By Joel Persinger
One of my grandfather’s favorite sayings was, “The more bends you put in the plumbing, the easier it is to stop up the drain.” Well, my dear reader let me tell you… the mind boggling number of changes to the real estate and lending market this past few years have put a lot of bends in the plumbing. When you throw in the oddball things that can sometimes happen with real estate purchases, the drain can be stopped up more often than not.
One of my sellers moved out of the area and left her house to be sold while vacant. So, I sold it for her. The buyers were happy and everything was moving along just fine until the buyer’s lender wanted to know if the room addition was completed with the proper permits. When asked about this, the seller said, “Of course there are permits” and directed me to one of the kitchen drawers where she had left the permits and the plans for the room addition. Naturally, I went to the property at once to secure the permits. The problem is the permits weren’t there.
It seems that a potential buyer who had visited the home had absconded with the permits. We found this out surreptitiously when that buyer contacted escrow and asked, “So, when do we get the house?” The escrow officer was naturally confused by this turn of events and said, “Ah… you don’t have an escrow on that house.” As it turned out, this buyer had been under the impression that she was buying the house even though she didn’t have an accepted offer and had never opened escrow. It took me three weeks to get her give us back the permits. In the meantime, I checked with the city and county only to find that they had lost the originals. So, the only copies were those that the confused buyer had taken. By the time I got them back the real buyer had given up and cancelled escrow.
In another instance, an Army veteran and his wife worked with me to find them a home. We found a great house for them at a wonderful price. The escrow appeared to be moving along smoothly and all appeared to be right with the world. It was then that we discovered that his certificate of eligibility for his V.A loan was being held up. It seems that the V.A. records did not show his entire length of service. In fact, the records only indicated that he was in the military for the short time he was stationed in California. Since his discharge papers and other related paperwork did in fact show his entire service record, the V.A. indicated that all he had to do was to send the paperwork to the appropriate V.A. office and they would make the change. The problem was that we were supposed to close escrow in 15 days and nobody on the planet believed that the V.A. would move that fast. Not even the V.A.
In yet another strange situation, a client of mine was in line to buy a home only to find out that his lender would not accept the appraised value of the house. This was in spite of the fact that it was the lender’s appraiser who came up with the value. No matter how clear we were about the fact that the house in question was a custom home on over an acre of land with a 300 degree mountain view, the lender insisted on deriving their opinion of value by comparing the home to the many tract houses that surround the area at the bottom of the hill. It should be mentioned that the tract houses were on small lots and did not have a view. The decision to reject the appraisal was made by a junior underwriter located somewhere in Pennsylvania.
These are just three of the many screwball situations my clients have faced over the past several months. In most cases, the problems were able to be resolved and the escrows went through just fine. But, in every case an extraordinary measure of patience and perseverance was required on the parts of the clients (as well as everyone else). It should also be noted that every one of the escrows we have closed over the past three years has been a challenge, to one degree or another. The days of the easy home purchase, if they ever existed, are gone!
The bright side to this otherwise dismal tale is the opportunity it presents for you as the home buyer. Since we know that the overwhelming majority of home purchases in this current environment are difficult, it is the buyer who is willing to hang in there for the long haul who will succeed. While other buyers are giving up, you will persevere and thereby accomplish your goal of buying a home. So, here’s my advice: hang in there and be prepared for the long haul. Buying a home in this marketplace is challenging. But, those who are up to the challenge can swing some terrific deals.
Monday, April 6, 2009
Buying a Home is a Partnership for Good or Ill.
By Joel Persinger
Not long ago, I was meeting with a couple who were in the process of losing their home to foreclosure. Their savings was gone and they were suffering emotionally. Neither of them had slept well for quite some time and both were beginning to experience stress related health problems. During our meeting, the husband sat with his eyes closed, brow furrowed and his arms ramrod straight in front of him as he maintained a death-grip on their kitchen table. He looked like a man, afraid of heights, who was being forced at gunpoint to ride his first rollercoaster. After an hour of listening to his wife explain their situation and how they arrived at such a disastrous financial point in their lives, the gentleman finally relaxed and released his grip on the table. Amazingly, his sudden relaxation immediately followed something I said. Since it seemed to work so well for him, I’m going to repeat it for you.
