Google
from Local Attorney, Michael H. Wasserman

Wednesday, February 27, 2008

COOK COUNTY RECORDING FEES INCREASE 3/3/08

Effective March 3, 2008, at the direction of the Cook County Board, the cost to record documents with County Recorder will increase by $12.

The $12 surcharge will increase the cost of a "typical" Deed from $38 to $50 & a "typical" from $68 to $80.

Recording documents with the County Recorder establishes them as public records. Information at the Recorder's office helps us all track the current legal owners of any given parcel of land, and to determine who might have security interests in that property.

Most every real estate transaction I participate in involves at least three, sometimes as many as five or six recordings. The Buyer wants his or her Deed recorded. The Lender(s) want the Mortgage(s) recorded. The Buyer and Seller want Releases recorded to "prove" that old loans were paid off as part of the closing.

$14 of every $15 new dollars collected will finance the County's ongoing implementation of its "geographic information system" (computer hardware, software, and geographic data designed to efficiently capture, store, update, manipulate, analyze, and display all forms
of geographically referenced information. The other buck will go to "special funds."

Friday, February 22, 2008

Location, Location, Location (Privacy, Privacy, Privacy)

This one comes to me from a fairly irate client; upset for reasons that should be quite obvious once you take a look at BlockShopper.com.

The folks here claim to be providing a service to the community by capturing and reporting public information relating to recent property transactions in the target communities. For Chicago, currently limited to Lakeview and Lincoln Park. Rather than simply report the property addresses and prices, these clever web-mongers are also posting google maps of the specific properties and biographical information about buyers, as available from other public web sites.

I suppose this is a benefit to home buyers to see the prices and "types" of people buying on a given street or what-have-you, and in a folksy pseudo-small townish way it could be a nice thing to learn something about your new neighbors, but at what cost?

Seems to me that the real small townish way to learn about the neighbors would be to bake an apple pie and ring the damn doorbell to say hi, and welcome neighbor.

This is just a bit creepier / voyeuristic , no?

Me, I can't wait until they hit the North Shore....

An End to Real Estate Agent Rebates?

The Spring legislative season has started in Springfield so our legislators are hard at work introducing laws we need (whether we need them or not).

Chicago lawmaker Robert Molaro has introduced a proposal to amend to the Illinois Real Estate License Act. HB 4313 provides that no licensee shall give or pay cash rebates, cash gifts, or cash prizes to an unlicensed person who is a party to a contract to buy or sell real estate.

Bad news for discount brokers and other innovators; probably good news for anyone who wants to maintain the status quo and prevent brokerage commission slippage. Companies like Redfin, who appear poised to enter the Chicago market may have to rethink their buisness plans.

For some reason, licensees could still offer prizes, merchandise, rebates, discounts, or other consideration for rental situations.


This bill

The Bowling Center Safety Act

No real estate news here - but I just can't help myself:

Its the start of the spring legislative session down in Springfield so our lawmakers are hard at work proposing new laws for all of us.

LaSalle County Democrat Frank Mautino has introduced House Bill 4332, the Bowling Center Safety Act to immunize bowling centers for any injuries to bowlers and spectators from the assumed risks of bowling unless the operator has violated duties required under the Act.

I for one will sleep better at night once this bill passes.

Thursday, February 14, 2008

A Mortgage Appraiser's View of the "Mortgage Crisis"

The news media is rife with reports of significant declines in home sales and high foreclosure rates. At this point, this is pretty old news. Just ask any realtor, real estate attorney, or title company employee. We know this from our own levels of activity, or lack thereof.

So what do we do when we run out of work? We try to figure out who's to blame! There is much finger pointing and hand wringing over the causes; lax loan underwriting; irresponsible buyers/borrowers; greedy institutional investors; poor governmental overshight; mortgage scammers. Chose your favorite. All share responsibility to some degree.

Myself, I have always looked first to unscrupulous, opportunistic loan originators. Not ALL loan originators, lets be very clear about this. The ones who over-promised, over-sold, and under-delivered. I have equally dim views of some insurance/annuity salesmen, car finance guys, and boiler room stock brokers. A common denominator among them all is that they are all commission driven salesmen who are willing to put their own compensation ahead of the customers they "serve." Whatever the industry, clients end up paying more than they should and often get inferior service and products to boot. At worst, as we are seeing much more server consequences; those record mortgage foreclosure rates, and now predictions of record auto repossessions, too.

