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from Local Attorney, Michael H. Wasserman

Thursday, December 17, 2009

CHICAGO PROPERTY TAX ASSISTANCE GRANTS - HOW TO CLAIM YOURS

Anyone out there interested in a Visa Check Card loaded with money? Did I mention that it is free? A gift, from the City of Chicago?

Our fair City is offering checks of up to $200 to help offset the costs of higher property tax bills to qualifying homeowners. Here are the details:

To be eligible, homeowners must have
  1. a principal residence in the City of Chicago,
  2. make $200,000 a year or less, and
  3. an increase in their 2008 property tax bill, when measured against the 2007 tax.

The amount of "tax relief" is based on a combination of income level and the size of the your property tax increase. This chart breaks it down:


Anyone who wants to apply for a taxpayer relief grant must
  1. Complete the application
  2. Attach a copy of his or her 2008 tax bill
  3. Attach a photocopy of a government-issued photo I.D. that shows the same home address.
Relief checks will be distributed on a first-come, first-served basis, and applications will be taken until March 31, 2010. The City anticipates processing times of six to eight weeks.

That said, I suggest that you to get your application in as quickly as possible...

Do let me know if you have any questions about this program or if you need help determining your eligibility.

Wednesday, December 16, 2009

Encouraging Everyone to Use Protection....

If you use Adobe Acrobat programs, take a quick moment to fiddle with the settings and turn javascripts off. there seems to be a new virus going around..... ok, maybe its not a virus; it is being called an "exploit" and a "vulnerability," and i am not in a good position to know the differences or distinctions of any of them. What I do know is that pdf formated documents play a hugh role in the residential real estate process, and none of us really want (or can afford) to have to deal with this sort of thing.

details here:

ComputerWorld

ZD Net

Shadowserver

Adobe's own "Product Security Incident Response Team"

Seems easy enough to protect yourself from this one - at least until someone gets around to fixing the problem.

Monday, December 7, 2009

IRS Providing New Guidance, Forms, to Claim the 1st Time Home Buyers Tax Credit

A new IRS bulletin, released just before Thanksgiving is offering new details that should clarify many of recurring questions about the First Time Homebuyers Tax Credit.

The most important takeaway in that bulletin however is that anyone who closed on their purchase after November 6, intending to claim the tax credit better wait a couple-three weeks until the IRS releases a newly revised Form 5405.

Critical details released last month:

CO-OWNERSHIP SITUATIONS
  • an otherwise qualifying unmarried individual who purchases a home together with someone who does not, can claim the full $8,000 credit.
  • an otherwise qualifying son or daughter who purchases a home with parents who do not qualify can also claim the entire $8,000 credit.
PURCHASE PRICE,INCOME, & AGE LIMITATIONS
  • Single taxpayers earning up to $125,000 in "modified adjusted gross income" and joint filers earning up to $225,000 qualify for full tax credit benefits (up from $75,000/150,000).
  • Singles filers with incomes between $125,000 and $145,000 and joint filers with incomes from $225,000 to $245,000 may be eligible for reduced credits.
  • Purchases cannot cost more than $800,000. This is an uncompromising, "off the cliff" threshold.
  • No one under age 18 can claim the credit, under any circumstances.
  • No one who can be treated as a dependent on anyone else's federal tax filing is eligible for the credit.
ARMED FORCES / DIPLOMAT EXTENSION
  • Members of the armed forces, diplomats, & intelligence personnel serving in foreign countries will get an extra 12 months to buy a home and still qualify for the credit.

Wednesday, November 11, 2009

CITY CLERK DEBUT'S NEW TIF PROPERTY SEARCH

WHY EVERY CHICAGO PROPERTY OWNER OUGHT TO CHECK IT OUT

Those property tax bills every Cook County owner received over the last week or two? Did you notice how they have that very detailed table that shows you "who gets what" from your tax dollars? Pretty detailed, right?

Well maybe not so much, if your property is in one of the City's Tax Increment Financing districts (TIFs). TIFs cover nearly one third of the City now. TIF districts divert money from the regular property tax stream to help "combat blight" in those areas.

For years, there has been no public accountability or accounting of its use. Property tax bills do not show any amount of directed being directed to the TIFs (nothing). In reality, TIFs fund a budget nearly 1/6 as big as the "official" city budget. Some quirk in the law or other allows them to hide the numbers from us.

A stunning Chicago Reader expose on TIF financing here. Among the many revelations - City funds will be used to refurbish the Willis (fka Sears) Tower and to help new tenant United Airlines move in. The Chicago Tribune editorial board opines on the matter, here.

Enter City Clerk David Orr. The Clerk''s web site has a new TIF property search function. Enter any property tax identification number, and see how what portion of a tax bill is diverted from the City's budget through the TIF programs.

Progress Illinois took a look at the Mayor's property tax bill in the context of the TIF controversy. It's report, here. (a whopping 92 percent of his property taxes were redirected into the Near South TIF last year. By contrast, cash-strapped schools get a mere 3.9 percent of the Daley's property tax dollars).

Thursday, November 5, 2009

THANK YOU

More than 2,300 new Illinois lawyers will be admitted to the bar today, nearly 1,900 more for the Chicago area. Welcome to the fraternity - make sure they show you the secret handshake.

That swells our ranks to roughly 86,000 souls.

Collectively, we only closed 76,800 or so home and condo sales in the first 9 months this year - which works out to fewer than one contract per counselor - ok - 2 per, if you allow for a buyer's lawyer and a seller's lawyer on each deal.

I have been fortunate to work with a good many terrific buyers and wonderful sellers this year. There are obviously a great many lawyers to choose from. Thank you, for everyone's kind referrals, and Thank you to everyone who has referred a client or two along the way.

Tuesday, November 3, 2009

NOVEMBER MONTH END CLOSINGS - A Warning

Many are first time home buyers trying to squeak "under the wire" in hopes of closing contracts before November 30th - the sunset date for the Federal First Time Home Buyer's Tax Credit. The impending deadline presents some unique challenges for Buyers and Sellers.

That November 30th deadline comes smack dab at the end of the Thanksgiving day weekend. (What genious in Washington did that?) That means a host of closings are being scheduled for Friday the 27th and Monday the 30th the last two possible days to get closings done.
  • Will the title companies and lenders cancel all holiday vacations and work at full capacity to get these closings done expeditiously, or will be have to sit for hours at the closing table while closers handle multiple simultaneous closings?
  • Will loan officers and processors get files to the underwriters with time enough for review and to satisfy conditions before the inevitable holiday slowdown, or will some Buyers be disappointed when there lenders "blow" the November 30 deadline?
  • What about those pesky property tax bills?
That last one worries me a bit more than the others. Don't forgot the interplay between the federal tax credit deadline and Cook County's Property Tax Deadline.

Cook County taxes are, of course, theoretically mailed in August to be due on September 1st. This year, as in what 16 of the last 17 before it, the taxes came out late; Mailed last week and due December 1st.

Sellers are going to have to pay those taxes at or before closing. If the Seller's mortgage lender pays the taxes from an escrow, the Seller is going to have to somehow prove to the title company that they in fact did so. We may be able to prove payment three different ways:
  1. Show a paid receipt
  2. Confirm payment on the County Treasurer's web site.
  3. Show proof on the lender's mortgage payoff statement that the tax payment was disbursed (even if not posted paid by the County).
Lenders do not all pay tax bills as soon as they are received (do you?) Most wait until the deadline nears before sending the payments in. The Treasurer does not report payments to her web site in real time. No title company is obligated to accept that payoff statement as a proof of payment. Many might refuse them altogether. Others may require sellers (or their attorneys) to sign "personal guaranties or hold money aside from the closings.

