of course, it might not turn out as bad they say either.

To understand the legal scope of the problem, you need to talk legal experts. And that’s just what Citigroup analyst Josh Levin did when he hosted a conference call (now made famous by bloggers and a few news outlets). Underscoring the impact of this crisis, the conference featured Georgetown Law Associate Professor, Adam Levitin. Professor Levitin’s comments were the focus of an article in a Wall Street Journal blog by Dawn Wotapka (“Are We Headed for Housing Armageddon?”). The professor’s comments highlighted three scenarios that are tantamount to the good, the bad, and the ugly.

The good situation occurs if the alleged foreclosure processing irregularities are dealt with promptly and does not impact the foreclosure process going forward. Even in the best case scenario, many in the industry agree that the housing recovery will be delayed for at least one to two years.

The bad situation occurs if the foreclosure process gets bogged down in the courts, prolonging the foreclosure process in some cases for years, adding additional angst to the economy and consumer confidence.

The ugly situation occurs if allegations and investigations reveal widespread problems within the mortgage industry and cause title insurers to begin declining coverage as well as some claims. This would have a freezing effect on the greater part of the housing market and would cause what Professor Levitin called “Housing Armageddon.”

The state of the problem at present appears to be a little of all three scenarios; however, we creep closer to the ugly as new revelations occur. At first, foreclosure processing fraud was given most of the attention, as allegations are prompting investigations of lenders, law firms and others involved in foreclosure processing.

Attention is shifting to “wet ink” signatures. Lenders are being pressed to provide the “wet ink” signature notes (which is the mortgage note with the actual pen signed signature as opposed to a copy) showing ownership of the mortgage. The fact that an increasing number of foreclosure cases are being dismissed because the lack of “wet ink” signature notes, has more home owners challenging lenders; and some home owners are questioning the validity of their mortgage servicing, which may lead to home owners challenging the payment of the mortgage.

So, how does this affect you? Surely, an increased glut of distressed homes sitting idle will further affect home values. Additionally, communities will suffer due to the suppressed collection of property taxes and HOA dues on those empty homes.

If you are in the process of being foreclosed, or if you have questions about your mortgage documents and/or loan servicing, you should consult an attorney.

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 18, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

October 14, 2010October 5, 2019

Housing recovery may be in jeopardy; Allegations of foreclosure processing irregularities

For a housing market that seemed to have begun the healing process, the bandages appear to be unraveling. Recent reports of fraud during the foreclosure process as well as questions of mortgage note ownership have had several lenders, most recently Bank of America, freezing their foreclosure process until they can assure the foreclosure process is conducted legally and with integrity.

At first, everyone seemed shocked to learn of the alleged fraud involved in preparing foreclosure documents necessary to pursue a foreclosure. Some allege that the fraud, although not rampant within the industry, is systemic; it is a symptom of a high volume industry that is typically understaffed. Reports of robo-signing of thousands of documents per week (used to attest to the accuracy of the foreclosure documents) have become so vociferous that some state Attorney Generals are seeking investigations.

Most recently, news of a mortgage registry set up to facilitate the bundling and sale of mortgages on the secondary market cannot foreclose on delinquent home owners. The recent accounts of denying MERS (Mortgage Electronic Registration Systems) during the foreclosure process are just another blow to an already fragile housing market.

Much like allegations that foreclosure processing fraud is not new, the MERS situation should also not be a surprise. Way back in 1989, Henley Saltzburg (“Avoiding Legal Pitfalls”, Mortgage Banking; Apr 1989; 49, 7; pg. 38) highlighted documentation problems in secondary market by stating, “Incomplete or inaccurate documentation is a primary source of contractual litigation in the secondary market…” Furthermore, according to Steve Cook, of Real Estate Economy Watch, since 2006 Fannie Mae has ordered servicers to not name MERS as a plaintiff in foreclosure proceedings (“Straightening Out the MERS Mess”).

The recent media coverage of these developments have people wondering about the short and long term affects on the housing market. Many fear that delaying the disposition of foreclosed properties by prolonging the foreclosure process may push home prices even lower. Even Mark Zandi, chief economist at Moody’s Analytics, was quoted in an October 4th Wall Street Journal article (Robbie Whelan. “U.S. News: Foreclosure? Not So Fast”) describing the current foreclosure situation as a “…growing mess in the foreclosure process…” and will be looking to a now prolonged housing recovery.

Industry experts are looking to clear up these matters as soon as possible. Fannie Mae Executive Vice President, Terry Edwards, issued a statement on October 1st saying that “steps” are being taken in coordination with regulators to ensure that servicers adhere to “the exact requirements of the law” as well as strengthen the review and due diligence procedure to protect borrowers’ rights while conducting the default process.

To highlight this crisis, the Senate Banking Commission Chair, Senator Chris Dodd (D-CT) announced that the commission will hold a hearing on November 16th to investigate allegations of impropriety in mortgage servicing and foreclosure processing.

Although some home owners are not fighting their lenders during the foreclosure process, some are clearly taking advantage of the foreclosure freeze by attempting to renegotiate their mortgage terms with the actual note holders. However, if you’ve purchased a foreclosure or short sale or you’re considering doing so- consult with your title attorney to ensure that your owner’s title insurance covers claims that may arise from such disputes.

