Real Estate Boycotts

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I simply love “Fear And Greed: How did the real estate bubble get so big”

I’m not sure if you are aware that there is a grass-roots group that is starting a “boycott on housing.” They feel that the prices in the San Francisco Bay Area are unreasonable.

It’s kind of interesting.

The website is at: http://www.boycotthousing.com/home.aspx

What do you think about websites like this? Do you think that something like this is “catch on?” I submitted my vote (I’m currently boycotting myself until my six figure down payments actually matters in this wacky market). But I was just wondering what your thoughts would be on this issue.
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Can boycotters make a difference in the “real estate” game?

I’m outraged at the high cost of food. Do you think me boycotting buying food will have an effect?

Well, if enough of us did, it would have a marginal effect for a while. But people have to have food to live, and creating all of your own food yourself is just not an option for most folks. This leaves your choices as supermarket or starve. Given those choices, I’ll take the supermarket (much as a couple weeks without food might benefit my waistline)

The same goes with housing. I went and poked around that site, and just couldn’t find any evidence of knowledge of the laws of economics. The only effect that boycotters will have is to marginally reduce demand, thereby slightly reducing prices for those who are buying, for which my clients surely thank you. If you couldn’t afford to buy anyway, it makes zero difference. If it makes sense for you to buy but you choose not to, then you are hurting no one except yourself. If you want to do something real about the high cost of housing, you’d do better to read my article on The Economics of Housing Development and act accordingly.

There are circumstances where I straightforwardly recommend against buying. Right now (originally published 2005), given the state of the market, those are a lot of circumstances. I could have made a lot more money than I have these last eighteen months had I been a shark. But the recommendation to buy or not to buy is always based upon individual circumstances balanced against the state of the market.

The clients I’m pursuing right now are those who are looking for a place they can be happy in for the next ten years. Speculators, Flippers, and other players of real estate roulette have mostly gotten the message and dropped out of the market anyway. Given past performance and the approximate size of the bubble (roughly 30 percent at peak in San Diego, in my estimation, which has since deflated by about 10 percent), the speculators who are left are like participants in a game of musical chairs who don’t yet realize that the music has stopped. On the other hand, those who need a place to live and can afford it will do very well once prices recover in a few years. I know this from personal experience; I was one of those folks who bought near the peak of the last cycle. Furthermore, with the desperation of many sellers, the bargaining is highly favorable to my buyer clients right now.

There are also significant and increasing opportunities in distressed properties, providing you’ve got some cash and are willing to buy and hold for a while, or do some significant work. Distressed properties are not a game for the weak of wallet, because you’ve got to have a certain amount of cash to play the game decently. Given the state of the market, it’s very possible to lose significant money even there, mostly if you’re a do-nothing flipper. If you’re a buy-and-holder or a fixer upper, there are still places for you to do very well in this market segment.

The third group of clients I’m seeking out is those who were taken advantage of by their agents and/or loan officers, to see if I can fix the situation with a new loan. These are folks who were sold on unstable or unsustainable loans in order to get into the property. I’m not an altruist by any means, I’m getting paid for my work, but that doesn’t alter the fact that the client wins also, by being put into a better situation if it can be done. If it can’t, I am set up to handle a distress sale to get them out of the situation before it gets worse. I’m not a magician who can make it never happen (and nobody else is, either!), but I can stop the green bleeding. Once the bleeding is stopped, then you can talk about getting some money back for having been the target of a Dastardly Deed™, but those sorts of solutions take years. If you try to get your pound of flesh first, you’ll bleed to death long before you might possibly get it, with all kinds of unpleasant consequences.

To summarize, housing is a necessary good, one third of the basic “food, clothing, shelter” that everyone is familiar with. This creates a “need” as opposed to a “want”. Mind you, most folks have wants bigger than their needs (and eyes bigger than their pocketbooks), but some market segment boycotting housing will hurt only themselves as rents get higher so that the landlords can feed the loan alligator. High demand is not going away. If you really want to make housing more affordable, start doing something about the low supply of new housing. Artificial scarcity benefits only those who are already owners, and that includes the flippers and speculators who are probably the largest part of the reason for the current bubble.

Caveat Emptor

Property Taxes and Whether They Were Paid Through Escrow

my prorated property taxes came were paid at closing but now I’m getting a delinquent tax bill


You mean they were supposed to be paid at closing.

There are two major possibilities:

1) They were not, in fact, paid

2) They were paid, but were miscredited, or they were properly credited, but your county goofed anyway.

Look at your HUD 1 form. Lines 106 and 107 are for buyers reimbursing sellers for taxes. Lines 210 and 211 are for tax liabilities incurred but not yet paid. Line 1004 is taxes and assessment reserves, and I’ve also seen extra lines in section 900 used. If it is listed as paid, contact your escrow company to determine if it was paid in truth. Sometimes the escrow company messes up. If the escrow company tells you that taxes were paid, double check with the county. Sometimes the payment was misapplied to the wrong parcel, sometimes it was correctly credited, but due to the fact that government bureaucrats get paid the same whether the job is correctly done or not, they just aren’t up to date. Sometimes time will repair the problem, but it’s not something to count on. Get a statement from the escrow officer that it was paid, receipt number this or in conjunction with escrow number so and so, thus and such date, in the amount of $X. In some cases, you may have to get a copy of the canceled check to prove that it was paid to the county’s satisfaction.

Do not allow this problem to sit. It will only get worse, and you could find yourself facing tax liens, tax foreclosure, or a situation where the lender then pays the taxes to protect their interest, and follows up by presenting a bill to you. They’ll charge you interest for any amount they pay in defense of your interests and theirs, plus a fee for the trouble they were put to. I’ve never had it happen to me or a client, so I don’t know how high the interest is, but it’s not cheap.

