Betsie Melter's Real Estate Blog: January 2010

Well, about a month ago my client and I started on the journey of bidding on an auction property. We ended up getting the bid accepted, we went through the long process of obtaining an FHA loan and we have finally reached our end! I am happy to say that we made it and it wasn't that bad.

No, really the auction process was fine and we were very pleased with the people assigned to handle our account at the auction company. The MAIN problem we encountered was in underwriting. I want to share this with all buyers and agents out there so you don't run into the same problem.

The auction company had a Buyer's Premium Fee tacked onto the purchase price. We knew this before we placed a bid. We factored that into our offer. The first page of the purchase contract breaks down the fees: Total Purchase price= $

Buyer's Premium = $

Closing Costs paid by Seller = $

So, these fees are all disclosed on page 1 of the purchase contract where everyone is aware and agrees at the beginning. We ended up getting 4 days from closing when the underwriter states that the buyer's premium fee is not a fee that can be financed. What??? Why wouldn't we have been told this upfront? After getting an addendum from the auction company re-wording it (the way the underwriter wanted us to), the underwriter comes back and says it still won't work. Long story short, the buyer had to come in with that premium fee (5% of purchase price) on top of his down payment and some closing costs that the 3% we had asked for from the seller didn't cover. It worked out in the end, but was hard to come up with the money at the last minute.

So, for anyone buying an auction property, just a heads up that you will most likely need to bring in the buyer's premium fee at the end.

 Ok, so most of us know that as of January 1st, the old way of getting a loan has changed. But what does this mean to all of us who work in the Real Estate business or for the buyers and sellers? One change is that we no longer can get a Good Faith Estimate until there is an actual property and loan amount. We must realize that when buyer's hear the words Good Faith Estimate, that will be further along in the loan process so they should be able to ask the lender for an estimate of charges or worksheet upfront, but until an offer is accepted they will not get a Good Faith Estimate. Buyers must complete all of their loan research before writing an offer, otherwise if they switch lenders the entire process must start again and may delay order of the appraisals and closing dates.

One aspect that protects the buyer is that the origination charges (which are now all loan charges) must be honored so the only numbers that can change are those tied to the interest rate (if not already locked). Also all other settlement services must be accurate since the amounts can't change very much. Most likely the numbers will be overinflated. This will probably cause concern to the buyers who may think they need to bring more money to the closing table, but communication is key here so that they understand what the numbers mean. Also, buyer's should be aware that only principal and interest are calculated on the Good Faith Estimate, they will need to add in taxes and insurance to get the correct amount of their monthly payment. Seller's contributions are also not on the Good Faith Estimate so they will need to subtract any amount that the seller is paying for them to get an accurate amount of money they will need to bring to closing.

There are a lot of changes with loans, but as long as Realtors, Buyer's, Seller's, Title Companies and Loan Officers all communicate then it will make the process go much smoother and hopefully be able to celebrate a successful closing at the end.

For the new RESPA Rules visit:

www.hud.gov/offices/hsg/ramh/res/resparulefaqs.pdf

I have a client who kept insisting on doing a lease purchase. I always ask in my mind why someone wants to do something and what the benefits are. Now, I could be totally naive or just missing the point, but I don't see too many positives of a lease purchase. I do understand that you lock in a price (so depending on the market that is a good or bad thing). I also understand it is a way to get into a house that you can buy down the road when you are ready and you don't have to move again. But what I don't understand is if they aren't ready to buy a house now, why would they think they will be ready to buy in the future. Sure, credit issues are one reason to do it while you are working on your credit, but what happens 1 or 2 years down the road if your credit issues aren't cleared up yet and the lease purchase has come to its closing? From what I have learned the buyer loses the earnest money they put down if they can't close the loan. So, in my mind, why not just lease a place until you are qualified to buy a home?

Some other potential problems or issues a tenant(buyer) should consider before entering into a lease purchase would be:

Repairs: address repairs prior to occupying the property.

Appraisal: Does the appraisal contingency remain in effect or get waived at occupancy? This is a potential risk of losing earnest money.

Sellers payments current: If the seller stops making their payments and forecloses, what does that mean for the tenant/buyer and their earnest money? Will they be able to remain in the home?

Insurance:Both Liability and renters insurance policies need to be in place.

There are many more things to consider. The biggest one I told my client was the loan. Can they even qualify for a loan in 2 years? This particular client checked with a lender and because one of them has a foreclosure on their credit they won't be able to buy anything for 3-5 more years. Good thing they checked before signing the lease/purchase. They would have been out $6,000.

So, my take on it is that it is easier to lease a place, work on your credit issues, save a down payment then when ready, start looking for a house to purchase.

This was the recent question I received about timeline on a short sale. I wanted to laugh, but of course I wouldn't do that to someone. Short sales take time. Some can be done quickly. I have an excellent short sale negotiator that I hire when I do short sale listings and he has managed to get all of my listings accepted within a month ( and that is extremely quick)! But I do know that some banks are so backed up that it can take 4-6 months. I even heard of a horrible situation where one person had waited 1 year and the bank still hadn't approved one of the offers he had on the house.

All I can say is that you have to be patient when dealing with a short sale. It is so frustrating but that is the way they are operating right now. Buyers can always suggest to the listing agent thay they hire a short sale specialist to try and speed the process up, but other than that, it is a waiting game.

I have heard that some banks have started hiring more employees to deal with the short sale transactions, so that should speed up some of the waiting time. We will see what 2010 holds in store for short sales. One thing is certain, they will be around for a few more years, so buyers need to educate themselves or ask their Realtors to educate them on the process.

It seems like everywhere you look the business is getting stricter. Lender's guidelines are tightening, Bank's are tougher on who they accept offers from on REO properties and now I am finding that title companies are implementing their own rules.

I have seller's who don't all live in the same area of town and the title company is insisting that they all come in at the same time to the same location. Now, I can understand they don't want to waste their time with setting 2 appointments for the same documents, but when I offered to take the seller's documents to the seller who lives over 50 miles east of the title company, the escrow officer said it had to be done in the office. What happened to the days when you could walk into a bank and have a document notarized? This isn't the buyer's loan documents. If anything it is one page (the deed) that needs to be notarized the others can practically be done by fax if needed.

I will abide by their rules and see what we can do to have all 3 seller's in the same location at the same time, but really is this necessary? I see this being a huge problem for investors out there who may have bought together and live in different states. Will the title company require them to all be in the same location at the same time too?

Different day, different rules. I guess that is how the business is going to be for awhile. Change, Change, Change.