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Buyer & Seller Tips
Today's Top Real Estate NewsProvided by Inman News9/2/2010 12:28:04 PM
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» Neighbor vents over water heater noiseDIY pipe extension may do the trickBill and Kevin Burnett Inman News Q: Our neighbor across the street is complaining about the loud humming sound coming from our water heater exhaust vent and is threatening to report us to the authorities. We installed a through-the-wall gas water heater about seven years ago (not sure why the sound is bothering the neighbor now). Because of space limitations, we had to vent the exhaust horizontally out to the front of the house using 2-inch PVC ducting. We have been unplugging the water heater every night because the neighbor said the sound was keeping him awake. Now he says the noise is also bothering him during the day. Would extending the vent around the front of the house and up to the roof lessen the sound? The only other solution we can think of is trying to build a sound barrier around the vent. Do you think this would be feasible, and should we let a professional handle this or can this be a do-it-yourself project? A: It's difficult for us to believe that the noise from the blower on top of the water heater is producing enough sound to irritate, much less keep someone awake -- especially if that someone lives across the street. The water heater you describe exhausts flue gases using a blower assembly that pumps gases directly out of the building. This eliminates the need for conventional chimneys or expensive flue systems. Your heater is different from conventional gas water heaters that discharge combustion gas by convection. The blower/motor assembly can discharge gas vertically or the unit can be rotated to allow for direct horizontal discharge of exhaust gases. Don't try to build a sound barrier around the vent. Obstructing the vent could result in damage to the blower or worse -- the backing up of carbon monoxide into the house. We think extending the vent is feasible. And yes, gluing PVC pipe together is a DIY project -- just make sure it's done according to the manufacturer's specifications. But you may not have to do anything at all. First, determine just how noisy the blower is. Most cities have noise ordinances that establish the number of decibels that constitute a nuisance. A decibel is a unit of sound and can be measured by a special meter. We'd be shocked if the noise from your water heater rises to the nuisance level. Give the city building department a call, explain your problem, and ask the city to send a worker to come out and take a noise measurement. If you're within the city noise guidelines you can tell the neighbor to get lost. If not, or if peace in the neighborhood is a goal, go to Plan B. Plan B: Directing the vent pipe around the front of the building to the side, then up, will work. The 2-inch PVC pipe limits you a bit, but our guess is that it's doable. Check the spec sheet for your model -- for one model we checked a 2-inch PVC vent pipe is limited to a total length of up to 30 feet with three 90-degree elbows. One elbow will direct the pipe to the side of the building, the second will get the pipe around the corner, and the final elbow will direct the pipe skyward. If you go this route, give a call to the manufacturer or distributor and get the OK for the installation. Finally, get a permit and have the job inspected.
Copyright 2010 Bill and Kevin Burnett |
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» Avoid landfill cover-up in home saleMust buyers be informed of defunct facility?Barry Stone Inman News DEAR BARRY: Our home is currently for sale and is located across the street from a landfill that is not currently in operation. There is a tree buffer at the front of that property, so it is not apparent that it was a waste site. Our real estate agent wants to disclose that the landfill is there because there are plans to reopen the facility. Since it is not currently in use, do you think we should disclose this to prospective buyers? --Terri DEAR TERRI: Disclosing a landfill across the street from your home is a legal requirement, as well as a moral obligation. Consider how you would feel if someone sold the home to you and withheld the fact that the adjacent landfill was about to resume operations. Think of the noisy trucks rumbling up and down your street day after day. Think of the odors that might become part of the neighborhood environment. And if these circumstances don't convince you, consider the possibility of a lawsuit from the buyers when they realize that you withheld that kind of disclosure. There is a simple answer to every question that involves whether or not to disclose. That answer is, "Disclose!" We live in a very litigious society. A primary purpose of disclosure is to avoid liability. Remember this when you fill out your disclosure statement. Tell the buyers everything a person could possibly want to know about the property. Tell them what you would want to know if you were buying the property. Not only will you avoid the cost and stress of courtroom trauma, you will sleep with a clear conscience after the close of escrow. DEAR BARRY: Our home inspector did not report a rotted window sill that was fully visible, and this turned out to be the tip of a much larger problem. Leaking at the sill led to internal damages that now require $10,000 in repairs. We hired our home inspector to find problems of this kind. Had we known about this damage, we would not have bought the property. Therefore, can we hold the inspector liable for the repair costs? --Claire DEAR CLAIRE: There are several conditions that can affect the home inspector's liability. The first is the inspection contract that you signed prior to the inspection. Most inspection contracts limit the inspector's liability to a specific refund amount, sometimes as little as the inspection fee itself. Some contracts absolve the inspector of liability if the damages are altered, removed or repaired before the inspector has a chance to reinspect the problem. My advice is to read the contract and then to contact the inspector. Inform him of the problem and ask that he reinspect it. Another consideration is whether the inspector carries insurance for errors and omissions. Many home inspectors cannot personally afford a $10,000 claim. In such cases, insurance makes a big difference. Keep in mind, also, that the sellers of the property may have been fully aware of the damage but failed to disclose it. Therefore, you should also notify the sellers about this problem. To write to Barry Stone, please visit him on the Web at www.housedetective.com.
Copyright 2010 Barry Stone |
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» 5 vacation-rental need-to-knowsNew twists on security deposits, tax collectionMary Umberger Inman News Whether it's the state of the economy or because you just don't get around to using the place a lot, you may find yourself thinking for the first time about renting out your vacation home. Join the club, said Christine Karpinski, who owns several vacation rentals and is the author of "How to Rent Vacation Properties by Owner." She is also a spokesman for HomeAway.com, a vacation rentals website. "I'm hearing from lots of consumers who already own and are looking to start renting," she said. Although she said as a homeowner she's had to resolve occasional hurdles with the properties, she's big on the financial benefits and has found that with thorough preparation, the process usually runs surprisingly smoothly. Five things to know about getting ready to rent out your vacation home: 1. Find out if there are any legal prohibitions or restrictions on short-term rentals. You'll definitely have to check with your city government, said Karpinski. Some towns may limit the number of weeks per year you can have short-term renters, and some of them may charge special taxes. Some towns limit the number of unrelated adults who might occupy a dwelling, she said. The same questions need to be asked of your condo or co-op board or homeowners association, she said. "A lot of markets will require you to have a business license and collect sales tax, a tourism tax, a bed tax, etc.," she said. 2. Get the place ready. "You'll have to depersonalize it a bit," Karpinski said. "You're going to have to take the toothbrushes out of the bathroom, sort out your closets, get the drawers cleaned out, remove family pictures, and clear out the refrigerator. Anything you leave will be considered fair game for renters to use." HomeAway.com and other rental sites provide checklists of furnishings and implements needed for renters' use. "Basically, you want to double what you 'sleep,' " she said. "If your place sleeps six, you want 12 forks, 12 knives, etc." Plan on a certain amount of wear and tear. Karpinski said she usually replaces towels annually -- "Get good, fluffy ones. Renters expect good quality." The sofa might need to be swapped out every 2 1/2 years, she said. 3. Some financial considerations: Decide on the rental amount by checking for comparable rentals on the Web or by calling local property managers. Typically, managers who provide rental services will charge the owner a percentage of the rent; Karpinski said that she regards most owners as being able to handle the chores themselves. The size of rental deposit can be a sticky issue, Karpinski said. "A lot of people seem to be getting away from taking security deposits because they're a hassle" to collect and return, she said. "I'd advise, for new people who are renting: take $200, or 10 percent of the rental cost." A housekeeper who will come in between rentals is a must, she said. "That's the most difficult part of starting to rent," she said, because the homeowner needs to find someone who's reliable and can report on the condition on the place between renters. She has found housekeepers through other homeowners and has posted ads at local hardware stores. She once found one by calling a local church and asked if there were any members who were looking for part-time work, she said. When mechanical problems arise, sometimes the solution is as easy as dialing for a local plumber or heating contractor, she said. Some homeowners prefer to contract with a maintenance company to be on call, handle yard work, etc., she said. 4. The property must be marketed properly, whether you're handling the rentals yourself or using a professional company, she said. Would-be renters want information about nearby transportation, shopping, entertainment, beaches, skiing, etc. They also want to see photos of the place, she said. The photos should include an exterior view, and if there's a scenic view, include it, she said. They're also concerned about seeing adequate seating in the living room, the "comfy"-ness of the master bedroom and additional bedrooms, and the workability of the kitchen, she said. 5. How to screen the renters? The Internet is a great starting point for finding renters, but the phone is a must, Karpinski said. "I talk to every single guest who rents my homes," she said. "They contact me via e-mail, and we'll go back and forth by e-mail on rates and dates. But I absolutely talk to them and I absolutely advise it. "I ask them why they're coming to the area, and (if) they've ever been in a vacation rental," she said. "If not, then I'm going to go through a few more things. They might not realize the nuances of staying in a vacation rental that are going to be a bit different, such as the cancellation policy, and that there's nobody on the premises" to field questions. Mary Umberger is a freelance writer in Chicago.
