December 2008 Archives

December 30th, 2008

The guidelines for this carnival.

As always, I arranged the entries that met guidelines into three levels, based upon originality, usefulness to the consumer, and how much thought and effort and research went into an entry.


There were no strongly recommended articles submitted this time.



Home prices to decline another 20% has a lot of data and is worth reading for the thought process, but see how many reasons you can spot for disagreeing with the conclusion as I do.

Don't let your dream house become a nightmare discusses rehabilitating "meth houses" and is specific to Colorado, but a lot of the information applies elsewhere.

New Home Staging Tips That Will Sell Your House You Can Do It Yourself This is only a small part of the battle, but an important one.

Your host presents The Hope (Dashed) For Homeowners Program



The Benefits of a Pre-Retirement Vacation Home

Spruce it Up - 25 DIY Tips to Improve your Home's Exterior Looks like link-trolling so they can sell engineering schools, but they did meet the guidelines.

Real Estate Supply And Demand gets the idea right but is very basic, to the point of wondering if you learned anything from the time you spend reading it. But it did meet guidelines.

Santa, All I Want for Christmas is a Decent-Sized, Decent-Priced House. Observation: if the properties are selling for those prices, then they're not overpriced, are they?

Getting a Second Mortgage Generic, and really no useful information, but it does meet guidelines.



The mental midget at NLP Marketing Blog sent a self improvement post that did not so much as mention real estate on the benefits of visualization. Visualization lacks the real world feedback of whether you're actually getting the skills correct - for instance, he probably visualized getting accepted and a link from this carnival, instead he is getting the real world feedback of a severe fail. Given this feedback, it's conceivable he'll will gain the skill of submitting to carnivals. Then again, maybe he'll just go visualize writing something on real estate. But if he'd better actually do so before submitting to this carnival again.

Campello Apartments is trolling a "get rich quick" scheme guaranteed to get him rich. Others, not so much. Very short on details, no concrete information whatsoever. Avoid this clown if you value your wallet.

For those who might object to the treatment their submission received, the relevant information has been in the guidelines since before submissions were being accepted for this carnival. Having been told to read the guidelines, you willingly submitted these posts. Live with it.

Consumer Focused Carnival of Real Estate will return in one month on January 30, 2009, here at Searchlight Crusade, unless someone else wants to host. Deadline for submissions will be Midnight December 28th.

Carnival of Personal Finance


via Michael Barone, an historian compares today not to 1929, but to 1873. I think the data is a much better fit.


Reconsidering Watergate and Deep Throat

A bureaucrat, disgruntled for being passed over for a promotion, using the FBI to make political war upon the President of the United States. Somebody paid to carry out the policies of his superiors sabotaging those policies for revenge. If he'd have been a whistleblower, he would have come forward publicly at the time to make his accusations - and they would have brought down Nixon much more quickly. Instead, he played the game to his personal advantage and continued his career for another decade, keeping his involvement secret, while dragging the pain out for the entire country for more than two years.


Across Mideast, thousands protest Israeli assault

From Lebanon to Iran, Israel's adversaries used the weekend assault to marshal crowds into the streets for noisy demonstrations. And among regional allies there was also discontent: The prime minister of Turkey, one of the few Muslim countries to have relations with Israel, called the air assault a "crime against humanity."

Where were all of these outraged demonstrators when Hamas was using civilian cover to attack Israeli citizens by raining down rockets on their head - sixty per week on average for the past year, during a period of so-called "truce"?

Furthermore, Hamas called off that "truce" and with an open declaration of hostile violance towards Israel and tripled their level of rocket assaults. Where were these people when Hamas was raining death and destruction upon Israel, and Israel was forbearing retaliation?

One demonstrator carried a banner reading, "The aggression against Gaza is an aggression against the whole Arab nation."

"Down with America, the mother of terrorism," read another.

In Amman, Jordan, about 5,000 lawyers marched toward parliament to demand the Israeli ambassador's expulsion and the closure of the embassy. "No for peace, yes to the rifle," they chanted.

How did that work out for you last time? The time before that? The time before that? Has it ever worked? The Palestinian people exist at all because of Israeli restraint. Were the situations reversed, does anyone have any doubt as to what the Palestinians (or Arabs) would do to the Israelis?

Israel is in a situation where they cannot afford to lose once. Given that fact, I do not understand why they have not driven the Palestinians completely out, dispersed them to the four winds, and put an end to the issue, but they haven't. They're more compassionate than I am, and far more compassionate than their opposition - which translates into Palestinian as "enemy"

In Jordan's squalid Baqaa camp for Palestinian refugees and their descendants, protester Yassin Abu Taha, 32, blamed America and Israel for the Middle East's problems.

"The Israelis kill our people in Gaza and the West Bank. The Americans kill our people in Iraq. We're refugees, kicked out of our home in Tulkarem in 1967 and we're still displaced," he said, bemoaning his family's flight in the 1967 Mideast war.

If they're such poor pitiful victims, why don't their fellow Arabs allow the Palestinians to assimilate into their society? Why don't they improve the lot of the Palestinians? The other Arab countries or the UN could permanently solve this issue with the expenditure of about two years budget for the ongoing problem created by continuing to deny the Palestinians the ability to assimilate into the rest of Arab society - but then they wouldn't have a ready made grievance against Israel, would they?

In Iraq, where the government has also condemned the Gaza airstrikes, a suicide bomber on a bicycle blew himself up amid a crowd of about 1,300 demonstrators in Mosul who were protesting against Israel, killing one demonstrator and wounding 16, Iraqi police said.

We're definitely into Life of Brian territory here...


Private Papers: More California Dreaming

California is a governmental train wreck in progress. Unfortunately, it being a state rather than a country, revolution is impossible.

Every purchase contract I write includes an addendum for Wood Destroying Pests. In California, this is accomplished via form WPA, a one page addendum that requires an inspection and details responsibility for who makes repairs. The work needed is separated into two sections. To quote from the actual standard report, Section I work "CONTAINS ITEMS WHERE THERE IS EVIDENCE OF ACTIVE INFESTATION, INFECTION OR CONDITIONS THAT HAVE RESULTED IN OR FROM INFESTATION OR INFECTION," while Section II is "CONDITIONS DEEMED LIKELY TO LEAD TO INFESTATION OR INFECTION BUT WHERE NO VISIBLE EVIDENCE OF SUCH WAS FOUND."

The standard around here is that the seller pays for Section 1 items, the buyer for Section 2. The reasoning for this is quite solid: The lender isn't going to fund loans for properties where they know about termites in the process of eating the property that they're taking as security for the loan. They could very well end up foreclosing upon a property that cannot be sold, or cannot be sold for the amount of their loan. Federal Reserve Regulations frown on that, so say the least.

So when I got this from an agent on an REO, I was skeptical

Hi Dan,
The bank will not pay the termite - Section 1. They said we must get bids and the buyer will need to pay for it. This is not allowable with VA. I already know how much it is - $1550 - I ordered the report. The property needs tenting.

I forwarded that to my clients, who responded:

Thanks for the update. As usual I have some questions.

1. (irrelevant to this article)

2. We are definitely eager to see the termite report. Are they likely to give it to us, and if it does show serious structural damage, can we back out?

3. Is the VA loan going to hinder this or is it a simple matter of writing another check?

4. Would they have told us about this if we were going the conventional loan route?

My answers?

2) They have to give us the information if they have it. Not only is it in the contract and the law, disclosure laws require it. The only legal way not to disclose it is if they honestly do not know. That isn't the case - they're telling us there is known Section 1 work needed.

3) Section 1 work eliminate the VA loan as well as any others unless it's done. It's a condition of the contract. The lender is going to want to see the report. When they see the report, they're going to say no. Section 1 work is a loan killer, no matter the loan type. The only ways to get around it are an all cash offer, or agreeing to eliminate the termite clearance from the contract.

4) They would have had to. See answers to 2 and 3

However, this work is the owner's responsibility - in this case, of the lender who owns the property. Section 1 termite work impacts safety and habitability; not to mention that no agent who doesn't hose his clients is going to agree to clients paying section 1 work before escrow is completed (in other words, before you even take title). Since transactions fail to close for other reasons at the last minute, this means you could end up paying for the work and not taking title. The property and our offer were predicated upon the property being in a certain condition, but now we know it is not in that condition. Work is needed to bring it up to that condition. Therefore, the property is worth less without that work being done. The owners can do this work, or they can give an allowance in the price, and since this work is necessary to get a loan, not doing it makes a major difference in the price.

You can decide what you want to do. This may be just a testing tactic. If we respond strongly, they may give on the issue. If they don't, I would very strongly advise you to reconsider the property - it's very possible that you would end up spending the money to tent the property and still not getting the property. But that isn't my decision to make.

I am certainly going to advise against deleting the wood destroying pest addendum from the contract offer, which would enable us to pretend to our lender that no such damage exists. Not only is it fraud (and they would come after all of us), but what happens if it were to turn out that damage was greater than represented by the sellers?

If they are going to stand upon what the agent is representing here, the property is worth considerably less than the asking price, and they are trolling for an agent who will allow their clients to be hosed in the interests of getting a commission check, or willing to commit loan fraud.

We went back and forth a bit, and this was what I ended up sending back to the listing agent:

My clients are indicating that their offer was predicated upon the Wood Destroying Pests Addendum.

Section 1 Work is required to be done by every lender and every loan type I am aware of. Failure to disclose it (when known to exist) to the lender is fraud. Therefore, it needs to be done prior to loan funding, and therefore prior to transfer of title. Since the only non-fraudulent way to get a lender to fund such a loan is to do the work, it is the responsibility of the current owner to obtain a termite clearance.

Furthermore, since required Section 1 work impacts both safety and habitability of a property, an "as is" transaction does not shield the current owner from the need to repair this fault.

So the current owner is advised that they are required by the terms of our offer and the need for most potential purchasers for financing to do the work.

Otherwise, may I suggest you solicit "all cash" offers?

Here is the situation: The current owner and listing agent know that there is Section 1 work that needs to be done. Knowing this, if we were to conspire with them to eliminate that particular phrase from the contract, we would be guilty of fraud, in that we would be asking the new lender to fund a loan where we know there is a disqualifying condition of the property, but failing to advise them of it. This would be particularly pointed in the case of an agent who also does the loan (and therefore has a fiduciary duty to the new lender), but it doesn't let everyone or even anyone else off the hook: That listing agent is conspiring with malice aforethought to keep relevant information secret from the new lender, as are the current owners, who happen to be a bank, and therefore should be fully apprised of what usual lending standards are. Fraud, fraud, and fraud.

They ended up rejecting our counteroffer. Chances are they'll find someone who doesn't mind committing fraud. Lots of agents do this, as evidenced by the fact that she barefacedly proposed this fraud in written communication (email). That doesn't change the fact that she is proposing an intentional concealment of known information that a party to the transaction (the new lender) has a legitimate interest in knowing, and that is just as much fraud as appraisal fraud, concealing cash back from the seller to the buyer, or any of a large number of other ways to commit fraud in consummating real estate sales. Remember that agents owe a duty of fair and honest dealing to everyone, not only contracted clients. That includes the buyer's lender, whomever it may be. Just because you may not deal with them directly doesn't make them any less of a party to the transaction. Lots of escrow officers and agents are discovering this now in regards to concealing sellers giving buyers cash back, because the property is therefore worth less than presented. The exact same principal applies to the termite report.

Caveat Emptor

Article UPDATED here

(This was originally published December 13, 2005. I'm reprinting it because it shows how utterly predictable the housing meltdown was)

Ken Harney has a column I found in the local rag yesterday. It seems that there is (finally!) concern amongst the regulators for this risky loan which begs for trouble for consumer, lender, and the system as a whole when there are too many of them out there.

