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from Local Attorney, Michael H. Wasserman

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)

Friday, June 12, 2009

COWALUNGA 2009



an open invitation to join in on the fun.

COWALUNGA! runs August 1, 2, 3

a three day bike ride (1 and 2 day options available too) from Gurnee Mills Shopping Mall into Wisconsin.

ITS FUN! (really!!) (no, really!!!)

Support the Respiratory Health Association of Metropolitan Chicago!

Promote healthy lungs and fight lung disease through research, advocacy, and education.

details: www.cowalunga.com

Wednesday, June 3, 2009

NEGOTIATING A BETTER REAL ESTATE CONTRACT - SELLER CONSIDERATIONS part IV

These days, it (still) is really very hard to find Buyers who are willing to submit a written purchase offer.
and perhaps a somewhat less obvious truth:
That's just half the battle.
Its just as hard (harder?) to get contracts to close. Doubt me on that one? Ask any realtor or real estate lawyer, mortgage broker or loan officer. Ask at the title companies too. They will all likely sigh heavy and confirm it. A great many contract are taken that never close. Even the contracts that can and do close have their problems.

However, with care and caution, savvy Sellers, and the real estate agents & attorneys that represent them, can minimize the risks of delay, and the disappointment of failed closings.

This series explores some steps proactive sellers can take to improve the odds

Tip #4
THE TERMS OF THE MORTGAGE CONTINGENCY SET THE TONE OF THE TRANSACTION - SET REALISTIC EXPECTATIONS

When I review a new real estate contract, one of the very first things I do is look the mortgage contingency over. It is a pretty good litmus test to show me how serious the Buyer is about making a deal and how realistic every one's expectations are going to be. There is often a shocking disconnect between the mortgage terms in a buyer's offers and the reality of the current marketplace. Closings are routinely delayed (or cancelled) as a result of last minute disclosures that a loan has not been approved, or because a lender is not ready to close on the appointed date.

Sellers who are proactive on the buyer mortgage financing are having much better success in getting loans closed on time, and with a minimal fussing and last minute aggravation.

The mortgage contingency is allows the Buyer to make a contract conditional - the deal will only go forward if that Buyer can get mortgage financing on the terms expressed in the contingency. This is, quite understandably, an important protection for Buyers. Few can afford to make an all cash purchase. Precious few want to take the risk of being obligated to close if there is uncertainty about the mortgage.

Buyers can specify (a) the amount of the desired loan; (b) the repayment period; (c) the maximum initial interest; (d) the points/origination fees that he will accept; (e) the type of loan (fixed or adjustable rate; FHA, VA, or Conventional); and (f) the length of time necessary to obtain that loan. If a Buyer cannot secure the specified loan, within the specified time period, she may be able to cancel the deal.

Sellers must allow for a mortgage financing contingency in order to make a deal, but setting contract terms that are not realistic only causes trouble and frustrations.

Common problems relating to these terms include:
  • stated interest rates that are at or below current market rates. What good is it to accept a contract that requires a 4.75% loan when current market pricing is 50 more basis points higher?
  • contingency expiration dates that are (obviously) too short. Most of the major banks that engage in direct retail lending (Chase, Bank of America, National City, etc) are taking 30-45-60 days to approve loan applications. Mortgage brokers that have to underwrite loans have long processing times as well. FHA loans, "non-warrantable" Condominiums, new construction? Same deal. So what is gained by accepting an offer that sets the contingency date as 10 days from contract acceptance? The Buyer is going to (necessarily) ask to extend the deadline (then again, then again) for the month or two everyone knows it is going to take to gain the loan approval.
  • contingency expiration dates that are on (or after) the closing date. If Sellers are willing to take their property off the market and close only if a Buyer can get a loan, then this isn't a real concern. In the real world however, Sellers want some assurance at some point that the contract is going to close. Sellers rely on that assurance to finalize their move out plans and to firm up their purchase closings or rental arrangements. If a loan contingency date goes to deep into the closing time line, Sellers take too much risk and loose any reasonable assurance of a closing.
  • closing cost credits or possession arrangements that exceed loan guidelines. Sellers seeking to make deals quite often agree to pay some Buyer closing costs or credit for some other consideration. These concessions become integral parts of the deal. But again, why agree to these types of monetary adjustments if the Buyer's lender will not allow them? Too often, unwary Buyers and Sellers do not learn of a lender's rejection of credits until they arrive at the closing table. At that point, there are NO easy work-arounds. No one likes these types of surprises. They are much better addressed during the contract formation period.
There is a seductive temptation to accept mortgage contingency terms that seem "too good to be true." Very often they are. After all, the burden falls on the Buyer to "watch the clock" and to either get a lender to meet a deadline or to ask for appropriate extensions. More sober and realistic contingency terms seem far more preferable. Every time a Buyer must ask to extend a deadline a Seller must expend time and effort to respond. Every time a contingency deadline is pushed back, that Seller must take on additional risk - closer to an impending closing date - that the deal will not come together. The longer the contingency remains open, the longer the property stays off market, and the greater the likelihood of a lost opportunity to find a more qualified Buyer.

Prudence dictates a realistic evaluation of any proposed loan contingency. Ask me how I can help you undertake that evaluation.