Real Estate Philadelphia Weekly

West Philly!

Mon, 19 Oct 2009 17:48:46 PDT

Sean Dorn leads a tour of West Philadelphia -- all the coolest places to live, eat, drink, catch live music and generally make merry!

Casualties of bidding wars

Fri, 20 Nov 2009 08:05:22 PST

Home Sale Hindsight

Tara-Nicholle Nelson
Inman News

Q: I have been house-hunting for several months now. I have gotten outbid on several properties where the listing agent said there were 15, 20 or 30 other offers. A few weeks later, the places came back on the market! What happened? Was there something wrong with me or my offer? Why did they not just come back to me or the next-highest offer, rather than putting it back on the market? Mine would have been a guaranteed deal!

A: Reading your question was like reading my daily e-mails from my own clients! I've seen this happen a number of times, mostly with my FHA-financed buyers trying to buy bank-owned properties. I don't know enough about your offer to be able to say with certainty whether anything in particular was wrong with it, but I've been doing this long enough to know that chances are either the price wasn't right or you were bested by a seemingly more "closable" offer: a cash offer; one with more money down than yours; or one with a conventional loan (if yours is FHA-financed).

That doesn't necessarily mean, though, that you should have or could have done anything differently. In a multiple-offer situation, the rule is that you make the very best offer you can, considering how much you can and are willing to pay for that particular property, and the best downpayment, loan type and other terms you're able to offer. Don't hold back because, as you've seen, it might be the only opportunity you have to make an offer. If your very best wasn't good enough, then that just wasn't your house.

Now to the question of what happened to the offer that was in place. Probably the single most common reason, in my experience, that homes fall out of contract these days is that something happened and the buyers' loan did not receive final approval: either their credit, income or assets turned out not to be up to snuff on final inspection.

In that same vein, the property might not have appraised for the purchase price, or might have been found to have condition problems the lender refused to accept, which the seller refused to correct -- especially on FHA-financed homes. Buyers do lose their jobs during escrow, on occasion, too -- that tends to make them want to back out of the deal.

Lately, I've seen condos and townhomes fall out of escrow because the homeowners association had too many delinquent dues-payers, was involved in litigation, or otherwise couldn't pass muster with the buyer's lender. Also, in the heat of these multiple-offer situations -- especially on bank-owned and other properties where there is a long time delay between offer and acceptance -- buyers often make offers on other properties and might have simply gotten into contract on another home by the time their offer was accepted.

Whether there was a backup offer in place largely depends on whether the property was bank-owned or not. Most individually owned listings receiving 30 offers would certainly have put one or two offers in backup position. The asset managers in charge of bank-owned properties, however, often don't take backup offers.

They would rather re-expose the property to the market to make sure they are getting the highest possible offer at the time, including making sure the listing gets exposed to the new buyers who have started house-hunting in the time the home was off the market and in contract.

That's the primary reason listings that received lots of offers end up back on the market. Other times, even when one offer was placed into backup position, the backup buyer(s) might have found another home and lost interest during the time the original buyer was in contract.

With all that said, I want to address your sense that this whole scenario is unjust, because your offer would be a guaranteed-to-close deal. You'll have a better experience of homebuying this time -- and selling and buying during every transaction for the rest of your life -- if you try to look at everything from the vantage point of those sitting across the virtual bargaining table from you.

From their perspective, there is no such thing as a guaranteed deal. That is the reality of real estate. Chances are the buyer whose offer they originally selected also felt their offer was bulletproof, until the unthinkable happened.

The seller -- individual or bank -- doesn't know you, your steadfast intentions, or passion for the property, and even if you expressed all these things to them, you'd simply be one of 15, 20 or 30 offerors all saying the same thing.

What buyers can do to make their offer seem like more of a sure deal to the seller is make a well-qualified offer, document that they have sufficient assets and income to close the deal, and make an offer that requires as little bank financing as possible.

Also, buyers such as yourself can make sure they're working with an agent that writes a professional-looking offer, and has a good reputation with local listing agents for closing deals -- this you can do by ensuring that you choose your agent by referral from a buyer he or she recently helped successfully "win" a home in your area.

Keep that in mind as you move forward making offers, and work with your broker or agent to make absolutely sure that your offers reflect the most likely to close price, terms and other indicia of professionalism. Then make your offer and have no regrets. If you get outbid, ask your agent to keep an eye out for the listing to come back on the market, and try, try again!

Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com.

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What's Your Home Worth?

Mon, 30 Mar 2009 12:40:21 PDT

Window mandates put safety first

Fri, 20 Nov 2009 07:47:19 PST

Part 2: Living by the building code

Arrol Gellner
Inman News

Editor's note: This is Part 2 of a three-part series. Read Part 1 here.

Last time, we talked about building code provisions that variously baffle or irritate do-it-yourself builders (and occasionally, seasoned builders as well). While some code requirements may seem arcane at first glance, most have a very simple purpose -- to keep you reasonably safe day to day, and possibly to save your life in a real emergency.

There are still a number of different codes in use, along with regional variations (always check with your local jurisdiction), but most of them more or less agree on basic safety provisions.

By way of example, here are some typical code provisions on just one narrow topic -- windows -- and what they're meant to accomplish:

In general, codes require every habitable space to have a net window area equal to at least 8 percent of the room's floor area (a "habitable space" is defined as one intended for living, sleeping, eating or cooking). This is a direct way of ensuring that the major rooms in a house have adequate natural light.

On the other hand, a bathroom could have a much smaller window, because the code doesn't consider it a habitable space. In fact, as long as a bathroom has a means of mechanical ventilation (that is, an exhaust fan), it doesn't need a window at all. Still with me? These kinds of building code "gotchas!" are what can drive uninitiated remodelers crazy.

The equivalent of half the required glass area has to be openable for ventilation -- again, a simple way to ensure minimum access to fresh air. This provision, too, can cause do-it-yourselfers trouble, since a fixed window (or a window less than half of which opens) may well satisfy the code's requirements for natural light, but may not make the grade in terms of natural ventilation.

As we noted last time, many code provisions are meant to ensure multiple means of escape -- "egress" in code parlance -- in case of fire or other emergency. This brings us to yet another set of requirements for windows that are routinely overlooked by do-it-yourselfers. Most codes require that every ground-floor bedroom have at least one "egress window" with an opening of 5 square feet, with a minimum net opening at least 24 inches high and at least 20 inches wide.

Furthermore, the sill of this egress window can't be more than 44 inches above the floor, so that in an emergency, a small person can still climb out the window by standing on furniture. Bedrooms on upper floors need to have slightly larger egress openings of 5.7 square feet. For obvious reasons, codes also prohibit security bars from being installed over egress windows unless they're easily openable from inside.

Mind you, these minimum size requirements aren't just to allow able-bodied occupants to get out of a burning house. They're also intended to let firefighters wearing bulky breathing apparatus get inside -- to rescue, for example, an elderly person or a sleeping child.

Seen in this light -- and considering the untold tragedy that building codes have probably averted over the past century -- code compliance shouldn't seem quite such a burden.

Next time: A few genuine building code downsides.

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Become master of your energy bills

Fri, 20 Nov 2009 07:41:24 PST

New technology monitors usage, detects leaks

Paul Bianchina
Inman News

Lots of people are concerned about how much it costs to heat and power their homes, and the impact they have on the environment. So it's always interesting when some new products come along that can help us better understand how our homes work, and what changes we can make to improve things.

Monitoring power usage

As part of their Energy Series, Black & Decker has developed the Power Monitor (Model EM100B, $99.99). This unique and easy-to-use device allows you to monitor power usage anywhere in the house, so you can truly see the cost of running an appliance, or see how much replacing standard light bulbs with more energy-efficient ones will offer in energy savings.

The Power Monitor consists of an indoor digital display and an outdoor sensor unit. Each one operates on two AA batteries (not included). The outside sensor unit attaches to your electric meter with a simple band clamp. No electrical wiring is required, and there's even a little information tag on the unit to let your meter reader know what it is and what it's doing there. The interior display unit is freestanding, and there's no wiring required between the two units.

The instructions are quite good, with clearly illustrated setup and adjustment details. They've also included three separate booklets, each in a different language, rather than making you wade through confusing instructions where all the languages are mixed in together -- a feature I would really like to see more manufacturers adopt!

