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Buyer/Seller Guides
Today's Top Real Estate NewsProvided by Inman News
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Dual-pane windows: replace or repair?
Homeowner seeks cheap fix for leaky cells Bill and Kevin Burnett Inman News Q: I've read your recent column about windows and have some related questions. I have dual-pane windows whose cells have "leaked" and the inside surfaces are discolored. They are installed in traditional wood frames and are easy to remove. They have a metal/plastic composite spacer frame at the edge, sealed with some sort of black mastic. I have a number of cells that were replaced under warranty when water leaked inside and would like to see if I can rehab them. If I can remove the spacer from one side, I could then clean the inside surfaces. Would isopropyl alcohol be a good cleaner, or would you advise something else? Then, how would I ensure that I remove all possible water vapor before I reseal the edge? By moderately heating the cell? Or by injecting some type of gas? I would reseal with some type of mastic. Then I would put a layer of sealant all around the perimeter to try to plug the original leak. Buying new replacement cells costs a bundle, and I have nothing to lose by trying to rehab these. A: Our first reaction is to bite the bullet and buy new replacement Insulate Glass Units (IGU). They are expensive, but repairs can fail. Last winter, Kevin's daughter, Katie, busted the inside of a double-glazed window in their family room. Kevin thought about doing the repair, but it was in the middle of an Idaho winter and wife Heidi wouldn't stand for the delay. The 3-by-3-foot IGU cost Kevin $130 and he did the installation himself. Unlike Kevin, you've got the time to tackle this job. You've also got the inclination. We say go for it. You've got nothing to lose save perhaps a piece of glass you might break during the repair attempt. We wouldn't try to remove the spacer from one side and clean the two pieces of glass through the 1/2-inch slot. That's an impossible task, in our view. Rather we suggest that you remove one pane of glass entirely from the IGU, cleaning both interiors and resealing the IGU sandwich.
Begin by removing one of the window panes from the frame and laying it on a flat surface. A table covered with a towel should work just fine. On the edge of the window you'll see a black, rubber-like material. This is a butyl sealant. Part of the reason the window failed is the sealant failed. To separate the glass from the butyl use a utility knife with a new blade to break through the butyl where it meets the glass. Remove the knife blade and insert a new hacksaw blade between the glass and the spacer. Saw back and forth as you work your way around the edge of the glass. When you've sawed around the perimeter of the pane, remove the single pane of glass, leaving the other pane with the spacer on the table. After the first pane is separated, it's time to clean the insides of both panes and the spacer. Lay rags on top of the good piece of glass to catch any debris, and, with a putty knife, scrape the surface of the spacer that will come in contact with the new glass. Remove the rags and debris and vacuum the window to remove any little bits of gunk. Clean the inside of the piece of glass that you didn't remove. Remember, once you install the new glass, any debris or finger marks on the inside will be permanently sealed. So, clean it meticulously and check it from all angles for smudges. Use a solution of 1 cup isopropyl alcohol, 1 cup water and 1 tablespoon white vinegar to clean the glass. Use a hair dryer set on low temperature to be doubly sure you've gotten rid of excess moisture. Now you're ready to replace the other pane. Clean the side of the glass that will sandwich onto the inside of the pane and dry it with the hair dryer. To make the sandwich, run a thin bead of clear silicone around the perimeter of the spacer. Set the glass on the spacer and use finger pressure to adhere the glass to the silicone all the way around. This will ensure the glass is embedded into the silicone, making an airtight seal. Finally, run a generous bead of silicone around the side of the pane, making sure to cover where the glass and spacer meet. Cover the pane with a towel for 24 hours to allow the silicone to cure. After 24 hours, you can install the pane back into the opening. There are a couple of things that can go wrong. The first one is the possibility of leaving marks on the inside portion of the glass. Once the glass is sealed, cleaning is impossible. Meticulous cleaning will prevent this. The more troubling one is that the seal can fail, resulting in condensation between the panes. There's a good chance that with the slightest break in the silicone seal you will begin to see moisture form as soon as the nights get cold and the days get warm. All your work will be for naught, but you won't be out any money. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Bill and Kevin Burnett
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Landlords accused of renting dangerous home
Law of the Land Tara-Nicholle Nelson Inman News In the case Reyes v. Egner, the tenant (Reyes) renting a vacation home for a two-week holiday brought her elderly father along for the trip. He fell on a hidden step with no handrail, which should have had one under the building code, and severely injured himself. When the tenant sued the beach house's landlords (Harry and Holly Egner) and the real estate broker who rented it out, the landlords defended themselves and the broker from the suit on grounds that because the step defect was not obvious, they were not liable unless they had "fraudulently concealed" the defect. The trial court agreed, clarifying that either (a) the defect was obvious or (b) it was non-obvious but not concealed by the landlords, concluding that either way, the landlords could not be held liable, and dismissed the case. The trial court also dismissed the case against the real estate broker, on grounds that the broker's duties were limited per the contract, and did not include inspecting the property or repairing it for the benefit of the tenant. The appeals court disagreed with the trial court's dismissal of the case against the landlords, overturning the trial court's decision and ordering a new trial. On appeal, the court found that the very short-term nature of the vacation-house lease rendered it unreasonable to expect that the tenant and her family would have discovered the step defect as a long-term, residential tenant could be expected to do. The appellate court went on to express that, because of the nature of a vacation home and the frequent turnover of tenants, the property's landlords are in a better position than the tenants to inspect and maintain or repair the home, and so should be held responsible to do so. The court held that fraudulent concealment was not required to hold the landlords liable for the elderly visitor's injuries; if the landlords had reason to be aware of the defect -- e.g., the fact that the lack of a handrail violated the municipal code -- a judge or jury should be given the case to decide whether they were liable. A new trial was ordered. However, the appeals court agreed with the trial court that the broker's duties did not extend to inspecting the property for defects to warn or repair them for the tenant. The court affirmed the trial court's dismissal of the case against the real estate broker. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Tara-Nicholle Nelson
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Don't overdo home upgrades
New appliances not a necessity Bernice Ross Inman News DEAR BERNICE: We're thinking about selling our 9-year-old home. It has the original appliances. There are quite a few new homes on the market about a mile from where we live. What can we do to compete? Do we need to update our kitchen? --Sally U. DEAR SALLY: As a general rule, it doesn't make sense to do major upgrades on your property. What you select to upgrade may be what the buyer hates most about your property. In other words, what you pick out, the next buyer may tear out. Nevertheless, this doesn't mean you shouldn't spend some money upgrading your property before you list it. We were facing a similar dilemma when we sold our home -- lots of competition from new homes just a mile away. Even though I have 31 years of experience and have trained thousands of agents, I hired the most competent Realtor I could find to represent us. She did a fabulous job. In fact, we sold the house in one day at full asking price. Here's what she advised us to do: 1. Take down the kitchen and bathroom wallpaper -- it makes your house look dated. 2. Change the light fixtures above the center island and over the table in the breakfast room so that they are up-to-date. She suggested some inexpensive light fixtures from Lowe's or Home Depot. 3. We had a beautiful bay window in our breakfast area. She had us paint that wall plus the wall around the fireplace in the great room with a beautiful shade of moss green. (The windows were trimmed in white to create a contrast). When you walked into the kitchen, your eyes immediately went to the breakfast area with the pretty chandelier, the green wall, and the trees and beautiful flowers outside the window. Everyone commented on how pretty it was. No one mentioned the Corian countertops or the original appliances. 4. Get rid of all of your personal items. Help the buyer imagine the house with their things, not yours. Your goal is to make your home look attractive, but not lived-in by you. If you need ideas, visit any of the model homes in your area. 5. Convey relaxation. Our Realtor went shopping and came back with plenty of pillows and throws. We also had a single cup coffee maker. At open house, our agent invited visitors to sit down, make themselves at home, and enjoy a cup of coffee or tea. 6. We had carpet in the master bath and in two upstairs bathrooms. She had us replace the carpet with an inexpensive 12-inch tile that looked great. 7. The house was brick, but she had us refinish the front door and paint the trim. We also cleaned the carpets and planted lots of flowers both in the front and the back.
