About Dan Krell

May 27, 2009October 5, 2019

Protecting the public from inflated appraisals and mortgage fraud

by Dan Krell (c) 2009.
www.DanKrell.com

In the fallout of the real estate market bust, past practices to pressure appraisers to inflate home valuations have been the focus of recent criminal and civil investigations. As a result, two important recent developments will affect the mortgage industry, and more directly the appraisal industry: the adoption of the new appraisal standards of practice and an Arizona Court of Appeals ruling.

On May 1st, new appraisal standards of practice went into effect for mortgages that are bought by Fannie Mae and Freddie Mac. These new standards were the result of the 2007 industry wide investigation conducted by the NY State Attorney General (AG), Andrew Cuomo, and the subsequent agreement between Fannie Mae and Freddie Mac. The investigation revealed some of the short comings of the mortgage industry, including appraisal manipulation and fraud. The AG’s statement dated March 3, 2008 (www.oag.state.ny.us) named Washington Mutual specifically for pressuring First American and eAppraiseIT to use appraisers who provided inflated appraisals.

The purpose of the new standards of practice, also known as the Home Valuation Code of Conduct, is primarily to establish independence and accountability in the appraisal industry. To minimize any attempt to influence the appraisal process, the new code prohibits communication between the lender and the appraiser.

An important development of the AG’s agreement with Fannie Mae and Freddie Mac is the formation of the Independent Valuation Protection Institute (independent-valuation-protection-institute.org). The purpose of the Institute is to maintain the integrity of the Home Valuation Code of Conduct and to monitor state and federal law. The Institute also will intercede on complaints brought by regulators and law enforcement agencies as well as consumers who feel that the appraisal process has been compromised. Additionally, the institute provides an outlet for appraisers to report attempts to pressure or manipulate appraisals by outside sources.

The other important development is the recent ruling by an Arizona Court of Appeals on April 30, 2009 that an appraiser has a duty to the home buyer or borrower (even if hired by the lender) (mortgagefraud.org). The ruling came after a home buyer sued the appraiser for overvaluing her home when it was purchased. The appraiser was accused of using incorrect living area, and other discrepant data. The original ruling by the trial court was that the appraiser did not have any duty to the home buyer because the appraiser was hired by the lender. However, the Court of Appeals disagreed ruling that “that an appraiser retained by a lender to appraise a home in connection with the granting of a purchase-money mortgage may be liable to the prospective buyer for failure to exercise reasonable care in performing the appraisal.”

Combined with the AG’s investigation, this recent ruling may open the door for home buyers to pursue appraisers who may have participated in mortgage fraud by artificially inflating home prices. The implication is that those who participated in mortgage fraud are accountable not only to government agencies, but also to the home buyers and borrowers who were affected by their actions.

Appraisers are under a lot of pressure to produce and deliver an accurate and quality product. To safeguard against future appraisal manipulation, the implementation of the Home Valuation Code of Conduct and the creation of the Independent Valuation Protection Institute will be helpful.

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 May 11, 2009. Copyright (c) 2009 Dan Krell.

May 26, 2009October 5, 2019

Don’t Blame Broker Price Opinions

by Dan Krell (c) 2009.
www.DanKrell.com

The Standard and Poor’s/Case-Shiller Home Price Index for February 2009 (published April 28th) indicated a composite home price decrease of 18.6% as compared to the previous year (standardandpoors.com). The good news is that the current index did not continue the record setting pace like the previous sixteen months’ indices. While local home prices did not fare as well as the Dallas metro area (prices decreased only 4.5% from the previous year), the Washington DC metropolitan area home price decrease of 19.2% was much better than the Phoenix, Las Vegas and San Francisco metro areas (where home prices decreased more than 30% from the previous year).

Certainly, home price indices are just an indicator of the real estate market; and although the factors contributing to market conditions are complex, it does not stop us from trying to understand the causes of the steady decline.

Since the large increase of recent foreclosures and short sales have captured our attention, the loss mitigation process and the use of Broker Price Opinions (BPO) have received some blame for eroding home values. So much so, that one national columnist recently posed the question by portraying the use of BPOs as an easy way for real estate agents to make money in a tight market. Unfortunately, the article appeared to represent the sentiments of real estate appraiser groups and did not accurately portray BPOs.

A BPO is not a substitute for an appraisal. A BPO (like a market analysis) is data provided to assist a buyer or seller in deciding a home’s list, offering, or sales price. Mortgage lenders and servicers have used BPOs for many years. BPOs are used for many reasons that range from quality control to making decisions on mortgage portfolios and loss mitigation.

