Yearly Archives: 2009

The gnarley Cook 7% Expanded Homeowner’s Exemption

Real estate tax, ,

assess

Talk about confusing. The expanded homeowner’s exemption in Cook County is really hard to understand and worse to explain. The expanded homeowner’s exemption was the county’s way of gradually phasing in the increase in the assessments from the last triennial reassessment.

Basically, the homeowner’s exemption was increased so that, for example, in Palatine, we have the following homeowner’s exemption amounts in the following years:

26,000 – 2008 tax bill issued in 09
20,000 – 2009 tax bill issued in 2010
6,000 – 2010 tax bill issued in 2011

This means that your assessed value is decreased by the amount shown. A 6,000 decrease in the assessed value translates to about a $600.00 reduction in the tax bill.

The Cook County Assessor recently added a new calculator to its website. To use it, you need your Permanent Index Number. Just type in the PIN and the calculator will break down your expanded homeowner’s exemption. It’s actually pretty well done and helpful.

Condo mortgages tougher than ever

Mortgages

condo

It’s harder than ever to get a mortgage to buy a condo.

Last week,  a client had trouble obtaining a mortgage because the condo association reserves were less than 10% of the operating budget.  The condo association had just paid for a large repair to the roof and it tapped the reserves. The association was not aware that by doing so they came close to killing the contract for the buyer (the hard-working mortgage broker was able to get an exception to this and it closed).

Earlier this year, Fannie Mae made added the following requirements to condo mortgages:

  1. No more than 15% of the condo owners can be delinquent in paying dues.
  2. No more than 10% of units can be owned by a single entity.
  3. If you put down less than 25%, the interest rate on the loan will be increased  by 3/4%.
  4. Buyers have to get a “contents” insurance policy (used to be optional).
  5. 10% of the budget must be in the reserve fund.

On top of that,  condo appraisals  are regularly coming in short of the purchase price.  Appraisers are using comparable sales from the last three months, rather than from the last year.  Any comparable sale more than three months old is discounted heavily and that drags down the appraised value.

Buyers should be aware of the Fannie Mae rules and should ask for the condo budget before they make an offer.

Home buyer tax credit extended: The new rules

Real Estate Tax Credit, Real Estate-Purchases



The House and Senate have passed an extension of the $8000 first-time buyer tax credit and added a $6500 tax credit for move-up buyers. The Senate is expected to also sign it shortly and President Obama will sign it today signed it on November 6.

This was absolutely necessary because the housing market was slowing down already, due to the planned November 30 expiration of the credit. Here are some answers to questions on the new version of the tax credit. More here.

The text of the HB 3548 can be found by clicking in the box above. (It’s pretty tortured language…).

The $6500 tax credit for move-up buyers starts for closings after 11/6/09. Oddly enough,  blogs and websites differed on when the move-up buyer credit started. Some said it started on 11/6/09 and some claimed it started 12/1/09. This has already been in issue in several closings I am handling. It is not clear that the move-up buyer credit started 11/6/09.

Both first-time buyers and move-up buyers can claim the credit by amending their 08 return or they can claim it on their 09 tax return.

111309tabletaxcredit

Two steps and your will is done

Wills

will

Clients are short on time. Couples with young children seem the most time-starved.

In the past, it generally took two office visits to have a will done for a client. It was hard to coordinate times to meet and I think multiple office visits discouraged clients from signing wills and trusts.

Now, I’ve simplified will preparation into a two step process:

1. Fill out my online form. I call the client to discuss it by phone.

2. Wills are sent by email in pdf form and a hard copy is mailed to the client’s home with signing instructions.

It works wonderfully for those in time crunch mode. By making it easier to sign a will, maybe more than 31% of couples (the current sad stat) with young children will sign a wills.

The Quirks of Buying a Fannie Mae Foreclosure

foreclosures-shortsales, Real Estate-Purchases

fannie(4/14/11- This post was recently updated here.)

Fannie Mae is perhaps the most difficult seller of foreclosed homes. Fannie Mae and Freddie Mac own more than half of the country’s mortgages. Delinquencies of Fannie Mae homes are rising, so we will likely see more and more of these. Unfortunately, Fannie Mae pops up a lot as a seller of REO (real estate owned) foreclosed properties and I always cringe when I get one of these contracts.

