Chicago Real Estate Lawyer - Rachell M. Horbenko

Thursday, January 12, 2012

Mortgage Rates Hit Record Lows - Again

From Chicago MarketWatch:

CHICAGO (MarketWatch) — Mortgage rates dropped to record lows this week, with 30-year fixed-rate mortgages falling to 3.89%, its sixth week below the 4% mark, according to Freddie Mac’s weekly survey of conforming mortgage rates.

The mortgage averaged 3.91% last week and 4.71% a year ago.

Rates on 15-year fixed-rate mortgages averaged 3.16% for the week ending Jan. 12, down from 3.23% last week and 4.08% a year ago.

Adjustable-rate mortgages also dropped, with 5-year Treasury-indexed hybrid ARMs averaging 2.82%, down from 2.86% last week and 3.72% a year ago, according to the survey. One-year Treasury-indexed ARMs averaged 2.76%, down from 2.8% last week and 3.23% a year ago.

To obtain the rates, 30-year mortgages and 5-year ARMs required payment of an average 0.7 point, 15-year fixed-rate mortgages required an average 0.8 point and 1-year ARMs required an average 0.6 point. A point is 1% of the mortgage amount, charged as prepaid interest.

“Although the economy added 1.6 million jobs in 2011, which was the most since 2006, the unemployment rate remained historically elevated. The 2009 to 2011 period had the highest three-year average unemployment rate since 1939 to 1941,” he said. The government’s official jobless rate for December was 8.5%.

Nothaft also pointed to the Federal Reserve’s regional economic review known as the Beige Book, released Wednesday. It indicated most industries “saw limited permanent hiring at the end of last year,” he said.

For more, click here.

11:55 am cst

Monday, December 5, 2011

When Renting Out Your Home Makes Sense

Chicago Tribune's latest real estate article that I found interesting:

It takes a leap of faith, not to mention a little investment in time and money, but the idea of renting your home to strangers is catching on.

People are coming to town for the holidays or on vacation or to visit their kid in a college near you. Why not open your doors to pick up some extra cash?

"We have had many great experiences renting our home for the summer months," said Michelle, a real estate agent who rents out her primary residence, located in Maine, every summer and lives with family and friends while her place is rented. She asked that her last name not be used.

For her, the decision was financial.

"At first we were very apprehensive about renting out the house," she said. "Believe me, it was not an easy decision to allow strangers to come in our home a week at a time. However, financially we had no other options. … The (rental) money allowed us to pay the mortgage."

"(The rental website) HomeAway sponsors a survey every year, and the most recent said, on average, people who make their vacation property available for rent take in between $30,000 and $35,000 a year," said Emily Glossbrenner, a rental expert (www.fullybookedrentals.com) who wrote "How to Make Your Vacation Property Work for You!" (FireCrystal Communications) and rents out her second home, a one-bedroom riverfront cottage in Bucks County, Pa.

HomeAway is one of several sites that match property owners with potential renters: VRBO, Wimdu and airbnb are among the others. The growing popularity of the idea can be seen in numbers from HomeAway Inc.'s network of online vacation rentals. The websites' global listing count at the end of 2008 was 338,396. A year later, it was 433,295, and 2010 ended with 527,535 listings. As of early November, the number was more than 625,000.

So the money and demand are there. But before you take the plunge, follow this advice:

Do your homework. Go to rental websites and scout the competition. See what amenities are offered, how the property is decorated and what the asking price is.

Is your property something that people want to come to? Beach cottages, summer cabins, even a condo in the heart of a big city will draw people. A two-bedroom ranch in Kansas or a tiny apartment in rural Kentucky might not be as desirable.

Even if you live well outside a big city, you may have something people want.

"If someone has a house 35 miles or more outside a city, I would encourage them to rent anyway," Michelle said. "Lots of people prefer to be a little bit away from all of the summer crowds and traffic.

"For the holidays, someone close to you may have a large family (visiting) that they do not have the room for, and your house may be just what they are looking for."

Legal considerations. Let your insurance company know you're going to be offering your place as a rental and be sure you have the proper liability coverage and damage insurance.

Are there any local regulations or homeowner association rules that prohibit renting out your home? Just because the neighbors do it doesn't mean it's legal. Also, you may be required to collect state and county occupancy taxes.

Depersonalize. Suppose you're going to rent to a party of 10 for a week.

"They're going to expect to be able to hang their clothes in the closet; they're going to look for empty drawers," Glossbrenner said. "Living out of a suitcase doesn't cut it in today's world. People expect dresser tops they can put things on; bathroom vanities for their things."

"We had to depersonalize the house," Michelle said. "Took out all the kids' pictures and little knickknacks and things that had personal meaning for us. We made space in the basement for all the extra stuff that we move out every year. We have streamlined the process and can do most of the changeover from our house to others' in a day or so."

Appliances don't have to be top of the line with all the bells and whistles — most guests won't be able to decipher a high-tech coffee maker anyway — but they have to do what they're supposed to do and operate efficiently.

Other things travelers appreciate: flat-screen TVs, quality sheets and towels, fans, an ironing board, lawn furniture and a work space for using a laptop or writing.

12:46 pm cst

Tuesday, November 15, 2011

A Special Saturday - a Civil Union and a Wall Street Journal Mention

This past Saturday I had the pleasure of attending a civil union ceremony for some very dear friends who have been together for almost 18 years. The two ladies had had a commitment ceremony many years ago, but now, finally, they were able to make it "legal" in the State of Illinois. I was happy to be part of such a special day.

I also had a mention in the Wall Street Journal for an article they ran over the weekend about nightmares in landlording. The article is printed below and can be seen if you click here.

