Archive for the ‘real estate’ Category

Foreclosure Moratoriums – What are they about and what does it mean to you if I you are facing a foreclosure?

October 25, 2010

In the last couple of weeks, a number of banks have announced moratoriums on foreclosures citing problems with their paperwork.  Newly-named personnel, “robo-signers”, were under fire for not reviewing files and submitting false affidavits to courts.  Even with years of experience representing banks and doing foreclosures, this was news to me.  It was hardly clear what was going on.

Yesterday, The Wall Street Journal published an article that explains it and highlights the development of a new form of law practice, “foreclosure defense.”  If your facing foreclosure, it matters who you hire to represent you.  See the article by clicking on the following link:

Jumbo Mortgage Rates Falling

September 17, 2010

(Jason Marsh is a well-respected mortgage broker with Mortgage Services III, LLC in Waukesha, Wisconsin. His firm has been a trusted source for mortgage financing for more than 30 years.)

There has been a change in the jumbo mortgage market. Up until recently jumbo mortgage rates were as much as two percentage points higher than conventional mortgage rates. Last year at this time a conventional mortgage was at about 4.875 percent, whereas a comparable jumbo mortgage was as much as 6.875 to 7.5 percent. Recently that pricing has changed dramatically.

Today you should be able to get a 30-year jumbo mortgage in the 5.5 percent range. Of course rates and terms will vary from funding source to funding source, and it might become somewhat dicey if the new jumbo is replacing a first and second mortgage. A second mortgage is often treated as a cash-out transaction and that may get in the way of getting a jumbo.

The defining difference between a conforming mortgage and a jumbo mortgage is the size of the loan. Fannie Mae and Freddie Mac are the federal government organizations that purchase mortgages from lenders and securitize them so that lenders have more money to issue mortgages with the goal of making mortgages more readily available. Each year, the federal Housing Finance Agency updates the conforming loan limits, which specify the maximum mortgage size that Fannie Mae can purchase from lenders. For 2010, the general mortgage limit is $417,000.

Interest rates on jumbo loans are typically higher than conforming loans because of the risk the lender assumes by issuing the loan, and because the lender has to keep the loan rather than selling it. In addition, jumbo loans are almost exclusively adjustable rate mortgages whereas conforming loans can have either an adjustable rate or a fixed rate.
Lenders have higher standards for jumbo loans. In order to qualify for a jumbo loan, you will need at least a 20 percent down payment, a credit score of 720 or higher, and verified income to prove you can repay the loan.

Jumbo mortgages also have caps on DTI ratios (debt to income ratios) of 45 percent. Your DTI is determined by dividing all of your monthly debt including your mortgage by your income. For example, $4,500 in total monthly debt divided by $10,000 in gross income equals 45 percent . You qualify!

*** Important note regarding income: It is calculated on your gross income and not your net take home pay after taxes.

Stay in Your Home

July 13, 2010

mortgage cartoonA recent article in the Wall Street Journal says upfront fees on reverse mortgages have fallen substantially in recent months. This is an important development since, in the past, reverse mortgages have faced criticism for charging high upfront costs.

A reverse mortgage allows older homeowners to tap their home’s equity and remain in the house. The amount available to the homeowner depends on a number of variables, including the homeowner’s age and the home’s appraised value. Payments to the borrower can be made in a lump sum or in regular installments, or a home-equity line of credit can be established, according to the Department of Housing and Urban Development’s (HUD) website. The loan typically doesn’t come due until the homeowner sells the house or dies.

Reverse mortgages are available to homeowners who are 62 years old or older and own their homes outright or have a substantial amount of home equity. The vast majority of reverse mortgages are insured by the Federal Housing Administration, through the Home Equity Conversion Mortgage (HECM) program.

