Real Estate News and Commentary

January 23, 2009October 5, 2019

Relief from foreclosure relief scams

Foreclosure relief is big business; so are foreclosure relief scams. Foreclosure relief scams have been a long standing national problem. In fact, in their 2005 report titled, “Dreams Foreclosed: The Rampant Theft of Americans’ Homes Through Equity-Stripping Foreclosure Rescue Scams,” the National Consumer Law Center described foreclosure relief scams as fitting into three categories: phantom help, bailout, and bait and switch (consumerlaw.org).

Phantom help is described as the charging of fees (usually excessive), by a “consultant,” to make phone calls and complete paperwork that the home owner can typically complete on their own. In this type of scam, the home owner does not know that the “consultant” provided little (if any) assistance until it’s too late. The “consultant” usually disappears and the home owner is not only facing foreclosure, but has been scammed out of their hard earned money.

The bailout scam was popular among schemers in the earlier part of this decade when many home owners had equity in their homes. Although there are variations on this type of scam, typically the homeowner would arrange to buy their home back after the title of the home was conveyed to the “consultant.” Usually, the home equity is unknowingly stripped by the “consultant” and the home owner loses the home.

The bait and switch scam is what it is exactly what it sounds like. The home owner unknowingly conveys the title of their home to the “consultant,” while believing they are signing loan documents.

In response to the growing number of consumer complaints (as well as legitimate business inquiries), the Maryland Commissioner of Financial Regulation posted an advisory late last year to consumers as well as those in the business of loss mitigation, foreclosure prevention, and similar services (www.dllr.state.md.us/finance). The advisory is a reminder that the Protection of Homeowners in Foreclosure Act (PHIFA) is in force to protect home owners as well as pursuing predators. PHIFA describes who is protected, prohibited practices (including foreclosure rescue transactions), foreclosure consulting contract terms, mandatory disclosures, and the home owner’s right of rescission.

Under PHIFA, a “foreclosure consultant” is described as anyone who systematically solicits home owners to offer foreclosure consulting services, which includes (among other services) loan modifications, forbearance services or loan reinstatement services. To add credence to their services, some foreclosure consultants are or work with real estate agents, loan officers, or title companies.

PHIFA prohibits upfront fees of any kind to be collected by foreclosure consultants. A foreclosure consultant cannot receive any compensation until they have performed every service described in their contract. Additionally, foreclosure consultants cannot receive payment from third parties (real estate agents, loan officers, title companies, etc.) connected to the services provided to the home owner unless the payments are fully disclosed to the home owner, listed on the settlement sheet, and does not violate (other) law.

If you are in default or in foreclosure and have been contacted by someone promising foreclosure relief (by negotiating a loan forbearance, modifying the terms of your mortgage, or even facilitating a short sale) do your homework and make sure the consultant is legitimate. You can get more information about PHIFA by contacting the Commissioner of Financial Regulation; and of course, consult with an attorney.

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 January 19, 2009. Copyright © 2009 Dan Krell.

January 15, 2009October 5, 2019

Are we arrogant to think we can bailout of a recession?

Last week more bailout legislation was introduced in Congress. The legislation is not a new proposal, but rather it embraces previous bailouts and stimulus packages to refine and focus a plan of attack on all economic fronts (including the real estate and auto industries). H.R. 384, also known as the TARP Reform and Accountability Act of 2009, was introduced in congress by Rep. Barney Frank (D-MA) on January 9th.

Although the legislation is titled the TARP Reform and Accountability Act of 2009, it is not only meant to refine the original TARP (Troubled Assets Relief Program). However, by looking at the content, you will see an orchestrated effort to solve problems not anticipated by previous acts as well as widening efforts to stabilize the economy. You can view the entire legislation on the internet (http://www.govtrack.us/congress/billtext.xpd?bill=h111-384).

The legislation is broken down into seven sections: modifications to TARP and oversight; foreclosure relief; auto industry financing; clarification of authority; improvements to HOPE for Homeowners program; homebuyer stimulus; and FDIC provisions.

Title I describes the proposed refinements and limits to the original TARP funds as well as provide conditions for additional funding. This includes compliance and accountability; limits on executive bonuses as well as corporate divesture of private jets; provide TARP funds to smaller community institutions; and increase size and authority of oversight.

Title II describes foreclosure relief including relief programs through TARP funds and loan modifications programs. Loan modification programs are to be administered with standardized systems as well as requirements for borrowers and property types.

