Hiring family to sell your home: A relative experience

by Dan Krell © 2010

The thought of hiring a real estate agent can be unnerving, let alone the fact that you might have to consider hiring a family member to act as your listing agent. For some, familial pressure to hire a relative could be intense and may be a potential source of conflict; while for others, no one but “Cousin Jerry” would be considered to list their home.

Some people are ambivalent about hiring relatives for any service, let alone for a real estate transaction; they believe that mixing business with family matters is not a good idea. Besides asserting discretion over their business and financial dealings, these folks know that family ties and relationships could be at stake if the sale doesn’t go as expected. They do not want family matters or guilt to interfere with business decisions, especially if they feel a need to fire their real estate agent or even seek recourse.

Still many people do not have a second thought about hiring their “Cousin Jerry” as their listing agent. Besides feeling an expectation to do so, some people cite a comfort level and trust that exists from their long time relationship (which can be hard to come by when working with a stranger).

Many experts agree that it is not a good idea to hire a relative who is inexperienced and/or has a record of poor performance. So if you plan to hire a relative to list your home, consider that practicing real estate can sometimes be difficult even for a seasoned professional, let alone someone who is new to the field and/or is a part-time practitioner.

Believe it or not, the issue of commission is typically secondary when it comes to hiring a relative to list a home. Don’t expect to pay the least amount of commission if you plan to hire “Cousin Jerry” to list your home; he may be directed by his broker on commission negotiation. The fact is that most real estate agents are negotiable when it comes to commissions and you might find a better deal from someone else.

If you’re intent on “keeping it in the family” consider interviewing “Cousin Jerry” as you would any other real estate agent; become familiar with “Cousin Jerry’s” license and experience. Although “Cousin Jerry” may have a real estate license, it may not be in the jurisdiction where your home is located. However, if his license is within the proper jurisdiction- he may not be experienced in the local market.

“Cousin Jerry’s” lack of local market experience could jeopardize your sale by not providing the proper disclosures and understanding the various contracts of sale. Seller disclosures requirements may vary depending which county/city your home is located; even full time agents have a difficult time staying on top of county differences in seller disclosures. Additionally, “Cousin Jerry” should be careful to pay attention local agent etiquette, as potential buyers could be turned away.

If you want to work with “Cousin Jerry” but want to mitigate family interference, a couple of alternatives you might consider include: having “Cousin Jerry” refer you to an experienced local agent for a referral fee (so he is indirectly involved); or, have “Cousin Jerry” work in tandem with an experienced local agent so a professional can act as a buffer from family matters.

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 July 19, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

Mortgage oversight agency (FHFA) could stall county greening efforts

by Dan Krell © 2010

Last week, a federal oversight agency raised concerns about a green retrofitting loan program in an effort to protect consumers and the integrity of lending practices. Normally, this would not seem unusual; however on June 6th the Federal Housing Finance Agency (FHFA) issued a statement that affects many Property Assessed Clean Energy (PACE) programs across the country, and may affect Montgomery County’s Home Energy Loan Program (HELP) even before it officially kicks off later this year.

As part of a national initiative to reduce energy consumptions and curb greenhouse gases, PACE (pacenow.org) programs are intended to make green retrofitting affordable for home owners. The program generates funds for the retrofitting through “tax lien oriented financing” by selling “PACE bonds,” and is repaid by the home owner through annual tax assessments.

Enacted through Council Bill 6-09 (April 2009), HELP is Montgomery County’s local green retrofitting loan program, which is part of a first wave of PACE programs implemented throughout the country. Although HELP is awaiting a green light from the County Council to get underway, the county’s Department of Environmental Protection is preparing to manage the program. HELP’s financing arrangement is anticipated to allow a home owner to repay the “loan” over fifteen years through their property tax bill.

As the oversight agency for Fannie Mae, Freddie Mac and the Federal Home Loan Banks, FHFA’s (fhfa.gov) statement cited concerns about “certain energy retrofit lending programs,” specifically referring to local tax assessment loan programs by PACE. “Safety and soundness” concerns were cited because the PACE tax liens could interfere and disrupt a “fragile housing finance market” due to the “absence of robust underwriting standards to protect homeowners and the lack of energy retrofit standards to assist homeowners, appraisers, inspectors and lenders [to] determine the value of retrofit products…”

Although FHFA has collaborated with government agencies, state and local officials to work through their concerns, the issue appears to be unresolved. FHFA’s statement asserts that the tax assessment created through a PACE loan is unlike the typical tax assessment; such that the term and amount of a PACE related tax assessment exceeds a typical local assessment and do not have the usual community benefit that is associated with local tax initiatives. Additionally, the concern over such modifications would “present significant risk to lenders and secondary market entities, may alter valuations for mortgage-backed securities and are not essential for successful programs to spur energy conservation.”

