Is Owner Financing In Jeopardy?

Hi Everyone,
   Happy Halloween. Yes, today I turned 40...black cat is out of the bag. To stave off any possible jokes; NO, I was not born with a mask on!

   One thing that does frighten Real Estate Investors, however, is the fact that there is a new Government Act that jeopardizes the Owner Financing Investment vehicle. Taking a step back, Owner Financing is exactly what it sounds like; the owner of the property (or another company such as an "Escrow Company"), handles the payments, which is referred to as "servicing" the payments. Dolores Demers, the president of the Las Cruces Association of Realtors (and works with Re/Max), says that, "Owner financing has worked well for generations in this country", and that it has been a great option for, "innumerable buyers who are capable of making regular payments on an amortized loan, but who don't qualify for traditional mortgage loan products". However, as DeMers writes in her article, "Real Estate View: Dodd-Frank Act puts owner financing at risk", for the Sun-News, "parts of the Dodd-Frank Act will severely restrict owner financing and will do harm to buyers and sellers"

DeMers points out a few highlights from the Dodd-Frank Act that will raise eyebrows:

* The seller cannot be the builder of the home being financed.
DeMers ask the following question: "Why would the government want to restrict a builder from selling his own product" on terms that are "satisfactory to the buyer"?

* The loan must amortize fully with no balloon mortgage allowed.
DeMers says that most sellers offering owner financing are "older than 50", and asks rhetorically, "How many are going to outlive a 30-year note?". There must be a short term balloon in case the seller wants to sell to another party (and not have to "steeply discount the note".

* Buyer has three years to rescind the sale. The seller must document the buyer's ability to pay using underwriting requirements consistent with the Truth in Lending Act.
"If the seller makes even one small error, the buyer has up to three years to rescind the sale and demand back all the money that has been paid to the seller", says DeMers, regardless of "the benefit the buyer has gotten from the use of the property during the time he had it". This is, in no uncertain terms, "Not Fair".

* Only buyers who are already eligible for conventional financing will be able to use seller financing. The seller must determine in good faith the buyer's ability to repay the loan.
Wait...isn't Owner Financing supposed to help those who cannot pass the "underwriting scrutiny of the Truth in Lending act". As DeMers says, "The buyers who need the helping hand of owner financing won't be eligible."

* Seller limited to three installment sales per year. A seller must become a licensed mortgage loan officer if more than three properties are sold in a year using owner financing.
DeMers says that there are many people in her state of New Mexico that have, "helped the people in their communities get started on the path of home ownership through owner financing", and asks what difference does it make "how many properties are offered as installment sales in a year as long as the seller has determined each buyer has a reasonable ability to repay the loan?". Very good point.

   The summary of this is that DeMers is trying to stir some action against this "sweeping rule change", and we agree. These alternate means of buying (or selling) a home are what gives people hope and a chance to move forward. She adds that the "Dodd-Frank Act treats owner financing as if it were predatory lending", which it is not. She also recommends that you contact your elected officials to protest the Act. I agree. Good point. Stand up and be counted !

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Have a Great Weekend, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog: http://blogging.lease2buy.com
HomeRun Homes Websites: http://www.lease2buy.com and http://www.homerunhomes.com

TAGS: #OwnerFinance #Financing #realestateinvestors #DoddFrankAct #balloonmortgage #TruthinLendingAct #Escrow #Realtors #installmentsales #Halloween

Top 10 Legal Real Estate Terms You Must Know

Hi Folks,

   Welcome to Wednesday. Can someone pass me a cold beverage? All kidding aside, it's hot out there folks, so take precautions, wear light colors, drink plenty of fluids, etc.

   As a Buyer of a home, a Seller of a Home, a Real Estate Investor, a Real Estate Agent, etc, there are some terms you need to know before you step into a deal. We have provided a concise list of the most important terms that we need to know.

   The list is not in any specific priority order, as they are all quite important. Always remember to consult a local Real Estate Attorney before getting involved in any and all types of Real Estate arrangements.

1. Quitclaim Deed - This is a document that is used to, "clear up issues involving possible multiple owners of a property", per Sophie Martin, MBA, from the UNM School of Law, who says that with this special form of deed, "someone who might have an interest in your property agrees to hand it over to you."

2. Fee Simple Absolute - Per Martin, this is the, "best and most common ownership of property: full right to possess the property now and into the future."

3. Tenancy in Common - "When you and a partner (or partners) go in on a piece of land, you each own a portion of the whole which you can will or sell to others.", per Martin. Additionally, it means that, "each owner has a fee simple title to his or her share and that title can be sold or willed to someone else.", says Rick Snow, Broker/Owner of First Choice Realty. Snow adds that Joint tenancy commonly has, "rights of survivorship", where multiple parties may own property together and, "if one dies the remaining owners absorb the deceased parties share."

4. Title insurance - Snow describes Title Insurance as, "indemnity insurance against financial loss from defects in title to real property and from the invalidity or unenforceability of mortgage liens." Basically, a form of protection.

5. Escrow - "An arrangement made under contractual provisions between transacting parties, whereby an independent trusted third party receives and disburses money and/or documents for the transacting parties", as defined by Snow.

6. Default - Defined by Snow as, "the failure to comply with some aspect of the contract and either seller or buyer can find themselves in default under the provisions of the contract. Remedies to the non defaulting party should be spelled put on the contract."

7. Easement - A "permission to cross someone else's land.", which is referred to as the proper definition, per Mike Arman, a Real estate salesman and Mortgage Broker for over 20 years. Arman says that the easement holder does NOT own the land, "and cannot cut so much as one blade of grass without the owner's permission.". He also says that they cannot be unilaterally revoked or blocked (Arman says, "next stop is court."). Arman says he *specifically* suggest, "NOT purchasing ANY property which relies on easements or a chain of easements for access". Sophie Martin adds that the most common easements are held by utility companies.