Property tax liens take first priority over basically everything. It takes a while – potentially years in California – before they can condemn the property for unpaid property taxes, but once they do start the process, all of the protections you have against lender foreclosure are much weaker against property tax foreclosures, if they exist at all. Lenders are therefore understandably nervous about delinquent property taxes, and they typically want to take action pretty quickly. Don’t let it get to that stage. If you have to, you’re better off paying them a second time and applying for a refund than letting it get to the point where the lender feels obliged to step in to protect their interests.

Caveat Emptor

President Bush and Emmanuel Goldstein

(This is a historical post, and applies to every Republican president since Nixon at least to my personal knowledge. Time has taken some of the bloom of President Bush, mostly due to political constraints placed by others)

The Anchoress has a much needed perspective on President Bush. I am neither religious nor conservative, and yet I agree with the thrust of what she is saying wholeheartedly. He is as he always has been. Perhaps in twenty years we (as a society) will appreciate him the way we do Ronald Reagan now. It seems a rule of politics that conservatives are never accorded their due until they are safely beyond office.

This man has more strength of character than anyone who’s occupied the White House since Truman, at least. It does not bother me that the source for this strength is Christianity, any more than it bothers me that it was the source of Lincoln’s strength, or Dr. Martin Luther King’s. Yes, christianity has done a great deal of harm to the world, and many christians in this country do not understand the first amendment any better than the average atheist. Yet for every horrible action undertaken in the name of Christianity, there are ten just as good as the one was bad, and this ratio is improving.

Compare and contrast this man’s gentlemanly treatment of the press and his opposition, while they take every opportunity they can make or create to tar and feather him, a la the Two Minute Hate

(Hidden as most folks should be familiar with 1984)

(show)

The next moment a hideous, grinding speech, as of some monstrous machine running without oil, burst from the big telescreen at the end of the room. It was a noise that set one’s teeth on edge and bristled the hair at the back of one’s neck. The Hate had started.

As usual, the face of Emmanuel Goldstein, the Enemy of the People, had flashed on to the screen. There were hisses here and there among the audience. The little sandy-haired woman gave a squeak of mingled fear and disgust. Goldstein was the renegade and backslider who once, long ago (how long ago, nobody quite remembered), had been one of the leading figures of the Party, almost on a level with Big Brother himself, and then had engaged in counter-revolutionary activities, had been condemned to death, and had mysteriously escaped and disappeared. The programmes of the Two Minutes Hate varied from day to day, but there was none in which Goldstein was not the principal figure. He was the primal traitor, the earliest defiler of the Party’s purity. All subsequent crimes against the Party, all treacheries, acts of sabotage, heresies, deviations, sprang directly out of his teaching. Somewhere or other he was still alive and hatching his conspiracies: perhaps somewhere beyond the sea, under the protection of his foreign paymasters, perhaps even — so it was occasionally rumoured — in some hiding-place in Oceania itself.

Winston’s diaphragm was constricted. He could never see the face of Goldstein without a painful mixture of emotions. It was a lean Jewish face, with a great fuzzy aureole of white hair and a small goatee beard — a clever face, and yet somehow inherently despicable, with a kind of senile silliness in the long thin nose, near the end of which a pair of spectacles was perched. It resembled the face of a sheep, and the voice, too, had a sheep-like quality. Goldstein was delivering his usual venomous attack upon the doctrines of the Party — an attack so exaggerated and perverse that a child should have been able to see through it, and yet just plausible enough to fill one with an alarmed feeling that other people, less level-headed than oneself, might be taken in by it. He was abusing Big Brother, he was denouncing the dictatorship of the Party, he was demanding the immediate conclusion of peace with Eurasia, he was advocating freedom of speech, freedom of the Press, freedom of assembly, freedom of thought, he was crying hysterically that the revolution had been betrayed — and all this in rapid polysyllabic speech which was a sort of parody of the habitual style of the orators of the Party, and even contained Newspeak words: more Newspeak words, indeed, than any Party member would normally use in real life. And all the while, lest one should be in any doubt as to the reality which Goldstein’s specious claptrap covered, behind his head on the telescreen there marched the endless columns of the Eurasian army — row after row of solid-looking men with expressionless Asiatic faces, who swam up to the surface of the screen and vanished, to be replaced by others exactly similar. The dull rhythmic tramp of the soldiers’ boots formed the background to Goldstein’s bleating voice.

Before the Hate had proceeded for thirty seconds, uncontrollable exclamations of rage were breaking out from half the people in the room. The self-satisfied sheep-like face on the screen, and the terrifying power of the Eurasian army behind it, were too much to be borne: besides, the sight or even the thought of Goldstein produced fear and anger automatically. He was an object of hatred more constant than either Eurasia or Eastasia, since when Oceania was at war with one of these Powers it was generally at peace with the other. But what was strange was that although Goldstein was hated and despised by everybody, although every day and a thousand times a day, on platforms, on the telescreen, in newspapers, in books, his theories were refuted, smashed, ridiculed, held up to the general gaze for the pitiful rubbish that they were in spite of all this, his influence never seemed to grow less. Always there were fresh dupes waiting to be seduced by him. A day never passed when spies and saboteurs acting under his directions were not unmasked by the Thought Police. He was the commander of a vast shadowy army, an underground network of conspirators dedicated to the overthrow of the State. The Brotherhood, its name was supposed to be. There were also whispered stories of a terrible book, a compendium of all the heresies, of which Goldstein was the author and which circulated clandestinely here and there. It was a book without a title. People referred to it, if at all, simply as the book. But one knew of such things only through vague rumours. Neither the Brotherhood nor the book was a subject that any ordinary Party member would mention if there was a way of avoiding it.