Copyright 2010 Inman News |
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» Buyer seeks justice for faulty disclosureLaw of the LandTara-Nicholle Nelson Inman News In the case Johnson v. Baum, Eric Johnson bought a home from David and Norma Baum in Des Moines, Iowa. The terms of the purchase contract provided that Baum had the duty to disclose any material defects in the property about which they knew or should have known, to Johnson. The contract went on to say that if Baum breached this duty to disclose and Johnson prevailed in a lawsuit, Baum would be liable for Johnson's "reasonable attorney fees." As part of the transaction, Baum provided Johnson with a form "Seller Disclosure of Property Condition and Lead-Based Paint Disclosure" that expressly stated it was intended to satisfy Baum's duty to disclose defects to Johnson under Iowa law. After the transaction closed, Johnson had problems with water in the basement of the home, and filed suit against Baum, alleging that Baum had breached both Iowa law requiring disclosure of material defects, and the contractual provision mandating disclosure. After a trial, the jury found that Baum had not breached the contract, but had breached the Iowa seller disclosure statute, and awarded Johnson $12,000 in damages. Johnson filed a motion for nearly $40,000 in attorney fees. The sellers argued against an attorney fee award, on grounds that the statute the jury had found the sellers to violate did not authorize an award of attorney fees. The contract, which did have an attorney fee provision, was found not to have been violated, argued the sellers. Johnson claimed that the contract incorporated the disclosure statement, which the sellers refuted. The trial court ruled in Johnson's favor, finding that the disclosure statement and, thus, the statute's attorney fee clause, was incorporated into the purchase agreement, entitling Johnson to an attorney fee award -- though the trial court approved an award of only half the requested fees. Baum, the seller, appealed the attorney fee award. The Iowa Court of Appeals upheld the trial court's decision. The court explained that the purchase agreement expressly stated that "Sellers and buyers acknowledge that sellers of real property have a legal duty to disclose material defects of which sellers have actual knowledge and which a reasonable inspection by buyers would not reveal." Johnson argued -- and both the trial and appellate courts agreed -- that the "legal duty" referred to in the contract was the same statutory duty to disclose material defects that the jury ultimately found Baum had breached -- the same statute that was expressly referenced in the faulty form disclosure Baum had provided to Johnson during the transaction. When that the contract expressly incorporated the breached statute, Baum in effect agreed to pay Johnson's attorney fees in the event Baum breached not only the contract, but also the statute. Because the jury found Baum to have breached the statute, Baum was liable to Johnson for the attorney fees that the trial court had awarded. The Iowa Court of Appeals affirmed the lower court's ruling. 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." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
Copyright 2010 Tara-Nicholle Nelson |
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» Common contingency hang-upsFinancing, move-in often succumb to tighter lending guidelinesDian Hymer Inman News Recently, buyers removed the loan contingency after the lender's underwriter told their mortgage broker that the loan was approved. Soon after removing the contingency, the buyers found out that the lender required a second appraisal before the loan would be funded. The buyers' deposit was at risk if a second appraisal came in at a lower value than the purchase price and the buyers were unable to close the sale, even though the first appraisal was approved by the lender. This, unfortunately, is not an isolated incident. All too often, underwriters grant buyers' loan approval and then ask that additional conditions be met before the buyers' loan documents are issued. For example, an underwriter might want first-time buyers to provide verification that they made their rent payments on time. As long as the conditions are satisfied, the transaction closes -- but delays are common. Buyers should include a financing contingency in their purchase offer for lender approval of their creditworthiness and of the property appraisal. Some contracts specify a time period for this contingency to be satisfied, such as 14 to 30 days from acceptance. Other contracts state that the financing contingency remains in effect until the buyers' lender funds the loan. Lenders don't fund until all conditions for loan approval have been satisfied. So from the buyers' standpoint, this is the safest alternative. A financing contingency that runs until the buyers' mortgage is funded poses logistical problems for both buyers and sellers. Most sellers don't want to move out of their home until they're sure the sale will close, or until it has closed. Lenders usually don't fund earlier than the business day before closing. So the parties often don't know until the last minute when they'll move. It's not much different with a financing contingency that has a deadline that falls a week or more before the closing date if the lender requests more information from the buyers at the last minute, which the lenders often do. Buying and selling in today's rigorous financing environment requires patience and flexibility on the part of all involved. HOUSE HUNTING TIP: Buyers who need to remove a financing contingency by a certain date should ask the sellers for an extension if their lender grants loan approval subject to conditions that the buyers aren't certain they can satisfy, like a second appraisal. Most sellers would grant an extension rather than put the house back on the market if all other contract contingencies have been satisfied. Contingency-free offers are showing up in some high-demand niche markets, reminiscent of the recent bubble market where buyers made offers with no contingencies for financing, appraisal or inspections in order to outcompete other buyers in a multiple-offer situation. This is risky, particularly if the sellers haven't provided a complete disclosure package before an offer is written that includes a home inspection report, wood-destroying pest ("termite") report, and any additional inspections recommended in the home and pest reports, such as for roof, engineer or drainage evaluations. Recently, there were six offers on a desirable listing in Piedmont, Calif. Two included no contingencies. The only presale inspection report made available to buyers was a "termite" report. Although there was no financing contingency in the contract the sellers chose to accept, the buyers needed to qualify for a mortgage and the property needed to be appraised for the sale to go through. It was not an all-cash offer. The sellers had the good sense to add a short inspection contingency and a financing contingency to the contact. They weren't worried about the buyers' financial capabilities or the house appraising for the purchase price. The buyers found defects when they inspected the property, but nothing they couldn't live with. THE CLOSING: Both buyers and sellers benefited from including the contingencies. 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."
