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The problems of mortgage fraud

house real estateMortgage fraud may never go away, and frankly it seems as if the fraudsters are becoming increasingly creative and brazen. The 2014 LexisNexis 16th Annual Mortgage Fraud Report (lexisnexis.com) seems to agree with the sentiment, saying: “The reduced volume of consumers who are able to qualify for mortgage loans has led to a fiercely competitive and, in some ways, familiar Fraud for Profit marketplace… Ultimately, fraud and misrepresentation, especially in the mortgage application process, is likely to remain a serious and ongoing national problem.”

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The facts of 'Bait and Switch' advertising

house genericThe Federal Trade Commission (FTC.gov) states in its Advertising FAQ's: A Guide for Small Business, “It’s illegal to advertise a product when the company has no intention of selling that item, but instead plans to sell a consumer something else, usually at a higher price…”, when describing “bait and switch” advertising.

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Material facts and the need for disclosure

house genericProperty disclosure laws are mostly straightforward about making known the physical condition of a home that’s for sale. However, whether or not to disclose other material facts, that may include events that occurred in and around the home, is not always clear. Material facts about a home are often described as information that may sway a home buyer’s decision about the purchase or purchase price. Some of the more familiar material fact cases that are typically reported in the news include haunted homes and unruly neighbors. Yet, these two recent accounts have again raised the question and debate about what the seller and the real estate agent is obligated to disclose.

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Love and the 'boomerang' home buyer

house genericThere is homeownership after a foreclosure or short sale. Home owners, who lost their homes to foreclosure or short sale during the housing downturn and recession, are apparently returning to the housing market in increasing numbers, such that their home buying activity is attracting economists’ attention.

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A giant mea culpa for NAR please

house genericNews about the D.A.N.G.E.R. Report is making the media rounds, but maybe the excitement is more hyperbole than news. And contrary to the recent hype, the D.A.N.G.E.R. Report is not a mea culpa by the National Association of Realtors.

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Multiple Listing Service placements are changing

home constructionGood news for home sellers, in most US regions. Tuesday’s news release from S&P/Case-Shiller Home Price Indices indicates a nationwide home price gain. The 10-city and 20-city composites continue to show home price gains, as the composites realized a 4.7 percent and 5.0 percent year over year gain respectively (month over month gains were 0.8 percent and 0.9 percent respectively). The Washington, D.C., region was not as robust as the others in the composts, however, as home prices gained about 1 percent year over year and about 0.8 percent month over month (us.spindices.com).

The S&P/Case-Shiller index seems to be in agreement with the U.S. House Price Index Report issued by the Federal Housing Finance Agency (fhfa.gov), which indicated that national home prices gained 1.3 percent during the first quarter of 2015. Maryland home prices, however, did not fare as well with a 0.38 percent decline year over year.

Hot markets in western regions of the US, such as Washington, are making news besides strong home prices. In one of the hottest markets in the nation, a Seattle Washington broker has decided to drop out of their MLS. Counter intuitive to the idea of maximizing listing exposure, Rob Smith of the Puget Sound Business Journal reported that Quill Realty is dropping out of their local MLS (Here's why this Seattle realty company just ditched the MLS; bizjournals.com, May 18, 2015).

Instead of MLS placement, Quill intends to place listings on a number of websites, including Zillow, Redfin, and Realtor.com. The rationale is that sellers will save money from the 1 percent commission that is charged by Quill; while buyers of Quill’s listings “… will become responsible for working out a financial arrangement with their own broker.”  

Of course, this is not an entirely new idea. There have been a number of seller oriented business models that have been devised over the years; with new variations popping up during hot markets. Many discount brokers and MLS placement services, which have survived the housing downturn, have continued to market their business model successfully.

Innovative or not, hot markets tend to make brokers become more protective of their listings by seeking ways to keep them proprietary. Low housing inventory in some markets, along with increasing home prices and buyer competition can make a home listing a hot commodity. I will remind of the recent report indicating that pocket listings were on the rise. Pocket listings are listings kept out of the MLS and shown only to a select network of contacts and clients. And although pocket listings are often associated with luxury real estate, pocket listings in hot markets can occur across all price ranges because of the increased home buyer competition.

