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August 6, 2008October 5, 2019

President Signs Historic Housing Legislation

by Dan Krell

The lack of fanfare over the signing of The Housing and Economic Recovery Act of 2008 on July 30th by President Bush was the anticlimax of the long Congressional battle of proposed housing legislation. The long awaited and highly anticipated legislation is historic for its wide reaching changes in the mortgage and housing industries as well as foreclosure assistance.

For the mortgage industry, the Housing and Economic Recovery Act of 2008 changes how the Government Sponsored Entities (GSE’s), FHA and VA will conduct their mortgage businesses. In addition to the recent loan limit increases ($625,000 for conforming mortgages and $625,000 for FHA loans in high cost areas) becoming permanent for Fannie Mae, Freddie Mac, and FHA, the new law will increase oversight and offer more options and protections to home buyers.

For the GSEs (which include Fannie Mae, Freddie Mac, and Federal Home Loan Banks), the new law provides temporary assistance to the financially beleaguered Fannie Mae and Freddie Mac from the United States Treasury in the form of discount loans to help stabilize the mortgage giants. Additionally, a new and “independent” regulator to oversee the GSEs will act like a federal regulator to ensure that the GSEs are financially stable.

The new law includes the FHA Modernization Act of 2008, which gives the venerable government insured mortgage a face lift. There have not been such significant changes to FHA since its inception in 1934. Among the many changes, FHA will have a more streamlined process, increase the down payment to 3.5% of the purchase price, bar down payment assistance programs, and require home ownership counseling for home buyers.

The new law seeks to prevent mortgage fraud by launching efforts to license all mortgage originators. Although many states now require mortgage originators to be licensed, the new law will focus on those originators who are exempt from current laws (which typically include mortgage originators who are employed by federally chartered banks).

New mortgage disclosure requirements expand the Truth In Lending Act (TILA) to require lenders to provide meaningful information to consumers about their loans. The time frame will be three days from application and seven days before settlement. This is meant to allow consumers to compare mortgage rates and terms within a reasonable time frame.

Home buyers who purchase a home between April 9, 2008 and June 30, 2009 will have the opportunity to qualify for a tax credit which is repayable over fifteen years. However, the credit is limited to ten percent (up to $7,500) of the purchase price of a principal residence, and only for first time home buyers who meet income restrictions. Other restrictions apply, so you should consult your accountant for additional information.

For home owners facing foreclosure, the new legislation includes the HOPE for Homeowners Act of 2008. The program will allow the home owner’s present mortgage be refinanced through FHA. However among other qualifications, the program requires the home owner’s present lender to agree to accept losses to 85% of appraised value of home.

To the average person, these sweeping changes may seem dull and unimportant; many remain critical of the new legislation. However, because the Housing and Economic Recovery Act of 2008 is so wide reaching, it is truly historic.

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 August 4, 2008. Copyright © 2008 Dan Krell.

July 30, 2008October 5, 2019

Are Real Estate Concierge Services a Fad or the Next Trend?

by Dan Krell

Have you ever used a hotel concierge? It is sometimes amazing how some provide spot-on service and great advice about where to eat and the sights to see. Once only offered to wealthy clients, real estate concierge services are becoming more popular and offered to everyone as way to provide a value added service by real estate brokers and agents (who are now trying to scrape out extra market share in a quickly shrinking real estate market).

The origin of the concierge is rooted in serving others. According to Miriam-Webster.com, the word concierge is a French word derived from Latin meaning “fellow slave.” Although historical references agree that the origin of the concierge originated in medieval times as a royal trusted advisor, the described function differs from an officer of the royal court who executes justice to a member of the court who kept the room keys of visiting nobility (concierge is often referred as the French definition of “keeper of the keys”), while fulfilling the desires of the nobility.

Concierge services developed into an indispensible part of European culture. Concierge services were found everywhere, from apartment buildings to the government; the concierge only served those who lived or worked within their service areas. Modern concierge services are commonly found in hotels and spas; because they often obtain the hard to get items for guests, concierge services often have the reputation of obtaining the unobtainable.

Concierge services (sometimes known as errand services) are becoming more popular to save us time in our hectic lives. Real estate concierge services often range in services from preparing the home for sale to moving home owners to their new home. Some real estate concierge services offer expanded services where you can find just about any service in and out of the home! In fact, one prominent real estate concierge service that is provided by a real estate broker lists over one hundred services; incredibly, the list is described as being “a partial list!”

Home builders have also begun to offer concierge services. Additionally, home builders are adding the concierge services as a “premium service” built-in to communities as a way to lure home buyers to their communities.