Human nature, I guess, but I am always on the lookout for facts and circumstances that support my bias. Found something yesterday at the Illinois Real Estate Lawyers Association's monthly meeting, Phillip A. Farina, President of Urban Residential Appraisal, LLC. gave us his perspective on the mortgage crisis.

Appraisers are pretty much the first ones who were thrown under the bus when the "crisis" became widespread. Most fraud schemes involve some type of bogus or grossly inflated appraised value for a given property (properties) so as to induce lenders to loan more money than they otherwise would be inclined. The scammers either pocket the money themselves, and/or reap the commission-profits and/or sale profits. Sometimes the false appraisals originate from corrupt appraisers who are in on the scam. Others have used identity theft to submit bogus appraisals using a reputable appraisers credentials. Farina was understandably defensive about this. He thinks that the industry is getting a bum rap.

But not all bad appraisals or bad loans are the result of mortgage scamming. There are systemic problems as well. Who does Farina point the finger at? Commission driven, unscrupulous loan originators and commission driven realtors!

Farina painted a fairly dire marketplace in which loan officers and processors are calling appraisers and asking them to "bid" for work based on guaranteed high values, before they are assigned, or let the appraisers examine the properties.

According to Farina, he and others are told "give me the value I want, or I am going to hire someone else".

Those loan officers are buttressed by real estate agents who are also anxious to see contracts close who will pester and harass the appraisers in an effort to assure that the high price contract can go through.

Farina frames the issue facing appraisers this way: They (the appraisers) are being asked every day, should I maintain my integrity and independence and go out of business for lack of clients, or should i soften my standards and give the loan originators what they ask for. Tough choice, I have no doubt.

I asked Joe Wilcox of the Wilcox Company, another prominent appraisal firm here in Chicago about this practice of lenders trying to pressure appraisers to provide "the right answer" before assigning files. Joe is a man of strong character and integrity and while he confirmed that he gets receives these requests, they come from loan officers he does not work with regularly and who seem to be shopping such files to find anyone who will help out. Since his company has made its reputation on independent valuations, he prefers to work with his existing customers who know that he will not cut corners in this fashion.

Wilcox (and Farina) both also point out that the underwriters who review finished appraisal reports and ultimately decide whether loans are made or denied have tightened the standards for appraisal reports significantly. The stricter guidelines they are handing down make it much harder for appraisers to overstate the values of properties. Even if the loan originators want to be aggressive about property values, the underwritering standards may well restrain appraisers from granting those wishes.

Still and all, as long as appraisers are beholden to the loan officers who "feed" them business, there is going to be the potential for undue influence on the otherwise independent appraisers and less than honest reporting of their valuations of homes and condos.


UPATE: April 14, 2008: On March 3, 2008, Fannie May, Freddie Mac, the NY Attorney General and the Office of Federal Housing Enterprise Oversight reached agreement to address this problem. Effective January 1, 2009, mortgage brokers will no longer be able to order "Made as Instructed" appraisals (requests for appraisals that contain instructions for a report to match the purchase price, or that have real or implied threats that continued business orders will only be made if the appraiser establishes a property's value "as instructed."

After December 31, only specially trained broker employees will be allowed to order appraisers and brokers will be prohibited from exerting any type of pressure on appraisers to influence their findings.

Monday, February 11, 2008

Builder's Own Daughter Walks Away from a Contract

Last week, I wrote about defaults resulting from Occupancy Fraud (obtaining a mortgage loan based on a false promise that one will live in the unit as a principal residence)

This morning I wrote about a developer who is being sued for trying to cancel (discounted) pre-construction contracts in an effort to pocket the profits he was originally willing to forgo to get secure those buyers in the first place. His margins are getting so close that he need cannot afford to let those buyers proceed on their speculative contracts.

Now this:
Toll Brothers, the country's biggest builder of luxury homes reports that included among the 28% of all buyers who canceled their purchase contracts in the fiscal quarter ended January 31, 2008, is the co-founder / vice chairman's own daughter! Reportedly, she signed the contract to buy a Florida condominium for $2.5 million (on the friends and family discount plan) but will not proceed to closing.

