See my Blog

• Kentucky Bar Association
• Louisville Board of Realtors
• Home Builders Association of Louisville

• Appraisals Up with Housing Market Volatility
• New Rules in Play for Appraisals
• Facing complex market, fewer going the FSBO route
• FSBO vs. Agent: Are You a FSBO Candidate?
• Loan Modifications Coming Due
• Tips for Louisville Sellers Going FSBO
• Options for Preventing Foreclosure
• Review of Purchase, Contingency Agreements

Appraisals Up with Housing Market Volatility

As the housing market grapples with significant changes, there is disruption in the appraisal arena as well. Some of these issues aren't as prevalent in places like Louisville. But in many markets - and especially where a given neighborhood has a high number of foreclosures and short sales - it is much more difficult to determine the fair market value of those properties.

According to the National Association of Realtors, one in 10 member agents said they had a contract canceled as a result of a low appraisal, 13 percent said they'd had a contract delayed, and 16 percent said they'd had a contract negotiated to a lower sales price as a result of a low appraisal.

Appraisal World, a company that provides automated valuation software and services to appraisal companies and lenders, reports the same kind of volatility. New and proposed federal rules governing appraisals, changes in the way appraisals are conducted, and a still uncertain housing market have hit the appraisal part of the process in a way that is adding to housing market instability.

Trends:

• As borrowers watch their "locked in" low rates expire, they pay for more appraisals
• Lenders are more afraid to trust the appraisals they get...so they order more of them
• Underwriters want more comparables, more narrative and more photos
• For properties located in declining markets, some banks want "loan to value reductions" and are ordering more appraisals

Also, since many distressed properties are in disrepair or are very complicated to buy, the prices they command are unrealistically low and more estimates might be generated.

Lenders typically ask for second appraisals when the mortgage amount involved is large or when the appraiser has significantly adjusted the comparable values upward to come up with a home's value. To discuss a real estate issue you are contending with, contact our office at 502-456-4506 to speak with one of our support staff or directly with attorney Daniel Senn. We will respond promptly to any questions or particular issues you would like us to address.

New Rules in Play for Appraisals

The world of home appraisals changed on May 1, 2009, when Fannie Mae and Freddie Mac adopted the Home Valuation Code of Conduct. Again in December of 2010, the rules are expected to face some revisions.

These new rules prohibited lenders from hand-picking appraisers. To comply with those rules, many lenders have started using appraisal management companies that afford them an arm's length relationship with the appraiser. The appraisal management companies hand out assignments to their participating appraisers on a random basis. And they get a significant slice of the appraiser's fee, cutting the amount that actually goes to the on-the-ground appraiser.

It's not an arrangement that traditional appraisers -- who may have built long-term relationships with brokers and lenders -- like. Many appraisers argue that the new rules result in a reliance on less experienced appraisers who are simply willing to travel greater distances to conduct home inspections. They contend that this results in appraisals that are less sensitive to neighborhood nuances and likewise less valuable to borrowers and lenders.

And more rules are forthcoming: The Dodd-Frank financial reform legislation requires the Federal Reserve to protect appraisal independence with regulations that extend the intent of the 2009 code beyond Fannie and Freddie. The Fed's interim rules, issued in October and slated to go into effect in April, aren't very different from that 2009 code.

On December 2, several U.S. regulatory agencies issued new guidelines for appraisals used in mortgages which originate from federally regulated banks, along with a statement noting "financial institutions are responsible for selecting appraisers and people performing evaluations based on their competence, experience, and knowledge of the market and type of property being valued." The statement also noted that these guidelines might be rewritten once again, when the Fed's rules are made final.

In the meantime, consumers need to look over the shoulders of those appraisers, especially at the comparable sales that are being used. If you are not satisfied, make the lender aware of that and overall, just be more engaged in the process. Even if a new appraisal doesn't get you the loan you want, at least you've made an effort to get the valuations closer to where you want them.

To discuss a real estate related issue, contact our office at 502-456-4506 to speak with one of our support staff or directly with attorney Daniel Senn. We will respond promptly to any questions or particular issues you would like us to address.

