Author: jessieknadler

The common stereotype of someone being evicted or foreclosed on is a deadbeat loser. And there are plenty of shady renters and homeowners out there. But if the housing bust taught us one thing, it’s that plenty of normal, non-deadbeat Americans found themselves facing eviction or foreclosure after they’d lost their jobs, seen the value of their homes plummet, or didn’t read the fine print on a lease or mortgage.

In such a situation, renters and homeowners have two options: fight or flight. Battle the landlord or bank or quietly pack your bags and disappear into the night. There is a third option as well: stall for time. Dragging your feet is a perfectly legal way to stay put—and in some cases, live for free until you figure out your next move.

In the case of a renter, an eviction can only happen if the tenant is in default of the lease, the most common example being either not paying the rent or consistently paying it late. In such a situation, the landlord issues a “pay or quit” notice, which in the state of Virginia gives the tenant five days to either pay the rent or vacate the premises. If the tenant fails to pay up within five days, a court date is set. It’s here when most tenants make a mistake—they fail to show up in court, thinking they are buying themselves time. In fact, this only speeds up the eviction process.

“If the tenant does not show up and prove he paid the rent, he’s out of there within three days,” says real estate attorney Bill Tucker. The best thing a tenant can do, Tucker says, is make the court date and dispute the case. “A smart tenant will demand strict proof that he’s in violation of the lease,” says Tucker. This is not always easy for a landlord to do, particularly one who is relatively new and inexperienced. The lease itself might be vague on details. And if the landlord (plaintiff) cannot prove the tenant (defendant) is in violation, the judge may rule in favor of the tenant, case closed. If the judge rules in favor of the landlord, the tenant is still granted a 10-day appeal period during which he can further bolster his case or scramble for funds.

In the case of a foreclosure, Tucker “absolutely advises distressed homeowners to delay the process for a reasonable amount of time.” He refers specifically to an arrangement known as “cash for keys.” In an attempt to persuade distressed homeowners to vacate the home without stripping it down to the floorboards—an all too common practice during a foreclosure—banks offer homeowners cash to get out in a timely fashion.

Tucker advises not moving out until such an offer is made.

“I had a client who was being foreclosed upon,” he says. “I advised him to not move out until the bank became aggressive, which they never did. After eight months of such stalling, the bank eventually became so frustrated they offered him $3,000 to move out within 30 days. He accepted the offer and moved out but got to live for free for those eight months and it was all perfectly legal.”

Another perfectly legal stall tactic is to demand the bank produce the note proving they are the legal owner of the mortgage. During the boom years, it was common practice to transfer notes from one pool of mortgages to another, making for confusing if not outright slippery paperwork —particularly in light of the “robosigning” scandal, in which foreclosure-mill employees signed thousands of loan documents without reading them. “Even if the bank does own the note, it can take weeks to produce,” says Tucker.

Stalling for time might come across as unseemly to some, but given that so many “normal” Americans got caught short in the housing bust of the last few years, distressed renters and homeowners are wise to exploit every legal loophole they can.

The dream scenario for most buyers these days is finding a foreclosure or short sale property. The fantasy is this: The buyer makes a lowball offer on a house that’s upside down in value—that is, worth less than the value of the original loan—figuring the bank is eager to cut its losses and unload the property as quickly as possible, wait a few weeks for the offer to be accepted, then move in.

Except it rarely works like that. More often than not, that initial thrill of finding a sweet deal on a property fades as buyers are forced to wait between four and six months to find out whether the bank is even considering the offer, let alone approving it. And it’s an equally long, nerve-wracking process for sellers too. Compared to non-distressed real estate transactions, which typically takes 30 days, six months is an eternity.

What’s the holdup?

To understand why short sales take so long, it helps to understand what a short sale is—it’s essentially a request to a bank to take a loss on a property loan.