8. In case anyone was concerned about the age of our appliances, we ordered a home warranty that would replace the appliances if they broke during the listing period. Our policy transferred the coverage to the new buyer and protected them for a year after closing. The entire job came in for around $3,000 about the same cost for replacing the stove and the dishwasher. You don't need to spend a lot of money to get a great effect. In most cases, a few small expenses can result in a big payoff when your property sells for a much higher price. DEAR BERNICE: We're about to list our house. I have two small children and am concerned about people who I don't know knocking on my door. What can I do to keep that from happening? --Karen W. DEAR KAREN: Assuming that you are going to list your property with a Realtor, you can have him or her place a rider on your yard sign that says, "By appointment only." You can also post a note above the doorbell that says, "This home is shown by appointment only." A different way to get around this issue is to avoid putting a "For Sale" sign in your front yard. I don't recommend this, since the yard signs still produce a major percentage of the leads for your property. An even more important issue is how accessible your property is. Properties that are easy to show have more showings than those that are difficult to show. The easiest way to make your property accessible is to have your agent install a lockbox or keysafe. Your agent will place your keys inside the keysafe, a mechanical device that can only be opened by members of the Multiple Listing Service. As a result, agents do not have to wait for the listing agent to show the property. Nor do they have to make two trips to the listing agent's office to pick up and drop off keys. The more sophisticated versions allow the agent to program the times that the lockbox will open. This allows you to have private time with your family. If someone knocks on your door without an appointment, you have no obligation to open the door. That's the simplest way to avoid explaining why you don't want to show your house at the moment. It's also the best way to maintain your safety. Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of "Real Estate Dough: Your Recipe for Real Estate Success" and other books. You can reach her at Bernice@RealEstateCoach.com. *** What's your opinion? Leave your comments below or send a letter to the editor. Copyright 2009 RealEstateCoach.com
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Real estate 'experts' book 'hit and miss'
Book Review: 'The Real Book of Real Estate' Tara-Nicholle Nelson Inman News Book review Because I casually follow him on Twitter and elsewhere, the publication of Robert Kiyosaki's latest, "The Real Book of Real Estate," had been a blurry blip on my mental radar screen for some time, so I was interested to lay hands on it. Very quickly, it became apparent that the thick book was not, as I'd expected, a mid-career or post-bubble revisitation of his original classic, "Rich Dad, Poor Dad." Rather, it was a compilation of article/chapters by 22 other real estate personalities. I use the term personalities because, well, neither "expert" nor "charlatan" would fit all of the contributors. What an assortment of folks! You've got real experts, like Garrett Sutton, who is an attorney who has both pioneered and mastered asset protection for real estate investors, and you've got infomercial investing pioneer Carleton Sheets, of "No Money Down" fame (or infamy, as the case may be). There's a sprinkling of lesser-known contributors, ranging from a credible real estate financier that does $100 million deals to Kiyosaki's interior designer (who actually acquits herself quite admirably in a chapter on creating value in real estate investment properties via aesthetics). The bookends are chapters by Kiyosaki himself, his wife Kim (a women's real estate guru and investor in her own right) and Kiyosaki's frequent collaborator Donald Trump. Once you get past the somewhat bizarre mix of authors represented, the substance of the book is somewhat hit and miss. This is not a detailed, user-friendly guide to, well, anything in particular. What it is is a collection of "expert advice" on various topics, loosely grouped into the categories:
Because every author has their own style and value for usability (and perhaps because they were given free reign to select their own topics?) reading the book straight through is inadvisable -- it comes off as disjointed and scattershot, as the chapters often have little to no relation to their neighbors. Nevertheless, there's some very good stuff in this book, especially in the chapters that drill down into the basics of whatever they are about, breaking their topic's complexities into lists and points that assume no advance knowledge of real estate investing, while reminding experienced investors of the easy-to-forget essentials.
Specifically, CPA Tom Wheelwright's chapter on the Business of Real Estate, Sutton's 10 Rules for Asset Protection (with its whimsical section subtitles, like "Rule No. 8: Segregation of Assets is Good" or "Let's Not Put All of Our Eggs in One Basket"), and W. Scott Schermer's real estate nerd pornography on Entitlements pull way more than their fair share of the book's utility. Other chapters tended to be very niche-oriented, but probably valuable to investors in those niches, while a number of chapters frankly were so devoid of useful information that trees really need not have been killed for their publication. With that said, I did appreciate Kiyosaki's stated aim for the book of publishing a work of real estate investing advice from folks who actually are real estate investors (vs. random financial writers and commentators who have never owned an investment property). However, the superfluous chapters were exceedingly bad, and erred on the side of being regurgitated, self-promotional and full of outdated strategies (Kiyosaki's chapters did not fall into this category, fortunately). On the flip side, the good stuff takes up much more space than the bad, and there are enough novel insights and tips, especially in Schermer's Entitlements section, to make the book worthwhile for a wannabe investor or even a seasoned investor on the prowl for good nuggets. The good chapters are so meaty, though, and the bad ones so bad that I closed the book wishing Kiyosaki had just stuck with his tried-and-true strategy of letting others publish detailed how-to's under his "Rich Dad" brand, pulling the good chapters out into their own books (something Sutton has already done, and Schermer should, pretty please.) All in all, if you are a "Rich Dad" aficionado, you're going to buy it, and you won't be totally disappointed, so long as you read selectively. If you're not a diehard fan, really spend some time with the table of contents to see if the topics pique your interest before you buy the book. If you're a beginning investor looking for strategic advice, I'd recommend you go back to the beginning of the "Rich Dad" series and stick with the individual titles – you'll get more value for your money. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Tara-Nicholle Nelson
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Delay move until deal is done
How sellers can prepare for inconvenience Dian Hymer Inman News Sellers should start packing as soon as they think they might want to put their home on the market. That is, they should start weeding out all the personal property they no longer want or need. It makes no sense to spend time and money packing and moving these things. Most homes need decluttering before they're sold. This is so they show at their best, which usually results in a faster sale at a higher price. Cluttered homes look smaller than they are. And, an unkempt look puts buyers off. Clearing out the clutter early is a good idea even if you aren't sure when you'll be moving. Deciding when to pack the things you're keeping should be carefully considered due to changes in the home sale market over the past few years. Sellers used to start packing as soon as the buyers removed all contingencies from the contract. It was usually smooth sailing from then to closing. Now, there are some sale transactions that don't close on time because lenders take longer to approve loans, often asking for an additional appraisal or more documentation from the buyers before they'll deliver the funds. Occasionally, a transaction doesn't close at the last minute. The lender might cease offering a certain loan program, change the terms of a loan or run out of money. HOUSE HUNTING TIP: Sellers who are living in their homes during the marketing period shouldn't move their furnishings out until they are sure the transaction is closing. Otherwise, they could have to move back in again if the deal falls apart at the last minute. An East Coast seller moved out and then heard that the closing was delayed. Her furniture was already on its way to the West Coast, so she couldn't move back in. Luckily, the sale closed three weeks later. To avoid moving out before you know the sale is closing, build a few extra days into the purchase contract at the time you negotiate the sale with the buyers. For example, you could ask to vacate the property within two or three days after closing. This way, if the closing is delayed, you have time to reschedule your move, and to move out and clean the house before the buyers take possession.