The pitch is compelling: Buy a vacant house or apartment building and rent it out to some of the throngs of Americans who have lost their homes to foreclosure. With interest rates near record lows and property values still slumping, getting into the landlord business is cheaper than it has been in years.

Investors turned off by paltry bond yields and the mercurial stock market are intrigued. Kimberly Foss, president of Empyrion Wealth Management in Roseville, Calif., says she has seen a surge of clients looking to purchase distressed homes and apartment buildings. Her clients have an average net worth of about $4 million, she says.

U.S. home prices inched 0.2% higher in August, according to a closely watched index released Tuesday. That prompted one economist to see a "modest glimmer of hope" for the downtrodden housing market. Mitra Kalita has details on The News Hub.

"Many of my clients are looking to use part of their portfolios to scoop up properties," she says. "They see it as an alternative retirement plan."

But aspiring property owners need to watch out for a slew of traps. Among them: prolonged vacancies, surprise costs, deadbeat tenants, difficulty refinancing and overestimating the rental potential.

It is easy to overlook those risks when the market conditions appear so ripe. Home prices have fallen to 2002 levels nationwide, according to the latest data from the S&P/Case-Shiller index, and financing remains cheap. For the week ending Nov. 10, the average rate on a 30-year fixed-rate loan was 3.99%, not far from the Oct. 6 record low of 3.94%, according to Freddie Mac data going back to 1971.

Rents are improving, too. The average monthly rent for all categories, including apartments and single-family homes, was $846 nationwide in the third quarter, up 2.5% from the same period a year earlier, according to Local Market Monitor, a Cary, N.C., firm that analyzes real-estate trends. That is lower than the long-term average gain of 3.5% a year, but better than the 3% decline in calendar year 2009.

photo illustration byJeffery Mangiat

Even the Obama administration is considering getting involved in the rental markets. Government officials have been soliciting ideas for how to convert some of the foreclosed homes owned by Fannie Mae and Freddie Mac into rentals, in order to cut the mortgage giants' losses on those homes.

All of this is attracting interest among investors. Brian Davis, who runs ezLandlordForms.com, a website for property investors, says traffic is up 20% this year.

"Most people think I'm crazy to buy now," says Jason Walker, a marketing director in Washington. But the numbers were too good to pass up, he says. Mr. Walker is closing this week on a town house in Baltimore, for which he paid $275,000. He says he put down 20% of the purchase price, locked in a 4.5% rate on a 30-year fixed mortgage and expects to net $1,000 a month in profit.

Here is what you need to know before taking the plunge.

Cheaper homes aren't always a good investment. Even if a property is selling for half the price it fetched during the boom, that doesn't mean it will generate enough income to make the deal pay off, says Wayne Copelin, a financial planner in Sugar Land, Texas.

The key is to figure out how much rental income the property will generate. A good rule of thumb: Make a deal only if you can collect at least 1.25% of the purchase price each year in rental income, says Jason Reed, a real-estate agent in St. Paul, Minn., who works exclusively with investors.

Determining the rental potential can be tricky. Some properties already have been rented out, and the owner can furnish records. Others have no rental history.

One way to examine the rental market is to use websites like FinestExpert.com, which tracks occupancy rates and rents across the country.

In certain sweet spots, rents are rising even as home prices fall. Take Nashville, Tenn., where rents have jumped 6% over the past 18 months, while home prices have dropped 3%, according to Local Market Monitor. Other markets where that is happening: El Paso, Texas; Houston; Omaha, Neb.; Raleigh, N.C.; Pittsburgh; and Washington.

Markets in areas that have been battered by foreclosures, such as Las Vegas and Phoenix, remain unstable. They might have low prices, but they also are suffering from high unemployment. That could leave aspiring landlords with empty homes, which then could fall even further in value, according to Local Market Monitor President Ingo Winzer.

Local Market Monitor cites Austin, Texas; Akron, Ohio; and Dallas as among the most attractive markets overall, and calls Detroit, Las Vegas and West Palm Beach, Fla., "dangerous."

When looking at properties, act like a renter, says Jeff Cronrod, president of the Boulder, Colo.-based American Apartment Owners Association. Tour the neighborhood to see if landlords seem desperate to lure tenants. Are there lots of vacancies? Are buildings offering deals like living rent free for a couple of months in order to drive up demand? If so, be wary, Mr. Cronrod says.

Carrying costs add up. Another pitfall for real-estate investors: not accounting for unexpected expenses.

Besides closing costs, which generally average between 3% and 6% of the purchase price, general maintenance expenses like taxes, insurance and repairs can be much higher than many investors expect, says Jason Post, president of Los Angeles based Post Investment Group, a boutique real-estate investment firm that buys and operates apartment buildings.

You should allot roughly $2,000 a year for insurance, taxes and any association fees for neighborhood pools and the like, Mr. Reed says. To ensure that a major repair doesn't break you, set aside at least six months' worth of expected rent, he says.

"You can't even fathom some of these strange costs," says Jerry Garretty, who runs a property-management firm in San Jose, Calif. Six months ago, Mr. Garretty says, he found a nasty surprise after overseeing the eviction of tenants who were three months behind on rent in a Cupertino, Calif., home: They had poured quick-drying cement into the sewer pipes—a $1,000 repair—and defaced the walls with graffiti scrawls, he says.

Jumps in property insurance premiums also can dent your investment profits, says Jason Holtz, a real-estate lawyer with Kevin Jursinski & Associates in Fort Myers, Fla. This is particularly common in states like Florida that are prone to tropical storms.

Kathleen Farmakidis, owner of a three-unit apartment building in Winter Haven, Fla., says she has seen her property insurance jump 50% this year, to $110 a month.

