Closing Chicago Real Estate

That’s my sports vernacular for the popular University of Kansas chant.  KU along with Cal-Berkely were cited in this Journal piece titled, At Long Last, the Sports Mortgage, regarding financing a limited number of season tickets via so-called “equity seat rights.”

If you need to finance the purchase of tickets to sporting events you probably shouldn’t be there in the first place, right?

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Comments (0) Oct 01 2009

FHA delays implementation of new lending rules relating to condominium purchases. Saw this nugget changing the effective date to November 2, 2009 from October 1, 2009. Mike Wasserman had a good initial post on the rule changes. Short-term the delay likely helps some of the newer condo developments since the new rules require a higher percentage of units to be sold before the building is FHA elgible. Yet for the older buildings, I’m ready to kiss that right-of-first-refusal restriction goodbye.

Housing trouble down at Millikin in Decatur.  The small liberal arts school was charged with violating the Fair Housing Act for refusing to allow a blind student live in the dorms with her guide dog. It’s just an allegation at this point but I was suprised to see Millikin mentioned in a HUD press release.

Finally an interesting panoply of housng facts released by the Census Bureau regarding the state of U.S. housing…

Housing

• California homeowners with mortgages ($2,384) had the highest median housing costs in the nation. New Jersey had the second highest median housing cost ($2,360).  Hawaii ($2,265) and the District of Columbia ($2,218) followed, but were not significantly different from each other.  Rounding out the top six were Connecticut ($2,108) and Massachusetts ($2,105), which also were not significantly different from each other.
  

• Median selected monthly housing costs for homeowners with one or more mortgages, after adjusting for inflation, rose between 2007 and 2008 for nine states and declined for eight states. Five states that experienced increases were in the West (Hawaii, Montana, Utah, Washington, and Wyoming), three were in the Northeast (Connecticut, Maryland, and Pennsylvania), and one was in the South (Mississippi).
  

• Five states that experienced declines were in the South (Florida, North Carolina, South Carolina, Texas, and West Virginia) and three were in the Midwest (Michigan, Missouri, and Ohio). The average decrease in the median selected monthly housing costs for homeowners with mortgages in the United States was 0.3 percent between 2007 and 2008.
  

• The percent change in median home values decreased in the United States (-2.0 percent) and in 22 states between 2007 and 2008 – five in the Northeast (Massachusetts, Rhode Island, New Jersey, Connecticut, and New Hampshire); four in the South (Florida, Maryland, West Virginia, and Georgia); eight in the Midwest (Michigan, Minnesota, Ohio, Indiana, Missouri, Iowa, Wisconsin, and Illinois); and five in the West (Nevada, California, Arizona, Hawaii, and Washington). Although the rate of decline was not significantly different from each other, two states showed larger percentage declines than the other 48 states and the District of Columbia: Nevada (16.0 percent) and California (15.5 percent). Florida (8.6 percent) ranked third. (See: subject table S2506)
  

• States that experienced increases were Texas, Utah, Wyoming, Oregon, Pennsylvania, Tennessee, and North Carolina. Of those states, no one state had a rate of increase that was significantly higher than the other six.

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Comments (3) Oct 01 2009

And that’s just the average folks. Good overview piece on short sales recently from the Tribune describing the often frustrating process. Personally, the last few months I’ve been involved with 5 short sales, 1 of which has actually closed. I’d like to think my clients know what they’re getting into since I’ve told them what they’re getting into, but even for the well-informed person the waiting and unknowing and lack of communication becomes problematic after a while. Ideally a potential short sale buyer will have no time crunch to move and up front the buyer should be prepared to wait 12-16 weeks to hear something. If you’re not prepared to wait stay away from the short sale properties.

And look at that an informative quote from one of our favorite real estate bloggers, Eric Rojas, in the article:

“Most people really aren’t in a situation where they can deal with the uncertainty,” said Zhao’s real estate agent, Eric Rojas at Prudential Rubloff. “Even when you explain that it’s not accepted until the bank accepts it and you build these safeguards into the contract, people are dropping out, left and right. These sales would get done, but people just can’t wait.”

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Comments (2) Oct 01 2009

Communication likely is job one for the different players in any real estate transation from lender to lawyer to agent. But it’s particularly important with short sales as they drag on and on and on and on…

Case-in-point, we’ve been working with some buyers over the last several months who had entered into a contract regarding a transaction that they knew up front was a short sale and I surely counseled them up front that this deal may take several months to close or it may not close. Fast forward 2-3 months and clients are getting a bit nervous that the deal may not close prior to Uncle Sam’s November 30, 2009 bewitching hour and they start considering other properties.

Well, Buyer’s find another property, want to kill the ’short sale’ deal, and put in an offer on the “new” property. We send letter over to Seller’s lawyer on the short sale to null/void the contract and suddenly are told that first mortgage has approved the short sale and are given written proof of said approval and they’re just waiting for approval by the second mortgage-holder (what was worse was that my office had followed-up within the last couple weeks and we were told specifically Seller was still negotiating). So we may have just been getting the run around.