If you own a home and you have a mortgage, then you invested in real estate with a partner. Your partner is the bank that loaned you the money. You invested with the idea that your home would go up in value over time and that you could live there while that investment increased in value. The bank invested in the same way. Just like you, the bank decided to gamble that the investment would go up in value and that money would be made in the form of interest on the existing loan. They also planned to introduce you to new loan programs as your equity increased in the hope of selling you a new loan down the road.
Let’s replace the bank with a friend and see how this actually works. Say, for example, that you want to buy a duplex so that you can live in one unit and rent out the other. You only have enough money to pay for part of the duplex, so you need somebody to go in with you in order to be able to do it. You and your buddy decide to do this together and you both plunk down your money on the property and pay all cash. As part of the agreement, you get to live in the property and you and your buddy split the profit derived from renting the second unit. Since your buddy doesn’t get to live there, you both agree that he will have the right to sell the property and keep the money, if something goes terribly wrong.
Everything seems to be going along fine, but suddenly the hillside in the backyard collapses and destroys the duplex. As a result, you no longer have a place to live and both you and your buddy have lost the income from the rental unit. As if to add insult to injury, your property is now worth less than half of what you paid for it, because the building has been destroyed. In this situation, would you be the only one who loses? I don’t think so. Your buddy would lose too. But, you might actually lose more than your buddy. You have to find a job, a place to live and you lost your property in the process. Your buddy, on the other hand, already has a job and a place to live. In addition, he gets to sell the vacant lot to get some of his money back and he doesn’t have to share a dime with you. This is the way it works with a bank.
You and a bank purchased a property together. You both agreed that the property was worth what you paid for it and you both stood to gain if your investment worked out. But, you both took a risk as well and you both stood to lose if things didn’t work out as planned. So, if you lose, the bank will lose too. That is as it should be. While you bear some responsibility for making a bad investment, you do not bear it all. The bank may have invested more than you, but that’s why the bank gets to keep the property and sell it in an attempt to regain some of its lost money. You don’t get to do that.
Now that you understand that your home was an investment and that you weren’t alone in thinking it was a good one, give yourself a break. Every investor makes mistakes. That’s generally how they learn. So, learn something from it and move on. In the meantime, do the best you can to reduce your losses and when bedtime comes each night, leave that day’s guilt behind you and get some sleep.
Not long ago, I was meeting with a couple who were in the process of losing their home to foreclosure. Their savings was gone and they were suffering emotionally. Neither of them had slept well for quite some time and both were beginning to experience stress related health problems. During our meeting, the husband sat with his eyes closed, brow furrowed and his arms ramrod straight in front of him as he maintained a death-grip on their kitchen table. He looked like a man, afraid of heights, who was being forced at gunpoint to ride his first rollercoaster. After an hour of listening to his wife explain their situation and how they arrived at such a disastrous financial point in their lives, the gentleman finally relaxed and released his grip on the table. Amazingly, his sudden relaxation immediately followed something I said. Since it seemed to work so well for him, I’m going to repeat it for you.
If you own a home and you have a mortgage, then you invested in real estate with a partner. Your partner is the bank that loaned you the money. You invested with the idea that your home would go up in value over time and that you could live there while that investment increased in value. The bank invested in the same way. Just like you, the bank decided to gamble that the investment would go up in value and that money would be made in the form of interest on the existing loan. They also planned to introduce you to new loan programs as your equity increased in the hope of selling you a new loan down the road.
Let’s replace the bank with a friend and see how this actually works. Say, for example, that you want to buy a duplex so that you can live in one unit and rent out the other. You only have enough money to pay for part of the duplex, so you need somebody to go in with you in order to be able to do it. You and your buddy decide to do this together and you both plunk down your money on the property and pay all cash. As part of the agreement, you get to live in the property and you and your buddy split the profit derived from renting the second unit. Since your buddy doesn’t get to live there, you both agree that he will have the right to sell the property and keep the money, if something goes terribly wrong.
Everything seems to be going along fine, but suddenly the hillside in the backyard collapses and destroys the duplex. As a result, you no longer have a place to live and both you and your buddy have lost the income from the rental unit. As if to add insult to injury, your property is now worth less than half of what you paid for it, because the building has been destroyed. In this situation, would you be the only one who loses? I don’t think so. Your buddy would lose too. But, you might actually lose more than your buddy. You have to find a job, a place to live and you lost your property in the process. Your buddy, on the other hand, already has a job and a place to live. In addition, he gets to sell the vacant lot to get some of his money back and he doesn’t have to share a dime with you. This is the way it works with a bank.