The outdoor unit has an LED sensor arm that "reads" changes in the meter. This information is then relayed to the interior display, and instantly shows you changes in electrical usage. For example, with the indoor display unit in hand, you can turn on your oven or your microwave and see the increase in power usage relayed directly from the electric meter. You can turn the lights on or off in a room, or turn a hair dryer or a television set on, and see how much power it consumes. The display reads in either dollars or kilowatts, and you can switch easily back and forth between the two.

According to the manufacturer, the sensor unit is compatible with approximately 90 percent of the electric meters currently in use. On their Web site, www.blackanddecker.com, there's a handy electric meter compatibility guide that lets you check your particular type of meter before you decide to buy the monitor.

Find those energy leaks

Also from Black & Decker is the Thermal Leak Detector (Model TLD100, $49.99). This instrument is both easy and fun to use, and it can provide you with a lot of important information about how to make your home warmer and more comfortable this winter.

The digital, pistol-grip Thermal Leak Detector operates on one 9-volt battery (not included). Simply install the battery and the unit is ready to go, without any additional setup or calibrations.

To use the Thermal Leak Detector, simply aim the unit at a reference point that you think has a fairly constant temperature, such as a wall. Press the "On" button, and the screen lights up and the detector projects a green spot at your reference point. On the digital readout screen, you'll see two temperature readings -- "reference" and "scan." Now move the detector over the surfaces you want to check for leaks. The reference temperature, which is the temperature of the surface you initially pointed the detector at, will remain constant. The scan temperature will change to reflect the temperatures of the surfaces that you're checking.

The detector continues to project a green light to show you exactly where the unit is reading. When the temperature of the surface drops in relation to the reference temperature, the light changes to blue. When the temperature increases, the light changes to red. The sensitivity of the reference light can be changed using a simple slide switch on the back of the detector. You can set it to read small changes of 1 degree, moderate changes of 5 degrees, or more substantial changes of 10 degrees or more.

Within minutes, you can get some very accurate readings of where air leaks might be located, or where hot and cold spots might be. You can see if your weatherstripping needs to be repaired, or if some areas need caulking. You can also really see just how much heat those old single-pane windows are leaking. And to help you tighten things up again, there's also a handy little Home Energy Repair Guide booklet included with the detector.

Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com.

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Some rental investments don't pay off

Fri, 20 Nov 2009 01:00:00 PST

Neighborhood, local economy dictate profit potential

Steve Bergsman
Inman News

Buying foreclosed, or otherwise inexpensive, residential units with the game plan of renting the property for as many years as it takes until real estate appreciation returns has proven to be a time-tested and generally successful investment strategy.

Unfortunately, it's not as easy as it appears. Just because a residence, whether a condominium or a single-family residence, can be acquired cheaply doesn't mean that a home-rental scheme can be operationally profitable.

It would seem that with so many foreclosures and REOs (bank-owned homes) on the market that now is certainly the time to make an investment in a rental property, and many experienced investors are plowing through bank auctions with vigor. Those folks I don't worry about. It's the novice investor and those new to the business to which I have these four words of caution: You are not alone!

There are so many investors buying up homes with busted mortgages, thinking they are going to transform the property into a rental, that a glut of houses for rent in your neighborhood is coming -- or might already have arrived.

New investors fall in love with a property. They see a house or visit a condominium and immediately want it, sparing no effort in making the acquisition. They become so entranced by the real estate that they don't do the research required to see if the property can, indeed, be a viable rental.

Let's say, for example, that you find a house you want to buy so you can turn it into a rental. It's in a good neighborhood and you can buy it fairly cheaply. However, you don't do any research so you fail to turn up the fact that a multifamily developer will be building a huge apartment complex one mile from your property, creating intense competition for renters. Or that most of the people in the neighborhood, where the object of your real estate desires can be found, work in a manufacturing plant that will be closing up in three months and putting everybody out of work.

Those are extreme situations. A more likely scenario is this: too many rental properties in your city, creating too much competition, driving down rental rates too severely to make investments operationally profitable.

As I mention often, I live in Mesa, Ariz., about 20 miles from downtown Phoenix. According to my local newspaper, the Arizona Republic, in my city alone there are almost 17,000 single-family home rentals; in Phoenix, there are 49,694 single-family home rentals; and in the metro area as a whole, 133,990 single-family home rentals.

I checked in with an associate and good news source, Alan Langston, executive director of the Arizona Real Estate Investors Association, about what this situation, which looked to me like a glut of homes, meant for single-family home investors.

What I got was a verbal wagging of the finger; There is no glut, he contended. There was enough demand -- at the moment -- so that home rentals in the Phoenix metro area still showed a low vacancy rate. However, even he admitted that the market was rapidly changing and there was a downward pressure on rental rates.

Phoenix isn't the only metro that might be facing a glut of home rentals. I got on a Denver home-rental blog that reported although rents were still on an upswing, the supply of home rentals was increasing as well, meaning that the upswing could easily reverse and become a downswing.

The problem in Denver was the same as in Arizona and elsewhere. Real estate investors were diving into the foreclosure market, picking up properties and then renting them out. In past years, these same homes might have been flipped, but the lack of credit and millions of workers picking up unemployment checks have combined to drastically narrow the pool of potential buyers.

When considering becoming a single-family residential landlord, use common sense. The basic law of supply and demand in regard to single-family rental properties is this: Try to avoid a neighborhood with a lot of foreclosed homes. It doesn't matter if these homes have been purchased and retain market appeal, because the owners are investors who will be renting out the property just as you hope to do. And, as in all industries, a surfeit of the same creates a glut, which will at minimum keep prices low, or at worse drive prices down hard.

If you want to invest in a single-family home that will be used as a rental property, it might make more sense to pay more for a property in a neighborhood that is not so beaten down with foreclosures. Without the intense competition you could probably set a rent that will make the property operationally profitable -- at least for near future.

"I'm still telling folks this is one of the best real estate investment markets ever," says Langston. "If you can acquire rental properties, buy and hold, it is a good strategy. You just have to be careful. Depending on how you structure your transaction will make the difference whether you will be in good shape or not."

Obviously, an all-cash investor has the flexibility to lower rents and still be in a profit position. That's not true for an investor who borrows capital to make the transaction. If there is a single-family home-rental glut in your target area, which is becoming increasingly likely, it's better to do the research and discover it before you buy.

Then tread carefully.

Steve Bergsman is a freelance writer in Arizona and author of several books, including "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade."

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2 homes, 2 mortgages, 2 much?

Fri, 20 Nov 2009 01:00:00 PST

Multiple tax breaks could make selling unwise

Bernice Ross
Inman News

DEAR BERNICE: My husband and I just relocated from Los Angeles to Arizona. I rented my condominium in Los Angeles and it's currently costing me about $500 per month over what the tenants are paying me. I bought it back in 2002 and still have equity in it, despite the downturn.

We found a really good deal on a house here in Arizona. The challenge is that it's really hard making the payments on both because my husband is still in school. He will be graduating in May and our income will go up then. I'm wondering if it would be smart to sell my condominium in Los Angeles to make it easier for us to make the house payments. --Liz W.

DEAR LIZ: I would strongly recommend that you visit with your tax professional to determine what the "after tax" cost of your Los Angeles condominium really is. You indicated that you are currently paying $500 per month to cover expenses. To determine the real cost of holding your Los Angeles condominium you must take a variety of factors into consideration.

First, are you an employee whose employer deducts your income taxes from your earnings? If this is the case, you may qualify to have less money deducted from your payroll check, as you will now have two sets of deductions: your mortgage interest on your home and possibly the net losses from your condominium as a rental.

Your tax bracket determines the amount of deductions that you can take on your mortgage. Federal law allows you to adjust the number of exemptions you claim. This in turn results in less tax being taken from your income and more net pay for you to cover expenses. (An important point to note is that if you are making a lot of money, you may be subject to the "alternative minimum tax," which can limit this deduction as well as your investment deductions.)

Assuming that the alternative minimum tax is not an issue for you, there are additional deductions that you can claim for your condominium that you could not claim when it was your primary residence. If you haven't started to do so already, be sure to track all expenses associated with your condominium, as most of these are deductible. This includes your mortgage interest, homeowner association dues, utilities, insurance, repairs, plus any other costs that you incur in managing the condominium. This generally includes the cost of any trips that you might take to Los Angeles to rent the condo or to handle other management issues.