Venturing far from home can be dicey. It is a good idea to buy rental properties only in your immediate geographical area, Mr. Cronrod says. Although it might be tempting to venture far from where you live for better deals, those properties can be difficult to manage.

As an owner, you need to be ready to repair leaky faucets, collapsed roofs and all other middle-of-the-night disasters—or pay someone to do it.

Hiring a local property manager can help. Such managers perform maintenance, collect rent and even screen tenants. But they typically charge 8% to 10% of the annual rent for their services.

And some are much better than others. Michael Epstein bought a single-family home in Pompano Beach, Fla., in 2009 even though he lived more than an hour's drive away in Jupiter and the house needed work.

Mr. Epstein, a small-business owner, hired a property manager to rehab the house, which he scooped up at a foreclosure sale, and maintain it. But because Mr. Epstein didn't visit often, it took him months to discover the manager hadn't been overseeing construction and that the work was botched. He had to spend an additional $40,000 to bring the property up to building codes.

"That was a risk I didn't even factor in," Mr. Epstein says.

It pays to plan conservatively. Don't assume you will be able to attract renters immediately. If a neighborhood is littered with foreclosures, those properties aren't going to be any more attractive to would-be renters than they are to buyers, says Jim Evans, president of real-estate investment firm Bruce G. Pollack & Associates and president of the nonprofit Institute of Real Estate Management.

The best tactic, say financial advisers, is to build in a cushion. Assume you need at least three months to find a tenant, and keep that much cash in reserve.

John Interdonato wishes he had foreseen the dry spell he would suffer after buying an investment property in Cape Coral, Fla., for $280,000 in 2005. The electrical engineer planned to rent it out for enough to cover the $2,200 mortgage payments. But after the property sat empty for more than a year, starting in 2009, Mr. Interdonato fell behind.

Last December, after having sunk 50% of his savings into the property, he was forced to sell.

"It felt like I was staring down the barrel of a shotgun," he says.

Refinancing can be difficult. With interest rates so low, many homeowners have been able to refinance their mortgages recently. But lenders are reluctant to take on refinances of investment properties, says Matt Englett, a real-estate lawyer in Orlando, Fla.

Banks view such owners as more of a risk, he says, because they can walk away from the property more easily than owners of primary residences can.

Mark Cheplowitz, the owner of an international event-planning firm in Aurora, Ohio, says he is losing roughly $24,000 a year on two properties in Collier County, Fla. Last week, a lender declined his applications to refinance the mortgages.

Mr. Cheplowitz says he despairs whenever he flies down to check on the properties.

"Here I am, staying in a crappy motel," he says, "as tenants live in these beautiful carriage houses I am losing money on."

Screen tenants with care. Renting out your property to unreliable people can be a costly mistake. Eviction proceedings can take months, and owners can't rent out the property until the eviction is final.

Chris Ourand, a chief marketing officer for a technology company, says he battled for nearly 10 months to evict a tenant who had stopped paying rent in February on a four-bedroom town house in Arnold, Md.

Mr. Ourand, who lives in nearby Severna Park, says he trekked to court three times to get the tenant to pay up. In October, he says, he was able to oust the delinquent tenant, whom he says trashed the place.

Mr. Ourand says the ordeal cost him roughly a third of his annual investment income on the property. "This is the worst experience with investment properties I have ever been through," he says. "It was a nightmare."

Even tenants with clean credit can turn out to be unsavory. Attorney Rachell Horbenko says she had to boot tenants from her Chicago building after waking up in the middle of the night to the smell of marijuana. The tenants were consuming so much, she says, that the smoke had seeped into her six-month-old daughter's room.

"The room was cloudy," she says. "I could barely see the crib." The eviction process took more than three months, she says.

12:28 pm cst

Saturday, October 29, 2011

New Scams Targeting Real Estate Lawyers

From the Illinois Bar Journal:

Scammers are using smartphones and apps to steal home-sale proceeds.

In a post on ISBA's online Elder Law Section discussion group, Chicago lawyer Kurt LeVitus recently warned his colleagues of a new fraud targeting lawyers handling real estate transactions. Here's how it works.

At the end of the closing in a lawyer's office, the lawyer hands the seller a check for the sale proceeds. The seller leaves the office, but, a few minutes or a few hours later, returns and asks if the lawyer can wire the money to the seller's bank account instead. The unsuspecting lawyer agrees, whereupon the seller returns the original check. The lawyer then orders the wire transfer from her bank to the seller's account.

Having the check back in her possession, the lawyer cancels or destroys it. It doesn't occur to her to notify her bank to stop payment on it. Unbeknownst to her, though, while the seller still had the check, he photographed it with his smartphone and, using a mobile deposit app, deposited it into his bank account.

A day or so later, the lawyer learns that her account has been debited - twice. The result: the seller, who is impossible to locate, ends up receiving double the proceeds from the lawyer, and the lawyer is left with a large loss and no recourse.

Ronald Trubiana, senior vice-president and chief financial officer of Attorneys' Title Guaranty Fund in Chicago, says a colleague organization in Florida has warned of this fraud. "This scam is very easily done. The scammers don't even have to leave for a couple of hours - they can do it right at the closing table."

If the lawyer acts quickly, there's one possible avenue of recovery, Trubiana says. "The agent could contact the bank and say, 'Kick this check back because we wired the funds.'" That would be a long and involved process, he says, but it could provide a way to recover the money.

The counterfeit-cashier's-check variant

Trubiana warns of a variant fraud in which the purported overseas buyer of a property sends a counterfeit cashier's check, usually drawn on a foreign bank, to the lawyer for deposit in the lawyer's trust account.