Sellers, Attorneys, and Real Estate Agents are strongly encouraged to coordinate property tax payments with mortgage lenders as possible to minimize the possibility of a title clearance problem or a hold back of seller proceeds.

Saturday, October 31, 2009

Mortgage Fraud still a Growth Industry?

New Report Predicts How, & Where its Happening

We may be done with the recession, but there is still a lot of pain left for the mortgage industry and for property values in distressed areas. A new report predicts increases in mortgage fraud ahead for states with high foreclosure rates.
When fraud risks rise, increased foreclosure activites follow.

Nevada has the highest mortgage fraud risk, California Arizona and Florida. Chicago notwithstanding, Illinois risks trail the national average.

An abundance of distressed borrowers, oversupply of foreclosed properties, and relaxed lender valuation guidelines (??) all seem to be fueling new schemes.


Most involve property valuation fraud. A trend towards undervaluing REO and short-sale properties is noted, but m
ost often values are falsely overstated so that borrowers can extract more equity from properties. Increased reports of inflated appraisals continue "with a vengeance", (the National risk index is up 25% in the last quarter alone, a trend that started in Q4 2006.

No surprise to me that appraisers are missing the mark high or low. I have seen plenty of deals that have been impacted by "problem" appraisals, but I am a bit impressed that scammers have figured out how to get "the right" valuations on distressed properties - for sales and re-fis, what with the whole HVCC thing and all.

The 2009 3rd Quarter Mortgage Fraud Risk Report was released by Interthinx, a mortgage industry "risk mitigation" firm that apparently screens loan applications for client mortgage lenders.



BONUS: You gotta love the introductory video on this firm's web site. Simply wonderful.

Thursday, October 29, 2009

EZ DEC to debut soon

Cook County real estate professionals will soon need to follow new protocols and procedure in the reporting of property transfer taxes due in their client's transactions. The new EZ Dec system is said to be going live next week, and in the new year, it will become the only way to do so.

Transfer taxes are assessed against just about every real estate transaction. The State, County, and City each levy a tax based on the sales price. In 2008, the City tax was famously increased to give a new revenue stream to the CTA. At present, we file three separate forms - one to pay each transfer tax. Frankly, the process is a collosal pain. The forms each ask for a whole lot of common information, but each form is (predicatbly enough) worse than the next. The County gets all the data it needs in a 2 page form. The State form runs 4 pages. The City's 7. Data idata input is sloppy, often inaccurate. I cannot even begin to speculate how cumbersome it is for the tax revenue agents to unspool the reported sales information or monitor compliance.

The new process funnels everything to a singe web portal. According to the Illinois Department of Revenue:

  • Combines City, County and State real-property transfer forms (over 300 fields) into a cohesive online website;
  • Eliminates five real property transfer tax forms;
  • Automates tax calculations, and identifies exemptions;
  • Eliminates tens of thousands of real property transfer tax paper declarations;
  • Validates property data electronically with Cook County;
  • Enables title companies to sell, print and issue a "smart" stamp that can be placed on the deed that captures the amount of tax to be paid to each governmental body including the CTA. The new application:
  • Creates electronic files for appropriate agency data that will be distributed to each governmental body on a daily basis.
This change should certainly streamline things on the goverment side of the tranfer tax process. It should not probably cause to much inconvenience on the user side of the deal either, though I imagine that there will some rough patches as lawyers and title companies change their work flows to integrate this new procedure.

For myself, I prepare closing documents using a proprietary set of forms using HotDocs. It took me a long time to get the transfer declarations coded properly so that I could full them out automatically at the same time I prepare all the other necessary paperwork. The key benefit has always been that I need only enter data into my computer one time. Everything is produced from a single "answer file." Looks like I am going to have to enter most of that data onto the EZ Dec platform as a separate task. Bummer.

For Buyers, Sellers & Realtors at large, this is going to cause some trouble whenever a deal involves a legal Luddites who or unrepresented seller that is not "computer enabled" or one of the 70,000 or so Illinois lawyers who handles one transaction every five years or so. The rest of us are going to have clue them in early - or do the work ourselves in order to avoid delays at the closing table.

Tuesday, October 20, 2009

(Cook County Property) TAX MAN COMETH

The Cook County Clerk's Office has released the 2008 annual property tax rates. The state has set out the equalization factors. Look forward to the County treasurer's letter soon folks. Property tax bills will be due December 1st.

The Sun Times reports that, on average, Chicago landowners can expect to see a collective 6.04 %increase from last year. Across Cook County, property owners will pay 4.2% percent more.

Property taxes are computed using four factors:
  1. A property's assessed value (look it up here.);
  2. The property tax rate (check it out here.);
  3. The state equalization factor of 2.9786 (aka the "multiplier") up 4.74 % from last year; and
  4. Applicable exemptions (described here)
Homeowners exemptions (available to anyone who lived in the property as their principal residence as of 1/1/08) can vary based on the property's location and any increase in assessed valuation over the three year assessment cycle, but the minimum homeowners exemption increased for the 2008 tax year, from $5,000 to $5,500, for all Cook County homeowners, Next year this minimum is scheduled to increase to $6,000.

The Senior Citizen Exemption entitles qualifying residents to an additional $4,000 exemption, up from $3,500 last year.

Saturday, September 19, 2009

FHA LOAN STANDARDS GETTING TOUGHER

At the same time that conventional lenders are starting to show interest in the Chicago condo market, FHA seems to be pulling back a little bit.

On Friday, FHA announced plans that will tighten many lending standards, some outline below. This action is thought to be a pre-emptive effort as FHA will soon notify Congress that its capital reserve ration is dropping below 2% - the minimum threshold mandated in the legislature.

Under the announced changes:
  • Refinance loans will require tighter income & asset verifications and quality controls
  • Appraisals will be required whenever a borrower wants to add closing costs to the transaction.
  • Mortgage brokers will be prohibited from ordering appraisals, but will not be required to use appraisal management companies. (changes here are consistent with the Home Valuation Code of Conduct, or HVCC).
  • Appraisal reports will only be valid for 4 months, down from 6.
There are a couple of less restrictive changes proposed too:
  • Appraisals will be portable (a borrower can ask one firm to turn over an appraisal report to another if he/she decides to change lenders. In some circumstances, they will be allowed to order a 2nd appraisal.
  • FHA approved lenders must will have to prove more than $1,000,000; up from $250,000.
  • FHA supervised lenders will be required to submit annual audited financial statements to assure their financial stability (WAIT - they don't already require this?)
  • Mortgage brokers on the other hand, will not have to file financial statements, meet net worth requirements or register directly with the FHA. Instead, the FHA direct endorsement (approved) lenders they deal with will have guaranty all brokered loans.

NEW HOPE FOR THE CHICAGO CONDO MARKET

Some mortgage lenders are dipping their toes back into the Chicago condo market, a development that could re-ignite local sale transactions. In recent weeks, I have learned of at least two different programs targeting area home buyers who do not want to make large down payment.

Mark Johnson at US Bank is offering a 97% LTV program. Vassili Sakkas at Wells Fargo recently turned me on to his company's new 95% loan products.

Yes, you read that right. At least two lenders are offering conventional, low down payment loans to Chicago are home buyers.

Chicago are condo buyers (and sellers) have faced a pretty tough challenge of late. The only game in town have been FHA guaranteed loans. The underwriting has been tough. Not all condominium buildings qualify for loans, let alone buyers.

The return of conventional lending alternatives should re-engergize the market. At least it will offer Buyers some new choices.

Please let me know if you hear of other lenders offering comparable products.

Thursday, September 17, 2009

CLOSING COSTS ARE GOING UP (AGAIN)

Well, what else would you do if the volume of your business is down, and if the pricing scale for your product is tied to real estate sales prices , and the stockholders & financial rating services are upset that the dividends are being cut? Raise the rates!

