Condo Craze or Just a Phase?

by Dan Krell © 2007
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When you think of a condo, what may come to mind is the typical flat in a building. However, condos come in many shapes and sizes, including duplexes, townhomes and semi-detached homes. The term condo is actually in reference to ownership, rather than style of home. Condominium ownership means that your home is part of a condominium association that owns and maintains common areas, while you own the interior space of your unit. The common areas typically include the building exterior and common grounds as well as amenities, such as a pool or play ground.

Everyone in who owns a unit in the association pays a fee, typically monthly, for maintenance costs. Condo fees vary depending on the size of the association, types of amenities, and whether or not utilities are included.

For some, living in a condo offers convenience and worry free living that a single family home does not. Many condos developments are convenient to the amenities of downtown areas, such as Rockville, Bethesda, Gaithersburg, and Silver Spring. These homes can be close to metro too, reducing your need to drive a car. Additionally condo ownership typically means that you don’t have to concern yourself with mowing a lawn or repairing a roof, as the association takes responsibility for these things.

Condo living is an affordable opportunity to owning a home. Compared to single family homes and townhomes, condos tend to be less expensive and a viable option for many first time homeowners.

There is a downside to condo ownership, however. Although condos may be more affordable, history suggests that they do not appreciate as fast as other types of homes. Because some condo buildings appear densely populated, some neighbors can be noisy. Additionally, the level of maintenance may vary depending on the condo association and management company.

If you are considering purchasing a condo, here are some ideas to assist you. First, exercise your right under Maryland law to review the condo docs. The condo docs include the association rules and bylaws as well as a recent budget, which includes reserve funds for emergencies. Reviewing the condo docs can reveal rules that may impact your lifestyle, such as having a pet. Additionally, the budget and reserves can reveal how well the association manages condo funds.

If you have an opportunity, attend a board meeting to get a feel for what is happening within the association. Internal politics can impact the way the condo is managed. If you want to have input in the direction of the condo association, get involved with the association board.

Although the condo association has an insurance policy that covers the physical building, you may want to consider a policy to cover your possessions inside your unit.

Parking in your development can be easy or it could be a problem. You may have one or two reserved spaces for your unit. However, if your condo is convenient to metro or other amenities, you may find non-residents taking advantage of this.

No matter how you look at it, purchasing a condo can be a practical and affordable home for any home buyer. As there are many considerations when purchasing a condo, ask your Realtor for additional resources and ideas in helping you decide on the best home.

This column 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 April 30, 2007. Copyright © 2007 Dan Krell.

Looking for Blame in the Mortgage Crisis

by Dan Krell © 2007

The daily media reports of abuse, fraud, and other problems in the sub-prime mortgage industry attempt to make sense of a real estate industry in turmoil. It appears that the problems in the real estate industry are similar to those in Big Business. Like many of the recent business scandals, schemes and wrongdoing are carried out because the financial rewards seem greater then the risk. Those who are caught usually point their finger at their boss claiming that they were told to do so in fear of losing their job.

The present mortgage crisis is similar to some extent. Sensationalized media accounts of what went wrong and who is to blame seem to be in the daily headlines. The blame of the present crisis was first placed on the lenders and investors, who with their lenient underwriting guidelines, allowed many to borrow beyond their means. The new focus in the crisis is on inflated appraisals and how appraisers are “forced” to provide these appraisals in order to maintain business. Additionally, there has been some discussion about the loan officers who originated the loans, without regard to the consequences to the borrower.

The story of inflated appraisals on the mortgage industry is about how some appraisers are “forced” to provide appraisals with an inflated price or they will lose business. For a real estate appraiser, the pressures of complying with lenders’ requests to inflate appraisals are inherent to the business, but not necessary. To demonstrate the extent of the problem, the Baltimore Sun reported (April 10, 2007) that appraiser groups are asking regulators to crack down on the lenders who pressure appraisers for inflated appraisals.

On the other hand, not enough has been said about the loan officers who originate these loans. Many loan officers who originate sub-prime mortgages are mortgage brokers and are paid on commission; they only get paid if the loan closes. Most mortgage originators act ethically in the borrower’s best interest. However, some will say or do just about anything to get the loan to close, including making unrealistic promises to the borrower as well as pressuring others to ensure loan closure. Unless there is blatant fraud, loan originators are not usually held responsible for a “bad loan.”