How it works: The homeowner initiates the short sale after determining they are “under water”—meaning, the property is worth less than what is owed on it—with the loan. They approach the lender, who has one of three options for dealing with the situation.

Number one, the lender may try to work with the homeowner to help them stay in their home (and keep paying the monthly mortgage). “The owner may be engaged in some kind of modification effort,” says Vickee Adams, a spokesperson for Wells Fargo Home Mortgage. “They may be trying to find a new job. They’re doing everything possible to stay in their home, so we try to work with them.” The bank may even forgive the debt difference between what is owed and what the house eventually sells for—if the numbers are comparable.

Number two, the lender may work out a payment plan with the homeowner until the difference is paid off. Or number three, the lender/bank places a lien on some of the homeowner’s assets for the amount of money still owed. Each case is unique and different. Each one takes time. But in all cases, the bank typically puts this transaction at the bottom of its to-do list since (understandably) it doesn’t want to lose money on its investment.
Another issue slowing the process is whether there is a second lien on the home, typically a home equity line of credit, or HELOC. Since the lender is already being asked to take a hit, it is reluctant to give much to the second lien holder. A typical scenario is the secondary lender requests a settlement of 10 percent on the loan amount. Let’s say it was for $50,000, so it wants $5,000. But the primary lender, already feeling the burn, is only willing to pay $3,000. Both sides draw a line in the sand, slowing if not halting the process altogether.

Then there is the complexity of the loans themselves. Short sales are usually handled by a bank’s loss mitigation department, which is already bogged down with a backlog of similar proposals due to the housing bubble gone sour—every prospective buyer is looking for a foreclosure or short sale house these days and expects to pay bargain basement prices. It can take months for an already taxed department to carefully evaluate each proposal and examine the property and do the research on the neighborhood in question, as well as finding out if the seller really can’t make the monthly payments.

Bottom line, most banks don’t want to act because they’re being asked to lose money; they end up sitting on offers for as long as possible in the hope that a better one comes in.
But it’s a catch-22, because usually in a short sale, the homeowner leaves the house intact. If the house slips into foreclosure, it’s not uncommon for homeowners, humiliated by the turn of events and angry at the lender for dragging their feet, to strip the house—cabinets, light fixtures, doors, free standing fireplaces—right down to the baseboards, thus causing the bank even more grief than if it had been handled as a short sale.

Now the bank is forced to list the property for even less than its already discounted value, because—even if it’s a bargain—not many prospective homebuyers are enthusiastic about buying a gutted house.

 In a rough housing economy in which homeowners have to routinely lower their asking prices to sell their homes, it’s logical for a seller to want to save money wherever possible, making the For Sale By Owner property seem like a good idea.

A For Sale by Owner (FSBO) is exactly what it sounds like: Sellers try to sell their homes themselves without using a real estate agent, saving themselves thousands of dollars in real estate commission fees, usually 5 to 8 percent of the price of the home.

(File photo)

FSBO homes can be a good idea in certain situations, which we’ll get to in a minute. But it has a few drawbacks that may, ironically, end up costing the seller much more than the savings on commission fees.

The biggest, most practical downside of a FSBO is one of reach. Some 80 percent of homeowners work with real estate agents who bring with them a network of potential buyers through MLS, or multiple listing service. MLS is an online database of available properties on which only sellers working with brokers and agents can advertise their properties. Sellers don’t have to list their properties on MLS. They can advertise their homes in the newspaper, in a sign staked out in the front yard, on Craigs list, or FSBO specific websites, like gotofsbo. com. But not using MLS is a little like having a website that can’t be accessed via Goo-gle—expect less traffic. FSBO sellers limit themselves to roughly 20 percent of available buyers in a given market—slim pickings.

