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Articles and Advice |
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| Transferring loan on inherited home By Benny Kass DEAR BENNY: I recently inherited my mom's home, valued at $136,000. Unfortunately, she had a home equity line of credit (HELOC) on it for $66,000. Apparently, a relative talked her into getting this loan to start a small business. Of course she was stuck paying the loan, and the payments are current. I would like to move into the home but have had no luck with the lender in transferring the loan to my name. What are my options? I really do not want to refinance because her interest rate was 3.25 percent, which is fantastic. I am at a loss. I am maintaining all the expenses of this home but receive no benefits. --Sheila DEAR SHEILA: First, have you probated your mother's estate? Depending on how she held title to the house, you may have to go to probate to make sure that the house is really in your name. If title was held in both your names as joint tenants with rights of survivorship, then you will automatically own the house. (Note: Not all states use the same terminology, so you should consult a local attorney for clarification of who currently owns the house.) But if the house was in your mother's name only, then title is in "legal limbo." In other words, until a probate court issues a final order, you cannot do anything with the house legally. You state that the current interest rate is 3.25 percent. Have you reviewed the legal documents relating to the HELOC? Although I have not seen those papers, I suspect that the interest rate is variable -- in other words, it may be readjusted periodically, possibly every year. Now to your specific question: Back in 1982, Congress enacted what is known as the Garn-St. Germain Depository Institution Act. Although this law deals with a lot of subjects, one of them relates to your situation. In most mortgages, there is a provision known as a "due on sale" clause. This means that if a house is sold or transferred, the new owner cannot automatically assume the old loan. However, the 1982 law imposed a number of restrictions on lenders who want to use that due-on-sale clause. Specifically, the language is as follows: "With respect to a real property loan secured by a lien on residential real property containing less than five dwelling units, including a lien on the stock allocated to a dwelling unit in a cooperative housing corporation, or on a residential manufactured home, a lender may not exercise its option pursuant to a due-on-sale clause upon ... a transfer to a relative resulting from the death of a borrower." You appear to fall under this exemption. You are a relative who inherited the house from your mother. I would talk to bank representatives and refer them to this law. If they continue to object, I suggest that you retain a lawyer to assist you. You can also file a formal complaint with the Office of the Comptroller, a federal agency that regulates national banks. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
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| It still pays to remodel By Dian Hymer The home-sale market has taken a beating in the last few years, which begs the question: Does it makes sense financially to invest in home improvements? Remodeling Magazine's annual “Remodeling Cost vs. Value Report for 2009-10,” published in agreement with the NATIONAL ASSOCIATION OF REALTORS®, indicates that remodeling still pays off, but more so on less expensive projects. Most high-end remodeling projects don't return dollar for dollar on the investment even in a good market. That is, unless homes are appreciating at a fast clip. In this case, you might get your money back due to appreciation. But the profit on the sale might not be as much as it would have been if you hadn't done a high-end renovation. Just as today's homebuyers are making pragmatic decisions, so are today's homeowners when it comes to making improvements. Most of the remodeling projects with the largest return were for such things as replacing exterior siding and windows. On average the cost involved was less than $14,000, according to Remodeling Magazine. These projects returned from 71 to 83 percent nationally depending on the materials used. The project that paid back the highest return was a midrange front-door replacement that cost approximately $1,200 and returned an average 128.9 percent nationally. Sellers may wonder why it would make sense to invest in an improvement just for the sake of selling if it won't repay the amount invested. In today's challenging home-sale market, these improvements may be warranted for the home sell at all if there is a lot of inventory in your neighborhood. Buyers expect more for their money and gravitate to listings that are in the best condition for the price. HOUSE HUNTING TIP: Be judicious about how you spend your money fixing your home up for sale. For example, if your kitchen is a disaster, it makes more sense to do a midrange than an upscale renovation. According to the “Remodeling Cost vs. Value Report,” a midrange minor kitchen upgrade will return an average of 78.3 percent nationally. A major upscale kitchen remodel will pay back only 63.2 percent. The national average returns on remodeling investments do not give an accurate picture of the renovation returns that might be typical in your neighborhood. For instance, the payback for Honolulu homeowners for most of the 18 remodel projects analyzed returned 100 percent of the investment. San Francisco was close behind with 10 projects paying back the full investment. The cost versus value report recommends the following cost-effective improvements you might consider to prepare your home for the market: tidying up the kitchen cabinets using organizers will make your cabinets roomy; add an inexpensive tile backsplash to a tired kitchen, and use inexpensive tile to give an