You and a bank purchased a property together. You both agreed that the property was worth what you paid for it and you both stood to gain if your investment worked out. But, you both took a risk as well and you both stood to lose if things didn’t work out as planned. So, if you lose, the bank will lose too. That is as it should be. While you bear some responsibility for making a bad investment, you do not bear it all. The bank may have invested more than you, but that’s why the bank gets to keep the property and sell it in an attempt to regain some of its lost money. You don’t get to do that.
Now that you understand that your home was an investment and that you weren’t alone in thinking it was a good one, give yourself a break. Every investor makes mistakes. That’s generally how they learn. So, learn something from it and move on. In the meantime, do the best you can to reduce your losses and when bedtime comes each night, leave that day’s guilt behind you and get some sleep.
Monday, March 23, 2009
Is Spending Money You Don’t Have a Good Plan?
By Joel Persinger
YourRealEstateDude.com
Over the past few days I have been approached by several clients who expressed concern that the U.S. Government is leading us into disaster by printing trillions of dollars in a vain hope that doing so will save the economy. On thing all of these folks had in common was their belief that the United States Government is spending money that it doesn’t have. Is that true and if so, is it a good plan?
There’s an old joke that goes, “What do you mean I don’t have any money in my account? I still have checks!” We all know that if I write checks without sufficient money in my bank account, the bank will refuse to cover my checks and vendors will eventually stop accepting them. My checks will become worthless. If I want to dig myself out of the hole and get the vendors to accept my checks again, I will have to borrow the money to cover the checks that I’ve already written, along with any I might intend to write in the future. Then, I will have to find a source of income, like a second job, in order to pay the debt on the money I had to borrow.
When the government prints money, it is essentially writing checks even though it has no money in its bank account. Just like my checks, people will eventually stop accepting the government’s money, because its money will have become worthless. The only way for the government to stave off such an eventuality is to borrow enough money from other countries to cover the checks it has already written, along with any it might intend to write in the future. Then the government will have to find a source of income to pay the debt on the money it had to borrow. Unfortunately, the government cannot get a second job. All it can do is raise taxes on generation after generation of Americans.
It may be disturbing to know, but should be point out that the government doesn’t make anything, grow anything, produce anything or sell anything. Basically, the government doesn’t make any money of its own. The Government is like a horribly fat old uncle who sits on your couch all day, eats your food, watches your TV, minds your business and bosses you around without ever pitching in to help pay the bills.
Many of us think that the government is our benefactor, but the reverse is actually the case. We are the government’s benefactors. We design and manufacture products, grow crops, provide services and run profitable business, while old, fat Uncle Sam sits on his behind and sponges off of us in the form of taxes and bosses us around.
But, what does all this have to do with the housing market? First of all, the economy functions as a unit. You cannot easily separate one section from another. Consequently, what affects one sector eventually affects them all. Therefore, when money is devalued, it takes more of it to buy goods, services and real estate. If you’re old enough to remember the late 1970’s, you remember the recession of the Carter years. We faced double-digit inflation back then. Prices of goods and services were sky high. People lost jobs all over the country. You could only buy gas for your car on odd or even days, depending upon whether your license plate ended in an odd or even number. And even when it was your day to buy gas, you had to wait for long periods because cars were lined up for blocks.
Like it or not, what happens with the economy affects everything. Many highly regarded economists and gurus, including those in the Congressional Budget Office, seem to be rightly concerned that printing all this money will send our economy into a tailspin, driving us headlong into a deep recession. If that happens, it may take more money to buy your house, but you may not be able to sell it. People will be too busy trying to scrape together the money to buy bread, eggs and gasoline. No matter how desperate you may be for a cure to present ills, it seems obvious to this real estate broker/investor that writing checks when you have no money and borrowing money that you cannot pay back will only make our current economic problems worse.
YourRealEstateDude.com
Over the past few days I have been approached by several clients who expressed concern that the U.S. Government is leading us into disaster by printing trillions of dollars in a vain hope that doing so will save the economy. On thing all of these folks had in common was their belief that the United States Government is spending money that it doesn’t have. Is that true and if so, is it a good plan?
There’s an old joke that goes, “What do you mean I don’t have any money in my account? I still have checks!” We all know that if I write checks without sufficient money in my bank account, the bank will refuse to cover my checks and vendors will eventually stop accepting them. My checks will become worthless. If I want to dig myself out of the hole and get the vendors to accept my checks again, I will have to borrow the money to cover the checks that I’ve already written, along with any I might intend to write in the future. Then, I will have to find a source of income, like a second job, in order to pay the debt on the money I had to borrow.