The other drawback to a FSBO sale is one of experience. How many sellers really know how to negotiate a real estate transaction? Selling a home is rarely if ever a simple process of agreeing upon a price, then depositing the check. Sellers or their agents are required to draw up a buy-sell agreement, as well as arrange for all inspections and remediation, such as checking for mold, contaminated water, radon and other potentially hazardous substances. Also, what kind of transaction is it? A short sale, owner financing, family transfer, veteran affairs, rural development? Different paperwork with different terms and conditions are required for each type of sale. The FSBO seller will still have to hire an attorney for any legal documents that need to be drawn up.

A real estate agent can also protect sellers down the line. Let’s say the seller, owing to inexperience, didn’t file the right paperwork or made a mistake with the inspections. A year later, the new owner discovers contaminated well water, and sues the previous owner for damages. Had the seller sought the representation of an agent, it’s less likely such a mistake would have been made, and if it had, the seller would have been protected by the agent’s errors and omissions coverage. Errors and omissions is a form of liability insurance that protects the agent—and his or her client —from a negligence claim.

An agent can also help save money at closing. For instance, an experienced buyer may finagle a FSBO seller to pay more of the closing costs, or title company fees that are typically split, or arrange for a move-in date prior to closing that’s rent free; all perfectly legal negotiations that less experienced sellers might not realize they can contest.

FSBO is recommended for sellers who know what they’re doing, who’ve been around the block, know housing data such as square footage and zoning details and are good negotiators. It’s also a great choice for sellers who come with their own buyer, since half the agent’s job is finding someone to make the offer in the first place—no easy task in a tough buyer’s market like this.

A new service has popped up that takes advantage of the current climate. If a seller finds her own buyer, thereby freeing the agent from the marketing of the property (taking photos, disseminating the listing on websites), the agent will still handle the nuts and bolts of the transaction—arranging for all inspections, filling out paperwork, etc.—usually for a flat fee that averages around $2,000. This allows the seller to save thousands in commission fees and to rest easy knowing the sale of her home has been handled by a pro.

Sky-high student loans, a sluggish job market, inflated health care costs, and diminished retirement savings —it’s no wonder multiple generations of families are deciding to cut costs by moving under one roof.

More than 51.4 million Americans—roughly one in six—have moved in with family, representing a 10 percent increase in this type of living arrangement since the start of the Great Recession in 2007, according to a new study by Generations United, an intergenerational advocacy group.

Young adults unable to find work and/or pay student loans move back in with their parents. Or retirees whose nest eggs took a hit during the market collapse, or who can’t afford assisted living, move back in with their children. Or both.

According to the report, 66 percent of adults say the current economic climate was a factor in their decision to combine households, while 21 percent reported that it was the only factor.

While there are certainly benefits to this type of living arrangement—help with chores, bills, childcare and/or older adult care, not to mention lively family dinners featuring grandma’s cooking—there are stresses as well, particularly if the dwelling is too small or ill-equipped to accommodate multiple families, leading some to speculate that multigenerational housing could be the next big thing in construction.

While there aren’t plans yet for a multigenerational housing development in the Charlottesville area, Roy Wheeler Realty CEO and managing broker Michael Guthrie says this sort of living arrangement is a growing topic of conversation among clients. “I certainly know people with adult children who’ve moved back in,” he said. “I’ve heard couples say, ‘Mom and dad could be living with us in a few years.’”

A dominant feature of a multigenerational home is what Guthrie calls the “mother-in-law” suite—a detached (such as a cottage out back) or attached (an addition onto the existing home) living area that ideally comes with its own entrance, bathroom and kitchenette, so different generations can retain a sense of privacy.

Zoning can create obstacles, so it’s important to understand local covenants and neighborhood restrictions before embarking on new construction. If the plan is to build a semi-separate living area intended for grandparents, not paying tenants, it typically qualifies as a routine addition, and should carry with it no special zoning restrictions. However, if the plan is to rent it out to before or after it’s occupied by family, then it may fall under a different zoning category—specifically, it becomes “attached housing” (a duplex) in a “residential detached” only neighborhood …. an arrangement that won’t exactly fly.