BPOs have also been used as a due diligence tool to control appraisal quality and investigate property valuation fraud. Additionally, BPOs have been used by the lending industry to evaluate the performance of their mortgage portfolios (mortgages bundled together typically used as financial instruments) for internal and secondary market purposes.

The use of BPOs in loss mitigation is not a recent phenomenon, lenders have used BPOs as one tool in their loss mitigation process for several decades. In order for lenders to obtain the best data for their decisions, they typically do not rely on one BPO; multiple BPOs are usually ordered at any given time as well as over a period of time to provide a snapshot of market trends and control for data variance.

Additionally, it is common for lenders and servicers to compile BPO data throughout the loss mitigation process. BPOs are usually ordered when the home owner initially becomes delinquent on their mortgage payment and continues until the delinquency is resolved (either brought current, short sale or foreclosure). Prior to delivery to the lender, the BPO company conducts a quality assurance review for all BPOs to ensure that the data provided is valid and consistent.

Market forces are complex; to blame eroding home values solely on the use of BPOs in the loss mitigation process is just as silly as blaming a bubble real estate market on artificially inflated appraisals. Although a BPO is not an appraisal and should not be confused as such; BPOs have an established role in the industry.

May 17, 2009October 5, 2019

Summer-ize your home to attract buyers

by Dan Krell © 2009.

www.DanKrell.com

You might think that the weather is warming up more than the real estate market, but lo-and-behold the spring market is experiencing increased activity! If you’re planning to put your home on the market, or if it is already listed for sale, you probably know that preparing your home to sell means de-cluttering and fixing those little items you’ve been putting off for some time. No matter how much preparation you do, don’t forget to summerize to make your home more appealing to home buyers.

Summerizing your home means paying attention to the items that are noticeable during the warmer months of the year; such as the curb appeal and the interior comfort. There is nothing worse than making excuses during your open house about the unkempt lawn or a broken air conditioning unit. Neglecting these items can be a deterrent to buyers or (worse yet) even make your home appear to buyers as if you are selling a distressed property.

There’s more to curb appeal than just keeping your lawn mowed! Basic curb appeal considerations include the home’s landscaping, grading, siding, deck, driveway and sidewalks.

Simple landscaping can make your lawn appear well manicured; but imagine what a professionally landscaped yard can do! Trees properly trimmed away from the home will allow your home to be seen from the street as well as not be “crowded” by overhanging limbs. Neatly trimmed and properly placed shrubs and flower beds will not only look beautiful, it will enhance your home’s façade!

Heavy summer storms can wreak havoc on poorly graded yards, which can allow water to seep into your basement. Ensure that the grading around your home diverts water away from the foundation.

Clean and properly painted siding (including facia boards and window trim) is often overlooked by home owners. If the entire exterior does not need painting, look for the areas that appear to be peeling or bare. Facia boards and window trim are often made of untreated wood and typically need more attention (even if your siding is made of artificial materials). If your home has algae or mold growing on the siding, consider having the siding power washed; power washing can not only clean the siding, but may return the new home “glow.”

Don’t let a faded or splintered deck turn away home buyers; consider adding it your power wash list. Power washing your deck and patio can give them a fresh look. You might consider staining or sealing your deck and patio to give the new home owner the possibility of a few years of care free use.

Cracked sidewalks and driveway are not only unsightly, they can also be a trip hazard. Repairing and/or sealing the walkways and driveway can not only increase safety – it can add to the appearance of your home. A newly sealed asphalt driveway can add contrast to accent the exterior of your home.

Let’s face it, air conditioning that does not keep your home cool is a buyer deterrent- especially in the hot summer months. If you don’t service your air conditioning system on a regular basis, you should consider doing so before listing your home.

Summerizing your home will not only attract home buyers, it shows pride of ownership providing incentive for home buyers bring you an offer.

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 April 27, 2009. Copyright © 2009 Dan Krell

May 14, 2009October 5, 2019

Prepare for repairs when purchasing distressed properties

by Dan Krell (c) 2009.
www.dankrell.com

So you decided to buy a foreclosure! You’re excited and made arrangements for renovations to begin the day after settlement. But wait; there is an unexpected glitch- your lender is requiring the mold in the basement to be remediated before closing. Home buyers’ lenders requiring repairs to be made prior to settlement is a common scenario of buying a foreclosure or short sale.

Besides imposing qualifications for borrowers, lenders also impose minimal property standards for the homes being financed! Among the many types of items that lenders may require you to repair prior to closing include (but not limited to): mold, termite damage, faulty plumbing, or roofing issues. For FHA mortgages, the minimal property guidelines were notoriously strict in the past; the seller could almost expect a laundry list of seemingly nitpicky repairs from the FHA appraiser. However, recent changes to FHA allow more discernment from the appraiser.

