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Ask Realty Times

Written by Posted On Friday, 14 September 2007 00:00

Question: I'm a licensed mortgage broker. This question was brought to my attention by another broker and I need clarification. I'm not sure if they are interpreting incorrectly or if this is fact. I am told that to refinance the same client at the same address in less than a 24-month period is considered predatory and that fees cannot exceed 7.99 percent on the difference between the original loan amount and the new loan amount.

Answer: The reason for the 7.99 percent limitation on fees is not because the loan is or is not "predatory," but because when fees on a first lien exceed 8 percentage points then special disclosures are required under the Home Ownership and Equity Protection Act or "HOEPA."

As the Federal Trade Commission explains , HOEPA kicks in when "the total fees and points payable by the consumer at or before closing exceed the larger of $547 or eight percent of the total loan amount."

The FTC also says HOEPA has a time-frame consideration: A lender, according to the FTC, cannot "refinance a HOEPA loan into another HOEPA loan within the first 12 months of origination, unless the new loan is in the borrower's best interest. The prohibition also applies to assignees holding or servicing the loan."

For specifics, please see your compliance officer or an attorney.

Question: I have a rental home with six years left on the mortgage. The mortgage is approximately $112,000 and the payment is about $1,600. This home will soon be rented because we moved into a new home as our primary residence. In our area rents are about $1,500 per month. I'm considering refinancing the first home to pull out approximately $100,000. This will increase my payment by about $1,100 per month. With that cash I will invest in mutual funds and a down payment for anther rental property.

I eventually want to repeat the process in three years to buy another rental property. Would this be wise move to refinance in order to keep the deductions on the rental? Or should I bite the bullet and keep paying at a loss to own the house in 6 years?

Answer: The fact that homes typically rent for $1,500 does not mean your particular property will rent for the same amount, or more, or less. Will the property produce a positive cashflow after mortgage payments, taxes, insurance, repairs, management and vacancies?

Given that interest rates today are around 6.5 percent, an additional $100,000 in mortgage debt will mean you have a $212,000 loan with a monthly cost for principal and interest would be $1,340. Additionally, there are costs for property taxes, insurance, repairs, etc.

As to mutual funds, how do you know that the value of mutual funds will increase? What happens if the value of your mutual funds fall?

Why not check with local real estate brokers to see how much rent the property can support? With a reasonable rent level you can then look at refinancing.

Question: Are "double closings" okay? What I'm talking about is having a buyer sign a contract with a middleman and the middleman signs a contract with the seller, and both contracts get processed and registered at the same time. The middleman uses the buyer's money to pay the seller.

Answer: What you may be describing is a contract "assignment." This is a situation where a property is sold to a purchaser and the buyer has the right to assign the contract. Buyer #1 finds a second purchaser who is willing to pay more for the property.

The catch here is that the seller only has an agreement with buyer #1. If the second purchaser cannot close, the first buyer is entirely responsible for making the purchase. If the purchase is not made, then buyer #1 can lose his deposit and possibly face other damages.

If an assignment is involved and you are the second buyer, have an attorney review your proposed agreement before signing. You want to make sure that the assignment is valid and that illegal flipping and predatory lending are not part of your transaction.

Question: I live in a small town in the Blue Ridge mountains of North Carolina and recently listed my home with a broker. The home is two-years old with 4.5 acres of prime land and breathtaking mountain views. I'm also including a buyer bonus for brokers to entice purchasers.

A new development adjacent to me has been selling lots like wildfire and yet we can't seem to get any showings. We have had one showing in three months and the people really liked our home but are waiting on their home to sell.

Our home is almost new, has prime land with awesome views, clutter free and super clean and very eye catching. Our broker has it posted all over the internet, on a large banner near a road, in the MLS, there's a flyer box, etc. Also, my broker is co-listing with a Florida agent and still can't get showings. Our price is very competitive when compared to other homes in the area.