In its second minute the Hate rose to a frenzy. People were leaping up and down in their places and shouting at the tops of their voices in an effort to drown the maddening bleating voice that came from the screen. The little sandy-haired woman had turned bright pink, and her mouth was opening and shutting like that of a landed fish. Even O’Brien’s heavy face was flushed. He was sitting very straight in his chair, his powerful chest swelling and quivering as though he were standing up to the assault of a wave. The dark-haired girl behind Winston had begun crying out ‘Swine! Swine! Swine!’ and suddenly she picked up a heavy Newspeak dictionary and flung it at the screen. It struck Goldstein’s nose and bounced off; the voice continued inexorably. In a lucid moment Winston found that he was shouting with the others and kicking his heel violently against the rung of his chair. The horrible thing about the Two Minutes Hate was not that one was obliged to act a part, but, on the contrary, that it was impossible to avoid joining in. Within thirty seconds any pretence was always unnecessary. A hideous ecstasy of fear and vindictiveness, a desire to kill, to torture, to smash faces in with a sledge-hammer, seemed to flow through the whole group of people like an electric current, turning one even against one’s will into a grimacing, screaming lunatic. And yet the rage that one felt was an abstract, undirected emotion which could be switched from one object to another like the flame of a blowlamp. Thus, at one moment Winston’s hatred was not turned against Goldstein at all, but, on the contrary, against Big Brother, the Party, and the Thought Police; and at such moments his heart went out to the lonely, derided heretic on the screen, sole guardian of truth and sanity in a world of lies. And yet the very next instant he was at one with the people about him, and all that was said of Goldstein seemed to him to be true. At those moments his secret loathing of Big Brother changed into adoration, and Big Brother seemed to tower up, an invincible, fearless protector, standing like a rock against the hordes of Asia, and Goldstein, in spite of his isolation, his helplessness, and the doubt that hung about his very existence, seemed like some sinister enchanter, capable by the mere power of his voice of wrecking the structure of civilization.

It was even possible, at moments, to switch one’s hatred this way or that by a voluntary act. Suddenly, by the sort of violent effort with which one wrenches one’s head away from the pillow in a nightmare, Winston succeeded in transferring his hatred from the face on the screen to the dark-haired girl behind him. Vivid, beautiful hallucinations flashed through his mind. He would flog her to death with a rubber truncheon. He would tie her naked to a stake and shoot her full of arrows like Saint Sebastian. He would ravish her and cut her throat at the moment of climax. Better than before, moreover, he realized why it was that he hated her. He hated her because she was young and pretty and sexless, because he wanted to go to bed with her and would never do so, because round her sweet supple waist, which seemed to ask you to encircle it with your arm, there was only the odious scarlet sash, aggressive symbol of chastity.

The Hate rose to its climax. The voice of Goldstein had become an actual sheep’s bleat, and for an instant the face changed into that of a sheep. Then the sheep-face melted into the figure of a Eurasian soldier who seemed to be advancing, huge and terrible, his sub-machine gun roaring, and seeming to spring out of the surface of the screen, so that some of the people in the front row actually flinched backwards in their seats. But in the same moment, drawing a deep sigh of relief from everybody, the hostile figure melted into the face of Big Brother, black-haired, black-moustachio’d, full of power and mysterious calm, and so vast that it almost filled up the screen. Nobody heard what Big Brother was saying. It was merely a few words of encouragement, the sort of words that are uttered in the din of battle, not distinguishable individually but restoring confidence by the fact of being spoken. Then the face of Big Brother faded away again, and instead the three slogans of the Party stood out in bold capitals:

WAR IS PEACE

FREEDOM IS SLAVERY

IGNORANCE IS STRENGTH

But the face of Big Brother seemed to persist for several seconds on the screen, as though the impact that it had made on everyone’s eyeballs was too vivid to wear off immediately. The little sandyhaired woman had flung herself forward over the back of the chair in front of her. With a tremulous murmur that sounded like ‘My Saviour!’ she extended her arms towards the screen. Then she buried her face in her hands. It was apparent that she was uttering a prayer.

At this moment the entire group of people broke into a deep, slow, rhythmical chant of ‘B-B! …B-B!’ — over and over again, very slowly, with a long pause between the first ‘B’ and the second-a heavy, murmurous sound, somehow curiously savage, in the background of which one seemed to hear the stamp of naked feet and the throbbing of tom-toms. For perhaps as much as thirty seconds they kept it up. It was a refrain that was often heard in moments of overwhelming emotion. Partly it was a sort of hymn to the wisdom and majesty of Big Brother, but still more it was an act of self-hypnosis, a deliberate drowning of consciousness by means of rhythmic noise. Winston’s entrails seemed to grow cold. In the Two Minutes Hate he could not help sharing in the general delirium, but this sub-human chanting of ‘B-B! …B-B!’ always filled him with horror. Of course he chanted with the rest: it was impossible to do otherwise. To dissemble your feelings, to control your face, to do what everyone else was doing, was an instinctive reaction. But there was a space of a couple of seconds during which the expression of his eyes might conceivably have betrayed him. And it was exactly at this moment that the significant thing happened — if, indeed, it did happen.

(hide)

Substitute left wing professors for the Thought Police, and the Legacy Media for the Ministry of Truth, and President Bush maps amazingly well into Emmanuel Goldstein.

One suggestion: Challenge anyone indulging in the ritual of the Two Minute Hate to come up with one good thing about President Bush. I’m as nasty a Clinton detractor as you can be, but I am rational enough to give him credit where credit is due, however few places those may be (Welfare Reform was largely due to him, to name one. Two: The Health Care Initiative, while severely flawed, was an intelligent and worthwhile thing to attempt. Three: However many people lost their lives in Kosovo, Croatia, Bosnia, and Rwanda while he figured out that voters actually cared, he did eventually act. Four: He kept sanctions in place against Iraq. Can you imagine our current situation if he hadn’t?)