The article states that reduced upfront fees on reverse mortgages are a result of investor demand for securities backed by those mortgages. These securities are backed by Ginnie Mae, based on reverse mortgages insured by the FHA. That combination results in a very secure investment and investors are willing to pay a premium for that kind of safety with an attractive yield. Lenders are essentially passing on some of that premium to borrowers in the form of lower fees.
Prospective borrowers need to get the full details of the offer from the lender, and compare them carefully. One lender might reduce the origination fee. Another might waive the origination fee but raise the interest rate. Another could change the servicing fee. Counseling, which is required to qualify for the FHA HECM program, can help borrowers sort through their options.

With declining home values, people might be less inclined to take out a reverse mortgage these days because the equity in their home has taken a hit, but it’s important to note that those who took out a reverse mortgage when home prices were at a peak won’t face changes to that loan – even if their home value has fallen substantially. The amount owed will never exceed the value of the home, because of the FHA insurance.

A reverse mortgage isn’t right for everyone. It probably makes the most sense for people planning on staying in their homes for more than a few years. On top of the mandatory counseling for an FHA-insured reverse mortgage, it might be a good idea to speak to a HUD-approved HECM reverse-mortgage counselor at

Homebuyers Seeking Assistance Get Reprieve

July 7, 2010

On July 2, President Obama signed into law H.R. 5623, the Homebuyer Assistance Improvement Act of 2010.

The Homebuyer Assistance Improvement Act of 2010 provides a three-month reprieve for taxpayers who couldn’t meet a key June 30, 2010, closing date to qualify for the first-time homebuyer credit. Under the relief measure, if a written binding contract to purchase a principal residence was entered into before May 1, 2010, the credit may be claimed if the purchase is closed before October 1, 2010.

Is your pier exempt?

June 1, 2010

Summer is finally here, and with the beginning of the season comes a good opportunity to remind everyone who has a pier that Wisconsin has new regulations. The good news is that the Department of Natural Resources (DNR) estimates that more than 85% of all existing piers already meet the exemption requirements, so most waterfront owners don’t need to do anything differently.

Sizes for an Exempt Pier:
•    Width – Maximum six feet wide for the pier.
If the pier is not located in an Area of Special Natural Resource Interest, an 8-foot long by 8-foot wide loading platform or deck is allowed at the waterward end of the pier.
•    Length – The length needed to moor your boat, use a boat lift, or to reach a 3-foot water depth, whichever is greater
•    Location – Does not interfere with the rights of other riparian owners
•    Number of Boats – Two for the first 50 feet of frontage, one for every additional full 50 feet.

If your pier is not exempt, but you had the pier before 2004, you can keep doing what you’ve been doing as long as you don’t expand or modify it. You just need to register your pier through a one-time free registration process. Around 10% of piers that are not exempt already meet the registration requirements. To be eligible to be grandfathered, piers must:
•    Have been placed before Feb. 6, 2004.
•    Have a main stem that is a maximum of 8 feet wide.
•    Have a loading platform at the end of the pier that is a maximum of 200 square feet or a maximum of 300 square feet if it’s 10 feet wide or less
•    Not interfere with the rights of other riparian owners.

If you do not meet the specifications for an exempt pier or a registered pier, you have two options. First, you can apply for a pier permit. There is no guarantee you will get one, and it could take months, but after April 1, 2011, you will not be able to put the pier in without it. Doing so will put you at risk of a complaint and DNR action. The second option is to change the size of your pier to conform to the exception or registration specifications. Remember, registration is free until April 1, 2011.

Heads-up for landlords planning to renovate

April 27, 2010

On April 22, 2010, the Lead-Safe Renovation Rule took effect in Wisconsin. Both residential and commercial rental property owners who plan to renovate their properties need to comply with the requirements of the Lead-Safe Renovation Rule, including using a certified Lead-Safe Renovator and obtaining certification as a Lead-Safe Company.

Even the most minor renovations require a certified Lead-Safe Renovator. The new rule regulates renovation, repair and painting activities performed for compensation in housing and child-occupied facilities built prior to 1978. The purpose of the rule is to protect occupants from being exposed to lead-based paint hazards during and after renovation, repair, and painting activities that disturb painted surfaces. As of April 22, every regulated project requires at least one certified Lead-Safe Renovator to be in charge of compliance with the regulation, including the training of uncertified workers and final cleaning verification.