Title VI describes a home buyer stimulus program with special mortgage interest rates. The program is proposing to “stimulate demand for home purchases and reduce unsold inventories of residential properties” by making available “affordable interest rates on mortgages.” Although the program is for home purchases, it may also be available to refinancing as well. However, there is a caveat describing the possible targeting of such a program to areas hardest hit by the foreclosure crisis.

Notwithstanding the attempted efforts by our Government to shorten the ongoing effects of the financial and foreclosure crises, a recent study indicates that we may have no choice but to endure the aftermath. A paper by Carmen M. Reinhart (University of Maryland) and Kenneth S. Rogoff (Harvard University), titled The Aftermath of Financial Crises, analyzes previous global financial crises and compares the resultant recessions. Additionally, the length and severity of recessions were compared to non-crises recessions.

Reinhart and Rogoff describe average historical post financial crises effects as reducing home prices by as much as 35% over six years, increasing unemployment rates by as much as 7% over four years, and rapidly expanding government debt (not attributed to bailouts, but rather to a declining tax base). Their conclusion is that recessionary effects have already eroded equity values equivalent to historical recessions even though today’s governments have more monetary flexibility and have acted differently than their predecessors.

Although it appears that we may have to endure the effects of the recent financial crisis, there are expectations for government bailouts to soften the blow. However Reinhart and Rogoff warn that we should not “push too far the conceit that we are smarter than our predecessors.”

January 14, 2009October 5, 2019

Transparency in Real Estate

Since September, transparency has become the buzzword. Everyone is trying to fit this buzzword into the conversation without regard to context or meaning (such as: government transparency, intervention transparency, etc). However, the new buzz is about Realtor transparency.

Realtor Transparency may be the ideal quality for a Realtor. Realtor transparency is not about disappearing real estate agents because of a sluggish market. Instead, Realtor transparency is about Realtors facilitating the transaction to the point of making it effortless for their clients. Although most Realtors strive to make each transaction as effortless and stress free as possible, all transactions are different due to unique issues and crises which challenge meeting a client’s high expectations.

Certainly, if your expectations are set too high, your Realtor may never meet your needs. So, what can you realistically expect from your Realtor? The National Association of Realtors (NAR) requires Realtors to follow a Code of Ethics and Standards of Practice (Realtor.org). Additionally, the Annotated Code of Maryland (COMAR) has incorporated some of the NAR Code of Ethics for Maryland real estate agents to adhere to, which includes the duties of a licensee.

Both the NAR Code of Ethics and COMAR emphasize the fiduciary duties of a Realtor. For example, Article 1 of the NAR Code of Ethics (Realtor.org) states: “When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve Realtors of their obligation to treat all parties honestly. When serving a buyer, seller, landlord, tenant or other party in a non-agency capacity, Realtors remain obligated to treat all parties honestly.”

The NAR summarizes the duties of a Realtor as: “Loyalty (to act at all times in the best interest of the principal and to put those interests above all others, including yourself); Obedience (to obey promptly all lawful instructions of the principal); Disclosure (to disclose all known, relevant facts to the principal); Confidentiality (to safeguard the principal’s secrets, unless keeping the confidence would violate disclosure requirements about the property’s condition); Reasonable care and diligence (to diligently use real estate skills and knowledge when pursing the principal’s affairs); and Accounting (to account for all funds and property entrusted by the principal)” (Realtor.org).

So what do you do if your Realtor does not meet your expectations? First, try to communicate what you need from your Realtor. If there is a breakdown of communication, you should next try contacting Realtor’s managing broker. By communicating with the broker, you will (hopefully) find a sympathetic ear to assist you in achieving your goals. The broker may be helpful by acting as a facilitator; in some cases the broker may assign another Realtor to represent you.

If you find that your concerns are falling on deaf ears, you can contact the Maryland Real Estate Commission (MREC). Although it is common knowledge that some consumer complaints to the MREC are due to the client’s unreasonable expectations, the commission takes every consumer complaint seriously.

Regardless of your Realtor’s transparency, your Realtor should be acting within the NAR and COMAR guidelines. Communicating your expectations with your Realtor prior to your entering into any agreement or contract can increase your chances of meeting your housing goals.

January 13, 2009October 5, 2019

If you want to settle on your home, bring your money!

Most people don’t think much of settlement day, other than preparing to sign a lot of documents. This is an exciting day to be sure, but there are still many items to consider to make sure your settlement is stress free. One item often overlooked and taken for granted is your funds to close.

Preparing your funds for settlement begins when you receive your Good Faith Estimate (GFE) from your lender. The GFE should provide you an estimate of your closing costs. However the GFE is just an estimate, your settlement agent will provide an accurate closing cost figure by preparing your settlement sheet (also known as the HUD-1).