old bathroom a new look; add a breakfast bar by cutting an opening between the kitchen and family room; and install granite tile rather than slab. Other suggestions include: Replacing outdated light fixtures; freshening up the basement; giving the kitchen cabinets a new look by reconditioning and adding new knobs or having cabinet doors and drawers replaced; updating a bathroom without replacing tile by changing the medicine cabinet, light fixtures, vanity, cleaning the grout or replacing it and adding glass shower doors. The findings of this report were based on a survey sent to 150,000 appraisers and real estate agents in the summer of 2009. The survey included information about the cost and description of the remodel projects and median price data for the 80 metropolitan areas surveyed. Some 6,233 survey respondents estimated how much value the improvements would add to the house at resale in the current market. THE CLOSING: Before starting any fix-up-for-sale projects, seek your real estate agent's advice so that you don't waste money on improvements that won't pay back much in your area. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Fixing to sell: Don't go overboard By Dian Hymer Fixer-uppers with upside potential were in high demand when the market was appreciating at a fast pace. Once depreciation took over, speculators disappeared until 2009, when low-end foreclosure properties in some areas became hot properties -- particularly if they were selling at a 50 percent discount from the peak in summer 2006. In California, 70 percent of the homes bought by investors in 2009 were distressed-sale properties, according to the CALIFORNIA ASSOCIATION OF REALTORS®. Some were stripped of appliances and fixtures. But, at half price, there was profit potential for buyers who were up for a redo -- especially seasoned investors buying multiple homes to fix up and resell, or rent out. Fixers priced over $500,000 aren't as easy to sell today. Most buyers in higher price ranges are buying a home to live in. They want a home in move-in condition that will suit their long-term needs. There are exceptions. In high-demand market niches with few listings, there is occasionally a fixer-upper that draws a lot of attention. Usually, these fixers sell to buyers who will live in the property and fix it up themselves to save money. Often this is the only way they can afford to move into the neighborhood. Sellers of fixers in such neighborhoods should make their property as presentable as possible by cleaning out clutter, both inside and out. Many homebuyers can't visualize a property's potential. It's often worth a modest investment to show the house at its best advantage. Cosmetic improvements, such as painting, replacing outdated floor covering, or refinishing worn hardwood floors can pay off. Some fixers are staged, even though the property needs a lot of work, so that buyers can envision themselves living there. Presale inspections will help buyers make a decision about whether or not to tackle the project. Make reports available to buyers before they make an offer to avoid having to put the home back on the market if the deal falls apart because the buyer's inspectors discover defects not previously disclosed. HOUSE HUNTING TIP: How much you spend preparing a fixer for sale depends on several factors. How much did you pay for the property? How much do you owe against the property? Is there demand for fixer-uppers in your area? Finally, how much does your real estate agent think you can sell the home for given current market conditions? Sellers who have equity in their home and cash to invest in fix-up for-sale work should consider making cost-effective renovations, like a kitchen upgrade, but not an entire renovation. Ask your agent what the home would sell for with and without these improvements before doing anything to it. The investment may not yield a profit, but could recover the costs when the home sells. In areas where fixers aren't selling, sellers might need to enhance the property to sell at all. A good real estate agent should be able to provide references for reliable, reasonably priced professionals who can do the jobs for sellers who haven't the time or expertise to do the work themselves. Buyers who bought at the peak may not be able sell for even close to what they paid. One possibility would be to rent the property, if it makes sense financially. You may need to fix up the property somewhat to attract a good tenant. Consult with a certified public accountant about the tax consequences of converting a single-family residence to a rental. Another option, if you don't have to sell now, is to stay put for awhile and fix the property up gradually over time. Avoid investing a large amount of money in the hopes of getting a bigger return. THE CLOSING: The housing market in your area may be too uncertain for speculation. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Design tips for updating 1950s tract home By Paul Bianchina Q: Our house is a nondescript 1950s ranch tract home with a light-gray composition shingle roof. It's currently a dated white with blue trim, and we'd like to update the paint job. We're also relandscaping with drought-tolerant tropical and contemporary plants, and not much grass -- mostly bark and flagstone walkways. Is there somewhere where I can see other updated tract homes? Do you have any color suggestions? A: I would begin in your own neighborhood, and just start driving. Wander different streets around where you live, and then slowly branch out from there. Keep a local map handy, and whenever you find an area of homes that looks interesting, highlight it on your map for future exploration. Ask your real estate agent, for exploration suggestions, as well as others you come into contact with, such as the landscaper. While it's nice to look at homes that are similar to your own, you don't need to be limited to just those either. I would