Offering services other than real estate, these real estate concierge services are another attempt for real estate brokers and agents to be a “one stop shop” for home related services. Needless to say, the quality and level of service of real estate concierge services may vary. Many real estate concierge services enlist the services of highly regarded local professionals to provide their services, while some real estate concierge services only “recommend” professionals who are willing to pay for the privilege of having their service listed.

Taking Ben Franklin’s advice, “an ounce of prevention is worth a pound of cure,” it is good idea to investigate unknown service providers with local consumer advocacy groups. For example, the Montgomery County Office of Consumer Protection offers advice to consumers about some service specialties. Additionally, it is also a good idea to research the license status of service providers who are required to be licensed, certified, or insured. The Maryland Department of Labor, Licensing and Regulation Division of Occupational and Professional Licensing (www.dllr.state.md.us/pq) allows you to check the status of home improvement contractors, plumbers, electricians, and HVACR services (among other professionals).

July 23, 2008November 23, 2021

Can Title Insurance Save Your Home?

by Dan Krell © 2008
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Would you sign a hold harmless letter if you decided not to purchase an owner’s title insurance policy? Prior to her recent home purchase, a local home buyer was asked to sign an affidavit holding the attorney, the real estate brokers, their agents and employees harmless from any future claims arising from any title problems. She declined purchasing an owner’s title insurance policy. However, once the attorney explained the potential problems that may occur and how the title insurance could protect her interests, she decided to purchase the title insurance.

Believe it or not, the actual number of paid title insurance claims is relatively low (about four to five percent). Fortunately, many title problems are resolved without a claim, while some problems are resolved in an effort to not pay a claim. According to a 2005 survey conducted by the American Land Title Association (ALTA is the national trade association of the abstract and title insurance industry), about one third of all residential transactions have title problems; title issues in the previous 2000 survey were reported at being 25% (ALTA.org).

Although title problems do occur, most are resolved. According to ALTA, the most frequent title problems that occur (and need to be resolved) include unreleased and unpaid liens (including first and second mortgages, unpaid child support, tax liens, and other judgments). Other frequent title problems that occur include unreleased mortgage or deed of trust assignments and recording errors (legal documents having the wrong names, addresses, and legal descriptions).

The reason for the increase of title issues is twofold. The recent real estate market expansion saw a significant rise in the number of real estate closings, which gave rise to the opportunity to find additional title blemishes. Additionally, the fast paced environment of those years gave rise to the opportunity for mistakes to be made by overworked and/or inexperienced title agents and county employees.

Title insurance critics say that purchasing an owner’s title insurance policy is an unneeded closing expense placed on the home buyer for the title agent’s benefit (who makes a commission). Some passionate critics describe title insurance as a “scam” or “rip-off” because most title problems are easily resolved.

The few title problems that cannot easily be resolved can be catastrophic, as was the recent case first reported by the Columbus Dispatch on May 31, 2008 (Dispatch.com). The Ohio family’s home is being foreclosed on because of a typo that appeared on the previous owner’s line of credit. The line of credit was filed under the misspelled name of the previous owner.

The present owner reportedly felt it unnecessary to purchase an owner’s title insurance policy because the title search showed no problems. Unfortunately, the line of credit went unnoticed and the previous owner did not pay off the line of credit (reportedly being $150,000) at closing. Needless to say, the present owner was shocked to find out the previous owner’s mortgage company decided to foreclose on his home after years of non-payment. Could the foreclosure have been averted if the owner had title insurance?

State laws governing title insurance vary; purchasing owner’s title insurance is optional in many states. If you are planning to purchase a home, consult an attorney about title insurance.

July 16, 2008August 7, 2022

Is Your HOA Out of Control?

by Dan Krell © 2008
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If you live in a common ownership community (such as homeowners association, condo association, or cooperative) you may have experienced a confrontation with your community management company or board of directors. Disputes between home owners and their association boards and/or community management companies often arise out of miscommunication, poor communication, and sometimes sheer pride. Unfortunately, disputes can get out of hand when the parties are committed in being “correct” rather than being committed to resolution.

Many times, home owners are confronted by their community’s management company and/or board members because of violations of the community’s Covenants, Conditions, and Restrictions convents and regulations (also known as governing documents). The community is usually within their right as long as the compliance “requests” are communicated within the legal and governing documents guidelines. Usually compliance with the governing documents is not an issue as most residents act in accordance within their community guidelines. However, other home owners attempt to fight their communities through escalation, which usually ends up in court. If the association acts within its governing documents as well as legal guidelines, the court will usually rule in favor of the association.