Facing complex market, fewer going the FSBO route

In a market filled with the complexities of foreclosures and short sales, fewer homeowners appear to be willing to take on the chore of selling a house themselves.

Nationally, for-sale-by-owner (FSBO) transactions are down in 2010 and have accounted for about 9 percent of residential sales, according to the National Association of Realtors.

That continues a steady slide that started in 2004, when FSBO transactions accounted for an estimated 14 percent of residential transactions.

The trend seems to be more pronounced in areas that have seen a more dramatic drop in the sales of homes. More stable regions of the country, like here in Jefferson County, tend to see less steep drops in this category of seller, although the trend nationally in down overall.

Most analysts agree that the main driving force in the decline of FSBO transactions is a reflection of the complexities of the current market.

For starters, for-sale-by-owner transactions aren't allowed in short sales, which account for a higher percentage of the closings in a down market.

Peel out another category of sales that involve foreclosed properties put on the market by lenders, and that leaves a smaller percentage of the residential business that's available for FSBO transactions.

But even then, the market's complexities can stymie homeowners who want to sell on their own. Buyers' markets typically don't work in favor of FSBO transactions. FSBO transactions are most prevalent when there is a strong sellers' market, because it's relatively easy to sell a home when the market is hungry for houses. When things are easier...enter the novice.

But if declining home values continue, it could spur some homeowners to give serious thought to marketing their properties themselves. If you are close to being under water, the commission may represent a good percentage of the equity you could hope to capture from the sale. It could come down to who gets your equity - you or the broker?

Interestingly, although more and more consumers rely on the Internet rather than a real estate agent for information about properties, this trend has yet to further growth in the FSBO market.

To discuss a real estate issue, contact our office at 502-456-4506 to speak with one of our support staff or directly with attorney Daniel Senn. We will respond promptly to any questions or particular issues you would like us to address.

FSBO vs. Agent: Are You a FSBO Candidate?

Sellers often cringe at the thought of shelling out commissions to agents and opt to sell the home themselves. If the buyer is without an agent too, there can be significant savings.

Is it a good idea to sell the property yourself? The answer to that question depends on who you ask. Buyer agents, worried about having to negotiate commissions, might not favor For Sale By Owner (FSBO) listings, even though it is their fiduciary responsibility to do so. Sellers, on the other hand, are often enamored enough by the extra dollars at the end of the process and seem willing to try it.

Factors to consider when planning a FSBO:

First the good news. The usual commission can take a significant part of a seller's equity. A FSBO sale cuts down that value by at least a half.

The bad news is that you'll have to shell out money for advertising and marketing your property if you go the do-it-yourself route. Some of these costs could be upfront....listing your property on various sites, printing flyers, getting your home photographed and staged professionally. If you went the traditional sales route, some of these activities would have been handled by your listing agent for free.

The agent commissions are paid after you sell, an important factor to consider. It really boils down to this: smaller upfront costs and a bigger learning curve vs. a larger post-sale commission biting into your equity.

Reading up helps: Go over your old contracts, appraisals and re-acquaint yourself with the whole process. It's also time to review real estate laws for your state. Some even sign up for real estate classes.

Selling your home FSBO adds another layer of complexity to the already complicated selling process. This can also be a stressful process. Assess how well you might react to more disruptions in your life, such as showing the property at inconvenient times and dealing with numerous questions from prospective buyers. It is not for everyone!

Consider also that a real estate agent brings objectivity to the sales process, which translates into possibly getting some crucial advice. It can be very hard for people to take criticism of their properties from buyers. This can lead to some frustration and possibly losing valuable momentum in the sales process as your best buying candidates move on to other homes. So, consider that your inability to see problems or make easy fixes might prevent a crucial sale. An agent gives you an additional set of eyes.

Prepare for work! Selling a home is hard work. Selling it FSBO style is even more so. There's advertising and marketing to take care of and homes can be listed on multiple listing sites (MLS) or on realtor.com (and many other sites) for a fee. There's videos, photography, repairs, open houses to take care of. There's a lot of paperwork to go over.