Notwithstanding some critics concerns over the obsolescence of a green retrofit before such a loan is repaid, additional concerns raised by FHFA include: the shift of traditional lending priorities (PACE investors have minimal risk due to the first lien position); PACE program’s collateral based underwriting does not take into account the home owner’s ability to pay; the lack of lending disclosures (such as required by the Truth-in-Lending Act and other consumer protections); “and uncertainty as to whether the home improvements actually produce meaningful reductions in energy consumption.”

It remains to be seen whether HELP will be affected by FHFA’s new guidelines to Fannie Mae and Freddie Mac to deal with PACE loans. However, FHFA stated that the concerns were not raised to undermine programs meant to reduce consumer energy consumption, but rather to encourage the implementation of retrofitting loan programs with “appropriate underwriting guidelines and consumer protection standards.”

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

Who’s looking out for your interests?

by Dan Krell © 2010


When people buy and sell real estate, they entrust professionals they hire with some of their most sensitive information, at times when they are most vulnerable, with the expectation that the professional act in their best interest. The Maryland Real Estate Commission’s form, “Understanding Whom Real Estate Agents Represent,” reminds consumers that the ultimate responsibility of protecting their interests falls on their shoulders. Although the form itself is used to assist consumers in understanding the duties and loyalties of real estate agents in various forms of agency relationships (e.g., a listing agent’s “duty of loyalty” is to the home seller, a buyer’s agent is expected to negotiate “in the best interests of the [home] buyer,” etc.); the paragraph on page two gives consumers the reminder that to protect their interests, they should read all documents carefully and to seek legal advice from an attorney and financial advice from an accountant.

The consumer reminder might be taken as somewhat of a warning that real estate can sometimes be a dirty business. It is true that most real estate practitioners operate within the law and ethical guidelines, however some do not. It is reasonable to think that recent economic conditions purged the industry of bad elements, think again. Some actions are egregious and are clearly intended to defraud the public; while other actions may appear to be innocuous, but could be construed as deceitful business practices.

Blatant scams are devised every day to appear to be legitimate but have the intention of exploiting the public; recent examples include the rise of foreclosure relief scams across the country. Unfortunately, some of these cons are not always obvious until law enforcement catches up to the perpetrators. Take for example the recent indictment of a Towson, MD title company president who allegedly did not send payoffs to existing mortgage and lien holders and allegedly transferred the funds for his personal use (www.justice.gov/usao/md/Public-Affairs/press_releases/press10a.htm).

Even business tactics that seem harmless, but can have detrimental effects, are sometimes used by real estate agents. One example is overvaluing a home by estate agents just to get a listing. This occurs with the intention to later “convince” the seller to lower the price (the effects of purposefully over pricing a home in a downward market can cost the home seller money). Another example is akin to a “bait and switch:” this agent advertises a fictitious home at such a low price it gets home buyers to call him. When I called on behalf of my client to view the advertised home, the agent told me that the advertisement is for informational purposes only.

Before you hire a real estate professional (including real estate agents) it is always a good idea to check out their licensing credentials, as you can sometimes run across someone who is not licensed; Maryland licensing agencies allow consumers to check a professional’s license status online. Many consumer advocates recommend that before you hire a professional you should interview several and ask for recent client references.

Who are you trusting with your real estate transaction and what are they telling you? The old saying that “if it sounds too good to be true, it probably is” may be true, but it is ultimately up to you to decide. Remember that the ultimate responsibility to protect your interests falls on your shoulders.

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 July 5, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

Employment is the key to a stable housing market

by Dan Krell © 2010

The one question that everyone is asking, “where is the housing market headed?” A new focus is needed to stabilize the housing market as the national home buyer tax credit expires (state home buyer tax credit programs, such as California, may continue through the end of the year), and criticism for government foreclosure relief programs increases.

As the national home buyer tax credit sunsets, some in the industry (such as the National Association of Realtors) are scrambling to get a further extension. Proponents of the tax credit point to home sales spikes through the year as evidence of the tax credit’s efficacy. A June 25th NAR press release (realtor.org), described efforts to extend the closing deadline to assist those who could not close by the June 30th target. An amendment to extend the deadline was inserted into H.R. 4213: “American Workers, State, and Business Relief Act of 2010,” which passed both the House and Senate, but still needs to go to conference prior to becoming law.

Doubt remains over the efficacy of the home buyer tax credit; many critics applaud its none too soon conclusion. Putting aside the reports of fraud and abuse by those who have undeservedly filed for the credit, Fannie Mae’s March revised 2010 housing outlook (Economic and Mortgage Market Analysis; March 17, 2010) expressed doubts over continued effectiveness. The report cited various reasons that the most recent tax credit would not be as successful as prior tax credits. June’s Economic and Mortgage Market Analysis (FannieMae.com) reported that the most recent tax credit in fact only temporarily boosted home sales in April. April’s increased sales may have been due to many home buyers seeking to meet the initial qualifier for tax credit (which was to have a contract on a principle residence).

