Real Estate News and Commentary

It’s not a secret that home buyers are flocking to distressed properties for the perceived bargains. Bargain distressed properties (including bank owned homes and short sales) are listed below retail prices, mostly due to the condition and other factors. “Buyer beware” is a saying that home buyers should consider when purchasing distressed properties.

Experienced real estate investors know the risks involved in distressed propeties, which they calculate in their purchase prices. However, the average home buyer may not know the extent of the risk at the exciting prospect of buying a lower priced home.

Not all distressed sales are the same. To understand the differences, you have to know who owns the home as well as the lender’s role in the sale. A short sale is an owner resale where the home owner is selling for less than what is owed to the lender. Although approval from the seller’s lender is required for such a sale, the bank is not the owner yet as the home has not been foreclosed on. On the other hand, bank owned homes (also known as REO property), has been foreclosed on and is now owned by a bank due to non-payment of the mortgage.

During a short sale, the seller’s lender goes through the loss mitigation process to determine how much of a loss they are willing take on the sale. This process is what typically extends the time to closing, sometimes more than three months. Whereas the loss mitigation process is usually completed prior to listing the home, the sale can be delayed too – but usually for title issues.

Both sales require you to purchase the home “as- is;” however because the short sale seller is usually accessible, you may have the opportunity to negotiate some repairs. Additionally, the short sale listing is sometimes in better condition than a bank owned home because the home is usually still occupied by someone as well as having recent updates.

Bank owned homes are vacant and the condition may vary due to the bank’s decision to make repairs prior to listing the home. However, since the home is vacant, vagrants, animals and weather can further deteriorate the condition of the home. If the home is in need of repair, the bank will not make the repairs nor will they allow any repairs to be made prior to settlement. If the previous owner made improvements without permits and/or there is termite damage, you are stuck with any remediation.

A short sale home seller will usually provide common ownership community (such as HOA) resale documents to you as required. Fines incurred for late fees and other issues are usually cleared by the seller. However when purchasing a bank owned home, you typically need to approach the common ownership community to negotiate any fines and pay for the resale documents.

Additionally, sellers in both sales urge you to use the title agent assisting them with the sale. However, you should choose a title attorney to represent you to minimize title issues and ensure you have a marketable title.

Without risk, there is no reward. You cannot entirely eliminate risk; however, due diligence, conducting inspections, and hiring the proper representation can reduce the risk that is inherent in purchasing a distressed property.

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 August 17, 2009. Copyright © 2009 Dan Krell

August 13, 2009October 5, 2019

Market stabilization or evidence of a two tier market?

by Dan Krell &copy 2009
www.DanKrell.com

A tale of two markets

As signs of economic stabilization are being reported throughout the world, markets begin to show signs of activity. Global housing markets have also reported increased activity and signs of a stabilizing real estate market.

Julia Werdigier recently reported in a recent New York Times article (British Real Estate Market Seems to Be Thawing a Bit, August 4, 2009) that British home prices have increased 1.3% since the beginning of the year. Although this is still quite a difference from the almost 15% slide in UK home prices since 2007, it is sure a welcome statistic as the British expect home prices to end positively.

In China, ShaignhighDaily.com (August 11, 2009) reported that home prices across seventy Chinese cities increased one percent from the same time last year. Additionally, Chinese home prices have increased for five consecutive months after a six month slide.

Here in the United States, the National Association of Realtors (NAR) recently reported that the number of pending home sales continue to increase (a five month increase). This successive increase is the first since 2003. Signed real estate contracts increased 3.6% in June from May’s Pending Home Sales Index (PHSI) of 91.3 and 6.7% from June 2008’s PHSI of 88.7 (August 4, 2009).

Additionally, the S&P/Case-Shiller Home Price Index (StandardandPoors.com) showed signs of relief of downward pressure; however, home prices are reported to be at 2003 levels. Freddie Mac reported that its Conventional Mortgage Home Price Index (CMHPI) fell 5.3% in the first quarter of 2009 compared to the 18.4% decline in the fourth quarter of 2008.

NAR Chief Economist, Lawrence Yun, was quoted in the NAR press release as attributing increased activity to “historically low mortgage interest rates, affordable home prices and large selection are encouraging buyers who’ve been on the sidelines. Activity has been consistently much stronger for lower priced homes…” Dr. Yun also stated that many first time home buyers are acting to meet the November 30th deadline to qualify for an $8,000 tax credit.

Although the data may seem encouraging, the numbers may be telling the story of an emerging “two tier “market. A two tier market is a description used when prices vary significantly for seemingly similar homes; a closer look reveals that well kept and updated home owner resales fetch a higher price than the poorer condition distressed properties.

