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Tuesday, April 28, 2009
5 Things You Need to Know When Buying A Foreclosed HomeThe May issue of Money Magazine had a great little piece on tips for buying a foreclosed home and
I thought I'd put them here, and expand on them a bit using the experience I have had with clients buying foreclosures. 1) Finding a Foreclosure Has Become Easier: It used to be that you would have to attend a foreclosure/bank
auction or scour the newspaper for foreclosure listings. Now, they are available on many different websites and also on the
MLS as well. Sites such as www.realtytrac.com and www.foreclosurepoint.com have many listings available. You can also find a real estate agent who specializes in or has dealt in foreclosures. (Tooting
my own horn here, I own a real estate brokerage myself where we represent buyers of foreclosures and also banks selling their
foreclosures.) That site is www.preferredinvestorsrealty.com. 2) It's Best to Buy From a Bank: I have a few clients who are buying from holding/investment
companies who are foreclosure flippers. Inevitably, these deals are problems. These "cash for deed" deals don't
offer you title insurance protection most of the time and leave you at risk for legal issues. Plus, these companies don't
clear any liens for you. You're on your own to do the research and clear all liens. When a bank takes back a home, they
usually clear all liens from the property. Plus, you can inspect the property before hand, and you can finance the purchase
with a mortgage. 3) Have an Inspection and Bring in a Contractor Before You Buy:
One of the biggest mistakes people can make is underestimating the work that needs to be done. Know what you're getting
yourself into. Have a licensed inspector and licensed contractor attend the inspection with you and get an estimate of what
things are going to cost. 4) Bid Low: Banks are mostly listing their properties at market-value,
not at fire-sale prices. So be prepared to haggle. The bigger inventory of homes the bank has, the longer the property has
been on the market, the greater changes that you can get a great deal on the property. Set your initial offer about 15-20%
below market price, or more if your area has a lot of foreclosures. 5) Be Prepared to Wait,
Wait, Wait: Most lenders take forever to get a response on a bid. Some lenders are getting back to people within 24-48 hours,
others are taking as long as three months. While you wait, someone else can come in and offer more money. Have multiple properties
in mind, but be careful of getting yourself into a multiple offer situation. Follow up every week with the lender and be patient
and persistent!
Sunday, April 26, 2009
Should You Walk Away From Your Mortgage?I have unfortunately had a number of clients having financial difficulty call me and ask me whether
they should allow their home to be foreclosed upon. For all too many Americans today, this is a frustrating position for people
to be in. The situations are all different: one client can make payments, but barely, and
has to sacrifice food or other necessities in order to do so; another client is so in the negative with what she owes versus
what the home is worth she just can't justify throwing her money at the house any more; and yet another client got a great
job offer in another city, but she can't afford to sell her home to move, because she's so under water. What to do? Obviously there's an ethical dilemma here. That's up to you to decide. But what about the economic
costs? 1) Your credit score: If you walk away from your home, and allow foreclosure, if
your credit score is good, it will likely drop at least 100 points, and the mark stays on your credit for seven years! You
will have a hard time buying again for a while, let alone renting anywhere. Potential employers will also check your credit
as well, and sometimes even something as simple as getting a cell phone can require good credit. 2) Tax ramifications: Always consult an accountant and an attorney if indeed you decide to walk away from
your mortgage. If a lender forgives a debt, it can be considered taxable income to you for the tax year. A new law offers
federal tax relief for principal residences, but if you borrowed money against the house for any other purpose with a home
equity line, you'll still be responsible for the tax on that part. Also, depending on the state you live in and the type
of mortgage, your lender may still be able to pursue you for the shortfall. It's uncommon, but banks are getting tougher.
Consult your attorney and a tax professional. And also check the rental market in your area. You may not be saving yourself
much more money by renting. The bottom line is this: I don't recommend anyone walk
away from their mortgage. For me, it's the worst-case scenario. Contact a real estate professional, accountant and real
estate attorney to discuss your options before making any decision.