8. Flood Zone - Deemed quite important, per Arman, who says that you need to be, "1,000% sure of the flood zone your prospective property is in - homeowners insurance does not cover flooding, and flood insurance will be expensive and WILL be required by your lender.". Arman says flood insurance comes from NFIP, "which is administered by FEMA (of Katrina fame), which is now a division of DHS".

9. Subject to availability of suitable financing - This is "Hand written on the contract for purchase and sale", says Arman, who says that this phrase can, "save the buyer's good faith deposit if suitable financing is not available - and the buyer defines "suitable financing", so it can also be used as an "out"". Arman says, however, that the problem is that, "sometimes decent financing simply is NOT available - and 99.9999% of buyers go looking for financing AFTER they've signed the contract and put up a (big) deposit. Lenders often won't waste their precious time on pre-approvals, come back when you've signed a contract so we know you are serious." Additionally, he adds, "Bingo - someone is going to be out five or ten grand when they can't get a loan because of a credit bureau error from 1937."

10. AS IS. - As described by Timothy G. Wiedman, D.B.A. Division of Economics & Business Doane College in Crete, Nebraska, "In an era of bank foreclosures and generally falling prices for real estate of all types, many properties are being sold "as is."". Wiedman says that Buyers should view the term as a, "warning to be cautious, and property being sold "as is" should be professionally inspected _before any commitments are made." He points to a a court case that can provide guidance, which is "Prudential Insurance Company of America v. Jefferson Associates, Ltd." which, he says, went to the Texas Supreme Court in 1995. Wiedman says that "When property is sold "as is," the buyer _may_ get a great deal. On the other hand, the buyer may later discover defects that will be expensive to correct -- and have _no_ ability to recover damages from the seller."

   I hope these terms have been helpful. I cannot stress this point enough: Always remember to consult a local Real Estate Attorney before getting involved in any and all types of Real Estate arrangements. Do you have any important Real Estate Legal Terms to add to this list? we'd love to hear from you.

Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

TAGS: #realestateinvestor #legal #Deed #titleinsurance

Fear Over The Closing Of Escrow Process?

Good Morning,

   Monday has rolled around today, and summer is fast approaching (WOW!).

   On the topic of "Heat", one of the times we sweat to most is during Closing on a property. As on Ron J. Kuhn, a Sr. Mortgage Planner, says, "Closing" or settlement or "escrow" is listed as one of the top ten problem areas that occurs in a real estate transaction. It is probably the least understood, and most feared, aspect in a property purchase. Misunderstandings about closing costs can result in hundreds or even thousands of dollars of needless expenses, and put seemingly solid deals at risk". If that's not enough to make you sweat, let's examine this topic today.

   "In general: The process is dependent upon conditions set by the lender", says Nigel Swaby of Primary Residential Mortgage, Inc.. Swaby says that the conditions are quite often set by the investor that will, "end up buying the loan on the secondary market.", and adds that With loan buybacks becoming more prevalent, "this is very, very important as no originator wants to buy back loans that can't be sold." Susan Anderson, a Broker with Inspired Real Estate, adds that, "The closing process is generally the same in any transaction, but there are some definite differences depending on whether the transaction involves a traditional sale, short sale, or REO (foreclosed property), as well as whether the(re) is financing involved or the purchase is all-cash."

   As you can imagine, each state has their own unique process, and as Swaby says, "State law will impact the closing process.", and provides the state of Maryland as an example. "Maryland has transfer taxes that are levied on buyer and seller.", he says, but adds that the state specific requirements are "handled by the closing title or escrow company."

   Anderson says that one thing that is unique in California is that, "in Northern California, the escrow and title are usually handled by the same company. In Southern California, they are often different companies. Also, the buyer gets to pick the escrow/title company and the offer negotiation determines who pays for it (usually 50/50)." She says that usually, the escrow officer is in the local community, but says that, "However, with an REO, the selling bank usually picks the escrow/title, but they also pay for it, saving the buyer a big chunk of money. In that case, the escrow is most often handled by a company out of town who is working in a 'bulk' arrangement with the seller."

   Timothy G. Kearney, a Real Estate Attorney in Connecticut, says that Connecticut is an "attorney state" which means, "attorneys do the closings as opposed to an escrow or title agent in a title state." He says that the rules, "can vary from county to county but are, for the most part, standard." Kearney says that the normal process starts with the Execution of a P&S Contract, passes through title search, scheduling of closing, and then all of the settlements and figures are compared and adjusted, ultimately reaching the closing and conveyance of security deeds.

   Anderson says that, "as an agent, I prefer having someone local handle the transaction as it provides the ability to meet face-to-face if a problem arises.", but says that "one of the very best, pleasant, most efficient escrow officers I ever worked with was a woman in Southern California assigned to an REO transaction. And, of course, in California we do not use attorneys as part of the closing process. The real estate agent and broker are responsible for the entire process. I believe have the most rigorous broker license testing in the US."

   Kuhn adds the following comment about the Closing: "This final step to your purchasing a home or property can go smoothly if you take a few precautions beforehand. Knowing what questions to ask and reviewing all documents well in advance of the closing day will prepare you for a hassle-free and smooth closing.

   Good sound advice and good information. Tell us about your state's procedures and what are your suggestions. We'd love to hear from you.

Have a Great Week, and Happy Rent-to-Owning !
Regards,
Rob Eisenstein
HomeRun Homes Blog http://blogging.lease2buy.com
HomeRun Homes Website http://www.lease2buy.com

TAGS: #escrow #realestate #REO #foreclosure #California #closing