If you're hard pressed for getting extra time to devote to the process, selling FSBO might not be the right choice for you.

Other choices you'll have to contend with:

• Whether and when to hold open houses
• Where to list your property
• How much to list it for
• If the home doesn't sell, deciding whether to take it off the market or reduce the price

Sometimes it depends on who you know in the local real estate agent community. Some agents might be more (or less) informed than others. Some will want to sell your home in a hurry and for less than it might otherwise fetch, given more time and effort. A close friend or someone whose opinions you already value is the ideal fit - perhaps even tilting the tables toward not going the FSBO route.

There are rarely any hard and fast answers. It's really up to you to decide whether, after a detailed analysis, the savings offset the time and effort involved.

Contact our office if you are in the process, or currently evaluating, going the FSBO route. You can reach us at 502-456-4506 to speak with one of our support staff or directly with attorney Daniel Senn. We will respond promptly to any questions or particular issues you would like us to address.

Loan Modifications Coming Due

A few years ago, the Senate's rescue package reestablished lenders and banks, and many homeowners applied for trial loan modification programs. Today, many homeowners are blaming banks for unfair foreclosure practices. Class-action status lawsuits are currently being filed here in Kentucky and other states, including California and Massachusetts.

One of the issues is that homeowners offered trial modifications don't qualify for permanent loans. So, despite making timely payments, their properties are still being foreclosed upon.

A loan modification is an agreement between the homeowner and the bank to revise mortgage terms so homeowners can afford monthly payments easier. But because loan modifications involve many complexities, one should seek legal advice when considering mortgage modifications. Why?

Loan modifications often include changing the interest rate and extending the duration of the loan. Some lenders take advantage of this practice. For example, they will advertise a lower introductory interest rate and implement much higher interest rates for the majority of the loan. A good attorney will be able to point out these schemes and ensure that the loan modification will benefit the homeowner.

We invite you to contact us and discuss any questions you might have concerning this process. You can reach us at 502-456-4506 to speak with one of our support staff or directly with attorney Daniel Senn. We will respond promptly to any questions or particular issues you would like us to address

Tips for Louisville Sellers Going FSBO

Our best advice is to first contact us if you have decided to sell your home, or buy a home without a real estate agent. We are more than happy to represent sellers and buyers in For Sale By Owner (FSBO) transactions. We help handle such details as drafting and review of purchase agreements and title examinations. We also handle loan closings and can act as escrow agents.

Once a sales contract is in place, in Kentucky, the final decision as to who gets to close the loan is up to the buyer. Next, once the decision of who and where to close has been made, the real estate agent will contact the mortgage company to have them order a title from the attorney handling the closing.

We can also help with deciphering settlement statements (HUD-1). These can be complicated forms and they must be reviewed carefully by the buyer and seller. In order to have a trouble-free closing, make sure to leave time to have these reviewed.

Are you ready for a closing? Here is a quick checklist:

• Don't forget to bring the earnest money deposit check.
• Remind clients to bring a photo I.D. so they can be properly identified.
• Bring a checkbook for unanticipated expenses.
• If a corporation, they'll need papers to verify their status (Corporate Resolution).
• If there is a Power of Attorney, make sure either the attorney has it, or your client brings it.
• Remember to bring house keys.
• If repairs are being conducted, make sure to check the status of those repairs.
• Bring helpful phone numbers your clients might need (Homeowners Assoc., Utilities, etc.).
• For Jefferson County residents, make sure all fire alarms on the property are either hard wired or use lithium batteries.
• Have the buyer call to make sure of the final closing figures and to see if there are any additional documents or checks they will need to bring.
• Contact all utility companies/cable to shut off services.

If you have any more questions, feel free to contact our office so we can help make the closing a smooth process. You can reach us at 502-456-4506 to speak with one of our support staff or directly with attorney Daniel Senn. We will respond promptly to any questions or particular issues you would like us to address.

Options for Preventing Foreclosure

In today's real estate market, some lenders will take special measures to avoid the process of foreclosing on a home and putting it on the market themselves. Is your bank willing to enter into negotiations? How does one go about this and what are your options for avoiding foreclosure?

