Indiana Tax Day!

May 9th, 2013

property_assessmentTomorrow, May 10, is one of two celebrated dates by all Indiana property owners.  Your six month property tax bill is due.

In Indiana, there are two property tax days.  May 10 and November 10.  Seems simple enough except for when you identify what you are actually paying on those dates.  Or how it is calculated.

If you are somebody that really likes to get into the nitty-gritty of government finances, the State of Indiana website offers a Citizens Guide To Property Tax.  At this site you can learn the process of valuation and assessment.  The purpose of this post is to simply answer the question “what are we paying when we pay our property taxes tomorrow” (for last minute payers)!  If you dig into the Indiana finance site it may remind you of learning how a hot dog is made….something you probably really did not want to know!

If you ask anybody involved in real estate in Indiana about property taxes the first thing you will likely hear is that Indiana property taxes are paid in arrears.  At this point most people nod their heads like they know what that means.  Unless you are pretty sharp on your accounting you are faking it when you nod your head!   In arrears means that the taxes you pay in the current year are the taxes due from the previous year.   The primary reason we pay taxes in arrears is that many counties are not current on their assessments and it ultimately may take the better part of a year to certify their rates.

So, what are you specifically paying on tax day May 10, 2013?  The answer is property taxes due for the period January 1-June 30 2012.  On November 10, 2013 payment will be due for the period of July 1-December 31, 2012.  That is what arrears looks like in practice.

Ever since the invention of escrow accounts, many homeowners with mortgages never actually feel the effect of paying their property taxes.  They may actually see it as a deduction on their federal taxes (which it is but it really is not like you are saving money!).   Mortgage holders with an escrow pay a pro-rata portion of these estimated taxes every month and then the escrow administrator makes the property tax payments as due for May 10 and November 10.  It is a forced savings plan for mortgage holders to make sure taxes are paid and do not interfere with the rights of the mortgage holder.

You can now pay your property taxes on-line (for a small fee) and it is well worth it.  Tax Day used to be a busy one at the county tax offices and local banks who accepted tax payments.  It is so much easier to pay these from your computer!

Now you know all you need to know about Indiana Property Tax Day.  I don’t expect there to be much celebrating.

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Caution Needed!

March 8th, 2013

scammerOK, people…please, please, please.  When looking for a home to buy or rent, use some caution.  Particularly if you are considering buying a home on a land contract or a rent to own program.  This should be old news by now, but until these cases cease it has to be repeated.   DO NOT WRITE A CHECK FOR A HOME UNTIL YOU DO A LITTLE RESEARCH!  Yes…people are getting scammed.  It happened again and we get a phone call every week from somebody asking why the ad they found on line for a home was placed by somebody other than the Wilmoth Group.

The usual scenario is scammer finds a vacant property and markets it on some inexpensive advertising platform.  Interested party calls and sometimes they are given the lockbox code (troubling) and sometimes they actually meet the scammer and are shown the property (even more troubling).  Most of these scammers are NOT licensed or Realtors, but they probably had a Realtor give them the access information by pretending to be interested in the home.  So, Realtors, please stop just giving out lockbox codes to strangers because you are to lazy to go show a home!  You may be unintentionally contributing to a scam!

So, lets say as an interested party for purchase or rental, you do want to make a deposit or provide earnest money.  Here is a checklist of things to do to make sure you are not scammed.

If a person states they are a Realtor or licensed agent, confirm with the state licensing board, real estate board, or even the company they claim to work for. 

Most of these scammers seem to indicate they work solo, so checking on licensing is a smart first step.

Type the address into a search engine on the web and see if other listings come up for the home.  If so, call  and inquire and see if it is the same people.

Deposits and earnest money should not be made payable to individuals.  If you are asked to write a check to an individual, do a lot more homework.

If things seem really suspicious, check the local tax records and locate the name of the owner per these records.  Test the agent’s knowledge or even better, attempt to confirm with the owner that they are selling or renting their home with the person you are dealing with.

Do not accept funds from the person you are dealing with in an arrangement to return those funds to them.  These scams are elaborate but you will end up ripped off…promise.

Do not send funds to a person claiming they are the owner of a property without using every method in the book to actually confirm that they are the owner.  Tax records, picture ID, utility bills…there are many ways to connect the dots!

I am getting sick of these scammers and would like to preach caution to all.  If things do not appear right, they probably are not.