One of the most important deductions that you can take on your rental property is depreciation. Depreciation schedules vary depending upon the type of investment property you own. For example, on a car used for business, you might have a five-year depreciation schedule. For real estate investments many people use a 20-year depreciation schedule. Here's how it works.

First, you must determine what percentage of your property value is due to the improvements and how much is associated with the land. On a $260,000 condominium, the land value may be $100,000 and the improvements would be $160,000. (You can check your tax bill to determine these ratios, hire an appraiser, or check with a Realtor as to the land value in your area.) Assuming that you elect a 20-year depreciation schedule, you could then deduct an additional $8,000 per year -- the value of the deduction is based upon your tax bracket.

An important point to note about depreciation is that it lowers your tax basis in the property. Your tax basis is your actual acquisition costs including the price and any closing costs plus any capital expenses. Each year you claim depreciation, that amount is deducted from your basis.

This means that when you sell the property, you are increasing the amount you may have to pay in capital gains. Investors can often avoid or defer their capital gains taxes by exchanging (trading) a property where they have maxed out their depreciation for a new investment property. Again, check with your tax professional to determine what applies in your specific situation.

Once you have that number, you still must take into consideration a second number. This is the amount of principal reduction that you are making each month. If you have not refinanced, you are probably paying down a fair amount of your principal each month as well.

My guess is that just the depreciation benefits alone will be enough to make your property a "break-even." If possible, hang on to your condo until the market improves.

Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com and find her on Twitter: @bross.

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Make real estate a design tool for life

Thu, 19 Nov 2009 08:18:22 PST

REThink Real Estate

Tara-Nicholle Nelson
Inman News

Q: I bought my first home about five years ago. Since then, I bought a multifamily home and moved into it, renting out my first home, and then bought another house and that's where I live now. I got a great deal on this house, which is in one of the best neighborhoods in my area, because it needs so much work. Now, with the economy, I'm concerned that I'll never be able to do the needed repairs.

It's too broken down to rent, and I couldn't cover my expenses on it, even if I were able to rent it out. In fact, I'm nervous that if we have a big earthquake my foundation problems will cause major, irreparable damage to the house.

On a lark, I went to look at some new condos and lofts that are being rented downtown -- I loved them, and I could rent one for less than half of what I pay to live in my current home. I believe that real estate is a big part of building wealth, but I'm seriously thinking about selling this house and living in one of those rental apartments. What do you think?

A: Well, you are certainly not alone. I have had a number of my personal real estate clients and friends make the decision to either buy investment properties before buying a home, or to sell their homes, rent and focus their real estate efforts on buying homes to rent. The situation you propose is very similar: staying in the real estate market as an investor while renting the place you live.

Mindset Management

First, you must get a clear understanding of what real estate ownership means to you. You'd be surprised at how differently different people answer this question. To some, owning a home is the American Dream. To others, ownership is primarily for wealth-building, strictly for investment.

Still others think owning a home is a burden or a blessing, or something you just have to do versus something optional that you can do someday. Many people, when asked what their home is to them, will repeat the refrain: "My home is my biggest asset."

No matter where you fall on this continuum of beliefs, I want to propose a new view of property ownership to you. I submit that your home is not actually your biggest asset. It is, of course, most people's largest financial asset.

But yourself, your wellness, your relationships, your education and career, your talents and skills, your hopes and dreams for the future: any or all of these might, perhaps, be larger life assets than your home.

It follows, then, that the measure of a good real estate decision is not necessarily one that gets you or keeps you in a property at any cost, for its own sake. Rather, a wise real estate decision is one that nurtures and develops whatever your biggest assets in life actually are. The decisions to avoid are the ones that threaten to harm your largest assets.

Your ownership decisions each present a singular opportunity to impact -- for better or for worse -- virtually every single element of your life and daily lifestyle. They impact your surroundings, your finances, your relationships, your stress level: everything. For that reason, I believe that the best view and use of real estate is as a tool for designing your whole life.

The vision of a new way of life -- half the living expenses and twice the living experience -- is what you are glimpsing and starting to understand that you might want to reach out and grab. Selling your current residence and renting might be a means to do that. Don't stay stuck in a house you can't afford to repair out of someone else's sense of what you should do.

Before you make this move, honestly analyze any opportunity costs you might experience by selling and renting, including the tax advantages of owning your home and the appreciation you might stand to build over the years you had originally planned to be in the home.

Need-to-Knows

As a real estate broker, my party line is supposed to be to always encourage homeownership -- something I still believe is an inherently valid experience for tax relief, equity-building and emotional reasons, if executed strategically by an individual who actually wants to own his or her home. In light of the recent housing crisis, however, almost every thinking homeowner has privately or publicly reconsidered the value of homeownership.

In the classic real estate book "Rich Dad, Poor Dad," and the series of books that arose therefrom, author Robert Kiyosaki has long taken the position that the home you live in is not an asset at all but a liability, because you have to pay into it every month. By contrast, Kiyosaki argues, income properties with positive cash flow are truly assets on your balance sheet.

With so much recent construction sitting on the market and being converted into rentals, it is much cheaper to live in luxury in many urban areas as a renter than it is to obtain that same high standard of living as a homeowner. It seems that you had precisely this same epiphany during your recent apartment-shopping trip.

Our whole country is undergoing a rethink these days when it comes to real estate. While renting might seem to some like throwing money out the window, if you compare your budget in owning your home (including the tax advantages) and your budget renting at a higher standard of living than you are now, and you come out significantly ahead renting, far be it from me to say that you shouldn't pursue the lifestyle upgrade.

But do so strategically, and only after you are totally clear on and OK with all the consequences and opportunity costs.

Action Plan

1. Sit down with your real estate broker or agent and get her opinion of what you would net if you sold your current home. Make a plan for how you will save or invest those funds.

2. Cultivate a clear vision of your life in the future at three-, five- and 10-year intervals, and see whether there is a time at which you would prefer to be living back in a home you own.

3. If so, stay informed about market dynamics. Appreciation rates are fairly flat in most areas, but we're talking about up to 10 years here. Avoid waiting so long that you are priced out of the housing market in areas you want to live. (Although, if your rental properties are in the same area, they might serve as your placeholder in the market.

There may also be some tax advantages to converting one of them to your primary residence in the years immediately before you sell the property, if selling is in your long-term plan. Consult with your tax professional about incorporating these sorts of strategies into your long-term plan.)

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Nonrefundable rental deposits stir debate

Thu, 19 Nov 2009 07:41:56 PST

Rent it Right

Janet Portman
Inman News

Q: We listed our rental on craigslist, which listed key terms, including a provision that the pet and cleaning deposits were nonrefundable. A couple contacted us and visited the rental, and we agreed orally, (and) with a handshake, to lease to them. It was clear to everyone that the deal was premised on the terms described in the craigslist ad.

Now our tenants are leaving, and they claim that the pet and cleaning deposits should be refundable. The ad is archived, it cannot be edited, and it plainly says they are not. If we do not return these deposits and our ex-tenants take us to court, will we win based on the clarity of the ad? --Charles and Angie G.

A: No lawyer in her right mind would predict a win for someone who's headed off to court. No matter how much the law and the facts appear to be in someone's favor, it's impossible to predict the outcome. A lot depends on how the case is presented and, of course, the sensibilities of the judge. That's why the most common answer to questions like yours is, "It depends."

So, on what does the answer depend? When you base a landlord-tenant relationship on an oral lease, the key terms are whatever the two of you agreed to. The trouble is, if you have differing memories, the case boils down to "he says" vs. "she says." When that happens, judges look for other evidence of the deal.

For example, if you own 20 rental units and all of them have written leases that include this provision, that's some indication that, more likely than not, you explained the nonrefundable issues to these tenants, too.

Ads are also useful; they at least show what you intended when you listed the rental. And therein lies the rub.

The ad by itself doesn't prove what you ultimately agreed to, because as we all know, landlords and tenants often vary the terms that were outlined in the ad. For instance, an applicant who has excellent credit and rental history may be able to convince a landlord to lower the security deposit. It would be preposterous for that tenant to demand the return of the advertised deposit, and to bring in the ad as proof of his claim.

Similarly, tenants with dogs often respond to ads that specify no pets, confident that once the landlord meets their beautiful, well-behaved and college-educated mutt, the landlord will relent (it sometimes actually works). If these folks don't sign a lease, and the landlord later tries to evict because of the pet, the ad will not defeat the tenants' stronger evidence -- that they've lived in the rental with the dog for some time without the landlord's objections, which indicates that the oral lease did in fact permit pets.

