Archive for March, 2007
Don’t get an FHA Loan
In Utah, most people do not have a Mortgage on their home. They actually have a trust deed. In fact, most mortgage companies today don’t even give mortgages. In other states, the mortgagee(the lender) generally holds the title until the home is paid off, which is similar to what happens with car loans. Some states on the other hand use warranty deeds, through a system known as lien theory, which sellers give buyers at closing and the buyer owns the home. A mortgage lien is then recorded, and the lien is the only recourse the lender has against the home owner. Utah is a lien theory state.
In Utah, a deed of reconveyance is recorded upon sale. The advantage held by deeds of trust over mortgages is actually in the lender’s favor. It makes foreclosure faster and easier. A mortgage generally involves more lawyers, and allows 6 months for the owner of the home to redeem AFTER is has been sold at auction, provided the owner can payback all fees, past-due payments, and gives 7% to the winner of the foreclosure auction, which tends to be the bank.
Banks are completely flexible; or rather they vary, when it comes to foreclosing. They may initiate the process after its 90 days past due, some will wait 6 months. If your loan is a government insured one such as FHA or VA, you will likely have less time. Lenders try to avoid foreclosure, as it is generally a loss to them. That said, loans such as FHA are insured by the government with the lender’s losses COVERED by the US government. As such, they really don’t have much to lose by foreclosing on someone with an FHA insured loan. Once foreclosure proceedings have begun, you generally have 90 days to redeem your property by paying off all the interest, fees, and past due payments in full. This is the part of the foreclosure process in which short sales generally take place. Most lenders will be warm to the idea of a short sale and a short sale can prevent the addition of a foreclosure to one’s credit history. Once the lender has decided that foreclosure is inevitable, there is a final 30 day period which is entered into. After that, it’s to the auction block!
Learn why foreclosure auctions are rarely deals in part 2 of this lesson.
If anything goes wrong, blame the agent
Arriving early for class proved to be a mistake today, as our instructor was 20 minutes late. Several students in the class began to get angry, with one remarking that he couldn’t take any more time off of work. As our courses tend to begin and end at the same time regardless of when the instructor shows, I’m not sure why he was stressing out about being late for work, but I soon realized that he wasn’t the brightest on in the group as he continued to remark about how stressful it was to be learning real estate, and how he felt like he was experiencing a 2nd puberty.
My head was starting to ache as I tried to understand what he was blabbering about when our instructor burst in. She apologized and explained that she had scheduled a closing for that morning.
I should add, this class was a required attendance one, and I believe the second one with a title agent. If you recall, our first required class had left us all confused as the agent declared that by buying title insurance, you were giving the title company license to sue you. I hoped that perhaps todays class would be less confusing.
Our instructor began by telling us that she had been in the title business for many years and that when she started in the business she was the only girl…”Girls you know what that means? Boys didn’t let me into the vault.” She complained that work had been hard going in such a sexist environment, but seemed pleased that the industry had changed its ways. Personally, I wouldn’t have stayed with a company that I found sexist and limiting, but I guess I’m unique in that belief.
Her introduction then had her touching upon a theme familiar from our first title agent lesson, that of agent responsibility, essentially Agents are responsible for making sure the Title company doesn’t make a mistake. How convenient for them!
She warned the room that if there were any problems during closing, that the clients are going to be blaming their agents, who meant that, we would lose out on referrals and repeat business.
After this familiar rant she then stated: “Today I’m teaching what I do for a living…so you don’t need to know all of this…you just need to know who to ask (me). “ This seemed to kind of contradict what she had said earlier about agents having to catch all mistakes, but then telling us to just trust in her for any and all closing problems. Thankfully, she then jumped back to familiar ground by concluding her introduction with the stern warning: “If something goes wrong, they’re going after you.”
To learn more about title insurance and how it’ll get you sued, read part 2 of this lesson.
Casper the not so friendly…
Today’s class began with a warning. “You will work with Leases”
Some agents choose to deal with Leasing as their unique specialty. They generally work during normal business hours, as most businesses lease rather than own their property. Real Estate agents are licensed to work with Leases in the state of Utah. At this point in class, I took out my lunch and began to munch on my fluffernutters, while the instructor gave the definition of Leases.
Be sure to get a lease in writing the instructor warned, as people in Utah seem to have a “selective memory” when it comes to things promised outside of a written contract. This brought about a story regarding an unsavory tenant whom our instructor had suffered with, “a black guy” our instructor shared, ironically named Casper who had tried unsuccessfully to “use the minority card” when he was denied his lease renewal.
We were warned that as Landlords, there is a solemn duty to get rid of tenants who deal drugs, as property can be seized by the government if you are found to be negligent. We then learned some interesting information regarding renting in Utah.
The slowest months (and thus the best ones for tenants) are April, May and June. For this reason, most landlords try to lease their properties out through those months, with most leases here lasting a year, and being initiated either August or September 1st. Our instructor recommended advising tenants from previous years two months ahead of time if you plan to give them another year lease, particularly at a higher rent.
We were told that it was a renter’s market a year and a half ago when home prices were still very low in Utah, and there was a strong housing boom in the rest of the nation. As a result, many young-would-be tenants bought homes instead. Home prices have since skyrocketed almost 25% since then which has caused rents to recover. Utah certainly appears backwards in this regard, rents freefalled during the bubble, now that the bubble has burst rents are rising.
Want to learn how to make money by being foreclosed upon?
Read part two of this lesson.
No one ever gets this right
This was by far the worst class I have had so far at Real Estate School. I have become accustomed by now to all manner of ridiculous, and often humorous classroom situations. I’ve even been able to handle some the boring material rather well. Everything else paled in badness compared to today.