Why is the purchase of a Fannie Mae foreclosure different from any other foreclosure buy? Let me count the ways:

1. The Infamous Addendum

All REO sellers make the buyer sign an Addendum. The Fannie Mae Addendum is tricky and close to incomprehensible. When a buyer makes an offer, the buyer signs a standard real estate contract and sends it to the listing agent. Fannie Mae doesn’t sign this contract. It verbally accepts the contract. (Never mind that real estate contracts have to be in writing an can’t be verbal–they’re Fannie Mae, and if they feel like undoing centuries of contract law…you better get used to it)

Once the contract is verbally accepted, then the listing agent sends the poor, unsuspecting selling agent the Addendum.  The buyer then signs and returns the Addendum. Usually, it takes about three weeks from the time the Addendum is signed by the Buyer to get a signed contract and Addendum back signed from Fannie Mae. It takes FOREVER to get these back. I have a file now that is ready to close according to the closing date in the Addendum, but we don’t even have the signed contract and Addendum back yet from Fannie Mae.

2. Confusion on the Verbal Acceptance Date and the inspection

The main problem with the Addendum is that the home inspection contingency period begins on the verbal acceptance date and runs for 7 days from that date, not on the date that the contract is accepted in writing by Fannie Mae. Many buyers don’t realize this and think that the inspection contingency starts when the signed contract is received back from Fannie Mae.

So the inspection period may pass by and expire, without the Buyer knowing this, and the Buyer cannot cancel the contract if the inspection turns out poorly. So if you buy a Fannie Mae home, schedule your inspection immediately after the verbal acceptance date or your home inspection contingency may expire and you will be stuck with the house or lose your earnest money. Here is an Arizona case in which the Buyer couldn’t get the earnest money refunded after the inspection turned out poorly, largely due to confusion over the verbal acceptance date.

3. Dewinterizing is on the Buyer

Fannie Mae properties are always winterized. The gas, water and electricity are turned off. Fannie Mae does not turn the utilities on. Most REO sellers will dewinterize for a buyer to inspect the property, but not Fannie Mae. On a Palatine property last year, the buyer dewinterized the townhouse and leaks sprang from everywhere. It took the plumber most of the day to patch the leaks and it cost more than $600.00, which the buyer had to pay.

If you can get the place dewinterized yourself and you are lucky enough to do an inspection before the contingency expires (due to the verbal acceptance date), please do not even consider asking for any credits or repairs after the inspection because the answer will be no. It is strictly an in/out situation and credits or repairs are extremely unlikely.

4. Buyer pays for Title and Transfer Tax

The Addendum also says that the buyer has to pay for the state and county transfer tax and for the seller’s share of title insurance. This is at least $2000.00 in most cases, that the buyer would not otherwise have to pay. Most buyers do not see this term buried in the Addendum. You can ask for a closing cost credit in Par. 36 of the Addendum to cover the cost of the title and transfer tax. The seller’s attorney will furnish the title even though you have to pay for it. You can’t buy your own title insurance.

5. Penalties for late closing

Whatever closing date you put in the Addendum, you had better be able to close that day, or you will be penalized $100 to $150 per day for each day you are late. Some buyers think that because it took three weeks to get the signed contract back, that the closing date will be extended easily, and that the Addendum closing date is not set in stone. Wrong. Fannie Mae is very strict on closing dates and the Buyer will have to pay for any extensions. Also, the buyer will have to sign all extension requests on a Fannie Mae-provided form. The attorney cannot request extensions unless they are on the Fannie Mae form signed by the buyer.

6. Sorry no keys

Fannie Mae does not provide a key at closing. If you are able to run the gauntlet of buying a Fannie Mae foreclosure, then the listing agent will not furnish a key and will take back all keys from the selling agent at closing. Supposedly, all FM homes are keyed the same (which I find hard to believe) and there is too much “liability” for Fannie Mae to furnish a key. Thankfully, most of the listing agents pay little to no attention to the property, so doors are often left open and I have not had a buyer have to call a locksmith yet to get entry to the house after closing.