If your tenants take you to court over your retention of the cleaning and pet deposits, you'll have the ad to back you up -- but it won't necessarily win the case for you. Expect your tenants to argue that those terms were put aside during rental discussions. Who knows how the judge will rule?

Incidentally, a few states forbid landlords from requiring nonrefundable fees, including California and Montana. Some states specifically allow them, but the majority of states don't regulate this issue one way or the other. You'll need to do some legal research to find out if you're even permitted to impose nonrefundable fees.

Q: We have a two-year lease that has 18 months left on it. The home was foreclosed last month and for a time the bank was our landlord. The bank just sold our "bank owned" home to an individual who says he wants to move in. He claims he can ask us to leave with 90 days' notice. Is this correct? I thought the new law gave tenants with leases protection from such evictions? --Dave B.

A: The new law you're referring to, signed by President Obama in May 2009, does indeed give tenants with leases some protections when their home is foreclosed. When the bank forecloses, and it becomes the new owner, it must honor your lease, just as any new buyer would have to do if your landlord simply sold the property. But if an individual buys at the foreclosure or trustee's sale, and that buyer intends to occupy the property, you can be told to leave with 90 days' notice.

Your situation presents an interesting but common wrinkle on the foreclosure process. Your home was taken over by the bank upon foreclosure, making the bank the first new owner. Consistent with the rule described above, the bank had to honor your lease. Then, in a second sale, the bank sold to an individual. Even though that buyer wants to occupy the home, he cannot get you out with a 90-day notice, because he has bought from the bank-as-owner, not at a foreclosure or trustee sale from the bank-as-lender.

In other words, a would-be occupying buyer gets to hand you a 90-day notice only if he buys at the foreclosure or trustee sale -- not when he buys later. The second owner will get the property subject to any existing leases, just as he would if he had bought from a regular seller whose property is occupied by a lease-holding tenant.

Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com.

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Many REO buyers hit financing snag

Thu, 19 Nov 2009 01:00:00 PST

Can lenders dictate loan in bank-owned sale?

Tom Kelly
Inman News

Remember when lenders were content to sell foreclosed homes to any qualified buyer? Their popular message was, "We're in the lending business, not in the real estate business."

With the large number of REOs (bank-owned properties) overwhelming most mortgage lenders and driving many others out of business, it's curious that some are making stringent demands on how foreclosed homes are financed.

A few lenders are even requiring that they supply the financing for any foreclosed property in their portfolio.

The policy took Tom Lasswell, a mortgage professional with Guild Mortgage, completely by surprise. Lasswell recently had a preapproved borrower who found a bank-owned property. While the buyers were highly qualified, the lender who owned the property let it be known that two other parties were interested in the parcel.

"Our clients' offer was accepted, but only if they got a loan from the lender who held the property," Lasswell said. "If they wanted the home -- which was perfect for them -- they had to get a loan with that lender and close with (the same lender). If our clients did not comply with those terms, the lender with the foreclosure would move on to the next person in line."

No specific loan terms were discussed or promised. The potential buyers simply had to accept that the financing would come from the lender holding the property.

"I've known some builders that require borrowers to be preapproved or prequalified through their affiliate companies or relationships, but the borrower has not been required to use those services as a part of the contract. They have always been able to choose."

Is it even legal for a bank to ever dictate where a borrower obtains financing?

According to Joseph M. Vincent, general counsel for the Washington State Department of Financial Institutions, a lender can require a borrower to secure financing when the lender is acting as the "seller" of the property.

It is a violation of the Federal Anti-Tying Law for a bank, its holding company or affiliate to condition a loan on the purchase of specific property. However, it is not a violation if the institution is telling any would-be buyers that, as seller, it will not sell the property to them unless they obtain a seller-financed loan for that purpose.

However, if the bank, savings association or one of its subsidiaries or its holding company required more than the seller-financed loan, that extra requirement could be an illegal tying arrangement, according to Vincent.

For example, a bank sells you an office building it owns through foreclosure, the terms of which are 20 percent downpayment and an 80 percent bank-financed purchase loan. So far, so good. But the terms also require that, as a condition of purchase, you agree to use Property Manager "X" or Remodeling Consultant "Y."

The bank, savings association or one of its subsidiaries or its holding company has a beneficial ownership interest in or less-than-arm's-length relationship with Property Manager "X" or Remodeling Consultant "Y." This would likely be an illegal tying arrangement, Vincent wrote.

Vincent cited Sharkey v. Security Bank & Trust Co., where a bank's tying arrangement constituted a violation because the bank required a customer to purchase real estate from the bank as a condition for obtaining a loan. The court sided with the customer, and rejected the bank's argument that the customer must prove the arrangement was "anticompetitive."

In another example, a bank conditioned the extension of a loan for purchase of a restaurant property on the borrowers' agreement to also purchase (at an inflated price) a commercial property that the bank acquired through foreclosure.

When 2008 finally came to an end, there were approximately 871,000 foreclosed, or REO homes, in the U.S., up from 414,000 at the close of 2007. More than 5 percent of all "performing" mortgages were 60 or more days delinquent, pointing to a potentially precarious situation.

TransUnion, the huge credit and information-management company, expects that percentage to double in 2009 as more adjustable-rate mortgages (ARMs) and option-ARM instruments click in to their adjustment mode.

These adjustables, approximately $321 billion strong and scheduled to reset before 2012, could well drive the number of bank-owned homes to more than 2 million. Most of these properties are vacant, creating a drag on neighborhoods and lessening the desire of many other homeowners to hang on.

Those numbers, while numbing, may even be conservative. Elizabeth Warren, chair of the Congressional Oversight Panel, recently said that 10 million to 12 million U.S. homes could ultimately go into foreclosure.

You would think lenders would not be too picky about who would provide the financing.

Tom Kelly's book "Cashing In on a Second Home in Mexico: How to Buy, Rent and Profit from Property South of the Border" was written with Mitch Creekmore, senior vice president of Houston-based Stewart International. The book is available in retail stores, on Amazon.com and on tomkelly.com.

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Get-out-of-lease-free card?

Thu, 19 Nov 2009 01:00:00 PST

Tenant buys house, seeks special treatment

Robert Griswold
Inman News

Q: I have been a tenant in a rental home for the last few years. A few months ago I signed a new 12-month lease but I just bought a new home and will be moving in next week. My lease doesn't expire for eight more months but I couldn't pass up this great opportunity to become a homeowner. Unfortunately, I can't afford to pay the rent and the new house payment. How can I break my lease?

A: In most residential leases, there are no provisions for the tenant to unilaterally break or terminate the lease because he or she purchased a home. A lease is a binding legal contract, and the landlord entered into this agreement with the understanding and expectation that you would stay for the duration of the lease. Often the landlord will even give you favorable terms such as a lower monthly rent based on this long-term lease. So to tell your landlord that you are moving next week and don't want to be responsible for the balance of the lease term is not likely to receive a positive response from your landlord.

This applies to all circumstances where a tenant might find it advantageous to break a lease, such as finding a better deal on an apartment, a job transfer, a change in a relationship, or any other personal situation that arises and the tenant suddenly decides it is in his or her best interest to relocate. The only exception would be if you had negotiated with the landlord in advance for the right to terminate the lease.

This "lease termination" clause can be specifically and narrowly written to be only for certain predetermined reasons like a home purchase, a job transfer, or it can simply allow the tenant to leave without stating a reason. In today's weak rental market for most areas, landlords are willing to agree to a lease termination clause that would allow you to break the lease under mutually agreed upon terms such as a flat dollar amount or a penalty of one or two months' rent.

Unfortunately, you did not plan ahead and now are expecting the landlord to absorb the loss of income on your rental home. You should have considered the fact that you would be obligated for another eight months on your current lease before purchasing the home. It may have been helpful to contact your landlord in advance when you first began to look at a purchase option.

Even though there is a lease and the landlord is not obligated to any changes in the terms, you may have been able to work together to start marketing the rental home while you are still there and possibly limit your liability if the landlord is able to re-lease the property before your lease expires in eight months. However, at this point, you should still contact your landlord immediately and explain the situation and see if he will agree to take a set amount of money if you agree to vacate this weekend and leave the property in excellent condition so he can have it back on the market immediately.

