About Dan Krell

September 7, 2011August 1, 2019

Hurricanes, earthquakes, and your home

When I wrote about disaster preparedness earlier this year, who knew we would experience an earthquake and a hurricane within a few months? Now that Hurricane Irene and the “surprise” earthquake are still fresh in our memories, disaster preparedness is a top conversation. However, protecting your home, possessions, and family from disasters and severe weather goes beyond just having a preparedness kit along with several days’ worth of food and water.

Consider that basic home owners’ insurance typically doesn’t cover damage from flood or earthquake; and unfortunately, many home owners don’t know the extent (or limitations) of their own home owners’ insurance coverage. Unless you live in a flood zone, where you’re lender would require you to carry the extra coverage, chances are that you don’t have flood insurance. Additionally, who thinks about earthquake insurance in the east coast? Actually, according to the Property Casualty Insurers Association of America (www.pciaa.net) about only 12% of Californians have earthquake insurance – so it is likely that you might not either.

Although regular home maintenance could possibly avoid a catastrophe caused by severe weather and water penetration; any disaster (whether it’s a natural occurrence, manmade, deity made, alien made, or whatever your beliefs are) has the potential for major devastation regardless of how much you prepare.

Have you looked up toward your roof lately? If your roof fails, high winds and heavy rain could not only lift and peel away shingles, but could allow water penetration into your home (which could affect other systems). Regular checks of the roof system, including shingles and flashing could prevent surprises when you’re relying on your home’s roof the most.

Additionally, don’t wait for wind or birds to clear the debris that has landed on your roof. Debris, such as tree branches, leaves, Frisbees, etc. have the potential to not only damage shingles and sheathing, but can also clog the gutters and downspouts. Instead of carrying water away from your home, clogged gutters and downspouts could force rains to cascade to the ground and pool around your home’s foundation. Additionally, a gutter that has pulled away from the roof can also allow rain to cascade off the roof and pool around the home’s foundation. To ensure proper function, gutters and downspouts should be checked and cleaned regularly.

If you have a basement, check if you have a sump pump. The sump pump is used to pump water away from your home’s foundation to prevent water penetration into your basement. Although sump pumps have an average life span of ten years, pumps can wear out much sooner. Regular testing makes sense to know if the pump is operational. Since power loss is often associated with severe weather events, you might consider a battery backup for your sump pump to ensure it can operate when you need it the most.

An additional source of water penetration could result from failing windows and siding. If the home’s windows are not sealed properly, strong winds and rain could force their way into the home. Additionally, siding that is not properly attached to your home can not only allow water to penetrate, but could separate from the home leaving wall systems unprotected.

Protect your home, possessions, and your family by conducting regular home maintenance, as well as regularly consulting with your insurance agent to ensure you’re properly covered.

by Dan Krell
© 2011

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.

September 1, 2011August 1, 2019

Coping with a low appraisal

I know it’s trite to say that selling your home in today’s economic environment is challenging. You know that home buyers are very picky and money is tight. However, are you (or your real estate agent) prepared for a low appraisal?

According to the Appraisal Institute (appraisalinstitute.org), an appraisal is “a professional appraiser’s opinion of value.” The appraiser’s role is to “provide objective, impartial, and unbiased opinions about the value of real property”… “Appraisers assemble a series of facts, statistics, and other information regarding specific properties, analyze this data, and develop opinions of value.”

Although there is a standardized procedure in conducting and preparing an appraisal, lenders add their own criteria to meet their underwriting requirements. There is no doubt that many lenders have made their criteria more restrictive since the housing market downturn.

Contrary to the current attitudes, low appraisals have always been around. It was not until the market downturn when many home sellers were confronted with concrete evidence of their home’s depreciation. However, the issues with today’s low appraisals are slightly different those of years past. In addition to stricter lender requirements and increased appraisal scrutiny, some have argued that changes to the appraisal industry (including management and ordering) may have also contributed to low appraisals.

Although not as pervasive as they were several years ago, low appraisals are still common. If your home does appraise lower than the contract price, you can appeal the value with the lender – but it will be difficult. In the past, appraisal appeals were less demanding (typical comparables were homes that sold within 6 months and 1 to 5 miles from your home) providing you a higher chance of success. However, today’s lender requirements are more restrictive. Although lenders vary on their requirements, many lenders now only accept appeals that include three original comparables that sold within the last 3 months and are within ½ mile (or less) of your home.

Don’t wait for a low appraisal to throw a wrench in your sale; take a proactive approach. Long gone are the days of setting a price by tacking on thousands to your neighbor’s recent sale price! Pricing your home correctly doesn’t only help attract home buyers, but it can also help avoid a low appraisal. Furthermore, choosing appropriate comparables for your pricing strategy is highly important, which include: comparables that are most similar to your home (same style and within 15% to 20% of living area and lot size); the most recent sales (within 3 months, but nor more than 6 months); and in close proximity to your home (unless you are in a rural are the comparable should be within ½ mile, but no more than 1 mile).