suggest going through new housing tracts of starter-level homes, and see what is currently being done in the way of colors and exterior amenities. As to color choices, there are three simple things I can suggest. First of all, make a visit to your local paint store or home center and pick up some brochures on exterior paint colors. Many of these brochures offer suggestions of colors that work well together, and you might see some combinations that appeal to you that you wouldn't have otherwise thought of. Some paint stores have computers with paint-scheme programs that are free for customers to play with. You can browse through a library of common house styles until you find one that looks similar to yours, add a roof color that looks like yours, and then use the computer to add different body and trim color combinations to see what they look like. If your local paint store doesn't have one, you can also find places online that do the same thing -- there may be a small charge, but it's well worth it. My third suggestion is to take a digital photo of the outside of your home, then print it out on your computer in black and white, making several copies. Using colored pencils, color in the roof in a shade that's as close to yours as possible, then, referring to some of the color combinations you liked from the paint store brochures, color in the front of the house and see what you think. You can also do this more accurately with programs such as Photoshop, but that might be more time-consuming and involved than you would like to get. Final suggestion: Don't limit yourself to just paint. There are any number of ways that you can really dress up the outside of a plain tract house and set it apart from the others in the neighborhood, without spending a fortune. You can add some different trim treatments around the windows, change the front door, add some shutters, and add some door trim, just to name a few. Home shows, decorating shows on TV, magazines and your neighborhood wanderings should all be sources of inspiration. Q: I would like to use the cable railings (on my deck railing) except for the high price. Do you think it would be possible to substitute a thick, strong wire instead of the cable? These wires keep in huge farm animals ... so their strength is comparable to cable ... well over 1,000 pounds in breaking strength. I would appreciate your thoughts. A: You can actually construct a deck railing out of any materials that comply with the requirements of whatever building codes are in effect in your area. I have seen some very nice railings made from square-grid and rectangular-grid wire livestock fencing set into wood frames, as well as wood dowels, metal conduit and other materials. Whatever you choose needs to be strong enough and secured tightly enough to meet the building codes, and also has to be spaced closely enough together -- most codes require a spacing of no greater than four inches. You also want to avoid materials with sharp edges or ends, as well as materials that won't weather well. Finally, you want to select a material and an installation method that is safe, pleasing to your eye, coordinates well with your home's style, and maintains your resale value. |
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| Find property problems before you buy By Dian Hymer To avoid a bad experience that could end up in a legal battle with the sellers over property problems, make sure your purchase agreement includes an inspection contingency. Your mission during the inspection contingency period is to find out as much as possible about the property and surrounding area, insurability of the property, permit history, zoning issues and cost to repair defects. Investigate any issues that could affect whether or not the property will suit your long-term needs at a price you can afford. Most states have home seller disclosure requirements. If you are buying in a state that doesn't require sellers to disclosure material facts, ask the sellers to disclose in writing any property defects or neighborhood issues they know about. Also, find out if there are systems that require routine maintenance, such as the furnace, drainage system, skylights and roof. After you clear the inspection hurdle, ask the seller to provide you with contact information for any people who have worked on the property that the sellers would recommend. Find out when major components were replaced and when the house was last painted. Find out how much the sellers pay for utilities. Ask for copies of proposals and paid invoices for any significant work done on the property. Basically, you want to know any problems the seller had with the property, what was done about it, by whom and when. If the roof was recently replaced, find out if it's covered by a warranty and if it's transferable to you. You may feel uncomfortable asking the sellers to provide additional information at the time you make the offer, particularly if there are multiple offers. In this case, ask the sellers for answers to your questions during the inspection contingency time frame. Questions will undoubtedly come up during your inspections. HOUSE HUNTING TIP: Even if the sellers have provided presale inspection reports and disclosures, have your own inspectors give the property a thorough exam. Some buyers hire the seller's home inspector to meet them at the property to explain the presale report and ask questions. This may save you money. But, saving money should not be the primary goal when having a property inspected. Buyers of newly built homes should ask the sellers for any construction-related documents like the geotechnical report, engineering calculations, and letters to the planning department confirming that the geotechnical engineer monitored the construction and confirmed that the house was built according to his recommendations. Ask the seller to leave the architectural plans, if they're available. Verifying livable