"It takes a while for a cashier's check drawn on a foreign bank to work its way through the system," he says. "The fake buyer will send an e-mail asking the lawyer to confirm the deposit, and the lawyer will respond that he has. Then, the buyer will ask that a portion of the funds be wired to a business partner in, say, Japan. The remainder is enough to cover the fees and the initial down payment on the property, so the lawyer will go ahead and wire the funds without checking to make sure that the check actually cleared. About two weeks later, the lawyer finds out that the check was forged."

Banks are required to give depositors access to funds even though the checks have not completely cleared, Trubiana explains. "But when they receive notification that a check is bad, they'll debit your account."

Two of ATG's members in Illinois were swindled by one group of fraudsters perpetrating this scam, Trubiana says. In each case, "the property buyer was [allegedly] from Canada and submitted a phony real estate contract that looked like the real thing. The checks were drawn on Toronto-Dominion Bank in Canada and labeled as cashier's checks. One member lost $95,000; the other lost $280,000."

To add insult to injury, "The second time the group really became bold. They sent the agent an e-mail telling him that he got scammed and gave him a reference to a website that talked about this very fraud." And the agents weren't novices, but experienced and careful lawyers, Trubiana says. (For more about such schemes, see LawPulse, "Beware the Chinese E-Mail Scam" in the October 2009 IBJ.)

The old story: beware e-mail solicitations

Trubiana provides some advice for lawyers on spotting potential fraud. "In how many instances do you get a real estate matter that's been initiated by an e-mail? Multiply that by a factor of one hundred if it's from overseas."

Though the best course of action may be simply to delete the e-mail, if you think the matter might be legitimate, Trubiana recommends, "Send an e-mail back and ask for a phone number so you can contact them. Do your due diligence to ensure that the person is who he says he is and has the matter he says he has."

Trubiana knows of no insurance that will cover losses resulting from the mobile phone check deposit scam. "Once the money leaves the country, there is no chance of recovery." The best response to someone asking to replace a check with a wire transfer is, "Sorry, the transaction is over and I can't do it."

In his post, LeVitus noted that the potential for fraud isn't limited to real estate transactions. "This same type of scam can happen anytime a client is given a check, so be on the lookout."

11:26 am cdt

Tuesday, October 25, 2011

Foreign Buyers Scooping up U.S. Homes

International purchases of American homes are ramping up, and a new Senate bill designed to boost the ailing real-estate market would encourage globe-trotting investors to buy even more.

The bill, co-sponsored by Charles Schumer (D-N.Y.) and Mike Lee (R.-Utah) would grant a U.S. visa to international investors who agree to spend at least $500,000 on residential real estate here.

If passed, the legislation could add to a surge in homebuying by international purchasers over the past year or two that's already given some local U.S. markets a welcome boost.

Foreigners spent $82 billion buying up U.S. homes in the 12 months ended in March, up 24 percent from a year earlier, according to the National Association of Realtors (NAR). That represents 8 percent of total U.S. sales.

In places like South Florida, international buyers already account for a whopping 25 percent of the market. California, Texas and Arizona also attract many foreign buyers, as do Hawaii and New York.

South Florida condo sales have been surprisingly strong, said Brad Hunter, chief economist for Metrostudy, a housing analytics company. "And the majority of those sales are to South Americans and Canadians," he said.

All that international buyer activity has been a tonic for the anemic Florida market. Housing starts were up nearly 20 percent in the three months ended Sept. 30, according to Metrostudy.

In Manhattan, there's been a steady baseline of foreign condo buyers, said Jonathan Miller, CEO of Miller Samuel, a New York appraisal firm. They generally account for about 15 percent of investors, but in recent years, the buyer mix in New York City has shifted, he said.

When the euro was strong in the mid-2000s, buyers from Western Europe -- and particularly Ireland -- dominated.

The Irish "economy was so strong back home -- the 'Celtic Tiger' years -- that many were flush and wanted to invest and take advantage of the spread between currencies," said Miller. "There were marketing groups that would go to Ireland and sell packages of condos here."

Now, said Miller, the New York market now attracts more Asian and Latin American buyers than in the past.

Wei Min Tan, a real-estate agent with Charles Rutenburg Realty who specializes in selling Manhattan real estate to Asians, said his volume has more than doubled this year.

"I tell [ buyers ] it's going to be a stable investment that should go up 10 percent a year," he said. That's "not as much as they might get in Hong Kong or Shanghai," but there's less volatility, he said.

Even better for homeowners, foreign sales can be very easy: The buyers are often affluent and buy more expensive homes. The median sale price of $175,000 they pay in Florida, for example, is well above the median sales price of $136,500 for all transactions.

There's also no hassle over financing or waiting around for a mortgage lender to approve the deal: Overwhelmingly, international buyers pay cash.

Indeed, the Senate bill would require buyers to pay cash for the homes to qualify for the new "homeowner" visa. They'd also need to pay U.S. taxes and spend at 180 days a year in the country, and can't work here or take out home-equity loans against the properties. In return, they'd get to live here for at least three years.

The program could improve the housing market nationwide, said Schumer.

"We think a very significant number of people will be brought in," he said. "They'll sop up the extra supply of homes we have right now that has been dragging down the economy."

Foreigners seem to have more confidence in the U.S. real estate market than Americans do. Almost half of buyers surveyed by NAR cited the profitability or safety of their investments as the main factor that persuaded them to buy.

"With the economic distress in Europe," said Miller, "people are still looking for safe havens for investing and the U.S. is perceived globally as safe."

11:32 am cdt

Wednesday, October 19, 2011

Improper Property Tax Exemption Costs County Millions

One of the most popular ways to lower property tax bills is also one of the most misused — benefiting thousands of people ranging from mayors to landlords and snowbirds.