Additionally, the appraiser should be provided with your pricing rationale (i.e., the comparables that indicate that your sale price is in line with the market as well as a list of improvements that add value to your home). The intent is not to pester the appraiser while they are trying to do their job. However, some appraisers are appreciative that you have made the effort to provide the information (especially those who are unfamiliar with the local market).

Regardless of the outcome of your home’s appraisal, take heart that you can be proactive to possibly avoid appraisal issues. And if need be, don’t be afraid to appeal a low appraisal.

by Dan Krell
© 2011

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.

August 24, 2011July 28, 2019

The $1 foreclosure solution

The buzz last week came from a Federal Housing Finance Agency’s (FHFA) request for information (RFI). The RFI is “seeking input on new options” on the disposition of foreclosed properties that are held by Fannie Mae, Freddie Mac and the Federal Housing Administration (FHA). FHFA (fhfa.gov) is the “the regulator and conservator of Fannie Mae and Freddie Mac and the regulator of the 12 Federal Home Loan Banks.”

The August 10th release stated that the FHFA, in consultation with HUD, is seeking to stabilize the housing market by exploring “alternatives for maximizing value to taxpayers and increasing private investment in the housing market, including approaches that support rental and affordable housing needs.” FHFA Acting Director Edward DeMarco stated that although individual homes will continue to be sold, there is an interest in “pooling” (i.e., bulk sales) assets if it can “reduce Enterprise credit losses and help stabilize neighborhoods and home values…”

Among the objectives outlined in the RFI, included are: a reduction of REO portfolios; a focus on property repair and rehabilitation; and a focus on neighborhood and price stabilization. However, it appears as if the outcome may already be weighted towards a rental solution (“FHFA, Treasury and HUD anticipate respondents may best address these objectives through REO to rental structures”), even though an objective of the RFI is to use “analytic approaches to determine the appropriate disposition strategy for individual properties, whether sale, rental, or, in certain instances, demolition.”

If one intention of the FHFA and HUD is to implement a rental program, then it seems only appropriate to examine how the “lease for deed” program, that Fannie Mae embarked upon in 2009, has performed and impacted neighborhood home values and stabilization.

However, another possible solution with a focus on home ownership and community involvement comes from the recently deceased Governor William Donald Schaefer. Although many may remember the former Governor of Maryland, but many probably do not remember William Donald Schaefer as Mayor of Baltimore. As Mayor of Baltimore, Schaefer oversaw some of the most intensive urban renewal and revitalization projects of the 1970’s, some of which were mimicked around the country. One of the most memorable, at least to longtime Baltimore residents, is the $1 home.

As the deterioration of downtown Baltimore escalated, the City was faced with a growing number of vacant homes that among other things significantly depreciated property values. Along with commercial redevelopment, such as the Inner Harbor projects, a plan for residential renewal was undertaken that at the outset appeared risky and incomprehensible.

The program involved the City purchasing blocks of homes and then selling them to owner- occupants for $1. The idea was to basically provide affordable housing to home owners who would agree to not only rehabilitate the property (rehab loans were provided by the City), but to also live in the home for a number of years – thus turning rows of vacant homes into desirable neighborhoods that shouted pride of ownership as well as increasing property values and stabilizing the community (dollarhomes.wordpress.com).

Although the FHFA may be focused on “transferring” their REO portfolios by selling as many homes as they can non-resident investors, hoping for renovations and affordable housing from an absentee owner; however, a more viable solution may be found in owner-occupants, who are invested in maintaining their homes and participating in their communities.

by Dan Krell
© 2011

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.

August 18, 2011October 11, 2019

Understanding Title Insurance

The necessity of title insurance has been debated over the years by many home owners. However, foreclosure disputes, between lenders and former home owners, have brought focus on a valuable and often misunderstood protection. Besides the many stories that have been told about how an owner’s title insurance policy has saved or could have saved a home, many home buyers are unaware of how title insurance was conceived. Many have difficulty understanding title insurance.

According to the American Land Title Association (ALTA.org), title insurance came about as a result of a landmark court case in Pennsylvania in 1868, which found that home seller was not be responsible for a erroneous title opinion. Subsequently, the first title insurance company was formed in 1876 in Philadelphia. The company promoted itself by claiming that they would insure “the purchasers of real estate and mortgages against losses from defective title, liens and encumbrances”…”Through these facilities, transfer of real estate and real estate securities can be made more speedily and with greater security than heretofore.”