square footage is a big issue in today's cautious mortgage environment. Many lenders won't count additions or renovations that add square footage in the appraised valuation of the property. If the sellers can't provide the supporting documentation, such as copies of approved permits, the property could appraise for less than you agreed to pay. This might jeopardize the transaction if the lender approved a lower mortgage amount than you requested. It's a good idea to check the permit history at the planning department yourself if the sellers can't provide copies of permits for work done. This should let you know if renovations were done with permits and if the permits received final approval. You should have this information before removing the inspection contingency. Many planning departments won't issue a new permit if there is a permit on record that never received final approval. The new owners might incur fees to clear up any outstanding permits before they can move forward with new improvements. THE CLOSING: With probate and REOs (bank-owned properties) you will receive minimal, if any, information about the property condition. Be extra careful with your due diligence investigations. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Why real estate price padding doesn't work in today's market By Dian Hymer Many sellers are in denial about the current value of their home, particularly if they bought within the past five to six years. The market peaked in the summer of 2006, and home prices dropped significantly in most areas from 2007 through 2009. Sellers often see no harm in asking a higher price -- one based on their needs or desires rather than what the market will bear. "We can always come down" is a common refrain. Letting your home sit on the market at a price that's too high can result in price reductions and a lower sale price, especially if the market is still declining. Today's homebuyers are nervous, pragmatic and well educated about the market. Not only are buyers cost-conscious, fewer buyers can qualify for a mortgage than was the case in 2006 due to recent credit tightening. Many who bought in 2006 couldn't qualify for the same mortgage today. There is a smaller pool of motivated, financially qualified buyers than there was several years ago. These buyers have an edge in most markets. Buyers want to know how long a listing has been on the market. If it has been on the market for some time, they wonder why it hasn't sold. Is there something wrong with it? A high price can signal that the seller isn't motivated. Buyers don't want to waste their time. Don't waste yours as a seller if you aren't serious about selling at current market price. No one knows for sure when the housing market will turn around. Many economists think we've hit bottom or are close to it. Analysts also forecast that home prices will bump along the bottom for some time. They don't expect a quick rebound. There isn't an urgency to buy before prices rise; buyers are taking their time to find the right long-term home. They are not overpaying. Even in low-inventory markets where multiple offers can occur, the price is usually not bid up radically, unless the listing was considerably underpriced. Interest rates are low. Buyers' nervousness about the housing market has thawed recently. The combination of lower home prices and interest rates has made housing more affordable than it has been in years. There is a risk that interest rates will increase to around 6 percent by year end. If so, this will affect the affordability equation and could have a downward influence on home prices, depending on the condition of the job market and the economy. HOUSE HUNTING TIP: To take advantage of this window of opportunity to sell, your home needs to be priced competitively. There was a time when sellers padded their list price so that they'd have room to negotiate. That strategy doesn't work in this market. Your house needs to look great and be priced competitively so that buyers realize they have to jump before someone else does. An analysis of data from the multiple listing service for Piedmont, Calif., properties listed in 2009 provides an insight into the importance of pricing right for the market. During 2009, the listings that didn't sell were listed on average 26 percent higher than the listings that sold. The market is constantly changing. If you find after your home is on the market that it's not receiving the interest you'd anticipated, ask your agent for feedback from agents who showed the property. Find out if similar listings in the area have sold recently. Did buyers who looked at your home buy other listings instead? The market will tell you quickly if your home is priced too high. THE CLOSING: Lower your price as soon as you discover it's too high so that you don't lose marketing momentum. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
| Bailing on underwater house By Benny Kass DEAR BENNY: My self-employed son and his new wife built a house several years ago at the top of the market. Last year, they decided to take advantage of slightly depressed real estate values in another state, and contracted to build a house there. The first house was put on the market at substantially less than they paid for it. They got no offers until someone asked to rent it with an option to buy. Under the supervision of a property management agency they signed a one-year lease with the renter, who recently defaulted in December. The house now is vacant, and despite their substantial downpayment, cannot be sold for anywhere near what they owe on the mortgage. After a year of paying two big mortgages, they are desperate and almost ready to sacrifice their credit to a foreclosure. What is the best way of getting rid of the first house under these circumstances? --Kris DEAR KRIS: Because this is really no longer their principal residence, they have more problems than if this were their main home. But