First off, Mr. Harney is wrong, or his editor really screwed up what he did write (The Washington Post? <sarcasm>Say it isn't so!</sarcasm>). Read the contract. The attraction of negative amortization loans has nothing to do with the actual rate. Zero. Zip. Zilch. Nada. It has everything to do with lower permitted payments. There is not one day, not one hour, not one second where the actual rate being charged is reduced even by a minuscule amount. But for a certain amount of time, the minimum payment is calculated as if the rate is lower than it actually is. This is why they are easy sells - because the average real estate consumer "buys" a loan based upon the payment. So when someone tells the average consumer that they can get a "$170,000 mortgage for $850 per month!", it sounds attractive and the majority of people won't investigate any further. A large portion will actively avoid anybody who tries to tell them what's really going on, as if the loan will somehow magically be alright if they manage not to hear about all the bad stuff.

Furthermore, the real rate on these loans is variable from day one. There literally is not one month where you can truly predict what the next month's payment will be. I have, and always have had, lower interest rate loans that are hybrid ARMS with truly fixed interest rate for five years or more, have lower costs to obtain them, and no hidden gotchas. Heck, from my first day in the business I've always had loans that fit all of the forgoing criteria and require interest payments only. If you cannot make a payment of at least the full amount of the monthly interest, it is quite likely you shouldn't make the purchase.

These loans do have a niche. But I can't think of a case where they should ever be the purchase money loan for a property. Even on refinances, they should be no more than one percent of total refinances - not the forty percent share of San Diego's purchase money market the last figures I saw had them having. Investment property, the rules should be somewhat looser, but still nowhere near 40 percent of the market is appropriate. If this were the securities or accounting industries, the regulators would be throwing people into jail over this, and shutting down offending companies completely and permanently. There's a world of hurt coming down the pike, and the prevalence of these pieces of garbage is going to greatly exacerbate the problems, particularly in high cost markets. Let's say, hypothetically, someone put 5% into a $500,000 home here in San Diego at the beginning of the year, at a nominal rate of 1%. They had one $400,000 mortgage and one $75,000 mortgage. Assuming the nominal rate on the first is 1% and that the second is "interest only" as is common, they would now owe $10,000 more on a home that is worth about $30,000 less (and in December 2008, nearly $200,000 less). After three years, they owe a total of $505,000 even if the rates don't rise any more, which I can promise you they will (Yep, even though they've now dropped again). If values hold steady right now, their home is worth maybe $470,000, of which they would get about $440,000 if they sold without paying any closing costs for the buyer, which isn't happening right now. So under perfect theoretical conditions, they've gone from having $25,000 in the bank to having to come up with $65,000 just to get out from under. Since they likely can't, their credit is going to be ruined for ten years at least, plus they're going to get a love note from the IRS saying they owe taxes on $65,000 more income (which incidentally slides most folks into higher marginal brackets).

(In December of 2008 - they could get maybe $300,000 of the $505,000 they owe, and the debt forgiveness for short sales expires December 31. $205,000 of taxable income on top of suffering through this disaster of losing their home)

You can survive being "upside down", owing more on your mortgage than your house is worth, for a long time if you have the right loan. Negative amortization loans are not the right loan for market conditions I see happening in the next few years. They are always risky, and mortgage lenders and brokers who do them do not have, in the aggregate, an even vaguely acceptable track record of disclosing their risks. Not that it's any great shakes of a prediction, but I predict that lawyers will be prosecuting a lot of these as civil cases in the next few years, and winning large judgments that are not going to be covered by insurance because it's neither an error nor an omission, but an intentional misrepresentation.

(December 2008: not a lot of cases yet. Perhaps because few of the victims can afford a retainer?)

Under the right conditions, these can be useful loans. But the right conditions are rare, and when you have those conditions, the lenders are not likely to approve the loan because the prospective borrower is not a good credit risk. In short, if you're approved for one of these, you almost certainly had better much options available to you. If negative amortization loans are actually appropriate for you, I'll bet a nickel your loan won't be approved. This is the kind of marketing strategy which has gotten many industries in serious trouble, and the lenders who are involved in this are likely to be hurting anyway when the house of cards they've been supporting comes tumbling down. Expect corporate bankruptcies, also.

(December 2008: not to mention $700 billion of bailout money that is essentially gone with no great effects upon the mortgage market)

Caveat Emptor.

P.S. If you haven't read anything on these previously, you might want to check out this article as well as this one.

Original here

an email:

If you think it's worthwhile, how about an article that explains the HUD hope to homeowners program in plain(er) English. I don't consider myself terribly dumb, but I can't quite figure out who qualifies and who doesn't. One the one hand it sounds magic -- get new smaller loan! But it also sounds like your existing lienholders have to agree, which I can't imagine they'd be happy to do outside of very specific circumstances. Also, it sounds like if you do sell, you give a portion of the forgiven equity back to HUD (seems fair), but some of the things I've read seem to disagree on how much. Also one article I read "you need to not be able to pay your exiting mortgage without help". That seems very subjective. Is there an actual yardstick for that? Debt-to-income? Something else?

The program is effective from October 1, 2008 to September 30, 2011. However, it is about 99% political theater. It's not actually going to help a lot of people.

The HUD Hope for Homeowner's Program Page

Cost-Benefit Analysis

Lender considerations:

Given their fiduciary responsibilities and financial obligations, lenders will assess their portfolio and perform a cost-benefit analysis to determine the feasibility of offering this program to struggling homeowners.

1. Affordability versus value: lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 96.5 percent of current appraised value. The lender may choose to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.
2. Borrower eligibility: Lenders that determine the H4H program is a feasible and effective option for mitigating losses will assess the homeowner's eligibility for the program:

The existing mortgage was originated on or before January 1, 2008;
Existing mortgage payment(s) as of March 1, 2008 exceeds 31 percent of the borrowers gross monthly income;
The homeowner did not intentionally default, does not have an ownership interest in other residential real estate and has not been convicted of fraud in the last 10 years under Federal and state law; and
The homeowner did not provide materially false information (e.g., lied about income) to obtain the mortgage that is being refinanced into the H4H mortgage.

The first thing to note is that you cannot have "provided materially false information (e.g. lied about income)" in order to get your current loan.

Right off the bat, that eliminates everyone who did a stated income loan. There has never been a stated income loan where people could document their income to be at that level - if they had the documentation, they'd get the better rates for full documentation.

Now let's take a look at the other requirements

  • lenders will take a loss on the difference between the existing obligations and the new loan, which is set at 96.5 percent of current appraised value. The lender may choose to provide homeowners with an affordable monthly mortgage payment through a loan modification rather than accepting the losses associated with declining property values.
  • Existing mortgage payment(s) as of March 1, 2008 exceeds 31 percent of the borrowers gross monthly income;
  • The homeowner did not intentionally default, does not have an ownership interest in other residential real estate and has not been convicted of fraud in the last 10 years under Federal and state law;

So yes, it is debt to income ratio that determines affordability.

The lender has to write down principal of the loan to 96.5% loan to value ratio. This money is just gone. It explicitly states that Mortgage Loan Modification instead is the lender's choice. I can tell you: That's what they would rather choose. If they write down the principal, that money is gone, completely and irrevocably, without any possibility of recovery. Just as I wrote for the article on loan modification: they're not likely to agree to that. They agree to let you off the hook for money you borrowed and you still owe, and you have the opportunity to make a profit from it? Lenders don't do many principal write-downs on loan modification, and they're not going to agree to them for Hope for Homeowner's, either. Unless you're suffering one of the "killer Ds": Death of primary breadwinner, Disability of primary breadwinner, or Divorce, the chances are better of flying to the moon by flapping your arms. The only difference between a principal write-down on loan modification (than one in sixty chance, as explained in the article on loan modification) and "Hope for Homeowners" is that the government can make money, too. Quite frankly, in their shoes, I'd rather give it to the homeowner alone. At least that doesn't furnish a bureaucracy that wants to make itself permanent. When I originally checked, only 7 percent of borrowers had loans with lenders who were participating at all. That percentage may have gone up, but that doesn't mean they'll write down principal for you.

The lender will disclose to the homeowner the benefits of the program:
  • Home retention,
  • New affordable mortgage based on current appraised value,
  • 3.5 percent equity

The lender will also disclose to the homeowner the costs of the program:

  • 3 percent upfront mortgage insurance premium and a 1.5 percent annual premium,

  • Equity and appreciation sharing with the Federal government, and

  • Prohibition against new junior liens against the property unless they are directly related to property maintenance

The second group is more important. After the lender gives up all that money, the federal government gets paid for insuring the new loan? And either the lenders have to give up the 3% extra or people basically have to come up with cash in order to make this happen? If people had the cash, how likely is it they would be delinquent on their mortgage? Where is someone who tried for months to keep their loan current and is giving up because their finances are exhausted going to get 3% cash? Most of them didn't have 3% cash when they bought the property! And you're going to try to convince them to come up with 3% cash rather than walk away? Good luck with that.

Negotiations Between Borrowers and Lien Holders

If the lender refinancing the loan does not hold the senior mortgage lien, it will need to secure an agreement from the existing lien holder to waive all prepayment penalties and default fees on the existing loan and accept the loan proceeds from the H4H loan as payment in full. The loan amount (including the 3 percent UFMIP) for the new H4H loan cannot exceed 96.5 percent of the current appraised value of the property.

The lender will engage existing subordinate mortgage lien holders to extinguish all subordinate liens on the subject property. To entice subordinate lien holders to participate in the negotiation process and release their liens, FHA has the authority to share its future appreciation entitlement with them.

So they get back a portion of what they give up, while the federal government gets a share. Let me see: Would you like to give me $100 if the federal government promised to give you $50 back? Would that strike you as a wise bargain to make voluntarily? Didn't think so. The feds couldn't make it mandatory, lest they fall afoul of the Fifth Amendment, but how many lenders are going to voluntarily agree to this when there are other options available (i.e. loan modification)?

Step 3: Originating an H4H Mortgage

Nothing worth commenting upon.

Upon sale of the property, the homeowner will use their sale proceeds to pay off the H4H mortgage as well as the shared equity and shared appreciation mortgages.

FHA will provide instructions to the settlement agents regarding subordinate lien holders who are entitled to a portion of any appreciation. The lien holder that previously held the highest priority will receive payment up to the full dollar amount of its interest, not to exceed the amount of available appreciation, and so on, until all prior lien holders are satisfied or the amount of available appreciation is exhausted. All remaining appreciation is remitted to FHA.

In instances where the homeowner failed to make the first payment on their new H4H mortgage, the H4H statute prevents FHA from paying claim benefits to anyone holding the mortgage.

And in the meantime, these subordinate lenders receive no interest, have no claim upon the property, and may have to watch you take out subordinate liens on the property? And this is superior to going through foreclosure immediately for them how? Plus going through foreclosure makes it an involuntary loss versus a voluntary one, having implications with shareholders, taxes, etcetera.

Another HUD page here gives no further additional useful information, but a lot of political spin, even if you follow all the links.

Don't waste your time waiting for Hope for Homeowners to help you. Unless your family has had Death, Disability or Divorce happen to it, it's not going to help, and it also lets lenders who lied to you to get you to sign up for a loan off the hook. Normal loan modification has a discovery process that can force lenders who committed unethical actions to agree to better modifications than you are likely to get through Hope for Homeowners. And When Loan Modification Will Not Help, or Is Not Appropriate, neither will Hope for Homeowners.

Caveat Emptor

Carnival of Personal Finance


Bankruptcy Is the Perfect Remedy for Detroit

The bankruptcy code places severe limitations on the compensation that can be paid to a manager unless there is a "bona fide job offer from another business at the same or greater rate of compensation." Given the dismal performance of the Detroit Three in recent years, it seems unlikely that their senior management will be highly coveted on the open market. Incumbent management is also likely to find its prospects for continued employment less-secure.

Chapter 11 also provides a mechanism for forcing UAW workers to take further pay cuts, reduce their gold-plated health and retirement benefits, and overcome their cumbersome union work rules. The process for adjusting a collective bargaining agreement is somewhat complicated and begins with a sort of compulsory mediation process. But if this fails a company can (with court permission) nullify the agreement. This doomsday scenario is rarely triggered, however, as its threat casts a large shadow over negotiations, providing a stick to force concessions.