Wednesday, April 22, 2009
Leaders in Foreclosures and Some Sad NewsAccording to a new study by RealtyTrac, Inc., the four states with the highest rates of foreclosures
are Arizona, Nevada, California and Florida. Of the hardest-hit cities are the Fort Myers-Cape Coral, FL areas, Las Vegas,
Merced, CA and Stockton, Modesto, Riverside, Bakersfield, and Vallejo-Fairfield, CA. The
number of foreclosures rose 24 percent and nationwide nearly 804,000 homes received some sort of foreclosure notice from January
-March 2009, up from 650,000 in January-March of last year. The full story is located here. Also, on a very, very sad note, the acting CFO of
Freddie Mac, David Kellerman, was found dead in his home of what police say was an apparent suicide early this morning.
The Fairfax County police responded to a 911 call at 4:48
a.m. at the suburban Virginia home Kellermann shared with his wife. The police wouldn't release the cause of death or
say if a suicide note was found. Kellermann, 41, lived
in Hunter Mill Estates, a well-off neighborhood of large single-family homes with manicured lawns. County records show Kellermann’s
home is worth about $900,000. Full story and video is here.
Thursday, April 16, 2009
More on the Right of First Refusal in Illinois CondominiumsI had a great question come in from my website from a potential client that I thought I would share. His condominium association has the right of first refusal, and there was some discussion about whether or
not they should strike it from their Declaration or not to allow people selling their Units to offer better financing (aka
FHA) for purchasers. It was the general consensus that the Association would likely never
exercise the right of first refusal for financial reasons, but the question was whether the right of first refusal could be
exercised by an individual Unit Owner or subset of Unit Owners within the building. The
answer to this is no. The Association (as collective Unit Owners) is its own separate legal entity. If you are a condominium
owner in the state of Illinois, you may or may not know that the Association to which you belong is usually a non-profit corporation
organized in the state of Illinois. The Association is the only entity which can exercise the right of first refusal if it's
so outlined in your Declaration (generally speaking, refer to your Declaration for the specific wording). If the Association exercises the right of first refusal, it would purchase the Unit with Association funds
and the title would be in the name of the Association. Thanks to the person who submitted
this question, it's a really good one.
Wednesday, April 8, 2009
Home Sales Rise in the Distressed Housing MarketCrain's Chicago Business published an article this week stating that home buyers are snapping
up foreclosed and "short sale" properties which is a good sign that the market will start picking up for all home
sales. I personally have about 50-75% of my business on the transaction side in short sales
and foreclosures right now, so that news doesn't surprise me. According to the statistics,
traditional home sales on single family (detached) homes between January 2009 and March 2009 dropped, but the foreclosures
and short sales increased. Traditional home sales and sales of foreclosed and short sales properties on condos both increased.
The market on traditional home sales for multi-unit buildings dropped from January to March, but increased on the short sale
side. There were 1,438 homes sold in Chicago last month, a 26% increase over February,
according to the Chicago Association of Realtors. The median price on homes dropped to $289,500 in March, down from $308,625
in January and the median price on short sales and foreclosures was only $88,000. Mortgage
applications for purchases have also increased. For more information on this,
you can visit the Crain's Chicago Business website by clicking here.
Gov. Quinn Signed Foreclosure Bill Sunday to Help HomeownersAccording to Realtor.com, troubled Illinois homeowners facing foreclosure will get up to a 90-day
grace period under a law signed by Quinn on Sunday. Public Act 95-1047 gives homeowners more time to work with lenders and housing counselors to avoid foreclosure. The
law provides that if a mortgage secured by residential real estate becomes delinquent by more than 30 days the mortgagee must
mail a notice advising the homeowner that he/she may wish to seek approved housing counseling (defined in the legislation
as a counseling agency approved by HUD). No foreclosure action can begin before mailing
this notice- which is spelled out in the legislation. If, within the 30-day period an approved counseling agency provides
written notice to the mortgagee that the homeowner is seeking approved counseling services, then no legal action shall be
instituted for 30 days after the date of that notice. During the 30-day period the homeowner or counselor or both may prepare
and proffer to the mortgagee a proposed sustainable loan workout plan (defined in the legislation). The mortgagee determines
whether to accept the proposed sustainable loan workout plan. If the parties agree to the plan no legal action shall be instituted
for as long as the sustainable loan workout plan is complied with by the homeowner. If IDFPR determines that the demand for
counseling services in an area exceeds the number of available approved counseling agencies, the Secretary can certify other
persons or entities as approved counseling agencies. These provisions will be repealed in two years and apply only to residential
real estate that is the homeowner’s principal residence.