Movers, particularly the larger moving companies, can be flexible regarding your move date. It's best to schedule the move in advance for the date you'd like to move. If the closing is delayed, you can reschedule the move date accordingly. It can be difficult to sell a vacant house. Most buyers don't have the ability to imagine how a house would look furnished. It's hard to gauge the size of a room that's void of furnishings. For example, most people can't visualize how a king-size bed would look in the master bedroom unless it's already furnished with a king- or queen-size bed. Some sellers hire a professional decorator to stage their home for sale to enhance its appeal. This could be a partial staging, incorporating some of the seller's possessions, or a complete staging with all the furnishings provided by the staging company. In either case, it's best to leave the staging in place until you're sure the sale is closing to avoid the cost of having to re-stage the house if the deal falls apart at the last minute. THE CLOSING: Buyers who are currently renting should have assurances from their lender that the sale will go through before giving notice to their landlord, unless they have a place to stay temporarily if the closing is delayed. Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Dian Hymer
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Home inspector's mistake costs buyers
Proper protocol would've exposed roof leaks Barry Stone Inman News DEAR BARRY: We bought our house about seven months ago and hired a home inspector to check it out, but he never went on the roof. He said there was no need to walk on the roof because it was only 5 years old and not likely to be worn or damaged. Well guess what? When the first rains came, we had a major leak. The contractor we hired said the roof was not properly installed. Besides that, there were tar patches that could not be seen from the ground. These revealed a history of past roof leaks and could have been reported by our home inspector, if he had taken the time to look. When we called him about this, he said that he is not required to walk on roofs. If that is so, then what good are home inspectors? --Jay DEAR JAY: A home inspector who fails to walk on a roof should have a substantial reason, such as rain or snow at the time of the inspection, steepness of the roof, fragile condition of the roof, or unusual height. Barring such conditions, a home inspector who fails to walk on a roof is professionally negligent and arguably incompetent. A roof that is only 5 years old may not be weathered and worn, but physical condition is not the only consideration when a roof is inspected. Problems may also be found in the quality of the installation. Faulty roof conditions take many forms. There could be exposed nailing, flashing that was omitted, flashing that was not sealed, or flashing that was not correctly lapped. There could be missing shingles, damaged shingles, or lack of adequate slope in some areas. There could be poor workmanship, poor-quality materials, or repairs that indicate past leakage. The only way a home inspector can know for sure is to take a walk on the roof. If conditions prevent a roof walk, there are alternative methods of inspection. A ladder can be placed against the edges of a roof at various locations, enabling inspection from a reasonable perspective. If the roof edges are too high for a ladder, a close-up view can be attained with high-powered binoculars. If the roof cannot be inspected with a ladder or with binoculars, then the inspector should recommend further evaluation by a roofing contractor prior to the close of escrow. But the last thing an inspector should do is declare a roof to be OK when he hasn't even looked. It may be technically true that home inspectors are not required to walk on roofs, but who wants an inspector whose standard is the bare minimum? Home inspectors who are competent professionals, who take pride in the quality of their work and who have a modicum of concern for the interests of their customers make every effort to evaluate the condition of a roof, regardless of whether they are required to do so. Home inspectors who sign off on a bad roof without making an effort to check it out should find another line of work. By overlooking roof defects, they cause financial damage to the people who hire them, while denigrating the general reputation of home inspectors who truly represent the interests of their customers. To write to Barry Stone, please visit him on the Web at www.housedetective.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Barry Stone
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Prenup's real estate impact questioned
Upon death, property often passes to spouse, not kids Benny Kass Inman News DEAR BENNY: When my dad and stepmother got married they moved to Florida and bought a home together. Because there are children on both sides, they had a prenuptial agreement drawn up that states the home would be divided equally between the children when they both were gone. Sadly, my dad passed away recently, and we were just told that Florida law states that the deed to the house automatically goes into the surviving spouse's name. We were told that my stepmother owns the house now and we are out of luck. She and her family do not intend to honor the prenuptial agreement and, according to the lawyer handling the estate, we have no recourse. My question is would the prenuptial agreement take over when my stepmother passes? What happens if she sells the house, buys another and puts the new house in her family's name? --Mike DEAR MIKE: I don't know Florida law, and suggest you talk with another attorney to get a second opinion. I am assuming that your dad and stepmother took title to the property either as tenants by the entirety -- which is reserved for married couples -- or as joint tenants with rights of survivorship . In either case, on your dad's death, the house automatically (by operation of law) vested title to the survivor. That's the general law in most states, not only in Florida. However, I am concerned that the stepmother may be trying to avoid the obligations of the prenuptial agreement. That's a contract that should be binding on her, and perhaps your second attorney will be able to give you a better opinion. To answer your question, however, have you read the prenuptial agreement? It may have provided that on your dad's death, she could live in the house for her lifetime, after which the property would be divided up between the two families. If that's not the case, then she owns the property and the prenup may be meaningless. Your lawyer should be able to provide you with the law in your state. DEAR BENNY: Please explain the process of an appraiser for estate property. Also, I need to know the effect the appraisal has on income tax or estate tax. I have been unable to find anything in detail on this subject except the fact that you need to get appraisals. --Joe DEAR JOE: State probate laws vary, but generally real property needs to be appraised as of the date of death for probate purposes. In the District of Columbia, where I practice law, it is sufficient to use the government's real estate tax-assessed value to report the property value in the petition for probate. For federal estate tax purposes, an appraisal is required to be filed with the estate tax return. For date of death in 2009, a federal estate tax return is required only if the gross estate is greater that $3.5 million. Last year the threshold for filing a return was $2 million. If a return is required (or if the IRS could argue that it was required), an appraisal as of the date of death should be prepared. An "alternate valuation date" using the date that is six months after the date of death can be used if the appraised value on that date is lower than the date-of-death value. Federal income tax is imposed on the gain on the sale of the decedent's property. The gain is determined by taking the difference between the date-of-death value (or alternate valuation date, if that date is used) and the sales price of the property. The taxpayer cannot use one valuation for estate tax and another for income tax purposes, so it is important to consider both estate and income tax consequences when choosing the valuation date. State estate tax and income tax would also need to be considered, but the laws vary state to state as to what, if any, amount is exempt from tax. In the District of Columbia, for example, the decedent's assets up to $1 million are exempt from estate tax. The federal valuation and alternate valuation rules are followed. I hope this general statement is helpful, but you really should consult your own tax and financial advisors regarding the law in the state where the decedent died.
