foreclosure Archives - Page 3 of 4 - Real Estate News and Commentary

October 2, 2008September 27, 2018

Buyer beware when purchasing distressed property

Buying a bank owned home might be a great way to get a great deal on your first home or the home of your dreams. However, you will find that buying a distressed home from a corporate owner is slightly different than purchasing a non-distressed home from an owner-occupant.

When you are purchasing a bank owned home, the bank requires you to sign addenda that favor the bank in many ways. Foreclosed homes that are sold by banks are exempt from many disclosures, including the Maryland Residential Property Disclosure And Disclaimer Statement (which discloses the home condition as well as any latent defects). Additionally, banks selling foreclosures (and their real estate agents) will sometimes want to take control of the entire transaction by coercing you to use their vendors, including their title company.

First and foremost, the bank is selling the foreclosure in as-is condition. This means that “what you see is what you get.” Often, what you don’t see is what you get as well. The bank addenda will warn of possible mold and other hazards that may be in the home. Even the best of homes can develop issues due to having utilities disconnected as well as being vacant for many months. A thorough home inspection, that may include testing for environmental hazards, is highly recommended to determine the condition of the home.

Another consideration in purchasing a foreclosure is that the bank will only offer you a Special (or limited) Warranty Deed. In a typical residential transaction, the seller will provide to you a warranty deed that guarantees that the seller has the ability to sell the home, and all debts held against the home are paid. However, buying a foreclosure is a bit different in that the bank will only provide a deed that covers the period the bank has had ownership of the home. Owner’s coverage title insurance will usually protect you from title defects not corrected by the bank; however, as policies vary, you should read the fine print.

Lastly, your deposit will become non-refundable after a short period of time. The bank will give you a short period for due diligence (obtain financing, conduct home inspection, etc); be prepared to act quickly!

So, is it a good idea to purchase a foreclosed home? Buying a foreclosure could be a real coup for you- but you must do your due diligence. Before you write an offer on a foreclosure, line up your vendors (such as home inspector, title attorney, contractors) so you can act quickly by having your team determine the home’s condition and legal status.

Unfortunately, the proliferation of distressed properties has some real estate professionals believe that consumer protection laws do not apply (such as RESPA and Maryland’s Wet Settlement Act). Make sure you are well represented! As a home buyer, you have the legal right to choose your vendors (including home inspector, title attorney, lender, etc.).

If you are planning to purchase a bank owned home, it is highly recommended that you review these special addenda carefully as well as consulting an attorney if you do not understand what these addenda require of you. Remember, “caveat emptor” applies when buying a bank owned home.

Original published at https://dankrell.com/blog/2008/10/02/buyer-beware-purchasing-a-bank-owned-home/

By Dan Krell

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.

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 July 7, 2008. Copyright © 2008 Dan Krell.

May 28, 2008November 23, 2021

If Cheap isn’t Selling, What is?

by Dan Krell
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“Home buyers want location, quality, and value.”

Everyone has been talking about bargain real estate for many months now. However, are these bargain homes really selling? If you look on the local MLS, there are presently twenty four single family homes listed in the county priced under $250,000. Of these twenty four homes, approximately 16 of these homes are short sales, 6 are bank owned, and 2 are being sold by the resident. It sounds as if there are a lot of great bargains available, but if you take the time to read the MLS listing and walk through the homes, you realize that these homes may be cheap, but they are no bargain.

Although a short sale (when a home owner sells for less than what they owe their lender) could be a great opportunity to get a bargain home, the obstacles are many and the purchase can be needlessly complicated by the real estate agent who does not know how to manage this type of transaction. Buying a bank owned home (foreclosure) could also represent a home buying bargain; however once inside the home you may realize that the cost of acquiring and repairing the home can exceed the purchase price of neighborhood homes for sale that are in move in condition. The many bank owned home auction events (many of these foreclosures are unsold MLS listings) are an indication that most home buyers feel that a cheap home does not represent a bargain.

So if “cheap” isn’t selling, what is? Unlike the recent the seller’s market when a “tear down” rambler next to the train tracks attracted a bidding war, today’s home buyers are back to basics. Home buyers are looking for a combination of location, quality, and value.