There are reports of possible federal investigations of mortgage misrepresentation and non-disclosure of loan terms. A recent MSNBC article (April 10, 2007) reports that many sub-prime borrowers who were deceived by mortgage brokers and loan officers are filing law suits for violations of the Federal Truth in Lending Act. These borrowers include those who were misled to believe the terms of their mortgage, as well as others who were misguided to obtain a high interest rate mortgage when they qualified for a more favorable loan. Under the law, the full terms and conditions of loans must be disclosed to consumers. Additionally, some have interpreted that any misrepresentation, written or verbal, is a violation of this law.

Although most real estate professionals are reputable and act within the guidelines of the law and the ethics code of their profession, unfortunately some do not. Like Big Business, it appears that some of the problems in the real estate industry exist not just because of a lack of ethical behavior, but a lack of character as well.

This column 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 April 23, 2007. Copyright © 2007 Dan Krell.

Fair Housing Month 2007

by Dan Krell

April is finally here, which means spring is around the corner and we celebrate another Fair Housing Month. When you think of Fair Housing Month, thoughts of celebrating equality among the diverse come to mind. This year, however, people are talking about the recent sub-prime mortgage meltdown as an indicator of how we are doing in promoting equality and fairness in real estate.

At first you might find it difficult to fathom how lending practices and fair housing go hand in hand. After all, isn’t mortgage lending a highly regulated industry? Aren’t lenders using exacting rules to qualify home buyers for mortgages?

The mortgage industry is vigilant in maintaining strict quality control standards as well as cracking down on abuses such as fraud. However, the saying “where there is a will, there is a way” holds true. There are unscrupulous people who continually scheme to make their fortune through blatant mortgage fraud and other dishonest practices.

Although there are new schemes that pop up every year, most schemes involve the use of straw buyers (fraudulent using another person’s information to obtain a mortgage), giving false information, and/or providing manufactured financial documents to obtain mortgage funding. Fortunately these folks get caught and end up in jail.

Another problem that contributes to issues in the mortgage industry is the forcing of clients to use a specific lender for a kickback (violating federal law). When this happens, it is common for the consumer to pay excessive fees, points, as well as having a higher than average interest rate.

Mortgage schemes like these are just a sample of lending abuses that occur. In addition to other predatory lending practices, all lending abuse preys on an uninformed consumer. Perusing the Mortgage Fraud Blog (mortgagefraudblog.com) you overwhelmingly get an idea of the extent of the problem.

Why talk about mortgage lending practices, predatory lending, and mortgage fraud during Fair Housing Month? The reason is that many of the abuses that occur in the lending industry are due to the targeting of certain classes or sub-classes of home buyers.

The problem does not lie with the mortgage industry per se. The problem extends from the lending industry to other professionals involved in the real estate transaction. If the settlement agent or Realtor is not already aware of the abuse, they may turn a blind eye when they become aware at settlement when they review the closing documents. If the home buyer catches on to the high fees and interest rate, they are sometimes guaranteed a refinance in a couple months by their Realtor or settlement agent (which is a common predatory lending practice).

Like many things in life, it’s not the tool; however, it is the tool’s abuse by the ill intentioned or uncaring that produces disrepute. It needs to be said that Sub-prime and interest only mortgages are needed and can be useful tools in the purchase of real estate. However these tools need to be used responsibly. A guide to mortgages and other consumer information can be found on the National Association of Realtors website (www.realtor.org/housopp.nsf).

This Fair Housing Month, let’s just not commit to practice fair housing, rather let’s assist others to practice fair housing by not turning a blind eye to their lapses.

This column 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 April 16, 2007. Copyright © 2007 Dan Krell.

Sorting Through the Paperwork

by Dan Krell
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Have you read your purchase contract or listing agreement? Many people won’t read the documents thoroughly, if they read them at all, and rely on their Realtor’s explanation to help them understand the legal and binding contract to which they are entering. Unfortunately, there is a chance that your Realtor may not understand the documents either and may have given you misleading information.

What was once a simple two page purchase contract is now an often confusing and seemingly endless forty to fifty pages of clauses and addendums. The contract of yesteryear may have been easier to read, however it was not very specific and was written in favor of the home seller. Today’s real estate contract is very specific to many aspects of the transaction, discussing the terms of the agreement as well as contingencies, notices and disclosures.