Copyright 2010 Dian Hymer |
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» Tax loophole for 'underwater' ownersAmendment forgives up to $2M in debtBenny Kass Inman News DEAR BENNY: I have a question relating to a forgiveness-of-debt issue. Let's say a borrower takes out a home loan for $600,000. Later, the borrower defaults and the lender files for foreclosure. Eventually, the borrower is able to conclude a short sale for $500,000. The borrower receives a letter from the lender stating his loan is "paid in full." Because of the letter, the borrower is under the impression that he will not receive a 1099-C from the lender showing forgiveness of the $100,000 canceled debt. In your experience, is this true, even though the lender may have said the loan is "paid in full"? I was under the impression that lenders were obligated to send borrowers a 1099-C if the debt forgiven exceeded $600. --John DEAR JOHN: According to law -- and the Internal Revenue Service -- if a financial entity cancels or forgives a debt you owe, and that debt is $600 or over, the lender is required to provide you (and the IRS) a Form 1099-C, entitled "Cancellation of Debt." And unless you meet certain exceptions or exclusions, this canceled debt is taxable as ordinary income and must be reported on your Form 1040 when you file your annual income tax return. There are a number of exceptions to this taxable requirement. For example, if your creditor cancels your debt as a gift, this is not considered income. Additionally, if your student loan is canceled because you did some work after college -- such as volunteering to help needy families in low-income neighborhoods -- and if this is permitted under the terms of your loan, the cancellation is not income. There are also a number of exclusions contained in the law. If your debt is included in a Chapter 11 bankruptcy case, this is not considered income to you. If you were insolvent immediately before the cancellation -- i.e., your liabilities exceed your assets -- you are not required to pay any tax on the debt that was forgiven. But the burden is on you to honestly demonstrate that you are insolvent. If the debt cancellation involved your principal residence -- the home in which you live most of the year, vote and pay taxes on -- and if the money you borrowed was used to buy, build or substantially improve that home, you will not have to pay any income tax on the debt that was forgiven by your lender. This is a departure from the general rule that requires debtors to report all forgiven debt as ordinary income (Section 61(a)(12) of the Internal Revenue Code). Up until the so-called mortgage meltdown, there were only two exceptions referenced above: bankruptcy and insolvency. However, when thousands of homes across the country began to be foreclosed upon, Congress amended the law. For debts forgiven in calendar years 2007-12, up to $2 million of forgiven debt can be excluded from the obligation to pay income tax ($1 million if married filing separately). And according to Julian Block, a prominent tax attorney, even if you are a single taxpayer, you still can exclude the full $2 million. Furthermore, the exclusion applies to all years, and not just for one. This is an interesting loophole in the law. If you own more than one home that is "underwater" -- i.e., the mortgage exceeds the fair market value of the house -- you can claim the exclusion only for your principal house. If that house is foreclosed upon (or sold via a short sale), nothing prohibits you from moving into your second home, establishing it as your new principal residence, and so long as your total losses do not exceed the statutory cap of $2 million, you can also sell that house as a short sale (or let it go to foreclosure) and not be required to pay any income tax. Of course, when dealing with the IRS, it seems nothing is easy. The law does not apply to all forgiven or canceled debt. So your vacation home, your car loan or your credit-card debt that is canceled will not qualify for the exclusion, unless you are insolvent or file for bankruptcy relief. As mentioned earlier, the debt has to be used to buy, build or substantially improve your home. This is called the "qualified principal residence indebtedness" (QPRI). According to the IRS, "Debt used to refinance qualifying debt is also eligible for the exclusion, but only up to the amount of the old mortgage principal, just before the refinancing." For additional information, you can get a good publication online from the IRS. It is entitled "Canceled Debts, Foreclosures, Repossessions, and Abandonments" (Publication 4681, available from www.irs.gov: click on forms and publications). You may also want to obtain Form 1099-C (and the instructions for completing that form, from the same website). DEAR BENNY: What is a "contract for deed"? My real estate broker suggested that I consider this, but I don't understand the concept. --Joe DEAR JOE: This is also called an "installment contract" or a "land contract." Oversimplified, you enter into a contract with a buyer for the sale of your property. The contract price, for example, is $200,000. You give the deed to the property, in recordable form, to your attorney to hold in escrow. Your buyer makes periodic payments to you. And when the buyer is able to pay you in full, you instruct your attorney to record the deed into the buyer's name. It was developed years ago, when the ranchers out West wanted to sell some acres to their farmhands. Because those buyers did not have enough money to pay the full price -- and did not have good credit to get mortgage loans (if mortgages were even available in those days) -- the rancher agreed to receive monthly payments, which were credited toward the full purchase price. When the buyer was able to pay the entire outstanding balance, he received the deed to the property. Sounds simple, but there are many issues that have to be reviewed. For example, the Internal Revenue Service takes the position that such a transaction is considered a sale for tax purposes. That means that the seller has to determine if there will be any income tax to pay when the contract is entered into. Also, if the seller currently has a mortgage on the property, unless that loan is paid off in full or the lender approves of the transaction, it could trigger the "due on sale" clause in the seller's loan documents. The due-on-sale clause is a concept that lenders created decades ago when they did not want their seller to allow a new buyer of the property to assume the existing mortgage. For example, if the current loan was 6 percent, and now the market for interest rates was much higher, the lender wanted to get the higher rate from the new buyer. In simple terms, if you sold your property -- or entered into a contract for deed -- this would trigger that clause and your entire mortgage would then be due and payable. So, you and your attorney must review your loan documents to determine if the due-on-sale clause applies. Most loan documents within the last 10-15 years will contain this concept. Finally, in some states, the seller must record the contract on the land records in the jurisdiction where the property is located. If it is not recorded, the buyer may be entitled to a full refund of the moneys paid. The recordation can put the lender on notice that you have entered into such a transaction, and once again can call your loan due. You should have your lawyer review the situation and advise you on the applicable laws in your state. 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.