The UAW is paid $25 per hour more from the US "big 3" than the workers at competing plants in the US working for foreign auto workers, plus they have grossly more in the way of benefits. Who pays for this? The customers, of course! No wonder the US automakers can't build a car that competes with the japanese automakers for the same price. We're right on the edge of not being able to save these companies at all. If UAW doesn't wake up and smell the coffee, the US automakers are going to be gone - and whomever buys them is still going to get rid of the UAW contracts - and that's if they're not completely gone, like Sunbeam.


Blame Bush, Obama -- or Us?

When someone screams about a terrible policy of the present administration, just pose four questions:

First, was the controversial decision taken with bipartisan support? Second, were there precedents for such action in prior Democratic administrations? Third, will such polices continue under the newly elected Obama administration? Four, have the media changed their position on the issue since the November election?


Went to the Zoo with the family

My wife loves carousels, so every so often we go on on the Balboa Park Carousel, right next to the zoo entrance. Here she is with our younger daughter

some detail of the carousel

The origin of the term "brass ring": a free ride to the one that pulls it.

In the zoo proper, an Orangutang and a Siamang, which two species seem to get along pretty well, being from the same area.

Argus Pheasant, a kind of peacock

Long view of the big walk through aviary - not Scripps, but I can never remember the name

Half a dozen species of bird in the same tree

I think this is a Collared Lory at the feeder

Panda Su Lin, Bai Yun's third cub, still with the zoo and sleeping on a false tree trunk

Panda Zhen-Zhen, Bau Yun's fourth cub, sleeping in a tree

African Spotted Neck River Otters, one of my favorite animals. There are also Guenons in this enclosure. The monkeys aren't the only thing that climbs - the otters climb also.

A couple of quasi-free flyers from the Lagoon below, sitting on the raptor cages, completely unconcerned because they know the eagles can't get out.

Looking down at the lagoon exhibit

Arctic Diving Ducks - except they weren't diving today

A couple shots of a Turkmenistan Caracal, in the cage where the Pallas cats used to be


Polar Bear nap - it may be a cold day for San Diego, but as far as they're concerned it is warm enough

A different view of the same bear

Female Soemmerling's Gazelle

The completely frenzied micro-market currently manifesting in the Eastlake area of San Diego is a wonderful illustration of several pieces of advice I consistently give. First, What Happens When You Over-Price Real Estate?: properties priced correctly are getting multiple offers, properties priced a little under are seeing bidding wars, and properties overpriced just a tad are sitting for months until the price gets reduced low enough to counter the very high "days on market" counter. Second, all of the subsidiary ideas in How to Sell Your Home Quickly and For The Best Possible Price also get illustrated: Properties that are clean, uncluttered, and easy for buyers to get in to see (as well as priced correctly) are seeing multiple offers within a week, while corresponding properties without those virtues are sitting with no offers. Buyers and their agents are even learning to avoid short sales, other things being equal.

But the most important thing is something that you kind of have to be a buyer or a buyer's agent to appreciate, and that is to be very careful you don't list your property with someone who doesn't have the time to dedicate to selling your property quickly and for the best possible price.

Here's the situation: You've got this one agent or brokerage. Their signs are all over on listings. "Must be pretty good," people think, and they call that agent, who comes out, schmoozes them, may even talk them into pricing the property correctly, and gets a signed listing agreement.

This agent then promptly disappears to schmooze more prospective listings. When previewing or showing properties where the owner is home, I've made a habit of asking a question of them that really asks about talking to their agent. It's damningly consistent how often these people tell me they can't so much as talk to their actual agent. Even talking to the agent's office staff is dubious. The agent themselves? No way.

I managed to talk to one such agent last week. She told me "I have no idea how many offers I've got on the property. My office staff is handling that. I'm too busy because my transaction coordinator isn't doing their job."

Say WHAT? Whose job do you think all of that is? That transaction coordinator doesn't have their name and signature on the listing agreement. They didn't sign it, representing that they would diligently work to sell the property on the best possible terms. The office staff, including the transaction coordinator, is there to dot the is and cross the ts to enable the agent to handle more "big stuff". They are not there so that the agent can disengage themselves from the listing, or go heap more work onto the pile that the poor office staff has to deal with. Yet when I managed to indirectly suggest she should perhaps not accept any more listings until she had a handle on the ones she already had, she acted like I was some kind of alien monster, here on planet Earth to consume the poor hardworking agents such as herself, and usurp their Rolls-Royces. She's making money hand over fist - but her clients are getting hosed.

When I make offers - offers with reasonable deadlines to respond - they are sitting there, without response, for the week I give them, and usually several weeks beyond. It took one company six weeks to respond to a one week deadline offer, and I've got others where if they do eventually respond, the clock is sitting at nine weeks or more. Some of them are plying the time-honored (and horribly weak) technique of the "best and highest" offer - but even they're not picking one for weeks. This is pathetic. And then they have the gall to complain when they eventually do call back that my client has moved on and is no longer interested in their property. Just because it's like I'm talking to a black hole is no excuse to terminate the conversation, eh?

Not that the response to the "normal" listings and lender owned listings is great, but the response to short sales are far and away the worst. It seems that many agents are just having their back offices send all of the offers directly to the lender. No response to the offer, no negotiation and consultation with the actual owner of the property, no fully negotiated purchase contract, and definitely no fighting to get any particular offer accepted. Then they get upset when, after two months of this nonsense, most of the offers have moved on, including the highest, and none of the remaining offers are willing to match that highest offer that the lender just approved. Never mind that the lender might well have approved any of the offers if the agent had dug in and negotiated it correctly and fought for that offer. Never mind that the agent could certainly have gotten more money out of most - if not all - of the offers simply by coming up with reasons why it was in the prospective buyer's best interest to do so.

These poor people in the back office have no clue which offers are strong and backed up by a buyer's actual ability to perform, either. For that matter, neither do most listing agents. Letter from some lender asserting without evidence that the buyer is supposedly able to qualify for a loan in the amount of whatever loan amount is required? Worthless.
What was the qualifying rate used to justify that conclusion and is it still available? What's their debt to income ratio and is there any wiggle room if the rates are a little bit higher, if there is some unreported debt, or if there's some kind of special tax assessment? Is the allowable loan to value ratio going to work for this property? Do these buyers have the cash to close? Nor is pre-qualifying with their favorite lender any better - not to mention that requiring a buyer to do anything with any particular third party - even simply requring prequalification with a given lender is illegal under RESPA.

To make up for the back office and agent's incompetence at deciding whether a given offer is backed by an ability to perform, listing agents are attempting to impose onerous and abusive requirements for buyers in order to make that agent's life easy - not to get the most money from the quickest sale and the fewest problems. I just read a listing that said no offers will be submitted without seven different illegal requirements, and a host of others that certainly act to discourage buyers with even halfway competent agents. Starting the "due diligence" period as soon as the offer goes in, before there is a fully negotiated contract, so the buyer has to spend money when they might not even get a contract, and when they technically do not have the right to have inspectors at the property? Requiring buyers to qualify with or even to use particular lenders? Requiring the contact information for the buyers themselves, allowing them to bypass the buyer's agent and contact the buyer directly? All of those are violations of major legal principles involved in real estate - and I've seen them on many listings within the past few weeks. Nor are they in the nature of "fiduciary duty" because they enable both the agent and their principle to be hauled into court for violations of the law, costing far more than the principal could possibly make even if they buyers didn't understand their legal rights. Quite frankly, what these requests most often do is scare away qualified buyers who are competently advised, as well as causing the property to be worth less to the ones that do stick around.

The way to get good responses is first, to not put onerous conditions upon the property in the first place, and second, to respond in a timely fashion to every offer. Whether you counter-offer or explain that there are better offers on the table is determined by circumstances. But by responding to prospective buyers, engaging them in the process, and letting them know you take them seriously, the listing agent and their client are building psychological buy in for the buyers. They are giving the buyers a reason to believe that there is a real possibility of getting this property, and given such, they will focus upon this property. Until there's a fully negotiated purchase contract, those buyers are free to wander off in search of other properties, and if not responded to in a timely fashion, pretty much all of them will. Why not, when there is no response? Even "Talk to the hand!" is more response than I'm getting out of most listing agents these days.

Any time you have multiple offers, that is a golden opportunity to play them off against each other, netting more for the clients. These "top producers" are completely blowing these opportunities, which incidentally would net them more money in commissions, as well, but they're too busy signing new listing contracts to properly service the ones they've got. I'd be too ashamed of myself to associate myself with these listings. I'd certainly never brag about it in the vein of "I sold all these properties!" Have they no professional pride whatsoever? Kind of like someone who's supposed to be a maker of fine cabinetry bragging about creating steaming piles of excrement.

Let's examine the economics of the situation. Say that an agent can have thirty listings, of which three or four will close in any given month and a couple more agreements will expire. Suppose they are getting 90% of the sales price a dedicated agent with two active listings who sells them all quickly will get. Let's say the "top producer" averages 3.5 sales per month, while the not so top producer who actually serves their client interests averages 1.8. Let's do the math.

First off, that "top producer" has thirty signs on thirty properties out there advertising them and their services. The agent who serves client interest has two at any given time - and not the same two for very long. It's repetition and consistency that sell services to more members of the public who don't understand how these things work. Most yard signs (not my occasional listings - thanks to an idea I got from Greg Swann) advertise the agent, not the listing. But people driving by the same sign every day for six months are a lot more likely to call the agent to sell their property than the ones who drive by the same sign for only four to six weeks. Benefit: "top producing" bozo, not consumer. This turkey is selling about 12% of their listings per month, as opposed to the other agent we're considering, who sells 90% of their listings per month.

Let's examine who makes how much, as far as the agents go: "top producer" gets 3.5 commission checks per month for 90% of the commission, because they found a buyer that produced 90% of the sales price. Let's say the median price in the area is $400,000, and commissions are 3%. 90% of $400k is $360,000 times 3 percent times 3.5 checks per month means they average $37,800 per month in revenue to their brokerage, of which some goes to the brokerage and some to them. The agent who really gets the property sold gets $400,000 times 3% times 1.8 checks per month, which means they average revenue to their brokerage is $21,600 per month. Which agent do you think the brokerage values more?

Now let's look at individual consumers. Let's assume 8% overall cost of selling the property, and a loan for 70% of the value of the property, in this case, $280,000. The person who chooses the "top producer" walks away with $51,200. The person who chooses the agent who actually makes the effort to sell their property walks away with $88,000 - more than sixty percent more money in their pocket. If the loan is for 90% of value, or $360,000, the "top producer" client is going to be short $28,800, while the real agent's client is still going to walk away with $8000 in their pocket. Not to mention that the property sells quickly, so you don't have all the monthly expenses of maintaining it even though it may be vacant. If you bought for $300,000 and have a $280,000 loan at 6% here in San Diego, that's about $1800 per month that the consumer saves, considering insurance, for every month the property didn't sit on the market unsold. All of this is real money! Not to mention the clients of the agent who limits how many clients they work with have a 90% per month probability of ending up happy, while the "top producer's" clients only have a 12% chance of ending up with a sold property, and they are not going to end up nearly so happy.

So if you still want a "top producer" after reading all of this, be my guest. They're easy to find. Just look for all the yard signs sitting in the yard for months - if the listing didn't fail completely. Look for corporate advertising blanketing a particular market channel. But if you look a little bit harder, you can find a competent agent who has the time and will actually work hard to sell your property, properly manage the offers they do get, and sell the property for a better price much more quickly, ending up in much more money in your pocket.

Caveat Emptor

Article UPDATED here

Of all the issues having to do with a mortgage, the appraisal generates more overblown problems than any other part of the process. It's also one of the most critical areas to handle correctly. There are reasons for this: It (along with perhaps the relatively cheap credit report) is the only thing a consumer has to pay for, as in money out of their pocket, before the mortgage is complete. Everything else is (or should be) done "on spec" by the mortgage provider. It is also a weapon used against the consumer by many mortgage providers.

