Archive for March, 2007
I apologize for the slow days with few entries. I am travelling in California and unable to post much. I do have several large entries which I hope to get up shortly. Thanks for your patience!
On a sidenote, property prices here in Southern California seem to have dropped only slightly (unlike Northern California, which has plummeted). In fact, it would appear that the market has completely stabilized.
To be honest I’m not sure what direction prices will head in here. It seems quite possible that prices will remain where they are, though the increase in foreclosures from the bubble burst may lead to a slight downturn. It’s probably a good time to sell, but since things aren’t dropping, one might be wise to hold until the market moves again in either direction.
For those shopping in California, they may find PropertyShark.com invaluable. It has TONS of information on values and things which Zillow sadly does not offer.
Tell us you make a million
Drawing from some of yesterday’s discussion regarding whether or not Casey Serin is criminally liable for his actions, I thought I should share what happened to me a few weeks ago.
Having already detailed my ridiculous experience with Quickenloans, as well as lightly touching on the hell that was dealing with Countrywide, I can affirmatively declare that the behavior of lenders in this country is beyond unethical, it is outright corrupt.
Consider the following: A few weeks ago my wife and I happened upon a condo here in Utah that we stood a good chance to win (it was being auctioned) for $61,000. As we would need to close quickly, we called some lenders to see what could be done for us.
My wife called Well’s Fargo Bank and was quoted an amazing 6.25% rate for a 100% financed No Doc 30 year loan with NO POINTS. I was shocked and skeptical when she told me this, as 6.25% is a difficult rate for ANYONE to get in this current market. The loan agent she talked with had encouraged her to provide her credit information and get the ball rolling on the amazing rate he had quoted. Having already had several lenders try to screw us, she and I have both learned to carefully examine a lender before committing.
As things were going well with the auction, I proceeded to call Wells Fargo and provide the same information which my wife had provided. To my surprise, I was quoted a similar rate of 6.25%, however this time with one point. This is hilariously common practice for lenders. You could call Wells Fargo all day long and get quoted a DIFFERENT RATE with each loan officer you talk to. The only consistency will be that EVERY rate quoted will be LOWER than what the underwriter will actually approve.
Still, we had both been quoted 6.25%, which even with a point would be a deal, so I called Wells Fargo for the third time that day and decided to try and lock the rate. I began talking and explaining once again, the kind of loan which my wife and I desired and was quoted a rate of 6.75% with two points. I politely explained that I had been quoted a lower rate earlier during the day, to which the loan agent replied: “Sir, our rates are standard, they do not change and every agent will give you the same quote (ya…right).
Still, this rate was appealing so I asked him to fax me a lock so I could guarantee the rate. He happily agreed to do so if I provided my social and credit card number. I said that that would not be a problem, but that I’d just like to review the details of what was being proposed first.
To confirm I restated what he had already told me several times in our conversation:
“So just to be clear, Wells Fargo is able to give me a 6.75 rate on a no document loan with 100% financing, at two points, for thirty years?”
“He coughed…then said, actually sir, I just checked, the rate would be 8.75%.”
I smiled…predatory lending at it’s best.
“Ok, so you were mistaken then, the rate is 8.75% for a no document” I continued
“Stated income” he interrupted.
“But I clearly said we wanted to do a No doc loan remember?”
“Sir, why would you not want to do a stated income instead? It’s the same thing, you just tell us whatever you want and we use that number to qualify your debt to income…”
“I am self employed and my income is not steady, I do not have a set monthly income and that’s why I was asking for a no-doc loan” I explained for the third time that call.
“Well sir that’s not a problem. You can say anything for your stated income, you could say a million dollars haha…it doesn’t matter.
I insisted that it DID matter, in retrospect I really wish I had confronted him more for TELLING ME TO LIE on my loan application. I then asked what the No Doc rate would be.
He replied that it was the SAME as the stated income rate.
To make a ridiculously long phone call slightly shorter, I will summarize. I painstakingly spelled out the terms which he had quoted me and in the end found that he had actually been quoting the ARM rate and not a thirty year one.