Copyright 2010 Benny L. Kass |
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» Win Ben Stein's money adviceBook Review: 'The Little Book of Bulletproof Investing'Tara-Nicholle Nelson Inman News Book Review Most people who have a general interest in money matters know who Ben Stein is. How you know him, though, is a true sign of the generation to which you belong. Boomers might recall him as an outspoken critic of corporate fraud during the junk bond scandals of the 1980s, while most of the early Gen Xers born in the '60s know by heart Stein's monotone econ lecture from the classic film "Ferris Bueller's Day Off." Later Gen Xers like myself can't think of the name "Ben Stein" without remembering his smart trivia Comedy Central game show from the late-'90s: "Win Ben Stein's Money." And even younger folk know him from his recent credit report service commercials -- that monotone, again. Stein's vocal delivery might be monotone, but he and co-author, investment psychologist Phil DeMuth, certainly hit some educational and comic high notes in their recently released, "The Little Book of Bulletproof Investing: Do's and Don'ts to Protect Your Financial Life." In fact, I originally flipped through this book out of sequence and was a little concerned to see some bizarre do's, like "Do Subscribe to Market Newsletters," with the elaboration that it "makes total sense that anyone who had uncovered the market would sell it to you for $199 per year." This advice quickly snapped back into the narrow realm of things both funny and uber-sensible when I noticed the chapter header at the top of the page: How Not to Invest. I could almost see Stein delivering these "what-not-to-do's" in his sarcasm-dripping deadpan -- especially the recommendation to get a "brilliant, prestigious financial adviser like Bernard Madoff ..." While the book is filled with humorous bits, it is certainly not all fun and games. Like its "Little Book" series brethren, this book is a super-quick, super-useful read that doesn't follow the formula of trying to give you a step-by-step action plan. Rather, it is successful at its aim of distilling a very complex and vast subject matter into the rough and dirty, bullet-point need-to-knows. The book tackles the entire realm of financial life, including topics ranging from portfolio allocation, to adviser selection, to real estate decision-making, and retirement planning -- and actually does a better job in 200 half pages of offering meaty, wise and sometimes novel advice than many books devoted to any one of these specific subjects. Stein and DeMuth start out sketching out the dismal picture of the average American's approach to personal finance, which they describe as "opting for the Hindu ideal, where old people forsake all worldly possessions, pick up a begging bowl, and wander the streets. Except in our case, it won't be voluntary." They then move into investor psychology, DeMuth's professional wheelhouse, which includes a fascinatingly hilarious (and frighteningly accurate) diagram of a Tootsie Pop as the brain of a human investor, as well as the first of many amazingly brief and insightful sets of do's and don'ts that appear throughout the book. These psychological insights are rendered usable in the next chapter, Wall Street Therapy, after which comes the completely entertaining and error-revealing chapter I flipped the book open to: How NOT to Invest. Funny enough or, actually, seriously enough, the lengthy list of investment traps to avoid is followed by a chapter with a much shorter list of five core bullets on How To Invest, including some good debunking of get-rich mythology. Then, there's a half-educational, half-sales-pitch chapter explicating a portfolio fund they have reverse-engineered from the investor psychological reality that many people sell when they lose money, so minimizing risk would help people hold onto their investments long enough to realize the long-term gains from compounding interest that it will take for most of us to retire. It's not a total sales pitch, though. The authors do offer a full chapter of guidelines on Bulletproofing Your Investments and Pulling the Trigger, for those who would like to replicate their risk-minimizing fund, DIY-style. Stein and DeMuth then turn their attention to offering advice on maximizing the real-world value of your education and your Human Capital (best line: "children today are luxury goods"); savings strategies; very wise, very simple advice for avoiding your real estate purchases to turn into "Houses of Blues"; and retirement and estate planning advice. This book is a strong recommend. It's highly readable, offers oodles of strong guiding philosophies and life/money advice, and offers just enough of the psychological primer to help readers grow up and take control of their own financial lives. Oh, and it's pretty funny, too. 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." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
Copyright 2010 Tara-Nicholle Nelson |
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» 4 solutions for underwater homeownersNot all refis are created equalJack Guttentag Inman News "My home is underwater, worth about $216,000 against a loan balance of $240,000. I can refinance the loan under the HARP program, reducing the rate from 5.75 percent to 5 percent, at a cost of $3,400. Should I refinance? Or just try to sell the home and bite the bullet?" Your first step should be to clarify your options, which are more numerous than you indicate. There are at least two legitimate ways to give up the house, and if you stay put there are two ways to refinance. Option 1 is to sell the house and pay the lender the difference between sale proceeds and loan balance. The advantage is that you are out clean, with no black mark on your credit record and no lingering debt. The disadvantage is that it will cost you $30,000-$40,000 for which you will receive nothing but a thank-you -- and probably not even that. Option 2 is to negotiate a short sale with the lender where the lender accepts the sale proceeds and removes the mortgage lien. The advantage over option 1 is that no cash outlay is required. The disadvantage is that the short sale drops your credit score. In addition, the lender may retain an unsecured claim against you for the amount of the balance not repaid with the sale proceeds. They don't always do that, but increasingly this has become the practice. Option 3 is to accept an offer to refinance from your current lender, who is the only lender who will deal with you because of the negative equity. Using my calculator 3a, it will take about three years for the rate reduction from 5.75 percent to 5 percent to cover the refinance costs of $3,400. This option also doesn't require any out-of-pocket expense, because you can finance the cost. However, unlike options 1 and 2, you retain the negative equity. If you decide to sell within the next few years, the refinance costs will exceed the benefits of the rate reduction, and you will still have the negative equity to pay off. Option 4 is to do a cash-in refinance to reduce your balance to 80 percent of current value. It is plausible that if you do this, the refinance rate will drop from 5 percent to 4.5 percent. Assuming a $216,000 value, you would have to pay down the balance by $67,200 and cover the $3,400 in closing costs, for a total required investment of $70,600. If you have that kind of money, it is a great investment, as it carries no risk and will earn 6.23 percent over two years, 7.74 percent over five years, and 8.3 percent over 10 years. I calculated these on the new cash-in refinance calculator 3f I developed with Chuck Freedenberg, which is coming soon to my website. I am not going to discuss the "walk away" option where you shrug off your contractual obligation and allow the lender to foreclose. I don't recommend this option and plan to write a separate article explaining why. Reverse mortgages and power of attorney: Who is best fitted to protect an incompetent elder? Elderly homeowners who need reverse mortgages but are incompetent may have the decision made for them if they exercised a power of attorney (POA) before they became incompetent. The POA grants a designated third party the right to act in the elder's behalf. Reverse mortgage lenders may or may not accept a POA, however, fearful that the reverse mortgage proceeds will be used for the benefit of the party with the POA rather than the elder, and the lender will be blamed. Recently, I exchanged views on this issue with a certified elder law attorney and certified estate advisor who has not given me permission to use his name. The following is an edited version of the exchange. ATTORNEY: We have lately been running into a huge problem with the reverse mortgage industry -- it seems that some, if not all, reverse mortgage lenders are now routinely second-guessing the legitimacy of every power of attorney document presented for use in connection with obtaining a reverse mortgage ... the reverse mortgage lenders are now refusing to honor the POA unless the Agent (1) obtains a letter from the applicant's doctor or former doctor stating that the applicant was mentally competent when the POA was originally signed AND (2) a letter from the applicant's doctor stating that the applicant is not now mentally competent.
GUTTENTAG: It is not in the financial interest of reverse mortgage lenders to turn down deals because of a POA issue, as they make money only when they make loans. The industry, however, is extremely sensitive to the bad PR that arises when elders get scammed in connection with a reverse mortgage, which happens on occasion. They have adopted the POA rules to which you object because they don't want to be complicit in situations where elders are taken advantage of, even though it means turning business away. I would commend them for this. ATTORNEY: Forcing everyone executing a POA to get a statement of competency at the same time would be extremely impractical, inconvenient and cost-prohibitive (as most doctors charge clients for competency evaluations and they are not covered by insurance), and would deter many, if not most, people from executing a POA. Additionally, because most financial institutions won't accept a POA that's more than a few years old, most attorneys recommend re-signing POAs every few years, so this would mean getting a competency evaluation every time. GUTTENTAG: How would you deal with unscrupulous agents who use a POA to take out reverse mortgages for their clients where the real intent is to provide funds the agent can use to pay himself? ATTORNEY: That's a whole different issue, and one that can presumably be addressed by proper counseling. GUTTENTAG: If the borrower is incompetent, the counselor has no one to counsel except the agent. The counselor is not a monitor and does not have legal authority to stop a transaction just because he is not sure that the agent is acting in the best interest of the elder. There aren't many situations in which the lender is the party best positioned to protect the borrower, but this seems to be one. The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com.