Class started normal enough, with the usual groans as the instructor warned that today would be another math course. I smiled to see the slide projector and tape player out like in Lesson 16. Our instructor began by warning us all: “Do not let anyone move into the home you have sold until closing. Settlement is when papers are signed, but it is NOT the same thing. Until funds close, you never know what could happen”
Surprisingly, after only a minute or two of slides and this brief warning about closing, our instructor eagerly announced that he would be leaving the classroom, and that we were to remain inside and work on a closing statement, which he beamed at us, “No one has EVER gotten right”
This was cleverly intended as a means of motivating the class into trying to be the first ones to fill out a closing statement correctly. As the instructor left the classroom, he mentioned softly that some of the required information was actually missing from the closing statement assignment.
I’ll try to scan the assignment so that everyone can see how ridiculous this thing was. It was essentially a blank table, with a confusing paragraph describing some of the information which we would need in order to fill out the closing statement, and leaving the rest to our imagination I suppose.
In case I haven’t mentioned it yet, a closing statement is a summary of all the closing costs involved with the final real estate transaction, and dividing the amounts spent between the buyer and the seller. They are detailed, long, and confusing. If you’ve bought a home before, you probably scanned it briefly and didn’t pay it more than 30 seconds attention.
It should be noted that it is incredibly easy for the title company preparing this statement to make a mistake or a typo which could easily have cost you several thousand dollars. For this reason, you may want to give it another look with a calculator.
Having taken an accounting course, there wasn’t much confusing about how a Closing statement is written. They are just a collection of items, which are either credited or debited. A credit is the thing given in exchange for a debit. An example of this would be a Credit Card Company crediting you $50, in exchange for a debit placed on your account stating you owe them $50. Simple stuff. I hoped to just ignore the problem, but sadly our instructor had assigned everyone a group, and mine had decided that we were going to finish the whole thing, and get it right. It was High School all over again :-p
One of my fellow group members asked another to borrow her calculator. She stared at it for a few minutes, then red with embarrassment, whispered “How do you turn these on?” We helped her press the on button, and she was ready to do math!
I’ll spare my readers the boring details of that next hour and a half. Suffice it to say, everyone gave up from frustration, and several picked up their copies of “Millionaire agent”, a get rich through real estate book.
This initiated a classroom discussion about whether the book could really make someone a millionaire, which soon led to some classmembers asking others if they had heard of the $1000 programs which teach a person how to pay off their mortgage early, or if anyone was going to attend that free real estate seminar that was coming to town. Several of the classmembers who had heard I was writing a book on Investment in real estate asked me to attend the free seminar with them to help them know if it was a scam or not. I told them it probably was, and to save themselves the time. In retrospect, I probably should have taken down their information, not to scam them of course…but at least I’d have some people to sell my book to!
Our instructor finally returned, and shared the answers to the incomplete problem. No one got it right.
Closing Problem - This was handed out to us with the challenge that no one ever gets it right. Spending five minutes trying to answer will show you why. This is probably worth reading over simply because it provides some genuine sample closing-related documents.
Real Estate Purchase and Sale Agreement - This was provided as extra information for the above problem. It created more questions than it answered.
Exclusive Sale And Listing Agreement - This is a dated listing agreement used by agents to list a property for a seller.
Closing Instructions Sheet - This is actually somewhat useful for double checking a closing statement to make sure everyone was charged the right fees.
Blank Closing Statement - Want to try doing a closing statement of you own? Knock yourself out.
Numeros!
If there is one thing agents seem to hate, it’s math. Today when the lesson topic was announced, everyone cringed and began to search for a calculator.
Humorously, our instructor who normally presents his lessons from the top of his head, is using an antiquated tape recorder and a set of slides to teach us math.
He stands beside the tape player, pausing and playing, it begins:
“In order to solve and real estate math problem you must follow four steps:
1. Read the question
2. Write down the formula
2.5 Convert the fractions to decimals.
3. Solve the Problem
4. I didn’t bother to write down #4…but I’m guessing it was something like write down answer.
This brought about our first math problem:
“An area measures 50 feet by 100 feet, how many square feet is that?”
We were given 3 minutes to type away madly at our calculators. I caught some glances as I found myself giggling rather hard. Maybe I’m just too good at math.
.2 x 4 = ?
We were told that in order to solve this problem, we will have to move the decimal, and solve for 2 times 4, then move the decimal back. Tricky! Now I know that .2 times 4 is .8! I’d remember that, but hey, I have a calculator, so really no point. Speaking of which, after 5 minutes of class, I put my calculator away.
I’ll spare you the next part of class in which we were shown simple geometric methods for calculating areas, and given extraordinary amounts of time to solve sample problems. It was mildly amusing to see the instructor ask for volunteers to come up and solve the samples, and to see the volunteers come up, get halfway through an intricate math problem such as 8400/320, and then give up and sit down. How they managed to fill the board with so many numbers is beyond me. It took four attempts before the instructor helped out.
After an hour of this, someone groaned: “This is not a fun class”
Towards the end of class we were treated to one of the class members (a public school teacher) angrily confronted a group of spanish speaking students towards the back of the room, asking what their excuse was for talking so rudely while the instructor was speaking. He also threw in that it was particularly rude for them to be speaking in a language that no one could understand. I disagree with that, I do understand Spanish, and I think I found their constant chatter even more annoying for that very reason…seriously nothing worse than having to listen to hilarous jokes and not being able to laugh (I was still embarrassed about my laughing at the beginning of class.) They sat in stunned silence for the rest of the class, only speaking in quieted English while trying the problems.