DEAR BENNY: Is it very difficult to get rid of a homeowners association? I don't mean condos or mobile home parks, just single-family homes. --Maryjane DEAR MARYJANE: Whether the community association is a condominium, a cooperative, or a homeowners association, it will have a set of legal documents. In a condominium, they are usually called the declaration and bylaws. In a cooperative, it is bylaws and a proprietary lease (or occupancy agreement). And in a homeowners association, they are called covenants, conditions and restrictions -- commonly called "CC&Rs." The legal documents -- and your applicable state law -- will tell you the percentage vote required to terminate the association. For example, in the District of Columbia where I practice law, it takes a 4/5 vote of the entire membership to terminate a condominium. You must consult a knowledgeable attorney if you are interested in terminating. You have to give serious thought as to the consequences. For example, if there are amenities in your association, such as parks, tot lots or swimming pools, who will own and be responsible for them once the association is no longer in control? DEAR BENNY: My son is pressuring me to help him buy a small waterfront condo in Miami's South Beach. I have tried to discourage him, but he insists the property has fallen from $300,000 to $100,000 and is a steal. Please send me your opinion and comments as to this being a great investment at this time. I need some ammunition to talk him out of this crazy idea. --James DEAR JAMES: You raise a difficult question, which unfortunately only you can answer. I don't know whether that condo in South Beach is worth $100,000, $300,000 or just $1. I know that property values have plummeted in the past several months. Does your son want to live in that condominium? If so, that would make a difference in your thought process. Clearly, I would not support him with only an investment opportunity. Have you and your son reviewed the status of the condominium? Does it have any reserve accounts? What is the level of delinquencies? What kind of repairs are needed -- today and next year? What are other units in the complex selling for? These are all the questions that you and your son should explore before either of you make a decision. DEAR BENNY: I recently bought a new house, and obtained a mortgage loan in the amount of $520,000 at 6.375 percent. Because rates have come down a lot, I tried to refinance with another lender. First, the loan consultant told me there would be no loan points or impounds. However, when they sent me the papers, the loan had one point and impounds. The loan consultant said he would fix it. Then, they refused my loan because they could not verify I lived there. I had to write an explanation that I was having major construction being done and would move in when it was finished. They still refused my loan. What would you do? Who can I complain to? --Betty DEAR BETTY: Do you know why you have been rejected for that loan? Your lender is required by federal law to send you a written explanation as to why you were denied. Because of the economy, lenders are more careful -- more conservative -- then they were just a few years ago. The potential lender may have received a low appraisal. Your credit rating may have been lowered because you applied for a loan shortly after you obtained your current mortgage. There are a host of reasons -- real or imagined -- on which you were denied, but you are entitled to learn the real reasons. If you cannot get this information from the lender, I suggest that you shop around for a different lender. Interest rates are low and you don't want to lose out should rates start to increase (and I am not predicting this will happen in the near future). Additionally, you should send a complaint to your state's attorney general's office, as well as to the Federal Trade Commission and the Federal Reserve Board. While these agencies may not act promptly or at all, if you send copies of your complaints to the lender, that may get their attention. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@inman.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Benny L. Kass
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Borrowers suffer disclosure overload
Part 1: Poking holes in mortgage reform Jack Guttentag Inman News Editor's note: This is Part 1 of a two-part series. Reading proposed legislation designed to "reform" the mortgage market is usually a depressing experience for me. Most of the proposals would take us further away from, rather than closer to, a competitive system that works for borrowers. This is certainly true of HR 1728, called the Mortgage Reform and Anti-Predatory Lending Act, which was winding its way through Congress when this was written. Virtually every section of HR 1728 bears the fingerprints of consumer groups and/or mortgage lenders. Legislators and their staffs operate under the illusion that by adjudicating between these groups, they can achieve a balance between the interests of borrowers and those of lenders. This is an illusion because most of the policies espoused by consumer groups further the interests of consumer groups, not those of consumers. Consumer groups look to entangle lenders in a maze of complex rules and potential liabilities, which provide opportunities to counsel and litigate for borrowers, and make special deals with selected lenders. The tragedy is that neither lenders nor consumer groups want to make the market work more effectively, because a well-functioning competitive market would both force down prices and reduce the need for consumer groups. The mortgage market works poorly because borrowers know so little relative to the loan originators they deal with. Economists call this the problem of information asymmetry. There are two major tools for overcoming information asymmetry: mandatory disclosures, which are discussed below; and transaction simplification rules, which are discussed next week. Under mandatory disclosures, government mandates by law that lenders must disclose what borrowers need to know to negotiate on an equal basis. We have had mandatory disclosures for three decades, however, and it has not helped borrowers in the slightest. Mandatory disclosure has raised lender costs, lengthened transaction periods, but for the most part has left borrowers as confused and overwhelmed as before. Indeed, judging from the many hundreds of letters I have answered on the subject, the required disclosures in many cases have created more, rather than less, confusion. The reasons are well known to everybody familiar with the process, including many of the consumer groups. The total volume of disclosures is excessive, overwhelming borrowers; a large proportion of disclosed items is garbage of no value to borrowers; some disclosed items are irreconcilable with others because they originate with different agencies; and none are abreast of the current market.