I’m sure this rule has been articulated somewhere before, but if you can’t say something good about a person, chances are you haven’t really looked at their life (Hitler gave a lot of strength to the environmental movement in Europe, and a lot of their wilderness areas date back to the Nazi era). Those who cannot come up with something good to say about a person, no matter how justified their antipathy, are not demonstrating anything characteristic of rational judgement. (I suspect that the reverse is also true)

Five and a half years into his presidency, President Bush has a list of accomplishments in the face of adversity that the vast majority of his predecessors would envy and all of them (except perhaps Mr. Carter, and we all know how much good he did our country as President, but he has done a lot of good through Habitat for Humanity) would respect. Creating a moral compromise on fetal tissue. Rescuing our morale from 9/11. Ably prosecuting the War On Terror. Standing firm in the face of domestic opposition bigger than anything since 1864. Negotiating a real alternative to Kyoto that maybe someone intends to, you know, actually adhere to. Stimulating our domestic economy with two tax cuts. I don’t care for his spending and government growth, and I was hoping for more from him on immigration, but considering the policies Gore and Kerry have espoused, infinitely preferable. He has reached out across the aisle to his opposition more times than any other president in my memory, and had his shoes metaphorically spat upon more often than not, and still he keeps trying.

Indeed, barring some future failing of enormous magnitude, upon leaving office he will be able to hold his head high at being compared to any of his predecessors, saying something analogous to Theoden’s final words in The Return of the King:

“I go to my fathers, in whose mighty company I shall not now feel ashamed”

For all the failures anyone has even accused him of, I cannot help but think how much worse the hands our presidency could have been in, how much worse it almost was.

And of course, the Inner Party has gotten at least as much mileage out of the real world Two Minute Hate as the fictional one did out of theirs.

Long Term Care Issues

One of the two most undersold financial products is long term care insurance. Yet it is a critical need, ranking just below disability insurance in the estimation of most financial planning agencies.

Long Term Care is already a large part of our nation’s health care costs. In 2002, the last year I actively worked as a financial planner, in the state of California, approximately 2 percent of the recipients of Medi-Cal (California’s version of Medicaid) were in long term care of one sort or another. Those 2 percent used approximately 47 percent of the budget. A little over fifty percent of the population is expected to need long term care of a year or longer, and this percentage has been rising and is expected to rise further. With medical science able to stabilize people to live longer lives, the probability of people living years after they reach that level of frailty rises.

The reason they use so much money is simple. Once you’re in them, you tend to be in them for a long time. You may be in the hospital overnight, or for a week, and it costs a thousand dollars or two per day. Long term care may only cost $150 to $200 per day, but it costs that much every day for months, if not years or the rest of your life. So one seventh to one tenth the money per day, but for a hundred or a thousand times longer.

End of life is not the only time someone uses long term care. Approximately 40 percent of the inhabitants of long term care facilities are under the age of 65. For whatever reason, they have a disability or a condition that requires around the clock watchful care.

California licenses two types of residential long term care facility: Skilled Nursing Facilities (SNF), and Residential Care Facilities (RCF). The SNF has more medical requirements to meet, and is therefore the more expensive of the two, both to operate and to reside in. There are also Senior Daycare Centers (much like child daycare centers) and various in-home options.

Many people think that the federal medicare program covers long term care. It doesn’t. The Federal Medicare program provides only a very small part of long term care. For a one time stay, it will cover the costs of a stay of up to twenty days, and pick up days 21 through 100 with a copay of about $110 per day. This means that for the first three months, you’re out about nearly $9000. After that, you’re on your own, as far as the federal government is concerned. So if you’re talking about hospice care for a terminal patient, Medicare may or may not stretch to cover it, depending upon how close they were to death when the doctors gave up on curative treatment.

Even so-called “medi-gap” policies only cover a tiny amount of long term care. The reason why is because its costly insurance. So for the same reason you don’t find cars on your supermarket shelves across from the bread, you have to go to a special policy to get significant coverage.

The median billing here in California runs about two hundred dollars per day, and it can go much higher for Skilled Nursing Facilities. This works out to $73,000 per year for as long as it lasts. Not a big deal if you’re a multi-millionaire, but if all you’ve managed to save is $150,000, two years and it is gone. So for most folks, self insurance just doesn’t cut it.

Now there is one program that will cover Long Term Care – state-run Medicaid (called Medi-Cal here in California). Unfortunately, in order to get coverage, you’ve got to pay yourself down into practical poverty first. Nor are you allowed to give assets away or put them into trusts. The various states have “lookback” periods ranging from thirty months to five years prior to your application for benefits. Anything given away in that period is subject to asset recovery – in other words, the person you gave it to is going to have to cough it back up, even if it was already spent.

Let me give you an idea of what poverty looks like. Many people make a big deal of the “community spouse” regulations, that permit the keeping of $2000 per month and eighty-some thousand dollars of liquid assets, as well as a life interest for a married couple in one piece of real estate. First concern, let’s say hubby goes in to care while wife stays out. Can wife live on $2000 per month? Maybe, if she doesn’t have any huge medical problems. But if she’s not drawing a pension herself, most of income is likely to be attached for hubby’s care, and it doesn’t take long to draw down $80,000 in assets when that’s all you’ve got to live on. Plus medicare is not the greatest care in the world, so there is always the need to purchase side items. Also, these places are not high margin. They are not making money hand over fist, and they make a truly rotten investment. Many of them go bankrupt, and the ones that survive and provide good care tend to be in lower cost areas. So if you live in Los Angeles, your spouse could well be in a home in Barstow because that’s the only place you could find that had a spare bed. Far away means visitors are rare, and visitors being common is one of the best predictors of how good the treatment will be, and how well they will respond.