Chicago Title has announced another fee increases (The third in the last 15 months). The new fees go into effect October 1.

I understand that Greater Illinois Title has announced a fee increase as well.

Watch for the rest of the still viable title companies to follow suit soon.

Compare title rates on my web site, here.

Wednesday, September 16, 2009

FHA CONDO GUIDELINE CHANGES - DELAYED

Back in June, HUD issued FHA Mortgage Letter 09-19, announcing several dramatic changes to mortgage loan guidelines effecting condominiums. For the first time, FHA direct endorsement lenders will be able to approve condominium projects in whole, rather than on an ad hoc or "spot approval" basis.

Those changes are all ON HOLD for at least 30 days. The Federal Housing Administration is delaying the Oct. 1 effective date of its new condominium policies while it finalizes several modifications. "We'll be issuing new guidance soon, with several modifications to the policy described in Mortgagee Letter 09-19," a HUD spokesman said, with a November 2 effective date.

Title Insurance Company Woes Continue -

The slow real estate markets continue to wreak havoc on title insurance companies.

Fitch Ratings, has downgraded the financial strength rating of Stewart Title Guaranty Co., from "A-" to "BBB+" and the default rating from "BBB" to "BBB-."

Separately, Fitch also downgraded First American's default rating from from "BBB" to "BBB-" and the senior unsecured debt rating from "BBB-" to "BB+".

WHY THIS MATTERS:
Title insurance is only as sound as the company that provides it. A policy is of little good to a homeowner if the title insurer is insolvent and cannot pay claims. Thus, a careful Buyer wants to make sure that the title insurance issued will come from a strong, secure entity.

In Chicago, Sellers select the title company and purchase the title insurance that protects Buyers.

That decision is almost always left to the Seller's attorney who, more often than not, recommends an insurance company that will pay the attorney a compensation for cases they work together on.

Buyers want quality, but many attorneys use different critera: chose the insurer that pays highest compensation, or the one that is closest to the office.

WHAT YOU SHOULD BE DOING NOW:
Buyers can, and should, demand that title insurance be provided by a first class company. If a title claim arises, Buyers want to know that they have reliable insurance to cover any risk of loss.

Sellers should do so as well. If the insurance does not cover a claim, Buyers will likely sue their Sellers for a breach of (title) warranty. Absent title coverage, those Sellers will have to defend lawsuits and pay damages on their own. out of pocket.

I demand quality insurance for all of buy Chicago area home buying clients. I recommend only the best title companies to sellers as well.

UPDATE - Sept 17:
Yestterday, Fitch also dropped Fidelity National's (parent of Chicago Title, Ticor and LandAmerica) default rating by two notches, from "BB" down to "B+."

Thursday, September 10, 2009

Who is (is not) Likely to Provide your Next Mortgage Loan

Sitting around the closing tables (business may be slow, but i do close every now and then) I have been noticing far fewer buyers using mortgage brokers to close their loans lately... and far fewer brokers still in business.

Consolidation and tough, tough market changes are taking a toll on that segment of the money lending industry. How bad is it? Check out this report from National Mortgage News:

The dollar amount of mortgages funded through loan brokers hit a new low in the second quarter in terms of market share — just 14.9% of all originations. Wholesale lenders tabled funded just $87 billion in loans in Q2, out of a total origination pie of $583 billion. Loan brokers' dominance of mortgage lending peaked in the fourth quarter of 2007 just shy of 30%

Business volume cut in half over the last 18 months? yikes!

On the bright side, the brokers who are surviving seem to be doing very nice loans for my clients. The processing times seem to be running shorter than the retail lenders. The "hassle factor" right now seems to be FAR FAR lower too. The retails tout low costs and low rates, but my gosh, can it possibly be worth the aggravation and delays that borrowers must endure to get there? (no.)

If you are in the market for a new home, or have a client or colleague who is, I will be more than happy to introduce you to the survivors - and to the opportunities they afford.

Tuesday, September 1, 2009

ALERT: NEWLY ENACTED COOK COUNTY PROPERTY TAX LAW (and two more pending changes to watch out for)

Like most all of you (I imagine) I have been spending every waking hour by the front door, staring at the mailbox, waiting for the letter carrier person to deliver my 2008 2nd Installment Property Tax bill. OK, maybe not. For the 16th year of the last 17 (by my count, anyway) tax bills will be delivered late. No word from anyone I've spoke with on when to expect them.

But let us leave that sleeping dog lie for a moment. Lets look forward to next year's property taxes... and to pieces of legislation still pending action

NEWLY ENACTED:

Two weeks ago, Governor Quinn signed SB2125 into law. Beginning in 2010, the 1st installment of property tax bills in Cook County will be computed at 55% of the total of each tax bill for the preceding year (up from 50%) The purpose of the bill is to reduce payment pressure on taxpayers when actual tax numbers are calculated and reflected in the second bill.

Counties with 3 million or more residents (i.e., Cook) can also now change their tax cycles from two annual installments to four.

This change does not increase over-all payments in any way. It just puts more of our tax dollars into government coffers earlier in the year.

Homeowners who do not escrow for property taxes with their mortgage lenders should plan accordingly.

Still on the Docket:

HB 250 would suspend the Cook County Assessor's traditional triennial reassessment of Cook County properties (residential, commercial, and industrial) for another year and compel reassessment of the whole county again for 2009. The bill would also preclude the Assessor from using a mathematical or other mechanical factor to conduct the reassessment.

Given the continued decline in property values this year, another re-assessment will likely benefit many taxpayers (yeah!) put added cost into the administration of the assessor's office (ouch!), further diminish governmental tax revenue (so sorry) and - i imagine - cause further reductions of governmental services (oops).

HB296 is the third, triennial legislative revisiting of the "7 percent" Alternative General Homestead Exemption, (actually a 7% percent assessment cap-on-the-cap). Way back in the good old days (2004?), when property values were soaring ever higher, tax assessments (and tax bills) naturally started to follow as well. The cap was a temporary device that would dampen the effects of rising tax valuations by limiting how high a taxpayer's assessments could increase from year to year over the course of the first (and subsequently second) three year cycle.

Perhaps it may seem a bit silly to revisit this "problem" right now, given that property values have (by and large) declined over the last three years, but why should that stop our heroes in Springfield?

As proposed, the cap would increase from $20,000 to $60,000 and finally become permanent. As with HB250, this bill is also currently in the House Rules Committee.

Monday, August 31, 2009

Assessing Mortgage Appraisals

Chicago area real estate contract live or die depending on the results of mortgage lender appraisal reports. If the property value does not justify the loan, the contract is going nowhere.

As the market defalted over the last two years, many of my clients saw contracts collapse based on low appraisals.

A great many Chicago area Realtors, bloggers and other real estate pundits were quick to place blame for low property valuations on the Home Valuation Code of Conduct that became effective this past May. Frankly, the low appraisals were already a problem long before HVCC went into effect. For all the uproar, I am seeing a rather interesting (positive) trend of late. More on that in a moment. First a quick recap.

The HVCC is not so much law, as it is the result of an agreed settlement entered into by Fannie Mae, Freddie Mac, and the office of the New York State Attorney General.

The idea was to stem the tide of appraisal fraud and abuse by changing the way that lenders select their mortgage appraisers. Rather than rely on appraisers who were "friendly" or beholden to the brokers that hired them to "get" the right valuations, lenders must now assign appraisers using staff that have nothing to do with the loan production.