The homestead exemption is supposed to lower taxes only for a taxpayer's primary residence. But a Tribune investigation found some Chicago-area taxpayers have incorrectly received two, three or even more of the exemptions. It's part of a tax system that has cut breaks through vague rules, little oversight and almost no penalties.

Nobody knows just how many people are getting the extra exemptions, or how much it costs in lost tax revenue. Area assessors estimate it's tens of millions of dollars a year. One thing is clear: Those costs are passed on to other taxpayers who must make up the difference.

"The effect of one fake exemption spread across an entire region is negligible," said Kane County Supervisor of Assessments Mark Armstrong. "But the effects of hundreds of them become real."

Those getting improper exemptions typically save only several hundred dollars a year per property. But for those who collect on several properties over several years, the savings can add up. Records show that:

•Olympia Fields Village Trustee Willis Pennington saved nearly $1,600 over four years with an extra exemption he didn't request.

•Chicago tax consultant Andrea Raila saved $8,000 over nine years. She said she didn't know she had the extra break for years but thought she deserved it anyway.

•And Cook County Commissioner Jesus "Chuy" Garcia saved $8,500 over eight years. He said he was unaware of the exemption and will pay it back.

Many who received the additional exemptions say they didn't ask for the tax breaks and didn't realize they were getting them. Tax officials say others purposely abuse the system because there's little chance of getting caught or being penalized.

"People figure out a way to save some money," said Cook County Assessor Joe Berrios, who is pushing get-tough legislation. "People actually go out there and brag about it, which is nuts."

Guessing game

Homeowners save money because the exemption artificially lowers the assessed value of their homes — typically by $6,000 to $8,000. Taxes are then based on the lower value. If one homeowner pays less, neighbors must pay more because schools and other taxing bodies receive a set amount.

A Tribune analysis of tax data from Cook, DuPage, Kane, Lake and Will counties suggests about 17,000 properties may be improperly getting the exemption.

About 13,000 were in Cook County, netting those property owners an estimated $7 million a year. But Berrios said he believes the Tribune's estimate is conservative. He pegs the number of properties at double the newspaper's figures and the costs at nearly triple.

The Tribune linked properties if the tax bill for one was mailed to another property also getting an exemption, and the last names on both tax bills matched. That may count some properties where both exemptions are legitimate — such as cases where an elderly parent's tax bills are mailed to a son or daughter — but authorities said it's a good indicator of questionable exemptions, and likely an undercount.

Through the analysis, the Tribune found the case of Pennington. The village trustee, also a Metra board member, lives in Olympia Fields but has a "getaway home" nine miles south in rural Will County. Pennington said he never knew he had the exemption on the Monee home, and Will County officials confirmed they gave it to him in 2007 without him asking, assuming he deserved it.

He saved $330 that first year, and the annual savings grew to $470 last year, according to Tribune calculations based on records. Pennington said he shouldn't have to pay the $1,600 total back because it wasn't his fault.

Garcia, a former state senator and newly elected Cook County commissioner, has vowed to pay back the $8,500 he collected since 2003 after learning from the Tribune that an exemption had been placed on the home he inherited from his parents. He said the exemption must have remained on the property when he became owner.

"I know you can only claim where you live. That's why it's a homeowner exemption," he said. "I didn't know I was getting an exemption (for his parents' former house) because I'm not eligible."

12:04 pm cdt

Monday, October 17, 2011

Lack of Inventory is Latest Issue in Housing Market

From today's WSJ:

The housing market, which has struggled with an oversupply of homes for years, is facing a new problem: a lack of attractive inventory. There were more than 2.19 million homes listed for sale at the end of September, down 20% from a year earlier, according to a new report from the real-estate website Realtor.com. That is the lowest level since the company began its count in 2007.

WSJ's Nick Timiraos joins the News Hub to discuss an ironic new headache facing the housing industry: low inventory. AP Photo/Chris Carlson

The report is the latest sign of how the U.S. housing market can't seem to catch a break. While falling inventories are typically a sign of health, because reduced competition can boost prices, that isn't the case right now.

nstead, real-estate agents say, people are pulling their homes off the market rather than try to sell them at today's discounted prices. At the same time, banks have been more slowly moving to take back properties through foreclosure ever since processing irregularities surfaced last fall, temporarily reducing the supply of foreclosed properties. The shrinking supply isn't driving up prices because demand is soft.

Yet there is still a substantial "shadow" supply of foreclosures and other distressed homes, estimated to be more than one million, that is likely to stream onto the market in the coming years. The pent-up supply is another constraint on any of the price gains that might normally occur when supply falls.

The decline in inventory also suggests that there are fewer opportunities for buyers and sellers to strike deals. That can further chill sales, as buyers become afraid to overpay while sellers are similarly cautious about underpricing their homes.

"The inventory is low, so it's hard for buyers to find their dream home," said Joan Downing, a real-estate agent in Bloomfield Hills, Mich., a suburb of Detroit. "That's been our challenge more than anything: finding the inventory for the clients. Nobody's complaining about the pricing or the interest rates."

In Detroit, the inventory of homes for sale was down by 28% from a year earlier, according to Realtor.com. Listings were down by 49% in Miami, by 48% in Phoenix and by 46% in Orlando, Fla. Housing inventory was down from one year earlier in all 146 markets tracked by Realtor.com except for Denver and El Paso, Texas.

"On paper, all of the conditions are great for buying, but the reality doesn't seem to match that," said Ross Kutash, a 37-year-old attorney who has looked at more than three dozen homes in different suburbs of Los Angeles. "I wouldn't describe it as a buyer's market so much as no market at all."