Finally, this is just not what happens, statistically speaking. What usually happens is when one spouse gets sick, the healthy spouse takes care of them as well as they can for as long as they can, either with or without assistance. Then the first spouse is gone, and at some later point in time the second spouse becomes ill, and that’s when long term care happens. Less that ten percent of the people in long term care have living spouses, and this includes counting the situations where both spouses are in long term care. (this .pdf document has a decent explanation)

Many attorneys will advertise structured trusts and other weird schemes to get you to qualify for Medicaid care while still retaining your assets. Spend a couple of thousand dollars on a one time basis, the pitch goes, and you’ll be able to shelter your assets from the state. Unfortunately for this, the states narrow the gaps in the regulations every year, because they want to catch cheaters and people doing precisely this. A good general rule is that if you own the asset, if you control it, or if it can be used for your benefit, the state will force it to be spent or attach it in order to provide your care. Medicaid was meant for the poverty stricken, not to provide medical care for the wealthy. So it’s a little change here for $1000, another little change there for $1000, and pretty soon you’ve spent all your money on the attorney. Best way to nip this in the bud is to ask said attorney point blank: “So you’re going to write out a commitment to pay for my care yourself if this doesn’t work, right?” Needless to say, this is not going to happen.

Furthermore, assuming it does work out and you manage to retain assets while the state pays for your care. Well then, I say, “Congratulations! You’ve won WELFARE!”, in my best Monty Hall voice, and you can imagine the curtains coming back on “Let’s Make A Deal” to reveal their gorgeous hostess, smiling from ear to ear while holding the lead on an old sway-backed donkey.

The medicaid package is not a lavish one. Remember I told you that nursing homes average billing is about $200 per day, and that they go bankrupt a lot? Well here in California, the state will pay about $110 per day for medicaid patients in long term care. You should be able to imagine the implications from there. I’ve visited a couple of medicaid wings, and the “Eeewww!” factor is significant. It starts with the smell, which hits even people like me who don’t have much of a sense of smell, and goes downhill from there.

The final option to avoid this is purchase Long Term Care Insurance. There are two major types, with one subtype available for people who are lucky enough to live in one of four states. There is non-tax-qualified, tax qualified, and for those lucky enough to live in California, Conneticut, New York, and Indiana, there is a superior brand of tax-qualified, Partnership.

What Can You Recover From the Title Company?

“what can a consumer recover from title company for undisclosed easement”

Basically, the cost of the immediate remedy, at least here in California.

Here’s a standard example. Mr. and Ms. Smith buy a property and they wish to put a pool in. The purchase process reveals no easements and they quickly take possession of the property and start digging. Three hours later, the contractor hits a four foot water pipe buried six feet deep and cutting right across exactly where the pool needs to be.

With a standard owner’s policy of title insurance, the title company will pay for the contractor’s bill, including the cost of filling in that hole they dug. There may also be a small settlement made for the decreased utility of the property. After all, you can’t really do anything about that easement, now can you? Nor can you build anything that conflicts with the easement holder’s right of access. No pool, no granny flat, no game room or detached office, at least on that segment of the property, which, given the size of most recent lots, means not at all.

The title company will not, under the basic policy, purchase the property or make a large settlement. The reason for this is that if the standard policy made them liable for things like frustrated purpose of purchase, the standard policy would be far more expensive. People wouldn’t want to purchase policies of title insurance, because they insured against risks which are relatively rare, but extremely expensive when they do occur. Who pays for that? The other policyholders, of course.

You can purchase a rider or endorsement for extended title coverage, of course. Furthermore, if certain purposes are critical to your reasons for acquiring the property, you can do additional research, or pay to have it done. It can be expensive, but if you don’t want this $500,000 property unless you can build a pool, an office, or a granny flat on it, spending the money can be an excellent insurance policy.

Caveat Emptor

Debt Consolidation Services

In my experience, these are death to your credit rating. Why?

Because of how they work. The short story is they get your creditors to agree to accept some lesser number of dollars for your debts. The creditors, for their part, aren’t happy about this. They often mark you as not having paid in full. But that’s not the really painful thing.

Since you’re not paying the service very much, what usually happens is that they sit on your money for as long as they can before passing it on to your creditors. Thirty, sixty, even ninety days, to earn all of the interest they can.

But your creditors want that payment every month on time. So of course they are marking you thirty days late, sixty days late, or even ninety days late. Every creditor, every account. Every single one that’s late lowers you credit score. It’s unusual for folks who go through this to have credit scores over 500, and the worst score I’ve ever actually seen was the result of a debt consolidation “service” promising to “help” them. To paraphrase Arthur Dent, these must be new definitions of those words “service” and “help” with which I was previously unacquainted.

(Unethical Chapter 13 bankruptcy trustees can do the same thing, which is one reason why Chapter 13 is usually worse on your credit than Chapter 7, a severe flaw in the bankruptcy reform law being that it forces folks to hurt themselves worse when they are already in a bad situation. I’ve seen people one day out of Chapter 7 with 650 scores, and 580 is pretty common. 650 would be possible A paper if you’re full documentation and didn’t have more than a couple late payments. 580 is eminently improvable to something that looks decent in a hurry. The score coming out of Chapter 13 is usually something under 500)

Furthermore, debt consolidation services don’t do anything that you cannot do yourself. Call the company and tell them the situation. They will terminate any open line of credit and remove the privilege of new purchases from your account, but they’ll do that as soon as contacted by debt consolidation services, anyway. Furthermore, if you’re in a hole the first step to fixing the situation is to STOP DIGGING!

When you call, have a good idea how much you can really pay per month. If you need to do this with multiple creditors, keep in mind that whatever you’ve got to pay with is going to have to be parceled out amongst all of your creditors, and don’t allow yourself to be talked into more than the proportional amount. If you run into a lot of problems with negotiation, go to a legal aid center. Bankruptcies are a large portion of what they deal with. Explain that you have tried to work out a payment plan but that creditors X and Y are not being reasonable. It may be that bankruptcy is the way to go, but that’s between you and a lawyer to decide.