How bad is the marketplace, that the firm leadership's own family is willing to default on a contract? Toll Brothers says its cancellation rate in Florida was nearly 61% thu the 12 month period ended Oct. 31, 2007.

Toll Brothers response to the news? The company "intends to pursue its rights" under the purchase agreement.

as i said just hours ago, with friends (family) like these.....

Developer (TRUMP) Sued for Breaking a Sales Contract

I posted last week about folks who buy condos at discounted rates, before construction starts in on the speculation that they can sell the finished product at a profit. The market downturn has soured those speculations and some of those buyers are defaulting on their contracts (not closing) or on their mortgages after closing (since they cannot sell or service the interest payments).

Today, we look at a developer who wants to cut the speculators out of his project, hoping to maximize his revenues unit sales in the slow marketplace.

The Trump Organization caused many eyebrows to rise last year when they announced they were canceling several purchase contract at Trump Towers. Certain "friends and family, including many of the sales agents and construction contractors were given the opportunity to buy condos at Trump Tower at discounted, pre-construction prices. Last year, when the Condo market slowed, Trump changed his mind, sending notices to those buyers announcing that they would not honor the discounted contracts. Many (most) legal practitioners agreed at the time that there was no good legal basis to allow Trump to take that action. I for one have been looking forward to seeing a Buyer sue to enforce his or her contract. As a practical matter, most everyone effected has an ongoing working relationships with Trump, and certainly would have the financial wherewithal to do battle with him in Court to force the issue.

Well, Crains is reporting today that buyers are indeed suing to enforce their contracts. The report cites none other than F. David Radler, former publisher of the Chicago Sun Times is suing to enforce his $1.7 million condo contract and two daughters are joining him to try to force Trump to honore their contract for a $688,000 unit (The Trump Tower sits on the site of the former Sun Times headquarters). We are told that at least one other Buyer has also sued to try to enforce these contracts.

As the saying goes, with friends like these....

Wednesday, February 6, 2008

Occupancy Fraud and the Sub-Prime Melt Down

Alot of the media coverage of the subprime mortgage crisis has suggested that the "victims" have been poor and unsophisticated borrowers who did not understand the terms of loans that predatory lenders sold them. In truth, a large segment of these problem loans may have been made to more affluent, sophisticated (greedy?) borrowers.

When a borrower signs a loan application and closes on a mortgage loan, the borrower must swear that information provided to the lender has been truthful. To lie on a mortgage loan application in order to get a loan (or better terms on a loan) is FRAUD. It really doesn't matter what the loan officer tells the customer. It is dishonest and illegal.

One such fraud perpetrated on lender relates to occupancy. An investment loan almost always comes at a higher cost, with a higher interest rate, and requires a larger down payment than a loan for an owner-occupied residence.

These sorts of misrepresentations seem to occur most frequently with regard to speculative investments in new constructions condo projects. Would-be investors who hope to buy condo units at pre-construction prices and then sell for quick profits shortly after the units are completed and purchased from the developer. Alternatively, some may opt to hold the units as rental properties. In either event, these players want to keep their investment costs as low as possible and there is great temptation to "pretend" that they will live in the condo unit as their principal residence.

When prices are increasing, this is often a fairly easy/passive way to make money. On the other hand, as we are now witnessing, when the markets slow, it takes longer to sell these units and the prices do not increase sufficiently for these investors to make profits (let alone recoup expenses).

Sadly, over the last year, I have seen several clients sell these types of properties at a loss. In some instances, I have even seen clients walk away from their earnest money deposits rather than complete a purchase contract on a unit they know they cannot immediately resell.

Not surprisingly, it turns out that a fair number of people who have bought on these sort of speculations have also started defaulting on their mortgages.

The Wall Street Journal reports on a Fitch Ratings study that found such "Occupancy Fraud" in as many as two thirds of of the subprime loans that defaulted within 12 months of origination. Another research firm, BasePoint Analytics suggests that 20% of all mortgage fraud involved this type of deception.

Investors tend to be more likely than borrowers who live in the homes to walk away from their purchases when home prices fall.