The Code has been pretty roundly criticized, perhaps even justifiably, as lenders began to employ third-party appraisal management companies to select appraisers. AMCs are middlemen. They receive appraisal requests from lenders and then assign them to an appraiser from a list of approved vendors who agreed to take assignments. Not everyone on the list is necessarily familiar with the localities they are assigned to work in. By design, it is harder for loan brokers or real estate agents to influence the valuations (for good or for bad).

So, how are things working out under the new system?

Curiously, I am seeing many more appraisals coming in significantly higher than the contract purchase prices. Really, truly, honestly. Significantly higher. Today, I saw a reported valuation 50% over the contract price. Valued fully $100,000 over what the seller agreed to sell for. Only one contract all month that came in below the contract price, and we quickly and easily negotiated an appropriate price reduction for our buyer.

Is this the result of a strengthening marketplace? Is this a positive effect of the HVCC? Hard to say at this point.

One way or another, it sure seems to bode well for my buyer-clients. Listing agents may want to hold just a little bit firmer on their asking prices too.

Anyone else having similar experiences?

Thursday, August 27, 2009

Need to Negotiate with your Mortgage Lender? New Instructional Video Shows You What To Expect

Have you tried to modify a client's mortgage loan, negotiate a short sale or tried to discuss a file in process with an underwriter recently? If not, this video pretty much sums up what the experience is feeling like.

Ok, the dialogue is in russian, but watch it anyway.....

You'll get it.

Monday, August 17, 2009

Another New Real Estate Contract Debuts...

I had the good fortune this afternoon to be retained in another Chicago condominium purchase. After an introductory phone conversation, I asked the client to forward his contract for review.

Much to my surprise (and delight) I immediately recognized that the newest local form contract is finally in circulation.

Ladies & Gentlemen of the real estate community, I give you "Multi-Board Residential Real Estate Contract 5.0.

A more complete exploration of the Multi-Board 5.0 form will follow in another post or two.

I know that a lot of realtors do not like the form for its shear heft (14 pages compared to the Chicago Board's 4 pager), but I like this one and encourage everyone to at least give some consideration to "trading up"

These two features alone make it the best available contract for local transactions:
  1. A new font and larger type make this one emminently more readable, even if faxed 3, 4, or 7 times back and forth during negotiations.
  2. The electronic form (5.0e) is based on the Adobe PDF file format. It is easy to navigate from field to field and page to page when making offers or counters. it even allows for easy digital signature (you do have one of those, don't you?)
Oh and substantively, this one solves my most severe criticisms of the 4.0 and prior versions and of the several CAR forms.

A big thank you to the Illinois Real Estate Lawyers Association, the Will County, DuPage County and Northwest Community Bar Association members who draft this gem and to the several local Real Estate Boards that have given it their seal of approval.

Call me if you want to learn more about how 5.0 is going to make your deals work better

Thursday, August 13, 2009

AMENDED ILLINOIS PROPERTY DISCLOSURE LAWS

Its Official -

The Governor signed off on PA-96-0232 this week.

Illinois homeowners are now required to give a 23rd disclosure to prospective purchasers to comply with the Real Property Disclosure laws; knowledge of the property's past use for the manufacture of methamphetamines.

Friday, July 31, 2009

FHA Loans: New Refinance Option for FHA Borrowers Allows Second Interest-Free FHA Loan | ThinkGlink

This programs, as reported may be "just the trick" for some distressed homeowners. Turns 30% of an existing mortgage loan balance into an interest free 2nd loan, not repayable until (if ever) the remaining 70% is paid off.

the catch? (you knew there was one, didn't you?)

the program is available only to borrowers who's loans are guaranteed by the fha.

lets put that in perspective for a moment. in 2006, less than 4% of all home loans in the us were FHA backed. In 1990, they wrote 19% of all loans.

FHA Loans: New Refinance Option for FHA Borrowers Allows Second Interest-Free FHA Loan | ThinkGlink

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Thursday, July 30, 2009

NEW FEDERAL "REGULATION Z" CHANGES START TODAY - and how at least one contract was saved from its clutches...

The rules of the game change today as new federal regulations governing "Good Faith" Estimates of closing costs (GFEs) and Truth in Lending Disclosures (TILs) go into effect. TIL statements disclose a loan's APR - a measure of the effective interest rate after taking certain closing costs into account. The days of quick mortgage-financed closings are gone. Period. End of Paragraph.

Simply put, the fastest anyone is going to possibly be able to close is 7 business days after the lender delivers its GFE and TIL. That assumes everything goes flawlessly in the mortgage approval process. If there was a significant mis-statement of closing costs that results in a 1/4 % change in the APR before closing, new disclosures must be given and a new 3 business day waiting period must follow.

These regulations are likely to wreck havoc with closing schedules for the foreseeable future - at least until mortgage lenders and title companies adopt new work flows. Preliminary GFEs and TILS are notoriously inaccurate documents. Lenders routinely under-estimate actual closing costs. Under the current system, the documents would simply be amended & buyers would re-sign them at the closing table. Now, we will cancel closings and wait three days.

Good luck to anyone who schedules movers or cancels their lease, or plans to buy a new home the same day they sell their old one.

How are the title companies planning to deal with this change? I've spoken to representatives at First American and at Chicago Title, the two largest operators in the Chicago market.

One indicated that they are hiring and training new respa / closing department personnel to contact lenders as early as possible, once a closing is scheduled to try to better coordinate on the preparation of preliminary HUD-1/RESPA settlement statements. Their goal is to let lenders know if there will be a change in the TIL early enough to allow them time to issue out revised / final TILs without delaying closings. I suppose this strategy could be likened to the early bird hoping to catch the worm.

The other is planning on issuing title commitment invoices that include every conceivable title charge - whether needed, or requested - to encourage lenders to issue GFE's that OVERSTATE the actual charges and resulting APRs. That company's interpretation of the new law suggests that revised TILs will only be needed when they understate charges. In essence, their approach is "better safe, than sorry."

Will either approach work? Only time will tell. The real problem here is not going to be title company communication with lenders. It is going to be the lenders who habitually wait until days or hours before closing to get things done. Lenders, you see, simply do not clear many loans to close until days (hours) before the scheduled closings. RESPA settlement statements (showing all of the closing costs) are not prepared until lenders loans are approved, and they get around to telling the title companies what charges to include on those settlement statements.

SO HOW WILL THIS PLAY OUT FOR REALTORS & CLOSING LAWYERS? Contracts simply must be drafted with realistic mortgage contingency and closing dates. I am recommending that my clients do two things: (a) set closing dates at least 30 days after the date of the contract and (b) lengthen the time between the mortgage contingency date and the closing date to no less than seven calender days. Setting unrealistic targets is only going to anger clients and frustrate their abilities to plan for their move-ins and move-outs. Building more time into the contracts will at least allow the possibility that the lenders and title companies will have opportunity to coordinate and get timely, accurate TILs to buyers, so that we can all close on time.

Please let me know if you have any questions about this important change in the law; or how you can protect your contract or your client's contract

Tuesday, July 21, 2009

FREDDIE MAC OFFERS BUYERS A NEW INCENTIVE

Good news for Buyers willing to purchase a foreclosure property. Not so much for anyone else who wants to sell a home.

Someone at Freddie Mac must to be watching a lot of late night television infomercials. The nations #2 mortgage finance company is offering comprehensive two year home warranties and will pay up to 3.5% of the purchase price to qualified buyers of their HomeSteps foreclosures.

The "Smart Buy" sales promotion is intended to help the mortgage giant unload a larger share of its growing portfolio of repossessed homes.

It is no secret that glut of foreclosed homes is weighing on Freddie Mac, just the same as other financial institutions. Freddie had 29,145 homes in its "real estate owned" portfolio as of March 31st, more than double that at the end of 2007. The costs have deepened the company's losses, which have forced it to draw $51.7 billion in government support.