Q: I have been renting a house to three college students and their lease is up soon. However, I just learned that only one of the original students on the lease is still there. He does not plan to renew the lease and I am wondering what to do with the security deposit. How do I make out the refund check for the security deposit? Do I divide the security deposit into separate shares and send out checks to each of them? Or do I send one check to all three names? I am concerned that the one remaining tenant will claim he is entitled to all of the deposit back and then I will be sued by the other tenants. I am in a bind as I have no idea where the other two tenants are currently living.

A: You should make the check payable to all three tenants listed on the currently valid lease. So unless the vacated tenants have given you a written statement releasing any interest they have in the security deposit, you should make the refund check payable to all three named tenants. You do not have any information on the current whereabouts of the other two tenants, so your only option is to mail the check to the address of your rental unit.

It is likely that the current tenant will be the one who receives the refund check, but any challenges the tenants face in negotiating the check are their issues not yours. It is possible that you will be provided with the current contact information for the other two tenants before sending the refund check. In that case, I would suggest you still send the check to the property address and also send a copy of the check and the final accounting of the security deposit to the other tenants so they would be aware of the status of the deposit.

This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and "Property Management Kit for Dummies" and co-author of "Real Estate Investing for Dummies."

E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com.

Questions should be brief and cannot be answered individually.

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Construction plan falls outside the 'zone'

Wed, 18 Nov 2009 11:20:27 PST

Law of the Land

Tara-Nicholle Nelson
Inman News

In the case Cimino v. Zoning Board of Appeals of the Town of Woodbridge, Christine Cimino purchased a 5-acre parcel of undeveloped land in an area where a lot was required to have 2 acres of contiguous non-wetland as a specific setback requirement in order to get a building permit.

More than 20 years prior to Cimino's purchase of the property, a prior owner had applied on three separate occasions for the parcel to be zoned a buildable lot. While the surrounding land was subdivided into buildable lots, the inland wetlands agency denied each of the prior owner's applications to approve this particular parcel. The rest of the parcels became numbered lots, while the remaining parcel was labeled "Remaining Land of __________, Trustee." It was transferred along with a neighboring lot until purchased from the owner of the neighboring lot by Cimino.

Cimino applied to the zoning board for a variance from the setback requirement and a variance allowing her to build on the property despite it having only 1 acre of contiguous non-wetland. The zoning board denied Cimino's application for a variance, given that the parcel had not been a buildable lot when originally subdivided, nor when purchased by Cimino, so the value of the lot was the same after the board's denial of a variance and permit as it had been when Cimino purchased it.

Cimino's appeal of the board's decision to the superior court was denied on grounds that the parcel was never a zoned lot and that Cimino had not demonstrated a hardship or compliance with the town's zoning ordinances.

The Connecticut Appellate Court affirmed the lower court's denial of Cimino's appeal. First, the court explained, the fact that Cimino's parcel was never a buildable lot in the first place was not a dilemma that was even legally capable of having been resolved or overcome by a variance.

Additionally, the court opined, the fact that the owner was aware that the property was not a buildable lot at the time she purchased it invoked the "purchase with knowledge rule," and meant that her purchase with knowledge, not the denial of the variance, was the cause of any hardship the owner experienced.

As such, the appellate court upheld the lower court's ruling.

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Fireplace demo done right

Wed, 18 Nov 2009 10:01:07 PST

Homebuyers seek to swap chimney for French doors

Bill and Kevin Burnett
Inman News

Q: My husband and I are in escrow on a home that has an old fireplace. We had it inspected by a professional who has a good reputation for restoration. The report came back that it is in hazardous condition and requires removal or major renovation. Removal is our preference.

It is on an exterior wall of the living room that would be better suited to having French doors in its place.

Neither of us has a problem with getting physical in removing the fireplace, but what harm to the house (or ourselves) are we in danger of getting into?

A: We can promise that you will get physical. You won't harm the house, unless a wayward brick goes through a window. And you won't harm yourselves -- except for some sore muscles -- if you pay attention and work safely.

These days, fireplaces don't have the same panache as in days gone by. Yes, a fire is nice on the occasional winter's eve, but for most folks, the mess and energy inefficiency outweigh the occasional coziness. We're not surprised that, faced with a big repair bill or demolition, you're opting to rip it out.

Kevin gave his wife Heidi the option of having a fireplace when we built his house. She said no thanks. Rather strange for a mason's daughter, but true.

Taking down the fireplace is a job you can do yourself, but it will take some time and you must use extreme caution.

When Kevin first moved to Boise, Idaho, a friend from Alameda, Calif., was already there. Mike was a renovator. He owned a little house on a big lot in an old part of town. The house had a chimney that needed to come down. One day a crew of guys showed up. They tied one end of a rope around the top of the chimney and the other end to the bumper of a pickup and yanked it down -- quick and efficient, but dangerous and felony stupid.

Demolish your fireplace from the top down, one brick at a time. Erect or rent a scaffold and work from it. Make sure that the scaffold is equipped with stable flooring and safety rails and that it is securely attached to the building.

Then, equipped with a hammer and cold chisel, begin removing the bricks one at a time, starting at the top. Don't throw the bricks off the scaffold. Stack them on the scaffold deck until you get a pile.

Lower them to the ground using a 5-gallon bucket attached to a rope. Neatly stack the bricks in an out-of-the-way place.

As you get below the roofline, you'll probably notice that there will be a fair amount of reconstruction you'll have to do to close up the hole created when you remove the chimney.

It will include patching the roof and framing and finishing soffits and eaves. Going down the exterior wall, there will be siding that should be patched in. When you finally get to the firebox, you'll have a gaping hole in the wall letting the outside in.

So far, none of it will affect the structure of the house. Below the floor line might be a different story. You're definitely looking at fixing some floor framing and, depending on how the foundation was constructed, possibly doing a little foundation work.

From this point on, it's a relatively simple matter of framing the opening for the new French doors and installing them.

Make no mistake about it: It's a lot of work, but doable. The added bonus you'll have is hundreds of used bricks that, once cleaned, can be recycled into handsome walkways, planters or even a new barbecue.

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Unwed homebuyers tie financial knot

Wed, 18 Nov 2009 01:00:00 PST

When real estate purchase precedes 'I do'

Mary Umberger
Inman News

Jude Galligan and Amber Gugino bought a condo together a year and a half ago, putting them right into the mainstream of American real estate, where signing a real estate contract these days often precedes saying "I do."

What the Austin, Texas, couple did before they got to the closing, however, is unusual -- even though legal experts say it shouldn't be. They put their financial intentions in writing to make sure they were on the same page if life's "what ifs" -- breakup, death, job loss -- were to unfold.

"We're planning to get married," said Galligan. "The biggest piece of insurance for us was the understanding of what would happen (to the property) if the relationship terminated."

Such agreements should be the norm among cohabiting couples, says Frederick Hertz, an Oakland, Calif., real estate lawyer who specializes in advising unwed couples. But he says they're a rarity.

"I'd be surprised if more than 10 or 20 percent of unmarried co-owners have an agreement," said Hertz, who is the co-author of "Living Together: A Legal Guide for Unmarried Couples."

That's a small segment of a big number: Census data suggest that more than 12 million unmarried partners were living together between 2005 and 2007.

Most such couples don't even discuss the prospect of an unhappy ending, Hertz said.

"I'd say 50 percent never even give it a thought," Hertz said. "In cases where a couple is breaking up, and one of them has been putting more (financial support) into the house, I ask them, 'What did you talk about?' " before moving in together.

"They say, well, we were going to be together forever, so we didn't talk about it," he said. "It's amazing how people can avoid talking about something difficult."

Galligan and Gugino didn't avoid it. They planned for potential breakup, unemployment and death.

"If the relationship ended, then we agreed in writing to sell the property and to split any loss or gain," Galligan said.

Galligan said he took the steps because he's a real estate agent and often writes about condo development at his Downtown Austin Blog. He sees many unwed couples who are purchasing homes in the area -- or are selling because they're breaking up or in financial trouble, he said.

"The most important decision for us was to purchase a condo that either of us could afford if one of us could no longer make the payments" because of the other's death or prolonged job loss, said Galligan.

They rewrote their wills to specify that the condo should pass to one another, and they purchased life insurance to cover the mortgage if one of them should die.

So where does one begin to plan for the what ifs?