But the moral of the story is that particularly on the Seller’s side, you need to communicate the status of the lender negotiations to the Buyer or the Buyer’s eyes may start to wander. A quick e-mail or fax every 3ish weeks doesn’t take too much time. And it might keep that Buyer interested and save a Seller the ramifications of foreclosure.

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Comments (1) Sep 24 2009

I was recently part of an interesting negotiation during the attorney review period of a residential real estate contract regarding a buyer’s potential repairs that came up on an inspection report and other possible buyer credits. As the attorney for the buyer primarily it was eye-opening that the Seller is this particular transaction was taking such a hardline amidst the worst real estate market in recent memory. The Seller was adament about the fact that the Buyer’s prorated real estate tax credit should be 100% of the previous year’s tax bill and Seller would do no repairs nor provide any credit despite probably $2,000-$3,000 of substantial repairs that were raised in the inspection report.

What’s the sweet spot in terms of $$ when negotiating fairly straight forward deals like the above?

Generally I think Seller should be willing to compromise up to the amount of his total monthly expenses that she pays each month for the property that she’s selling. In other words, add up mortgage liability, condo assessment, property taxes, utilities, insurance, ect. Say that total is $2,000. I’d suggest that Seller should be willing to deal up to that amount in order to get a deal closed with the current buyer. Probably even more in a soft market, but I think that’s a good, easy guide for finding the “sweet spot” needed to get a deal closed.

My reasoning is that even if there is a backup buyer ready to step in, by the time you play with the first buyer’s attorney review period for 10-14 days, kill the deal, then second buyer has 10-14 days in attorney review…a month is eaten up and closing is delayed approximately a month. Thus the one month’s expenses as a simple barometer. And this likely even leans optimistic for Seller.

Are you really ever certain that there’s another offer out there?

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Comments (1) Sep 23 2009

Some good, substantive real estate news and then some “fluff”…

Real estate auctions:  Top bid no guarantee of sale.  Real nice overview piece on the different types of real estate auctions that exist these days. In a soft market, I’ve definitely found that having at least some conversant knowledge about the auction options out there is important. In a tough selling market just signing up for the generic 6% listing agent commission might not be good enough.

Seven New Rules for the First-Time Home Buyer. Sort of a back to basics list of how to approach home buying post-bubble. I like the “Stretch the House” rule…your first house can be your last. Too much house is one of these things like obesity…it wears on you in so many ways beyond just the mortgage payment.

And the fluff…House next to Obama’s Kenwood mansion for sale. Here’s some additional coverage and the listing. I see my good buddies over at the Matt Garrison Group have the listing.

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Comments (0) Sep 18 2009

Saw what I would consider the first two instances of the “major media” covering the upcoming expiration of the first-time homebuyer tax credit set for November 30, 2009, here (NY Times) and here (AP). Found the AP’s headline disturbing…White House may extend homebuyer tax credit; don’t we have a legislative branch in these United States? But I digress…

Some interesting views from the not self-interested crowd in the Times’ piece. In favor of an extension…essentially arguing that we’re not yet out of the woods on the economy and the housing market. Against the extension…it’s $$ our government doesn’t have and all it does is redistribute money from renters to home buyers.

Me? I’d say I lean towards opposing an extension. Not sure home buying by people who can’t always afford one is something to be encouraged (wasn’t this some part of the current recession), I’d bet 75% of people getting the credit would have bought a home anyway, and aren’t there better ways for the Feds to use $15 billion (like an across the board tax cut or health care).

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Comments (4) Sep 16 2009

Editor’s Note: Thanks to Mike Williams for sitting down with us here at CCRE to discuss what’s happening in mortgage-land these days. Mike’s been a friend and professional colleague for several years now and I’ve worked with him on several residential real estate transactions and a recent post-divorce cashout refinance or two (not always easy when dealing with bickering former spouses). You can reach Mike @ 773.671.5626…for all your mortgage needs, ELB Mortgage Brokers, Inc.

CCRE:
Considering the many lender alternatives (credit unions, local community banks, large, multi-national banks, mortgage brokers) that borrowers have when seeking a mortgage, how/where should a person start?

Mike Williams:
The best place a person can start is by talking to a trusted professional. A lot of the information that is posted online is designed to drive business to a certain company or website. Rates posted online typically would be unavailable if the customer wanted to get that rate today. Loans right now are typically taking 45 days to close, and a lot of rates that are posted on the internet are for 15 day locks. These rates exist, but if you started your mortgage process today, you couldn’t lock that rate, which is why they’s deceptive.

CCRE:
Since you’re a mortgage broker, describe what you do when a new potential client contacts you seeking a mortgage?

Mike Williams:
The first question I want an answer to is ‘what do you want to accomplish?’ Rate is not always the overriding issue, and if someone has income documentation problems, or poor credit, or just needs money, those can be bigger issues than ‘what’s the rate?’ Also, I want to know what sort of urgency the customer has to getting something done. There is no point in talking about rates if someone is not motivated to get the process started.

CCRE:
During the so-called ‘boom years’ mortgage brokers were criticized for steering clients to loan products that benefited the broker at the expenseof the borrower, does this still happen and how can a borrower be confident she’s getting the best deal?