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Proof of Funds

February 18th, 2013

real estate contract lockboxHave you ever wanted to make an offer on a home and have the seller or their agent tell you that they need a “proof of funds”?  Probably…and when that happened did you question who it is really for?  Aren’t agents obligated to submit every offer…without additional requirements?   Agents today are relating to their buyers that the demand for a “proof of funds” (actually evidence that current funds exist in cash or loan commitment) is something selling agents are demanding for their own protection.  Well, if your cynical side is running the show on this issue please take a minute to finish reading this post.

It is true that many of the major servicers/owners of defaulted mortgages and foreclosed properties are now utilizing on-line offer systems that allow the seller to have a complete snapshot of all bids for a property.  In most cases these bidding systems do not have an initial method for uploading proof of funds.  So, the conclusion some are reaching is that this requirement is one that the selling agent is creating and enforcing.  This is no closer to the truth than Lance Armstrong’s multiple claims to not be using PED’s.

While the electronic bidding systems are now a large part of the foreclosed property landscape, ultimately there still is a contract package that must be submitted.  With that contract package, there are certain supplementary documents.  Jennifer Wilmoth, my partner and one of the largest volume REO brokers in America, stated  “We must have a proof of funds statement when submitting final contracts for a seller to execute in all cases for the clients we work for.  No exceptions.  So, why would we want to submit a bid for an agent or buyer unless we know that a satisfactory proof exists?  With the time lines these offers must follow, and the competition for many homes, if one does not exist when submitting a bid it likely will not be available when completing the contract package.”ing

Lets look at HUD homes for an example.  A buyers agent can submit a bid electronically for a HUD home and in that process they acknowledge that the buyer has funds to perform on the proposal.  Their bid could be accepted the next morning and then there is only two business days for a HUD contract package (including the Proof of Funds) to be in an office in another part of the country.   The entire contract package needs to be completed when submitting the electronic bid!  Same goes for Fannie Mae bidding at HomePath.com.  Much the same for other servicers also.

Bottom line is that proof of a buyers ability to perform on an offer is still very much a part of the corporate seller’s requirements..even when using an electronic bidding platform.  The listing agents are relaying sellers requirements, it is just that the delivery method has changed.

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Remodeling ROI

February 6th, 2013

remodel projectOne of my favorite reports was published last week.  It is a study as to what home projects provide the greatest return on investment (ROI).  There are 35 mid range and upscale remodel projects reviewed and these are divided by local market experience into 81 different markets.

The 2013 Remodeling Cost vs Value Report from the National Association of Realtors (NAR) and Remodeling magazine is a survey of NAR members.  Participants totaled 3900 in this years survey.  Any members willing to spend the 15 to 30 minutes providing input may participate.   Many will have actual experience and input.  Some will likely be responding based on their gut.  I’m OK with this if it is portrayed as a survey of Realtor opinion.  By the time the media outlets pick it up, the headlines seem to trump the results as scientific.  They are not any more scientific than asking opinions of Realtors at a cocktail party.  So, understand what I am about to share with you.  A lot of investors follow these posts and I suspect as a group, they could actually add a lot of valuable information to a survey like this.  I am not faulting NAR, in fact trying to quantify these ideas is a massive undertaking.  I applaud the Realtors who participate and do think they are providing reasoned and experienced opinions.

I have participated in this survey a few times and found myself guessing more frequently than actually answering questions with knowledge.  Responding to certain projects is a gut feel, gained from years of experiences, that would allow a Realtor to contribute to this study with some authority.  There is no way to know how much experience the respondents have with the topics contributed.

The main conclusion this year seems like a safe one.  Exterior projects, that provide a home with a face lift (siding, windows, doors) will return the highest ROI with all of these exceeding 70% of their cost at resale.  Note-no projects bring back 100%.  So, most projects are not to increase value but to make a home more marketable.

Kitchen remodels are the best bang for the buck for interior projects.   These came in at an average cost of $18,527 and a ROI of 75.4%.  On the other end of the scale, the addition of a home office or a sun room are expected to recoup the smallest return on cost.

In the final analysis, this study is a great guide for referring to when a home may need some investment.  Or as the owner you are ready for some updates.  The addition of value when improving a home is extremely subjective.  A local Realtor, or a local investor, will have opinions to share.  This annual study can be referred to in addition to some basic conversation.  But, if your home needs new windows, manage the cost the best you can because the bottom line is your home value is not going up by the investment made in those windows.