In response to recent trends, several regional Realtor groups and brokers have been formulating a nationwide consumer MLS to provide the consumer with up to date relevant information (brokerpublicportal.com). Board member of the Broker Public Portal, Robert Moline (Home Services America) stated, “There is a tremendous amount of support and momentum throughout the MLS and brokerage communities to create a new choice for how and where to display their listings…”

And even though many home sellers are taking advantage of a seller’s market in their respective markets, home buyers are becoming increasingly resourceful as well. Many buyers are learning how to find home for sale in places other the MLS. Besides alternative listing websites, many buyers are also relying on neighborhood listservs (email lists) and internet groups for home sale notifications.

Dan Krell is a Realtor with RE/MAX All Pro in Rockville. You can access more information at www.DanKrell.com.

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Don't waive the home inspection!

house genericDon’t waive the home inspection!

Like the 49ers seeking gold in California, real estate investors have flocked to D.C. in recent years to seek their fortunes. As home values rebounded, many distressed homes were snapped up by investors with the intention of renovating/rehabbing, and then selling them. For many home buyers, these “flipped” houses have become home; however, for a few, the dream has become a nightmare.

Martin Austermuhle reported on WAMU (A Dream Home Becomes a Nightmare; wamu.org) about D.C.’S house flipping environment and highlighted one family’s dream turned nightmare. Characterized as a “cautionary tale of home-buying in a hot real estate market,” the story was basically about how rotted wood in the porch has led to a multimillion dollar law suit between the purchasers and the rehabber.

If you haven’t received the memo, “house flipping” is once again a bad thing – or is it? Unfortunately, “flipping” has become synonymous with fraud and scams because of the attention that it received in the mid 1990’s (as the result of widespread fraud and scams that involved flipped homes). At that time, several cities (Baltimore being one) were known for flipping scams because of the investors’ ability to purchase a home for very little money and turn it around for a big profit.

Although, there should be nothing wrong with buying a distressed property, rehabbing and selling it (aka home flipping); flipping has generally become the term used when there is an accusation of fraud or con involved with a rehabbed home. During the 1990’s, flipped homes were the center of many mortgage fraud cases that took advantage of lenders by providing false income statements, fraudulent credit reports, and/or fraudulent appraisals. In these cases, the investor was not the only scammer; as accomplices often included: loan officers, appraisers, title agents, real estate agents, and even “straw” buyers.

Many home buyers were also scammed into buying homes in disrepair that were represented as being rehabbed. And believe it or not, some of these homes were nothing but shells (gutted).

In the aftermath of the flipping crisis of the 1990’s: lenders wrote off hundreds of millions of dollars, lawsuits were filed, and a movement grew to educate home buyers about the need to conduct home inspections. Mortgage underwriting changed to safeguard against future scams with the introduction of title seasoning (length of ownership).

Legitimate rehabbing of distressed properties has always been a viable industry; and can transform an eyesore into a livable home. However, just because renovations have been made to an old home doesn’t mean that it is now brand new!

When buying a home, you must do your due diligence regardless of the age of the home. A thorough home inspection should be conducted, even on new homes. Although home inspectors don’t have x-ray vision, the technology they employ can sometimes make it seem as if they do. Besides the routine identification of deferred maintenance, home inspectors can typically identify issues with renovations and can usually identify code violations. Furthermore, you should check permits when considering a home that has been renovated or expanded. Montgomery County Department of Permitting Services has online services for such searches (permittingservices.montgomerycountymd.gov).

If you’re buying a home, you might also consider working with an experienced Realtor®. A seasoned professional is not only knowledgeable about neighborhood price trends and disclosures; many are skilled to work in tandem with the home inspector to negotiate repairs.

Dan Krell is a Realtor® with RE/MAX All Pro in Rockville, MD. You can access more information at www.DanKrell.com.

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New closing rules and communication

house real estateSigned into law July 21st, 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act (aka Dodd – Frank) was intended to improve accountability and transparency in the financial system, to protect consumers from abusive financial services practices, and to end “too big to fail.” The Act created the Consumer Financial Protection Bureau, which enforces regulations to protect consumers and implements rules such as the Qualified Residential Mortgage (also mandated by Dodd – Frank).

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It's not humid in here - it's a dry heat

Chrisharvey | Dreamstime Stock PhotosThere seems to be a misconception of the relationship between basements, humidity and dehumidifiers; which probably results in the dehumidifier being one of the most misunderstood and least respected household appliances. This is apparent because many first time home buyers are turned off to any home where they see a dehumidifier, thinking there is a moisture problem. The dehumidifier doesn’t even have to be running; it could be turned off and tucked away in a closet.

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