Category Archives: Real Estate-Sales

E-recording in Cook County: Needs work

Living Trusts, Real Estate-Sales

I love techno advances that save time and make life easier. I am not a fan of technology that complicates things. The Cook County Recorder’s office new e-recording system for deeds and mortgages is in the second category.

In the past, recording a deed meant driving to the recorder’s office standing in line and recording the document in person.

Many states now allow e-recording, which means you can record a document online from your computer. There is a great software program called Simplifile that helps to do this. It’s a wonder , super-easy to use and makes it really easy to record deeds online.

Cook County uses Simplifile, but Cook stacks a bunch of requirements on e-recording that make it really hard, almost impossible, to record a deed electronically. My office records a lot of deeds, mostly deeds to living trusts. These are called “exempt” deeds, meaning  that no transfer tax is paid because there is no sales price paid.

To record an exempt deed, first Cook requires you to fill out a complete MyDec form for an exempt deed. This is not required if you show up at the recorder’s office to record an exempt deed. It takes about 15-20 minutes to fill out a MyDec form online. Why would I do that when I can record the exempt deed in person without filling it out?

Second, Cook County requires that you be reqistered as a title company with MyDec, which requires filling out a bunch of forms that have to be approved by the county.

So, while I can e-record deeds very easily in most counties in the country I can’t record a deed in the county where I live.

Cook County adds new zoning check to home sales

Real Estate-Sales

The administrative tangle of selling a home keeps getting thicker every day.

For years, the city of Chicago required a zoning certification if you sell a home (condos are exempt) within its borders. The purpose of it is to warn the buyer of “illegal” apartments in multi-family housing. There are many illegal garden and converted attic apartments in the city and the zoning certification alerts the buyer to the correct number of units.

Now, starting March 21, 2015, homeowners in unincorporated Cook County will have to order a zoning use certificate before they sell their homes. The county is aiming to warn buyers of improper uses of land. At least 10 business days before closing (two weeks for those who are counting) the seller will have to pay $100 and submit a survey, a legal description and a statement that all work was done with building permits. The Cook County Building Commission then will  (or will not) issue a certification that the property is being used according to the zoning. Theoretically, a buyer might refuse to close if the county refused to certify that the property use was within the zoning.

A couple of problems with this:

1. It is very hard to determine whether properties are located in unincorporated Cook County in a village or a town. The new zoning requirement will be missed by many who will think the property is in a village or town, not unincorporated Cook county.

2. The fee of $100 is high and waiting two weeks for a decision is crazy.

3. Submitting the statement that no work was done without permits is kind of excessive, because a lot of work is done without permits. And a lot of work is done without permits by a prior owner, so how does the seller supposed to handle that?  There is no inspection of the property and most likely the county will look at the survey for additions made without a permit or outbuildings added without a permit.

4. The certification is good for 6 months and really should be ordered before a home goes on the market to avoid jam ups and closing delays.

So plan ahead if you are selling a house in unincorporated Cook county this spring.

(Thanks to Matt Hernacki www.misterhomes.com for pointing out this new rule.)

 

 

 

Update to Real Estate Disclosure Form

Real Estate-Purchases, Real Estate-Sales

On January 1, 2015, the Illinois Residential Real Property Disclosure form will be changed.

The words ” windows and doors” will be added to question 6.

So, sellers will have to disclose any known defects to windows and doors. These changes are the result of a case where the court held that leaking windows and doors were not included in the definition of walls, and thus the seller had no obligation to disclose defective conditions involving windows and doors.

Mold & Radon: Scourges of real estate sellers

Real Estate-Purchases, Real Estate-Sales
mold
If I was looking to start a new business, I would get into the mold and radon game. Those guys are busier than sin and they have a captive market: Home sellers in the middle of a contract.

It used to be that about 5-10% of home buyers did radon tests. But home inspectors must have gotten discounted memberships to the National Society to Eradicate Radon in Our Lifetime. Now, about 70% of buyers do radon tests. Well more than half of the radon tests flunk. The seller has to install a radon mitigation system for about $1200.00. That consists of capping the sump pump pit and using a small fan to push all of the radon gas through a pvc tube outside. Radon has a standard of 4.0 pcl or less. Anything higher than that has to be mitigated (brought down to under 4.0).