Another important consideration, Guthrie adds, is parking. “Is everyone going to park their cars on the street, or do you have to build an addition onto the garage?”

Despite the hassles, despite being called a trend, multigenerational housing can be viewed as a return to square one. “This is the way Americans used to live,” says Guthrie. “Families could only afford one place. The economy is changing what we think about nuclear families. Some may see it as weird, but it used to be normal.”—Jessie Knadler

 It seems like only yesterday that losing your job and missing a bunch of mortgage payments meant you were one step closer to homelessness. Not anymore.  

Likely beginning this month, homeowners who have experienced a substantial loss of income due to layoffs and cut-backs, as well as those who’ve suffered a medical condition, and have missed at least three mortgage payments in a row, are eligible to apply for an interest-free government loan for up to $50,000 to cover their mortgage for as long as two years.  

The program is part of the Dodd-Frank Wall Street Reform and Consumer Protection Act, signed into law by President Obama in July, that authorizes the Department of Housing and Urban Development (HUD) to administer a $1 billion Emergency Homeowners Loan Program to struggling homeowners across the country. HUD will provide $46,627,889 to help homeowners in Virginia, specifically. This number is based on Virginia’s approximate share of unemployed homeowners with a mortgage relative to all unemployed, mortgage-holding homeowners in the nation.

The loan allows borrowers to pay their mortgage and other related bills, such as mortgage interest, mortgage insurance premiums, taxes and hazard insurance. 

To be eligible, borrowers must be able to prove past income and show at least a 15 percent drop in income due to a layoff, wage cut or a medical condition. They must be at least 90 days late in their monthly payments and be able to show proof of a good payment history (i.e. they could afford the monthly payments at one point) prior to the event that triggered the reduction in income. The property must be the primary residence and eligible borrowers cannot own a second home. Finally, they must show a “reasonable likelihood” of being able to repay the loan after two years. 

The most intriguing part: If the borrower stays current with monthly payments once the loan is secured and maintains the property as the primary residence for five years, the balance of the HUD loan is waived. 

But beware—there are a few events that would trigger HUD to seek repayment of the emergency loan through a lien on the property: 

• The property isn’t the primary residence  

• The homeowner defaults on his or her portion of the current mortgage

• The homeowner sells or refinances debt on the home

For more information, visit www.hud.gov.—Jessie Knadler

Wouldn’t it be great to use some of the cash tied up in your monthly mortgage payment for other purposes, such as investing in a child’s college fund, or saving for that long-awaited addition to your house? 

There is a way to do this without having to go through the rigmarole of refinancing, which often includes hefty processing and appraisal fees or expensive private mortgage insurance. It’s called recasting or re-amortizing a mortgage, and it’s a way to free up cash by lowering the monthly payment on an existing fixed-rate loan for a small fee, without having to apply for a new loan. Recasting is not commonly advertised by lenders because the business of refinancing can be so much more lucrative. With recasting, the interest rate and number of payments stay the same, but the monthly payment itself is reduced.   

How it works: A homeowner puts a large sum of money toward the outstanding principal on the mortgage. Ordinarily, doing so would enable the homeowner to pay off the mortgage early but the amount of the monthly payment wouldn’t change. She writes to her lender and asks for permission to recast the loan. This usually involves a fee, anywhere from $150 to $500. Once approved, her monthly payments drop; she’s able to keep more of her money in her pocket and potentially save on interest over the life of the loan.  

An example provided by Matt Hodges, loan officer and owner of Compass Home Loans: A homeowner has a windfall of $50,000. She decides to use that money to pay down her  $200,000 mortgage with a 5 percent interest rate, 30-year term, for which she’s been paying $1,074 a month —including principal and interest—for the past five years.  “There’s approximately $48,000 in ‘sunk’ interest already paid and approximately $138,000 in interest to be paid over the next 25 years,” he says. “By recasting the loan, she’s able to lower her monthly payments to approximately $787, saving $287 per month and approximately $37,000 in interest over the life of the loan.”    