Copyright 2010 Jack Guttentag |
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» Tipping points of short-sale limboMood of the MarketTara-Nicholle Nelson Inman News A dear friend of mine is in the midst of short-selling one of her homes. An avid investor at the height of the market, she had purchased a major fixer in the best neighborhood in town, with the intent to live there for the rest of her life while she slowly remodeled the place. As you know, the market turned. Her financial situation changed, and she decided that she wanted to do a short sale to someone who could afford to fix the foundation before its condition caused a major crisis -- the problem is something she's been working on for nearly a year at this point. She's had multiple offers to buy the place, and is currently in a holding pattern, waiting for the bank's evaluation of the most recent of these offers. She moved out long ago and, despite the fact that she loves this place, has long been resigned to losing it -- whether through the short sale or a foreclosure. Recently, her agent contacted her and said, "Look, the bank doesn't seem like they want to take the offer." The place needs so much work, and has some unusual restrictions against expanding it at all, so unless a buyer gets it for a bargain basement price, buying it and putting in a new foundation, new roof and everything else just doesn't pencil out. "But," the agent continued, "the bank also doesn't want the house back, because of its condition and all the city restrictions. You could end up in a kind of limbo on the place." My friend is taking this opportunity, now that the bank seems to understand the condition issues, to revisit the issue of a loan modification with the bank. But the fact is, if she did end up in a limbo with the bank, she certainly wouldn't be the only real estate consumer in limbo on today's market. Millions of buyers and sellers are stuck in short-sale limbo, that purgatory of weeks (best-case scenario) or many, many months (worst case) after the short-sale package goes to the bank's loss mitigation negotiators, but before they sign off on the short sale's terms. Many millions of homeowners are caught up in loan-mod limbo, the fear-filled black hole of stomach-churning waiting for the bank to decide whether to modify your mortgage terms (e.g., fixing an adjustable-rate loan) and/or payments. For homeowners who are behind on their payments -- as many banks require borrowers to be in order to even have a real chance at a successful modification -- loan-mod limbo essentially equals waiting for the bank to decide whether they can keep their home. And you might have heard of the so-called shadow inventory of homes that are bank-owned, or soon to be, but are not on the market for resale. But you may not be as aware of the class of homeowners who live in this shadow -- people like my friend, whose homes are subject to foreclosure, but are simply not being foreclosed on because the banks just don't want them. Many have not made a payment in months, and are anxious for closure, but have homes in such poor condition or located in such foreclosure-riddled areas that the bank is just not taking it back -- and there's no end to the stalemate in sight. The delinquent mortgage payments, homeowners association dues and property taxes keep on racking up against the homeowner, and the bank just stands by -- indefinitely. This might, in fact, be the worst limbo of all. Keeping people in limbo seems to me a massive misstep on the part of the banks. There is a core tenet of negotiations that says that the party who has the least sense of urgency usually wins. The banks seem to be taking the position that because the homeowner probably does have a greater sense of urgency, these delays might cause them to be unsettled (of course, I just committed the very fallacy I so frequently warn against, of anthropomorphizing financial institutions, ascribing to them human emotions and logic, of which they appear inherently incapable).
The problem is that it fails to take into consideration one elemental truth about human nature: Humans cannot long tolerate uncertainty. This is why closure has such a universal value. Contrary to the banks' apparent belief, most people would actually rather have the psychological and financial closure of knowing that they were going to lose their home -- and have the ability to plan for their next home and know when they'll need to move out -- rather than sit through a year or more of sleepless nights. Most people would rather endure a foreclosure, as excruciating as it is, and begin the era of healing their wounded spirit and balance sheet and get that credit-repair clock a'ticking, than spend 18 months knowing they have a 25 percent chance that they'll get a modification. The tipping points for many folks -- the items that cause them to elect to walk away, when there's still a chance of saving their home or, for short-sale buyers, getting their dream home at a song -- are many. First off, there are those homeowners who've been in an interminable loan-mod limbo who hear about some modified loans that don't get any more affordable on a monthly basis than the original loans. Second, they read headlines about their bank's principal reduction programs, but find the loss mitigation negotiator at a loss for words when asked about such programs -- which may also push them closer to walking away. Short-sale sellers are highly susceptible to walk away -- they have no attachment to the home anymore, and are having to find a new place anyway, so waiting and wading through the bizarrely long cycle of repeated requests for documents they've already turned in -- repeatedly -- has very little upside for them. And short-sale buyers are even more susceptible, especially when they come across an alternative home for which they need to move quickly on to ensure they get something. And the longer any buyer, seller or owner is stuck in limbo, the greater the possibility of losing their home becomes a prospect with which they have come to terms. The more real the idea of (a) no longer having the home and (b) having to move to a new place becomes for people, the more likely they are to walk away. The home is not only devalued economically, but also loses any psychological value it had. This is especially so for those in loan-mod limbo who fear that they may not be able to credit-qualify to lease a new home for their family if they wait for the delinquent payments and/or a foreclosure to do any more damage to their credit. These limbos are counterproductive for everyone. We'll be seeing the residual impact of these prolonged states of intense distress on the psyche and economy-shrinking tight-fistedness of Americans for decades to come, maybe longer. Even when a loan-mod applicant makes it past the limbo and obtains a modification, often the devaluation of the home has been so thorough that they are highly likely to redefault on even the modified mortgage and walk away as soon as the going gets tough. Hence, we see redefault rates upwards of 50 percent for those who do get their mortgages modified. We also see many a would-be short sale turn into a foreclosure when disgusted buyers fall out to go buy something else, some think due to banks' preference to collect on mortgage insurance rather than mitigate their losses through short sales. Lots of lip service has been given to streamlining these processes. Realizing these promises -- that is, making them real, would salvage billions of dollars in real estate assets and consumer confidence. 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." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
Copyright 2010 Tara-Nicholle Nelson |
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» Renter liable for fall on stairs?Rent it RightJanet Portman Inman News Q: I work at home and regularly receive UPS deliveries of material. Last week, the deliveryman slipped on the front stairs, hurting himself. Those stairs have been in bad shape for years, and I've asked for repairs, but to no avail. I imagine that the delivery service will go after the property owner, but am I liable, too? --Leah C. A: Practically speaking, there's little chance that the delivery company (more precisely, its workers' compensation insurance carrier) will go after you as a source of compensation for the employee's injuries, pain and suffering, and lost wages. Chances are, the insurance company will pay the claim, then look to your landlord for reimbursement, who will refer the matter to his insurance carrier. If it can be shown that the deliveryman slipped because of the dangerous stairs that the landlord knew about but failed to fix, the workers' comp carrier will get reimbursed for the amount it paid on the claim by your landlord's insurance company (and the landlord's premiums may go up). But let's suppose that your landlord has no liability insurance, and you, on the other hand, have a renters insurance policy, which covers you when others are hurt on the property as a result of your carelessness. The delivery service will, again, refer the claim to its workers' comp carrier, who will look around for a source of reimbursement. Going after your insurance policy (and its deep pocket) will be more attractive than trying to get money from your landlord. Are you legally liable for the deliveryman's injuries? Perhaps, because you owe the deliveryman a "duty of care," just as your landlord owes the same duty to you. The deliveryman is a "business invitee," someone whom you must at least warn of imminent dangers, if you cannot fix them (no one expects you to repair the stairs yourself). Because you knew of the dangerous condition of the steps and didn't warn the delivery service (nothing wrong with a "Caution: Loose stairs!" sign at the bottom, or a written warning sent to the company), you could be held partly at fault. The extent of your exposure would be the extent to which you were responsible, according to a judge, jury, or mediator. For example, if they found that you were 25 percent responsible (as opposed to your landlord's 75 percent), then you'd be on the hook for only 25 percent of the delivery person's damages. Tenants will not be held