Mr. Kutash and his wife, who recently had a baby, are looking to move out of their one-bedroom apartment in West Hollywood. "For our sanity, we're in a hurry," he said.

The Realtor.com data include only single-family homes, townhouses and condominiums listed for sale on more than 900 multiple-listing services across the country. They don't include unsold homes listed as "for sale by owner" or other properties that don't find their way onto the multiple-listing services.

The National Association of Realtors calculated that there were 3.58 million single-family homes, townhouses and condos for sale at the end of August, down 28% from a year earlier, though still above levels seen in the first quarter of 2011. The calculation differs from Realtor.com's because it estimates the entire universe of single-family homes for sale. The NAR is in the process of recalibrating its methodology. Both sets of data show housing inventory at a historic low.

Mortgage rates have fallen to their lowest levels in decades, but demand remains weak and credit standards tight. Mortgage applications for home purchases were 3% below year-ago levels during the first week of October, according to the Mortgage Bankers Association.

Industry executives say shortages of well-priced and attractive homes are a bigger drag on sales than sluggish demand.

"As weak as demand is, inventory has been weaker," said Glenn Kelman, chief executive of Redfin Corp., a Seattle real-estate brokerage firm that does business in 13 states. "Right now, the absence of inventory is the limiting factor on sales volume."

12:51 pm cdt

Tuesday, October 11, 2011

The Economics of Refinancing

Every week seems to bring more good news on mortgage rates, and a new group of consumers starts calling around, seeking to capitalize on record-low or near-record-low mortgage rates by refinancing their loans.

Refinancings are accounting for as much as 80 percent of weekly application volume and as one wave of potential refinancers follows another, a few market trends and realities are emerging.

One, everyone thought 4 percent would be the great psychological breaking point spurring refinancings of 30-year, fixed-rate loans. That, as it has turned out, has just been more icing on the cake.

The threshold actually was 4.5 percent, said Greg McBride, a senior financial analyst for Bankrate.com, because that enabled a lot of borrowers to save at least one half of one percentage point.

"When mortgage rates got below 41/2 percent, that opened the door for people who previously (refinanced) at 5 and 51/4 percent," he said. "Even at 43/4 percent, if you can snag a rate below 4, it makes sense."

Two, 15-year, fixed-rate loans are hot.

According to a report issued by Freddie Mac last month, of borrowers who refinanced during the year's second quarter, 37 percent went into a 15- or 20-year loan, the highest such share since 2003's third quarter.

The reason? It's not just about cutting the monthly payment anymore, mortgage professionals say.

"I think people are more conservative," said David Pendley, president of Avenue Mortgage. "They aren't looking for bigger and better. The mind-set is, 'I have to get my house paid off and shore up my finances because no one is going to do it for me.'"

Say a consumer takes out a fixed-rate, conventional 30-year, $100,000 mortgage at 4 percent. With a monthly payment of $477, that consumer is paying $172,000 over the life of the loan.

Shrink that loan term down to 15 years, at an interest rate of 3.25 percent, and it equates to a payment of $702 a month. Higher, yes, but over the life of the loan the consumer is paying only $126,000, or $46,000 less than would be paid on a 30-year loan at the higher interest rate.

"It depends on what you're trying to accomplish," said Ken Perlmutter, president of Perl Mortgage. "Do you want a lower payment? You want to go to a 30-year. If you're at a different point in your life and you want to accumulate wealth (a 15-year means), you're paying down the principal faster, you're building equity faster."

Three, no one expects a silver bullet to help all homeowners enjoy the low rates.

That means the same rules that applied at 5 percent still apply at 4 percent. For the best rate quotes, you've got to be pristine on paper and the higher the consumer's credit score over 700, the better. Homeowners should use the weekly rates announcements from Freddie Mac and the Mortgage Bankers Association as a guide only because they are dated by the time they are announced. Also, the rate quoted to a homeowner will also move up slightly higher if the borrower rolls the closing costs into the loan.

Homeowners also have to have sufficient equity in their home to refinance, and that level may not be the same as it was the last time they refinanced. The size of home price declines may have moderated a bit, but they are still trending downward.

In its most recently monthly report, the Illinois Association of Realtors said August home prices fell 10.4 percent from a year ago for the Chicago area as a whole and were down 3.8 percent within the city of Chicago.

That does little to help underwater or financially stretched consumers who have higher rates and would greatly benefit from a refinancing. Either their homes are appraising too low, or their creditworthiness is such that the extra fees required to get the loan don't make the transaction financially advantageous. Lending experts don't expect that the federal government will conceive any mass refinancing program to help all of those borrowers. After all, that was the goal of the voluntary Home Affordable Refinance Program, which has not met expectations.

The good news, according to loan officers, is that it's easier to get holders of second liens, such as for a home equity loan, to sign off on the subordination agreements necessary to refinance a principal mortgage in which there is also a line of credit. Getting that agreement may take a while, but they are getting done.

10:35 am cdt

Thursday, September 29, 2011

U.S. Mortgage Aid Program is Shutting Down

From today's New York Times:

In summer 2010, Congress set aside $1 billion for a program intended to bail out people in danger of losing their homes to foreclosure. It was estimated that the program, administered by the federal Department of Housing and Urban Development, would help as many as 30,000 households.

But the program is now ending after achieving lackluster results and stirring widespread recrimination.

Fewer than 15,000 households are expected to receive help despite enormous demand, and perhaps half of the money will go unspent.

The department attributed the program’s performance to the way it was set up by Congress. But Representative Barney Frank, Democrat of Massachusetts, an author of the legislation, said the program’s failings were a result of poor administration and the department’s late start in rolling it out.