Foreclosure inventory is costly to maintain and difficult to unload.

So, what does any good retailer do when they cannot move the merchandise? They have a sale!

Here is the script for the fast talking guy who reads the disclaimer at the end of the commercial
  • offer valid for initial purchases made by Oct. 31, 2009, with deals that close by Dec. 31, 2009.
  • Owner-occupied, principal residence only.
  • Homes costing less than $25,000 do not qualify
  • Sorry, offer void only in the continental 48 states.
  • Buyers must complete a SmartBuy Buyer's Closing Cost registration form, and obtain a coupon that must be presented both at the time of the original offer and at closing.

A great many savvy buyers are already demanding that their sellers offer closing cost credits and home warranties, but there are several key differences in this announcement.

First, the warranties cover a two year term, twice the conventional one year offer.

Second, even the warranties comes with bonus features: Cross Country Home Services will cover electrical, plumbing, air conditioning and heating systems, as well as ductwork and many major appliances. They will guarantee repairs for 180 days and will replace appliances that can't be repaired with comparable units. The warranties also include a discount buying program for up to 30% on the cost of name brand appliances and up 15% on installation.

These incentives should draw a lot of interest from home buyers, and likely will lead to many more sales of Freddie owned homes. Burning off that inventory is good for Freddie and in turn, good for the overall economy, but man, this is going to smack a lot of home owners in the pocket book. hard. Prospective buyers are drawn out of the "conventional" marketplace and into the foreclosure pool. Fewer Buyers looking willing only lead to more downward price pressures for the rest of the home-selling world.

Gotta figure that this is going to play out, just like it does when retailers and airlines announce price cuts, rebates and other incentives; everyone else is going to have to match those discounts or suffer a loss of market share. Stay tuned for similar announcements from some other the REO portfolios

Friday, July 17, 2009

ARE YOUR REAL ESTATE BROKER's CHARGES LEGAL?

Real estate brokers charge fees for their services. That seems only fair.

Traditionally, commissions are based on an agreed percentage of a property's sale price. More recently, some brokers have adopted flat fee commission protocols.

Over the last several years, a growing number of local real estate brokers have begun to add fixed administrative brokerage charges to their sale-price based commissions. The admin charge is supposed to cover office overhead or related expenses. The fee amounts seem to vary from office to office. To the best of my knowledge and understanding, they are not shared with sales agents, but are retained by the office.

A recent court decision handed down by a Federal District Court in Alabama, Busby v. JRHBW Realty, calls the legality of such fees into question.

The 11th Federal Circuit has ruled that such charges violate the Real Estate Settlement Practices Act because the brokerages that impose the fees do not provide any additional services to the consumers who are being asked to pay them; they are unearned fees.

Does that make local broker admin charge RESPA compliant?

We here in Chicago are part of the 7th Federal Circuit, not the 11th. The two have historically had very different view of the RESPA regulations and there are some conflicts in their respective interpretations of the law. But the 7th Circuit has not yet made any pronouncements on these issues, so we might not have a clear answer any time soon.

Contact me for a review and recommendation or let me know if you have any questions about this issue.

(hat tip on this post to Los Angeles attorney Sherwin Root)

UPDATED: 7/21/09: more on this story here.

Thursday, July 16, 2009

$8,000 FIRST TIME HOME BUYERS TAX CREDIT CAN BE USED AT CLOSINGS! (in Mass, anyway)

Remember HUD Secretary Shaun Donovan's proclamation back in May?

"We all want to enable FHA consumers to access the home buyer tax credit funds when they close on their home loans so that the cash can be used as a downpayment".
I blawged about it here.

I've represented a dozen or so first time home buyers in Chicago area closings since then. I've seen many more first time buyers while representing sellers, too. Still waiting to see someone who is actually use the tax credit at the closing table. Noone in Illinois seems to have figured out how to implement the FHA's proposal.

Not so for Massechusets. The Commonwealth's MassHousing loan program, announced yesterday, is one of the only programs accross the nation that actually monetizes the tax credit (allows Buyers to use the tax credit at closing, rather than wait for a benefit when they file their federal income tax returns).

Those cream pie eating, red hose wearing, celtic loving types better act quick. The program ends in November. More details here.

Friday, July 10, 2009

FANNIE MAE TIGHTENING LENDING GUIDELINES (AGAIN)

The FBI released it's annual report on mortgage fraud earlier this week. Virtually all law enforcement and industry statistics show an upswing in mortgage fraud activity.

The Mortgage Bankers Association released the National Delinquency Survey last week, reporting that the increase in foreclosure rates between quarters has reached its highest point since 1972 (when the records were first kept). The increase in foreclosures on first time mortgages increased by 36% between the first quarter 2008 and first quarter 2009.

Little wonder why lenders are scrutinizing loan applications with an even finer toothed comb.

Nor should it come as any surprise that lending guidelines are getting even tighter than they already are. Fannie Mae recently announced several new underwriting / eligibility guidelines that will become effective September 1st.

Some key changes all Chicago area home buyers (and their agents) need to know:
  • Buyers wishing to purchase owner occupied 2 flats will need to make 20% down payments. Investment 2 flats will be limited to 75% loans. (These new loan to value ratios conform to existing standards for 3 & 4 unit buildings).
  • Stocks, bonds, and mutual funds will only be valued at 70% of the current worth (reduced from 100%); Retirement accounts at 60% reduced from 70%). Stock options & non-vested restricted stock will not be eligible for use as reserves at all. (Lenders are hedging against further stock market declines)
  • "Trailing secondary wage earner income" will be disallowed. (projected employment & income anticipated, but not currently earned by a borrower, such as a spouse relocating who is currently employed but does not yet have a job lined up here in Chicago).
  • Tip income can only be used qualify for loans if a borrower can prove tip earnings for two years and if his or her employer indicates that tip income will "in all probability" continue. Such income will be counted based on a 2 year average.
  • The maximum age of credit documents will be reduced from 120 days to 90 days. (The paperwork used to "prove" a borrowers assets and income). New construction buyers get 30 days more - Buyers need to have good (current) records of their assets to support their applications.
  • 2nd loans & HELOC lenders will be allowed to recoup closing costs paid on behalf of the borrower if the borrower pays the HELOC or second mortgage off early, regardless of whether the lender labels this as a prepayment penalty. (Costs on 2nd loans are going to go up).
  • Borrowers will be required give lenders two sets of tax return authorization forms (once during the application process, and again at closing). Fannie is strongly encouraging lenders to actually pull tax returns from the IRS as part of the underwriting process
  • Final pre-closing verifications of employment must be well documented.

Buyers relocating to Chicago, Commissioned and tip-based workers, and folks intending to buy two-flats are going to be most severly impacted by these changes. But even with these new guidelines, well qualified Buyers will still be able to find lenders willing and able to make loans. It is just going to take a whole lot more effort to prove that they are indeed well qualified and they might find that they will be able to borrower substantially less money than they might have otherwise hoped to.

Savvy Buyer-agents are well advised to encourae their clients to start the loan pre-qualification process early, so that they can know know exactly what type of documentation they will need to gather for their loan underwriters and so that they can make reaslistic assessments of the loans they will be able to qualify for.

As always, I am available to answer questions about these guideline changes, and to help with other closing-related matter.

Thursday, July 9, 2009

2008 FBI Mortgage Fraud Report Reminds Buyers (and Sellers) Why it is So Darn Hard to Get that Loan Approval

It is getting harder and harder to satisfy mortgage loan underwriters these days. Ask anyone who makes a living helping Chicago area home Buyers or Sellers close their real estate contracts.