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 11, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

October 6, 2010October 5, 2019

Home ownership is still valued

by Dan Krell © 2010

The shock of the economic crisis is over; however, shock is setting in that the recession is over. Oh, you haven’t heard? The Business Cycle Dating Committee of the National Bureau of Economic Research declared that the recession ended in June 2009. Although the recession has been declared statistically “over” (because of an uptick in GDP in that quarter) recent indices and polls might suggest otherwise.

Unemployment, GDP and consumer confidence leads gloom and doom indices that may project how many people feel about the current economic environment. For example, the national unemployment rate is 9.6%; while in Maryland unemployment is 7.3%, which is slightly less than the highest mark since the beginning of the recession (bls.gov). Additionally, GDP measures have been low and/or not meeting expectations; estimates from the second quarter of 2010 have been revised to 1.6% (bea.gov). And, consumer confidence has recently declined.

Although these indices do not instill confidence, recent polling data and housing statistics may be good news.

A Harris Poll (published by Harris Interactive; harrisinteractive.com) of consumer spending that was released on October 4th appears to illustrate the state of the economy through planned consumer spending. The Harris Poll indicates that “economic growth will be sluggish” because of careful spending amid continued unemployment concerns; the overall sentiment is that consumers are not planning to increase their spending anytime soon, especially on “big ticket items.”

However, although all indicators of the Harris Poll point to continued consumer caution, the bright side is that an increase number of consumers are planning to purchase a home in the next six months (10% indicated they are planning a home purchase within six months compared to 7% in May 2010).

Additional good news on the housing front includes increased home sales and home prices. According to the National Association of Realtors (realtor.org) home sales increased about 7.6% during August 2010 (however August sales figures remain about 19% lower than August 2009) and home sale prices are up about 2.9% from the same time last year (although slightly lower from July 2010). Locally, home sales are down from a year ago in the Washington, DC Metro area, but median home prices are about 5.4% higher than the same time last year. The economic forecast provided by the NAR indicates very modest home sale and home sale price increases over the next two years (with 2010 being the bottom).

Signs of housing stability and increased home buyer interest amid continued economic turmoil may not just be a fluke of the polling process. However, it may be an indication of the intrinsic and intangible value that consumers place on home ownership; which is corroborated by research. A recent commentary entitled “Homeownership Matters: Homeownership and Civic Engagement” by Selma Hepp, NAR Research Economist (realtor.org), cited recent studies that purports the benefits of home ownership go beyond home values and is extended into the community. Research indicates that homeowners are more invested and attached to their communities (compared to renters) as evidenced by their increased community involvement and extensive social networks.

Although the shock of the crisis may have subsided, and we have adapted our lifestyles to conform to our expectations of the economy; research and housing indices could indicate that the value of home ownership placed by consumers may transcend the monetary value of the home itself.

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 4, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

September 30, 2010October 5, 2019

How unknown problems jeopardizes the home sale

“What you don’t know won’t hurt you” is an idiom that implies that you can be happier by not looking into the unknown. However, this does not apply to real estate transactions. Homebuyers and sellers both invest a great deal of time and money in the process prior to settlement and do not want to have it all squandered on an unknown that can ruin their home sale.

Homebuyers typically spend about twelve weeks searching for a home (according to NAR’s Profile of Home Buyers and Sellers 2009), and can spend a nice sum of money when the cost of a home inspection, loan application, appraisal, gas for driving, time off of work, etc. is totaled. Likewise a home seller invests time and money in preparing for closing all the while having their home sale depending on the performance of the buyer.

Unfortunately, a transaction can sometimes become laden with unknown landmines waiting to blow up the deal. Although most real estate agents try to vet their clients before entering into a contract, hidden issues threatening the closing may not be revealed until weeks after a ratified contract and sometimes not until closing. If you’re a buyer or a seller, it makes sense to ask about your counterpart; and if there’s opportunity, take the time to find out more about them prior to becoming invested in the sales contract.

Take, for example, divorce. Although divorce is a common issue that is encountered within a transaction, it is sometimes not fully disclosed and can affect the outcome of the home sale. A homebuyer’s ability to purchase a home could be affected by shared accounts that have not been revealed or responsibility is refused by their spouse; the resulting homebuyer’s high debt ratio could disqualify them from their mortgage. Likewise, a home seller going through a divorce can be tripped up by an uncooperative spouse who is unwilling to sign the deed.

Homebuyer issues can pose potential problems if not evaluated properly. Undisclosed credit, financial, and legal issues can pop up any time throwing a wrench into the home sale; sometimes these issues don’t reveal themselves until the end of the process because the loan officer and/or agent did not ask the right questions or ask for all the required documentation. Additionally, unlicensed lenders and loan officers that continue to attempt to do business can also be a potential problem as they may be prevented from providing the homebuyer a mortgage.

Unknown home seller issues may also jeopardize the home sale; surprise issues are typically related to providing clear title to the buyer, but can also include various legal problems. Title defects may include unpaid mortgages and (tax and mechanics) liens. Sometimes a seller may need third party approval from a trustee or lender (such as in bankruptcy or foreclosure), which can either prevent or prolong the sale.

Due diligence prior to entering a sales contract may prevent sticky problems; searching available public records and reviewing disclosures for discrepancies could provide extra information that can assist you in your decision process. Undisclosed buyer and seller issues, although aggravating, do not always kill the home sale and often are resolved. However, consulting an attorney about recourse over a soured real estate transaction is always a good idea.

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 27, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.