Wisconsin contractors, property owners, and owners of childcare facilities need to be aware of the rule’s certification requirements. Any renovation project on a building that could potentially contain lead-based paint will require a closer look to determine how Wisconsin’s Lead-Safe Renovation Rule applies. Ignoring the new certification requirement could be costly. The Wisconsin Department of Health Services may impose a daily fine of between $100 and $1,000 for each violation, and each day of continued violation constitutes a separate offense.

A Burning Issue . . .

April 8, 2010

“The fault of most men is not that they aim too high and miss, but that they aim too low and hit.”   – Michelangelo

An article in the Sunday edition of the Milwaukee Journal Sentinel addressed an issue that is particularly relevant in our area. For some time it has been fairly common for owners of tear-downs to make a charitable contribution of the house to their local fire departments for a tax deduction. The fire department burns it down for practice. Lately that strategy has been under attack by IRS.

This is something that has been done for a long time, but IRS is looking at it differently now. For years, IRS allowed deductions for homes donated to fire departments, based on a 1973 court opinion interpreting the IRS code written in 1968. But the tax code changed in 1969 to specify that donating anything less than the entire interest in a property, such as its use, is not deductible as a charitable contribution. Around 2004, IRS started disallowing deductions for homes donated for fires.

The heart of the issue is the value of the house. Usually when you give to charity, you can deduct the fair market value of the property that is gifted. In this case, what is the value of something that is going to be destroyed anyway?

This article tells the story of a Chenequa couple that bought an old house on Pine Lake in 1996. In 1998, they let the Chenequa Fire Department burn it down and claimed a charitable deduction of $76,000. Replacement value was about $235,000. IRS disallowed the deduction, saying that because the home was going to be torn down anyway, it had negative value, or was worth approximately $1,000 if someone was willing to move it. The owner decided to fight the case. It was argued before a tax judge in 2005, but they’re still waiting for a decision.

If the U.S. Tax Court agrees with IRS, the decision will likely end the symbiotic relationship between owners of tear-downs and their local fire departments.

Top 10 Facts about the 2010 Homebuyer Credit

February 1, 2010

If you are in the market for a new home, you can still claim the Homebuyer Credit. Here are 10 important things to know:

  1. You must buy – or enter into a binding contract to buy a principal residence – on or before April 30, 2010.
  2. If you enter into a binding contract by April 30, 2010, you must close on or before June 30, 2010.
  3. For qualifying purchases in 2010, you have the option of claiming the credit on either your 2009 or 2010 return.
  4. First-time buyers get an $8,000 credit.
  5. You can qualify for a credit if you’ve lived in the same principal residence for any five consecutive year period during the eight year period that ended on the date the new home is purchased and the settlement date is after November 6, 2009. The maximum credit for long time residents is $6,500. However, married individuals filing separately are limited to $3,250.
  6. There are income limits to getting the credit in 2010. The full credit is available to taxpayers with modified adjusted gross incomes up to $125,000, or $225,000 for joint filers. It phases out between $125,000 and $145,000 ($225,000 and $245,000 for joint filers).
  7. Use IRS Form 5405 to claim this credit.
  8. No credit is available if the purchase price of the home exceeds $800,000.
  9. The purchaser must be at least 18 years old on the date of the purchase. For a married couple, only one spouse must meet this age requirement.
  10. A dependent is not eligible to claim this credit.

A Good Real Estate Broker? Priceless.

January 28, 2010

Some may have gotten the impression from my last blog entry that I don’t value the services of real estate brokers. Nothing could be further from the truth.

Real estate brokers are experts at marketing. They know what buyers in your area are looking for. They know what needs to be done to your property to make sure it sells. They know how to get the word out to buyers and other brokers.

Keep in mind that time is not on your side when selling your house. It needs to be ready for sale from day one. Most sales actually occur in the first 30 to 45 days. That doesn’t mean you won’t sell your house if it has been on the market longer. It just gets harder.