Those same inspectors are crawling into the attics of homes and finding boatloads of mold on the plywood sheathing. The mold appears because bathroom fans were vented into attics and over many years, mold grew. If mold is found, then the seller has to have a mold remediator get rid of the mold. That costs between $1200.00 and $3000.00. The mold remediation business has grown tremendously in the past few years. I wrote this post in 2004 saying that mold problems were increasing, so this is not an overnight occurrence, but  since then they have exploded.

Mold is found by the home inspector by simply looking at the plywood in the attic of a house and if there is mold there is a dark staining on it. There are two approaches to mold remediation once it is found:

1. An Industrial Hygenist (who is paid about $400-$500) tests the mold then draws up a remediation plan for a mold remediator (other than the hygenist) to work on.

2. A mold consultant comes in and does NOT test the mold, but just removes it all.

Most sellers taking the route described in number 2. Many times the mold will not be harmful or will be in a small area. Since the parties are in the middle of a real estate contract (and there are people who could get sued) everyone takes a scorched earth, remove every spec of mold approach.

I see little to no testing done.  My opinion is that air quality testing is a waste of money. I was surprised that the Illinois Department of Public Health has NO STANDARDS for mold testing and does not recommend testing the mold or the air at all. So why is everyone freaking out and removing all this mold? I’m not sure, but buyers want the mold gone, so that’s what happens. The unlucky seller whose buyer gets a flunking radon test and a flunking mold test will be out of pocket $2500.00 or more before he knows what hit him.

Here are some mold remediators that I have seen on files:

Mold Solutions

Indoor Air Repair

Mold 911

Alliance Restoration 

Appraisals coming in short this spring

Mortgages, Real Estate-Purchases, Real Estate-Sales

appraisalLast week, I had 6 properties appraise for less than the contract sales price. It ‘s not real fun when this happens. No news is good news when it comes to appraisals, but when I get an email with an appraisal attached I know things are about to come unglued.

Seller’s instant reaction = “I am getting scr**** by the buyer’s lender and I am NOT cutting the sales price.” The seller’s  second stress induced reaction is “I’m going to “fight the appraisal” (good luck with that, tiger).

Buyer’s instant reaction = “I can’t believe I overpaid for the casa of my dreams and I hope the seller doesn’t cancel the contract.”

Fortunately, the amount by which these properties under appraised was between $5000.00 and $14,000.00 and the parities were all sensible. All of them were resolved without tanking. Half of them “met in the middle” and for the other half, the seller reduced the price to the appraised price.

Usually when a property appraises low, I estimate that about 75% of the time the end result is that the seller cuts the price to the appraised price. If the appraisal is for an FHA loan, the seller will be stuck with that appraisal for 1 year even if the contract cancels (and a new FHA buyer comes in).

I find that it is nearly impossible to “contest” the appraisal. Appraisers rarely change the result of an appraisal. There is supposed to be no way to communicate directly with the appraiser. I find that when the parties try to contest the appraisal that 2 to 3 weeks are wasted while the loan processing comes to standstill and closing is delayed.

The spring market has been very fast moving with multiple offers on many homes within a day or two the listing hitting the internet. I’ve seen a lot of contracts at or over list price. Sellers are getting more for than they expected in some cases and there are not the comparable sales to support the appraisals.

If you are a buyer be sure to add an appraisal contingency to the contract. The mortgage contingency will act like an appraisal contingency unless you are putting a ton of money (50%) down and then it won’t work and you need a separate appraisal contingency. If you are a seller, just be aware that selling for list price is cool, but it may be cut after the appraiser trots through.

By-owner sales are back

Real Estate-Purchases, Real Estate-Sales

 

When the real estate market crashed in 2008, the for-sale-by-owner market died along with it. I’ve handled maybe 3 or 4 for-sale-by-owner transactions in the the last 5 years, But, they are picking up now and I’ve had 5 by-owners in the last few months alone. Recently, a property even sold by-owner using zillow.com’s make me an offer feature. Here’s how to sell by owner:

 

How do I set the selling price?

Look at zillow.com and eppraisal.com and that will give you a rough idea. Most sellers interview at least one real estate agent and get a comparative market analysis from the agent and that will help to set a selling price.

 

What do I do when I find a buyer?

When you find a buyer, you should verbally agree on a price and ask the name and phone of the buyer’s attorney. Don’t sign any notes or scraps of paper indicating what the price is because that could be construed as a contract. Verbal agreements to sell real estate are not enforceable. It is just a way to narrow the issues and reach agreement later in writing.

 

How much earnest money do I request?