The major source of these problems is the early decision by Congress to make itself the source of many of the items subject to disclosure. The garbage disclosures all come from Congress. As just one example of many, the requirement that every transaction must show the sum of all scheduled monthly payments over the term of the loan, which is a completely useless number, is in the law. Congress is also responsible for entrusting the two most important disclosures -- Truth in Lending and the Good Faith Estimate of Settlement -- to two different agencies (HUD and the Federal Reserve Board), which have never succeeded in reconciling them. And of course, there is no possible way to keep disclosures up to date when substantive changes require new legislation. The remedy is obvious. Congress should remove itself from disclosure operations and eliminate all existing congressionally mandated disclosures. Sole responsibility for all mortgage disclosures should be entrusted to one agency, which would have the legal authority to set and revise the rules as needed. This is the approach taken a few years ago, to good effect, in the United Kingdom. The approach taken by HR 1728, in contrast, leaves the current disclosure system in place, adding a new set of mandatory disclosures to the pile. Under one of them, lenders will be obliged to disclose "the comparative costs and benefits of each residential mortgage loan product offered, discussed or referred to by the originator." Compliance with this rule alone, ignoring extensive other new disclosures stipulated in HR 1728, would probably double the size of the garbage pile dropped in the lap of hapless borrowers. Needless to say, none of the existing garbage disclosures are eliminated. The cardinal sin of any disclosure system is overload, because borrowers have limited time and limited attention span. Disclosing too much is the same as disclosing nothing because nothing is absorbed. Adding even a badly needed and well-designed new disclosure to an existing pile of garbage disclosures does nothing but increase costs. An agency whose sole business is disclosure would quickly learn this, but Congress never will. Next week: Improving the market with transaction simplification rules. The writer is professor of finance emeritus at the Wharton School of the University of Pennsylvania. Comments and questions can be left at www.mtgprofessor.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Jack Guttentag
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Buying home under the influence
Mood of the Market Tara-Nicholle Nelson Inman News I was showing a new client into my office the other day when she remarked on how lovely and off-the-beaten-path it was, and then asked how I found it. I related how I had first come into the area to look at an office across the way that was up a steep, long flight of stairs, but I decided against it, "because so many of my clients' down payments are provided by their parents, so I wanted to be sure I had a ground-floor office that their parents can get into!" That got me to thinking -- my clients' parents had a pretty major impact on my choice of office location, but they often play an even more significant role in their adult children's real estate transactions -- sometimes intentionally, other times totally unwittingly. The younger the client, the more significant and transparent their parents' impact on their real estate deals and decisions tends to be. I mean, I've had parents call up to ask questions at various points in the transaction to make sure their baby was being treated correctly (mostly because they didn't trust their grown-up kid to choose a good Realtor on their own). But more often, I've had parents call up after closing or approach me at my client's housewarming to hug and thank me for treating their baby right. It's not at all uncommon for me to run into parents when their children -- from 20 to 40 -- insist that Mom or Dad has to green-light the house before they can make an offer or remove contingencies. Sometimes this seems slightly pathological, as with older clients who are suffering from a clear desperation for parental approval or even a paralysis to make a decision or move forward without it. Other times, it seems quite healthy or even optimal, as with a current client, whose aesthetic tastes are so in sync with her Mom's that when she likes a property but has concerns about how livable the floor plan, say, might be, her Mom steps in as the go-to gal for suggestions and ideas about how a given home might be made to work with my buyer's life. Similarly, with very young clients for whom home buying is their real first effort to fly beyond the nest, a parent's approval or quiet, background participation in the process can be the supportive nudge that allows the buyer to make decisions boldly and with ease, (mostly) free from overwhelm and anxiety. And when the parent is gifting, loaning or co-signing to make the transaction happen, well, in the words of my own dear, not-so-old Dad, "He who has the money makes the rules." So, when these parents get involved in the deal, it seems sensible; I encourage their questions, so they can feel comfortable with the transaction and, hopefully, have no drama in the years after closing. I'm constantly surprised, though, by how many of the parents who are giving big-time down-payment gifts just exercise their generosity and then step back, trusting that their adult kid will exercise wisdom and make the right decisions. Perhaps because of that trust level, their kids generally do. Now, active involvement or authority in an actual transaction is not the only way I've seen parents' influence rear its head -- ugly or otherwise. Maybe it's just the faux shrink I think I am, but I very frequently see my clients' relationships with money and financial habits reflect the influence of their parents, and many of my buyers and sellers are very aware of it. Sometimes they track expenses, meticulously balance their checkbooks, save their money and even choose to buy a much more affordable home than they could afford because that's what their parents did; other times they do it because their parents' money behaviors were so chaotic and out of control. And even with sellers, you can often trace the mortgage and home maintenance recordkeeping, property tax payment habits and equity stewardship back to a parental inspiration.
The same goes with attitudes toward owning a home in the first place. I once had a new homeowner -- who held an MBA and was a national-level executive for a public corporation -- tell me that she'd been waiting for decades after earning a hefty salary to own a home because her mother had always rented and she'd always been told that homeownership was undesirable "because you'd have to pay your own water bill." I see the converse all the time, too: folks who simply expect to buy a home when they can afford it, because that was just a given in their family of origin. And half of my buyer clients seem to want to buy a home exactly like the place they grew up in; the other half rebel from the gingerbread Victorian of their childhood home to prefer sleek-windowed contemporaries. Buyers and sellers should aim to be conscious of how their buying, selling, owning and financial habits, decisions and actions might be impacted by their parents. Unless Mom and Dad are footing the bill, giving them a huge amount of decision-making power essentially gives that same amount of your own power away! By the same token, striving to always be as far away from your parents as possible -- in location and opinion -- also places limitations on your own personal power and choice in these matters. If you're close to your parents, strive to keep their input at a healthy and helpful level, seeking out support when you're sure you'll find it. If you're not close to them or you know you can count on them for discouragement, rather than support, don't even give them the opportunity to chime in! That brings to mind one more area in which I see parents' experiences shape their children's real estate expectations: Realtors and real estate transactions. I know this firsthand; just as my clients' parents' influence shaped my office specs, my own parents' influence has shaped my practice. It tickles me when my mother tells me that I take better care of my clients than any agent she ever had over the 30-some properties she and my Dad (an avid investor) purchased over their 22-year marriage. Of course, she's my Mom, so she's supposed to say that sort of thing. But I love it, nonetheless. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Tara-Nicholle Nelson
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When cast iron was king