The man was beyond mistaken. He was deliberately lying in an attempt to get his commission. That is the primary issue with lenders in the finance industry. Many of them work for commissions. As such, they have learned that they can often get away with illegally doing whatever it takes to screw the client.
Before attacking someone like Casey for lying on a loan application, realize that the system is set up not only to encourage and permit sleazy loans, it often FORCES someone into them. Imagine a company that encouraged employees to tell their customer to go ahead and steal from the company. Not only encouraged, but paid commissions to the employees who successfully tricked/persuaded/convinced customers into stealing. Honestly, the only thing that saved me from being convinced to do a stated income loan was the fact that this has happened to me SEVERAL times already, otherwise I could easily have been persuaded to have overinflated my income. Why else would the loan officer tell me to? He does work for the company after all, and is generally the ONLY human contact between the lender that clients have. So before you criticize anyone, remember people like Casey are the symptom, not the cause.
I just got finished listening to the massive two hour long webcast by Casey Serin. For those unfamiliar, Casey bought almost a dozen homes with no money down during the housing bubble and has since had most of his purchases foreclosed upon. His purchases were often ones involving cashback at closing, often tens of thousands of dollars. During his webcast he was relentlessly criticized and attacked for stupidity and recklessness.
His blog, iamfacingforclosure.com, has sprung to popularity inciting rage in many of his visitors. I have been a long time reader of his blog and find his site hilarious as well as compelling. Here is a man who used his credit score to secure nearly two million dollars worth of loans with barely a dime of his own. And lost it all.
That seems to be what causes most people to spit and scream. Some have argued that people react angrily to Casey because of Zero Sum, the feeling that Casey’s loss has somehow affected others negatively.
Honestly, I believe Casey is hated because of jealousy. Allow me to explain. Many of us live our lives owning only one home, and saving extensively in order to afford a down payment. These homes hold mortgages so high that their owners spend the next thirty years working full time in order to afford the monthly payments. Children come along and eventually, after half a dozen refinances to help pay for the children’s college educations, the homes are paid off.
By this time, many find themselves with a pitiful to modest savings, and often reliant on Social Security in order to survive. This is the existence of our grandparents and parents. Little changes as the generations pass.
Casey is unique. He arrived in America after emigrating from the former Soviet Union. He came to America and did something most of us could never fathom, dream of, or dare attempt. He took a risk.
0% down loans allow anyone with a decent credit score to buy a home with NO money. If one overpays, it is possible to get cash back and cover a year or two of mortgage payments as well until one flips it. This is a fact of life. Banks offer this service voluntarily. Say what you will about their decision to do so, they have made it and it’s their responsibility.
Casey was able to borrow all of these funds without having to provide proof of any income whatsoever. Again, the banks voluntarily allow and offer this service. Say what you will about their decision to do so, they have made it and it’s their responsibility.
Something which I don’t believe anyone has seriously discussed yet is how brilliant these crazy purchases of Casey’s were. Allow me to explain. The United States does not have a debtor’s prison. With the exception of Student Loan debt, most debts can be erased through bankruptcy. Foreclosure on a defaulted home generally takes at least six months to execute, and generally does not force an individual into bankruptcy. Generally, the worst the banks foreclosing can do is destroy your credit score for up to seven years.
What am I trying say? Casey’s decision to take out two million in loans was akin to putting two million dollars worth of chips on black on a roulette table. The bonus? The money was given freely to him by the banks. Had the market not slowed, and the bubble popped, Casey would have stood to profit close to one million dollars. Think about that.
Casey could have become a millionaire with no investment of his own. Even as the market tanked, he was afforded an amazing amount of time before the banks foreclosed. He was able to control property for almost a year without even having to make payments. Had the market rebounded, he still would have made tens of thousands. Think about it.
Even as the homes were foreclosed upon he was able to make a few thousand selling his redemption options and wrapping one of his homes. He still made money from homes which he bought with the bank’s money.
What I’m driving at is, Casey could have become a millionaire, something which most of us will never do. He failed, but his failure has been relatively painless considering the rewards he could have reaped.
