Category: real estate

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Need to know when buying a new home that is built in Maryland

by Dan Krell © 2012
DanKrell.com

New HomesIn today’s housing market, chances are that you may looking to buy a new home rather than a resale;

be prepared and know what you can reasonably expect from the home builder, as well as understanding how to resolve problems with the builder.  Whether or not you have a licensed real estate agent representing you in the transaction; the Maryland Office of the Attorney General Consumer Protection Division provides consumers guidance, pertinent information and other resources to dealing with a home builder and buying a new home built in Maryland.

Unfortunately, many home buyers believe they do not need representation when buying a new home.  Because the new home builder reps are often friendly, helpful and may appear to be on your side in the transaction; it is understandable how a home buyer may misconstrue the home builder’s sales persons’ loyalties.  However, home buyers must recognize that the builder’s sales people represent the home builder.

Before engaging a home builder and their sales people, you should check out whether or not the home builder is registered with the Home Builder Registration Unit.  Additionally, unless the home builder hires a licensed real estate agent to represent them, the home builder’s sales reps must also be registered with the Home Builder Registration Unit.

Before entering into a contract with a home builder,

you might consider reading the consumer information booklet that home builders are required to provide consumers before entering into a new home sales contract.  The booklet is provided by the Home Builder Registration Unit of the Maryland OAG Consumer Protection Division and discusses: choosing a builder, the contract, how your deposit is protected, custom home contracts, construction of your home, and resolving problems.

The Maryland OAG Consumer Protection Division oversees a Home Builder Guaranty Fund “that allows consumers to seek compensation for losses resulting from an act or omission by a registered builder who constructs a new home for a consumer.”  You may seek compensation from the guaranty fund if your home builder is registered with the Home Builder Registration Unit and you entered into a contract for a new home built in Maryland after January 1, 2009.

New HomesPayments from the Home Builder Guaranty Fund are to cover actual loss that result from “an act or omission by a registered builder as determined by the Consumer Protection Division or a court of competent jurisdiction…”  The Guaranty Fund is not meant to cover such items as: attorney fees, punitive damages, interest, court costs, personal injury, or subsequent damages.  The “actual loss” that is covered refers to “the costs of restoration, repair, replacement or completion that results from the incomplete construction of a new home, a breach of an express or implied warranty, or a failure of the builder to meet certain construction standards or guidelines.”

Guaranty Fund claims must be made “within 2 years after the consumer discovered or should have discovered the loss or damage or within 2 years after the new home warranty expires, whichever comes first. If the consumer files a claim against the home warranty plan, he or she must file the claim against the Guaranty Fund within 4 months after that claims process is exhausted.”

For further information on the Home Builder Registration Unit, consumer information booklet, and the Home Builder Guaranty Fund – visit the Maryland OAG Consumer Protection Division website on home builders (www.oag.state.md.us/Homebuilder/index.htm).

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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 September 17, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Homeseller turned landlord

Dan Krell, Realtor®
DanKrell.com
© 2012

Reluctant home sellers turn to renting their homes.

home for saleHanding over the keys of your most expensive investment to another person is not how you think you would have moved on with your life.  But, because the housing market threw a wrench in many peoples’ plans, many home owners who could not sell their homes decided to rent it instead.  Unfortunately, some didn’t know what to expect from their tenants, while others didn’t realize that they had obligations as a landlord.  And as you might imagine some rental arrangements did not turn out so well.

Although the home owner turned landlord may feel kinship to the hard core real estate investor, there are some differences.  Unlike the genuine real estate investor, most people are not accustomed to leaving their home in another’s care (often the person is a total stranger).  Another difference is that the home owner may decide to rent their home to ride out the housing market, while the hard core investor has made a commitment to the real estate investment as a vehicle for accumulating wealth; many investors will hold property for many years looking forward to the future payoff of appreciation when the property is sold.

Of course there is a commonality too; the desire for positive cash flow.  The positive cash flow is the perpetual incoming of cash so the mortgages and other real estate related expenses (such as property taxes, HOA/condo dues, maintenance, insurance, etc.) can be paid. Although a positive cash flow is a good thing, some are content just to break even and have no net proceeds from the rental.  Expenses can add up quickly and turn the rental into a negative cash flow situation (when the rent does not cover all the home expenses); which can became the source of serious financial issues.

home for saleSo, you decided to rent your home (or maybe you were talked into it) so you could move on with your life, what now?  Finding tenants and maintaining the property can be an issue for the novice and experienced alike.  Although seasoned real estate investors have systems in place for various aspects of their business (from finding tenants to collecting rent); you might consider hiring a licensed professional to manage your rental property.  For a fee, professional property managers take care of your rental property: which can include finding tenants, collect rents, and maintain the property.

And since rental agreements can be rather legally complex, consulting with an attorney prior to entering into the agreement would be prudent; as well as consulting with an attorney when issues arise between you and your tenant.

