About Dan Krell

April 15, 2008November 23, 2021

Vacant homes represent more than empty dreams

by Dan Krell
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One result of the recent mortgage crisis has been an increased foreclosure rate. Many home owners who could no longer afford their mortgage payments found their homes foreclosed on by their lenders. Many of these homes tend to be vacated many months prior to the lender taking possession, while others are vacated after the lender takes possession.

Vacant homes are cropping up everywhere. There are even boarded up homes in some communities as well. (Homes are boarded up if they have been vandalized or condemned in order to keep trespassers out). The United States Census (Census.gov) has estimated that there was an average of 2.7% homes vacant in 2007 for the Washington, DC region (including northern Virginia and Suburban Maryland); this is a 51% increase from 2005. There was an increase in vacant rental properties as well, 10.4% in 2007 up almost 15% from vacancy rates in 2005. As foreclosure rates continue to increase, the number of vacant homes will also increase.

Activity in and around a foreclosed home is significantly reduced because it is unoccupied and the lengthy time needed to bring the home to market. Because of this, lenders take extraordinary measures to secure vacant properties; some typical securing procedures include winterizing the home (turning off water supply and draining all pipes), changing deadbolt locks, and sometimes installing remote close circuit video. However, even a secured home can conceal and harbor many things, including vermin, homeless/squatters, and gang activity.

If a home is vacant for a short time, the risk of infestation or trespassing is reduced due to the short period of inactivity in and around the home. However, since the average time on market for homes for sale has increased significantly over the last year, the home will be vacant longer increasing the risk of vandalism, damage and trespassing.

Current County code can condemn a home if it has been vacant for a year and it has been cited for five or more maintenance code violations. If the home is condemned, the owner has thirty days to comply with the inspectors orders or the home can be demolished (at the owner’s expense). To avoid demolition, these homes can be referred to one of the many rehabilitation programs that were designed to maintain our neighborhoods. Unfortunately, foreclosures are usually owned and managed by large corporations where no one takes a personal interest in the daily happenings of the foreclosed homes.

Vacant homes are presently a growing problem nationwide; however, pockets of vacant (and abandoned properties) have plagued large cities for years. In the constant struggle to reduce the number of vacant homes and revitalize affected neighborhoods, the United States Conference of Mayors (USMayors.org) task force on vacant and abandoned properties published “Combating Problems of Vacant and Abandoned Properties” (2006). The report highlighted housing initiatives from twenty-seven cities to reduce abandoned and vacant homes. Many of the plans emphasized programs to take possession of vacant homes, programs to register vacant homes, as well as many programs to assist home buyers to purchase vacant homes.

In order to address this growing problem, additional local housing initiatives (such as incentives for owner occupants to purchase corporate and vacant homes) should be considered.

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 14, 2008. Copyright © 2008 Dan Krell.

April 15, 2008November 23, 2021

Pre-sale Home Inspection

by Dan Krell
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Home inspections are commonplace among real estate transactions these days. Many people who bought without a home inspection during the recent sellers’ market will testify to the value of having one performed to determine the condition of the home. Generally, home inspectors vary by training and experience; however as of January 1, 2008, all home inspectors operating in Maryland are required to be licensed.

Now that the market has shifted to a buyers’ market, you might see advertisements by some real estate agents and home inspectors stating that a pre-listing home inspection will sell your home faster, eliminate home inspection negotiations, and reduce your liability.

If you do have a home inspection conducted prior to your sale, don’t expect the home buyer to forgo having a home inspection performed. Unless the home buyer has experience in home construction, most home buyers will want an opportunity to have a home inspection. Even if you are selling the home “as-is,” home buyers can still require (as part of a contract) to have an inspection performed to determine if there are serious issues to address in the home.

The pre-listing home inspection could possibly eliminate additional negotiation brought on by a buyer’s home inspection. But since home inspectors vary in experience, you can count on variances between your inspection and theirs. Additionally, there is always the chance that your home can sustain damage after the initial inspection, especially since listing periods tend to be longer these days. If there is additional damage, you can count on the home buyer’s inspector to point it out as well as the buyer asking you to fix it.

Does the pre-listing home inspection eliminate your requirement for disclosure of latent defects? No. Even if you had a pre-listing home inspection, the fact remains that you are still required to disclose any known latent defects (latent defects are defined as defects that a purchaser would not reasonably be expected to ascertain or observe by a careful visual inspection of the real property and pose a health or safety threat).