Casey took a chance that we should all consider seriously. Few people realize how risk free one can invest in Real Estate. For example, in California the civil code of procedure section 580 allows people to buy a home with 0-risk. They are only liable for what they put down, all your other assets cannot be touched. I could move to California, and have my wife buy a $600,000 home with no money down in her name only. If it went up a modest 20% or so in value we could sell if and easily reap $100,000 after closing costs. This is a small fortune to most Americans. If the home went down in value, my wife could turn in the keys and walk away with a small hit to her credit. That’s it. That’s all that could happen if things went bad. This is close to arbitrage , and if nothing else is highly intelligent arbitrage betting. Now imagine if my wife got two or three such homes with no money down. We could potentially net hundreds of thousands with next to no negative repercussions other than a trashed credit which WILL eventually clear itself. Is seven years of bad credit better than thirty years slavery to a mortgage? Is it more intelligent to spend thirty years working to pay off a home, or ‘Casey Serin’ it every seven years until you make a million?
What is beautiful about such a strategy is that if one is married, the assets belonging to one’s significant other CANNOT be touched. My wife could steadily buy homes In California ever seven years, while I kept all our other finances in my name. If things fail, no harm done. If things succeed, we’re rich!
I guess that’s the solution for Casey’s problem. His wife. He needs to focus on getting her credit cleared up so that she can take care of their immediate needs, while Casey takes a seven year break from home loans. He’ll still be young when his foreclosures drop off his credit report, and then he’ll be able to buy another ten homes. The rest of us can all complain, but that’s how the system is set up, and at this rate, Casey will be a millionaire before most of us even pay off half of our 30 year mortgages.
They Can’t Take Your Home
Class began with us being reminded and warned that we should make sure that we pressure lenders to meet deadlines. I can understand this as being excellent advice as personal experience has taught me that most lenders are either incompetent or just very unprofessional. It seems unfortunate that lenders are able to act in this way however, as it’s bad business and needlessly complicates things.
The borrower in Mortgage transactions is considered the mortgagor, and the lender (who receives the mortgage as security from the borrower) is the mortgagee.
Through court action, a bank can foreclose, which requires that the Sheriff give notice of sale. He must post at the property, three public places, at place of sale (usually county courthouse) and publish in local county newspaper three times (once a week).
The property is then auctioned to the highest bidder with proceeds going to the cost of sale, debt, borrower, and any excess goes to the owner. A deficiency judgment can then be issued if the auction comes up short.
Under a mortgage, there exists a six month period of redemption in which a borrower can reclaim his or her property. Deeds of trust here in Utah do not have said period of redemption.
Missing one payment can quickly cause a lender to file a notice of default. This notice is sent to interested parties. This will be provided to anyone who wants a notice as long as they pay $10. They can go down and request a copy for when one is sent out.
90 days after the notice of default a lender may proceed towards a trustee’s sale. Notices of trustee sales are posted in the local newspaper along with times of auction and the names and location of the parties involved.
The morning of an auction requires that buyer be able to pay within 24 hours as well as a $5000 cashier’s check. Trustee’s websites tend to keep details up to date on auctions and cancellation notices.
In addition to foreclosure, Liens can affect your ownership rights to a property. Involuntary liens such as mechanic liens (for work done on a property) and judgment liens resulting from court rulings. A judgment lien can affect ALL of your properties, and can result in your property being seized to satisfy the judgment. The priority behind the liens is based on the date of docketing. Property taxes always get the highest priority as liens, and then priority goes to other liens in the order which they were recorded.
Original workers and subcontractors can file mechanic’s liens within 90 days of completion of the work which they were not fully paid for. Some contractors file liens as soon as they get their contract so as to guarantee early priority in payment.
Interestingly, if you are contracting for more than $2000 work, you must hire a licensed contractor and get a written contract as well as all permits and pay everything in full per contractual terms. You must create a bond in order to avoid being personally liable should anything go wrong. Doing all these things will keep you from being liable to any subcontractors and protect you from mechanic’s liens.