Inventions that changed architecture Arrol Gellner Inman News For millenia, the only way to create a strong, durable, and fireproof structure was to build it out of stone or brick. Needless to say, this required plenty of time, material and effort, not to mention a lordly budget. But for most of man's history, this tried-and-true ancient method had to suffice. There was finally a tantalizing glimmer of change in this situation toward the end of the 18th century, when a material long in use for other items -- cast iron -- began to be used in building. Pound for pound, cast iron was much stronger than stone or brick. Since it was cast in molds, it could be cheaply mass produced. And lastly, cast iron wouldn't burn. Among the first structural uses of cast iron was the celebrated Coalbrookdale Bridge across the river Severn in Shropshire, England, built by one Abraham Darby III in 1779, and still standing today. Darby came from a storied dynasty of English ironmongers who had cast-iron cooking pots and like paraphernalia for generations. Darby reasoned that the same process might serve very well to produce repetitive structural members such as girders -- and not incidentally create a vast new market for his products. Knowingly or not, Darby opened a whole new chapter in the history of building. Most of the structural innovations using cast iron came from engineers rather than architects, and most of these advances were made in Britain, the cradle of the ongoing Industrial Revolution. At first, cast iron appeared to be the greatest building breakthrough since ancient times. It began to be widely used in bridge structures and other civil engineering works. In architecture, cast-iron columns and beams became common in factory and commercial buildings. Slender, delicately ornamented cast-iron columns even appeared in a few large English manor houses. Alas, this promising future clouded over on May 24, 1847, when a brand-new cast-iron bridge across the river Dee in Chester, England, collapsed. An inquiry determined that one of the cast-iron girders had snapped under the load of a crossing train. England saw subsequent cast-iron failures of the Bull Bridge in 1860, the Woolton Bridge in 1861, and finally the catastrophic collapse of the Tay Bridge in 1879, which killed 60, including the bridge engineer's son-in-law. In architecture, too, iron proved vulnerable. Unlike wood, which visibly bends when overloaded, cast iron could appear sound in one moment and shatter in the next. Most -- er, ironic -- it turned out that while cast iron wouldn't burn, fire could still weaken it to the point of collapse. After yet another bridge failure in 1891, it was determined that all cast-iron bridges in the United Kingdom should be replaced. Future bridges were supposed to utilize wrought iron -- a tougher, more malleable metal that unfortunately lacked cast iron's ability to be molded. However, as so often happens in history, new developments soon rendered these plans moot. By the end of the 19th century, steel -- a newly perfected material that was both strong and extremely malleable -- was poised to revolutionize building. Cast iron continued to be used on occasion for prefabricated store fronts and the like, but engineering's age of iron had ended. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Arrol Gellner
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Mystery of the 'mud-jacked' driveway
Before complete overhaul, consider options Paul Bianchina Inman News Q: My cement driveway is about 25 years old and certain spots became "mud-jacked" about nine years ago due to "settling." It is settling again in some areas and I'm wondering whether I should spot fix it again or redo the whole driveway and while at it make sure the foundation (adequate rebar, gravel etc.) is set up right. What's your advice? A: Whenever I hear about the same problem occurring twice, I'm almost always in favor of doing some additional investigation, and that would be my thoughts in your case as well. It sounds like there might be some groundwater problems, poor compaction or other issues that are going on under the slab, and I'd want to get those looked at before proceeding with another repair. Before tearing up the entire driveway, you might want to dig up the areas that are settling and then have an experienced, licensed excavator or concrete contractor come out and take a look at things. They may be able to do a little additional digging and investigative work and determine what's causing the settling, and if it's an isolated condition you may still be able to make repairs rather than doing a complete replacement. If you opt for a complete replacement of the driveway, talk to the contractors about what your options are. In addition to concrete, you might want to consider paving stones or some other material that allows for greater expansion and contraction, as well as being more resistant to freeze/thaw cycles. Q: I plan to sell my home soon. Is it worth investing in a "sunroom" patio off the master bedroom in order to increase my per-square-foot sales price? It will be engineered, have a permit, and be approximately 400 square feet. A: Whether or not it's worth the investment depends on the current value of the house and what's happening with other comparable homes in your area that are up for sale, but my gut instinct is that it probably wouldn't be worth it. However, since this is being done strictly for resale value, I would suggest that you talk with a local real estate agent and see how many homes in your area and in your price range are equipped with these types of sunrooms; look at how much the addition will cost; and then see whether the agent feels you will recoup your investment.
Q: We are going to remodel soon, and I didn't give any thought about the demands on the existing water heater. Is there an increased demand on the system? We currently have a 2-year-old high-efficiency unit in the house. A: That depends on the remodel. If, for example, you're remodeling your existing bathroom and replacing an existing sink and toilet with new ones, but not otherwise adding fixtures, there shouldn't be any increased demand on the system. In fact, with today's low-flow shower heads, demand may even drop. On the other hand, if you are adding a second bathroom, or perhaps adding a larger tub or a larger shower with multiple heads, you'll be increasing the amount of hot water that you use, and therefore adding to the load on the water heater. Depending on the size and condition of the existing water heater, it may or may not be able to handle that increase, but that's something that your plumbing contractor can easily determine for you at the time of the remodel. Q: You once pointed out that primer can be tinted close to the color you wish for, which is economical since primer is less expensive than paint. I have applied white primer to my walls and had been thinking I would next have to apply a coat of white paint -- since that is my final color choice. The primer is Zinsser Bulls Eye 1-2-3; will this stay white over time or should I indeed apply the top coat of paint? A: Primers are formulated to be a transition coating between the surface being painted and the finished coat of paint. In addition to being very good at blocking stains, primers have properties that make them stick well to drywall, wood and other surfaces, as well a creating a good surface for paint to adhere to. They do not, however, have a lot of the pigments and other ingredients that make for a good paint, and as such they are intended to be painted over with a topcoat of paint. So, as much as I hate to have you break out the paint roller again, for appearance and long-term durability you'll be happier having your walls covered with paint instead of primer. Remodeling and repair questions? E-mail Paul at paulbianchina@inman.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Inman News
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Losing the home-equity gamble
Home Sale Hindsight Tara-Nicholle Nelson Inman News Q: I'm 61 years old and in a bad situation. In 2006, I paid my house off and retired as chief financial officer for a public company. I wanted to invest in a new technology, so I called this mortgage broker who was always sending postcards to me in the mail. I had very little income, but had just entered into an agreement to work part time as the CFO for a startup earning a six-figure salary. The mortgage broker was able to get me a loan with nothing more than my Social Security earnings documentation and a letter from the startup's president. I pulled about $600,000 out of my home, with a first and a second mortgage (of course, now my home is worth only about $400,000). But I didn't realize that the first mortgage was a pay-option loan, so every month, my loan balance is going up. My investment opportunity flopped, so the money is gone. My mortgage broker is out of business. I'm missing payments and getting calls from the bank, and I'm trying to get the loan modified -- what could I have done differently? A: Before you read this, remember -- you did ask. Interestingly enough, there are few things that you did wrong from a technical, transactional standpoint. If I had to pinpoint a transactional error, per se, I would say that you should have limited your investment in an unproven technology to an amount you could afford to lose without blinking an eye, and should never have pulled out more cash from your home than you could easily afford to pay from reliable income. However, there were lots of things that went way awry in your scenario, from the perspectives of relationships, decision-making, and your relationship with money. Your home was paid off. You were retired. Your were in your late 50s. Life was good, by most people's definition. What possessed you to even embark on this investment and equity cash-out adventure? Likely the same couple of decision traps that half of the country fell into, at various degrees. We Americans seem to feel that what financial wealth we have is never enough. Many of us also fell prey to the fallacy that our homes were ever-appreciating assets, the next logical step from which is that they could be used like ATM machines. So, what could you have done differently here? You could have been grateful and satisfied with the financial comfort and ease of owning a home free and clear. You could have been protective of that wealth and comfort, rather than risking it all in an effort to parlay it into more. Or, at the very least, you could have been thoughtful about what you really wanted your life to look like, and been aware that big investment rewards, like those you must have been after to invest over half a million dollars, come attached with big risks. Then, perhaps you would have been clear with yourself up front that you were literally betting your personal farm on your investment gamble. That level of clarity might have improved your decision-making.