Convenience bank accounts may cause probates

Estate Planning

Starting January 1, “convenience accounts” will be able to be set up at your bank. These are alternatives to joint bank accounts. This development is good and bad.

It’s good because we have endless problems with joint bank accounts. Many times, clients add a joint tenant, usually a family member — but sometimes a non-family member, to a bank account. Upon the client’s death, the funds in the joint account snap automatically to the surviving joint tenant. Most clients don’t realize that this will happen. They think that their will or trust will control the bank account, but it doesn’t control it at all. Many times (about 50% of the time) the joint tenant keeps the funds because he thought he was owed something or did more for the deceased than the other heirs. I’ve seen some pretty nasty family rumbles over this issue.

The new convenience accounts will allow the additional party to make deposits and withdrawals on the account. Upon the client’s death, the convenience account will NOT snap to the convenience signer, but will be controlled by the deceased’s client’s will or trust.

The bad part of this: If the convenience account is $100,000.00 or more, it will cause a probate estate to be opened.  I think that there will be quite a few probates down the line from this new law. Many clients are “advised” by the bank representative on how to title accounts and we already have POD, TOD, in trust for, living trust and joint accounts. It is hard to clients to digest all of this and I think that clients will assume, wrongly,  that the convenience account avoids probate.

The other bad part: The convenience account can be cleaned out by the convenience signer, much like a joint account. Many clients do not realize that a joint signer on a bank account can help themselves to the entire account at any time. It’s rare, but occasionally the joint tenant (who didn’t furnish any $ to the account)  can make off with all the cash in the account and they don’t have to repay it. The convenience signer can withdraw some or all of the funds from a convenience account, but there would be a strong presumption that the funds were the account owners since and it might be easier to get the funds back than if a joint account were raided.

Short sale vs. foreclosure

foreclosures-shortsales, Real Estate-Purchases

I was reading this great Wall street Journal  article on “Are distressed homes worth it?” The common wisdom is that it is easier to buy a foreclosed home than a short sale home. This is true in that it is more likely that a foreclosed home will actually close and it is more likely that a short sale will not close.  One telling statistic in the article says that no more than 20% of short sales are successful. I used to say 40% of short sales actually closed, but I now think 20% is right.

However, buys of foreclosed properties are getting more painful for the buyer. A partial list of what makes them hard(er):

1. Seller takes forever to respond to original offer.

2. It takes about two weeks after agreement to get a signed contract.

3. The seller’s attorney does not respond to any requests under the attorney approval or home inspection. They have a million files and will never call back.

4. The utilities are turned off. If you are not smart enough to extend the home inspection until the utilities are turned on by the seller (and all leaks–there will be many– are fixed) then you will be stuck repairing 20 leaks that spring in the walls when you turn on the water.

5. When you do an inspection, it’s unlikely you will get any credit for repairs. The sale is “as is” and the seller means it.

6. Sellers constantly give artificial deadlines. “If this doesn’t close tomorrow we are putting the house back on the market and keeping the earnest money.”

7. The seller may try to stick you with title insurance, transfer tax etc, or if you are buying a condo, they can force you to pay 6 months of the foreclosed owner’s condo dues.

8. No sellers representative will come to closing.

9. Once you are lucky enough to get to closing, it may take up to two days after closing to get a “seller signed HUD.” After the seller has imposed all kinds of phony and irrational deadlines, they will take forever to sign the final closing statement. You cannot move in until they do, so don’t have that moving van parked in the drive.

That being said, many buyers find that the appraisal of the foreclosed home is thousands more than they paid for the property, so they put up with this basically unpleasant exercise.

Spot approval goes away next month for FHA condos

Real Estate-Purchases

In order to obtain FHA financing, a condo building must be FHA approved. This meant that the building had to “right of first refusal” and met FHA lending guidelines. Many buildings are not FHA approved, and in those cases, the lender could seek “spot approval.” Spot approval was not fun and often did not go well.

Effective October 1, 2009, spot approval is gone. Instead, an FHA direct endorsement lender can obtain approval for an entire building, even with a right of first refusal. Here is a great summary of the new process.

Since FHA mortgages are really the only game in town, this will help open up FHA financing to many smaller condo buildings that were left off the FHA approved list because of a right of first refusal in the declaration or because approval was just too hard.