When the government prints money, it is essentially writing checks even though it has no money in its bank account. Just like my checks, people will eventually stop accepting the government’s money, because its money will have become worthless. The only way for the government to stave off such an eventuality is to borrow enough money from other countries to cover the checks it has already written, along with any it might intend to write in the future. Then the government will have to find a source of income to pay the debt on the money it had to borrow. Unfortunately, the government cannot get a second job. All it can do is raise taxes on generation after generation of Americans.
It may be disturbing to know, but should be point out that the government doesn’t make anything, grow anything, produce anything or sell anything. Basically, the government doesn’t make any money of its own. The Government is like a horribly fat old uncle who sits on your couch all day, eats your food, watches your TV, minds your business and bosses you around without ever pitching in to help pay the bills.
Many of us think that the government is our benefactor, but the reverse is actually the case. We are the government’s benefactors. We design and manufacture products, grow crops, provide services and run profitable business, while old, fat Uncle Sam sits on his behind and sponges off of us in the form of taxes and bosses us around.
But, what does all this have to do with the housing market? First of all, the economy functions as a unit. You cannot easily separate one section from another. Consequently, what affects one sector eventually affects them all. Therefore, when money is devalued, it takes more of it to buy goods, services and real estate. If you’re old enough to remember the late 1970’s, you remember the recession of the Carter years. We faced double-digit inflation back then. Prices of goods and services were sky high. People lost jobs all over the country. You could only buy gas for your car on odd or even days, depending upon whether your license plate ended in an odd or even number. And even when it was your day to buy gas, you had to wait for long periods because cars were lined up for blocks.
Like it or not, what happens with the economy affects everything. Many highly regarded economists and gurus, including those in the Congressional Budget Office, seem to be rightly concerned that printing all this money will send our economy into a tailspin, driving us headlong into a deep recession. If that happens, it may take more money to buy your house, but you may not be able to sell it. People will be too busy trying to scrape together the money to buy bread, eggs and gasoline. No matter how desperate you may be for a cure to present ills, it seems obvious to this real estate broker/investor that writing checks when you have no money and borrowing money that you cannot pay back will only make our current economic problems worse.
Monday, March 16, 2009
Dealing With Your Lender When You Can’t Make Your Payments
By Joel Persinger
Over the weekend, I received an email from a fellow asking me how to deal with a lender that was threatening foreclosure. In his case, he was not yet behind on payments and the lender had threatened to foreclose when the borrower called to ask for help. The borrower wanted to keep the house and expressed a desire to work with the lender by making partial payments. The question he asked me was, “Does a borrower have a right to keep the house, if he makes a partial payment.” With so many folks facing the same or similar issues, I thought you might like to know my answers to his question.
Not being an attorney, I can’t give you specifics regarding a borrower’s rights to keep the house by making a partial payment. However, it has been my experience that agreements allowing a borrower to remain in a home while making a partial payment are generally made outside the structure of the original lending agreement and are for short periods only. Your loan documents may contain a provision addressing the issue of partial payments. They may also address any rights you might have under such circumstances. Therefore, if you are wondering about your rights under the terms of your loan agreement, a good place to start would be examining those documents.
As for lender responses to telephone calls, you must first understand that banks employ different persons in different departments to do different things. As a result, the Customer Service Department may have a completely different response to a question than the Collections Department, which may have a different response than the Workout Department, and so on. That having been said, there are seven generally accepted “truths” you might wish to consider.
1) Letters generally work better than telephone calls. If you need to work out a payment strategy with your lender, you might try writing a letter. Draft your letter to the bank explaining your financial hardship, how long you feel the hardship will last and any proposed solutions you may have. Prior to sending the letter, you should contact your lender and ask for the “Workout Department” or for a supervisor. One or the other may be able to provide you with the appropriate address to which you should send the letter. You should also try to get an email address. That way you can send the letter by email, as well as by certified postal mail return receive requested. The email will provide you with a record of what you sent, to whom you sent it and when it was sent. Certified postal mail, by comparison, will only prove that you sent something, but will not prove what you sent.
2) Working these things out with banks is like trying to solve a problem with the DMV. It can try even the calmest person’s patience. Therefore, it is import to remember that perseverance and patience are the watchwords of the day.