According to the Real Estate Settlement Procedures Act (RESPA), the home buyer can request a HUD-1 one day prior to settlement (HUD.gov). If requested, the settlement agent must provide a completed HUD-1 to the home buyer with the information available to the settlement agent at that time. Sometimes, the settlement agent does not have all the figures to provide an accurate HUD-1 a day before settlement because lenders sometimes wait to the settlement day to provide their closing instructions, lender charges and required escrows. If you are unsure of the amount to bring to settlement, you should ask your settlement agent. When HUD-1 is delayed due to the home buyer’s lender, some settlement agents often recommend preparing funds based on your GFE.

A common mistake for first time home buyers is not having their funds at settlement or having the funds in the wrong form. Although the home buyer receives a GFE from their lender, some home buyers forget to make those funds available (through account transfers and/or gift funds). Not having your funds will certainly postpone your settlement.

Additionally, the form of the funds brought to settlement is often another point of confusion. Settlement agents prefer a “cashier’s check” for the amount owed, because this type of check is “guaranteed” by your bank and treated as if it were cash.

Sending funds electronically (wiring funds) to your settlement agent is another option to get funds to settlement. Funds are often wired when the home buyer’s bank is not local or large amounts of money are needed for settlement. In today’s digital age, it may seem easier to “instantly” wire funds to your settlement agent; however you are relying on a person to physically input the information, which could cause a delay if not executed immediately. Additionally, there is usually a fee associated with wiring funds.

If you are fortunate to receive a completed HUD-1 a day before settlement, the amount you owe is sometimes not accurate as mistakes are often made on adjustments to property taxes, HOA fees, and seller concessions. These mistakes are often discovered at settlement, so you may actually owe a bit more or less. If while in settlement you find that you owe more, the settlement agent will usually take a personal check for the difference (if the amount is less than $1,000). If you find that you brought more money than you owe, you’ll receive the difference at the end of settlement.

The process of buying and selling a home can be exciting as well as nerve-racking. Being prepared for settlement can reduce anxieties as well as prevent unnecessary delays.

January 7, 2009October 5, 2019

Strategies to sell your home in a sluggish market

If you are a considering selling your home this spring, you can expect more of the same from the local real estate market (picky home buyers and lots of competition). You can better position yourself and make your home stand out by doing what many other home owners are doing- returning to the basics of home selling. Homeowners are hiring Realtors to list and sell their homes, as well as making their homes more appealing for prospective home buyers.

Hiring a Realtor can help you decide on a list price as well as executing a marketing plan once the home is listed. Pricing your home appropriately is crucial to a successful sale in this market, so consulting a Realtor early in the decision process to get an understanding of the neighborhood market dynamics will be helpful. Every neighborhood is different and you cannot judge what your home will sell for based on media reports or general statements about market conditions. Having a Realtor analyze your neighborhood listing and sold information will help you understand the trends and prices.

Analyzing the days on market trends to understand the consequences of listing at a higher price is important. Many home sellers make the mistake of listing at a higher price believing that home buyers will make lower offers and ask for closing cost assistance; however, this strategy has left many homes languishing on the market. A more realistic approach is to have your Realtor determine a list/sale price for a 30 day sale, 60 to 90 day sale, and a 120+ sale. Although a 30 day pricing strategy is aggressive and not for everyone, you will see that it makes sense compared to carrying costs (paying mortgage, utilities, insurance, taxes, etc.) of an extended sale.

The Realtor you hire should have a detailed marketing plan to advertise and attract interest in your home. Some Realtors rely on their broker to market your home, while others take a more personal approach to marketing your home. Although marketing strategies vary, you can decide what marketing strategy is best for you based on the data provided.

With pricing and marketing in place, how will you satisfy picky home buyers? Discerning home buyers can be influenced by making the best impression when the home is viewed. To make the best impression, you may need to make repairs or updates. For repairs and update ideas, consider having a pre-listing home inspection, a home energy audit, and hiring a home staging professional.

Having a pre-listing home inspection will allow you to find out what items need repair and which systems need updating. Don’t worry about having to make all repairs; the home inspector will explain which repairs are a priority (due to safety) as well as offering recommendations on system updates.

Since home buyers have become more concerned with energy efficiency, having a home energy audit may reveal areas in your home that need updating or repairing to increase the efficiency of the home’s energy use.

Finally, a home staging professional can create an environment within your home to give a home buyer the best first impression.

Selling your home this coming spring will be challenging. However, being prepared and hiring the right professionals can sometimes make the difference to making the sale.