It seems to be somewhat of a paradoxical situation: you’re buying the home as-is, but your lender is requiring you to make repairs to the home prior to settlement. If the home is a short sale you could ask the seller to make the repairs, but then again many home owners selling their home by a short sale don’t have the funds to make their mortgage payment let alone the resources to make any repairs. If the home is a foreclosure, the rule of thumb is that banks do not make repairs to their foreclosed homes. Even though the seller won’t make repairs, you still have a couple of options to save your transaction.

Since you decided that the home you are purchasing is such a bargain, you figure that you might do the repairs yourself. However, not all home sellers will allow you to make repairs prior to settlement because of their liability (such as in a foreclosure transaction where repairs are typically not allowed prior to settlement).

If the repairs are beyond your capabilities, funds are limited, or the seller will not allow you to make repairs, you might think that your deal is dead. However, one of the little known secrets to purchasing distressed properties is the FHA 203k mortgage (HUD.gov). The FHA 203k is similar to a typical FHA mortgage, but the difference is that the loan will finance the repairs and renovations to the home.

The FHA 203k mortgage is not provided by all FHA lenders. Since the FHA 203k has requirements that are above and beyond a typical mortgage, it is highly recommended that you seek assistance from a qualified FHA 203k lender. You can find local FHA 203k lenders at HUD.gov.

Another option that was common in the past is to escrow repair funds. If the buyer’s lender allows, the buyer can place the repair funds in escrow at settlement with the intention to make repairs after closing. However, as underwriting guidelines and practices have become more stringent most lenders will no longer allow for escrowed repair funds.

Buying a distressed property is a great way to get a bargain, but the transaction does not always follow the “typical” home buying process. If you are buying a distressed home, it is a good idea to plan for all contingencies including unexpected repairs by consulting with qualified professionals.

May 12, 2009October 5, 2019

Pet Friendly Real Estate

by Dan Krell (c) 2009.
www.DanKrell.com

A press release from the American Society for the Prevention of Cruelty to Animals (ASPCA.org; February 20, 2009) estimates that 63 percent of the homes at risk of foreclosure have a pet. Losing your home can be devastating enough, but losing your pet because of financial challenges can add to your family’s emotional trauma.

Attention has recently been given to the plight of the families and their pets that are experiencing foreclosure. The ASPCA offers this information on preparing for foreclosure with your pets: check with family and friends for a temporary foster care for your pet (agree to a specific time frame and check in with your pet regularly); when moving to a rental, make sure that your management company allows pets; and/or plan in advance with a shelter as animal shelters usually have limited space.

Locally, families and their pets are being helped by “The Pet Friendly Realtor,” Jill Barsky (who is a Realtor with Long and Foster Real Estate, Inc.). Ms. Barsky runs the nonprofit organization, Tailed Treasures of Maryland, Inc, which seeks to assist families and their pets in times of need- including a foreclosure transition. Ms. Barsky started the non-profit about five years ago, when she realized that she could combine her real estate skills with her love for animals. Although she has been rescuing animals for over fifteen years, she stated that her company is not to be confused with the traditional animal rescue (which permanently removes pets to find suitable homes). Instead, Ms. Barsky acts like a “pet social worker” assisting families to take care of their pets as best as possible by offering housing assistance as well as food and other pet necessities to those who are in need.

The goal of her services is to have the pet stay with its family. Ms. Barsky uses her real estate expertise to help families find rental housing that will allow pets; she stated, “Sometimes it’s a matter of negotiating with the landlord”. If a pet-friendly rental is not possible, she tries to find a temporary foster care placement.

Every situation differs, but Ms. Barsky has found that most families want to keep their pets during financial challenges. The best case scenario is when the family can keep their pet during a transition from a foreclosure; or be reunited with their pet when the family becomes financially stable.

Although most families will attempt to get help, some do not because they are embarrassed. The worst case scenario is when the pets are neglected and left to fend for themselves. Ms. Barsky has received many calls from other Realtors who spot abandoned pets or other trapped animals that are in vacant bank-owned homes.

Ms. Barsky has helped many families keep their pets, including many who serve in the armed forces. Pets are sometimes placed in temporary foster care during deployments where pets are not allowed, such as overseas operations.

If you would like to become part of Ms. Barsky’s pet foster care network, make a donation, or just get more information, you can visit the Tailed Treasures of Maryland, Inc.’s website at TailedTreasuresofMD.com. Ms. Barsky stated that donations don’t have to be cash; donations can also be in the form of pet food, supplies, or pet store gift certificates.