“Recasting is a good option for people who have cash but want or need to reduce monthly payments,” says Hodges—“such as folks living on fixed incomes or people who’ve just been laid off and need to trim monthly spending.”  It’s also a good option for people who can’t refinance due to recent tighter lending regulations. 

Recasting can also be a worthwhile investment vehicle—$37,000 in saved interest over the life of the loan isn’t chump change—especially if the homeowner invests the saved $287/month in the financial markets, certificates of deposit or U.S. Treasury bills. 

Sounds good, right? 

The main glitch, of course, is having a chunk of cash available to pay down the loan in the first place. 

A few other roadblocks: The lender may not approve the request to recast. “Many times the lender will not allow recasting until one year’s worth of payments have been received,” says Hodges. “There can be no late payments in the last year.”  

There are tax considerations as well, since mortgage interest on a primary residence can be tax-deductible.   

Before you ask to recast, talk to a financial advisor or an accountant to find out if this is the best use of your money. They may determine that in this market, you’ll have a higher rate of return over the long haul by investing that chunk of cash in something other than your home.—Jessie Knadler

 During the housing boom, sellers spent big on luxe touches like granite countertops, spa bathrooms and walk-in closets—splurges meant to increase the value of a home.  

These days, such luxuries are bringing lower returns than they once did. What’s to blame? A glut of new homes on the market, tighter lending and appraisal restrictions and buyers choosing to stay where they are.

Now, in the slower housing market, it’s all about price, and the most prudent home projects are those that emphasize cash over flash—improvements and small renovations designed to save owners money on energy and maintenance expenses, or modestly increase usable space—such as converting unused attic space into a guest bedroom or office. 

In other words, if you’re thinking about selling your home within a year, forget major remodeling, advises real estate agent Pam Dent of Better Homes and Gardens Real Estate III. “You’ll end up spending more money than you recoup.”

Part of the issue, she says, is that buyers already know what’s out there. “Most of my clients search MLS within a specific price point before they come to me. They already know what houses they want to see. If a home has a lot more features—tile versus formica, fancy appliances, a breakfast bar —than others within that price point, the former will sell first but those nice amenities won’t necessarily boost the price. It just means that house is the one that’s picked in a very competitive market.”

Industry professionals such as Dent are touting exterior replacement projects—sprucing up a home’s curb appeal—as among the most cost-effective improvements to make to a house right now. Not only does an attractive façade lure prospective buyers, but replacements are among the least expensive projects to take on, according to Remodeling Magazine’s 2009-2010 Annual Cost vs. Value Report, which compiles a list of home improvement projects, organized by region, that command the most bang for a seller’s buck. Among the least cost-effective improvements? Additions of any kind (new master suite, new bathroom), particularly in the upscale category.

Here are Remodeling Magazine’s top five most cost-effective improvements to make to a house in the South Atlantic region this year.

New front door (steel)
Job cost: $1,172
Resale value: $1,470
Cost recouped: 128.9 percent
Not only does installing a new front door reap the highest payback, but it’s among the least expensive home improvement projects out there. Steel provides better insulation than wood or vinyl, so it reduces energy bills and makes a nicer first impression.

Fiber-cement siding replacement
Job cost: $13,287
Resale value: $11,112
Cost recouped: 83.6 percent
Fiber-cement siding is thicker and denser than standard vinyl siding, giving it excellent impact resistance, and requires very little maintenance once installed and painted. “It gives a home a more quality look,” says Dent. “Fiber cement siding is increasingly common in nicer neighborhoods.” And unlike wood, it’s not susceptible to termites or rot.

Attic bedroom
Job cost: $49,346
Resale value: $40,992
Cost recouped: 83.1 percent
Although turning unused attic space into a guest bedroom with bathroom is by far the most expensive improvement on the list, it means the seller can list the property as a four-bedroom home rather than three, for example, bumping the price accordingly, and allowing sellers to draw from a bigger pool of buyers. The additional usable space sets a house apart from similar houses in the neighborhood.