Tuesday, April 7, 2009
Developer Turnover of Control to a New Illinois Condominium AssociationI have been representing many condominium associations lately who are in the process of turnover
of control of their condominium association. Over and over, I see many issues with the turnover of control and the documents
and financials that are supposed to be involved. I also get the same questions from many of my clients, so I thought I would
outline some of the more frequently asked questions here: 1) When does a developer have
to turn over control to a new Illinois Condominium Association? The developer is required
by Illinois law to turn over control within sixty (60) days of the earlier of two things: a) the closing of the sale of units
representing at least 75% of the percentage interest in the common elements; or b) three years after the date of recording
of the Declaration of Condominium with the County. 2) My developer has not yet turned over
the Association and he is supposed to, what should I do? The Illinois Condominium Act has
a procedure in which owners of at least 20% of the percentage interest of the common elements can petition the developer to
call the first meeting of unit owners. If he does not, the unit owners can do it themselves. 3)
What are the developer's duties after the first meeting of unit owners where a board is elected? Section
18.2 of the Illinois Condominium Act says that the developer has to turn over all Association funds and an extensive list
of documents and items within sixty (60) days after the date of election of the first board. 4)
What exactly are the developer's financial obligations to the Association? The developer
is required to pay assessments to the Association beginning with the first day of the month after the first closing and for
every month after, for every unsold Unit. These funds must be kept in a segregated account, and must be separate from the
developer's funds. The developer must also keep any funds that he has collected at closing on behalf of the Association
segregated as well. It is highly recommended that the new board hire an accountant to audit the funds that are turned over
by the developer to insure that all funds have been paid. 5) What if we had the meeting,
elected a board, but no documents or funds were turned over? First of all, hire an attorney.
Have that attorney be present at the turnover meeting before it occurs to insure that all items are turned over at that meeting.
If they are not, you can mail the developer a notice, certified mail, return receipt requested, asking for compliance. If
the developer does not comply within 10 days, the Association can file suit to compel a turnover of all missing items. The
Illinois Condominium Act also states that the developer has to reimburse the Condominium Association for all attorney's
fees and court costs to compel full compliance, after the time of service of this demand. For
a link to the actual copy of the Illinois Condominium Act, click here.
Wednesday, April 1, 2009
Banks Starting to Walk Away on ForeclosuresA great real estate agent, and friend of mine, Jerry Ricordati, with Prudential Preferred Properties
here in Chicago, sent me a very interesting article on banks walking away from foreclosures which I'll outline below: Apparently banks are becoming so overwhelmed with foreclosures, and the care, winterization and maintenance
of the properties after they've been taken over that they are actually canceling the sheriff's sale on some of these
homes. A woman in South Bend actually had a rental property that was subject to foreclosure,
and a date for the sheriff's sale was actually set and the tenants had moved out. During that time, vandals and looters
hit her property and the property fell into disrepair. To her surprise, the City of South
Bend recently contacted her and demanded that she resume maintenance on her property. The sheriff's sale was canceled
at the last minute, and it left the property title in her name. The property is now so worthless that the City of South Bend
is going to demolish it - at the owner's cost.
These so-called bank walkaways
are not relief for the property owners, because many times they are unaware of the walkaway. Technically, they still owe on
the mortgage, by the bank rarely will receive any additional payments on the loan. In the
South Bend owner's case, the bank who serviced her loan is defunct and its parent company filed bankruptcy and dissolved. The soft housing market and vandalism that occurs when a house sits empty are two of the main factors which
cause banks to walk away. Many cities are working on a new type of legal mediation between mortgage companies and home owners
to settle disputes and allow the homeowners to stay in their homes. For more information
on this or to see the article in full, click here.
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