In order to understand appraisals, you need to understand where everybody is coming from. An appraisal is a necessity for lenders. It tells the market valuation of the property in neutral terms. It is one of the essential anti-fraud steps of the process, as well as telling the lender how much the property might sell for in ideal conditions (which a foreclosure most certainly is not). It is the "market" part of the "lower of cost or market" valuation, which is driven into accountants and bankers starting with their first classes on the subject. Think about it. Just because you might be willing to pay $700,000 for the house next door to your parents (or for your parents old house itself) does not mean someone else will if you fail to make the payments. I have encountered at least two instances where a prospective borrower was definitely attempting to defraud a lender - and an appraisal caught it. There have been others where a reasonable person would have been less certain, but some of those instances were likely attempted fraud. Because of these, anytime somebody wants me to press for a drive-by or computer appraisal, a little blip goes off in my little bank of warning signal detectors. The lenders aren't stupid. They know that lesser appraisals are cheaper, and employing the more expensive alternative requiring the consumer to write a check for several hundred dollars is going to cause some people to go elsewhere. It is the judgment of these highly experienced people who have been trusted to loan hundreds of thousands of dollars at a blow that an appraisal costs them less than an increased probability of the things it is designed to prevent. And when a loan officer like me presses them for a lesser appraisal, a little blip goes off on their radar screen, also. I can't read minds, but I've had more success in getting lesser appraisals by keeping my mouth shut and letting the lender decide it's safe enough on their own, then I have by asking for one.

You should not expect a mortgage provider to pay for an appraisal, like many will for a credit report. Unlike a credit report, an appraisal is several hundred dollars, and they don't it get back if the loan doesn't fund. My attitude, born of experience, is "If this customer is not sold enough on the benefits of the loan to front the money for the appraisal when I'm putting in a much larger investment of my time and administrative and support costs, then this isn't a good investment." Other people you may never meet such as the title company, escrow company, underwriters, processors, etcetera are also working in the background - and nobody gets paid if you change your mind, aren't qualified, find a better deal, whatever. If they are hourly or salaried employees that do get paid, somebody else is investing the money to pay them. I may not have a fiduciary responsibility to all of them, but that doesn't mean I don't have any moral responsibility to see that their work is rewarded.

Furthermore, some lenders actually do prohibit brokers from paying the appraiser directly as an anti-fraud measure - and that's one pointless piece of information I can ignore by having the necessary attitude to succeed in business. This does not mean that your mortgage provider isn't doing their best to balance the competing interests - that of an appraiser's right to get paid for what they do, versus a consumer's desire not to pay for something that doesn't help them. And twice in my career I have refunded appraisal fees out of my own pocket to customers who told me the truth as they knew it, but didn't know to tell me something else (both fairly obscure points) that prevented the loan from going through. Because I didn't ask, I felt morally obligated to compensate their loss. This is not a legal requirement, and is not common - I've asked literally dozens of loan officers from all kinds of loan providers whether they've ever rebated an appraisal fee for any reason when a loan didn't go through. So far, two others have said yes. Most look at me and answer "no" as if I'm some kind of alien from another planet. So go into the appraisal with a clear idea that if the loan fails, you're not getting the money back. Period. That way you may be pleasantly surprised, but you won't be expecting something unrealistic.

You should not expect an appraiser to work for free. It may not be rocket science, but it is an exacting field where in order to become licensed you must spend at least two years of your life as an apprentice, with an income of basically nothing. As a result, there is usually a shortage of appraisers. I'm often amazed that appraisals aren't more expensive. On the other hand, many of them want to get paid for work that sabotages the loan it's supposed to support. There is a Big Thing in appraiser's association circles about how they hate loans with a minimum appraisal required, and explicit minimum appraisals actually are illegal. The appraisers, being normal humans, ideally want to be able to run their appraisal off the easiest comparable property values and let the chips fall where they may. On the other hand, there have been literally dozens of cases in my experience where choosing different but still comparable properties for comparison and doing a little more work netted the value necessary to make the loan work - the appraiser just didn't want to be bothered, something that is against the grain of good business practice - and they are supposedly businesspeople. I have also seen this abused by a broker who wanted to make more on loans - if the appraisal came in for $40,000 more, this broker got a bigger rebate from the bank, and thus, made another $1200 on the loan. Lenders for their part do not want appraisals ordered where the appraisal is going to come in at a certain minimum no matter what the property is worth. But it isn't a sign of good business practice to expect to be paid where your work is going to sabotage a substantial investment that others have already made in a project, as a below value appraisal does. It is naïve to expect that loan provider to continue to supply you with business, when you've just cost their former prospect several hundred dollars and kept that prospect from getting their loan, as a result of which the loan provider's investment is lost, and furthermore you have left the loan provider to face all of the negative ramifications of an unhappy consumer. So some sort of compromise needs to be worked out among the competing interests of a consumer that doesn't want to pay for something he doesn't have to or that does no good, an appraiser that wants to get paid for the work, a lender that wants an honest appraisal, and a loan provider that wants an investment to pay off.

The one that I have found that works best is not a minimum appraisal. Besides being illegal, asking for a minimum appraisal is a violation of my fiduciary duty to the lender. Instead, what I'll do is write something along the lines of "If comparables do not support a value of $X, please re-confirm the order prior to performing the appraisal." It isn't bulletproof, by any means. But it gives everybody the best shot at a fair shake without giving anybody carte blanche, and it prevents the vast majority of the problems. The appraiser does most of his or her work before going out to the house in question, checking sales of comparable properties in the Multiple Listing Service that they subscribe to. If the "comps" don't support $X, and the loan collapses, he's lost some work time. For a businessperson, this should be no big deal, and what they've lost is a small fraction of what other people working on this loan have lost. Furthermore, I'm going to keep sending business to that appraiser. If the comps support $Y, which is less than $X, and I can re-work the loan or find another loan and get the consumer to sign off on it based upon $Y (something that is far easier to do before the consumer gets angry at writing a $400 check and not being able to get the loan on the terms promised), the loan proceeds and the appraiser gets paid, and everybody is happy. If the comps support $X and the appraiser gets paid, everybody is happy - unless the actual appraisal comes in lower, and this does happen where a property is not as well cared for as most, doesn't have standard features, etcetera. There's nothing that can be done. You thought your home was worth $X, and it isn't. End of story. The loan provider took every precaution they legally could. The appraiser took every precaution to protect you that they legally could, and now they're entitled to be paid. It's no fun for anybody - consumer, loan provider, or appraiser. I will put up with this a few times for an appraiser who makes a habit of calling me when the comps are low. I'll keep sending them business. Chances are it's not their fault. On the other hand, every so often I'll get a call from some appraiser who gave me three "hop, pop and drops" (as in "hop on over, pop the consumer for the bill, and drop a uselessly low appraisal on them") in quick succession, and wonders why his phone isn't ringing. And of course, the various appraisers organizations are trying to pass legislation or regulations that basically give them the right to come back with any old appraisal they want to, and make it even more difficult to ask them to perform in accordance with good business practice.

An appraisal is not what your house will sell for. There are any number of subjective factors an appraiser cannot take into consideration, or cannot account for fully. The types of things they look at are objective. Size of the lot. Square feet of the house. Number of bedrooms. Number of bathrooms, and so on. These have all got measurable, objective answers. Cleanliness of rooms and condition of paint are hard to measure objectively. Nonetheless, potential buyers take them into consideration to a much greater degree than an appraiser.

One fact you should know about the appraisal: They're good for a maximum of three to six months, measured from the date of the appraisal to the date the loan funds, which is likely to be thirty days or more after you apply. Usually three months is the limit if no loan was actually funded based upon that appraisal. If it's older than the lender's underwriting guidelines allow, every lender in the known universe is going to require a new one, unless your loan is one of the fortunate few that doesn't require an appraisal.

The most important fact every homeowner or homebuyer needs to know about an appraisal: The entity that orders the appraisal, controls the appraisal. If you pay for it, you're entitled to a copy. That doesn't mean you're going to be able to take it to another loan provider and use it. The appraiser will require both a release from the previous loan provider (who after all, is responsible for giving them business), and a retype fee of about $100, possibly more. Whether the loan provider will release it is problematical. They are not required to. Some won't, no matter how good the reason. Some want to be paid, first. Even the most liberal and ethical aren't going to release it if you've simply found a better deal. Remember, they've invested some serious resources in making this loan happen based upon your representation that you wanted it.

In another essay, I advise you to apply for a back up loan every time you buy a property or intend to refinance. Now I'm going to tell you the second smartest thing that you can do: Make certain you're the one who orders the appraisal and owns it. Now some loan providers use only their own "in house" appraisers and require the appraisal to be paid for up front, when you fill out the loan application. They do this to make certain they keep control of the appraisal, so no other loan provider can use it, obliging you to pay a second appraisal fee if you want to go somewhere else. Unless you can get them to agree in writing to release the appraisal (they won't), this is a giant red flag not to do business with that provider. The appraiser should be someone you have the option of choosing, and should be paid at point of service when the appraiser comes out to the home. (Don't choose an appraiser who's a family member, however. Lenders frown on this. Expect some pointed questions or having to get another appraisal if your name and the appraisers names are similar.)

Even other loan providers will try to slip in and assume ownership of an appraisal. If you want to control the appraisal, you must order it direct from the appraiser yourself, and if your loan provider provided the recommendation, the appraiser still might consider themselves bound if they get a significant amount of business there. On the other hand, as I also state in another essay, time is always a critical factor in every loan. The appraisal holds the whole process up if it's not done promptly, and a reasonable appraiser is going to put his priorities on getting the appraisals done from the people he gets business from on a consistent basis. So if you're going to order it yourself, order it immediately, or even on your own before you start the loan process if you know the parameters. This is difficult in the case of purchases, but very possible in the case of refinances. On the other hand, purchases are less time critical. Warning!: There are different kinds of appraisals, and different qualification levels of appraisers. There isn't space here to cover them all. If you order the wrong kind of appraisal or order it from the wrong kind of appraiser, it's useless. Just because 90% plus of all appraisals are the same kind from the same grade of appraiser or better doesn't mean yours is one of them. The best way to handle this situation is to give the loan provider no more than two business days to give you the parameters for the appraisal, and be preparing the ground ahead of time by telephoning appraisers. Somebody that will charge $450 and do it within two days is almost certainly a better value than someone who will charge $350 and take two weeks. Immediately upon receipt of parameters from your loan provider, order your appraisal. That exact second. Don't even put the phone down. As I said, time is critical. Some loan providers will not allow you to do this, insisting upon being the one to order the appraisal. This is a red flag. You probably want to take your business elsewhere. Handling the appraisal correctly is not trivial for a consumer, who after all is not usually a real estate professional, but if you handle it correctly, you put yourself in a position of much greater leverage.

Caveat Emptor

Original here

I have never had someone tell me they wanted more information than this letter provides. I also require the prospective loan officer to fill if out for prospective purchasers of my occasional listings.

DELETED (Mortgage Corporation)

My name is Dan Melson and my License number with the Department of Real Estate is DELETED. I have funded in excess of one thousand real estate loans

This is to certify that I have performed initial investigation as to whether Mr. Client and Ms. Client are eligible for the contemplated loan and purchase under the purchase contract being submitted on (property address)

I have run their credit score with all three major credit reporting agencies. Credit scores as of DATE are

Primary Borrower

The credit report lists their current monthly debt service as being a total of $X/month, and according to Mr. Client and Ms. Client, they have no other debts.

I have in my possession copies of paystubs for current year and w-2s or tax forms for the prior year, acceptable to lenders for documentation of income. These indicate pay for the last thirty days as well as year to date pay and prior year.

Total Income for the period to be averaged $X (DELETED months)

This indicates an average monthly income of $X

This monthly income, per (details of specific loan) guidelines, allows a total debt service plus housing of up to $X per month.

Projected Property Taxes: $X/month
Homeowner's Insurance: $X/month
HOA Dues: $X/month
Mello-Roos: $X/month

Fully Amortized Loan Payment: $X/month ($X at Y%, type of loan, pricing date)

Total of housing and other debts : $X/month

Since this is less than the total allowance based upon income, I have reason to believe Mr. Client and Ms. Client will qualify for the loan based upon Debt to Income Ratio. Projected back end Debt to Income Ratio: X%

The Allowed Loan to Value Ratio for contemplated loan per lender guidelines is X%.

