March 2023 Archives

I got an ill-mannered complaint email about how an evil loan officer from another company ordered the appraisal without waiting for the inspection to be done, and it turned out there was a minor problem that the seller likely could have had repaired, but this clown chose to walk away, and as a result is griping about having to pay for the appraisal.

First, that appraiser did the work based upon your representation you wanted the property. You signed a purchase contract saying that you were intending to purchase the property. You submitted a mortgage loan application, and as a result of that someone acting on your behalf ordered the appraisal, which has to be done if you're going to get a loan. That appraiser did the work. They are entitled to be paid.

Second, scheduling an appraisal promptly protects you. The longer the entire process takes, the worse the loan you are going to get. If they didn't order the appraisal right away, the loan officer is gambling with your money. But rate locks aren't free, and they are for definite periods of time. The longer a rate lock is, the more you will pay for it. Furthermore, if you go beyond them you're either going to pay a tenth of a point for five days, or a quarter for fifteen (both assessed in full on the first day of extension) or pay worst case rates. The person who ordered the appraisal was acting in good faith to protect your interests based upon the representation that you wanted the property. If you didn't, why did you make an offer and sign the purchase contract and submit a loan application? Speed is important in getting a loan done, and even if in some instances people like you end up paying for an appraisal when they cancel escrow, the people who actually want the property benefit by having everything done right away. Appraisals are around $350. A tenth of a point of $400,000 is $400. A quarter of a point is $1000. Or you can pay a quarter of a point more - $1000 - for a longer rate lock in the first place.

The assumption when you sign that purchase contract and loan application is that you want the property and loan, which means the appraisal has to get done, and you want the lowest rate, which means the shortest practical lock time. People get sued - successfully - for not ordering the appraisal right away. This person was doing exactly their job, and in the best possible way for a buyer who really wants the property.

I have stated before that I will bet money, based upon no additional information, that a loan done in thirty days or less will be a better loan than one that takes sixty or more. Due to all the new regulations and procedures delaying the loan, add thirty days to those numbers but the principle is still valid. Ordering all of the services: inspections, appraisal, disclosures, zone report, etcetera, right away is part of how a good loan officer - and good agents - get a transaction to close fast, on time, and to the loan quoted. For the buyers who carry through on their intention, as evidenced by that signed contract, doing this is the only correct way to do business. Delaying the appraisal until after the inspection adds to the time it takes to get the loan done. In the vast majority of cases, the inspection is going to reveal something you didn't know. Sometimes it's trivial, and sometimes it's major, and all gradations in between. Most people manage to deal with it like mature adults and negotiate something reasonable. I recently negotiated some sellers to pay $20,000 plus to hook up a sewer connection when the septic was shown to be failing, something I had no way to know when I checked out the property. The repairs were made, the deal closed, my clients are in the property and very happy. But this person who wrote me to complain canceled and walked away from something far more minor. How do you think the seller feels about everything they had to pay for, now that this person who said they wanted to buy the property flaked out?

A purchase contract should not be something you enter into lightly, thinking you can get out of it easily if the slightest thing goes wrong. This is part of the reason for buyers agents. They should explain to you that this is a binding contract, and you are agreeing to purchase that property, and in many cases the seller can sue to make you buy the property. A buyer's agent will also spot a lot of problems before you make the offer. Don't think of them as building inspectors; few agents have that license (and I'm not one of them). But there is nothing that says that I can't spot potential issues and bring them up. In the particular case of the person who emailed me this question, it was a trivial issue that I spot and tell my clients about on a regular basis before they make an offer, and as a result, we have dealt with the issue before the contract is agreed to. But even if it isn't dealt with up front, the better response is to negotiate a reasonable response from the seller, not walk away in a huff.

Caveat Emptor

Original here

The question that inspired this was

can a mortgage company use the flood insurance claim money towards homeowners mortgage loans?

This is equally applicable to every other form of insurance on your home - earthquake, regular homeowner's insurance, and any others that you may have or require.

The short answer is yes.

The reason that the lender requires being added to every policy of insurance you have on your home is so they have a claim on the policy proceeds. Let's say you buy a $500,000 home for nothing down, and the value of the structure is $150,000 while the value of the land is $350,000. Let's say the house burns down next week. If they weren't on there as beneficiary, you could theoretically take that check for $150,000 and head off to Tahiti, leaving them with a $500,000 loan that they're maybe going to net $270,000 for by selling the property that secured it - after all the time for foreclosure, et al, which means they're out all those costs plus thousands of dollars in interest. If you're a lender, you're going to suffer this loss once at most before you decide not to trust anybody.

This is also a reason to keep your insurance updated, to the full value of what it's going to take to replace your property. It's a bummer to own a $500,000 house that burns down, and you're only insured for the $150,000 you owe the lender. Insurance is not a "Get out of trouble free" card. If you're not paying the insurance company for a policy large enough to cover a loss of the item, don't be surprised or angry when what they pay you doesn't replace it. In this case, you told them it would only take $150,000 to replace the asset, and that's how much coverage they sold you. They're not to blame if that's not enough.