Because home owner resales typically peek in spring and summer months, we can expect the number of home owner resale listing to decrease as winter approaches. Combined with another expected wave of home foreclosures (from resetting adjustable rate mortgages and option arms), recent real estate market gains may be temporary.

Even the venerated Alan Greenspan recently warned on the August 2nd airing of “This Week With George Stephanopoulos” (ABC.com) that there may be a “second wave down” in home prices; stating that the real estate market has stabilized temporarily, and real estate data is very difficult to measure because the data is regional.

Much like last summer’s real estate market blip (where the NAR reported a five month high in home sales for July 2008), we may be headed into another downward winter market. However, any downturn will be temporary and further indication of a two tier market as home owner resales increase next spring and summer.

August 12, 2009October 5, 2019

Making the right decisions starts with choosing your agent

By Dan Krell &copy 2009
www.DanKrell.com

For a smooth transaction, choose the right providers

If you are a first time home buyer, you may feel a bit confused and certainly overwhelmed by the huge amount of information that suddenly seems to cascade over you. Let’s face it, the real estate industry has changed significantly such that if even if you’re an experienced home buyer you may feel a bit confused and overwhelmed too. Choosing your service providers before you begin searching for a home can assist you through the different phases of the process as well as build a foundation for a smooth transaction.

Taking the time to interview and choose a Realtor, lender, home inspector and title agent before you begin searching for a home will create a team of professionals to guide you through the major aspects of home buying. It may sound a bit much, but when you are embarking on (probably) the most expensive purchase of your life, it’s important to know you are well represented.

Although the Realtor is generally known to assist in home searching and negotiating sales contracts, the agent you choose should be by your side throughout the transaction to help when the road gets bumpy. Besides asking how long the agent has been licensed, you should also ask if the agent is full-time so they may be accessible throughout the day. Additionally, calling an agent’s list of references of recent clients can shed light on the agent’s strengths and weaknesses.

Consulting with a lender prior to making an offer on a home is important; narrowing your choices by interviewing loan officers can help you learn more about their attention to detail as well as focus on customer service. The loan officer will help you through the mortgage process and should be available to assist you from application to closing. Comparing mortgage costs is more than comparing interest rates, asking for and comparing lender fees and points can help you differentiate total lender costs.

After you enter into a contract, you will most likely want to conduct a home inspection to determine the condition of the home. Many home buyers don’t consider choosing a home inspector and rely on the real estate agent to arrange the inspection; however, experience and scope of inspections can vary significantly! Choosing the right home inspector can help you not only accurately determine a home’s condition, but also put you understand age related problems of a home (such as settling) and prepare you for future maintenance. Make sure that the inspector you choose is available by phone and willing to return to the home if you have questions about the inspection.

Like the home inspection, choice of a title agent is often left to the real estate agent. However, choosing a title attorney early in the process may provide you a strong and useful advisor- a title attorney. The title attorney will not only help you understand the closing process, some title attorneys will make themselves available to answer legal questions that may arise from your home purchase.

Taking the time to interview and choose the providers whom you feel comfortable with is important to help guide you through the ups and downs of the home buying process. For more information on the home buying process, please visit the Department of Housing and Urban Development (www.hud.gov/buying).

July 29, 2009October 5, 2019

Alternative home buying consultation

by Dan Krell &copy 2009
www.DanKrell.com

Consulting the stars to buy a home

Before buying or selling a home, some people will consult a Realtor to understand market trend analyses, economic analyses and employment data. For a fresh approach to home buying/selling and real estate investing, some will consult with an astrologer (before meeting with their Realtor). Astrology has been used for many years to assist people in making business and financial decisions as well as attempting to predict future trends.

According to the American Federation of Astrologers (AFA), astrology has been practiced for over 4,000 years. It is considered an art by some, science by others, and mocked by many. Reported past followers of astrology include Plato, Copernicus, and Sir Isaac Newton. Former First Lady Nancy Reagan made headlines when she consulted with astrologers. Because there is a wide range of opinion, the AFA has stated that “few other topics stimulate as much debate as astrology.” The AFA conducts research and compiles data to better the practice of astrology. The AFA also established a code of ethics and provides accreditation to astrologers (astrologers.com).

The art/science of astrology is practiced by calculating and reading natal charts; each natal chart is exclusive to each person’s rising sign, planets, and houses. An individual’s natal chart is read to interpret and understand past and future influences on a person’s life, including (but not limited to) business, finances, relationships. Businesses owners sometimes use astrological charts to help time entering into contracts, expansion, and hiring.