Hertz said a first step is to legally clarify the state of their union, which can be affected by state laws that do -- or don't -- cover their partnerships under the umbrella of marital law.

In six states, for example, same-sex couples can marry; in another six they can register as domestic partners, both of which trigger marital law, he said.

Then there's the matter of who owns how much of the house. Not all couples split the expenses 50-50, which may be just fine but could cause big ripples in a breakup if not spelled out, Hertz said.

"The biggest issue for unmarried couples is, if one earns more or has inherited wealth, is their 'excess contribution' (to the home) a gift or a loan?" he said. "In a typical marriage, where they pool their money and the marriage breaks up, the higher earner (or bigger contributor) doesn't get that money back.

"For unmarried couples, there isn't that presumption," he said. "This is often the touchiest issue."

Dissolution has to be planned for, he said. "Each state has a process of ending a nonmarital co-ownership, but in most it's a poor and cumbersome proposition."

The death of one partner -- unless other financial plans have been made -- may precipitate a home sale, he said, and it's incumbent on individuals who have children from previous relationships to make it clear what will happen to the house in the event of death.

"I typically try to encourage people to buy an insurance policy for the kids so they can leave the house to each other," Hertz said.

As complex as the issues can become, couples have numerous choices and there's no "one size fits all," he said.

"There is no right or wrong," Hertz said. "The right answer is the agreement that matches your heart."

Mary Umberger is a freelance writer in Chicago.

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Attack of the 'pushy' agent

Tue, 17 Nov 2009 10:15:23 PST

Did Realtor violate code or expose subpar service?

Bernice Ross
Inman News

DEAR BERNICE: I just listed my condominium for sale. An agent who lives in my building knocked on my door and yelled at me for not listing with her, saying she knows the building better than anyone else. She also claimed that my listing agent has so many listings that he will have no time for me now that the contract is signed.

So far, we have had only two showings in the last week. I'm beginning to wonder if the agent in my building is right.

On the other hand, she is so pushy I can't imagine having to go through a transaction with her. She actually tried to push her way into my home even though I was standing in the doorway blocking her. I signed a six-month listing. Should I just wait and see what happens? --Paula W.

DEAR PAULA: First, the agent who lives in your building is completely out of line. In fact, not only has she violated the Realtor Code of Ethics, she could be subject to disciplinary action from her local board of Realtors as well as the potential loss of her license. The Realtor Code of Ethics prohibits agents from soliciting properties listed with another agent during the listing period. Furthermore, her behavior may meet the standard for "tortious interference."

Tortious interference occurs in a real estate transaction when a person other than the seller or the listing agent attempts to interfere with an existing contract between these two parties. According to Wikipedia, "The hardcore instance of this tort occurs when one party induces another party to breach a contract with a third party, in circumstances where the first party has no privilege to act as it does and acts with knowledge of the existence of the contract. Such conduct is termed tortious inducement of breach of contract."

Even though this woman is a neighbor, if she behaved this way with you, there's a high probability that she has acted this way with others as well. The first step is to completely document what happened and when. Send a copy of your letter to her supervising broker outlining the events.

Depending on how strongly you feel about this, you could also file a formal complaint with her local board of Realtors as well as your state real estate commission. The challenge of course, is that unless someone else witnessed the conversation and her actions, you're in a "she-said, he-said" situation.

The second issue is what to do about the current activity on your condominium. Did you interview three different agents? Did your agent share a written marketing plan with you? Where is your listing being posted? Is it on Realtor.com, your local multiple listing service, as well as on multiple real estate portal sites such as Craigslist, Trulia and Zillow? Did your agent post multiple still pictures of the property online? Did he shoot a video? Did you stage your property before you listed it? If not, ask your agent to take these steps immediately.

If the agent is not performing, contact the agent's supervising broker and let the broker know about your concerns. One of the key factors in evaluating the activity is your price range. Properties that are in the first-time-buyer range are generally selling quite well everywhere in the country.

On the other hand, more expensive price ranges are seeing much less activity. If you're in the first-time-buyer price range, are you correctly priced? Did the agent show you comparable sales? Are other properties selling in your area or is the entire area quiet? These are just some of the factors that could contribute to your property not selling.

The third issue is whether you can cancel a listing if you are dissatisfied with the service that you are receiving from your current listing agent. The answer to this question is, "It depends."

Many companies have what they call a "service guarantee." The agent signs that guarantee and if the agent doesn't deliver the services promised, you can contact the supervising broker, voice your concerns, and in many cases, have another agent assigned to the listing. In some cases, you may be able to cancel the listing without having to pay a commission.

Some firms, though, may refuse to release you from the listing contract. This means that if you want to take the property off the market, the brokerage may allow you to do so but you will not be able to list it with another brokerage until your original listing agreement expires.

Furthermore, many listing agreements contain language that entitles the brokerage to collect a commission if you take the property off the market. In actual practice that seldom happens, but there's always that risk.

Good luck getting your condominium sold and don't let that pushy agent push you around anymore.

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Top mortgage secrets exposed

Tue, 17 Nov 2009 08:27:46 PST

Book Review: 'Homebuyers Beware'

Tara-Nicholle Nelson
Inman News

Book Review
Title: "Homebuyers Beware: Who's Ripping You Off Now? What You Must Know About the New Rules of Mortgage and Credit"
Author: Carolyn Warren
Publisher: FT Press, 2009; 288 pages; $17.99 list ($13.59 on amazon.com)

If you read this column often, you know how I feel about the fear-mongering approach we so often see in today's real estate and mortgage how-tos. It's hard for me to get behind any "advice" that attempts to position real estate consumers and their advisers in an adversarial face-off, or seeks to further foment the division and paranoia already pervading the real estate ether.

My sense is that the most paranoid buyers are not necessarily the ones who save the most money and get the best deals. In fact, I've seen paranoia cause people to make poor, panic-based decisions and incorrectly suspect very well-intentioned advisers of steering them wrong, alienating themselves from all the legitimate folks and essentially delivering themselves into the hands of the folks they should really be avoiding.

Whew -- glad I got that out.

But why am I going there here? Well, at first glance, "Homebuyers Beware: What You Must Know About the New Rules of Mortgage and Credit" positions itself to take that paranoia-cultivating approach. In bold red and black, the cover inquires "Who's Ripping You Off Now?" and elsewhere promises to "(e)xpose new secrets, lies and scams the mortgage industry doesn't want you to know about."

This I don't love. And outside of the fact that it is eye-catching and might be argued to enhance the book's sales, I don't really get it. It's not the most unique approach, and the author, Carolyn Warren, is in fact a player in the mortgage industry and throughout the book mentions herself and other mortgage professionals she knows who share the ultimate priority of their clients' best interests.

Warren even acknowledges that paranoid borrowers don't think straight, as she tells the tale of a woman who filed a formal complaint against her for pointing out the exorbitant fees and interest she was being charged for a subprime loan.

Once I got past my ever-increasing irritation at this now-ubiquitous borrower vs. broker slant, however, I was quite pleasantly surprised at what lay between the covers of "Homebuyers Beware." In fact, I found it to be full of how-to guidance, misconception-busting material, and very usable letters, scripts and questions for today's borrowers to use in very real-life situations.

In fact, the real-worldness of "Homebuyers Beware" was far and away its strongest suit -- and that's a big deal in the mortgage advice genre. So many mortgage guides are outdated or prioritize the easy loan types to discuss (e.g., conventional), ignoring that FHA and other government-backed loans are rapidly increasing in use by buyers coast to coast.

Many of these guides often also seem to avoid dealing with issues real-world borrowers run into that seem like irritating minutiae but actually create the contours of a realistic borrowing experience.

Not so with "Homebuyers Beware." Warren covers topics I have never seen covered elsewhere, but that I hear real-life buyer/borrowers ask about all the time, and she covers them concisely yet thoroughly.

For example, she shatters the common misconception that those free credit reports one can order via the TV commercials are a good substitute for the reports pulled by mortgage brokers. She covers what happens when you go online and click on those "let mortgage lenders compete for your business" adverts.

She gives some bullet points about when you can buy another home after you've lost one to foreclosure or short sale. She covers how to know when you should lock your interest rate. And the answers she gives ring truly useful for those who actually want to close their transactions, unlike the authorial advice I've seen in many books, which recommend borrowers take courses of action unlikely to ever result in a closed escrow.