3) Banks do not generally like partial payments. If you call your lender and say, “I’m having some financial troubles. Can I make a partial payment for a few months?” don’t be surprised if the first answer you receive is, “NO.” The bank is not going to just take your word for it. You will have to provide financial records and documents to prove that you cannot make the payment.
4) Banks don’t want to foreclose on your property. They just want their money back in the form of a payment. However, they will threaten to foreclose in order to motivate the borrower to pay. It should also be noted that they do have the power to foreclose, at some point, if the borrower does not pay. So, it is best to work on the problem sooner rather than later.
5) Collections people at banks tend to use threats as their first response to just about everything. So, don’t be terribly insulted if they threaten you the first, second or even the third time you talk to them.
6) Quite often, banks don’t see the situation as a problem when the borrower is making the payment. After all, the borrower is making the payment! So, what’s the problem? It’s when you completely run out of money and the bank doesn’t receive your payment that the light bulb will go on and the bank will realize that a problem exists. It’s sad, I agree. But, it’s the truth nonetheless. I should clearly point out that I am NOT advising you to stop making your loan payments. You should contact a quailed attorney for advice prior to making any such decision.
7) Dealing with problems like these is not easy. But, the sooner you start working on them the better. The worst thing you can do is to pretend that they will go away on their own.
Over the weekend, I received an email from a fellow asking me how to deal with a lender that was threatening foreclosure. In his case, he was not yet behind on payments and the lender had threatened to foreclose when the borrower called to ask for help. The borrower wanted to keep the house and expressed a desire to work with the lender by making partial payments. The question he asked me was, “Does a borrower have a right to keep the house, if he makes a partial payment.” With so many folks facing the same or similar issues, I thought you might like to know my answers to his question.
Not being an attorney, I can’t give you specifics regarding a borrower’s rights to keep the house by making a partial payment. However, it has been my experience that agreements allowing a borrower to remain in a home while making a partial payment are generally made outside the structure of the original lending agreement and are for short periods only. Your loan documents may contain a provision addressing the issue of partial payments. They may also address any rights you might have under such circumstances. Therefore, if you are wondering about your rights under the terms of your loan agreement, a good place to start would be examining those documents.
As for lender responses to telephone calls, you must first understand that banks employ different persons in different departments to do different things. As a result, the Customer Service Department may have a completely different response to a question than the Collections Department, which may have a different response than the Workout Department, and so on. That having been said, there are seven generally accepted “truths” you might wish to consider.
1) Letters generally work better than telephone calls. If you need to work out a payment strategy with your lender, you might try writing a letter. Draft your letter to the bank explaining your financial hardship, how long you feel the hardship will last and any proposed solutions you may have. Prior to sending the letter, you should contact your lender and ask for the “Workout Department” or for a supervisor. One or the other may be able to provide you with the appropriate address to which you should send the letter. You should also try to get an email address. That way you can send the letter by email, as well as by certified postal mail return receive requested. The email will provide you with a record of what you sent, to whom you sent it and when it was sent. Certified postal mail, by comparison, will only prove that you sent something, but will not prove what you sent.
2) Working these things out with banks is like trying to solve a problem with the DMV. It can try even the calmest person’s patience. Therefore, it is import to remember that perseverance and patience are the watchwords of the day.
3) Banks do not generally like partial payments. If you call your lender and say, “I’m having some financial troubles. Can I make a partial payment for a few months?” don’t be surprised if the first answer you receive is, “NO.” The bank is not going to just take your word for it. You will have to provide financial records and documents to prove that you cannot make the payment.
4) Banks don’t want to foreclose on your property. They just want their money back in the form of a payment. However, they will threaten to foreclose in order to motivate the borrower to pay. It should also be noted that they do have the power to foreclose, at some point, if the borrower does not pay. So, it is best to work on the problem sooner rather than later.
5) Collections people at banks tend to use threats as their first response to just about everything. So, don’t be terribly insulted if they threaten you the first, second or even the third time you talk to them.
6) Quite often, banks don’t see the situation as a problem when the borrower is making the payment. After all, the borrower is making the payment! So, what’s the problem? It’s when you completely run out of money and the bank doesn’t receive your payment that the light bulb will go on and the bank will realize that a problem exists. It’s sad, I agree. But, it’s the truth nonetheless. I should clearly point out that I am NOT advising you to stop making your loan payments. You should contact a quailed attorney for advice prior to making any such decision.
7) Dealing with problems like these is not easy. But, the sooner you start working on them the better. The worst thing you can do is to pretend that they will go away on their own.
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