Why rely on a real estate expert when you can consult the heavens? Having an astrologer read your natal chart can help you understand and choose the best timing for buying a home as it relates to your life events. Depending on your chart, the astrologer may determine that buying during a certain period of time may be best to avoid negative influences. Additionally, an astrologer may even determine the type of home that may be best for you as well its surroundings.

Some astrologers have actually claimed that they predicted the decline of the real estate market. In his book, Cosmic Trends, Philip Brown predicts future trends by studying celestial and historical cycles. Published in 2006, Brown described emerging astrological signs that were not seen since the 1930’s. Special attention is given to Cancer, which Brown describes as representing homes and real estate.

In 2008, Lloyd A. Wright, AMAFA wrote “The Catastrophic Eclipse of the Real Estate Bubble,” which describes the effects of lunar and solar eclipses to the relative positions of Saturn (land and real estate), Jupiter (money), and the moon (the public) during 2007. Prior to the lunar eclipse of October 24, 2007, he stated that the real estate market was relatively stable. However afterward, he described the markets as beginning to tumble (astrologers.com).

Although some astrologers may say that we are bound to our fates by karma, most astrologers will explain that we have free will that can be enhanced by reading our natal charts. Astrology is not exact, so it easy to misunderstand the intent and use of the field in one’s life.

Although often ridiculed, astrology is frequently misunderstood. However according to astrological practitioners, real estate market trends are not just associated with economic data – they may also be related to heavenly cycles and events.

July 24, 2009December 13, 2022

Feds to crack down on foreclosure relief scams

The 2008 Mortgage Fraud Report “Year in Review” published by the Federal Bureau of Investigation reports that mortgage fraud continues to increase (FBI.gov). Maryland, DC and Virginia are in the top ten states hardest hit by mortgage fraud. Due to a declining real estate market, the FBI states that incidents of mortgage relief scams will continue to rise through this year and is expected to increase in the future. Property flipping, short sales, and foreclosure rescues continue to be the main schemes perpetuated; however, new forms of the scams are appearing as reverse mortgage fraud, credit enhancements, condo conversions, pump and pay and loan modifications.

In an effort to cut down on mortgage relief scams, the Federal Trade Commission (FTC.gov) is launching an initiative to educate consumers and prosecute those allegedly involved in defrauding home owners. In a press release dated July 15th the FTC announced the launch of “Real People, Real Stories,” as well as four law suits involving foreclosure relief deception (there have been a total of fourteen such cases since April!).

“Real People, Real Stories” is a video that will educate home owners on foreclosure relief scams and deceptive practices. Actual home owners who were deceived by scammers were interviewed for the video; they divulge and expose how the scammers approached them and operated. The video advises home owners to investigate anyone offering a foreclosure relief program. Home owners are also warned that many foreclosure relief programs have the words “federal,” “U.S.” or “government” in the name, but in reality may not be associated with a government entity.

The video is also a promotion for the Hope Now alliance (HopeNow.com). Hope Now is a partnership of lenders, non-profit organizations, and other mortgage industry participants who are dedicated to offering a coordinated plan to assist home owners.

Operation Loan Lies is a nationally coordinated law enforcement effort to put an end to mortgage relief scams. Actions taken by 25 federal and state agencies are directed toward those who “deceptively marketed foreclosure rescue and mortgage modification services.” FTC Chairman Jon Leibowitz was quoted in the press release as saying; “These con artists see the high foreclosure rates as an opportunity to prey on people in distress…”

Alleged actions by targeted foreclosure relief companies across the country include (but is not limited to) false claims of services, experience and success rates, violating (state) laws prohibiting collecting fees prior to providing services (some up to $5,500), “Do-Not-Call” violations, and misrepresentation.

If you or someone you know is facing financial challenges or foreclosure, Hope Now can connect you to HUD certified counseling agencies. Hope Now resources include instructions on contacting lenders as well as a lender contact list, local counseling agencies, and government agencies. Hope Now also offers a hotline so homeowners can call toll free, 1-888-995-HOPE.

Don’t become another statistic, investigate anyone that offers you foreclosure relief by calling Hope Now as well as local consumer protection agencies (such as the Maryland Attorney General Office Consumer Protection Division, and the Montgomery County Office of Consumer Protection). If you suspect a foreclosure relief scam, the FTC would like your help by reporting such activity by calling 1-877-FTC-HELP; complaints are collected and given to federal and local law enforcement agencies.

By Dan Krell
Copyright © 2009

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

Real Estate News and Commentary

Posts

Is there risk in buying distressed properties?

Market stabilization or evidence of a two tier market?

Making the right decisions starts with choosing your agent

Alternative home buying consultation

Feds to crack down on foreclosure relief scams