And Warren doesn't stop there. She provides guidance on the question of whether to work with a broker, bank mortgage representative or a direct lender -- this is probably the No. 1 mortgage question borrowers nationwide ask me in my various social networks. She provides a line-item description of all the fees one might see on a good faith estimate, and one of the most realistic and accurate written explanations I've ever seen of which line items are legitimate, which are bogus, which to suck up and which to protest.

These topics might seem excessively micro, but in my experience they are very frequently asked questions among wannabe homebuyers, who I think should buy the book, cover the publisher's cover with brown paper like we did in high school, get out the highlighter and sticky notes, and go to town.

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Home inspector no-nos

Tue, 17 Nov 2009 07:41:09 PST

Sellers face disclosure dilemma after erroneous report

Barry Stone
Inman News

DEAR BARRY: Our home is listed for sale. We accepted an offer a few weeks ago, but the buyers canceled the deal after the home inspection. The home inspector reported numerous problems with the foundation and structure.

We immediately hired a licensed structural engineer who determined that the foundation and structure are sound and that the home inspection report was inaccurate. So now we have a disclosure problem for future buyers. There are two conflicting reports, and both must be disclosed. What should we do? --Kim

DEAR KIM: Home inspectors should not draw conclusions about the structural integrity of foundations. Instead, they should point out specific foundation defects that are visible and recommend further evaluation by a licensed structural engineer.

Here are a few common examples: A home inspector could say, "Large cracks are visible in the foundation stemwall"; or "Gaps between the foundation and the sill plate indicate possible building settlement"; or "Decomposed concrete is apparent on the interior foundation surfaces."

Disclosures of this kind describe observable conditions without drawing structural conclusions. When home inspectors overstep that boundary, problems often result.

Now that there are conflicting reports, future disclosure must be carefully addressed. Keep in mind that the home inspector is a generalist and the structural engineer is a specialist. If your family doctor suspected that you might have a heart condition but your cardiologist found no problem, the specialist's opinion would prevail. The same principal applies here.

Greater weight should be given to the engineer's report because the engineer has a higher level of expertise with regard to foundations. His report should override the home inspection report. However, an additional precaution is advised to reassure future buyers.

Contact the home inspector and request a review of his findings. Show him the engineer's report and request that he write an addendum to his own report, recognizing the findings of the engineer. Unless there were defects that the engineer overlooked, the home inspector should be willing to comply with this request.

DEAR BARRY: We moved into our home a few months ago. The sellers disclosed no roof problems, and none was reported by our home inspector. But the first time it rained, water dripped from the ceiling light in the kitchen. Since the leak happened so soon after we bought the property, are the sellers or the home inspector liable for roof repairs? --Rudy

DEAR RUDY: In situations of this kind, sellers usually claim that the roof never leaked when they owned the property. In most cases, you cannot know if such claims are true. Every roof leak has its first occurrence, and it is possible that your roof never leaked before.

The first thing to do is locate the leak. Your home inspector should be willing to take a second look at the roof and help you find the defect. If damage or wear is apparent, that could indicate past leakage. It would also cast doubt on the thoroughness of the home inspection. In that case, the sellers and the inspector could share some liability.

Hopefully, the roof needs only routine patching. That can be determined when you and the home inspector are on the roof. Evaluation by a licensed roofing contractor is also recommended.

To write to Barry Stone, please visit him on the Web at www.housedetective.com.

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Home warranty springs a leak

Tue, 17 Nov 2009 01:00:00 PST

Many buyers find exclusions aplenty when addressing defects

Benny Kass
Inman News

DEAR BENNY: Our home was built and completed in October 2007. Twice in the past year during driving rain and high winds, we've experienced leaks. The first time, a leak started on the back porch over the exit door to the porch. The second and most recent time, it was a leak coming through the light fixture in the walk-in closet of one of the upstairs bedrooms.

The builder's one-year warranty has expired. Thinking we were covered under the 2-10 Home Buyer's Warranty (Workmanship/ Systems and Structural Limited Warranty Coverage), I called to find out that the roof is not covered; it's only the roof framing systems under "designated load-bearing elements that are covered under this structural defect warranty." Is this not a framing issue? Do we have no recourse under this warranty? Any advice would be appreciated. --Willie

DEAR WILLIE: I am not an engineer so I really can't give you a specific response. I suggest you contact a licensed engineer (or architect) who should be able to give you an answer.

The engineer may also be able to determine if there are housing or building code violations. If so, you may be able to convince your builder that even though you are out of warranty, he should correct your problems at his expense.

I wanted to use your question to "get on the soapbox" about these home warranty programs. I know I will probably get a lot of flak on what I have to say, but here goes. I am convinced that most -- if not all -- of these "warranty programs" are merely public relations for builders and the real estate industry. I have been involved in a number of situations such as yours where the client found significant damage in his or her home, only to learn that the warranty insurance program did not cover those issues. In fact, several years ago, my client discovered that her house was sinking because it was built above an underground stream. The insurance policy did not cover this, even though it was promoted as an "all-inclusive" warranty.

The bottom line: If you are inclined to get a warranty program -- and especially if you have to pay for it -- make sure that you and your legal advisors carefully read the policy in advance. Quite often -- as with any insurance policy -- there are more exclusions than there is coverage.

DEAR BENNY: Years ago our dad built a cabin in Colorado and left it to his five children from two marriages. Since that time four of us have split the expenses of maintenance, taxes and insurance. We have a large family reunion at the cabin every four years, and family members use the cabin annually. One brother has never contributed and is difficult to locate when needed. The four of us are getting older and would like to keep the property in the family, as everyone enjoys the use of the cabin and the reunions. There are 12 children from the four of us plus two from the brother that does not participate. What is the best option for keeping the cabin in the family and splitting the costs involved? --R.J.

DEAR R.J.: Because the property is in Colorado, the law of that state will ultimately control what you can and cannot do. Generally, however, the four of you could try to buy out the nonparticipating sibling. The sales price should properly take into account his nonpayment of expenses.

Alternatively, even if you cannot find your brother, the four of you could file what is known as a suit for partition. This is a procedure universally accepted throughout this country. The courts have made it clear that if two or more people own a piece of property and cannot get along with each other, the courts will force the sale. Unfortunately, the only winners here are the lawyers, the speculators and the trustees (or real estate brokers) assigned to sell the property.

Your attorney will assist you in explaining the process, the costs involved and the way that you can legally serve your brother (even if he is out of state) to bring him into the lawsuit.

Presumably, the filing of the lawsuit may trigger an interest in your brother to sell. But whether he voluntarily or involuntarily agrees to sell, the four of you can ask the judge to allow the sale of his interest to you all.

Once you own the property, you should enter into a formal, written partnership or co-ownership agreement, which will spell out such matters as (1) how expenses are shared, (2) use of the property, and (3) outlining the details of what happens when a party dies, giving rights of first refusal, etc.

I have been involved representing clients in a number of partition suits, and unfortunately, all of them involve family members, such as brothers and sisters.

DEAR BENNY: In one of your columns you discussed a book that is helpful for members of condo associations. I neglected to save it. Can you please let us know its title?

We live in a fairly new association, still mostly run by the developers. The monthly dues have already been raised in 2008 and we were notified that they will increase again in 2010. My husband and I feel that the developers are having financial difficulties, have insufficient funds in the reserve accounts and are not disclosing potential/real problems (i.e., one of the buildings appears to be slipping on a moderate sloping grade, as evidenced by cracking slab in some of the units and huge gaps around exterior doors/windows).

We would like to know our options, other than selling our unit (which does not appear to have any problems). --Anonymous

DEAR ANONYMOUS: One book that may be of interest and use to you is entitled "New Neighborhoods: The Consumer's Guide to Condominium, Co-Op and HOA Living." It is written by Gary Poliakoff, a prominent Florida community association attorney, in conjunction with his son Gary.

You can find the book on the Web at newneighborhoodspublishing.com.

One option that many homeowners in your situation take is to hire an attorney to represents your interests. That attorney should be able to get access to all of the association's books and records, since in most states -- and subject to some restrictions -- those documents are available to all owners.

The attorney could also put pressure on the developer -- and remind them that even though they are the developer, when they serve on the association's board of directors, they owe a fiduciary duty to all of the owners. This is an important issue, often overlooked (or ignored) by developer representatives who are also board members.