Don’t get me wrong, having a pre-listing home inspection performed should be on everyone’s pre-listing checklist. Actually, pre-listing home inspections have been performed by savvy home sellers for many years. The purpose of the pre-listing home inspection is to determine the home’s condition and reveal if there are serious issues to remedy. To improve your home’s appearance, you should consider making the recommended repairs. However if you cannot make the repairs, you can price the home based on the home inspector’s repair recommendations. Additionally, the home inspector’s critical eye may serve to provide feedback on enhancing the home’s appeal to potential home buyers.

Should you have a pre-listing home inspection? As a home seller, you should absolutely consider having a pre-listing home inspection performed. Although the pre-listing home inspection on its own doesn’t necessarily bring in home buyers or make the sale, it is a tool that acts as a guide to make your home more appealing to home buyers and to assist in facilitating a faster sale. For more information about a pre-listing home inspection, you can visit the America Society of Home Inspectors (ASHI.org) or the National Society of Home Inspectors (NSHI.us).

April 15, 2008November 23, 2021

A lot’s at stake, proceed with caution

by Dan Krell © 2008
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Separating? Divorcing? Separation and divorce can be one of the most challenging experiences anyone can endure. Even when you decide to work things out amicably, things can become contentious and difficult; disagreements seem to be at the heart of divorce, right? If you haven’t consulted an attorney yet, you should do so to get advice and assistance on the splitting of assets (including your home) and the tax liabilities you may incur.

Splitting couples often do things in haste out of anger, fear, and sometimes (mental) exhaustion. Getting to the nitty-gritty, there’s a lot at stake; making impulsive and rushed decisions can be reckless- especially when it comes to the disposition of the marital home. Before you make a move, explore the options available to you to protect your assets and your financial investment in your home.

Divorce agreements vary with the requirement to sell the marital home. Some separating couples agree to sell immediately, while others agree to sell after a number of years (allowing one spouse to stay in the home). Depending on when your agreement requires the sale of your home, you could owe additional taxes. The tax laws are complex (consult your accountant), however filing jointly would allow you to claim up to $500,000 in real estate capital gains without being taxed, while filing individually only allows you to claim up to $250,000 real estate capital gains without being taxed.

When it comes time to sell your home, finding a Realtor who has experience with divorcing couples can make the sale go smooth. Before hiring a Realtor, interviewing several can give you an idea of their communication skills and experience. It is wise to hire a Realtor who is neutral and can work with you and your spouse; hiring a Realtor because they are a relative or friend often creates or adds to the spousal discord, which deteriorates communication at a critical time.

Misunderstandings and bad feelings between you and your spouse can undermine the home sale by interrupting communication between all parties. To facilitate a smooth sale, everyone (you, your spouse and your Realtor) should agree on the communication methods to inform each about aspects of the sale, as well as the process to show the home and the preferred method of contract negotiations. By laying the groundwork prior to listing the home, everyone knows what to expect and how the sale process will be executed.

Pricing the home realistically can eliminate a lengthy time on the market. It is good practice for your Realtor to present an analysis of the local and neighborhood market to you and your spouse so as to agree in pricing the home.

Your Realtor should always be discreet about your domestic affairs during the sale. Domestic situations, such as divorce, are not material facts about the home and do not need to be communicated to home buyers. Keeping discretion about your domestic affairs can limit bargain hunters’ “low ball” offers.

Planning and counsel can lessen the overall impact of separation and divorce by exploring your options. If you have a home and are divorcing, consult with your attorney and accountant before agreeing to listing and selling the home.

March 25, 2008September 9, 2018

Have you unknowingly perpetrated Mortgage Fraud?

You’ve probably read a few recent articles featuring victims of the mortgage crisis. Many of these home owners claimed to have been duped into obtaining loans that they could not afford. One recent article described how the home owner went along with a plan to obtain a mortgage that involved using someone else’s credit as well as artificially inflating their bank account to qualify. Is the home owner guilty of mortgage fraud if she knowingly follows the scheme of their real estate agent and/or mortgage broker to deceive the lender to qualify for a mortgage?

Among the many crime reports published by the Federal Bureau of Investigation (FBI) is the Mortgage Fraud Report. According to the 2006 Mortgage Fraud Report (https://www.fbi.gov/stats-services/publications/mortgage-fraud-2006) mortgage fraud is defined as “the intentional misstatement, misrepresentation, or omission by an applicant or other interested parties, relied on by a lender or underwriter to provide funding for, to purchase, or to insure a mortgage loan.” As the Maryland and Virginia areas are described as being significantly affected by mortgage fraud, the FBI cited recent increases of mortgage fraud are due to many perpetrators of fraud who have taken advantage of recent lenient credit standards.