Now, on to your mortgage situation. You've heard, by now, that 60 is the new 40, or something like that, so although I believe you might have dropped your age to suggest perhaps you were being taken advantage of, I'm going to give you much more credit than that. You just retired a couple of years ago as the chief financial officer for a public company, so you can't be totally unaware of how loans, mortgages and amortization all work. When a consumer takes a pay-option or negatively amortizing home loan, they are made to sign 35,000 disclosures explaining what the adjustments will be like, when adjustments will occur, that making the minimum payment will result in an increasing balance, and that eventually there will be a big adjustment in the payment. (OK, 35,000 is a slight exaggeration, but only slight.) Long story short: The only way a smart guy like you ends up in such a loan without "being aware" of how the loan will operate is that (a) you neglected to read the paperwork, or (b) you consciously or subconsciously ignored the information, because you really didn't want to know. Staying awake and aware, reading your documents and asking questions, and deciding what type of mortgage to take based on your actual financial resources and predictable future income -- these are all things you might have done differently to avoid your current predicament. Finally, you should have worked with a mortgage broker you found by referral, rather than some random bloke who sent you a postcard. Let me be clear: Nothing you've said here indicates to me that he specifically did anything wrong in your situation. You called him up, asked him to get you some cash out of your home, and he did it the same way most brokers would have gotten you some cash in those days (i.e., using a stated-income loan). But if he was the type of mortgage pro who generated most of his business by postcard, it's no wonder his business couldn't survive the recent market drama. If you had worked with someone who was referred by someone you know and trust, that mortgage broker might have asked/cared/advised you with more care about the loan obligations you were committing to and perhaps even the investment you were planning. That might not have stopped you, but it might have slowed you down or encouraged you to rethink the whole deal. At the very least, a referral-based mortgage broker would be more likely to still be in business, so they would be around now to help direct you to the resources you need. Guilt and regret are probably the least productive of the entire repertoire of human emotions, so don't beat yourself up. Do be aggressive about seeking out a solution to your situation; you might need to make hard decisions about even -- gasp! -- going back to work, as most lenders are unlikely to look favorably at your loan modification application if you can't document the income needed to make a payment. If you need help, find a HUD-approved housing counselor online who can run interference with your lender. And I wish you the very best of luck. Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Tara-Nicholle Nelson
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Landlord wants day care ban
Rent it Right Janet Portman Inman News Q: I own and manage a small apartment complex. I'd prefer not to have tenants running day care operations. I've allowed it before, but the noise and comings and goings of the children and the parents were disruptive; and I'm worried about my liability if someone is injured. Can I specify that this type of home business will not be allowed? --Janice C. A: In a few states, including California and New York, a landlord's attempt to prevent home day care operations on rental property would be illegal. In those states, the legislatures and courts have concluded that society as a whole has too much to lose, in the way of affordable, quality care for its children, if landlords are allowed to prevent home day care. But the majority of states have not reached that conclusion. That's not the end of the question, however. Depending on how the courts of your state have approached the question (if they have at all), you might be on thin ice if you try to implement such a policy. That's because under federal law, landlords can get into trouble if they establish a policy that has the effect of discriminating against a protected class, even if they didn't intend to discriminate. In this context, tenants have successfully argued that a policy barring day care has the effect of discriminating against families (the assumption is that families are likely to be the ones who will want to run such operations) and women (again, the assumption is that women, more than men, will seek to run a day care center). To escape a finding that you have indirectly discriminated, in most states you'd have to convince a judge or jury that this policy is necessary to the operation of your business, and that no feasible alternative policies can be implemented to achieve the goals you seek, without a discriminatory impact. Trying to justify your policy under this standard could be tough. If you find that the drop-offs and deliveries are causing problems, you could probably find ways to address them. For example, perhaps you could set aside a place for parents to park that's not in the way of your other tenants. You could limit parking time to minimize congestion. You could work with your providers to make sure children don't run wild or otherwise disturb other tenants (but the sound of children playing during the day is not something you can forbid). And you can check into the issue of liability by finding out whether the day care licensing laws of your state require providers to carry insurance (many do). You should also check with your own insurance carrier to make sure you're covered. You might be able to ask the center to reimburse you for any additional premium you might need to pay to obtain a policy or rider that will cover incidents at the center.
Q: This morning as I left my apartment, I saw that a huge pile of construction materials had been stacked inside my patio, taking up almost all of the space. The landlord is redoing the foundation, apparently. The workmen are also using an exterior power outlet, which I pay for, and they are depositing debris in my trash bin. How can I handle these intrusions without getting kicked out? --Charles E. A: While landlords are certainly entitled to work on their properties -- and laws in virtually every state require that they do, to keep them habitable, safe and sound -- they have to compensate tenants when this work infringes on the tenants' rented spaces and rights to peace and quiet. Experienced and considerate landlords will advise tenants of upcoming projects, and work with them to minimize disruptions. Most tenants understand the need to keep the property up, and will accept some level of inconvenience if only they're consulted in advance. Your landlord's clumsy mistake was to spring this major project on you, with predictable results. Depriving you of the use of your patio is a significant loss to you. Your landlord should compensate you for that. Similarly, using the electricity you pay for to accomplish a capital improvement is not right, and if you cannot use your trash bin because it's full of construction debris, you'll be forced to rent an additional one (or let garbage pile up, which would be a violation of your duty as a tenant to not allow such a condition to occur). A smart landlord, faced with this list of transgressions, would work with you, by compensating you for the loss of your patio, telling the construction guys to get a longer extension cord and use a common-area outlet, and renting additional debris bins or boxes. If your landlord fails to take these reasonable steps, you could go to small claims court and sue. Can you estimate what a patio-less unit would rent for? If so, your rent, minus that rent, times the months you're without the patio, is the amount you'd ask for. Similarly, can you estimate the hours per day that the construction crew is using your outlet? You may be able to estimate the amount of electricity used by comparing your pre- and post-project electricity bills (be sure to correct for seasonal use). Finally, the cost of renting an extra bin could be added to your demand. A landlord served with a small claims court summons is not going to be a happy one, and might be tempted to retaliate with a termination notice. If you've got a lease, trying to terminate it won't work, because a landlord can terminate a lease short of its ending date only when the tenant has done something wrong (you haven't done anything wrong by going to court over these problems). But if you're month-to-month, the landlord can terminate with proper notice (30 days in most states), which requires no proof that you did something wrong. In that case, you'll need to check your state's anti-retaliation laws to see whether they are broad enough to protect tenants who have asserted their tenant rights in a reasonable way (most states' laws will cover you). Be aware, however, that if you decide to stay, fight the eviction and lose, you'll lose your rental. Month-to-month tenants will want to think long and hard about whether this route is worth the risk. Janet Portman is an attorney and managing editor at Nolo. She specializes in landlord/tenant law and is co-author of "Every Landlord's Legal Guide" and "Every Tenant's Legal Guide." She can be reached at janet@inman.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Janet Portman