DEAR BENNY: We have a timeshare we can no longer use because we can no longer travel. There is a yearly tax/maintenance charge of $500 per year that is hard to keep up with in these economic times. We have offered it to family and friends, but everyone's in the same boat. We are prepared to even give it away. We have two weeks of use coming soon and all fees are paid up until the first of next year. We welcome any suggestions you may have. --Fred

DEAR FRED: It will not be a consolation to you, but you are not alone. I get dozens of e-mails a month on this same subject. There is no easy answer. And the last thing you want to do is have a foreclosure on your hands -- and on your credit rating.

Have you talked with other timeshare owners? Perhaps they would be interested in buying or getting it for nothing? Have you talked with the timeshare management? Some companies have programs to assist in the sale of those timeshare units.

Some churches may be willing to accept the gift as a charitable contribution. However, when I made this suggestion in the past, I received a friendly e-mail from a local pastor saying that they just did not want to be burdened with this.

Finally, go to your favorite search engine on the Web, type in "timeshares" and you will get (at last count) more than 460 million hits. I do not vouch for any of the companies listed; you will have to do your own investigation and evaluation.

Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com.

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4 tax-credit market predictions

Mon, 16 Nov 2009 10:43:41 PST

Mood of the Market

Tara-Nicholle Nelson
Inman News

By the time I write this, just a few days after President Obama signed the extended, expanded homebuyer tax credit into law, it's already old news. I was fielding calls from reporters looking for industry insiders to quote before the ink on that thing was dry. It's already been covered every which way but loose, so I won't purport to "educate" you about the bullet point provisions it contains.

However, I submit to you that whether you were pro or con on the credit's extension, there are some behavioral-economic impacts it will have on the real estate market that have managed to escape the popular media's scrutiny.

The real estate industry party line on this thing was, of course, that the credit should be extended and expanded for its proven ability to stimulate sales.

However, there was a not insignificant number of vocal dissenters -- both within and outside of the industry -- who believed that the 2009 credit had already sufficiently stabilized the real estate market and that free-market forces (which we all know by now is decidedly not free, even in the best of times) should be allowed to play out as they might.

Well, it's here now. And indications are that this will be the last extension of the credit -- in fact, the White House wasn't super keen on it this go-round. So let's drill down into four new takes on the tax credit, from a behavioral economics perspective. (Advance warning: these are my personal predictions, not fact -- we'll all have to see how they play out!)

1. Calmer, more experienced buyers. From its literal terms, it's clear that the expansion of the credit will flush new sets of buyers onto the market -- the non-virgin homebuyers who are now eligible, and folks who make more than the previous $75,000 (single) and $150,000 (married) income limits but fall within the new $125,000 (single) and $225,000 (married) guidelines. What is not so obvious is what this will mean about the makeup of the homebuyer population, qualitatively speaking.

My sense is that these newly credited buyers will be somewhat more experienced, less fearful and panic-prone, more sedate and more conservative. Even adding in the first-timers, we're looking at buyers who are slightly more sedate, patient and deliberative -- after all, they've waited until now versus having taken advantage of the two previous years' tax credits.

This is good for the market, as it strikes me that the atmosphere, while it will undoubtedly become competitive, will be slightly less frenzied and dangerously inflationary than the multiple-offer bonanza we saw in many markets this summer among lower-income first-time homebuyers trying to cash in on the credit.

These higher-income buyers are not going to have their deals made or broken on the basis of the $6,500 or $8,000 from the credit -- they'll see it as just a nice perk for doing something they'd wanted to do anyway, perhaps with a little more urgency than they would have done it otherwise.

2. Better houses. The current homeowners who choose to take advantage of the credit to move up while prices are low will be placing their current homes on the market, providing first-time buyers with alternatives to the distressed homes comprising much of the entry-level-market inventory. These sellers will also be motivated to compete with the distressed properties on pricing, and their homes will be in significantly better condition, on average, than the garden-variety short sale or REO.

3. Reset offset. As bad as this year seemed for home values, especially early on, the fact is that most subprime adjustable-rate mortgages (ARMs) actually reset in 2007 and 2008 -- there was a lull this year in resets while we experienced the fallout in the form of foreclosures (and the absorption of them, in part, by credit-incentivized buyers). However, 2010 and 2011 are set to have a huge number of option-ARM resets. These are the loans that had a super-low minimum payment -- lower even than an interest-only loan -- and some project that about 1.5 million will reset, dramatically increasing borrowers' monthly payments in 2010 and 2011.

Rates are low now, so the rate reset itself isn't the problem. However, when these loans reset their payments often double simply because they go from requiring a 2 percent interest payment to requiring full payment on interest and principal. On top of that, the interest these borrowers didn't pay in the first few years of their loans was tacked onto their balances, leaving the vast majority of them seriously upside down on their homes.

While many observers are warning about another potentially enormous wave of foreclosures, others feel that many of these doomed loans have already failed. Either way, those who think the tax credit had already done its job might look at it as stimulating buyers to offset and absorb the coming short sales and defaults of upside-down, reset-shocked option-ARM borrowers.

4. Market Laxative Effect. From the moment the original 2009 tax credit was enacted, many real estate insiders strongly suspected it would eventually be extended. Not so on this go-round. This extension was tough to pull off, and the White House was reluctant to get behind it with full force.

The buyers I'm working with are viewing this probably final extension as a proposition to "you know what or get off the pot." Those who have been toying around with thoughts of buying and selling will feel the pressure and either get serious or self-select out of this market.

Those who really want to buy ... will. Those who really want to sell ... will. I predict we'll see a reduction in the numbers of unrealistically priced listings and deals falling out of escrow, as those who are still in the market are self-selected, serious buyers and sellers trying to get the credit while the getting's good.

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Better off renting or buying?

Mon, 16 Nov 2009 09:14:26 PST

Ownership responsibilities take some by surprise

Dian Hymer
Inman News

The push for an ever-increasing homeownership rate in this country recently led to a huge housing bubble, followed by a tsunami of foreclosures and declining home prices. Lax lender qualifications a few years ago fueled a run-up in home prices that couldn't last. It left many homeowners who bought beyond their means with damaged credit -- and without a home.

Homeownership has been the American Dream. But owning a home isn't for everyone. Factors often not taken into consideration by homebuyers: homeownership requires a lot of time, effort and a financial commitment that go beyond merely paying your principal, interest, property taxes and insurance.

In order to preserve the value of your property, you need to keep it in good condition. There's routine maintenance like clearing debris from the roof, gutters and downspouts. And occasionally there are larger projects to deal with, like replacing an entire roof or painting the exterior.

Homeowners often don't budget for these expenses and they're left with a home that has a lot of deferred maintenance. This has a negative effect on the property's value.

HOUSE HUNTING TIP: Practicing a regime of preventative home maintenance can save money in the long run. For example, if you caulk a shower to keep it from leaking, it can last for decades. If you don't, you'll end up having to replace the shower within a few years, which could cost $4,000-$6,000, depending on where you live and which finishes you use.

In addition to preserving the value of your investment, a well-maintained home gives the owner a sense of satisfaction often referred to as pride of ownership. Other benefits of owning rather than renting are tax relief, the possibility of equity build-up and appreciation over time, and the ability to modify your home to suit your wants and needs. You are master of your domain.

Condos are often touted as a maintenance-free alternative to a single-family residence. However, to preserve your investment and quality of life, it's wise to become involved in the homeowners association. This requires a commitment of your time. But it's a way to make your feelings known on issues that might affect your lifestyle.

Renting, like owning, has its pros and cons. On the plus side, the owner is responsible for maintenance. It usually costs less to rent than it does to own. Your financial well-being is less impacted by fluctuations in the housing market. You can't lose equity if you don't own the property. And, you may be able to rent in an area where you could never afford to buy.

On the other hand, unless you rent in a city where rents are controlled, your rent could increase over time. It could also decrease during recessionary periods like we are experiencing now. You may not have the luxury of painting using colors you like. Some landlords won't accept tenants with pets. There is always uncertainty as to how long you can stay in a rental. Moving a lot can be expensive and disruptive. And it can be difficult to find a rental that will suit your long-term needs.

Lower prices and interest rates can make buying a home a more affordable and less risky proposition these days than it was at the peak of the latest boom. However, worrying about how you're going to afford your next mortgage payment or afford to keep the place in good shape can destroy your pride of ownership. Owning a home can become a ball and chain.

THE CLOSING: Make sure you don't discover this after you've purchased.

Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author of "House Hunting: The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide."

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