Sometimes, frivolous laws suits are filed by disgruntled home owners, whom have personal disagreements and disputes with their board members or the community management company. The courts typically do not look kindly on frivolous law suits and will usually award the common ownership community with remuneration of their attorney’s fees.

However, what happens if your common ownership community does not act within the law and/or the governing documents? There is no shortage of stories of abuse and corruption within community management companies and community directors. According to the American Homeowners Resource Center (AHRC.com) and the Maryland Homeowners Association (Marylandhomeownersassociation.org), community home owners have legal rights that should not be violated. The Maryland Homeowners Association cites the Code of Maryland as the source for local home owner rights. The ongoing potential for abuse and corruption within common ownership communities was underscored when the State legislature created the Task Force on Common Ownership Communities in 2005 to look into the problem. The Task Force’s recommendations (published in 2006) include dispute resolution models that were modeled after the Montgomery County Commission on Common Ownership Communities.

The Montgomery County Commission on Common Ownership Communities (housed within the Montgomery County Office of Consumer Protection) was established in 1991 and is committed to providing owners, tenants, residents, boards of directors, and community management companies with information, assistance, and impartial dispute resolution programs. The CCOC provides these services to the public with integrity, transparency, and a commitment to the highest ethical standards.

An additional resource for home owners is the Maryland’s Attorney General’s office of Consumer Protection. The OAG has been authorized to enforce the Maryland Condominium Act, and as of 2007 the office is authorized to enforce the Maryland Homeowners Association Act (as a result of the Task Force on Common Ownership Communities).

Responsible community management is not a one sided affair, nor should it be evaded. Unfortunately, everyone will not agree all the time and disputes will arise. Fortunately, neutral resources exist to help community management companies, boards of directors and home owners work out a resolution before things get out of hand.

Originally published at https://dankrell.com/blog/2008/07/16/is-your-hoa-out-of-control-association-disputes-can-be-resolved/

July 11, 2008November 23, 2021

Don’t Panic – Housing relief is imminent

by Dan Krell © 2008
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Thumbing through an old copy of the late Douglas Adams’ very popular story “The Hitchhiker’s Guide Through the Galaxy,” I find the “Guide’s” message of “Don’t Panic” apropos for anyone concerned about the real estate market or in need of assistance. “Don’t panic,” help is on the way.

Help is imminent in the final form of HR 3221: the American Housing Rescue and Foreclosure Prevention Act. HR 3221 is comprised of a number of other bills that have been proposed over the past year (which started in July 2007), and has been passed in various forms in both the House of Representatives and the Senate. The hang-up on its passage has been differences between the House and Senate version. The Housing and Economic Recovery Act of 2008 (Banking.Senate.gov) is the latest proposed changes to HR 3221 and is to be voted on in the Senate in the coming week. The evolution of HR 3221, along with its many names and Acts, can be viewed at House.gov and GovTrack.us.

One of the most controversial issues in HR 3221 is the provision for tax credits to home buyers. Although home buyer tax credits up to $7,500 will be provided as an interest free loan over fifteen years, advocates and critics have argued over the tax credit’s virtues and shortcomings.

The newest wording of the American Housing Rescue and Foreclosure Prevention Act comes from the Senate’s Housing and Economic Recovery Act of 2008. Highlights of this new version include the improvement and regulation of the government sponsored entities (Fannie Mae and Freddie Mac), permanent modernization of FHA, and foreclosure protections.

Oversight of the government sponsored entities (GSE) will be through a new office that will be responsible for establishing capital and management standards (which will include internal controls, audits, risk management, and portfolio management); enforcing its orders through cease and desist authority, civil money penalties, as well as the authority to remove officers and directors; restricting asset growth and capital distributions for undercapitalized institutions; putting a regulated entity into receivership; and reviewing and approving new product offerings.

Improvements within GSEs will include the permanent loan limit increases in high cost areas and required affordable housing goals. To assist in meeting those goals a Housing Trust Fund and a Capital Magnet Fund will be created, which will used for the construction of affordable rental housing.

Modernization of FHA will allow for broader access and a streamlined process to provide mortgages to home buyers in all areas. Additionally, FHA loan limits will be raised to 110% of area median home prices (with a cap of 150% of the GSE limit).

It is anticipated that FHA will also assist home owners who are in foreclosure. Originally known as the FHA Housing Stabilization and Homeownership Retention Act (H.R. 5830), (AKA HOPE for Homeowners Act of 2008), the program will provide refinancing assistance to those homeowners who are in foreclosure. If the home owner’s lender agrees to participate, the program will provide a new loan that is the lowest of either 90% of the home value or what the borrower can afford to repay.

Given all the necessary modifications and changes to the legislation, help is hopefully near. But just in case you are in doubt, remember not to panic.