Wood deck
Job cost: $10,634
Resale value: $8,573
Cost recouped: 80.6 percent
Decks inexpensively add square footage to the home and bring hours of outdoor enjoyment.

Vinyl siding replacement
Job cost: $10,607
Resale value: $8,476
Cost recouped: 79.9 percent
Although not as posh as fiber-cement siding, vinyl siding is a relatively inexpensive way to freshen up the exterior of a home.

Least cost effective improvements to make:

Home office remodel
Cost recouped: 48.1 percent

Sunroom addition
Cost recouped: 50.7 percent

Upscale master suite addition
Cost recouped: 55.7 percent

Upscale garage addition
Cost recouped: 55.9 percent

Upscale bathroom addition
Cost recouped: 57.9 percent

 

 First the bad news: Whether a bankruptcy, foreclosure or a deed in lieu of foreclosure, there’s no easy fix for repairing major credit issues. “Often nothing more than time will heal the process,” says loan officer Matt Hodges, owner of Compass Home Loans. The length of time differs depending on how cataclysmic the credit nosedive is. But rest assured, it will be a few years before you can fill out an application for a new mortgage.

Now the good news: A person with poor credit can still get a mortgage, assuming enough time has passed—especially right now, when so many Americans are in a similar boat. In fact, one in every 397 U.S. housing units received a foreclosure filing during the month of July, according to RealtyTrac. Foreclosure filings—default notices, scheduled auctions and bank repossessions—were reported on 325,229 properties in July, a nearly 4 percent increase from the previous month but a decrease of nearly 10 percent from July 2009.   

The most important thing is to show potential lenders that your financial woes are an anomaly, based largely on circumstances beyond your control—you got caught up in a housing bubble hastened by freewheeling lending practices—not a history of reckless spending.  

Begin by requesting a copy of your credit report from the three nationwide credit reporting companies Equifax, Trans Union and Experian, which operate under one website, annualcreditreport.com, from which you can order one free copy of your report per year. Scour the report for inaccuracies (you may have been the victim of a one-day identity theft shopping spree to Barracks Road and not know it), and try to correct them as quickly as possible.  (Refer to the Federal Trade Commission website for how to dispute credit report errors.) In the meantime, pay off any outstanding bills that you can.

Ask your lender if they can “rapidly rescore” your credit report, Hodges recommends. A rapid (or quick) rescore is not open to everyone, only those whose credit scores are in the low 700s—the borderline risky range. A rescore allows the lender to see what specific debts or outstanding bills the borrower could quickly pay off with existing cash, in order to bump the score to a number high enough to secure financing.

Don’t make too many inquiries when shopping for a mortgage, advises Hodges. Too many pulled reports can result in a lowered score. He suggests interviewing several lenders before settling on the one you want to work with. “Only after that process is complete should you have that lender pull your credit, to minimize the possibility of a lowered score.” 

It’s also worth pointing out that a computer, not a human, ultimately decides whether you’re loan-worthy or not. It’s called an automated underwriting (AU) machine, and it crunches credit, income, assets and collateral to determine the probability of the bank getting its money back. “Without the minimum threshold that either Freddie Mac or Fannie Mae require, a human underwriter will not consider your request for approval,” says Hodges. However, they may consider compensating factors, such as reserves in the bank and good job history, so come armed with documents that support this.

Lastly, if you do get approved for a mortgage with less than wonderful credit, don’t buy anything major prior to closing. “Fannie Mae passed a new rule mandating that a ‘soft’ credit pull must occur within three days of closing to determine if the borrower has been granted new credit—a new car loan, credit card debt,” says Hodges. “New debt may push one’s ratio too high for approval and will thus stop the closing from occurring.”