Location, location, location. Yes, the clichéd saying always had meaning, but for various reasons (including gas prices) a home’s location is more important than ever. Whether it’s the local amenities, proximity to Metro, or both- some neighborhoods always seem to be in demand.

When you compare your home to other neighborhood homes, does your home have a superior or inferior location (consider physical location and proximity to amenities)? If your home has a lesser desired location, you might consider making an adjustment in the listing price.

Don’t under estimate the home buyer. Home buyers are savvy and they desire quality and value for their money. Often times, renovations and updates that are completed cheaply repel potential home buyers- mostly because of poor craftsmanship. Needless to say, uncompleted do-it-yourself projects have the same effect. New appliances and carpet make any home look better, except when you choose to buy the cheapest available. Thinking that home buyers won’t know the difference in quality is erroneous. If you look at the recent neighborhood home sales, many are likely to have had quality updates and renovations. If you decide to make updates to your home prior to listing, do it tastefully with a mind for quality. If you cannot, then consider not making updates but adjusting the listing price.

Although price is always at issue, it’s not always the “cheap” home that sells. Some home buyers may make sacrifices in location and quality; but the reality is that home buyers want value for their money.

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.

March 13, 2008November 23, 2021

Appraising the Mortgage Crisis

by Dan Krell
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Although the mortgage meltdown and crisis is not new news, new information continues to shed light on what led to the mortgage meltdown. In addition to the scandals and fraud allegations at many levels, many are still unaware of the impact of appraisal practices on present market conditions.

Stories of appraisers being coerced into inflating values or providing favorable appraisals are not news. However, as Justice Department probes expand beyond subprime lenders to some of the country’s largest lenders, we may hear more about how underwriting and appraisal practices played a part in creating the bubble that burst. As the probes expand, we may begin to hear more about appraisals that were artificially inflated by coercion, collusion, and/or fraud. Some appraisers purportedly have already come forward to report how they were forced to provide appraisals that were consistent with an inflating market. Supposed consequences for not complying with lenders’ demands would result in loss of business for the appraiser.

Along with other factors, artificial, fraudulent, or misleading appraisals have played a role in historical mortgage crises, such as the Savings and Loan Crisis (of the 1980’s) and the flipping schemes (of the 1990’s). Prior to the critical mass of the S&L crisis, obtaining a real estate loan seemed relatively easy (at the time); the result was a $120 Billion (plus) government bailout. An article published in the CPA Journal (December 1989) reported that a 1988 FLHBB (now the FHLB) report to Congress referred to fraud and insider abuse as the leading factors leading to the S&L collapse; other factors identified by the report leading to the crisis was the collusion by thrift management, borrowers and appraisers to conceal losses and liabilities.

As a result of the S&L crises, the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) was created. FIRREA was to ensure that type of fraud and abuse that occurred in the S&L crisis would not happen again. Consequently, title XI of FIRREA led to licensure of appraisers, the creation of the Appraisal Foundation, as well as the Uniform Standards of Professional Appraisal Practice (USPAP).

In the mid to late 1990’s, mortgage and appraisal fraud hits again in the form of flipping schemes. Although not as widespread as the S&L crisis, the flipping schemes hit the subprime mortgage market very hard. In many cases, flipping schemes used artificially inflated appraisals to net a large gain to the seller (the loan officer, appraiser, and/or title agent were often in collusion).

Interestingly, real estate market declines followed both the S&L crisis and the flipping scandals. The large buyer’s market and recession occurred at the tail end of the S&L crisis in the early 1990’s.

Currently, investigations are reportedly focusing on practices to hide decreased portfolio values sold on secondary markets. In addition to the allegations surrounding appraisals, lenders’ have also used Broker Price Opinions (BPO) to ascertain values on portfolios as well as for lending purposes. BPO’s are usually completed by real estate agents or brokers who typically have no appraisal training; additionally the BPO typically does not follow USPAP.

If it is not yet clear, history is repetitive and cyclical. Our response this time, however, can undermine the next real estate crisis.

(Post Script – Today, Congress is to release report outlining causes for present mortgage crisis.)