I have in my possession current bank and other asset statements indicating the presence of liquid assets in the amount of over $X

Projected down payment: $X
Projected loan closing costs: $X (includes loan closing costs including all third party costs as well as points, if any)
Projected impound account and prepaid: $X
Other projected expenses: $X (Inspection and anything else I know we'll need)

Total: $X

Accordingly, Mr. Client and Ms. Client appear to be in possession of sufficient cash to fund the projected down payment and other closing costs.

Therefore, according to known underwriting guidelines applicable to the specific loan indicated above, having verified and tested Debt to Income Ratio, Loan to Value Ratio, Credit Score, and cash to close, I have a reasonable basis to believe that Mr. Client and Ms. Client will qualify for the above contemplated loan in a timely fashion to complete the contemplated purchase in a timely fashion.


Dan Melson, Loan Officer
DELETED (Mortgage Corporation)

This website does not speak for my brokerage, therefore I do not use their name here, but those are filled in on the real thing. Actually, I use computer generated letterhead. This is the precise equivalent of an accountant's testimonial letter. Whomever it is given to needs to be able to contact me with questions, and I am responsible for specific details I mention. Without those details, I might add, whatever paper this is printed upon is completely worthless.

I write every one of these specific to a given property and a given purchase contract and loan pricing as of a given date, and usually with quite a bit of wiggle room on the actual rate and cost. It doesn't do any good to write that the loan depends upon getting financing that may not be available tomorrow if the rates rise even slightly. It certainly doesn't do anyone any good to write that "Mr. Client and Ms. Client are pre-approved for a loan up to $X" without specifying the parameters I used to justify that statement. Debt to Income Ratio, Loan to Value Ratio, Size of loan, size of payment, estimated closing costs, estimated cash to close, specific tradeoffs between rate and cost that vary daily (at least) - all of these have an effect upon whether the prospective buyer will qualify for this loan under this proposed contract today. Without all of this information, the seller's determination as to whether to grant credit by signing that purchase contract is missing some vital information. It's not that any prequalification or pre-approval is actually worth anything, in the sense of being able to hold that loan officer responsible for any and all failed loans, but they can be held responsible for material misrepresentation. Without a representation or relevant facts used to reach the conclusion, what assurance have you that the person who wrote it didn't just flip a two-headed coin? "Sure, they qualify!" (I'll figure out what they really qualify for later, but they sure are happy with me for saying they qualify...)

The whole idea of such a letter is that the person to whom it is presented can go to any competent loan officer and ascertain whether or not this loan can be done. I have never had anyone call me for more information or for verification - which means one of three things must apply: 1) The people on the other end can tell that the loan can be done, 2) They're just putting it in the file for CYA, 3) They're just doing it so they can illegally refer people to a specific loan provider who refers the clients back to them.

I'd like to see this or something like it standardized across the industry. If you're going to write a letter, you might as well write one that means something, that contains enough information for the person on the other end to be able to make a reasonable determination of whether this is, in fact, a reasonable transaction that has every likelihood of becoming a fully consummated transaction. That is the only possible excuse for requiring such a letter in the first place - your client's best interest. You can satisfy your client interest without violating RESPA - all you need is the information to know whether the loan officer writing the letter based that letter on solid facts or not.

Caveat Emptor

Article UPDATED here


no person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.

Let me repeat the important part: no person shall give and no person shall accept any fee, kickback, or thing of value

Is a "business relationship" a thing of value? It seems straightforward enough - I can't find anybody who says "no" - until we're talking about prequalifying my clients with their favorite lender. Then I get all kinds of hemming and hawing about there being "no money involved," as if the relationship itself were not valuable. Look up the legal definitions of consideration and value: I assure you that those definitions are not restricted to transactions where money is involved.

This pretends, of course, that there might exist such a referral relationship where there's absolutely no element of "You scratch my back - I'll scratch yours" involved. I have yet to find such a relationship. I suspect that even if I were to pull a Diogenes looking for such, I would die unsuccessful. Even when I am referring folks to real estate agents elsewhere, despite the fact that I accept no referral fees, there is some possibility they will eventually refer me some business back. Even if they don't, I still get the knowledge that these folks I dealt with in some way were satisfactorily served by a competent, conscientious provider. All of these things are of value to me, and if you're a professional agent or loan officer, they should be to you, also. And the business relationship is certainly valuable to the receiver. Therefore, all of these things involve both the giving of and the receipt of value.

REALTOR Magazine

Generally, to operate an affiliated business arrangement legally, you need to:

* Disclose to consumers your interest in the affiliated company
* Tell consumers the cost of the service
* Explain there's no required use, i.e., consumers are free to go elsewhere for the service without penalty

And there's the rub. When you require that consumers use a particular service, they are not free to go elsewhere. It doesn't matter if you don't have a financial interest. The only difference if you have no financial interest is that you don't have to disclose that interest.

It is one thing if the consumer asks for a referral. Then you can tell them about any companies, any providers of services you like, so long as you disclose any financial interests you and your company may have. It is a completely different matter to require them to use your favorite loan provider - and illegal.

Now if you want to argue about "How do I fulfill fiduciary duty to my client by filtering out unqualified buyers rather than wasting months on transactions that will never fly," you simply need a very few pieces of information: Debt to Income Ratio, Loan to Value Ratio (which you should know yourself from the contract) Credit Score, and Cash to Close. I guarantee you this is more information than 99.9 percent of all loan officers investigate when writing a qualification testimonial. Your client is entitled to this information - they are involved in a decision as to whether to grant credit by agreeing to the purchase contract, which will cost them thousands of dollars if unsuccessful. Then take this information to anyone you choose and ask them if they could get a loan done for this borrower. You have absolutely no reason to require any potential buyer patronize any particular loan provider in order to get this information.

(Here's a letter with an example of the information required)

And here's my public service for the day, to inconvenience those ethically challenged individuals that persist in this illegal practice of requiring buyers to pre-qualify with a given lender:

report RESPA violations

You should send a written complaint describing the practice that you believe violates RESPA. The complaint should include the names, addresses and phone numbers of the alleged violators. It is preferred that you include your name and phone number in case an investigator wishes to ask further questions. You may request confidentiality. Send the complaint to:

U.S. Department of HUD
Office of RESPA and Interstate Land Sales
451 7th Street, SW, Room 9154
Washington, DC 20410

Caveat Emptor

Article UPDATED here

Carnival of Personal Finance


The Best Santa

My girls have been going to see this guy since 2000, when Hilda was nine months old. He was in the Parkway Plaza Sears for years, then they decided to do something else, but he never had a contract, so he's had trouble landing gigs the last couple years, but we go wherever he is. He is fantastic, and his helper Eilene is a treasure in her own right. They have people who were originally "his kids" coming back with their children.

You can see their website at They've got all sorts of pictures of people coming back.

He's at Macy's Mission Valley this year. The schedule is at the website.

Here are Brynhilde (my elder - brown hair) and Ramona (my younger - red hair) with Santa this year

Here's two years ago:

Picture 002

Here's they are last year, with Julia as a puppy


And here's one more from this year



An Obama Gift for K Street

The only way to eliminate lobbying and special interests is to eliminate government. The more powerful government becomes, the more lobbying there will be. So, paradoxically, Obama's ambitions for more expansive government will promote special pleading. You need only watch the response to the expected "economic stimulus" plan -- totaling perhaps $700 billion -- to verify this eternal truth. "A Lobbying Frenzy for Federal Funds," headlined a Washington Post story.

On the same general topic, Q and O on Auto Industry Campaign Donations and how they are being spun.

(I published this originally June 18, 2006. Anyone want to tell me I didn't hit this nail on the head?)

The housing bubble is not the primary focus of this website, but to pretend it does not exist is plainly wishful thinking. One of the ongoing phenomenon that have been driving the bubble is the "Stated Income"loan, where the lender does not verify that the prospective borrower actually makes enough money to qualify for the loan, only that they have a source of income that could generate enough income. If you're working the night shift at 7/11, they're not going to believe you make $90,000 per year, but if you're a in a profession where some folks do make $90,000, you may be able to qualify "stated income" regardless of whether you actually make it or not.

Lest I be unclear on this subject, despite being known as "liar's loans" because people use them to lie about their income in order to qualify, it is not what they are intended for. Nor is "stated income" intended to help shifty or incompetent loan officers shaft lazy borrowers by not bothering to document income. They are intended for those who really do make the money, but because of the way that the income tax laws work and the way that lenders qualify people for loans based upon income, do not appear to. Business owners and the self-employed and people on commission get to legitimately write off a lot of expenses that the hourly or salaried employees do not. For instance, I write off a large percentage of my vehicle miles, office expenses, etcetera. I'm paying for business related expenses with pretax dollars, where most folks generally do not get to take this deduction. Being self-employed, if I was silly enough to want the home office deduction it would be easy enough to justify. Not to mention asset depreciation. All of these don't have much effect upon the money I have to spend, but they do have an effect on my tax forms, where it looks like I make a lot less than I effectively do. So instead of using my tax forms to qualify for a loan, sometimes I need to do a stated income loan in order to qualify for the loan, because the tax forms show a lower number than people making comparable amounts who are salaried. This is what stated income is for.

On the other hand, I'm sure that most of the adults reading this have seen the potential for abuse. When I can just tell the lender how much I make and they agree not to verify it, a certain number of people are going to say they make more than they do, and indeed, both stated income and NINA loans are often informally known as "liar's loans". Furthermore, since if the person getting the loan does not qualify, there is no loan and the loan officer does not get paid, there's a certain amount of pressure on the loan officer to get the loan done even if the prospective borrower does not qualify. Let's say they don't qualify, but the loan officer wants to get paid. So the loan officer puts them in for a stated income loan, says the clients make more than they do, and voila! funded loan. Clients get the loan where they would not have qualified by documenting their income, loan officer gets paid, bank gets a loan, and if it was a purchase, real estate agents get paid for their transaction and the seller goes happily on their way because they got their money.

A few years ago this kind of practice was an occasional thing. Of late, however, it has become endemic. And although if the clients really do make the money there is nothing wrong with it, if they don't make the money to qualify but they get the loan they are still going to have to make the payments. This reflects the reason for the rise of the negative amortization loan, where the minimum payment does not cover the interest charges. Either one of these is something a good loan officer does with a trembling hand and a lot of care. I always make certain that these folks really can make the payment they're going to have to make, but the vast majority out there do no such thing.

Well, it looks like everyone is going to have to, because of IRS Form 4506. Form 4506 is an item the clients sign, usually at the end of the loan process, that gives the lender and anyone they may sell the loan to access to your tax returns. IRS form 4506-T is basically the same thing, except that it gives access to a transcript (the numbers) rather than an actual copy. Signing form 4506 is mandatory. No signature, no loan. It's that simple.

Now it take the IRS about sixty days to respond to this request, so this has zero effect upon funding your loan. If your loan isn't funded withing thirty days of you signing the loan application, there's something wrong with that loan unless something external to the loan is holding them back and you should go apply for a back up loan. But for later on, it can have an effect.

One of the ways it can have an effect is on the loan provider's subsequent business. Traditionally, as long as the borrower made the first three payments on time, a loan broker was off the hook as far as borrower default. Lenders who have recently become much more nervous about their loan portfolios have recently started to change this, whereby a broker who put through a stated income loan (or any loan, for that matter) which is not subsequently borne out by the evidence of form 4506 is liable for the loan for the loan's full duration. Since form 4506 is never borne out by any stated income loan, else the client should be getting the better rates for full documentation, this means that every time any broker puts through a stated income loan, they are liable for the consequences to the lender.

Well, it shouldn't take much of an imagination to figure out the effects this is having upon the loan market. With the shifting of the consequences to the broker, the brokers are having second thoughts about doing stated income loans. Make no mistake, stated income was way out of control over the last couple of years. I've always been religiously careful about them, but that made me a member of a tiny minority of loan officers. Most of the loan officers out there have no clue as to what is an appropriate stated income loan, which has to a large extent put the brakes on stated income here locally. I'm not certain what effect this is having upon loan officers at direct lending houses, and there are a certain percentage of broker loan officers that are too clueless to understand what this means to them so they are going to keep right on doing them until the lawsuits pile up, but it's really starting to put the brakes on stated income loans here locally.