I don’t think that large earnest money deposits do anything. Usually the amount is between $1000 and $5000. Earnest money is returned to the buyer if agreement can’t be reached under the attorney approval, inspection or mortgage contingencies. The earnest money is sent to the seller’s attorney after the contract is fulled signed.

 

Is the earnest money check cashed?

I am shocked by the number of people who think that the earnest money check is not cashed. It will be cashed and held in the seller’s attorney’s trust account to be released to seller at closing.

 

Should I fill out disclosures before I get a buyer?

Yes, it is helpful to complete the required disclosures before you have a buyer. Then the buyer can just sign your disclosures with the offer. The required disclosures are: Real property disclosure, lead paint, mold and radon.

 

Who prepares the contract?

Generally, the buyer’s attorney will prepare the contract. The buyer’s attorney send it to the seller’s attorney by email to review. Then the buyer signs it and it is sent to the seller to sign. The buyer signs the seller’s disclosures (completed by the seller in advance) with the offer. I use an esigning program called rightsignature to let buyers/sellers easily sign and initial contract using their computer or Ipad. It works great and everyone gets a final signed copy once it is esigned.

 

How long does it take to get the contract signed?

It will take far longer than anyone wants. Often, it takes up to one week from the time of verbal price agreement to get the contract signed. Some attorneys are stuck in the past and can’t create a real estate contract quickly even though with document assembly software it takes very little time.

 

Who handles the scheduling the inspection, the appraisal and walk-through?

The seller and buyer have to coordinate these times between them.

 

Who signs the contract first?

The buyer signs the contract first and then the seller accepts it.

 

Should I get a mortgage pre-approval letter from the buyer’s lender?

Sure, why not. Many, many sellers tell me how great their new buyer is because he is “preapproved.” This always makes me laugh because I have seen many pre-approved buyers get shot out of the saddle and fail to qualify for a mortgage. In reality, all it means is that the buyer talked to a lender, but there is no guarantee that the buyer will be approved for financing. It’s better than nothing though.

 

What if a real estate agent asks to show my house?

Some real estate agents will agree to show your house, but they will ask you to sign a one-time listing agreement that pays them a commission if their buyer writes an offer. Generally, the agent will want a commission of at least $2000.00 and up to 2% of the sales price. It is negotiable. In the old days (80s and early 90s) this never happened, but is is fairly common now.

 

 

 

Help I’m stuck in an Illinois real estate closing and can’t get out!

Mortgages, Real Estate-Purchases, Real Estate-Sales

With the new, red hot real estate market, the length of real estate closings has increased dramatically. In the good old days, closings took 1 hour. Now, we routinely endure closings of 2 to 3 hours.

Why? Well, there’s a lot of reasons and we’ll get to those in a minute. First, here’s what happens at an Illinois real estate closing:

  1. Parties gather. The sellers’ attorney, buyers’ attorney, buyers and real estate agents meet at the title company location selected by the sellers’ attorney. The “closer” is there too and he or she is an employee of the title company whose assignment is to close the loan for the lender. The lender and loan officer usually don’t attend. The sellers rarely attend closing because they presign the documents. Some states handle closings in escrow where no one attends, but in Illinois we don’t use escrows and closings are done with everyone present at the title company.
  1. Buyer signs loan documents. The buyers sign their loan documents and those documents are sent by fax or email by the closer to the lender for “funding.” Funding means that the lender has checked the final loan documents, approved the figures on the final HUD statement, and has given the okay to disburse. Lately, lenders require 60-150 pages of documents to be send back for approval. The entire process of loan funding has pretty much gotten out of hand.
  1. Wired funds are received. The closer checks to see if the lender’s funds and buyers’ funds have been wired to the title company’s bank. At least 40-50% of the time, the lender’s funds have not been wired. Be sure to tell your lender that you expect the funds to be at closing. I have found that lenders do listen to this. (Side note: Title companies are so busy that at least 50% of the time we get no final figure for the buyer prior to closing. We have to estimate the amount and the final figure is a mystery until you get to closing.)
  1. Lender okays final documents and loan is funded. It usually takes anywhere from 30 to 90 minutes for the lender to review the documents and fund the loan. Often, they require picky changes and that slows things down. Some closers wait 60-90 minutes to send the documents to the lender for approval and that will slow things down for sure.
  1. Checks are issued and everyone is happy. Once all of the above happen, the closer issues the checks, gives the buyers their copies and everyone is happy happy.

