Dan Melson: April 2022 Archives

I am about to close on a condo unit. At the last minute, we received the resale document from the management company. All units are being assessed a one time charge of $3000 due in full Nov. 1 for roof repairs needed. I have not closed yet, but we are in contract. Who is responsible to pay this assessment? The current owners (sellers) or me, the buyer? I do not want to pay for this assessment as I am not the unit owner at the time this special assessment was placed.

This is a good question, and applies not only to HOA assessments, but property taxes, etcetera. The owner of record as of the assessment date is responsible.

However, assessments of this size generally have to approved by the association at large, so there was almost certainly a vote of the owners, so they knew about the assessment, and it should have been disclosed to you. Even if the owners at large didn't vote, it shows up in the minutes of the board, which the board is required to inform the owners of. The current owner knew, or should have known, and kept it to themselves in violation of the law. Most states treat this as fraud on the current owner's part (talk to a lawyer in yours). One more issue is why did the condo certification not show this assessment?

As for you reaping the benefits, that would be the case if they paid it now and you bought the day after. Tough cookies for them. It's part of owning communal property. The only way to determine who owes the assessment is who owns the property on the assessment date, but that doesn't mean that known assessments don't have to be disclosed. Indeed, homeowner's association information disclosure is a standard feature written right into all the standard WINFORMS contracts. Nor will any lender I'm aware of fund a loan without this information.

If they had disclosed this like they should have, it's likely you would have negotiated something as part of the purchase contract. As it is, you now have them in a hammerlock, because even if the assessment is due after the contracted closing date, their failure to disclose does mean that a reasonable person might not have entered into the contract you did. Even if it's not criminal fraud, it is a legal tort, and you're likely to recover legal fees and maybe damages if you sue (again, talk to a lawyer before you draw any lines in the sand). If they're smart, they'll pay the assessment out of sale proceeds and save themselves all that. On the other hand, if they were smart, they wouldn't be in this predicament, would they?

You probably have the option of bailing out, as well, even if the contingencies have all expired. Of course, all of the standard warnings about your deposit apply. Just because it falls out of escrow doesn't mean the escrow company will return the deposit. The other side has to agree, or you've got to get a judgment. Again, because of the failure to disclose issue, they're likely to end up responsible for your legal fees as well as their own and not getting the deposit anyway, so it would be smart for them to just agree. Unfortunately, all too many people aren't smart - they're hoping to scam something. The vast majority of the time, it costs them more than they might possibly have scammed even if they were successful.

This all applies to property tax assessments as well, except that around here the title search should have disclosed that, and it should have been on the title commitment (aka preliminary title report). Nonetheless, the owner and their agent are still responsible for disclosing it in a timely manner, although the exact period from acceptance of the contract varies. Ditto Mello-Roos assessments here in California, although there's a space in MLS itself for disclosing those. It's very rare for there to be a pending Mello-Roos, as they're used to pay for installing public utilities in new developments.

One more thing: Your buyer's agent should have covered all this. If you decide to bail out of this transaction, fire them. If for some reason you decide to go through with it, sue your agent and their broker - this performance is intolerable. If you've been using the listing agent as a Dual agent handling both sides of the transaction, you've just had a practical demonstration in one of the hundreds of reasons why that is a very bad idea. Go get yourself a Buyer's Agent that is going to work on your behalf.

Caveat Emptor

Original article here

Some fathers, sad to say, are not involved in their children's life beyond conception. Maybe it was just a one night stand and they have no idea they even have a child, maybe they were involved with the mother on some longer term basis and left, never to return. I've seen the term "sperm donor" applied to such fathers many times. I think it's equally applicable to the common concept of the buyer's agent.

The real estate business is set up around the listing of property for sale. NAR and all of its subsidiary associations are built upon the listing agent and being responsible to sellers, if that. One of the big reasons why most agents center all of their efforts upon listings is because they will pick up buyer clients who don't know any better simply by virtue of listing property. Many of the best listing agents I know think of the buyer's agent as an afterthought. The usual come-on is to rebate part of the "Cooperating Buyer's Broker" percentage to the buyer client in order to drum up business, with predictable results. The "Cooperating Buyer's Broker" percentage set up in MLS was an afterthought to encourage listing agents who picked up the confidence of one set of buyers during an open house to show their property, and for many years (until the courts started hammering on it) a buyer's agent was required to accept subagency for the seller, giving the seller their primary allegiance. Even today, that's the way a lot of agents think because they (or their trainer) learned the business when that was the case, and they think that buyer's agency is just a little bit of paperwork. But that is not the case; indeed representing a buyer's agent's job thusly is a recipe for disaster. There's a lot more to being a good buyer's agent than filling out a little bit of paperwork.