The FBI divides mortgage fraud into two categories, fraud-for-profit and fraud-for-property. Fraud-for-profit typically involves schemes or scams for financial gain. According to the FBI, fraud-for-profit schemes (also referred to as “industry insider fraud”) often involves artificially inflating property values, obtaining loans on non-existent properties, or “revolve equity.” Illegal flipping schemes that commonly use straw buyers and fraudulent appraisals are examples of fraud-for-profit.

Fraud-for-property, however, is the misrepresentation by a borrower so as to obtain a loan to purchase a home. Fraud-for-housing increased in recent years due to the rise of home prices; applicants would provide misleading or false employment, income, and asset information to the lender to qualify for the loan. Although the intent of the borrower is to repay the loan, this activity is still illegal and can lead to Federal prosecution.

To avoid becoming involved in a mortgage fraud scheme, the FBI provides these tips: If it sounds too good to be true, it probably is; Get referral for real estate and mortgage professionals and check the licenses with regulatory agencies; Be wary of strangers and unsolicited contacts, as well as high-pressure sales techniques; Look at written information to verify the value of the property; Understand what you are signing and agreeing to – If you do not understand, seek assistance from an attorney; Make sure the name on your application matches the name on your identification; Review the title history to determine if the property has been “flipped” and the value falsely inflated; Know and understand the terms of your mortgage (Check your information against the information in the loan documents to ensure they are accurate and complete); Never sign any loan documents that contain blanks as this leaves you vulnerable to fraud.

Mortgage fraud is not a victimless crime. Besides foreclosed upon borrowers and mortgage entities, other victims include legitimate borrowers and those living in neighborhoods affected by mortgage fraud.

Original published at https://dankrell.com/blog/2008/03/25/have-you-unknowingly-perpetrated-mortgage-fraud/

By Dan Krell

March 25, 2008November 23, 2021

Creative financing can lead to creative trouble

by Dan Krell
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Several weeks ago, my client encountered The Amazing Criswell of real estate. Without knowing anything about my client’s home, this real estate agent professed to know how many homes are for sale in his neighborhood, the price the home would sell for, and time it would remain on the market. Much to my client’s dismay, the agent expressed an interest to discuss a proposal to sell his home quickly and for more than the list price. Needless to say, my client did not call him.

There is always someone pushing their angle on how to sell your home faster, make more money, or buy with no money. Some of these “real estate solutions” could even be called schemes; many schemes are not practical, some are outrageous, and some are blatantly illegal. Presently, the temptation to think outside the box tends to be more prevalent since financing guidelines are more restrictive, and for many it means needing more cash for a higher down payment, closing costs, or reserves.

Aside from creative financing options that offer seller financing, land installment contracts, or leases with the option to purchase, there are schemes that provide creative gifts of money to the home buyer so they can qualify for their loan. One of the more blatantly illegal schemes involves a “gift” from the home seller to the home buyer while increasing the sale price to exceed the listing price; the gift is not disclosed to the lender as well as exchanged outside of settlement. This scheme essentially creates a 100% financing loan from a loan that technically requires some form of down payment.

A graduate student who researched this type of transaction for his Ph.D. in finance (as reported in the New York Times “The Cash-Back Mortgage,” June 10, 2007) found that the “cash back” scheme is more prevalent than previously thought. He found that people advertised such deals through advertising and through key words in the MLS (the study revealed 150 keywords were used).

Additional findings suggested that this type of transaction would occur when homes were on the market for long periods of time, yet sold above the original list price. Furthermore, these types of transactions tend be executed by the same real estate agents (who are either the seller and/or they are the only agent in the transaction). Ironically, most of these deals were perpetrated through loans packaged in bundles and sold on Wall Street.

A subtler form of this cash back scheme occurs when the seller provides closing help to the buyer, but raises the sale price beyond the list price to make up the difference. Although the closing help is disclosed to the lender and recorded on the settlement sheet, this transaction could be illegal. Federal law (18 U.S.C. 1014) forbids providing false statements and/or willfully overvaluing land to influence a lender’s behavior in providing a loan. In fact, a New Jersey State Judiciary committee stated that an attorney knowingly participating in such a transaction is ethical misconduct.

In today’s market, it is tempting to look for creative methods to sell or buy a home. However, before you agree to any creative financing proposal, consult with an attorney to determine its validity and legality.