  • Tight mortgage lending guidelines are requiring Buyers to document every last nickel of income and savings, the sources of those funds.
  • New appraisal rules are insulating property appraisers from real estate agents and loan officers.
  • Lenders are requiring specific (and increasingly careful) examination of chains of the transfer of title ownership.
There is a lot more paperwork being required. Its taking Longer. Frankly, it is a pain in the kishkes trying to manage the process and keep deals together as a loan application winds its way through the lending pipeline.

I hear a lot of grousing from Buyers, Sellers & Real Estate Agents. (OK, I grouse about it too)

But then, Tuesday's FBI report on Mortgage Fraud reminds us all why we are working so much harder. Our present day (would be) borrowers are bearing the consequences of the sins of our predecessors.

Some key findings & conclusions:

  • The downturn in the economy, spike in foreclosures and defaults, & diminishing credit availability are fueling rampant mortgage fraud fraught with opportunistic participants desperate to maintain or increase their current standard of living
  • In 2008, suspicious activity reports increased 36 percent to 63,713 after 46,717 filings were reported in 2007.
  • at least 63% of all pending FBI mortgage fraud investigations during 2008 involved losses totaling more than $1 million.
  • In 2008 FBI mortgage fraud investigations totaled 1,644, a 37 percent increase from 2007 and a 100% increase from 2006.
  • Popular schemes include builder bail-out, short sale, foreclosure rescue, credit enhancement, loan modification, illegal property flipping, seller assistance, bust-out, debt elimination, mortgage backed securities, real estate investment, multiple loan, assignment fee, air loan, asset rental, backwards application, reverse mortgage fraud, and equity skimming.
As lenders tighten the screws on lending guidelines and procedures to stem the tide of frauds, I imagine that future reports will show a decline in the number of overall suspicious activity cases. Scammers will move on to other, more lucrative schemes.

None of this makes it any easier for our clients, or our workloads. But at least it helps remind us why things are the way they are right now.

Wednesday, July 8, 2009

The Cost of Selling (Some) Condominium Units is Going Up (and the Process is Getting Harder, Too)

Some Chicago area Condo Sellers are facing newly increased closing costs and timing hassles, as one of the largest local property managers has instituted new charges and procedures to issue out closing related paperwork. Wolin-Levin, Inc. recently implemented a new web-based facility to generate paperwork needed in connection with condo sales and leases. My review of the new product, and the undesirable effects it will have on condo transactions follows.

Condominium Managers & Disclosure Requirements

Condominium Buyers should do at least some due diligence investigation of the Association's over-all financial condition. No one wants to buy a new condominium and then learn about the $20,000 special assessment that they have to pay the month following.

Illinois law allows for this. If a Buyer asks, the Seller must produce information, such as the organisational documents (Declaration and By-Laws) and financial records (Budgets and Financial Statements). The association must also state whether there are any known liens against the individual unit, known or planned special assessments or capital improvements for the property, and whether or not there is a reserve of funds set aside to pay for those improvements.

Collectively, the list of required disclosures are set out in Section 22.1 of the Illinois Condominium Property Act. Creative minds that we are, Buyer's lawyers ask Seller's lawyers for "22.1 disclosures." (Some Chicago area real estate agents refer to them as Rider 5 disclosures, a reference to the form number for the Chicago Association of Realtor's contract attachment that formalizes a request for this information.

If a Buyer does asks, but does not receive this information, or if a Buyer receives, but does not approve of the information provided, the Buyer can cancel the contract, and demand a refund of Buyer's earnest money.

Whoever makes the request, and whatever the request is called, some one has to provide the requested information. When an association is professionally managed, the property manager is charged with making the disclosures.

Condominium Paid Assessment Letters
At closing, Sellers must also produce a letter from their association(s) confirming either that all monthly assessments have been paid in full or otherwise stating the amount that must be paid to bring the unit's account current. Property closings cannot take place without this letter. Again, when an association is professionally managed, the property manager is charged with generating paid assessment letters ("PALs").

Wolin-Levin has been managing Condominiums, Co-ops and rental properties in Chicago for more than 50 years. Reports suggest that they manage over 300 properties totalling more than 17,000 residential units. About five years ago, they were acquired by FirstService Corporation, a publicly traded national provider of property management and related services.

The New Wolin-Levin Web Platform

Wolin-Levin recently migrated all requests for 22.1 disclosures and PALs to a web site - welcome-link. Sudler Property Management implemented CondoCerts.com a similar web-based platform in 2006.

It would appear that the new web site is an "efficiency" that was driven by the parent entity, and created without little or no regard for Chicago area lawyers or condo owners. The product is unreasonably expensive, unduly burdensome, the system conflicts with local custom and practice, and the web site is anything but welcoming.

The Problems (besides the cost)

Wolin-Levin's new web site troubles me, and I believe will aggravate many transactions, for a number of reasons:

  1. Selection: Wolin-Levin has taken an all or nothing approach to the delivery of sale packages. Whereas Sudler allows uses to pick and choose from an a la carte menu of documents and disclosures (i.e., just a paid assessment letter; just a declaration and by laws; just a 22.1 disclosure, etc), Wolin-Levin requires that everyone order (and pay for) every single stinking document - whether they want 'em or no).
  2. Delivery: Documents ordered from a Chicago area property manager by a Chicago area requester are sent in some as yet undetermined (but I'll bet electronic) format to Lexena, Kansas, where they are sent by UPS in hard-copy format back to the Chicago area requester. By contrast, Sudler allows for immediate electronic delivery of documents. A much more efficient, and environmentally friendly approach. Easier and cheaper to forward things to a Buyer or Buyers' attorney this way too.
  3. Timing: Wolin-Levin gives users only two timing options: 30 day delivery, or, for a significantly higher fee, expedited handling. The condo act allows property managers 30 days to respond to requests for 22.1 disclosures, but the typical real estate contract calls for delivery of these materials within two or three days of contract acceptance. Sellers must choose to either pay the expediting fee or delay their contract contingencies and closing dates.
  4. File Identification: Local Attorneys, title companies, real estate agents, and parties to a deal refer to the transaction by the property address and/or the Buyer and Seller names. These are universally known and understood. Not Wolin-Levin. Even though they require a use to input the condo's property address and buyer/seller names, all welcome-link communications refer to their order number ONLY. If you do not know your order number, you will not be able to identify any email or correspondence to any given file. (How hard would it be to reference orders using any descriptor the rest of the world besides Wolin-Levin & Welcome-Link uses?
The bottom line for sellers of property's managed by Wolin-Levin?

  • expect to pay more for these transactional services. for the sole and simple reason that Wolin Levin is making you use Welcome-Link
  • don't expect to close within 30 days of signing that contract, unless you are willing to shell out an additional $100-150 for the privilege of doing so.
  • understand that the condominium due-diligence contingency is likely to stay for a long, long period of time after your contract is signed.
  • expect to pay a fee to produce and deliver the condo declaration and bylaws to your buyer - whether you need to order those documents or already have them. Since there is no a la carte selection, your gonna pay whether you need them or not.
Call me or email if you have questions or comments about the impact of new Wolin-Levin's new procedures on your Chicago Condo transaction, or if I can be of service in any other matter.

Thursday, July 2, 2009

Minnie Solos Can't Use "& Associates" in their Firm Name

Peter H. Berge at Minnesota CLE reports today that

"At least in Minnesota, it is now unethical for solo practitioners to use "& Associates" in the law firm name. The Minnesota Lawyers Board of Professional Responsibility just adopted that rule in its new Opinion 20.

The stated reason for the rule is that Rule 7.1 prohibits false and misleading statements and Rule 7.5(a) shall not use a firm name or letterhead that is in violation of Rule 7.1. Using the term "& Associates" in a firm name, the LBPR reasoned, is misleading if there are not more than two licenses attorneys in the firm. While recognizing that "Associates" has other meanings in general use, the term has come to have a specific meaning in the custom of law firms.