responsible in every "shared knowledge" situation, however. Suppose it's your neighbor who slips and falls on the bad stairs: Will you be liable, if only partly, for her injuries, because you knew of the dangerous situation? Probably not, because you do not owe a duty of care to your fellow tenants. What about a guest of yours: Must you warn guests of dangerous situations? The answer here will vary according to state law, but many states impose a duty of care for social, as well as business, invitees. Q: I'm using a form for collecting a bounced-check fee, which I got from my apartment association. It tells tenants that they will be "liable" for damages of at least $100 or higher (up to three times the amount of the check but no more than $1,500). I must admit, back in the day, I bounced a rent check myself, but the fee was much lower. Was I just lucky? --Amy F. A: The monetary consequences you're describing sound a lot like California's bounced-check statute, Civil Code Section 1719. That statute does indeed specify that people who issue bounced checks may become liable for those damages -- but there are two big steps that need to be taken first. The holder of the bad check must demand that the issuer make good on the check, and give the person 30 days to do so. Then, the holder must go to court (small claims court will do) and sue over the check. Only if the holder wins will the judge turn to these possible damages, and impose them if appropriate Like many states, California provides for a simpler remedy for holders of bad checks, one that does not require going to court. It's in the same statute, just before the "go to court" remedy. It provides that the holder may demand the amount of the check and a service charge not to exceed $25 for the first check, and not more than $35 for each subsequent check passed on insufficient funds. It seems that the form you're using doesn't mention this simpler approach, which of course is what any landlord would use. No landlord is going to allow a tenant to remain in the rental, without paying the rent, while the landlord goes to small claims court to sue over the bounced check. Instead, the landlord will send a pay-or-quit notice, and begin eviction proceedings if the tenant neither pays nor leaves. So why do you suppose the writers of this form omitted the obvious remedy, and instead advised the tenant of a course of action that no reasonable landlord would undertake? One is tempted to conclude that we're dealing with an example of intentional sneakiness here. The mischief of this form, which on its face is probably a correct statement of law, is that it doesn't explain that the landlord has to go to court -- and win -- for the Draconian consequences listed on the form to apply. As a result, both landlord and tenant may mistakenly conclude that the landlord can unilaterally impose these significant consequences. The result may be what the form writers had in mind -- scaring the tenant into making good on the check, and possibly giving the landlord a tidy bit of income -- but it's accomplished by sleight of hand. Why else would the form fail to mention the $25/$35 option? Even well-meaning landlords may be misled into thinking that they may charge $100 (or more), not having been educated by their own form (and their own apartment association). The consequences could be costly: If the tenant refuses to pay the fee and raises this as a defense when the landlord evicts for nonpayment, the landlord will lose the case, and may have to pay the tenant's attorney fees and court costs. 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.
Copyright 2010 Janet Portman |
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» Real estate buys in carless communitiesRental restrictions can limit ability to cover ownership costsSteve Bergsman Inman News In college, I had a friend whose family owned a beautiful beach property on Fire Island, one of the string of barrier islands off the southern coast of Long Island, New York. I always liked Fire Island because the little community prohibited cars. Fire Island was and still is a summer beach venue, although just under 500 people live there year-round. My friend was a scion of the Shorin family, which founded Topps, the baseball card company, and her family's beach house was large, resort-modern and very impressive. I'm not sure what it would sell for today, but after looking at prices for beach homes on Fire Island, where most of the properties are around $1 million, I'm sure the house, if it went on sale, would definitely be in the seven-figure category. I got to thinking about islands with no-automobile regulations when I recently visited one of the most famous of the country's summer, sans-auto getaways, Mackinac Island, which sits in the Mackinac Strait connecting Lake Michigan to Lake Huron. I should first make note that there are a number of such places in the United States, from the famous Catalina Island off the coast of California to the lesser-known Bald Head Island, a golf-cart-based community in North Carolina. Contrary to expectations, Bald Head Island McMansions generally run in the seven-figure category, but you can still find quaint Catalina residences for less than $1 million. When it comes to no-automobile islands, the number of dollars it takes to buy a home often equates to the grains of sand on your beachhead. That's not the case at Mackinac Island, mostly because this charming place is not found in a warm-climate location along an ocean shore, but close to Canada in the Great Lakes region. On Mackinac, there are really not many glorious beaches of sand -- it's more about the quaint lifestyle because the heyday of Mackinac Island was around the turn of the 20th century, not the 21st century, and so many of the homes are of Victorian architecture. A contemporary beach house would look absolutely wacky here, and besides no one could get the zoning approval to build one. When I was visiting, I stayed at the Island House, a huge, Victorian hotel that has been doing business for 150 years. The most famous structure on the island is the Grand Hotel, which was constructed in 1887 and is still considered the finest hotel in Michigan. The island was developed as a tourist destination and second-home market during the period between the end of the Civil War and the beginning of the 20th century, when America blossomed as an industrial power. It was the age of Robber Barons and monopolies. With more money in circulation, the middle class joined the industrial titans in the summer exodus from congested cities to bucolic locations, where they built grand homes. Easterners traveled to Newport, Chicagoans to Lake Geneva, and those from Detroit and other big Midwest cities to Mackinac Island. Until the 1980s, cottages (homes on the island are called cottages no matter how small or big) on Mackinac Island traditionally changed hands in personal deals. Then in 1984, Bill Borst opened Mackinac Island Realty Inc., the first real estate office on the island. The reason for Borst's enthusiasm for the place was that of the only 440 acres of private land on the island, a parcel of 177 acres that was part of an old estate had been turned into a resort area with a golf course -- and 300 lots were offered for sale. All sold, but as of today only about 70 homes have been built. The market for properties is considerably varied on Mackinac Island. At the low end are condominiums that can be acquired in the $200,000 range or a fixer-upper in the middle of the island at a place called Harrisonville where many of the all-year residents live. In the middle of the market, a cottage of 1,800 to 2,500 square feet, depending on location, will cost $400,000 to $600,000. Top-end cottages go for $3 million-plus. The most expensive recent sale for a cottage hit $3.4 million. On many no-car islands like Fire Island, investors buy homes and use them as summer rentals. That model doesn't work well on Mackinac Island due to zoning restrictions. "The majority of cottages can only be rented for a 30-day minimum and it has to be to one family," explained Alan Sehoyan of Mackinac Resorts. "That narrows the market, but we do get rentals -- it's just not a large volume. Cottages generally rent for $4,000 to $12,000 a month." However, there are exceptions. Many cottages are built on state-owned land and these have a two-week minimum for rents, Sehoyan said. "These homes rent for $10,000 to $14,000 for two weeks, but you can only do that twice in a season." Remember that 177 acres of resort property? Well, a number of condominiums were built there and these can be rented by the night, because the land had been zoned hotel/resort. The boom time for Mackinac Island real estate were the years 1988 through 2003, not just because of the economy, but homes that had been in families for generations turned over due to death, divorce or other life-changing situations. Although Mackinac Island real estate has been much more stable than the rest of Michigan, which is going through an economic crisis, the market slowed up considerably. Then 2009, which was awful for most of nation, turned out to be a decent year. "We had a few sales at the high end," Borst said. Rentals were also better in 2009. "We were slightly down, but finished up strong," Sehoyan said. "In 2010, we will do better than 2009." The uniqueness of Mackinac Island -- no cars, the lush Great Lakes landscape and the Victorian architecture -- attracts people from all over the U.S., Canada, and even Europe and Japan. Borst recently sold two condominiums: one to a local hotel manager and the second to a Kentucky family. The last cottage he sold was to an investor from Indiana. However, there is a type of buyer who appears most frequently. They are folks who had come up to Mackinac Island as children and, now that they are older and with kids of their own, they want their children to appreciate the slack life of a no-car landscape. Steve Bergsman is a freelance writer in Arizona and author of several books. His latest book, "After the Fall: Opportunities and Strategies for Real Estate Investing in the Coming Decade," has been ranked as a top-selling real estate investment book for the Amazon Kindle e-reader.