The fact is that choosing someone who's trying to sell you one particular house is a rotten way to pick a buyer's agent, almost guaranteed to get you someone who's just trying to turn a transaction. Fact is that in that situation, they should be focusing all of their effort on getting you to buy the house they showed you, that they have a listing agreement for, that they have agreed to carry a fiduciary responsibilty towards the owner of. This means trying to sell that property, not trying to pick up buyer clients by dangling your listed property out there as a lure for buyers to make contact. Tina Teaser is a horrible listing agent, and probably even worse as a buyer's agent.

I do not know how the urban legend about an agent being a disinterested party got started. It serves the interest of the huge chains that control the National Association of Realtors (and subsidiary associations) or it would have been firmly squashed by now, but it is completely false. A listing agent owes a fiduciary duty to the seller, a relationship which legally requires them to place that seller's interests above their own. They theoretically owe a duty of fair and honest dealing to all, but that is much harder to enforce legally, and not nearly so honored. As evidence, all of the listing agents who say they've got multiple offers when that is not the case.

A buyer's agent is precisely the opposite, owing a fiduciary duty to the buyer, but 'only' fair and honest dealing to a seller. As for dual agency (representing both), would anyone like to tell me how anyone is supposed to serve two masters with diametrically opposed interests while preserving fiduciary duty to both? It'd be like trying to serve in the Union and Confederate armies simultaneously, shooting bullets back and forth with the aim of hitting targets that include yourself. It can't be done. Every agent needs to pick a side and stay on it for at least the duration of the transaction.

Too many people only pick their buyer's agent after they've already settled on a property, with the result being that said buyer's agent is all too often the listing agent, or someone with an economic motivation NOT to speak up and tell you you shouldn't buy that property, or that you should buy it only under such terms as require major negotiation and a significant probability of a seller who is unwilling to be rational. "Sperm donor" agents is a charitable description of such activity. Yeah, you can probably get the property by giving the seller everything they want, but do you want the property that badly that you're willing to potentially deal with years of problems costing thousands to tens of thousands of dollars, until you find out that you can't sell it because of something your buyer's agent should have told you before you bought?

The fact is that a buyer's agent is more important than a listing agent. You're going to be living with the results of what the buyer's agent does for as long as you own the property at an absolute minimum. Most likely for the rest of your life. It isn't just a matter of "you paid too much" or "You paid more than you needed to," although those are huge factors. All of the negative issues that should have been brought up before you made an offer? Blame your buyer's agent. Crummy resale value due to floorplan, location, etcetera? Blame your buyer's agent. Nobody wants it due to some unfixable negative factor? Blame your buyer's agent. Houses with large and recurring repair bills? Blame your buyer's agent. Possibly in conjunction with other professionals such as inspectors and engineers, but your buyer's agent should get a share of any blame. At minimum, for not pursuing the issue if an inspector, etcetera raised a red flag. The Buyer's Agent is far more important than a listing agent to your future happiness. Do you want to trust someone with a fiduciary duty to the seller to point this all out? Especially given that if they do point it out, they are violating that fiduciary duty? "Known violator of fiduciary duty" seems like it would be a slam-dunk reason not to use them for your agent to me. This isn't a court of law and you don't need the verdict of a jury - you were a witness to the violation. You're not trying to send them to jail - only to determine whether or not they're a worthy guardian of your hard earned (or yet to be earned) money.

Many buyer's agents don't want to say negative things about the property they show. That's like a pilot who doesn't want to take off or fly the airplane; they only want to land. It's part of the job they take on with buyer's agency. I know how much harder it makes it to sell property, believe me. It's still part of the job. If they're not doing it, they're not buyer's agent's no matter what they call themselves. They're the agency equivalent of sperm donors.

It is dead simple to find a good buyer's agent. You (the consumer) only have to know one thing in advance: Sign only nonexclusive agency agreements. This lets you work with all the agents you want to until you find one that really does the job. You can have dozens of non-exclusive agreements in effect, allowing you to shop effectively for a buyer's agent by giving them all a chance - you simply stop working with the ones that don't measure up.

You should have at least one buyer's agent before you look at property. One of your buyer's agents should accompany you every time you visit a property you might like to buy, especially developer new construction. If you visit a property without your agent, you may be waiving your right to have a buyer's agent. I've heard from a couple dozen people in the last few months that were completely hosed by developers, but there's nothing I or any other agent can do after the transaction has already closed.