Some of the reasons closings are slower now that in the past are as follows:

–Title companies are understaffed and overbooked. Real estate was deader than a doornail from 2007 through the beginning of 2013. Now it is up 30-50%, but title companies have not added employees. I recently slogged through the swamp that was a 3 hour closing and our closer had 18 closings the next day. That is not even remotely possible. Given that it took her 3 hours to do my closing, I pity the poor buyers stuck in one of those 18. Most (90%) title company closers are really good and efficient at their jobs. It is not easy. There are a few, though, that are phantoms. If your closer leaves the room and disappears you are in for a long wait.

-Title companies don’t get HUD preapproved. The better title companies will get the HUD closing statement pre-approved by the lender before everyone gets to closing. This will speed up the closing a lot. A closer for a besieged title company will say “I didn’t have a chance to look at the package” and will print out the 150 page loan package from a pdf file and start on it while everyone sits there. Be sure to pack a sandwich if this happens because it will be a long wait.

-Buyers show up late. A surprising number of Buyers show up very late to closing. Last week, at a 9 am closing, we waited 1 hour while the buyer did his walk through of the property. He showed up at 10 am and the closing was a 3 hour blockbuster.

–Loan funding process is fundamentally flawed. The entire process of getting a loan “funded” is a joke that should be revised. The whole thing is self-serving and the lender is trying to protect itself from getting stuck with the loan for some minor defect.

So what can be done to speed things up? If you’re a Buyer, show up on time. Be sure that funds are wired to the title company the day before closing. Insist that your lender wire the funds in advance of closing (not during the closing). The rest is pretty much out of your control, but don’t be surprised if you are at closing for 2 plus hours.

New site makes it easy to get Cook Co. deeds

Real Estate-Sales, Technology

The Cook County Recorder’s website used to be terribly hard to use and functioned like it was set up in 1990. I had to go on it all the time to get copies of deeds and do quick title searches to see if mortgages were released.

Using it was a total hassle. To look at a document you had to put in your credit card information twice and then download some obscure software that took about three tries to install. Of course, you could only use internet explorer.

The recorder recently upgraded the site and, surprise; it’s a thing of beauty! You can access the new site here. You will need your PIN number to look up documents. You can find your PIN here by typing in your address here. Go ahead and put in your PIN and see how it works.

Now the entire history of the property to the mid 1980s pops up and you can view each document without paying. You only pay $2.50 per document if you need to download the document, which is now a simple process. If you have simple screen capture software like the windows snipping tool or Snagit, then you can just copy the screen and you don’t have to pay to print the document.

This new site is great and will make it easier for clients to obtain documents. The majority of my clients cannot locate the deed to their property and now they can get it easily in a few keystrokes.

 

Urban myth or not? Obama’s 3.8% real estate tax

Real estate tax, Real Estate-Sales

A real estate closing takes about 1.5 hours, if it’s perfect. This being real life and all, many of them take much longer.

As we sit waiting for word from the lender that all is well and that we can disburse, we talk about the Bears, about how the White Sox caved, then we cover details of when the client is moving, how much he paid for his POD, and after about two hours, we all go blank, stare at each other and check our phones incessantly.  Mercifully, we rarely touch the third rail: politics.

When all small talk is exhausted, invariably, someone says “well, next year you won’t be able to sell any real estate because Obama put that 3.8% tax on all real estate.”

After hearing this for about the 800th time yesterday, I did some detective work. I went to Snopes.com, which is an awesome site that tells us whether a “fact” is an urban myth or not.

Here’s the truth on the 3.8% real estate tax from Snopes.com:

Does the 3.8% tax apply to all real estate sales?

No, it will apply to very few people, probably less than 2% of the population. Also, this only applies if you have a big gain on the sale of your real estate and that knocks about almost everyone since we have had no gains on real estate since the late 1990s. Those who bought their homes in the 60s, 70s or 80s and who also have huge incomes might have to pay the tax. The masses will pay no 3.8% tax.

What income levels does it apply to?

First, your income has to be above $200,000.00 if you are single or if you are married, above $250,000.  If you make less than those amounts and sell real estate, you pay nothing.  The tax is not on the sale of real estate, but in the investment income produced by the sale of real estate.

I sold my home for a large gain and have a salary of $200,000, so what would I owe?