Now stated income loans have been a large proportion of what drove home prices upwards. It was an easy way for loan officers and real estate agents to get people into loans, and therefore properties, that they really could not afford and did not qualify for. Both easier sales and bigger commissions, as people want the better house with the higher price and tend to reward the agent and loan officer who can get them in, regardless of whether they can really afford it or not. People who did not really qualify, but this gets them the loan, and therefore that beautiful McMansion they've got their heart set on, despite the fact that they cannot really afford it. It really is easy to sell people on too much house, and very few of them really understand the implications. I've sat people down, taken them through the math, and they still signed up with the agent who promised to get them into the McMansion because they wanted it so much.

Well, with the lenders getting aggressive about enforcing financial consequences, every loan officer with the brains to understand that heavy objects fall is suddenly taking a hard look at their business practices. Now it's not just a question of "Get paid or don't get paid," it's a matter of whether the money they get paid right now is enough to balance out the money they are going to have to pay later to buy the loan back, and the answer is largely coming back "No!" Furthermore, there could be actions taken against licenses by lenders and not just by clients. That brings a completely different trade-off into the picture, and a lot of loan officers aren't liking what it says.

Now because the prevalence and easy availability of "stated income" loans has been one of the things driving the increase in the price of housing, essentially killing the stated income loan is not going to have a beneficial effect as far as sellers are concerned. It decreases, by some amount, the potential market of people who can afford to buy your property. Where before, the bottom line with most agents and loan officers was that anyone who wanted the property could probably be qualified for the necessary loan and was therefore a legitimate potential buyer, that is now changed. Since anytime you constrict your market of potential buyers, the equilibrium price of the market is going to fall, expect this to have a further deflationary effect upon property values. Indeed, there are a lot of factors that are conspiring against highly appreciated property values right now, but this one small item could well be what starts housing prices more notably downwards. Because it attacks a way of doing business that was at the heart of the large run up in prices, this relatively small measure may be the pin that pops the housing bubble.

Caveat Emptor

Original here

I've been working a lot of hours, and writing new material for this site is about the only thing that can give.

Carnival of Personal Finance


Charles Krauthammer: The New Political Economy

The ruling Democrats have a choice: Rescue this economy to return it to market control. Or use this crisis to seize the commanding heights of the economy for the greater social good. Note: The latter has already been tried. The results are filed under "History, ash heap of."

Read the whole thing.


The Reregulation Mantra

Is deregulation is the culprit? It can't be. There was no relevant deregulation in the last 25 years. Meanwhile, highly regulated institutions eagerly bought risky government-guaranteed mortgages, stimulating excessive housing construction and an unsustainable price bubble.

Deregulation wasn't the problem, and reregulation isn't the solution.

Part of the problem was the government failing to enforce existing regulations aimed at protecting investors, while another part was that same government pushing hard on regulations meant to expand lending to those who did not meet lender's regular criteria. If you haven't figured it out yet, anytime the government mandates economic distortions, there will be problems.

Read the whole thing. Especially if you're a politician.


Anti-Prop. 8 Mob Watch: A new blacklist published

So now it's legitimate to strike at companies for their employees private donations?

I look forward to the debate when churches start blacklisting companies for their owners political causes? Or for the contributions of their employees. If it is legitimate for the Anti Prop 8 mob to blacklist companies for employees political contributions, then both of these are certainly legitimate activities - and yet I remember churches being attacked by gay activists for precisely that.

Or perhaps companies will forbid employees from making political contributions? I strongly suspect that doing so is unconstitutional. Hurting a company for not doing something unconstitutional, and getting themselves sued any number of times for such deed (not to mention the ever present "creating a hostile work environment"). By this logic, gay employees would be prohibited from making contributions to pro-gay causes.

I have really had it with this month long temper tantrum on behalf of the Anti-Proposition 8 forces. Their tactics and methods of operation are causing me to consider if perhaps I shouldn't reconsider my support of gay rights. After all, I'm not exactly eager to fight on behalf of the Nazi Party or KKK, and definitely not of intimidators or extortionists anywhere. Why should I support people who have taken to intimidationist and extortionist tactics?

There are positive outlets for this frustration at losing. Most obvious is to take it to the people again at the next election. To those who have been holding this month long (so far) temper tantrum, I say: Grow up. Be adults. Or at least act like adults. Rational, reasonable adults, who can tolerate opposing points of view, not bratty children or sociopaths who feel the need to punish those who disagree or argue against them. Martin Luther King, like Gandhi before him, won in large part because he demonstrated that he and those who followed him were responsible, desirable citizens who were making a valuable contribution to society - and left it to observers to infer that the opposing forces were considerably less valuable, considerably less law-abiding, and considerably less respectful of the will of the people.

It's a pity that the people throwing the temper tantrums are becoming what the average person identifies with the gay rights movement, as opposed to the relatively few gays I know who mostly sighed in frustration, accepted the outcome, and figured they had more work to do. I hope that the children throwing the temper tantrum realize soon that they are making things more difficult.


With an attitude like this, he doesn't need commiseration. More like heralds crying "Watch out world, here he comes!"


One thing about showing a lot of property is I get a lot of radio listening time while driving. This started getting popular on the independent alternative station, and now it's made the leap onto the corporate stations. I heard it just before a couple of rock classics I always like to hear the other day, and I kept wanting them to play this one again.

Yes, I have issues with most of today's so-called music. They don't apply to this one. If you haven't heard it, click the embed. You're in for a treat. This isn't a boy band or a pop tart. This one, and a few other artists I've been exposed to the last few years, are a reason to always keep seeking out the new.


Puppies save three-year-old boy lost in freezing Virginia woods

I'm a dog person from way back. You can't fool me. Those puppies wanted to snuggle for mutual warmth and mutual protection. That's what dogs do. Dogs are our oldest partner species precisely because each of us has advantages the other lacks. Yeah, the 3 year old probably wouldn't have survived without the dogs - but what they did was not only natural, but lessened the risks and costs of survival for those dogs, also.

Get a dog (I recommend dachshunds, of course) and treat them well. It's the cheapest investment you'll ever make that will likely pay off in huge ways - maybe even when you least expect it.


Ill. Gov. arrested in Obama successor probe

Federal authorities arrested Illinois Gov. Rod Blagojevich Tuesday on charges that he brazenly conspired to sell or trade the Senate seat left vacant by President-elect Barack Obama to the highest bidder.

What a surprise /sarcasm


Private Papers: Parallel Lives

Listing Agents say they hate it when prospective buyers (of their listings) make offers on multiple properties, but they keep doing things to encourage it.

It is both legal and simple for buyers to make multiple offers. All I have to do is include some phraseology about this offer will be withdrawn in the event of the acceptance of another offer. Listing agents do the equivalent thing every time they negotiate multiple offers. At least they do it if they are hardworking and smart, rather than asking everyone for their "best and highest offer," a lame, weak technique that has precisely one advantage - minimal labor for the listing agent. But it should not surprise anyone that if listing agents can do one thing, buyer's agents can respond by executing multiple offers, especially where sellers and listing agents miss deadlines to counter, take weeks to make up their mind, don't respond to requests for information, and have to be goaded into responding at all.

A single offer is stronger for both buyers and sellers. For buyers, it says that you have singled out this one property to make an offer on. You want this one, at least if the seller can be dealt with on a reasonable basis. It says you aren't going to flake out or abandon them mid-negotiation because you have found something you like better, and if you come to an agreement, you're not going to abandon that agreement without reason. Someone making multiple offers cannot claim any of this. For sellers, all of these are valuable features of an offer - perhaps more valuable than an extra $10,000 on the offer. If your agent doesn't understand this, that's a problem.

Furthermore, encouraging multiple offers encourages both lowballing and uncommitted buyers who don't care whether they buy your property or not. There's not much emotional buy-in, but many buyers will throw out a low-ball for marginal properties just to see if they get a response. But even if you do respond to such offers, they're not going to turn into the kind of offer that makes sellers happy.

For all the complaints about multiple offers I hear, though, listing agents seem to keep doing things to encourage them. Sitting on offers for weeks is a bad idea because buyers will move on. I just got a response December 1st for an offer some clients put in back in mid-October. They were already in escrow on something else. About a month ago, I got a response three weeks after the offer, two weeks after deadline to respond, during which time the clients decided they wouldn't be happy in the property after all. Agents who delegate unlicensed assistants to check boxes on offers are a definite turn off, as well - those assistants have no idea what is a good offer and what is not. They have never seen the property, they have no idea of the market it sits in, no real clue as to general market activity - and if the agent doesn't have their hands on the situation pretty constantly themselves, neither does the agent. When I call an agent phone number in the listing, and there is literally no way of talking to the agent, or for that matter, any actual living person, that's a situation for a throwaway multiple offer, if anything at all. They're not taking prospective buyers seriously. Put in a lowball multiple offer, if they respond in a timely fashion, great. Otherwise, let's move on with our lives.

If you want buyers to make single offers, you need to respond to them promptly and individually. You need to take the time to understand the offer and the strong and weak points, and you have to understand how it matches up with your clients needs. This takes time, and it takes an agent who knows what they are doing - not a clueless unlicensed part time receptionist who is filling in boxes. This means that in order to get the most mileage out of the offers you get, you have to have a listing agent who has the time to spare for this particular listing. The corporate transaction mills are not the way to get that. There are many reasons I advise people against "top producers," and that is only one of them. If you want the best possible price, you need an agent with the ability to invest enough time in your property to make a difference. Yes, I use loan processors and transaction coordinators. They're not allowed to interact with my clients, and they don't even enter into the picture until and unless we've got a locked loan ready for submission or a fully negotiated purchase contract. They're there to dot the i's and cross the t's - taking care of the fine detail work - not so I can disengage myself from the transaction.

If the agency real estate office is doing everything they can to take as many listings as they can, to the point where the agents cannot properly service those listings, that's a situation where you're begging for multiple, weak offers. I put deadlines to respond on every offer I type. Reasonable deadlines, minimum of three business days, perhaps five, to give the other side plenty of time to respond. Most of my buyer clients have time pressures. They don't have three weeks to wait and see if one offer responds, after which they wait three more weeks to see if another offer responds, when they're operating under any kind of a deadline. I'm working with a client who's being posted here from elsewhere a couple months from now. When we started looking , even a short sale was a legitimate possibility, which should surprise you given my general opinion that buyers should avoid short sales. Inconsiderate listing agents trying to service too many listings have eaten most of the time we had to play with, causing us to now be in the situation of needing to make multiple offers on multiple properties. Buyer degree of attachment to any given property: small. Buyer willingness to negotiate on any given offer: small. Buyer willingness to offer an attractive price in such circumstances: small. And these "top producer" megaoffices listing these properties are wondering why, despite the incredible numbers of offers being made, they're not getting the kind of increases in value we saw a few years ago? Why the offers are all petering out at a low level? Why prospective buyers who do get accepted offers are so likely to bail out on the deal? Why actual sales prices aren't increasing?

Many listings want to accumulate offers for weeks. I've read several listings that say things like "no offers will be evaluated until (two weeks from now)." Okay, if we like the property, and nothing else catches our eye, we'll consider making an offer just before then. Keep in mind, it'll be ten days between when my client saw the property and when they make their offer, it won't be a hot "right now" offer or even a lukewarm "next day" offer. It'll be a multiple offer - only fair, since that's what the seller is asking for. And if my buyers they find something else in the meantime, well, there won't be any offer made at all.

Let me ask: what happens when your best offer - most often the first, almost always one of your early ones - has moved on with their life? For that matter, what happens when all the good offers have moved on with their life? You're stuck with the low-ball offer from a flipper, that's what. I'd hate to be in a situation where I told my listing client there were 8 offers - but only the lowballs were still interested. But that's what these agents are setting themselves up for.