Needless to say, there has been consternation among some solo practitioners. Many solos feel they are being unfairly picked on; that if large law firms could continue to use the names of dead partners they should be able to intimate non-existent "Associates." (That is specifically dealt with in the comments to the Minnesota Rule 7.5 - a firm can continue to use the name of a dead partner if their is a continuation of practice or a trade name.)

Not an issue for me of course. I practice solo. No associates. No clerks. Just a computer or two. Neither the law office nor the computer has a name (and for the record, no dead partners either)

UPDATE on the TITLE INSURANCE MARKET CONDITIONS

I've reported from time to time over the past year about Title Insurance Companies that have closed up shop; fallout from the overall collapse of the real estate markets.

Title Insurance provides critically important protection for property owners. Savvy Buyers insist that sellers provide a policy of insurance as part of every purchase transaction. It affords indemnity insurance against financial loss from defects in title to real property. It protects an owner's financial interest in real property against loss due to title defects, liens or other matters. The insurer will defend against lawsuits attacking the title. or reimburse the insured for actual monetary losses incurred, up to the dollar limit of the insurance policy.

Problem is, what happens when the title insurance company shutters its doors?

Contracts that are "in process" grind to a halt. Mortgage payoff checks or other checks issued from closings that are "in the mail" or otherwise
un-cashed may no longer be good. Loans can go unpaid. Claims and Liens may not get released. If the company did not re-insure risks, policy holders may lose their insurance protection.

Past
blawg reports detailed the demise of PLM Title, Guaranty Title & Trust, and LandAmerica. Now joining the on the scrap heap, are the late great local title agencies Absolute Title and LaSalle Title. Not quite ash-canned, (still fully operational) but certainly of note is a late-breaking announcement from Professional National Title Network. Details follow below.

Absolute Title
Appears to have closed down operations, without announcements of any sort or advance warnings. It was, at one time, the
largest issuing agent for Stewart Title Guaranty Company in the state of Illinois. Based in Schaumburg, it serviced a great many north-west suburban real estate lawyers, and had a strong market niche providing insurance for smaller condominium developers. According to one insider I spoke with, Absolute may have fallen victim to numerous instances of closings involving mortgage frauds.

LaSalle Title
LaSalle Title's phone number is disconnected and appears to have closed hastily in the wake of last week's federal indictments in which the US Department of Justice alleges that
LaSalle and three other businesses allegedly schemed to obtain more than $10 million in loans on 70 residential properties in Chicago, resulting in losses totaling about $5.8 million to various mortgage lenders.

Professional National Title Network

PNTN is NOT CLOSED and is not in financial trouble (that I am aware of anyway), but its underwriter, The Florida based Attorney's National Title Fund may have been. attorney-agents were notified this week that the Florida Fund has formed a "joint venture" with Old Republic Title Insurance Company and that, going forward, they must all sign new agency agreements with Old Republic. As "the Fund" operates primarily in Florida, which was one of the epicenters of the recent real estate bubble. Apparently is suffered a substantial decline in surplus funds and was unable to continue operations. It will continue to cover claims on existing policies, but will not sell new insurance as an independent underwriter. The Fund's press release announcing the joint venture is here.

It has long been my practice to do business with only large, well capitalized title insurance companies to minimize the risks associated with a title insurer's collapse. My Seller-clients are assured that the insurance purchased for their Buyers is strong and can be reasonably relied upon. My long-standing practice has been to demand that other Sellers likewise provide my clients with insurance from reputable companies.

Please let me know if you have questions or concerns about your title insurance provider or your Chicago area closing. I will be happy to be of service

Wednesday, July 1, 2009

New government regulations may well dictate when you will close your next transaction

A big hat-tip to Wells Fargo Mortgage Consultant Martha VanBendegom for sharing information with me, so that I can share it with you.

Everyone knows that a Buyer and Seller set out the terms of their real estate deal by writing and signing a contract. All agreed terms get spelled out, including the sales price and the closing date.

The parties set the closing date in the contract. It gets written in stone, so to speak, no? Well, more written in sand than stone. Sand on a shoreline smacked over and over again by pounding waves of mortgage rules and procedures. Waves that erode the shoreline of that contract, and that will all but wipe those closing dates clean off the beach.

Regulations spawned by the Federal Housing and Economic Recovery Act of 2008 go into effect at the end of July. The new regulations, coupled with Fannie Mae & Freddie Macs recent implementation of the Home Valuation Code of Conduct are going to take that "false illusion" of a fixed, certain, closing dates clear out of great many transactions.

Buyers and Sellers who rely on a contract closing date when they arrange their moves-in and moves-out are likely going to be in for big, frustrating, costly surprises. Savvy lawyers, realtors, and especially loan officers better start spreading the word, so that there clients are not adversely impacted, or disappointed by the delays that will inevitably follow.

According to the Wells Fargo summary, there are a couple of key points everyone is going to need to understand. My thoughts follow.

  • These changes are only going to apply to residential transactions - first and second homes purchased with mortgage financing (and for re-finances as well).
  • The EARLIEST date that a contract can close will be 7 business days AFTER the buyer receives mortgage initial written disclosures from the lender. (truth in lending, good faith estimate, fair credit, etc.).
  • Lenders will not be allowed to collect upfront fees for appraisals (any upfront fees at all - other than for credit reports) until the next business day AFTER those initial disclosures are received.
  • Closings cannot take place until 3 business days after Homebuyers receive copies of their appraisals (at least this requirement can be waived).
  • New Truth in Lending disclosures will be required if a buyers interest rate (technically, the APR) changes by more than 1/8th% from an initial disclosure. If necessary, closing cannot take place until 3 business days after it is received. If the lender mails that new TIL, it is considered "received" 3 business days AFTER the mailing date.
So what does all this mean? Well, on the one hand, a contract is still a contract. A binding set of promises & obligations undertaken by the Buyer and the Seller. That contract specifies a closing date and if the Buyer's loan is not ready to go, the Seller is (as now) going to have a right to sue the Buyer for a breach of the contract. But really, the Seller didn't sign-on to sue anyone. The Seller just wants to sell and wants to know when that sale is going to happen. If it cannot happen until the loan is ready, the seller (more often than not, certainly) is going to have to just "hang-in" and wait for the loan to get done. Sellers will be entirely at the mercy of the Buyers, Lenders and Title Companies in terms of this sort of regulatory compliance.

How will this impact buyers?
  1. Any buyer who does not intend to apply for a mortgage loan, in person, is going to see longer processing times on their loans. The waiting times increase when documents and checks pass back and forth by mail. Delays will become the new norm in such instances.
  2. Anyone who does not lock-in an interest rate, who changes loan amounts, who changes loan programs, or takes time after the contract is signed to decide what type of loan they want (or who's lender suddenly discontinues or changes the intended loan program), and those who decide to add a second mortgage into the mix), will need new/updated Truth in Lending Disclosures and will force mandatory three day waits for closing. In my practice, that seems to cover about 90-95% of all mortgage-financed transactions.
  3. Poor communication between loan processors and title companies will lead to inevitable last minute changes on TiLs, to include charges for new or additional title searches / services after the initial TIL is given out, that will trigger the waiting periods. Again, in my practice, this is the case in an overwhelming majority of cases (but not so, with certain highly regarded and well organized lending institutions.
  4. Title companies change in fees for services will automatically trigger the same.
  5. Appraisals will be ordered even later in the process, since Buyers will be unable to pay for them at the time of a first meeting with their loan officers and many lenders refuse to order them without a buyer's cash in hand.
Real estate agents and attorneys representing clients - on both sides of the deal - and loan officers will all have to make sure that their clients understand the timing ramifications of these new regulations to make sure that expectations of a closing happening on time are realistic.