Let’s say a single guy sells his house for $600,000 and he paid $300,000 for the house, so his gain on the house is $300,000.  He can exclude $250,000 of profits on real estate under the law already, so that is subtracted and he has a gain of $50,000. Stick with me here, this is convoluted stuff.

The 3.8 tax would apply to the LESSER of:

  1. The amount that single guy’s income exceeds $200,000, or;
  2. The amount of taxable income (in this case $50,000) gained from the sale of single guy’s home.

Clear as mud, eh? Suffice it to say, this will apply to very few folks.

 

 

Top 3 reasons to try a short sale in Illinois

foreclosures-shortsales, Real Estate-Sales, Strategic Default

Lately, I’ve been on fire getting short sales closed. They’re getting approved right and left and I feel like LeBron in the fourth quarter of the NBA finals with James Harden trying to guard me.

Usually about 60% of short sales actually close and the rest go down the chute to foreclosure. Lately, it’s been more like 80% of short sales are closing to 20% short sale failure. It reminds of a recent trip to a casino. I don’t gamble much, but I started winning at blackjack and convinced myself that I had developed special blackjack powers. Note to self: Anytime one thinks one has special powers, head for the exits.  About an hour later, I lost my mojo and went limping out of the casino way in the hole.

Like blackjack, I don’t have special powers to get short sales closed.  It takes some knowledge and skill, but anyone who says that they have a special system or all the answers to closing short sales is goofy.

I’m glad that the shorties are closing at a decent rate, but I realize that it is basically luck and the convergence of positive circumstances, like a patient buyer, a favorable valuation (BPO) and a decent negotiator, that makes it happen.

As a threshold matter, I find that clients have a hard time deciding whether or not to try a short sale or to just bail out altogether and do a strategic default.

Here are the benefits of trying a short sale:

1. Shortens the foreclosure timeline so credit recovery is faster than foreclosure.

About 99% of clients who try short sales stop paying their mortgages when they list the property as a short sale. In Cook County, that means it will be 6 months of missed payments and 14 months in court with the foreclosure until it ends. That’s a long time. Thereafter, it will take another two years until the client’s credit recovers. If the client tries a short sale, the time that the mortgage is in default will be less than in a foreclosure. Most short sales close in 3 to 6 months after getting a sale contract. While credit scores drop about the same amount in a foreclosure or a short sale, the recovery is faster after a short sale and this is a major benefit of trying to short sell.

2. Get a full release and provide finality. For every short sale that’s closed this year, we’ve been able to get a full release of deficiency for the client. The short sale that closed yesterday required the seller to contribute $1500 to get a release, but it was money well spent. That means the lender can’t pursue the client for collection or get a deficiency judgment. This is very important to clients because it provides complete closure on the issue. Clients want finality. If a client strategically defaults and doesn’t try a short sale, the client will have an open liability for 10 years on the note. Some people can live with this, but most cannot. I tell clients over and over that first mortgages will not obtain a deficiency judgment against them in a strategic default, but almost every client asks “what if they do get one against me?” It never happens, but try living for 10 years with only my assurance to back you up.

3. Mortgage Debt Forgiveness Act (MDFA) is expiring, so try to slip it in before that happens. The MDFA says a foreclosure or short sale is not taxable if the property foreclosed or short sold is one’s primary residence. Unfortunately, that law expires December 31, 2012. If this expires, then homeowners in foreclosure will owe income tax after the foreclosure. It’s a good idea to at least try a short sale of your primary residence before the MDFA expires. That way you can avoid a hefty income tax bill if the MDFA is not extended.

Sometimes a short sale may not be worth trying. Some reasons you may NOT want to try a short sale are:

1. Big second mortgage and/or high credit card debt. You are better off filing a chapter 7 bankruptcy than doing a short sale if you have a large second mortgage and/or a lot of credit card debt. You can clear the decks of credit card debt and liability on the second mortgage and start over. A short sale is unnecessary.

2. High income. I’ve written before about high income homeowners and their reluctance to do short sales. Still true.

3. Property is rented. If you rent out a property it will be difficult to impossible to do a short sale because the tenant will not cooperate.

4. Difficult lender, FHA loan or PMI. I did a short sale with ING Direct. They allow no attorney’s fees and require that you use their title company. They are a nightmare to deal with. I would never do another one with them. FHA short sales follow a different pattern than conventional mortgages and can be very difficult to close. Also, if you have PMI on a conventional loan, it is likely the PMI company will hit you up for a contribution or promissory note.