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The truth about 'liar's loans'
REThink Real Estate Tara-Nicholle Nelson Inman News Q: I am a freelancer, and I want to fulfill my dream of buying my first home. Will they -- that is, everyone involved in the home-buying process -- take a chance on me? I don't have much on paper. A: Once upon a time, in a mortgage market far, far away, there was a loan called "stated income." Nowadays, people call it a "liar's loan" because lots of folks abused it by just fabricating an income that they knew would qualify them for the lovely manse they really wanted when their real income would get them only a plain tract home. There was, however, a legitimate use for stated-income loans at the time, and one of those uses was to allow freelance and commissioned workers to qualify for a loan without having to fully document their income with paycheck stubs, the way a salaried employee would. Mindset Management Long story short -- the stated-income days are long gone. We live in a full-documentation world. The mortgage industry will extend you home-purchasing power commensurate with the income you show "on paper," meaning your last two years' tax returns, bank account and other asset statements, and your documented credit history. That doesn't mean, however, that you will not be taken seriously by real estate professionals if you do not show up with oodles of dough or perfect credit. What you need is to find a Realtor and mortgage broker who are willing and able to work with you over time, as you prepare yourself and your qualifications to buy a home. You need a team of professionals who will give you a little bit of time now to (1) assess your current purchasing power, if any, based on the present state of your credit, income and assets; (2) determine whether it's feasible for you to purchase a home now; and, if not, (3) help you create an action plan you can work on over time to provide your best face to the mortgage world. Need-to-Knows and Action Plan Where can you find such a real estate fairy godmother (or father)? By referral -- ask around amongst your family members, colleagues and friends to try to find folks who really loved their Realtor and/or mortgage broker and would swear by them. If you really have a hard time finding someone by referral, I'd recommend two things: (1) attend some local first-time homebuyer seminars conducted by Realtors, and see if you find one that strikes you as being your "flavor" of person, and/or (2) visit the Real Estate Buyer's Agent Council Web site at www.rebac.net and use the Find a Buyer's Agent directory to find agents who have the training, experience (and patience!) to help you through this process. If you find a great Realtor who is willing to help you, ask him or her for a mortgage broker referral, and vice versa -- they need to work together to turn a mortgage approval amount into a realistic understanding of what kind of place you could buy on today's market, and whether that would work for you. Once you have your team in place, in the event you don't currently qualify for a mortgage large enough to buy the right home for you, ask your mortgage broker to help you get some clarity around what specific steps you can take to make your credit, income and assets more attractive to lenders -- and in what order you should take them. It can be tough for a layperson to accurately gauge how to most powerfully sequence and prioritize paying down debt vs. saving up for a down payment, and so forth. That's where your mortgage broker's expertise comes in, so take advantage of it! Tara-Nicholle Nelson is author of "The Savvy Woman's Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Ask her a real estate question online or visit her Web site, www.rethinkrealestate.com. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Tara-Nicholle Nelson
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Nipping problem tenant in the bud
Landlords go the extra mile to minimize disruption Robert Griswold Inman News Q: I manage a very large rental property and while the majority of our residents are great, we do have an occasional "problem tenant" who is making life miserable for neighbors. Is there anything you can suggest? A: You may be able to negotiate a voluntary move-out with your tenant. Some rental owners have negotiated agreements with their problem tenants in which they forgive the unpaid rent if the tenant agrees to leave by a mutually agreed-upon date. Other owners have agreed to refund the tenant's full security deposit immediately after the tenant has vacated the property (as long as no significant damage has been done to the property). Although you may feel strongly that your tenant should keep up his end of the lease, you may come out ahead by avoiding legal action and not having to worry about the problem anymore. You are also minimizing the chance that your problem tenant will chase away the great tenants that you want to keep. Of course, you should never count on a verbal agreement, and any voluntary move-out agreement must be in writing. Q: I am an apartment manager and have some great tenants who always pay their rent on time. But in the last year many of my tenants have fallen into a pattern of paying a little bit later each month. This is becoming a real problem, and it almost seems like the tenants are talking to one another and conspiring. Many of them still get it in just before the late charge kicks in on the sixth of the month, but the owner is now telling me he is worried that because so many tenants are paying late he won't be able to pay the property mortgage when it is due on the 10th. Do you have any suggestions? A: One of the toughest issues you'll encounter is how to deal with a tenant who is consistently late in paying his or her rent. In other respects, the tenant may not create any problems, but he or she just can't seem to get the rent in on time. You may have even had to serve a "Notice of Nonpayment of Rent" in order to get the tenant to pay -- and even then, your tenant may have not included the late charge. In my experience, this nagging problem won't go away unless you put a stop to it. The first step I would suggest is to send out a letter to all tenants reminding them that your rental collection policy calls for the rent to be paid on or before the first of the month. I would also send the required legal notice to formally change your current grace period of the sixth of the month to the third of the month. When you're faced with a tenant who just can't seem to get the rent check in on time, you have many factors to consider (such as whether the tenant is creating any other problems for you or your other tenants). But the strength of the rental market is usually the most important issue. If it's a renter's market (as is becoming increasingly common in many areas) and you know that finding another tenant to rent the property will be difficult, you may be willing to be more flexible and tolerant. Even if you know you'd have trouble finding another tenant, you shouldn't ignore the problem of a tenant you consistently pays late. Clearly inform the tenant in writing that he or she has breached the lease or rental agreement and be sure to do so each and every time you receive the rent payment late. If you fail to enforce your late charges, the tenant can later argue that you've waived your rights to collect future late charges. Be sure to let the tenant know in writing that chronically late payments are grounds for eviction even if you're not necessarily willing to go that route just yet. The landlord's comment is also valid, and many tenants forget or don't care that the property owner in many cases has a mortgage plus all of the other operating expenses that must be paid each month. Some landlords may also be having financial challenges of their own and they really appreciate those tenants who have continued to pay their rent on or before the due date each month. Tenants and landlords need to be flexible and cooperative in today's challenging economic times. This column on issues confronting tenants and landlords is written by property manager Robert Griswold, author of "Property Management for Dummies" and "Property Management Kit for Dummies" and co-author of "Real Estate Investing for Dummies." E-mail your questions to Rental Q&A at rgriswold.inman@retodayradio.com. Questions should be brief and cannot be answered individually. *** What's your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story. Copyright 2009 Inman News
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