Per the Residence Lien Recovery Act, there exists a fund called the Residence Lien Recovery fund which, assuming you complied with your bonding and contract, will pay any subcontractors who were not paid by your contractor.
After four years a property can be sold for unpaid property taxes. A homestead exemption protects family homes, which the head of family can claim for their primary residence. By filing one, you can be protected against certain types of liens such as lawsuits.
The maximum possible exemption provided by a homestead (which is normally filed before a suit is determined) is $20,000. According to our instructor, there is a ding on your credit as a result of filing one…though I personally doubt that. A possible disadvantage to a homestead is it can prevent lenders from lending on a home with an exemption. This is a wonderful way to protect your equity, as many homes, at least here in Utah tend to have lower amounts of equity within them. Essentially, as long as you have less than $20,000 in equity, you cannot lose your home.
You don’t need an Agent
We are warned that Utah law is a tougher exam than the national exam. In order to be a licensed agent in Utah, as well as most states, one must pass both a state and a national test. Utah law is intended to protect consumers from agents and seems pretty thorough.
25% of the Utah test involves understanding a HUD closing statement. National exams seem to test more common sense whereas Utah law tests one’s knowledge and understanding of Utah statutes.
The executive director of the Real Estate Division in Utah is appointed by the Department of Commerce’s executive director (who is appointed by the governor). This office tends to be rather long, as most directors remain for 5 – 10 years. Currently an attorney heads the position, and will do so until removed by the governor.
The Real Estate Division sets the fee (which is paid every two years) for license renewal, as well as manages and enforces laws applying to agents. They also control licensing, for example ruling that property managers must hold the same real estate license agents hold. They also send out a semiannual newsletter. This newsletter outlines actions taken against licensed agents, mortgage brokers and appraisers which can include fines and license revocation.
The commission has 5 members, one of which is a non licensed agent. They must have at least 5 years experience, and are selected from different counties in order to provide equal representation across the state.
In Utah you need a license in order to deal with any real estate transaction other than your own. This brought about a discussion the mentioned a few interesting things. We were warned to not show more than six homes a day to a client in order to avoid overwhelming them. We were also advised that we could use a broker as a convenient excuse to lie to clients. For example, if a client inquires about a reduced commission, we can insist that our broker prohibits that.
Interestingly, there exists a convenient loophole for those interested in selling a home for another. You ARE permitted to sell a home for a commission IF you have them sign power of attorney over to you. This could get you in trouble if you do it routinely, but it could be convenient in certain circumstances. You would want to be particularly careful to avoid soliciting others to do this however.
The class then began to attack “Fizzbos” (For Sale By Owners) with claims of how agents can sell homes for more than an owner trying to sell themselves. Claims that 90% of all owners end up with an agent eventually, most within the first two weeks sounded lofty and dreamful. To be honest, I have seen quite a few owners sell their homes themselves with good success. The key seems to be pricing right, and knowing the market. If you’re clueless, you probably WILL get more if you get a GOOD agent. A bad agent could be worse than what you’d do yourself.
We were warned not to be a broker. Brokers are broker than the agents the instructor joked. He is the broker of the school and is a millionaire, so he may have a vested interest in reducing competition. In order to be a broker in Utah you must first spend 3 Years being an agent.
Licenses in Utah no longer require High School diplomas. The test costs $68 and can be taken infinitely, but you do have to pay each time you take it. You are not allowed to bring in Solar or programmable calculators. You cannot pay with cash; you must use a cashier’s check or money order in order to take the test. They can be taken either during the morning or the afternoon and you are given up to four and a half hours to test.
Within 90 days of passing the test, you must decide if you want to be an active agent or an inactive one (pay the license fee). A nonresident can be licensed in Utah as long as they have an active license in their home state and pass the Utah licensing exam. One last note of interest is that of irrevocable consent in which you state your address. If you are served, and you haven’t updated that address you are still considered served.
When you come to a brokerage, they take control of and store your license in their office. So until you become a broker, don’t expect to see that baby on the wall.