Copyright 2010 Inman News |
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» China's skyscraper plan: 'pie in the sky'?Utopian visions miss the markArrol Gellner Inman News Editor's note: Arrol Gellner is currently on an extended stay near Shanghai. The following is one of a series of columns comparing the built environments of America and China. Shanghai is a city of superlatives, and futurist thinkers are now dreaming up yet another: It's called Extopia, a vast structure that, if realized, would be the world's tallest and greenest self-sustaining skyscraper -- essentially a 300-story city in the sky, complete with farmland. The problem with such a colossal utopian habitat is that, rather than growing organically over time like real cities do, Extopia is necessarily designed all of a piece. And while concentrating the sheer power of great minds and new ideas on such a project would seem to augur success, the record of such clean-slate planning is, alas, not a good one. Among the early U.S. examples of ideal cities designed from scratch is George Pullman's eponymous Illinois factory town, in which his railcar-building workers had every conceivable facet of their lives taken into account -- their housing, their commerce and even their morality. To his genuine surprise, Pullman's workers did not appreciate the railcar magnate intruding into every aspect of their lives. On balance, as a utopian city, Pullman was widely considered a noble experiment but a practical failure. Since that time, many more attempts have been made at clean-slate thinking -- some of them mercifully ignored. The architect Le Corbusier, for example, famously proposed to raze a good part of central Paris and replace it with a phalanx of what can only be described as high-rise housing projects. More recently, the Disney organization has actually constructed its own idea of utopia, which, if anything, is even creepier than George Pullman's. Pullman at least had a central industrial purpose. Disney's Florida version, called Celebration, simply whips up squeaky-clean, stage-set renditions of an America that never was. Homes are confined to a handful of approved traditional styles, some of them surrounded by excruciatingly cloying white picket fences. Given its sanitized take on the American past, though, Celebration's overall atmosphere seems not so much Twain as it is "Twilight Zone." Extopia adds one more ingredient to this mix: The aspect of environmental salvation. This is a pretty heavy-duty brief for one project, even one 300 stories tall. Extopia is meant to be largely self-sustaining, with its own internal services, commerce and entertainment, as well as special floors devoted to soil-free hydroponic food crops -- literally farms in the sky. The project's vast scale is proffered as a means of relieving Shanghai's notorious congestion, though it's also clear that a more modest proposal couldn't garner publicity or fire the imagination as deftly as this one has. Yet approaching an untested concept of such ambition entirely by "tabula rasa" (Latin for "clean slate") simply risks creating a 300-story Pruitt-Igoe (a failed public housing project in St. Louis that was razed less than 20 years after construction), because no matter how much architects and planners believe they know about humankind, they invariably fall short -- sometimes dreadfully so. The truth is that great cities work, not because they reflect some grand overarching scheme, but precisely because they don't. Rome, Paris and London, not to speak of New York or San Francisco, are cobbled together in a patchwork of humanity that could never have been created at one stroke. When we discover a way to let our vertical dream cities grow into the sky as slowly and organically as real cities do, then a concept as ambitious as Extopia could truly succeed.
Copyright 2010 Arrol Gellner |
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» 4 steps to hiring a qualified contractorPay special attention to referrals, license, insurancePaul Bianchina Inman News If you own your own home, you understand the advantages of do-it-yourself projects. You can do things your way, on your schedule, with the materials you select. You have the sense of pride that comes with completing a project with your own two hands. And of course, you can save some money at the same time. But doing it yourself isn't always an option. Some projects are too big, too time-consuming or simply beyond your comfort level. When that happens, it's time to hire a contractor to get the job done. Which leads to one of the most common questions I get from readers: "What's the secret to dealing with a contractor?" Know what you want before you start Determine as much as you can about your project. Look through magazines, take a home tour, go to the library, and walk through a home center. The more details you have ready for the contractor, from the sizes of rooms and their intended use to the types of windows and appliances and trim you want, the better the contractors will understand your vision. That will greatly improve communication, as well as your chances of getting the finished product you're hoping for. Who does that type of work There are also times when you need a general contractor, and times when you need a specialty contractor. A general contractor oversees several trades on a project. For example, if you want to have a room addition built, you would use a general contractor, rather than hiring five or 10 individual specialty contractors and trying to coordinate each one. On the other hand, if you want to have a new heating system installed, you'd typically hire a heating and air conditioning contractor to handle that. Referrals If you know anyone who's had work done on their home that they were happy with, that's usually the ideal place to begin. Talk to them, and get some feedback about the contractor's skills, pricing, on-time performance, crew and subcontractor performance, general cooperation, and anything else you can learn. There are other sources of referrals as well. Maybe you've seen a plumber's van or an electrician's truck at your neighbor's house. Perhaps you drive by a room addition every day on your way to work. Stop and introduce yourself, and talk to the homeowner. As long as you're not asking a lot of personal questions, especially financial ones, most people are more than willing to share their experiences. You'll usually get some great first-hand information about the contractor, both good and bad. Material suppliers are also great sources. Ask the people where you buy your lumber or your plumbing supplies if they know of anyone who's particularly good at the type of project you have in mind. Like contractors, retailers have a reputation to protect. They want to keep you happy and coming back as a customer, so they'll typically refer only those contractors they know are honest and will do a good job. The initial call 1. Do they do the specific type of work you're looking for? It could be they no longer do kitchens or room additions, or they now do fire damage work and have stopped doing remodeling. Clarify that up front. 2. What's their schedule like? If you have a project that has to be done within the next month and the contractor can't even start until then, there's no point in wasting your time or theirs. 3. Can they provide you with referrals? Most companies are more than willing to provide you with names and phone numbers of past clients. If they can't or won't provide you with referrals, don't hire them! Between the time you call the contractor and the time they come out to your home, be sure to follow up on a couple of the referrals and get some feedback from the homeowners. For larger projects, ask if you can come out and view the contractor's work. 4. What is their business name and license number? Get the contractor's full business name, address and business phone number, as well as their contractor's license number. Immediately call the proper state or local licensing agency to verify the status of the license and that any required bonds and insurance policies are in place. If there are any problems with the contractor's license, bond, or insurance, do not deal with that contractor! Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com. All product reviews are based on the author's actual testing of free review samples provided by the manufacturers.