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Banks Walking Away From Foreclosures

January 28th, 2013

vacanthomeBanks are sometimes choosing not to foreclose and are walking away from the asset they have a right to own?  When this happens, owners who believe their home is in foreclosure, end up finding themselves receiving legal notices from authorities for code violations or maintenance.  Sounds like a new mess that likely will create one more burden for municipalities and homeowner associations.

According to CNBC, banks are deciding the costs they will incur in processing the foreclosure and settling violations of all sorts are not worth it to go through a lengthy foreclosure process.  I would think these decisions would have anti-foreclosure advocates celebrating but instead it is quite the opposite as the defaulted owner finds out they are still responsible for a property.

The settlement between the Department of Justice and the five largest mortgage servicers, effective October 2012, actually requires notice be given the defaulted owner that the foreclosure is not being pursued and they now own the property free and clear.  If your mortgage is with one of these five servicers, they are required to inform the owner.  Note the word five in this paragraph and then ask yourself if your servicer is somebody named Bank of America, Citibank, JPMorgan Chase, Wells Fargo or Ally Financial.  Servicers are the company where  you are suppose to make your payment.  If so, then you should receive notice…if you left a forwarding address!

The problem is arising when owners receive a notice of default and then walk away…only later to find the bank never completed a foreclosure.   Probably, the same owners were not making repairs or handling maintenance if they had chosen to stop making their mortgage payments.  They were not paying their Association dues or even their property taxes.  I guess the point in all of this is if they know that the bank is going to not pursue the foreclosure, and forgive their mortgage, they will have cash to now pay these bills?

The bottom line in all of this is that we now have respected media telling owners to stay put in your home until the day the sheriff tells you that you must leave.  If only these municipalities and associations were as aggressive in collecting their fines while the defaulted owner still occupied the home.  It is interesting how quickly, and aggressively, they will wait for the deep pocketed bank to complete the foreclosure and then insist that maintenance be  performed, fines paid, and dues brought current.  Maybe these entities will need to now rethink those practices as now we know, the bank may never appear on the scene and the defaulted owner will remain responsible.

 

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Mortgages In Real Time

January 7th, 2013

walmartA  study focused on consumer attitudes about home ownership was released last month.   The focus was centered on the mortgage application process.  The big headline from the study was that 1 in 3 consumers stated they would consider obtaining a mortgage from Walmart.  The headlines seem to blare that this was quite the revelation…33% of people would consider a Walmart mortgage!  My thought was…why so low?

Later in the study, the focus turned to consumer frustration with the mortgage process.  Beyond the usual complaints about interest rates, taxes and escrow…the main issue is execution of the process.   Slow execution.  I agree totally.  Why does it take 4-6 weeks to obtain a mortgage?  In the 1980′s I would not have questioned that it takes so long for the paper to flow through the process.  Today, I can’t figure out why the mortgage industry has not trimmed this time line.  I have been involved in the world of real estate finance since the 1980′s, and I venture to say it takes as long today to close on a mortgage as it did in 1984 when I purchased my first home!

Lets contrast this with the second biggest purchase most people make.  Over the holidays, my daughter was home from college and we needed to address her driving situation.  After she did her shopping, she selected a nice used vehicle from a local dealer.   I negotiated with the dealership by email until a deal was struck.  About two hours later we went to the dealership, completed some paperwork, and within an hour, drove away with the car and a car loan.  I can make a case that this car loan is much more risky than a mortgage.  Yet, all the underwriting and documentation can be completed in one hour!

Any wonder the mortgage industry has a problem with consumer satisfaction?

When you think of Walmart you think of low prices first.  Convenience..maybe second.   Much of Walmart’s success is based on speed though.  Quick inventory turns are a part of how you keep prices really low.  Does anybody not think Walmart (or any non-bank) mortgage provider could not speed up the approval and funding process?  I can hear the banks now…they believe we are willing to take a longer journey for that mortgage due to the professional, personal service we receive.  Stop me from laughing please!  This study says 56% of its participants are laughing with me.

The final conclusion of the study is that consumers want price, service and trust.   Service means not waiting 3-4 weeks to find out if you are approved.  I can name several non-mortgage companies that can offer all three of these benefits if they chose to commit to offering mortgages.  The question left is who will challenge the banks model first?