If there are competing offers and one of them isn't nearly as attractive as another, there is no harm in saying so, and saying so quickly. Either they will drop out of contention or they will increase the attractiveness of their offer. If they increase their offer, my client is happy. If they drop out, my work with them is done, and they're now out there looking at other properties. The quicker I answer, the more likely it is that this prospective buyer will respond with a better offer. I'm perfectly willing to fax over (slightly redacted) first pages of competing offers in such situations where the offer isn't even close.

Every offer needs to get a timely response, whether it's a rejection, a counter, or an acceptance. This is not only common courtesy, but good business, and the best way to end up with a good price on the final contract, one that the buyer is both willing to and capable of meeting promptly.

Negotiate with each offer individually. Asking everyone for a "Best and Highest" offer is very weak. Any buyer's agents that are worth a damn know how to respond to that one. Individual negotiations (if you happen to actually have multiple offers) works wonders. Put the multiple offer disclaimer on it if it's appropriate, and slap it back to them same day if you can. Keep the negotiations hot. Keep the buyer's memory fresh. Increase the buyer's mental buy-in if you can. This is labor intensive, but it leads to happy clients, bigger paychecks, and more clients. I don't see how anything else can be more important than those three things for an agent. I don't see how anything can be more important than just creating happy clients.

Encouraging multiple offers by acting like you don't care about prospective buyers is a good way to be forced to settle for less money than you could have gotten. I don't encourage it, I don't recommend it, and I very definitely do not practice it. I don't understand those agents and sellers who do. You get the buyers you deserve - the buyers you earn by treating them correctly. Give them respect, give them attention, negotiate with them as individuals, and one good, seriously interested buyer is all that you need to get a good price for the property.

Caveat Emptor

Article UPDATED here

This is a right given to buyers agents by my local MLS, and it's a good one, that I like to take advantage of whenever it is practical. The actual property owner - not the listing agent - does have the right to refuse in writing, a copy of which must be provided to that buyer's agent.

This presentation is not intended to be an argument, and the buyer's agent is not permitted to stay for discussion of the offer between the owner and their agent. Think of it as a prepared speech. What I make is very akin to a corporate Power-Point presentation - in fact, it is a Power Point presentation on my laptop when I have the opportunity to put one together. Chances are good that you have seen dozens or hundreds of presentations basically like mine, except that I can guarantee to get done in fifteen minutes or less, providing nobody interrupts and starts arguing. The presentation is not intended to be an argument. It's a sales pitch. It's intended to make a calm, rational case why this offer that my client is making is one that should be accepted. I make my case, thank them for listening, and leave. I am not allowed to be present for the discussion of the offer, so it wouldn't be very smart of me to design my presentation as an argument. Also, it would be pretty silly of me to expect an immediate response. It would be stupid to demand one.

Many people seem to feel threatened by such presentations. My best understanding is that most of these are afraid of conflict. As I said before, however, it's not an occasion for an argument. I am not allowed to hang around for the discussion, and my presentation is geared towards being perceived as the rational thing to do when the discussion starts without me there to defend it. I don't like it when presentations turn into an argument. A presentation is an opportunity for me to speak my piece directly to the seller, unfiltered by any outside influences, so that both parties have an opportunity to gauge the mental state of each other. If the listing agent has done their job correctly, we're going to be saying the same things, albeit from a different perspective. On the other hand, if the listing agent is a problem personality who "bought" the listing, wants both halves of the commission, has their hand out behind their client's back, or any number of other unsavory problems, then a seller should be grateful to that buyer's agent for providing them with evidence to suspect such. Not to mention that presenting an offer in person is the only way I know of to guarantee that it doesn't go straight from the fax machine to the trash can without intersecting the seller in-between. Yes, I do know agents that I suspect of this. I could name agents I more than suspect of this - and the only way I can ensure it doesn't happen is request to present offers in person. I'm calm, I'm professional, and if I get a signed note saying the client doesn't want me to present in person, they at least know about the offer. And even if you've known your agent your entire life, "trust but verify" is never bad advice.

This isn't to say bad conduct on the part of a buyer's agent during presentations should be tolerated. If the presentation is made at the listing office or at the owner's home, they have a right to insist that I leave. If we're out in public somewhere, they have the ability to pick up and leave at any moment. It is incumbent upon me to give them reasons to keep listening.

Many listing agents feel threatened by this request. If they have done their job correctly, there is no reason for them to be, because what I'm going to say is going to reinforce the critical parts of what they should have said, thereby bringing them additional credibility in the eyes of their client. If it doesn't, well then the client has to judge the situation on its merits. That listing agent has unlimited access to the client. I have this short prepared presentation limited to one subject - my client's offer and why they should accept it. If the listing agent can't make a better case that their interpretation is better than mine, something is wrong. I'm not trying to steal their client - I want to make certain we're all on the same page. And if the listing agent has done their job correctly and I'm a bozo, well, the comparison isn't going to flatter me. So I'm motivated to get it right.

I do not agree to disclose the presentation or the offer beforehand, however. I am responsible to my client to make the presentation as strong as possible, and tipping my hand short-circuits the entire purpose of the presentation. It isn't like the seller has to come up with an immediate verbal response, as if we were in court. When I'm done, I thank them for listening and walk out. They have until offer expiration to respond - so it's in their best interest to schedule me as soon as possible. I just had a request where the listing agent refused unless I faxed over the offer first - which defeats the entire purpose of making the presentation. No. There is no reason you need to see it beforehand - unless you're trying to cover for your own lack of competence. You've got the same data I do. You can figure out precisely which comparable properties I'm going to use, and propose your own. I similarly, have to anticipate this and tell why the comparables I pick are the correct ones, and make the comparisons make sense in the real world. I have a short presentation time to make my case. You have unlimited time to disagree with me, in free format. I'm not allowed to be present for discussions unless you intentionally start those discussions with me present. If I do say something you disagree with and you can't out-argue me before your own client with all of those advantages, something is rotten in your state of Denmark. Not that the presentation is intended to be an argument - but if the listing agent insists on making it one, all of the advantages are in their corner. I can't fight either a listing agent or an owner who doesn't want to be reasonable. I can't force anyone to agree with me, to sign a contract they don't want to sign, or anything else. Actually, if someone on the other side is not going to be reasonable, both me and my client are better off finding out right away. What I can do is build a coherent rational case why it is in the seller's interest to accept our offer.

Nor will I agree to limit the subject of my presentation, at least not any further than presenting the case I need to make. I'm not going to talk politics, I'm not going to display any of the internet's famous prurient material, and I'm not going to do anything else that's irrelevant. I will cover the state of the market, I will cover which properties are and are not comparables, and I will cover why this is a good offer that should rationally be accepted. I recently had a listing agent tell me that they would only agree to let me make a presentation if I limited myself to one section of the presentation I usually give - the "my clients are good people" spiel. I could have lied and told them I'd do it. Instead I told them that their condition was not acceptable. This right was intentionally granted to buyer's agents precisely because there should be checks upon the agent on both sides, and in many cases, clients trust agents in defiance of all reason because they don't understand that the agent is telling them garbage because nobody else gets to talk to them. Whether a buyer's agent makes an in person presentation isn't the listing agent's call. They can certainly counsel the client on the subject, but the decision as to whether to accept the presentation is the client's - precisely because the agents we're all trying to get rid of are going to be the ones trying to prevent anyone else from talking to their client.

I haven't really done all that many of these yet. But the format of the presentation is pretty simple: Show them I'm a good guy, show them my clients are good people, talk about their situation. Then I segue into what the market conditions are, and the property and its position in the market. I show why the property is a good match for the client and why the client is a good match for the property by market position. I show why this offer makes sense in light of market and market position. I talk about the benefits of accepting the offer. Then I close by talking about how my client really wants this property, how well my clients qualify and evidence that they will be able to consummate the transaction - why it's a good fit all around. Finally, I thank them for listening and, assuming there are no questions, leave.

If nobody starts interrupting and arguing, it all takes ten to fifteen minutes. As I said, I'm not looking to attack anybody. Attacking doesn't get me a fully negotiated purchase contract, so it doesn't make my clients happy. What I am looking for is the opportunity to make my case in person, and present all of the evidence I want presented. The reasons it's advantageous to do so are obvious, but let me add one more: You would not believe all how often listing agents (or their clueless assistants!) do not read material that is in the offer, do not understand it, or don't understand even the most obvious implications of what is there. Some fraction of this is intentional filtering - not wanting their client to see information that client is entitled to see because it is part of the offer (this is called "intentional breach of duty" in court filings) - while some is unintentional negligence, in that they're going through motions and making checks in boxes, and they don't pull their noses off the grindstone long enough to realize what's there in the offer and why it is important. But it is in the interest of both principals that this evidence be presented, and if the listing agent is too busy to take the time to understand the offer, they've got too many listings to properly discharge their fiduciary responsibilities to them. This is what is called prima facie evidence - "on the face of it", it is obvious that they're not properly discharging those duties. By allowing a buyer's agent to make a presentation, they are relieving themselves of a lot of potential for legal difficulty down the line, because the buyer's agent should talk about all of this stuff. That's the whole point of the presentation.

It's also an opportunity that everyone should welcome: to put human faces on the transaction, instead of just these mysteriously appearing pieces of paper and voices on the phone. It gets the buyer and seller thinking of each other in terms of being real people. It very much tends to lessen the tendency of people to draw lines in the sand and issue ultimatums, it increases the probability that this will become a fully negotiated purchase contract, and it becomes very helpful later on if we need subsequent negotiations because something new happens or is discovered about the property.

Here's one final benefit of the presentation: the listing agent has this same right to present counter-offers. I have to admit to encouraging tit-for-tat in my clients for this - if the listing agent allowed me to present, I think it's a good idea to reciprocate. If they didn't, that's not a good sign for the counter presentation or the transaction for that matter, and maybe we need to find another property not represented by such an problem personality. Whatever my attitude, it's my client's call. In the final analysis, you can't win a fight with a listing agent who is determined to be a problem personality. All you can do is avoid the fight by going elsewhere. To be fair, the same applies on the other side as well.

Caveat Emptor

Article UPDATED here

Adverse Possession

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It may surprise you to learn that there is a way to lose part of your property without selling it, against your will, and without the government condemning it for public use. This is the doctrine of adverse possession, and it has a history that is literally older than the United States, going back to English common law. Adverse possession flows from the Doctrine of Laches (equity), where a party, which would be the previous legal owner in this case, has lost its rights by failing to defend them. And this failing really is a pretty extensive failing, as you'll see in a moment - basically going to sleep like Rip Van Winkle for a goodly number of years. It isn't like today you've got a valuable property that you're using, and tomorrow you're dispossessed by some thief who snuck in during the night.

There are five elements to a successful adverse possession suit:

1) Open and notorious: You have to have openly used the property in question, in a manner observable to the general public, and in particular, the previous owner.

2) Actual possession: You must have occupied and used the property in question. Raised crops on it, improved it by building or improving something artificial on it, lived there, etcetera. Paying taxes on the property can be helpful to your case, but it isn't proof, and it doesn't prove you were in possession - actual physical control of the property concerned. You may have believed it was yours, which is why you paid taxes, but the legal owner had an equally reasonable belief: legal title. You have to show that you were in physical possession of that property.

3) Exclusive: You have to use it to the exclusion of the theoretical owner. No sneaking in only when they are not there. They must be absent - they cannot have been in possession, in control, or have been using the property themselves. If they come back and use the property, evict you for a while, etcetera, the time period starts all over.

4) Hostile and Adverse: You can't be using it by permission, otherwise all landlords would periodically have to evict every tenant. If you're paying rent, or just have permission to use the property, it all goes out the window, as that shows that the legal owner wasn't neglecting their rights. Someone using it by permission might get an easement by right of long use; they won't get fee title to the property.

5) Continuous holding period for a given number of years. This period varies from state to state, and can vary even within the same jurisdiction with differing circumstances. I've heard of times as short as seven years, and as long as twenty. Check with a lawyer in your area for what period applies to your situation. For that matter, check with a lawyer in your area on anything in this whole article. I'm not an attorney - I'm just alerting the public to the existence of adverse possession and its general characteristics.