In addition to increasing home sales is the attempt to keep distressed home owners in their homes. Reports criticizing government mortgage modification and relief programs citing a lack luster performance seem to be appearing with increased frequency. Take for example the an April 20th Bloomberg story citing the Special Inspector General for the Troubled Asset Relief Program, Neil Barofsky (“U.S. Treasury’s Housing Program Fails to Stem Foreclosures, Watchdog Says”). Mr. Barofsky criticized HAMP (Home Affordable Modification Program) saying it has made very little progress. Additionally, it is estimated that 40% of those helped will eventually default; which could stem from HAMP’s high median debt to income ratios of 61.3% after lowered mortgage payments (FHA guidelines allow for a maximum overall debt to income ratio of 41%).

Since the fourth quarter of 2008, housing indicators have been inconsistent (much like other economic indicators). Even though doubt exists about tax credit and foreclosure relief effectiveness others argue the future of housing may lie with employment and personal earnings.

A recent Florida Realors® study (“The Face of Foreclosure”; floridarealtors.org) points out the correlation between unemployment and foreclosure. The April 6th 2010 press release quoted, Florida Realtors® vice president of public policy, John Sebree, as saying “…In most cases, it was a combination of rising living costs, unemployment or decreased pay, health issues and other factors that caused homeowners to get into trouble. Simple answers and trite political responses just don’t tell the whole story.”

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 June 28, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.

The fight against mortgage fraud

by Dan Krell © 2010

Last week, the United States Attorney for the District of Maryland, Rod J. Rosenstein announced recent results from local efforts of Operation Stolen Dreams. Coordinated through the Financial Fraud Enforcement Task Force, Operation Stolen Dreams has been described by the Department of Justice as the “largest collective enforcement effort ever brought to bear in confronting mortgage fraud.”

For those who don’t remember, the Financial Fraud Enforcement Task Force (StopFraud.gov) was established in November 2009 by President Obama as an interagency effort to “hold accountable” those who contributed to the recent financial crisis and to prevent a future crisis. Comprised of 20 federal agencies and 94 United States Attorneys’ Offices, as well as state and local authorities, the Task Force is the broadest coalition ever established to combat financial fraud.

The June 17th U.S. Attorney press release was not a final declaration but rather an interim report to make the public aware of the success of recent cases pursuing and prosecuting those who engaged in financial fraud, which includes mortgage fraud, mortgage modification scams, and other activities. Not only has Operation Stolen Dreams succeed in criminally prosecuting 1,215 defendants nationwide, civil enforcement efforts have recovered more than $147 Million.

Recent fruits of the operation include the superseding indictment of a Bethesda man and the conviction of a College Park/Laurel duo. On June 16th, a superseding indictment was issued against a Bethesda man who allegedly used his position as a mortgage originator for a Laurel mortgage company to allegedly participate in a mortgage fraud scheme that defrauded lenders (and others) of over $7.4 Million. The seventeen count superseding indictment chronicled the alleged mortgage fraud activities from 2005 to 2007.

On Jun 10th, a College Park/Laurel duo, were convicted of multiple counts of wire fraud. Testimony recounted how the two, who were employed in the mortgage industry, used straw buyers and stolen identities to purchase properties which almost immediately went into foreclosure- resulting in a loss of $664,493 for a local lender.

In addition to assisting the Financial Fraud Enforcement Task Force in Federal cases, the Maryland Mortgage Fraud Task Force also investigates State and local financial crimes. Among the many cases that have been investigated, some have resulted in the closing of mortgage modification and loss mitigation businesses that allegedly defrauded home owners seeking financial relief.

Recently, a case investigated by the Maryland Mortgage Fraud Task Force resulted in an indictment that was issued against a Montgomery County real estate agent for allegedly defrauding the County. It is alleged that the real estate agent used straw buyers to purchase moderately priced dwelling units (MPDUs are homes that are made available to homebuyers who meet specific requirements to purchase through Montgomery County). Additional allegations include mortgage fraud as well as allegedly violating the MPDU program guidelines by renting out these homes.

U.S. Attorney Rod J. Rosenstein was succinct when he stated, “…Our goals are to punish con artists who have committed mortgage fraud and deter others from following in their footsteps.” Mortgage fraud is being pursued as never before. It is without a doubt that federal and local investigations are making an impact on fraudsters and scammers. To assist consumers to protect themselves from fraud, the Financial Fraud Enforcement Task Force website, StopFraud.gov, has many resources; including how to report suspected mortgage fraud.

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 June 21, 2010. Using this article without permission is a violation of copyright laws. Copyright © 2010 Dan Krell.