There are major rewards for sellers who make a property appear just a little bit better than it is. On a $500,000 property, it's pretty easy to make it look like it's worth another $50,000. Misplaced Improvements, Vampire Properties, unpermitted additions, just plain old money pits and properties with less obvious defects are out there. Just last week I had someone tell me via email "I just realized what a snakepit the property market is!" like it was some kind of revelation he'd just had. Once you buy, you are on the hook and it is very difficult (if not impossible) to undo the transaction. You might get lucky on your own, or with a "sperm donor" buyer's agent, but is that something you're willing to bet hundreds of thousands of dollars upon? Remember, it is very possible to lose this bet - people find out they lost it after the fact every day. Admittedly, you can still lose the bet with the best buyer's agent in the world - but it's several orders of magnitude less common.

A good buyer's agent does a lot of work. This work saves their client a lot of money hassle and work way more often than not and people who don't want a buyer's agent find out why they really needed one after the fact.

Find a buyer's agent first, before you start looking at property. Get comfortable with them, expect them to say things that shoot holes in most property. That's their job, and there really is no such thing as a perfect property. It may be harder to persuade yourself to put in an offer on a property with known defects, but would you rather know ahead of time or not know? The defects are still there, either way. A good buyer's agent will tell you about them. A sperm donor agent will not. Avoid the sperm donor agents, and fire them as soon as you identify them. Knowing enough to only sign non-exclusive agency agreements allows you to fire them pretty much at will, by just not working with them any more.

Caveat Emptor

Original article here

Market segmentation is what happens when certain things are much more in demand than others. For instance in the hot market brought on by the tax credit of 2009, the central area of San Diego was in high demand, simply because it's so close to everything. That's where the jobs are, all the cool nightclubs and restaurants, places to go and things to do. The Eastlake area was in very high demand, because you could get an almost new highly upgraded 3000 square foot house for half what the developers were selling them for five years previous. The North County Coastal region was probably hotter than anything else, because of the common belief of being where all of the really wealthy people live - the strip between Del Mar and Carlsbad has long been some of the most desired real estate in the world, and Rancho Santa Fe is the most expensive Zip Code in the country.

Once you get away from those areas, however, things were a lot more friendly to buyers. Some clients put in an offer on a property in Escondido, and some others on a property in Ramona, and instead of competing against a dozen or more offers, I'm pretty sure we're the only offer despite what one of the agents was telling me. La Mesa saw movement, but not anything like what happened in North Park despite being maybe 6 miles further east and usually being able to get to Mission Valley and points north quicker from my house than from most of North Park, simply because it's such a pain to get out of North Park. Downtown might be five minutes longer from La Mesa. South Bay is usually quicker from La Mesa. The houses are similar construction built at comparable times, and on average the La Mesa houses are larger and situated on bigger lots. Don't confuse "lesser distance" with "use less gas getting where you need to go." North Park is a horrible place to drive when you consider anything but the nightlife right there.

Pretty much every area is seeing more movement in the market than just a few months ago, but some areas are seeing a normal market with give and take, while others are seeing a white hot seller's market with ten or more offers on everything. Those extremely hot markets are seeing a lot of movement and if it weren't for HVCC preventing honest evaluations, we would have seen an even stronger recovery.

Some offers are more equal than others, and the new appraisal standards make them even more so. An "all cash" offer beats everything else for the same number of dollars. Offers under 70% loan to value offers beat everything except "all cash". Offers with twenty to thirty percent cash down come next in line. Exactly what beats what gets complicated and varies from property to property, but absolute bottom of the barrel is minimum down payment FHA loans. If you've got something near the top of this ladder, competing in the white hot areas may be something you can profitably do, particularly if you're willing and able to waive the appraisal contingency. Those areas are going to see rapid price appreciation in this environment, particularly if the industry forces lined up against it (NAR and NAMB, among others) manage to get those new appraisal standards repealed.

If, on the other hand, you're one of those trying to buy with minimum down FHA loan (or something else way down the preference ladder), you're not going to be able to compete with the offers at the top of the ladder. It's not really completely reasonable, because FHA standards aren't nearly so obnoxious as they used to be, but they still take longer, have more opportunity to fall apart, and require more from sellers, even if you're not asking for seller paid closing costs. If you are asking for a seller paid contribution, then the sellers are understandably going to want an even higher offer from you to offset those costs, as well as a premium to convince them to sell to you rather than the people coming in with a conventional loan with 25% down. This raises the specter of whether or not the property will appraise for the necessary value to consummate the transaction, with it being increasingly unlikely. Lenders in particular are unwilling to consider these sorts of offers for lender owned property because they often require the lender to spend money fixing up the property and can then fall apart anyway, the ultimate bad trip for them.