Mike Williams:
Without mortgage brokers if someone who wanted a mortgage wasn’t a plain vanilla, slam dunk deal, their deal probably would not have been funded at the local bank. Brokers helped fill that gap and assist those people in their quest for home ownership which was invaluable to our economy. There is no way to judge a deal as a ‘good’ or ‘bad’ deal. It’s very subjective. Is the deal ‘right’ for you? Does it help you accomplish what you are trying to get accomplished? Are the payments something you can live with? What is your plan for this loan two to three years from now? Those are the questions a customer needs to ask themselves. There is no blanket standard for what makes a good deal as everyone’s situation is unique.

CCRE:
What’s your most popular loan product these days?

Mike Williams:
Plain vanilla 30 year fixed, or FHA 30 year fixed are today’s most popular programs. The days of stated income loans and Option ARM mortgages are gone and the market has little, if any, tolerance for unwanted additional risk.

CCRE:
What options exist for borrowers who can’t afford a 20% down payment?

Mike Williams:
FHA lets a customer put down 3.5%. That 3.5% can be from an immediate family member if the customer doesn’t have it. The days of 100% financing are over for the time being.

CCRE:
What is the maximum loan-to-value available on ‘cash-out’ mortgage refinances today?

Mike Williams:
For FHA the max you can get on a cashout refinance is 85%. I have one lender that will go up to 90% on a cashout refinance, that’s about as much as anyone is doing nowadays. Banks also aren’t into giving people ‘walking around’ money in this market. They want to see that your situation is improved with the refinance either by going from an adjustable rate to a fixed rate, or that your interest rate gets lowered, and your monthly payments go down.

CCRE:
Say I’m thinking of purchasing a home in six months to a year, what steps should I take to be ready for mortgage process?

Mike Williams:
Call a mortgage broker now, and see what your credit score is today. In this market, your score is everything, if it’s low, put yourself on a plan to raise your score in six months to a year. Secondly, pay down your debts, and lastly, start saving your money for a downpayment. 100% financing and easy credit is gone. It’s getting to be like the old days where you have to ‘earn’ the right to own a home, which isn’t such a bad thing, but it’s not easy like it was just three years ago.

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Comments (1) Sep 03 2009

No surprise to readers in this space, we previously touched on Buffet’s interest in the Chicago market nearly a year ago.  Here’s some local coverage of the purchase here and here. Main point:  real estate isn’t dead and it’s a good, long-term investment. Thanks to the Dirty Lawyer and Wasserlawblawg for the heads-up via Twitter.

K & S is near and dear to my heart…grew up with many children of the founders in the northern ‘burbs.

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Comments (0) Sep 01 2009

Well if nothing else this blog has now existed over the life of three versions of the Multi-Board Residential Real Estate Contract. Here’s my analysis of version 4.0. I attended a CBA seminar in May where version 5.0 was discussed but hadn’t seen it used in the real world until the last month or so. Here’s a copy of the v. 5.0 along with a couple comparisons done by the Illinois Real Estate Lawyer’s Association here and here. Here’s a sample copy of v. 4.0 (notice the big red letters).

Honestly, very minimal substantive changes save one.  Some changes in 5.0 to be aware of:

9. Attorney Review. 5.0 includes a new paragraph where a party to the contract can propose “suggested changes” to the deal which are different than “modifications” which would constitute a counter-offer. If the “suggested changes” are not agreed upon the underlying contract remains in effect. At the moment I can’t see myself making any use of these “suggested changes.” If I’m suggesting a contract modification it’s because there’s something important at stake, if there’s nothing at stake I’m not proposing any changes (modification or suggested changes).

10. Professional Inspections. 5.0 softens the “automatic kill” provisions contained in 4.0. Now you “may” kill a deal if there’s no agreement regarding inspection issues within 10 days whereas 4.0 declared deal “null and void” if no agreement within 10 days.

11. Mortgage Contingency. 5.0 includes a blank to add a loan amount in the % of purchase price whereas 4.0 had a blank to list an actual dollar value. The reality was that real estate agents were nearly always putting in a % regardless of what the contract form directed.

21. Seller’s Representations. 5.0 expands this listing to include a list of 9 Seller representations AND it state’s specifically that these representations “shall survive the closing.” This could have impact if you get a Seller who lied in the contract. Under 4.0 this sort of thing may have “merged” into the deed (i.e. not survived the closing).

27. Notice. The language regarding e-mail notice is modified to provide for opting out of receiving e-mail notice. Of course 5.0 also says flat-out that if party of party’s attorney provides their e-mail then he can get notice via e-mail unless he opts out. Likely a non-issue…as convenient as e-mail is I don’t know of many attorney’s who use it for formal notice matters under contracts.

Take a look at some of the IRELA breakdowns I reference above if you want to see a comparison of EVERY change. My list was just what I thought were the semi-significant changes. Quite honestly the changes are non-substantial enough that one might question if the new version was necessary or surely the timing of the redo.

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Comments (0) Sep 01 2009