On the other hand, the lender doesn't want the property or a partial repayment. They want the loan repaid in full. What they're going to do is sit on any funds they get and make certain they're used to rebuild, unless they have some reason to believe that rebuilding is a bad risk. Banks don't throw good money after bad, so if this is the case, they're going to keep the money. On the other hand, if you've been keeping your payments up, they're going to want you to rebuild. Their taking custody of the money is a way to make certain that you do, too.

Caveat Emptor

Original here

Spent some time getting another sales channel set up for my books. Gumroad works with BookFunnel, delivering .pdf files that can be read on any device that has a version of Adobe Acrobat Reader for it (Both Mac and PC, tablets, and both Android and Apple phones to my certain knowledge have Acrobat Reader. It comes installed on most; it's free to download if not). So no more worries or excuses about device compatibility.

You buy on Gumroad, you should get redirected immediately to BookFunnel to download the file although some security suites block the redirect (mine does). You also get sent an email with a delivery link, click the link and download the book file.

I've tested all of my books; every single one works.

My gumroad profile is https://danmelson.gumroad.com/

All of my books except one are available to purchase at the link. The exception is the Rediscovery Omnibus, because it's too long for BookFunnel to deliver as one file. You can buy all four novels in it.

Why doesn't real estate just sell for the asking price instead of having to go thru all the paper work...? Wouldn't it be easier to just put a price on it and sell it for that price? We don't go thru all of that when purchasing cars or anything else. Where did this practice start?

This practice started millennia ago. The practice of buying stuff off the shelf at the marked price is the recent practice. Only when stores started selling so much they couldn't haggle over price was that practice invented. It's easy, but it's not suitable for transactions larger than the utterly routine. If Supermarket A has better prices than Supermarket B, people will tend to drift there over time - unless B has different merchandise A doesn't carry. This is the model for a couple of major chains. But every parcel of real estate is different from every other.

Land is important, it is immovable, they are not making any more, and it is uniquely identifiable by location. It is used as a basis for taxation, and social status. Not too long ago, the vast majority of the population worked by farming land. It's big enough, and expensive enough, to be worth extended negotiations, as even small percentage differences will be a large amount of money by the standards of any other transaction.

Precisely how much land goes with a parcel, and precisely what the boundaries and limitations are, is critically important. Taking just a few square feet away can mean that it cannot be used for a given purpose. Rights of easement are important to everybody served by that easement. Wars have been fought over simply the right to pass over a piece of land. Zoning disclosures are a real issue with at least twenty percent of all properties, as well as any number of other issues about the condition, permitted uses, boundaries, and appurtenances.

Because of its importance, its permanence, and its value, there has been a lot of fraud committed over land, therefore the systems of title and escrow. Misrepresentations and just keeping silent about very salient defects can be worth tens of thousands of dollars, so people do that (or try it) regularly. Add that to the fact that land is taxed by most governments, and you have all the reason needed for public records systems.

Because of its permanent and immovable nature, lenders will loan money secured by land on better terms than anything else. But since a fair number of people over the years have gotten money for land they don't own, or gotten more money for land than it is worth, the lenders have instituted safeguards such as the appraisal, inspection, and lenders title insurance. It still happens, by the way. Just before I wrote this, I looked a a property in a fantastic location, but really old and badly run down. By the market, I'd say it was maybe worth $600,000 - but the owners convinced someone to loan them $1.8 million dollars on it.

Every part of the process has a reason it is there. There is no need for anyone who is not a professional to learn them, but the reason those professionals exist is so that you don't have to know what they know - and that runs true for everyone from the escrow officer to the title officer to the agent, and trying to shortcut the process is a recipe for disaster. Nor is it pure information, in a lot of those cases, but experience and knowledge and judgment acquired over time, and the one that most people miss: how to put it in context. Just ask the people who got burned, and whose cases are the reasons for all that paperwork and hassle you have to go through to buy or sell a property. And people still get burned today. Most often, it's the people who try to shortcut the process to save a few dollars. "You don't need that appraisal! You're paying cash!" "You don't need that inspection! Solid as a rock!" "You don't need an agent! Trust me!"

There are good solid reasons why you don't want to cut any corners, and why you want a professional working for you every step of the way. Proper disclosure will save you from lawsuits most people wouldn't believe. Proper investigation will stop you from walking in to the problem in the first place, or at least get you some serious concessions if you have a good buyer's agent on your side. And if they fail to do their job properly, it gives you the right to go after their insurance and their broker's bond. This is all critically important. Professions such as real estate and all the allied professions exist for your protection, If they fail to protect you from the things they are supposed to guard against, then it is only moral that you be indemnified for that failure.

Caveat Emptor

Original here