It starts with a phone call to our office to discuss your mortgage problems. We can be more precise about your options once we understand some of the particulars regarding your specific situation. A few questions from us and we can take it from there. But generally speaking, here are a few of the typical options for preventing foreclosure:

Forbearance Agreement: This can give you some additional time to catch up on your mortgage by temporarily stopping payments. However, most lenders require that you pay all the entire past due amount at the end of the forbearance period.

Repayment Plan: Some lenders may accept an offer to repay past-due amounts over time or pay a little extra each month towards the past-due amount.

Loan Modification: Loan modification may allow you to change some of the terms of your home loan or mortgage, including the repayment period or the interest rate.

Chapter 13 Bankruptcy: If you are behind on your mortgage payments, Chapter 13 bankruptcy may be a good way to catch up on past due mortgage payments. While we do not practice bankruptcy law, we can help assess your situation and recommend resources in this area that can assist with an actual filing and help negotiate a revised payment plan with your lender.

Options If You Can't Afford to Stay In Your House:

If you simply cannot afford the payments on your home, one obvious option may be to sell the house and pay off your mortgage. We can help you with a For Sale By Owner Transaction if you elect to go this route.

Another option is a short sale. If your house is worth less than what you owe on your mortgage, and you are in default, your lender may agree to accept the sale proceeds as payment in full, even though you are still short of paying the total amount owed. The mortgage company or lender usually writes off the unpaid mortgage balance. We can help negotiate a short sale with your lender and handle details of the real estate transaction.

To discuss this or any other real estate issue, you can reach us at 502-456-4506 to speak with one of our support staff or directly with attorney Daniel Senn. We will respond promptly to any questions or particular issues you would like us to address.

Review of Purchase, Contingency Agreements

If a buyer and seller enter into a purchase agreement or real estate sales contract and either party retained a Realtor or real estate agent, the agent(s) will negotiate and draft the purchase agreement. If there is no Realtor, as in a For Sale By Owner transaction, we can draft the contract, or review a contract prepared by the homeowner.

Here are the typical items that are detailed within a purchase agreement:

• Selling price and down payment / earnest money deposit
• Who is responsible for closing costs (including any mortgage points)
• A date for the closing meeting
• Furnishings and appliances that will remain with the property
• Survey, termite report, inspections and other requirements
• Closing is typically contingent on several factors and these contingencies include:

Home inspection - The contract may require the buyer to complete an inspection within a specified period. Buyers should retain a licensed home inspector to examine the structure, utilities, wells and septic systems, and environmental issues (e.g., mold, radon gas). If defects or repairs are identified, the parties negotiate (in writing) how they will be amended. The buyer may demand repairs before closing or compensation at closing.

Proof of financing - The contract might set a date for mortgage approval. If the buyer cannot obtain a mortgage and notifies the seller by that date, the earnest deposit is returned. The seller must provide all documentation of existing mortgages, if any, including the loan number and payoff date.

Clear title - By offering a home for sale, a seller is stating ownership of the property and rights to sell it. However, the seller may be innocently unaware of defects to title, fraudulently selling a property they don't own, willfully concealing title defects. For many reasons, the buyer should purchase title insurance and be advised to retain an attorney to conduct a title search before closing on a home. This protects the homebuyer from future litigation over:

Liens and other claims - In Kentucky, a spouse possesses a dower (courtesy interest) in the home even if his or her name is not on the deed. The seller may owe taxes or a third party may have a court judgment against the seller's assets. In some municipalities, a property sale may even be held up if there has been negligent upkeep and a "weed lien" is being enforced.

Easements - A thorough title search should reveal the rights of any third party to use or access the property (utility company, municipal body, or even neighbors).

After all title issues have been identified, our law firm typically issues a written opinion of clear title. We also draft or review purchase agreements, verify clear title and any loan commitments, make any required disbursements from escrow...any service associated with the real estate closing process that helps to protect your interests.

To discuss this or any other real estate issue, you can reach us at 502-456-4506 to speak with one of our support staff or directly with attorney Daniel Senn. We will respond promptly to any q uestions or particular issues you would like us to address.