Furthermore, whatever you do, keep at least one or two accounts in good standing if you possibly can. Keep one or two credit lines outside the payment plan or bankruptcy, and pay the payments in full and on time every month. Once you come out of the payment plan or bankruptcy, you’re going to wish you had. You see, percentage of trade lines you include is one thing that will help determine your credit score later. If you included everything, you’ve hit your credit report as hard as possible. If you don’t have any credit lines, you have to have new ones to start building new credit, and every time you make an inquiry after bankruptcy, the hit is much harder on your score than an inquiry from someone who hasn’t been bankrupt. Finally, if you don’t have any post-situation record of payments, it’s never going to get better. The poor schmoe who includes everything he owes is pretty much hosed for a long time. My understanding is that a credit line where you owe $75 counts for this every bit as heavily as one where you owe $75,000, but it would be wise to double check that as it may be incorrect.

Caveat Emptor

Can Someone Be Added To An Existing Mortgage?

Got a search for that, and it occurred to me that it is a valid question. The answer is yes.

The degree varies. You can simply contact the bank to make yourself responsible for payment. They are usually happy to do this, although unlike revolving accounts you typically will not receive back credit on your credit score for the entire length of time the trade line has been open. Nonetheless, if the bank reports the mortgage as paid as part of your credit, it can help you increase your credit score, so long as the mortgage actually gets paid on time every month. One 30 day late is plenty to kill any advantage for most folks. This is typically free. Hey, the bank has one more person to pay the mortgage! This is often used as a way to start rebuilding credit after a bankruptcy or other financial disaster. A friend or family member qualifies for the loan, then adds the person looking to recover to the loan later.

If you want to go one better than that, you can actually modify the deed of trust to make yourself responsible for payment, although it really has no measurable benefit as opposed to simply agreeing to be responsible, and it costs money to notarize and record the modification.

Unless you can get a better rate by doing so, I would advise against a full re-qualification for the mortgage just to add someone. It’s a lot of hassle and expense for no particular gain. If you want to get me paid, I’m cool with that, but there are better ways to accomplish the gain to your credit at far less expense.

Note that this is a different proposition entirely than removing someone from a mortgage or swapping out one person for another. They will NEVER remove anyone from a mortgage without a full refinance.

Caveat Emptor

Buyer’s Agents: What Do They Do?

Got this search:
“should I get a buyer’s agent if I’ve already found a house”

The answer is almost certainly yes, but I am going to examine both the pros and cons. Full disclosure: This is what I do for a living.

The con is fairly simple. If the seller isn’t paying a buyer’s agent, they may be willing to sell more cheaply. Then again, they may not. One of the reasons people sell For Sale By Owner is that they’re a little too greedy. Even if they have a seller’s agent, their listing contract may call for them to keep the buyer’s agent’s commission if the selling agent sells the property without a buyer’s agent involved, and this may cause them to be willing to sell more cheaply. They are under no obligation to do so, however.

Many think the buyer’s agent’s job is to say, “Here is the living room.” That’s like saying the president’s job is to look impressive. Sure, most presidents do look impressive and I do say “here is the living room,” where it’s applicable and my buyer may not have figured it out for themselves. Nor is it about looking in the MLS and my connections to find my buyer a property they like. It’s not even about making showing appointments with listing agents and occupants.

My real job as a buyer’s agent is to find you the best property for your needs under your constraints and get you the best possible bargain on it while making certain that the seller and their agent aren’t hiding anything.



Many folks call the seller’s agents and use them as their agent. This is what is known as a mistake. That seller’s agent has a listing agreement telling them and the seller what the responsibilities of the agent are to the seller. They may or may not sign a representation agreement with the buyer. If they don’t sign one, all of their explicit legal responsibilities are to the seller. They are working for the seller, not for you, and they have a contractual obligation to sell that property at the highest possible price. The buyer’s interests do not enter into it. Perhaps they do an excellent job of representing your interests anyway, but the odds are against it. Their legal responsibilities are essentially limited to “don’t tell any lies and don’t practice law without a license.” While I was working for the FAA, we found out about an agent who had made a real good living for a while as a seller’s agent and how he had done it: By telling everybody he showed a house in the area to that the airport was going to close. Ladies and Gentlemen of the jury, that airport land was dedicated solely to aviation usages by an Act of Congress, and if the county had wanted to close the airport (they didn’t; they were making enough money to pay for every airport in the county there, and socking up a huge fund if they ever figured out something else aviation related to spend it on), they would have had to have paid back tens of billions of dollars to the federal government. We got a call from one of his victims one busy Saturday, who asked, “When is this airport scheduled to close?” We advised him that any proposed closure was news to us, and explained the preceding to the gentleman.

Even if the seller’s agent does sign a representation agreement with you, in approximately thirty percent of transactions (from my experience) a situation arises where the best interests of the buyer and the best interests of the seller collide. When this happens, no matter what they do, an agent representing both sides is stuck on the horns of a dilemma. If they do A for the seller, they are violating the best interests of the buyer. If they do B for the buyer, they are violating the best interests of the seller. Here’s a hint as to which way they are going to jump in the event of conflicting interests: If they violate the seller’s interests, they don’t have a transaction at all. If you don’t buy, they can always sell it to someone else, but if they lose the listing agreement, they are completely out in the cold.