How can I get more showings? If I can get them to the door I know they will buy. Many people from Florida have been buying in this area. How can I get out of state people interested?

Answer: It is often very difficult to sell rural property for the very simple reason that such property is, well, rural. You have few people in the immediate area and a smaller pool of potential buyers, jobs, amusements and amenities than you would have in a major metro area. In effect, the very qualities that make your community attractive are not the top concerns of many buyers.

As to the lots being sold nearby, are buyers actually coming to the property or are they buying long-distance in seminars and meetings? How many new homes have been built in the past six months?

Your broker might want to consider this idea: If possible, distribute sale information at local motels so that the property can be marketed to visitors who are physically in the area.

Question: How much does the real estate industry spend on advertising? How much of that money is spent online?

Answer: Borrell Associates says as of June 2006 that "while real estate advertising has remained stagnant at $11.6 billion, several dynamics indicate that dramatic changes are beginning to occur. Home sales have slowed down, meaning agents have more inventory to advertise but less money to spend on that marketing. Despite the hype about Internet advertising, there is plenty of room for growth: Most agents don't even have a website or advertise online. Online real estate advertising will grow to a $2 billion category this year and swell to $3 billion by 2010, surpassing the longtime leader, newspapers."

Copies of the full Borrell report can be obtained on the company's website .

Question: I have several friends who are selling their homes in my neighborhood. I know for a fact that the size of their homes in the description sheets and MLS are inaccurate. One home is the same model as ours and lists the size as 250 square feet larger. The other home lists at over 700 square feet larger than it is. This greatly reduces the cost per square foot and makes the houses seem more like bargains. Isn't this regulated in any way? It is so obvious that the one house isn't 3,700 square feet. If future buyers later sue, will courts state they should have measured, or should have been put on notice by the visual discrepancy?

Answer: There's no way to tell what courts will say, but here's a curious reality: There's no standard way to measure houses.

The American National Standards Institute (ANSI) has a square footage guideline, Z765-2003 Protocol . This protocol is described as the "standard for measuring square footage in single-family detached and attached homes, developed by an American National Standards Committee, is the first national standard to reconcile differences in current methods for determining square footage. The standard involves the calculation and reporting of above-grade square footage and below-grade square footage in single-family houses."

These guidelines, however, are voluntary, which means there is no universally required way of measuring the interior of a home. Yes, some professions have a particular way of measuring, but not everyone uses the same system.

Since there is no absolute standard, it is entirely possible to have similar homes with different measurements. Quirky yes, but also true.

Question: I'm the buyer's agent in a short sale purchase transaction that did not go through due to no fault of the buyer's. Escrow has not returned the escrow deposit to my buyers. They state they need the seller's signature to release the funds and that the seller owes money that needs to be paid before they will release the buyer's deposit. According to the seller's agent, escrow has said the buyer's can agree to pay what is owed by the sellers and they can get the remainder of their deposit.

Escrow has not returned my calls for the last three business days I have been calling. What can I do for my clients to get their escrow deposit back?

Answer: Money deposited in an escrow account does not belong to the closing agent. It is held in trust for a buyer or seller. However, this money cannot be released without approval of both the buyer and the seller.

Whatever it is that the seller owes to the closing agent is a problem for them to work out, the buyer's money in the escrow account cannot be held hostage.

If there was a dispute between the parties over the escrow money then the funds in most jurisdictions would be turned over to a court. However, the dispute in this situation is not between the buyer and the seller.

Have an attorney contact the closing agent to assure that the seller can immediately release the buyer's money. If the seller refuses, then consider having a court administer the money. An attorney can provide specifics.


Have a real estate question? Send your inquiry to Ask Realty Times . Because of the volume of mail received, Mr. Miller cannot respond to questions individually or privately. Published letters may be edited for space and style. For comments regarding other Realty Times articles, please contact individual authors by pressing here . For past columns, please press Ask Realty Times .

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.

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