“They dragged and dragged their feet,” Mr. Frank said in an interview. “I believe it was not one of their priorities.”

The program, called the Emergency Homeowners’ Loan Program, or EHLP, was signed into law in July 2010 as part of the Wall Street Reform and Consumer Protection Act. It offered people who were unemployed or underemployed up to $50,000 in zero-interest loans to pay their mortgage debts. HUD has until Friday to mete out the funds or lose the balance.

Yet the department did not begin the program until this June, and set an original application cutoff date of late July. Across the country, nonprofit housing groups and mortgage counselors who had been chosen to work with applicants rushed to meet the deadline, which ended up being extended several times.

The counselors also found the eligibility criteria complicated and overly restrictive.

Under the stipulations, applicants had to be at least 90 days behind on their mortgage payments. They also had to be earning at least 15 percent less than their 2009 income due to unemployment, underemployment or serious illness. The program subsidized mortgage payments for up to two years. But if the cost of the subsidies and the repayment of a homeowner’s mortgage debt exceeded $50,000, the applicant would be ineligible.

The combination of these rules, housing counselors said, disqualified a large number of people who had gone through their savings and fallen behind on mortgage payments. Nor have all of the applicants who met the qualifications been approved for the loan.

And with the Friday deadline, the clock is ticking.

At the Twin Cities Community Development Corporation of Fitchburg and Leominster, Mass., 31 of the 250 applicants who sought help met the program’s requirements, and by Wednesday, six had been approved.

The National Community Reinvestment Coalition, in Washington, took applications from 506 people. Of those, 49 met the eligibility guidelines, and 26 had been approved as of Wednesday.

Operation Hope, a nonprofit based in California, fielded queries from 1,200 people seeking help; of those, 25 were found to be qualified, and by Wednesday, five had been approved.

“It’s been a very discouraging process,” said Laurel Miller, director of homeownership at the Twin Cities agency. “It was almost like in order to qualify for this, it had to be the perfect storm.”

In states where housing costs are high, like New York, bitterness about the program was compounded by the fact that many homeowners were deeper in arrears than the program allowed. Of the 1,000 people who sought help through the nonprofit Neighborhood Housing Services of New York City, only 74 qualified.

“It’s been a frustrating program,” said Bernell K. Grier, chief executive of the organization. “We wish we could have done more.”

HUD officials cited many reasons for the program’s slow rollout, saying the agency had to build the infrastructure to do direct lending, hire organizations to put the program into effect and create regulations for its operation.

Housing officials also said that nearly all of the eligibility guidelines came from a 1975 act through which the new money had been appropriated, and that they had interpreted the guidelines accordingly, leading to restrictions like the one involving the 15 percent income drop.

“No one could have anticipated how difficult the statutory requirements would make it to qualify homeowners, causing us to overestimate the number of people who could meet the eligibility criteria,” said Todd M. Richardson, director of the emergency loan program.

Yet Representative Frank said he never heard the agency complain about the statue guidelines’ being overly stringent. “They’re just trying to cover up their embarrassment,” he said.

John Dodds, director of the Philadelphia Unemployment Project, which also processed applications, said the agency could have been nimbler, modeling its program on an existing one rather than creating its own and eliminating stringent requirements, when it became clear that hundreds of millions of dollars would not be spent.

Housing counselors had also been pushing to secure money for people who met the program’s qualifications yet might not be approved by Friday. Last week, Senator Bob Casey, Democrat of Pennsylvania, introduced a bill to extend the deadline, but it was not voted on.

1:35 pm cdt

Tuesday, September 20, 2011

Few Fortunate Home Sellers Come Away With Profit

From Crain's Chicago Business:

When Devera Hayes and Eric Sucharski sold their Hinsdale home this month, they came away from the deal with something practically unheard of these days: a profit.

Ms. Hayes and Mr. Sucharski, both 43, bought the 90-year-old, four-bedroom, Craftsman-style home on Lincoln Street in June 2010 for just under $1.23 million before deciding late this summer that, though they loved the house, it didn't have enough outdoor space for their newly blended family. They put the home on the market in August and within four days had four all-cash offers. It sold at just under $1.26 million, and the couple moved to a Burr Ridge home on three acres.

At a time when many home sellers are taking losses as housing prices slip to levels last seen almost a decade ago, Ms. Hayes and Mr. Sucharski are among a lucky few—very few—who are pocketing gains.

Granted, these price appreciations are so small that they often don't cover the real estate agent's commission and closing costs. But in a market that's off about 30% from its peak in 2006 for Chicago-area single-family homes and 2007 for condos, according to the Standard & Poor's Case-Shiller home price index, a profit on paper is considered a win.

“We know we're very fortunate in this environment, with so many people who can't sell,” Ms. Hayes says.

She isn't a stranger to relative success in a difficult market. Before buying the Lincoln Street home, Ms. Hayes essentially broke even on a house she sold in June 2010 for $825,000 on Justina Street in Hinsdale that she'd bought in August 2007 for $828,000. That home was on the market for eight days.

Ms. Hayes' agent, Cathleen Callen of County Line Properties Inc. in Hinsdale, attributes the success of the Lincoln Street sale to the home's ideal location, vintage charm and listing price. It isn't the biggest on the block and doesn't have a finished basement, she says, but it was unique, updated by a previous owner and meticulously kept.

During the year they owned the home, Ms. Hayes and Mr. Sucharski spent about $1,500 on it, Ms. Hayes says, buying paint, plants for the yard, light bulbs to make all interior lighting uniform and small touches such as drawer pulls. Proponents of doing it themselves whenever possible, the couple did all the painting on their own.