Source: The Wall Street Journal, Ruth Simon and Michael Corkery (02/06/08)

More on HELOCS

Never mind that the lender might send a letter telling you that the size of your line of credit is going to be lowered, if you are even remotely considering a sale of your home and purchase of another, NOW might be the time that WANT/NEED to get that HELOC anyway.

With a slow market, there is just no guaranty that you are going to be able to sell your home in time to buy the next one. You might be able to offer to buy the next house contingent on the sale of yours, but there is no guaranty that the seller will agree, or that you will find a buyer who can fulfill the contract to buy yours. Mortgage markets are tightening for everyone.

You may need to tap into that built-up equity in your current home before you sell it, in order to buy the new one.

THE PROBLEM: Most mortgage lenders will not want to remortgage your house for you once you have listing on the MLS. As suggested by Dan Green at Mobium Mortgage, "If there's even a remote chance that you'll need your home's equity for a downpayment on your next home, it's just good defense to get that equity out today -- before you list your home for sale".

A Warning to those with Home Equity Lines of Credit

A new warning to anyone who has mortgaged property with a Home Equity Line of Credit.

Borrowers with Home Equity Lines of Credit (HELOC) loan on their property pay interest to their lender based on the average daily loan balance outstanding at an interest rate that varies from month to month, typically tied in some fashion to prime lending rates. Typically, all that is required in the way of minimum payment is the interest only. As interest rates rise, so do the monthly interest payments. We are all sensitive to the effects of interest rate changes on our monthly payments as we get billing statements every month and can see the changes every four weeks.

With property values declining in many locations nationwide (including some parts of Chicagland), a stealthier, and perhaps scarier problem is looming:

STANDARD HELOC loan agreements allow lenders to DECREASE the lines of credit available to homeowners if the value of the property declines. Borrowers do not get a say in the lender's decisions. This appears to be a unilateral right.

The risk here is pretty obvious:

Home buyers who financed a part of their orignial home equity line of credit (HELOC) loan, "piggy-backing" on top of a first (conventional) mortgage or who have used HELOCs for home improvements or other non-housing expenditures may receive "margin calls" from the bank demanding repayment of any principal in excess of the diminished line of credit, or face a risk of mortgage default. Its a pretty safe bet that most of those who could be effected are using HELOCs precisely because they did not have other readily available cash on hand to cover those expenses they borrowed money to pay.

For others who maintain zero balance lines of credit as an emergency / rainy day fund, the safety they have relied on may also be decreasing.

Fortunately for most of us in the Chicago area, home values have not dropped sharply, so for now, this is merely a precautionary alert. Keep your eye on the neighborhood property values and stay alert to changes. The house you save may be your own.

Monday, February 4, 2008

More cool (?) On-Line Tools for Home Buyers

I recently posted links to two web sites that evaluate the "walkability" and "driveability" of a given home or condo, based on its location and nearby facilities. Other on line sites like Zillow and Trulia provide interesting data, such as estimated sales prices and sales histories of other nearby properties. Obviously, these tools can provide killer information for homeowners and buyers interested in the given area.

Well, the wonders never cease. Here are two more interesting tools worthy of consideration:

RottenNeighbor.com touts itself as the first real estate search engine to help the curious find troublesome neighbors. Registered users can post notices about, well, you-kn0w-who's. Mapping technology allows viewers to search a city or zip code and see where those nasties live and why they have drawn the ire of someone else in the community. The notice I read in in Realtor Magazine today describes a typical venomous post:


“These are the dirtiest and most ignorant people I have ever met. Their house looks like a landfill.”

This site is great (at least I'm going to think so until my neighbors catch wind of this or until a client who wants to sell gets blackballed.)

The clever folks at EveryBlock.com are aggregating data from public sources to give pretty unique overviews of selected City neighborhoods or zip codes. Registered users can sign up for daily updates reporting everything from police activity (arrests), business licence applications and results of business inspections; reviews of local businesses; even photos posted to the web that depict the 'hood!. How else would I know that each and every street closure in my zip code last year (all 27 of them) allowed for a block party (we are, in my estimation) the block party capital of Chicago). Again, a great resource for anyone considering moving into an unfamiliar area - well, an unfamiliar area, as long as it is in Chicago, New York, or San Francisco, anyway.