Adverse possession applies only to land actually taken. Just because the legal owner ceded use of some small piece of the property doesn't mean you get the whole thing. Just because you have a successful adverse possession for a fence three feet from where the prior legal property line was, does not mean that you're going to get possession of an entire parcel.

Fence lines are the most common adverse possession suits. Either the owner of the property puts the fence inside their own property line, and the owner of the adjacent parcel takes over the land outside the fence, or the owner of the other property puts the fence line within the neighbors property in the first place. In either case, there's a pretty easy visual case to be made for who was in control of that land, who had possession, and that it was exclusive. That it was hostile and adverse is fairly easy, unless there's some written documentation that the legal owner gave permission. This leaves only the fifth condition, continuous possession, for the required number of years.

This has implications for buying property. If what you see on that fence line doesn't match the legal boundary, then there may be a legal case to be made that the fence line is what you get. Whether this is a good thing in that you can attach more property to what you are legally buying, or a bad thing in that you're not getting as much as you might think, the case can be made. In any case, consult an attorney.

It also has implications for selling a property. If you advertise that the property is a quarter acre, and someone legally removes some amount from that within some period after the property sells, they may have recourse upon you if they bought partially based upon your representation that the property was a quarter acre. It wasn't, really. I find it difficult to believe anyone really would sue over a fence line making their 10,890 square foot property into a 10,700 square foot one, especially when the fence line was clearly visible the entire time, but it doesn't have to be the real reason they want to do such. It might merely gives them a legal excuse for whatever their real issue is.

Another thing that adverse possession does not apply to is use of force. You cannot gain title by holding the owners captive at gunpoint, no matter how long it is. This includes armed invasion. Were the territory gained in the Mexican-American War ever reattached to Mexico, it is my understanding that according to this doctrine, the landholdings then extant would be re-asserted, even under US law, unless they were actually sold, either by the government (i.e. Gadsden Purchase) or the private entity that held title. If Antonio López de Santa Anna personally owned your property once upon a time, and the US Government took it over after the war as spoils, his heirs might still own it if they ever found out about it and filed suit. One hopes you get the idea.

Winning or losing an adverse possession case can also have property tax implications. If years ago, you bought an 8000 square foot property, and lose 2000 square feet to adverse possession, at least you'll probably get some property tax relief out of it. If you attach that 2000 square feet to your existing property through successful adverse possession, you might well get a tax bill for it.

Adverse possession is a detailed legal field with complex rules I don't pretend to understand in full, and those rules change from state to state. But it is real, and it is successfully used to take legal title to land pretty much every day.

Caveat Emptor

Article UPDATED here

Fake Agent Scams

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I am selling my home to this couple and from day one I wanted this to be strictly a buy-owner sale and they knew this but they brought in a Realtor and wanted me to give her 1% for paperwork all because they have been friends with this Realtor for 20 years. But when I met with their so-called Realtor she didn't seem to be a REAL legit Realtor. On her business card is only a cell number, no web site, only an AOL email address, and fax. On her business card it states Broker but after further research she is listed as an agent if this is even the same person, because I didn't pull the search by license number only by the Real estate company name. Today the purchase agreement was signed but I noticed that her license number WAS NOT disclosed no where on the home sale contract, just her name and title. Is this legal for a Realtor to fill out a sales purchase agreement without disclosing her license number. I really do not think that she's even a Realtor, just the Buyer's best friend.

First off, even if this person is a licensed agent (as opposed to Realtor®, which is roughly equivalent to an agent who is also a member of the marketing union) Dual Agency is setting yourself up to get taken advantage of in major ways. Nobody can effectively serve two masters with such wildly divergent interests. Buyers want the lowest possible price; the sellers want the highest. Buyers want everything fixed; the sellers don't want to spend any money they don't absolutely have to. If the transaction falls apart, buyers want their deposit back while the sellers want to retain it. I could go on and on. Exactly how is someone supposed to work for the best interest of two clients with such directly opposing interests? Never use the listing agent as your buyer's agent, or vice versa.

Now as to the question you asked: You don't say what state you're in, but every state that I know of has an online licensee database (the fact that you have a real estate license is public record).

The business card stuff, I can ignore. There are still agents effectively working in 19th century conditions. And unless you're a supervisory broker, lots of firms will simply list you as an agent on the roster, even if you have your broker's license.

The failure to disclose license number is more serious. State laws vary, but here in California it's required to go on basically every major document, including the purchase contract.

Who's handling escrow? Ask them what the agent's license number is. If they don't have a license for this person, you've been scammed, and you should contact your state's department of real estate immediately, as well as a real estate attorney to see if you have a valid lawsuit. Actually, if the license number really isn't on the purchase contract, there is material there for a lawsuit, at least in California. If they don't have a license, they are probably practicing law without a license, as a real estate license allows an agent to fulfill a very limited set of functions that would otherwise require a law license. Even if it isn't automatically practicing law without a license, chances are that someone who doesn't have a real estate license has gone over the line into things that require an actual attorney. Going over the line into practicing law without a license is probably the second most common way that actual licensed agents get successfully sued and criminally prosecuted - right behind record-keeping failures in the brokerage escrow account.

I don't know why people think real estate agency is no big deal and that anyone can do it effectively. Actually, scratch that; I do know. People don't like spending large amounts of money needlessly, and there's a whole bunch of businesses trying to sell things where their sales depend upon people believing that they can do just as well without an agent. It's not true, but there's no law against trying to convince people of something that isn't true. To be fair, good agents who know what they're doing do cost what appears to be a large number of dollars, but that is nowhere near as expensive as buying without an agent, or selling without one. People don't know how much they don't know. Go and find yourself a good listing agent (Just as if you were buying, I'd tell you to find youself a good buyer's agent), and you won't have to worry about whether the other party's agent is licensed - if they're not, it's not your problem, and won't be your disadvantage.

Caveat Emptor

Article UPDATED here

Cash to close has always been an underwriting standard, but more people are running into it as a reason why they cannot buy that property, why their buyers cannot perform, and why they can't get that refinance approved. With lender requirements as to what they will and will not loan on, not to mention impacted equity situations, "cash to close" has become more important than it has been for a decade. Whether you are a buyer, seller, agent for either, loan officer, or someone who wants to refinance the property you already own, you need to be aware of the requirements for "How much cash needs to be there to make this loan happen?" If you anticipate them and structure the transaction correctly, said transaction will have a lot fewer stumbling points.

In the past (a year or so ago), 100% financing was routine, and with seller paid closing costs, the buyers often literally did not need a penny to buy property. Indeed, such was one reason the real estate market got so wildly out of hand. Not the only reason, nor the main one, but when people could believably say, "You haven't got any money in it, so just walk away if anything goes wrong," they could get a lot of takers, even when that's a lie precisely equivalent to the con man's "trust me!"

Right now, the only generally available 100% financing is the VA loan, and 100% stated income financing, which was the gravy train for many god-awful real estate agents and loan officers, might as well be story on the lines of a Greek myth in the current environment - stories of what they called hubris abound in Greek Mythology.

Furthermore, lenders are looking hard at seller paid closing costs. They're desperate to make what they think of as good loans, so they're still mostly giving these a pass - but there are more instances of snags with them now than I can remember hearing of at any time in the recent past.

The upshot is that you have to consider "Cash to Close." You have to remember it and keep it always just as much in mind as loan to value ratio, credit score and debt to income ratio. Not only do you have to have the money for the down payment, you've got to have all the cash you need to close the transaction. This is a prior to documents condition: the lender will not so much as generate loan documents for signature until you and your loan officer can demonstrate that you have enough cash to actually make the down payment and everything else that you are going to need to pay to make the transaction happen.

The largest component of all is usually the down payment: 3.5% of the purchase price for FHA financing, 5 to 20 percent or more for conventional financing, depending upon what's available to you and some choices that get made. Right now, 10% is pretty much the minimum for conventional financing (that is, financing where the government does not get involved), and that involves private mortgage insurance unless and until the down payment reaches 20% of the purchase price. There are exceptions in some municipal first time buyer programs, but those are not "generally available" in that they run out of money at Warp Speed whenever they do get an allotment.

Closing costs for the loan are another component of cash to close. It takes money to pay the people and companies working on your loan. For a rule of thumb, I use $3500 even though it's probably going to be less than that, excluding discount points, which are used to buy the rate down, and impound account money. Title insurance, escrow fees, appraisal, processing fees, lender fees of various kinds, government fees such as recording, and usually a charge for origination, itself usually measured in points. These all have to get paid, or your loan doesn't get done. Nobody is going to agree to pay these costs for you unless they get something for it in the form of a higher interest rate.

There is always a tradeoff between rate and cost in real estate loans - you don't get a lower rate without paying for it, and you don't get costs paid for without agreeing to a higher rate in exchange. Points are measured as a percentage of the gross loan amount. If, for example, you're paying two points to buy the loan rate down, then after you've added in all the closing costs and impound fees and anything else that applies, this amount is only 98% of your total loan amount. On purchases, you're going to have to have this two percent of the loan amount in cash if you want to buy that rate down, effectively adding to your down payment requirements. So even though I've taken this slightly out of order here, in reality, points are the last things figured into the loan, assuming that there are any.

Impound accounts are seed money for paying your property taxes and homeowner's insurance, giving the lender assurance that they will be paid on time and in full, thereby not jeopardizing the lender's interest in your property through unpaid property taxes or having the property damaged or destroyed while uninsured. Many people like having these details taken care of by just writing a slightly larger monthly check in the first place. They are your money, but the lender wants enough money to seed these accounts so that they will have enough in them to pay these charges when they are due. As I have said and demonstrated, impound accounts can be several thousand dollars, and lenders can, in many states, charge extra for not having them.

Finally, there are the buyer costs of the purchase. Around here, they really aren't much - half the purchase escrow, recording costs and a few other minor things. I generally include them in the closing costs of the loan (as above), but they really are different. In other areas of the country, however, the rules are different and the traditions are that the buyers pay more of the costs of transference. Neither way is necessarily right or necessarily wrong; it's more a matter of what everybody is used to, and the fact that the usual method for your area is what the rest of the market is priced for.

On purchases, all of this money can only come from cash in addition to the down payment, or by moving cash away from money that would otherwise be used for the down payment. For refinances, if there is enough equity then these costs can usually be rolled into your new loan amount - but do not confuse that with not paying those costs. You are not only paying all of those costs, you are paying interest on them and they are still in your loan balance until you find enough in the way of payments to pay them off. Don't Roll Mortgage Refinance Costs Into Your Balance If You Wouldn't Pay Them Cash. And to further drive this point home, as many people are discovering now that they don't have this equity on refinancing, they are having to come up with thousands of dollars if they hope to get that loan actually funded. Real refinancing is not a case of blindly rolling what may potentially be tens of thousands of dollars into your loan balance. It's okay if you have the equity and make a conscious choice that this is the best way to handle it for you; it is not okay if by doing so you merely get to pretend that it isn't real money.

Down payment plus closing costs plus impounds plus buyer costs, plus points (if any) equals cash to close. You need to have this money available in cash, and you have to be able to convince the loan underwriter of its provenance - sourcing or seasoning the funds. Where did all of this money come from? The lender wants to know that it is not from an undisclosed loan, which you're going to have to make payments on, possibly thereby putting the entire transaction into the realm of unaffordability because your debt service is now too high a proportion of your income. You are going to have to show you got the money from some source that is not a loan, or that you have built it up and saved it over time. The lender is going to ask for supporting documentation, of course. For refinancing, there is at least potentially a little more leeway, if you've got equity in the property you can borrow further against that equity as an equivalent to cash, in order to close that loan. But that is a very different thing from not needing the cash in the first place, which is a pipe dream. For purchases, this very elementary, completely foreseeable difficulty is probably at fault in at least half of the transactions that are failing to close - all because lazy agents and loan officers got used to sloppy practices and are having difficulty weaning themselves away. Cash to close is real, and it's something that everyone needs to concern themselves with, lest they be made very unhappy when the entire transaction falls apart because the cash to close wasn't there to begin with.

Caveat Emptor

Article UPDATED here

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