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Crucial Steps To Buying A Foreclosure

December 4th, 2012

Seems like when the conversation gets around to what I do for a living, just the smallest mention of being involved with foreclosures sparks people’s attention.  Many people are intrigued by the prospects of purchasing a foreclosure as an investment.  Others are trying to find a home to live in a foreclosure leaves them with more questions than answers.  With most Realtor associations reporting default sales making up 25% to 30% of all sales, it is easy to see why so many potential buyers are interested.

I always try and keep these conversations simple because each case has its own unique circumstances.  Nevertheless, the basics that I explain to buyers they need to consider when they are considering a foreclosure consists of the following.

Disposition:  By this I ask the buyer to self-assess.  Foreclosure sales can be tricky and involve more time than many buyers have the ability, or patience, to work through.  The time involved is on both the buyer and seller’s ends.  For a buyer to assess a foreclosure properly, there is some legwork.  Famously, the seller’s are also not known for timeliness.  This causes frustration if one is accustomed to traditional sales methods.

Value : Most buyers have this one figured out..or at least they think they do.  The main reason people want to buy a foreclosure is “to get a good deal”.  But what exactly does that mean?  We are in the business of determining value and most properties come with a range of them!  The reality that most buyers should understand is when a foreclosure is priced within that range, it will frequently get multiple offers.   Seller’s know this to be true.  An offer of 50% of list price is not going to get you far and likely will end up with the buyer watching the home go under contract while they are asking what happened to their offer.  Do the homework of identifying that range.  This is an important function of using a buyers agent.

Inspect:  So many offers are made by buyers who have not thoroughly inspected the property.  Many buyers believe they just get the winning bid, then inspect and determine if they still want the home.  Many will pursue requesting repairs prior to closing.  This might be an option with some sellers…but the majority of the time it is not.  Many foreclosures are sold “as-is” and the seller accepts your offer on that condition.  For a buyer that means getting your earnest money returned may be challenged.  Do your homework upfront by using professionals to help you determine the condition of the home.

Financing: There are some tremendous options available for buyers of foreclosures!  Some programs provide financing for repairs and allow a buyer to make some personal selections for things like carpets and paint.   Owner-occupants and investors both have possible low down payment options.  One of the best seller financing program for a foreclosure is HomePath from Fannie Mae, offering many closing related costs waived, low down payments and many other attractive terms.  The presence of a great financing package can be a huge deal when considering a foreclosure.

Ready:  All foreclosure sellers require proof of funds prior to considering an offer.  If you want to make an offer on a foreclosure, traditional financing contingencies do not apply.  You need to have a bank approval letter dated in the last thirty days or proof of cash.  If you do not have one of these, then you are not ready to be looking at foreclosures.

One final thought.  Buyers are often confused about short sales and foreclosures.  They are NOT the same thing.  Short sales are still owned by a seller who has not acquired the property through a default..ie foreclosure.  They are people just like you and me.  They do not have the ability to sell their home without their mortgage company blessing the sale because it will not provide enough cash to pay off the mortgage and provide a release.  It is a complicated process and a topic for another day.

 

 

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Low Ball Bids

November 2nd, 2012

Nobody wants to pay more than they have to for anything.  If we are talking about groceries, where a combination of the lowest prices with the best quality and shopping experience are important factors,  price will usually  trump.  Buying real estate though involves a bidding or offer process.  Bank owned real estate is even a little more different.  Many of the institutions and government entities with properties for sale have converted to electronic bidding systems.   In many instances, these systems have eliminated the concept of a counter offer.  The bidder has one shot.  The sellers are dismissing the low ball offers while seeking to work only with the competitive bidders.

From the seller’s perspective, they have valuations from appraisers and brokers to  consider.  They are also not like a typical seller who might just be desperate.   The banks are NOT desperate to move or give away their real estate owned!  They want to contribute to a housing recovery by selling their properties at near market prices.  Market prices mean similar to the range of prices the immediate area yields.  The buyers with the low ball offers that are being sprinkled all over town, looking for a bite, will not get far with the institutional sellers.

I also run into buyers who want to make their low ball offer with a letter of explanation.  This letter includes comparative sales they have used to determine value and a list of repairs needed to the property.  I fully understand why somebody wants to present their case…we just have no way to facilitate this.  The bank seller has their own comps and their own list of repairs.  We have no way to submit a letter like this and, even if we did, I seriously doubt it would be read.