Copyright 2010 Inman News |
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» Short-sale purchase price not set in stoneHome Sale HindsightTara-Nicholle Nelson Inman News Q: I'm buying a short sale. We have a signed purchase agreement from both parties. Everything was fine, but now (a month later) my mortgage (broker) said the bank did an appraisal on the property and now wants to increase the price by $5,000 and make other changes to the contract. She says they have that right -- is this true? The purchase agreement has been signed and I have talked to the bank. My lawyer said to sue them, because it should be pending unless we back out of the deal or something else happened that was our fault. --Patty A: Before around 2007, most Americans had never heard of a short sale, and certainly didn't know anyone who'd either bought or sold via this transaction format if they had heard of it. But the short sale came back into vogue when subprime mortgages began to reset and home values began to drop, leaving about a quarter of American homeowners "upside down," or owing more on their homes than the homes are worth. This makes sense, given the basic definition of a short sale, which is the sale of a home for a net price less than the mortgage lenders and lien holders are actually owed. As many times as I feel like I've parroted the basic logistical and transactional contours of a short sale in the name of basic real estate education, clearly the message has not spread as widely as it needs to. This is evident not just in your question, but also in the fact that the question, "What is a short sale?" is one of the most frequently searched real estate questions on the Web these days, per Experian Hitwise, a search data analytics company. The "short" answer (sorry about the pun -- couldn't help myself) to your question is a resounding yes -- the seller's bank absolutely does have the right to change the terms of your transaction, even though you have a contract signed by both buyer and seller, and even though you're a month into the transaction. The longer answer will be another short-sale primer. As I said before, a short sale is by definition a transaction in which the sellers owe more on the home than the net proceeds of the sale will be. Because they are not recouping enough from the sale to pay off the mortgage lenders and lien holders (lien holders include other entities that may have an interest in the house, like the government, if the seller owed back property taxes, for example), all lenders and lien holders with an interest in the house must give their permission for the transaction to close. As a result, the purchase agreement negotiated between the buyer and the seller in a short-sale transaction is just the beginning of the transaction. Almost always, these days, the purchase agreement expressly incorporates a short-sale supplement or other express terms that state that the transaction terms are subject to the bank's approval. Look through your documents and see if you see any terms to this effect. Once the buyer and seller are in contract, that agreement then goes to the seller's mortgage lenders and other lien holders for their approval, along with a detailed package containing the seller's financial information and an explanation of the hardship underlying their need to do the short sale. This is the phase about short sales that makes them take so long -- the banks have to process them, negotiate and ensure that they are recouping as much money as possible before you can buy the place. This phase can take anywhere from a few weeks to the better part of a year, depending on which bank(s) are involved. Most often, under the terms of the short-sale addendum, everything else about your transaction, including your inspections, your contingency period and even your loan underwriting process, is on hold unless and until the bank issues an approval letter stating the terms on which it approves of the short sale of the home. If these terms are different from the contract terms, you, the buyer, must then decide whether you'd like to take the home on the terms approved by the seller's bank, or whether you'd rather walk away from the deal. And, quite often, the bank's terms are different from the transaction terms that had been negotiated between the buyer and seller. This is well within the bank's right -- they must agree and participate in the transaction, recovering less cash than they are owed, for the transaction to close. That means they have every right -- which they often exercise -- to simply refuse to allow the short sale, in which case both buyer and seller are out of luck. Many a disapproved short sale has ended up in foreclosure, in fact. I know a large number of wannabe short-sale buyers who would love to be in your place. Your contract renders the home pending and the sellers unable to change the terms on you, or to sell the place to another buyer so long as you are in contract (although, note that increasingly banks are exercising their power to accept a higher offer from a buyer other than the one with whom the seller signed the contract. But that's not your problem right now, so let's not go there.) In terms of what you can do from here -- your lawyer may be unfamiliar with the short-sale process. Suing the bank should be the furthest thing from your mind. Instead, simply decide whether you'd still want the house at the cost of $5,000 more, or not. You're welcome to take the bank's revised terms, reject them outright and back out of the deal, or even to counteroffer them via the seller. I haven't personally seen many banks accept counters, but you could certainly try. Just be aware that a counter could easily add another month or more to your transaction. One thing keeps bugging me about your scenario: Why is your mortgage broker giving you all this information? Why did you not know, going into this deal, what you should expect from a short sale? Your confusion and misinformation are the hallmarks of a buyer who is not represented by a broker or agent. A buyer's broker is quite skilled at managing buyers' understanding and expectations of short sales; if you do have one, you should definitely consult with him or her before making a decision about how to proceed. If not, please consider consulting a local real estate attorney who is familiar with short-sale transactions before you make your next decision. 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." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.
Copyright 2010 Tara-Nicholle Nelson |
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» Must-knows before removing a wallAlternatives exist if ceiling joists make job difficultBill and Kevin Burnett Inman News Q: I co-own a duplex in San Francisco that was built around 1912. This was a single-family home that was converted to two flats. I occupy the upstairs flat. In 1979, a 16-by-24-foot addition was built on the ground floor, first floor and top floor. On the top floor, a wall separates the kitchen from the rest of this area. On the other two floors there is no wall in this area. This wall goes floor to ceiling, is 9 1/2 feet long and runs parallel to the 16-foot dimension (of the addition). Can I assume that because no wall exists in this place on any of the other floors, this is not a weight-bearing wall? How can I tell? Do I need to bring in an engineer? A: It sounds to us as if you'd like to open up some space in your upper flat. First, never assume that a wall in a building is non-weight-bearing. But we don't think you need an engineer to answer this question. Hopefully, since the addition was built in 1979, it was done with appropriate plans, permits and the accompanying inspections. If the addition wasn't bootlegged, plans were submitted, checked by a city plan-checker, and run by an engineer in the building department. But that alone doesn't answer the question of whether you can modify the wall. The easiest way to determine if removal of the wall is possible is to take a look in the attic and measure the width of the ceiling joists. Assuming the joists run the 16-foot direction, are 16 inches apart and made of Douglas fir and there is no attic storage, a 2-by-6 ceiling joist will allow a 16-foot span. If that's what you've got, you can safely remove the wall. If the ceiling joists are smaller or spaced farther apart, you can find the proper specifications on a span table. If the ceiling joists run the 24-foot direction, the job becomes exponentially harder. As an old friend used to say, "Not impossible, just costs more." There are other alternatives. Both mean more work and more money. If you want to remove the wall, it's possible to insert a beam into the ceiling to pick up the structural load of the ceiling joists. This is a big job, and unless you're an accomplished carpenter this is not a do-it-yourself project. It involves building temporary support walls, cutting existing ceiling joists and inserting a proper-size beam supported by bearing partitions at both ends of the beam. The other option is to create a pass-through or passageway -- basically an opening in the existing wall to visually open the space. If you have moderate carpentry skills, this is a job you can tackle yourself. First, remove the wallboard from one side of the wall to expose the framing. Remove the studs where the opening will be. For the 9 1/2-foot wall, the most we'd take out would be 6 feet. Next, frame the opening. For a 6-foot opening we suggest a minimum 2-by-10-inch header supported by two jack studs at each end. The header is the framing member running parallel to the floor. It supports the ceiling joists above. The jack studs are shortened 2-by-4s nailed to the full-length wall studs you left, also called "king studs." To finish, cut out the drywall on the other side of the opening, then drywall the side where you've removed the drywall, tape, texture and paint. Both jobs require a permit. We suggest you get one. It will cost a little bit, but you'll get the peace of mind provided by the blessing of a professional inspector, and you won't have to disclose non-permitted work on the seller's disclosure statement when you sell.
Copyright 2010 Bill and Kevin Burnett |
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