here are some possible options. First, they should talk with the lender on the first home. Can they work out a loan modification so that the mortgage payments will be reduced -- at least temporarily? Will the lender accept a short sale, so that the house can be sold at a more realistic price? Will the lender accept a deed in lieu of foreclosure? This means that your son and his wife will deed the house back to the lender so that no foreclosure takes place. This can be a win-win for both sides, because the lender does not have to incur a lot of costs for the foreclosure and your son will get rid of the house. I assume that he is current on his mortgage payments for the first house. Finally, if all else fails, stop paying on the first home's mortgage and let it go to foreclosure. However, your son should discuss the situation with a local lawyer. Most states allow lenders to go after their borrowers for the deficiency, which is the difference between what the lender received at the foreclosure sale and the current outstanding mortgage balance. If state law permits, the lender could sue your son, get a deficiency judgment, and then go to the state where he now lives and try to collect on that judgment. DEAR BENNY: I have a rental property that I had purchased in 2005. I was going to hang onto it and sell it a few years later. Since that time the real estate market has not been good. My property is now worth less than what I owe on it. I have only a first mortgage on the property. In a previous article you stated that with having only a first mortgage the option of asking the lender to take back the deed and cancel the mortgage would be a lot easier. What sort of risk to one's credit rating would this have? I still have excellent credit but am unable to continue pulling out of savings to make the mortgage. Is there something that might be able to help me convince my lender to take back the deed? --Yvonne DEAR YVONNE: I have given up trying to understand what motivates banks. If you have good credit and get the lender to take back the deed (this is called a "deed in lieu of foreclosure"), it will still have an impact on your credit standing -- but not as bad if the property went to foreclosure. By taking back the deed, the lender is giving up a portion of the mortgage that you owe, and that information will no doubt be reported to the various credit-reporting companies. Try to talk with the highest-ranking person in your lender's office. Explain the situation. But keep in mind you are not the only one in trouble; the lender probably hears similar requests on a daily basis. The lender may ask you to try a short sale first, because legitimate lenders do not want to own property. If you give the deed back to the lender, the lender will have to pay the real estate tax and the insurance, and the lender clearly does not want to do that. You may also want to work out a loan modification. But any activity that you take, short of keeping current with your mortgage, will impact your credit scores. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
| Sacrificing privacy to get a loan By Benny Kass DEAR BENNY: My husband and I recently applied for a home equity loan to help finance a new home we are building until we sell our current home. We applied at our local bank and it acknowledged that our home's value, which is fully paid for, is more than adequate to cover the amount we applied for. The bank also noted that we have excellent credit and sufficient monthly income to support the payments (which it verified through direct deposits). The bank requested a copy of our 2008 tax return, and I submitted pages 1 and 2 of our 1040. However, the bank said it also needs to see schedules B and D of our tax return. I questioned the bank on this, but the bank said it is a requirement. Is this standard practice, and is it lawful for the bank to check where our investments lie? It seems to be an invasion of privacy. --Joanne DEAR JOANNE: Your question touched a raw nerve with me, as I have been complaining about this practice for years. Actually, you may have been lucky: Many lenders actually require you to sign Internal Revenue Service Form 4506, entitled "Request for Copy of Tax Return." This enables mortgage lenders to invade your privacy even more, since with this form they can get some of your back tax returns, but if you want the loan you have to comply with their terms. Readers who are asked to sign Form 4506 should read it carefully. The IRS provides a cautionary note: "If the tax return is being mailed to a third party (such as a mortgage company), ensure that you have filled in line six and line seven before signing. Sign and date the form once you have filled in these lines. Completing these steps helps to protect your privacy." Despite these clear instructions, many lenders just tell their potential borrower, "Just sign but don't date it." And unfortunately, the answer to your question is the same: If you want the loan, you must play their game. However, I understand why your lender wants to know your entire financial situation, including your investments. For example, if you own stocks on margin, and those equities go down in value, you will be obligated to come up with some money to make up the loss. This may impact your financial ability to repay the mortgage loan. My experience is that most borrowers will reluctantly provide their entire tax return to the potential lender. In fact, because most of us generally do not sign the copy we keep in our files, I have encountered lenders who insist that those copies be signed before the loan is finalized. Yes, it's a clear invasion of your privacy. But nowadays, lenders are lending-scarred -- they don't want to be audited by a federal (or state) agency, so they want assurances that they have carefully reviewed your entire portfolio. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
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