The home is ideally situated on one of the town's most attractive blocks, where every home is different, Ms. Callen says. “When people think of Hinsdale, they don't necessarily think of formula houses from the past 15 to 20 years,” she says. “They think of gorgeous old homes with wide lawns on heavily wooded streets. This block is like a slice of Americana.”

All the charm in the world won't help if the price isn't right, however. Now, when even the most perfect homes can sit on the market for months or longer, sellers and their agents need to nail the listing price the first time around.

Ms. Callen says Ms. Hayes and Mr. Sucharski could have listed the home as high as $1.35 million to try their luck, but they didn't—a decision that ended up being critical. “On the first day on the market, they had an offer in the first hour,” Ms. Callen says. “It was a perceived value.”

CONDOS, TOO

Like the Lincoln Street home in Hinsdale, whose classic appeal is difficult to re-create with new construction, vintage rehab condo conversions at a development in Old Town also have sold for a profit.

Jeanine Wheeler, an agent at @Properties in Chicago, last April sold her own three-bedroom, two-bathroom condo in the development at the corner of Wells and Eugenie streets for $499,000, about $33,000 more than she'd paid for the unit in July 2007.

While she lived there, Ms. Wheeler, 38, stained the wood floors, had closet organization systems put in, had mounted stereo speakers installed and bought window treatments, spending about $20,000 total.

Though the condo was part of a large development, each unit and each building was slightly different. That vintage appeal, along with updates from the rehab, helped sell the unit, she says. “A lot of times with vintage, you're giving up something major, whether it be closet space or central air,” she says. “In this case, it really had it all and was a spectacular location.”

The condo was on the market 11 days before it sold, and Ms. Wheeler received three offers in that time.

Other units in the same development have had similar luck, including one sold in May for $495,000 by Molly Killen and Mark Kelley, who bought the home in July 2007 for $461,000. The condo was on the market for 13 days.

Ms. Killen attributes part of the unit's appeal to its outdoor spaces—a sizeable back porch and a second outdoor area in the building's original light well.

The couple, working with Brooke Vanderbok of @Properties' Lakeview office, sold the condo this year so they could move to Dublin, Ohio, where Mr. Kelley accepted a job as the manager of a private golf club. With twins born in November of last year, the quick sale and profit made the move much easier, Ms. Killen says.

“The speed with which we were able to sell was a godsend,” she says. “Lugging two babies out of the house every time there was a showing would have been a nightmare after a while.”

A speedy sale and small profit also helped a La Grange couple move to London earlier this year. Dan and Jennifer Shoemaker sold their 80-year-old home on Stone Avenue for $565,000 in December, after buying it for $550,000 in October 2008. It was on the market for 16 days.

“We knew we weren't going to make a lot of money, but it certainly was nice to get something,” Ms. Shoemaker, 39, says.

The couple and their four children loved the home and neighborhood, which is in walking distance of the Metra station, but needed to move when Mr. Shoemaker, 38, was offered a job as a London-based vice-president of international business at HireRight Inc., a company that provides pre-employment screening, she says.

“The fact that we weren't lingering because of a house that wasn't selling was a huge relief,” says Ms. Shoemaker, who worked with Shannon Kutchek at La Grange-based Smothers Realty Group on the sale.

MINIMAL INVESTMENT

While they owned the home, the couple put less than $10,000 into it, painting the interior and replacing the kitchen appliances and countertops and putting in new carpeting in a few rooms.

Beyond the fact that the home showed well, it was well-maintained and in a highly desirable location, Ms. Kutchek says—both factors that bode well for a good sale. “There was nothing challenging about the house,” she says. “It's the all-American house that everyone wants, next to train and town.”

Ms. Shoemaker stresses the importance of staging the home properly, noting that she followed a checklist of things to do before each showing that included turning every light on, putting a fresh roll of toilet paper in the bathrooms and making sure the home was immaculately clean.

With buyers having the luxury of being extremely choosy in the current market, a clean, well-decorated home can make a strong impression.

“I made sure my place showed like a model home—without a speck of dust on the floor,” says Shannon Harrigan, an agent at Dream Town Realty, who sold her own Wicker Park condo on Hermitage Avenue last year for a $15,000 profit. “It has to look like it's out of a catalog.”

SOLD IN FIVE DAYS

Ms. Harrigan, 33, purchased the three-bedroom, new-construction unit in January 2010 for $455,000 before finding out she and her husband, Antony Mussell, 40, were expecting a second baby. She sold the unit in November for $470,000 after it was on the market for five days.

While they lived there, the couple spent about $4,000 on items such as window treatments and a custom flagstone fireplace. Mr. Mussell's father built a deck with a pergola and wrap-around bench for the couple.

Ms. Harrigan also had custom light fixtures put in the dining area, bathrooms and master bedroom to make the unit more memorable.

Indeed, lighting and paint color can have a tremendous impact, says Ms. Hayes, the seller of the Lincoln Street home in Hinsdale, who describes her decorating style as comfortable, kid-friendly and shabby-chic. Before selling, she and Mr. Sucharski spent $300 on new light bulbs and painted the home's interior warm, neutral colors.

They also replaced the electrical outlets and put in new light switches. “That's a big deal for people,” Ms. Hayes says. “When people see those funky old yellow toggle light switches, they wonder what's behind those walls.”

Ms. Callen attributes Ms. Hayes' successful home sales in part to her decorating savvy. “The way she decorates, you want to go in and sink into the furniture,” Ms. Callen says.

Against the odds, that combination of an inviting atmosphere, a charming home, an ideal location and the right price has worked for Ms. Hayes, even in a down market. “Her houses always sell,” Ms. Callen says. “She has the winning formula.”

1:38 pm cdt

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