My suggestions to potential bidders for bank owned homes:

Make your best offer the first time.  Don’t expect a counter offer.  If you do, and you made your best offer, stick to it.  See what happens.

If the property is one you want, for a home or investment, don’t wait.  Bank owned properties sell quickly.  The reason- they are priced appropriately for the market and their condition.

If you are looking for an investment-review the aged inventory.  This is the best place to find a property where there will be consideration of any offer presented.

Offer expiration dates mean zilch to bank sellers.  Sometimes offers are held until the bank has enough to review several.  I have seen banks come back three weeks after an offer is presented and ask if the buyer was still interested.   The bank would now like to bring their offer under contract.

Finally, whatever else you might do, DO NOT fail to provide a current proof of funds with all the details to make it very clear that the buyer has the resources, or an adequate loan approval, in place to perform on their offer.

 

 

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Posted in Buyers, Buyers Agents, Good Offers, Offers | 1 Comment »

Multiple Offers

October 5th, 2012

One of the major improvements in selling bank owned homes over the last five years is the systematization of the multiple offer scenarios.  So many agents in the past insisted that they be told how many offers a seller had received…like it was a right that existed for the buyer.  There also was a belief that the first offer submitted was the only one a seller could respond to before moving to another offer.  Both of these beliefs were wrong..but I still run into them today.  Usually, it is a misinformed buyer who is confused by the process because it was not adequately explained by their agent.

The Multiple Offer dialogue begins and ends with an understanding that disclosure of any other offers is only to be done by a listing agent when given that permission as part of their listing or other written agreement.  It is not a violation of the Code of Ethics to decline such requests from other agents.  In fact,  Article 1, Standard of Practice 1-15 of the Code of Ethics of the National Association of REALTORS®, requires that listing agent disclose the existence of multiple offers ONLY with the seller’s approval.   An addition to the Code of Ethics in the last few years added the following requirement: Where disclosure is authorized by the seller, REALTORS® shall, if asked,  also disclose whether the offers were obtained by the listing broker, another licensee in the listing firm, or by a cooperating broker.  For a buyer or agent to expect this information is not correct.  A seller must authorize it.  Most of the bank sellers now authorize, with a certain set of procedures for how disclosure of multiple offers are to take place.  Please remember these are not laws but pledges anybody who is a Realtor is expected to conform to as part of a Realtor Code of Ethics.  You may be working with a licensee who is not a Realtor.  In that case, these same ethical duties may be ignored.

Educating your buyer is the best thing to do about this process.  It is a very common part of the bank owned home purchase process.   It should not cause buyers or agents to shy away from making an offer on a property.  A good understanding of the process, with expectations set accordingly, will result in the best experience for all.  The most important thing for a buyer to understand?  A low offer may never have a second chance.  Sellers often select the most competitive offers and allow them a “highest and best” period to submit one more offer.  There is no requirement that every submitted offer will receive this opportunity.

The National Association of Realtors has published an excellent guide for Realtors to use when advising sellers and buyers in multiple offer situations.  Click here to download “Presenting and Negotiating Multiple Offers.”

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Immigrants As FHA Buyers

September 4th, 2012

Wrongly, at one of my trainings,  I had an agent ask me how to finance a resident, non-US citizen “since they can’t use FHA”.  Several other agents at the session were under the same impression.   Not something you may run into every day but still worth the effort to know that in fact, certain  non-US citizens (immigrants) can use FHA financing to purchase a home!

Some of the confusion may derive from the fact FHA does have criteria the borrower needs to meet.   These guidelines are in place so that the lender can establish the type of residency status of the borrower.  The key to approval is for the borrower to have an approved residency called a “permanent resident alien” status.  Any borrower who has “permanent resident alien” status will also have a social security number.   They also should have a social security card.  If they don’t, the lender will need to validate that the borrower has a social security number.  This can be done by obtaining a letter from social security, or a copy of a tax return, W-2, or 1099.

As I discussed this further with the agents, I learned the confusion on this topic revolves around residency.  “Permanent resident aliens” actually live in the United States and with their social security number may buy a home using an FHA loan.  Non-residents may not utilize FHA for financing.  It is important to understand this distinction prior to beginning to work with any buyer.

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