Before I even point a property out to you, or if you find it surf the internet and ask, “What do you think?” I am evaluating the property for fitness, suitability, affordability, how it stacks up to other properties on offer, how many other properties are on offer, and what the details of the property likely mean in the way of potential problem issues. Just a for minor example, a property built in 1975 has to be concerned about both lead-based paint and asbestos; a property built in 1990 still has those worries but to a far lesser extent, as most building stocks with those concerns were long gone, and a property built in 2005 is more likely built over Jimmy Hoffa’s final resting place than a repository for asbestos and lead based paint (it could happen, but the odds are long against it). I am not an inspector or a tester, but I can and do alert my clients to safety and environmental issues, potential repair bills, and all sorts of other items before we’ve made an initial offer. “Best thing you could do with this building is ‘accidentally’ run a bulldozer through it,” is something I told a client in a few weeks ago, in the context of telling him the value, if any, was the land less the cost of demolition and haul-away. Initially built almost 100 years ago and haphazardly added to as well as obviously not in compliance with code, my client would have been facing the possibility of the county condemning the building as unsafe, and quite frankly, I didn’t think anyone would insure it outside FAIR requirements. You’re not likely to get that kind of talk from a seller’s agent. Instead you get words like “charming,” “funky!” and the ever popular phrase “needs a little TLC!”

When it comes to the offer, a seller’s agent is looking to get the highest possible price. Period. They don’t care if you could buy a better property for less elsewhere, their responsibility to the seller and desire for a larger paycheck are in perfect alignment. A buyer’s agent is responsible to you, and whereas buyer’s agents get paid based upon the sales price, same as the seller’s agents, they at least have a legal responsibility to do their best for you. If there are any complaints, a seller’s agent can take refuge in the fact that it is their primary duty to get the best possible terms (i.e. highest possible price) for the property. The buyer’s agent has no such shelter. Which would you rather have as your representative?

Buyer’s Agents do not usually cost you, the buyer, any extra money. I’m sure there are exceptions, but I’ve never run into one. Both the Exclusive and Nonexclusive Buyer’s Agent Agreements used by California Association of Realtors state, in the absence of additional agreement, that any commissions paid out of the “cooperating brokers” amount on the MLS count against the buyer’s obligation to the representing agent. This is typically agreed to be two percent in California, and I don’t know the last time I saw a residential MLS listing offering less than that to the buyer’s agent. The way the transaction is structured is that the selling agent gets the entire commission, but agrees via the listing contract and MLS to share a certain portion with the buyer’s agent, if the buyer has one. Good buyer’s agents typically beat the price down significantly more than two percent, especially in the current market. I am equipped to do value battle with that seller’s agent in ways that members of the general public are not, and whereas it’s true they don’t have to negotiate with my clients, they’ve got to sell the property to someone. It’s not like the real estate fairy is magically going to convert this property to cash.

Finally, if there’s something you should know about a property, the buyer’s agent makes certain the question gets asked and the answer disclosed to you. This eliminates a lot of potential surprises down the road.

In short, buyer’s agents are the professional on your side, they typically do not cost you any additional money, they can save you a significant chunk on negotiations, and you’re more likely to find out about potential problems with the property if you engage a buyer’s agent.

Caveat Emptor

Available Real Estate Loan Types

So what else is available, besides the thirty year fixed?

There are many kinds of loan out there. Here’s a quick overview:

A Paper

In addition to the thirty year fixed, there are several other varieties of fixed rate loan available, and several that are not. Commonly available are five year fixed, ten year fixed, fifteen year fixed, twenty year fixed, and twenty-five, as well as forty making a comeback.

I tend to avoid them all with my clients, except for the thirty year fixed. You can always pay more if you have more money that month, but you cannot always pay less. The shorter the term, the lower the interest rate should be, as not only are they guaranteeing the rate will not change for a lesser period, but the shorter the term, the more principal you are paying every month and the less risky the loan is. Nonetheless, they are also harder to qualify for because the minimum payment is higher.

For instance, if you have $2000 per month payment that you qualify for, then at 6.5 percent interest rate, here are the amounts you qualify for:

term
40
30
25
20
15
10
5		amount
$341,600
$316,400
$296,200
$268,200
$229,500
$176,100
$102,200


Thirty year fixed rate loans also come in interest only loans, usually for five years.

A paper loans also come in Balloon Loans, with thirty year amortization, where you make payments “as if” if were a thirty year fixed rate loan, but they are due in full after five or seven years (a few ten year balloons exist, and fifteen year balloons are almost exclusively Home Equity Loans). The shorter the balloon period, the lower the rate should be.

A paper loans also come in hybrid ARMs, with thirty year amortization and payoff term, but shorter fixed period. Unlike Balloons, you are welcome to keep them the full thirty years if you want to, but most folks want to refinance or sell before the adjustment begins. One, three, five, seven and ten years are commonly available fixed terms. Once they begin adjusting, they are based upon an underlying index plus a set margin above that, and the vast majority of A paper hybrids adjust once per year, and all the loans from a given lender will, once they adjust, adjust to the same rate no matter what you bought the start rate down to. For A paper, the base index is usually the US Treasury rate or the one year LIBOR. COFI, COSI, and MTA are Alt-A negative amortization loans, not A paper, and all three varieties of negative amortization loan are the same stuff from different outhouses. There are probably a hundred times more negative amortization loans than there should be, because they are so easy for those in search of a quick commission check to sell by the payment when you slap a friendly sounding label like “Pick a pay” on them.

Finally, there are some few A paper that are true ARMS, or so close that they might as well be. Month to month loans, adjust every three month loans, and adjust every six month loans. Their adjustments are usually on the same basis as hybrid ARMs, and they have thirty year amortizations. Some are even available in interest only.

Sub-prime

Sub-prime loans come in more flavors. The most common are fixed for two years, the next most for three. Both come in thirty and forty year amortization periods, as well as interest only. Interest only usually carries a higher rate for the fixed period, because they are riskier loans from the lender’s point of view, but the payment is lower. These are usually called 2/28, 2/38, 3/27 and 3/37 loans, for the fixed period and the remaining term thereafter. Interest only variants are all 2/28 or 3/27, and when they begin adjusting they begin amortizing, which can make a sudden sizable difference in payments. Some sub-prime lenders also offer 5/25 and 7/23 programs, including interest only variants. Once they adjust, all of these loans adjust every six months, which is one way to usually tell if you have a sub-prime or A paper hybrid ARMs, as the latter almost always adjust once per year, although a few lenders also have A paper hybrids that adjust at six month intervals.