If you don’t like what your broker is telling you about what you should do to your home, ask to be taken on a tour of houses in the area that are your competition. Your broker should be able to show you why he/she is making the recommendations to you. You might also tune into some of the shows on HGTV that address getting properties ready for sale.

Real estate brokers are experts in getting people to write offers. This is a real skill. Buyers want to be sure they are doing the right thing. They will have concerns – about the property, about whether or not they can afford it, about financing, about how the buying process works. Brokers will support them in working through their concerns. They will encourage them to write an offer. This takes time and the seller can rarely do this.

Real estate brokers also provide another invaluable service. Wisconsin law requires them to make sure that buyers who submit offers have the financial ability to buy your property. Generally buyers get a letter from their banker stating that they have money for the earnest money and are eligible to borrow the rest. Sometimes the buyer is preapproved for a mortgage. Make sure you get this information from your broker when you get an offer.

I have always used full-service brokers in selling property and have been glad I did, but I recognize that I need an appraiser when it comes to establishing the fair market value (selling price). I also recognize that when it comes to legal matters (reviewing offers, counter-offers, and the myriad of issues/conflicts that may arise with buyers), an attorney is necessary. Brokers are neither appraisers nor lawyers.

So you want to sell your house?

January 25, 2010

We are quickly approaching the home selling season in Wisconsin. In my experience, buyers get busy on the first warm sunny weekend in February or March so it’s time to get ready.

What’s the first step? Find out what your home is worth. That means getting it appraised. Yes, that will cost you. In Wisconsin it may be $350 or more but it’s well worth it. You need to know the right price to offer it for sale. Later, when you get an offer, you need a basis for negotiating price.

Many will bypass the appraisal step to their detriment. Frequently they think getting a market analysis from one or more real estate brokers is a fine substitute. It is not. Appraisers are trained and skilled at establishing the fair market values of properties. Real estate brokers are trained and skilled at selling properties. Brokers’ market analyses are really sales tools. They use them to get listings and convince buyers/sellers to take action. They do not use the same procedures and techniques as appraisers.

Because market analyses are sales tools, brokers have a built-in conflict of interest. My past experience with Mrs. H is a good example. Mrs. H wanted to sell her home. I recommended that she get an appraisal. She agreed, but she also wanted to get market analyses from a few brokers. I suggested she wait for the appraisal. What happened next reminded me a lot of “Goldilocks and the Three Bears.”

Three brokers provided market analyses. The first broker said Mrs. H should ask for $560,000. She was not happy. The second broker said Mrs. H should list for $625,000, suggesting that the first broker did not know what she was doing. Mrs. H was much happier. Then she met with the third broker. He said the other brokers were not as experienced as he was, and clearly Mrs. H should list her house for $700,000. Mrs. H was ecstatic. FINALLY someone understood how special her home was. She hadn’t yet received the appraisal, but she signed.

The appraisal came in at $600,000. The property sat without an offer for six months, despite lowering the asking price twice. The week the listing contract was set to expire, the broker brought her an offer for $560,000. Mrs. H was floored and took the property off the market. The following spring, Mrs. H had the property reappraised. She listed it accordingly and got a $600,000 offer in five days.

Brokers will tell you that the most important thing you can do when selling your home is to offer the property at a realistic price right from the start. Your property gets the most exposure and buyer activity when it is first on the market. Lowering the price later is a failing strategy. When a property doesn’t sell, buyers may think there are problems. Besides, it is very hard to get buyers to come back for a second look.

Get an appraisal now so you are ready to talk to brokers and buyers. Get recommendations for appraisers, but not from your broker. Do not use an appraiser who is also a broker. You need someone who is independent, someone whose only income comes from the fees charged for appraisals. A fee-only appraiser has no conflict of interest. Their success is directly tied to establishing an accurate opinion of the fair market value of the property.

Next time I’ll address what brokers bring to the table when selling your property. A good broker makes a difference.