Buyers will be best served by (a) applying for their mortgage loans in person, (b) using highly reputable and well established loan officers (c) who communicate regularly and reliably with their borrowers, attorneys and agents. Sellers, attorneys, agents, and title companies will be happy too.

Let me know if you have any questions about the new regulations or how they may impact your Chicago-area home deals (or your client's deals as well). I can also help you find those highly sought after "good" lenders who will minimize the inconvenience these new regulations will cause, and can help you deal with those not-so-good ones, and the consequences of lender delays too.

Friday, June 26, 2009

Another Dispatch from the Department of "...huh"?

If these stories were not true, they would likely be pretty amusing. This one is true. Not at all funny.

My client wants to sell his home. The Buyer's loan is approved. The Seller has moved out. Just need one last piece of paper: a payoff statement from the mortgage holder so that we can repay the loan and so the bank will release its lien against the property. (Yes, my client and I are dealing with one of the national lenders). Most often, asking for a payoff letter a simple enough proposition. Call the bank's super-computer; key in some identification information and a fax number; voila: a computer generated payoff statement arrives in my fax in-box. Not so here.

The property is in foreclosure. Things go a bit differently. Gotta go through the foreclosure attorneys (which we have). Gotta send in a written request (which we have). Gotta have the borrowers written authorization (we have). The process takes a bit longer. Started two weeks ago for goodness sake.

Understand, we can pay the loan off IN FULL. We are able to pay the loan in full. I dare say we want to pay the loan off in full.

Honestly!

Ask yourself this quick question:

If you were the bank, what would make you bank happier? A borrower's repayment of the loan, including foreclosure costs, legal fees and interest? or, an order of foreclosure, adding the property into the REO inventory and hoping to sell it off some time in the future at a below-market price, all the while incurring costs associated with owning the property?

Now ask yourself whether do you think the Bank would agree with you? (hint: you are wrong.)

All we need is a pay-off letter. Show us in writing what we owe. We are going to give it to you. Now. We're ready. Have been for two weeks.

I've called the bank. I've called the attorneys handling the foreclosure. I've faxed the bank. I've faxed the attorneys. I've sent them both my client's signed authorization more than once. My client has called the bank as well. No nothing. Don't they want their money back?

The bank just cannot or will not tell us what we owe. Their lawyers cannot tell us what we owe because the bank will not tell them.... or even explain the reason for delay.

two weeks into the process, the bank finally tells me that they have sent an email to their lawyers with the preliminary payoff figures. (the lawyers need to add in their costs and fees, then the bank has to approve those numbers before they become available to us).

GET THIS: the bank uses an email system with its venders called "venderscape." e-mail messages sent via vender-scape take 3-5 business days to be delivered. email that takes 3-5 days?

Huh?

Thursday, June 25, 2009

RELIABLE

Every Chicago are real estate closing I participate in has some sort of allocation of property taxes between the buyer and seller; the tax pro-ration. Calculating the pro-rations amount is based, in part, on the day of the year on which the closing takes place. So, as a lawyer who helps clients buy and sell their homes, I refer frequently to the "day of year" counter on my title-company issued desk blotter monthly calender. Which is why I am so very aware of the fast approaching chronological mid-point of the year.

So, how are we doing in residential real estate?

The Illinois Association of Realtor's monthly activity report came out again this week. Analysts who sifted through the data were able to find a few shiny nuggets of good news, but things still are not quite trending the way we might hope they would be. 422 fewer condos sold in Chicago, (1,053 fewer total residences sold in the metro area) May 2009 compared to May 2008. Drops of 27.5% and 18.7% respectively.

Put that into perspective from the previous year's numbers: Chicago area home sales in May 2008 were down 29.0 percent from 9,751 sales in 2007. Chicago condos were down

Real Estate Brokerages are feeling the squeeze. Coldwell Banker NRT, the area’s largest residential real estate firm announced last week that it plans to close a Naperville office by summer’s end. That would be the 3rd office closed this year. It closed 2 others late last year too. Sudler Sotheby's closed its old flagship office on Wells Street. Baird & Warner also closed an office just down the street from Sudler's. Both had been Old Town presences for more than two decades.

The pool of mortgage lenders is shrinking too. Many, like Residential Loan Centers of America are simply shutting their doors. Others, are folding into larger firms (Professional Mortgage Partners, Revere Mortgage and others for example have all morphed into Wintrust Mortgage).

Title Insurance Companies also continue to shutter offices and reduce staffs.

Me, I am still accepting new clients for all manner of real estate transactions.

Thursday, June 18, 2009

CONDO LOAN GUIDELINES ARE CHANGING - AGAIN

Stop me if you have heard this one before.

FHA financing has become more prevalent in the market over the last two years as Fannie Mae and Freddie Mac tightened the reigns on low down payment condo loans. More and more condo deals (at least the ones I am seeing) are being financed by FHA backed loans - they are still guaranteeing loans for up to 97% of a purchase price.

That may change soon in the wake of FHA's Mortgage Letter 09-19, issued earlier this week. Lending guidelines for condominiums are changing. again.

Basically, FHA requires that both the borrower and the property must satisfy lending guidelines. Condo approvals come in three different flavors:
  1. The Condominium is already on HUD's approved list;
  2. The developer or association apply for an approval of the entire building/project (to get on that list) - a "blanket" approval; or,
  3. The specific unit is approved on an ad hoc basis - a "spot" approval.
Spot approvals require certain specified requirements be met in order to obtain HUD’s blessing (Typically a two page questionnaire). A pain, but faster & easier than submitting the ream of documentations necessary for a blanket approval for an entire condo project.

HUD has announced that, effective October 1st, it is eliminating the spot approval process. Early reports suggest that some lenders stop processing applications for spot approvals even sooner (yikes!).

I strongly encourage anyone who is shopping for a condominium, and intends to use an FHA loan so as to make a minimal down payment, to get going NOW, before this rule changes. Blanket approvals might get somewhat streamlined, but are going to take time. Too much time to make them viable options for any single buyer or resale situation.

There are, at least, two silver linings in all of this

  • elimination FHA's prohibition of the right-of-first-refusals, and
  • and end to the "1-year waiting period" for condo conversion project approvals.

HB0155 APPROVED - WOULD BAR CONDO RIGHTS OF FIRST REFUSAL

Back in March, I wrote about HB0155.

The bill would effectively prohibit a condominium from exercising a right of first refusal to bar a potential buyer from purchasing a unit because that buyer wants to finance the deal with an FHA loan. That bill, slightly amended, has passed out of the State House & Senate and awaits the Governor's signature or veto (more on that below).

Many Condo Declarations contain a broad rights of first refusal over sale contracts. FHA lending guidelines prohibit them, that is to say, they will not lend to buyers wishing to purchase into associations that restrict sales in this manner. (Don't get me started on the "logic" behind the guideline - I have only seen the right actually exercised once in the last 10 years).

This new law would simply tell Condo Associations - hey, don't even think of exercising that right you aren't going to use anyway.

So if we ban Associations from asserting the right of first refusal, does that mean that the FHA will lend? I don't know. I hope so, but I have not seen anything from FHA or anywhere else that suggests that the law will trump the guideline or that HUD will change the guideline. After all, the right of first refusal will still exist, even if it cannot be exercised. The law could be repealed, or ruled unconstitutional by the Courts. If the FHA feels so strongly about re-sale restrictions, is it going to take that risk?

But perhaps the more interesting questions right is this one:

Will the Governor sign the bill?
HB0155 joins 498 others awaiting the Governor's action (House Bills: 356) (Senate Bills: 143)

(Apparently they may have run out of pens in Springfield due to the budget crisis)