Sub-prime loans also have thirty and forty and are starting to come out with fifty year fixed rate loans, with some thirty year fixed rates having an interest only option, usually carrying a quarter of a point higher interest and an interest only period of five years. Nonetheless, the rate spread between sub-prime hybrid and sub-prime fixed is usually larger than the spread between A paper hybrid and A paper fixed. Where you might get the A paper thirty year fixed for one percent above the rate of a 5/1 ARM, the difference between a 3/27 and a 30 year fixed is usually closer to two percent (this is by recent standards. When I initially bought in 1991, I was offered a choice between 5.75 percent 5/1 and 11 percent 30 year fixed)

I tend to like the five year fixed for myself and my A paper clients. It saves a lot in interest, and you’ve got five years where nothing can change, which is a longer period than most folks go without refinancing, and it’s usually only about an eighth percent or so more expensive, interest wise, than the 3/1 while being a quarter percent or so cheaper than a 7/1. For the sub-prime clients, I tend to prefer the 2/28 if I think they’ll be A paper at the end of two years, the 5/25 if not and if I can find it (3/27 if I can’t). Of course, if you really want to pay the higher rates for a long term fixed rate loan, I may believe you’re wasting money, but it’s your money to waste, and you’re the one making the payments.

Two final types worth covering are the HELOC (“he-lock”), or Home Equity Line Of Credit, and HEL (“heal”), or Home Equity Loan. They are usually used as Second Trust Deeds, the second loan on a property. A HELOC is a variable rate interest loan, usually prime plus a margin, and there is often an interest only period. It is a line of credit, and so long as you stay within your credit limit, the initial underwriting covers it. Nobody does fixed rate HELOCs; what they do when you “fix the rate” is fix that part of it you’ve already taken out and lower the maximum available credit. HELOCs have two phases, a draw period, when you can take more out (up to the approved limit), and a repayment period, when you’re repaying what you took. Most folks end up selling or refinancing, however. Home Equity Loans are one time, fixed rate loans. I’ve seen all sorts, but the most common is a 30 year amortization with a 15 year balloon, although the twenty year fixed is almost as common. You need to refinance, sell, or pay the loan off prior to the end of fifteen years, lest the lender call the note.

Caveat Emptor

Inducements to Use A Particular Lender for a Purchase

One of the things I’m seeing more of in MLS listings and developer advertising, among other places, is the phrase “$X in closing cost credit (or “$X in free builder upgrades”) given for using preferred lender”

Sounds like a bargain, right? Just use their lender and you get this multi-thousand dollar credit. After all, “All Mortgage Money Comes From The Same Place!” Free money, right?

Well possibly, but not very likely. What most companies are looking to do with this advertising is give people a reason not to shop around. They hope that because most people think that “All Mortgage Money Comes From The Same Place”, the average customer will just stay there to apply for a loan. Many builders and conversion companies will throw roadblocks in your way if you try to use another lender. They cannot legally require you to use their loan company (at least not in California), but they can make it exceedingly difficult to go elsewhere. I’ve been told by builder’s representatives on two occasions that I was wasting my time with a loan, because “If they don’t use our lender, they won’t get the property!” despite already having a signed purchase agreement. Roadblocks take all sorts of turns. They won’t let the appraiser in. They won’t cooperate with requests for information, without which the other loan is going nowhere. And so on and so forth.

The builders wouldn’t give those incentives to use their lender, or throw roadblocks in your way when they’re trying to sell you a property, if they weren’t making more money with the loan. Quite often, they’re making more money on the loan than they are from the sale. Put you into a loan half a percent above market, stick a three year prepayment penalty on it, and voila, anywhere from a 6 percent premium to perhaps 10 percent. To give you a comparison, around here an agent makes 2.5 to 3 percent from a transaction, and I do my loans on anywhere from half a point to a point and a half, depending upon difficulty and size. But the average consumer is distracted by these “free” upgrades or closing costs that they don’t realize how badly they’ve been raked over the coals. If I can get you that $400,000 loan half a percent cheaper and with no prepayment penalty, I’m saving you $2000 per year for certain, and very likely about $12,000 on the prepayment penalty.

Furthermore, on some of the builder’s loans I’ve analyzed, they’re getting you a rate that would carry a point and a half retail rebate, even without the prepayment penalty. This means on a $400,000 loan at that rate, the lender would be paying you a $6000 incentive to do that loan, more than covering normal closing costs. Have no fear, that builder is doing quite well for having loaned you that money.

What can an average person do about this sort of thing? As I’ve said before, builders often throw roadblocks in the way of outside lenders, and there’s not a lot that you or anyone else can do about this fact.

Many people want brand new homes if they can get them. Given the realities about Mello-Roos and how prevalent homeowner’s associations are in more recent developments, I’m not certain I understand this. It’s one thing to deal with Mrs. Grundy when you’re all cheek by jowl in a condominium high rise. It quite another thing to deal with her complaints because you left your garage door open ten minutes longer than the rules say, you want to paint your detached home a couple shades darker or lighter than everyone else, or whatever’s got her dander up today.

I do have a trick or two up my sleeve for when I’m a buyer’s agent in new developments. It’s my job to outmanouever the selling agents the builder has on staff (who tend to be heavy hitting pressure salesfolk). But they are dependent on some things that change from transaction to transaction, so I can’t really describe them in any kind of universal terms. Writing an offer contingent upon an outside loan has its limits. Builders who throw roadblocks have that one wired; they wait for the contingency to expire at which point they’ve either got your deposit or your loan business as you are so desperate not to lose your deposit you’ll do almost anything, particularly since most folks don’t understand how much that loan is really likely to cost them.

Caveat Emptor