Consider getting additional information about rental properties before embarking on your new journey.   Some municipalities and local governments offer resources to inform you of your obligations and provide additional resources.  For example, the local government of Montgomery County MD offers resources for landlords and tenants.  Besides the “Commission on Landlord – Tenant Affairs,” which hears landlord – tenant disputes; other resources are available including a description of “ordinary wear and tear,” and links to the District Court of Maryland listing actions a landlord can take against a tenant (and vise verse).

What seems to be a comprehensive guide is the “Landlord – Tenant Handbook,” which is offered as a manual to renting for both the landlord and tenant.  The handbook describes: the obligations of the landlord and tenant; property licensing requirements; rental application and lease; security deposits; property maintenance; complaints; terminating the lease; and “survival tips.” The handbook and other landlord – tenant resources can be found at montgomerycountymd.gov/dhca (click the “Landlord & Tenant” link).

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(if this article appears anywhere other than a feed originating from, or directly on DanKrell.com, the article has been re-posted without permission).
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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 September 10 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Has the housing market improved in the last four years

Dan Krell, Realtor®
DanKrell.com
© 2012

HousingIn retrospect, the beginning of the global recession in late 2007 was the end of the housing boom and may have spawned the foreclosures crisis and the financial crisis of 2008.  And although this period of time will undoubtedly become the basis of many future dissertations examining the “Great Recession;” you might ask “how much has the state of housing improved since 2008?”

If you recall, the Housing and Economic Recovery Act of 2008 (HERA) was anticipated to have wide reaching changes in the mortgage and housing industries as well as supposed to have assisted struggling home owners.  This multifaceted piece of legislation consolidated many individual bills addressing issues that were thought to either be the cause or the result of the financial crisis.  Besides raising mortgage loan limits to increase home buyer activity, the historic legislation was the beginning of changes meant to “fix” Fannie Mae and Freddie Mac, as well as “modernizing” FHA to make the mortgage process easier for home buyers and refinancing easier for struggling home owners. Additionally, this law was the origination of the Hope for Homeowners program to assist home owners facing foreclosure (www.govtrack.us/congress/bills/110/hr3221).

The Federal Housing Finance Agency (FHFA), originated from HERA, has been the “conservator” of the then sinking Fannie Mae and Freddie Mac. Since the FHFA took control, there has been conjecture as to what would become of the mortgage giants: some talked about closing their doors, while some talked about changing their role in the mortgage industry. Since FHFA became the oversight agency, Fannie Mae and Freddie Mac has strengthened their role in maintaining liquidity in the housing market by helping struggling home owners with their mortgages as well as freeing up lender capital by the continued purchases of loans (fhfa.gov)

The inception of Hope for Homeowners was the beginning of a string of government programs designed to assist home owners facing foreclosure, or assist underwater home owners refinance their mortgage.  Although there have been individual success stories, there has been criticism that these programs did not assist the expected numbers of home owners.  A January 24th CNNMoney article by Tami Luhby (money.cnn.com) reported that “…the HAMP program, which was designed to lower troubled borrowers’ mortgage rates to no more than 31% of their monthly income, ran into problems almost immediately. Many lenders lost documents, and many borrowers didn’t qualify. Three years later, it has helped a scant 910,000 homeowners — a far cry from the promised 4 million…” and “HARP, which was intended to reach 5 million borrowers, has yielded about the same results. Through October, when it was revamped and expanded, the program had assisted 962,000…” (money.cnn.com/2012/01/24/news/economy/Obama_housing/index.htm).

HousingDespite the recent slowdown in foreclosure activity, there is disagreement about the projected number of foreclosures going into 2013.  A March 29th Corelogic news release (www.corelogic.com/about-us/news/corelogic-reports-almost-65,000-completed-foreclosures-nationally-in-february.aspx) reported that there have been about 3.4 million completed foreclosures since 2008 (corelogic.com).  And although an August 9th RealtyTrac® (www.realtytrac.com/content/foreclosure-market-report/july-2012-us-foreclosure-market-report-7332) report indicated a 3% decrease from June to July and a 10% decrease from the previous year in foreclosure filings; July’s 6% year over year increase in foreclosure starts (initial foreclosure filings) was the third straight month of increases in foreclosure starts.

So, if you’re wondering if housing is better off today than it was four years ago, the answer may be a resounding “maybe;” It all depends on your situation.

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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 September 3 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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Grading the housing market on a curve – how housing stats can be misleading

Dan Krell, Realtor®
DanKrell.com
© 2012

Home Sale StatisticsDid your teacher ever grade on a curve, where test scores are “weighted” based on the lowest and/or highest score in the class? The typical explanation for such statistical manipulation of raw test scores is to create a distribution where classmates are compared to each other, rather than how well they actually score on the usual grading scale.

The National Association of Realtors® (NAR) August 22nd news release titled “Existing-Home Sales Improve in July, Prices Continue to Rise” at first glance might seem good news, but after a deeper look the news may not be as promising. The release states that the July’s total existing home sales increased 2.3% in July from June, based on July’s seasonally adjusted annual rate of 4.47 million compared to June’s 4.37 million (realtor.org).