Like today, title examinations were conducted to ensure that the title was marketable (or defect free). However, prior to the offering of title insurance, property owners were often held responsible for liens and encumbrances left on the title by the previous owner, or when mistakes occurred. Title disputes were often settled in court.

Initially, title insurance was often a local process. However, the title insurance industry surged along with an expanded housing market after World War II ended. Additionally, the use of lender’s title insurance grew along with the secondary mortgage market; because as the number of nationwide mortgage holders increased, lenders found that title insurance was necessary to protect their interests.

Contrasting to the recordation system has been used in most of the United States (in some cases before the formation of the country); many other countries use a land registration. Land registration typically allows a government to determine ownership when property ownership is challenged; property owners usually have no recourse.

Title insurance is a result of our recordation system that continues to this day, where property ownership can usually be determined by conveyance. Although the recordation system relies on transfer instruments that indicate a grantor, grantee, and property description; the system is not perfect. Besides recordation mistakes and claims from unrecorded conveyances; fraud can also occur by recording falsified transfer documents with a complicit or unsuspecting clerk.

There are two types of title insurance that are offered: lender’s and owner’s. A lender’s policy is usually required by a mortgage lender and protects the interests of the lender by validating the lender’s validity and enforceability of the mortgage. The lender’s policy is typically issued for the mortgage amount and coverage decreases as the principal is paid down.

An owner’s title insurance policy protects the owner’s interest in the property. The policy is typically issued for the purchase price and is usually valid through ownership to cover claims against the title. Policy coverage varies- so check with your title agent for pricing and coverage levels.

When purchasing a title insurance policy, consult with your title attorney about the policy coverage and limitations. Additionally, A Consumer Guide to Title Insurance is available from the agency that regulates title insurance producers – the Maryland Insurance Administration (https://insurance.maryland.gov/Consumer/Documents/publications/titleinsurancebrochure.pdf).

by Dan Krell
© 2011

Original published at https://dankrell.com/blog/2011/08/18/title-insurance-a-misunderstood-safeguard/

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.

August 11, 2011July 28, 2019

Financial Crisis Déjà-vu

Although it may feel as if you’re experiencing one, no – you’re not having a déjà-vu. Wall Street and other world markets are once again in crisis mode. However, unlike the crisis of 2008 that was caused by a credit crunch; this week’s crisis is characterized as a debt crisis.

Sure, crises shock the public and economic systems. And much like other crises, we are stunned, worried and confused. However, this crisis is a bit different. Although the imminent effects are yet to be seen, this crisis has been openly brewing for months; and the public has been primed leading up to the debt debate and subsequent debt deal that seemed to satisfy no one – especially Standard & Poor’s. As you already know, S&P downgraded the credit of the United States of America on August 5th (You can read the downgrade report along with the rationale on standardandpoors.com).

As a home owner, you might think that home values are once again in peril. However, a sharp decline in home prices that was characteristic of the housing downturn from 2007 to 2009 is unlikely. In retrospect, the housing bubble lost its turgidity and home values started to erode before the credit crunch of 2008 (one could argue that the credit crunch was caused by the foreclosure crisis). Unlike today’s housing market, the market downturn in 2007 and home prices were mostly affected by the tsunami of distressed properties that swelled the active inventory for over three years. As inventory decreased, home prices seemed to rebound indicating the beginnings of a very modest housing recovery.

Although nationwide home prices may continue to roller coaster until economic stability is achieved; a hyper-local analysis may indicate that neighborhood home values will vary.

As financial markets “correct” themselves, consumer sentiment of home ownership may not be initially or directly affected by the current crisis. It is more likely that most home buyers may initially continue their home search unabated. Home sellers, on the other hand, are more apt to pull their homes from the market if indications are of a slowdown.

Of course there will be consequences. Intuitively, one might have expected mortgage interest rates to increase on the heels of a U.S. credit downgrade. However, at least initially, interest rates decreased. The rationale is that although the U.S. credit was downgraded, investors looking for a “safe haven” for their money view world markets in turmoil; there is fear of a worldwide recession as Europe is dealing with an ongoing debt crisis, while China is coping with inflation and their version of a real estate bubble. Notwithstanding, the long term effects on mortgage interest rates remain to be seen.

Additionally, the short term evaporation of savings and capital in the financial markets can affect the ability of home buyers’ down payments; savings are the most common source of downpayment as indicated by the National Association of Realtors® Profile of Home Buyers and Sellers 2010 (realtor.org). The end result may be a bifurcated housing market, evident by the financial disparity of home buyers. Home buyers who are financially better off will have cash for their downpayment as well as be able to afford the potential higher interest rate mortgage.

As we move forward, uncertainty is felt about the immediate effects of a combined global crisis and/or possible recession. However, like all crises – this too shall pass in time.

by Dan Krell
© 2011

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.