To make matters more confusing, there are two contracts in use in our area. The MAR contract is provided by the Maryland Association of Realtors and the Regional Contract is offered by the Greater Capital Association of realtors. Up until recently, there were major differences between the two contracts. Attempts for parity have been helpful, however differences continue. You should consult with your Realtor to determine which contract would benefit your situation.

As hard as it may be to read through the contract and understand its terminology, can you depend on your Realtor to explain it to you correctly? Both contracts along with addendums undergo constant change requiring Realtors to re-familiarize themselves with the documents. Because of this, it is common for even a seasoned Realtor to get tripped up.

When presented with a listing agreement and/or a purchase contract, your Realtor should explicitly explain the meaning of each clause so as you understand it. It is a good idea to even consult an attorney.

Today’s real estate contract specifies the rights and responsibilities of each party. Additionally, the contract defines default, discusses recourse and hiring an attorney. The MAR contract requires you to attempt meditation prior to going to court.

Additionally, you may find that there are many additional disclosures that are part of the contract. Contrary to belief, these addenda are not filler paper; many of these disclosures ensure you understand your rights as a home buyer or home seller.

For example, many home buyers don’t know that they have the right to review condo and HOA docs. You have seven days to review condo docs and five days to review HOA docs. If you find that there is anything in the docs that is not acceptable, you can declare the contract null and void.

Why should you understand the contract? Believe it or not the real estate contract survives even after settlement. This is an important concept as it is mistakenly thought that once settlement occurs there is no recourse. Disputes can arise after settlement if the home seller decides to take items they were supposed to leave in the home, or if there were misrepresentations in property condition.

A real estate contract is not to be taken lightly as there are consequences to any breach of this contract. Make sure you understand your rights and any responsibilities, and if in doubt-consult an attorney.

This column 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 April 9, 2007. Copyright © 2007 Dan Krell.

Foreclosure Assistance

by Dan Krell

It is common to experience financial problems at any given time in one’s life. There are many reasons people experience financial problems. If it isn’t being surprised by loss of employment, illness, or divorce it may be due to lack of financial planning. Whatever the reason, experiencing a financial crisis, including foreclosure, is an unsettling process for anyone.

A site that is becoming more frequent in any neighborhood is the home going through the foreclosure process. The owner may still be in the home or they may have vacated months earlier leaving an empty shell to deteriorate in the ensuing months.

At first, you may not notice anything different in the home, but as time progresses it hard to not notice. You may notice your neighbor withdrawing and evading anyone coming to the door. The house numbers may disappear in an attempt to confuse those trying to identify the home. The lawn may be neglected and become overgrown with grass and weeds. The home itself may noticeably fall in disrepair as well.

Many people facing foreclosure tend to be in denial and believe that nothing is wrong and go about their lives thinking that they will not lose their home. Denial is a common defense mechanism that serves to lessen the severity of emotional pain that one may endure. However, it is not useful when facing foreclosure. Denial is a slippery slope such that people may not confront the challenges they face, and in this case-lose their home.

If you are falling behind in your mortgage, you may want to consult a bankruptcy attorney. As foreclosure is a manifestation of a larger financial problem, reorganizing your debts may help save your home.

If you find that you can no longer afford your mortgage, selling your home may be an option; however, as home prices have dropped you will have to determine if this is practical. If you can prove that your home has lost value, a common tactic is to ask the lender for a short sale, which is essentially asking them to take less than what is owed.

If you do not pay your mortgage, the mortgage company will be trying to contact you; it is important to communicate with the mortgage company so as to determine if they can assist through such measures as forbearance. You may be able to renegotiate the terms of your loan, or even have your late payments forgiven in an attempt to remedy the situation.

If you continue to not pay, you will receive a notice of default through certified mail. After receiving the notice, you may have an opportunity to reinstate your loan by paying the past due amount including late fees.

At this point, if you do not take action, the mortgage company will initiate the foreclosure process. Once the foreclosure process starts, your options are limited; the time from the initiation of the process to the foreclosure sale can be quite fast.

The foreclosure process is not pleasant, and can impact those involved with long lasting financial and psychological scars. If you know that you may be facing a foreclosure, it is important to be proactive. If you need assistance, the Maryland Attorney General offers information to those in foreclosure on the web at: www.oag.state.md.us/Consumer/foreclose.htm.

This column 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 April 2, 2007. Copyright (c) 2007 Dan Krell.