Although the adjusted data may have indicated a significant increase in existing home sales, the raw data may suggest something different. If you follow the links on the NAR’s press release through the website, you’ll find yourself at the page titled, “Existing Home Sales” (realtor.org/topics/existing-home-sales/data): where you’ll find a links to home sale data – which includes the “seasonally adjusted annual rate” and “not seasonally adjusted” stats.

Although July’s “seasonally adjusted annual rate” of existing home sales indicated a 2.3% increase over June’s “seasonally adjusted annual rate;” the “not seasonally adjusted” rate (e.g., the raw sales data) indicated that there was a 7.3% DECREASE in existing home sales in July compared to June, and a year to date increase of existing home sales of only 2.647%.

So, what’s the difference between “seasonally adjusted” and “not seasonally adjusted” data? Well, for that explanation, we need to follow the links to the methodology (realtor.org/topics/existing-home-sales/methodology). “Not seasonally adjusted” data is described as raw data that has been basically scrubbed for errors. However, the site states that “It is necessary to “annualize” and seasonally-adjust the existing home sales data so that month-to-month and quarter-to-quarter comparisons can be observed without seasonal variances distorting the overall picture;” thus the “seasonally adjusted annual rate” may be forward looking figure estimating a rate by which homes are selling.

And of course, many media outlets took the headline and ran with it without explaining the meaning of the “seasonally adjusted annual rate.” July’s figure gives the impression that the housing market has made significant improvement during a month where the actual number of existing homes sales decreased from the previous month. But don’t blame the NAR either: the press release contains links to pages of explanation and data for anyone to take the time to sort through and figure out.

Home Sale StatisticsStatistical analysis can be a good thing, if the statistic is meaningful and is understood. It seems as if everyone already forgot about the criticism that the NAR received last year because they announced a downward revision of existing home sales going back to 2007. If you remember, the main reason given for the revision was for “data drift” that occurred during the housing downturn; and much like other estimate revisions (such as GDP and employment figures) “re-benchmarking” is a common aspect of estimating economic data.

Regardless of what the rate of annual home sales is estimated to be, we’ll know the actual number of existing home sales at the end of the year. And at that time, we can determine what kind of year 2012 has been for housing.

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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 27 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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A new wrinkle for eminent domain

Dan Krell, Realtor®
DanKrell.com
© 2012

eminent domainWhen the housing market began its decent in 2007, foreclosures seemed to occur with the frequency not seen since the S&L crisis of the late 1980’s. Since then, negotiating a lower mortgage payment by modifying the mortgage interest rate and/or reducing the principal continues to be difficult for many home owners.

One of the reasons why modifying a mortgage can be difficult is because of the complicated structure of the Real Estate Mortgage Investment Conduits (REMIC). A REMIC, is a financial instrument that may have stimulated the wide use of “100% financing” and other high risk mortgages through securitization of mortgages on the secondary market. Although a highly complex structure, a very basic explanation is that the REMIC purchases large pools of mortgages and acts as the trustee for those who own the bonds to which the loans are securitized (mortgage backed securities). Bond holders could be individuals or corporations that may also sell ownership to the bonds as well (e.g., funds, annuities, pension plans). Mortgage modifications in the REMIC environment can be legally complex. Additionally, the inherent complex structure of the REMIC as well as its fiduciary responsibility to its bond holders, makes decisions move at a snail’s pace.

In an effort to assist home owners in their local communities, a few municipalities (most notably San Bernardino County) have considered restructuring mortgages via eminent domain. Eminent domain is the power that government exercises to take private property for public use and pay the owner a “just compensation.” And although eminent domain cases typically involve real property (e.g., land), it may also involve other types of personal property.

Considering that eminent domain is often a contentious topic, you might imagine that there might be some resistance to the condemnation of mortgages by municipalities. The Federal Housing Finance Agency (the FHFA oversees Fannie Mae and Freddie Mac) entered a note in the Federal Register on August 9th (“Use of Eminent Domain To Restructure Performing Loans”). The note listed concerns for such practice of eminent domain, among which is a concern that tax payers could ultimately bear the losses incurred from restructuring mortgages through eminent domain. As a result, the FHFA may take action to “avoid a risk to safe and sound operations and to avoid taxpayer expense.”

eminent domainThe Wall Street Journal reported on August 8th (“New Roadblock for Eminent Domain Bid: Housing Regulator”; by Al Yoon) that banking and other related groups are concerned that “stripping loans from investors would create unnecessary losses and reduce the availability of credit.” And, “… the Securities Industry and Financial Markets Association, or Sifma, has proposed prohibiting loans originated in areas using eminent domain from a key part of the $5 trillion mortgage-backed securities market that is a backbone for U.S. housing finance.”

An article by Rep Brad Miller published in the American Banker on July 11th (“No Wonder Eminent Domain Mortgage Seizures Scare Wall Street”) discussed the impact of eminent domain of mortgages on Wall Street, specifically the four largest banks. Congressman Miller pointed out that there is a cost to lenders holding second mortgages when mortgages are restructured. In particular, the four largest banks, which “hold $363 billion in second liens, very commonly on the same property as first mortgages they service.”

Regardless of the outcome, there is sure to be plenty of posturing; the result may add a new wrinkle in the eminent domain debate.

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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 13 , 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.

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