So what buyers in this situation need to do is zig when everybody is zagging. Look in the less trendy areas where the competition isn't so severe. Consider properties that are solid, but not necessarily so visually appealing. In such a situation as yours and a market such as this, you want to offer on properties where you may be the only offer, or only need to compete against people in similar situations. It isn't forever and you don't have to stay there the rest of your life. It may take longer for property appreciation to hit these sorts of properties, but it will hit when people start to realize that San Diego is never going to be this affordable again. Remember 2002 and 2003, when people were glad to get a rotten little tiny property in bad shape (and way out in the boonies) even though there was no way their family was going to fit into it? Those days are coming again. Proportionally, those properties will see even more appreciation from this point than those that are already highly sought after. I'm advising people with lots of ready cash to buy as many condos as they can, as condos have been hit especially hard in the downturn. And as I've said a time or two, buying such a property makes it likely you'll get what you really want sooner. The ability to harness leverage in your favor is more powerful than any other investment you can make, if it succeeds. The current environment makes carefully structured plays on leverage very likely to succeed. Not guaranteed, as
There is No Such Thing as a Risk Free Investment, but very likely to succeed.

There is always some segmentation in the real estate market, but we're seeing a higher level of segmentation now than I have ever seen in the past. Some types of property are more attractive to the aggregate market than others, and command a higher price as well as higher demand for them, and people are fighting like the gingham dog and calico cat over them. But those properties few people are considering now because people are still used to the buyer's market we had can be obtained more easily and for a bigger discount now simply because everybody is competing for the big beautiful properties in trendy areas will show a larger percentage gain later, when the big beautiful properties in trendy areas are completely out of reach, and large amounts of people start looking for substitutes because that's all they can have. The big beautiful properties in trendy areas are doing very well right now, thank you. They are quickly returning to nearly their peak price levels and the time to get a real bargain on them was a year or so ago. But the substitute properties, while severely lagging now, will catch most of the way up later, meaning that money invested in them will earn a higher return and quite likely enable those who do so invest to afford the big beautiful property in a trendy area once it does.

Caveat Emptor

Original article here

What do the mortgage companies mean when they say they can not insure you house loan.? What is the danger to the homeowner?

I have been in the new home for over a year now and they just now told me that they could not insure my loan. They said they made a mistake and overlooked something in my credit. I do not know what dangers I face now because of this.

You say you've been in the property a year, so I'm going to presume you're talking about an existing loan, rather than a new loan. The loan you used to buy the property, and what they're talking about is that the PMI company rejected the application to insure your loan, and they just now realized the problem.

That loan contract is binding to both sides. They accepted that loan contract with you. Once it's funded and recorded, they can't back out. Unless the contract has a call "feature" they can't pull your loan just because they feel like it after it's recorded, so the loan you've got now should be fine for you. It's no coincidence lenders are adding call features to more and more loans, to give them a bail out clause should they decide to. But if you don't have such a clause, as long as you keep making all your payments on time, keep the insurance and property taxes up, keep using the property for a principal residence for the requisite time and all that, they can't force you to do anything. The lender can offer you incentives, as lenders did back in the late seventies and early eighties, such as offering you a reduced payoff if you'll refinance or sell, but they can't force you to do anything as long as you continue to hold up your end of the bargain. The time for them to talk about qualifications is before the loan is funded and recorded. Afterwards, they can't do anything about it, any more than they can do something if values drop (which is one reason why many lenders would really like to be let off the hook - unfortunately other lenders don't want to go onto the hook), if you lose your job, if you decide to change lines of work, etcetera. The qualification process is not open-ended.

There is one more way the lender can get out of it. If you committed fraud or perjury during the loan qualification process, and they gave you the loan based upon those false representations. Having a loan called is no fun. There's a reason I keep telling people to tell the truth, the whole truth, and nothing but the truth in loan paperwork. In addition to possible criminal charges, you'll have between 7 and 30 days to get the money somewhere when your loan is called for this reason. If the rate is higher, if the closing costs are huge, even if you can't get that loan, it's not the lender's problem. They are within their rights if you misrepresented yourself in a material way.

What they're likely trying to do in this case, where you haven't told me of such a reason, is stampede you into refinancing, since without PMI they can't sell your loan on the secondary market. Unfortunately for them, they're stuck at this point unless you let them off the hook, and they'll have to hold your loan themselves and hope you don't default.

There's a fair amount of this sort of thing going on right now, as the lenders that gave out 'warm body' loans suddenly realize the consequences. Don't draw any lines in the sand without talking to a lawyer first, but if I understand your situation, they can't force you to refinance or anything. It's more than a little slimy of them to do this, of course. But a certain percentage of borrowers will panic and do something they don't need to.

Caveat Emptor

Original article here