12.11.09
Property Claims Process Not Easy
When you have an insured loss over a certain amount, the insurer will write the check to both you and the lender. Now comes the hard part, getting the money out of the lender. I recently had to go through Bank of America’s property claims process, it was full of mistakes and frustrations.
Basically here is how the process works. You get a percentage to get the rebuild job started. And then you request an inspection. Based on the inspection results, more money will be released to you. And so on, until the job is 90% done and they release the rest of the money. Here is what to expect based on my experience:
- Expect lengthy delays in every step of the process. For example it takes 2 days for a check request to be “approved”. I was also told I would have a check by a certain date, it showed up 3 days later.
- You will need to shepherd every single step. For example, don’t expect that an inspection automatically generates a check to you, in most cases you have to call and request the check.
- The amount of money that will be released to you is unpredictable and based on the inspection. A draw schedule that I sent in was pretty much ignored.
- Ask to have the process explained several times. I got a different story from each rep I talked to, one told me it took 2 days to schedule the inspection, the next time I called in asking why the inspection hadn’t happen, I was told 3 days.
- Expect lots of mistakes. The first check sent to me was sent to an old address (even though my loan statements had been coming to my new address for 18 months). A canceled check’s funds was not returned to the account. And most baffling of all, the first check was made to a second party even though I am the only party on the loan and the title!
The process was totally unworkable for any realistic construction schedule, especially one that had roof work and the corresponding worry of completing that particular work quickly. What I had to do was fund the work up front and then work with the bank to get my money out of them. I can’t imagine what it must be like for a property owner with no resources.
12.08.09
New Short Sale Rules
The Treasury released new guidelines on short sales to “simplify” the process. The new rules addressed the response period by the bank and second liens. Starting in 2010 the banks now have 10 days to respond to a short sale offer. It remains to be seen whether this will become a reality. Banks are taking months (if not more) to respond to an offer. The worse offenders are Chase, Bank Of America and National City (which is now PNC). I know of several deals that have been waiting over 6 months. So 30 days would be revolutionary, 10 days just simply amazing.
The Treasury also is trying to help out in situations where the second lien holder blocks the deal. Usually in a short sale the second lien holder ends up taking a lot less or nothing, so many of them are holding out and refusing to take the loss. The guidelines now caps the proceeds to subordinate lien holders to $3,000.
It really remains to see whether these guidelines will improve the situation. The loss mitigation departments seem overwhelmed, and quite frankly it does appears that the banks are happy to just sit on the offer and wait. Delaying means that their books look healthy for one more quarter, and maybe the market will turn around. Foreclosure would cost them more but that’s not this quarter. I know of one smaller bank that is refusing all short sales, they are foreclosing and then sitting on the properties, they must have some cash to back this strategy.
12.02.09
Lender not helpful when disaster strikes
One of my rental properties had a major fire. The insurance only paid so much and at first I was unsure whether the cost of repairs could be covered. I called my lender and explained that I was having trouble finding bids that would come in under the insurance amount.
I asked what help they could give. I wasn’t sure of what help, maybe they could help negotiate with the insurance company. Maybe they would offer forbearance on the payments. The answer. Nothing, they weren’t willing to do anything. I explained to them that this property was underwater, not by a lot, but that it would not be worth it to me to come up with substantial additional money to fix it up. That a good financial decision might be to give it to them. I pointed out that that the mortgage payments were up to date and it was in their best interests to make that situation continue. The response? “Perhaps you could find a negotiator that would help you with the insurance”.
Banks are in business to make money. Everyone understands that. But I’m finding so many examples of extreme shortsightedness on their part. If this downturn continues and more people get fed up with the banks, they might just rue the day over how badly they treated their customers.
And that was just the beginning of the nightmare this bank put me through in rehabbing this property. The lender? Bank of America?
11.30.09
Lawyer says walk away, don’t feel guilty
Ever notice things happen in waves? The “should you walk away” theme got a new voice in Brent T. White who argues more people should stiff their lender. Predictably the banks were not amused.
11.27.09
A killer marketing tool for real estate professionals
Are you a Realtor? Or maybe a “we buy houses” outfit that takes it’s marketing seriously? If your website has a physical address for your business on it, consider listing with Google Local Business Center. I’m surprised that more small business owners don’t take advantage of this – check out the video.
11.26.09
Would you walk away?
Here’s a statistic I bet you have heard before, one in four mortgages are underwater. So the question is given that the house is an investment loss, do you walk away? A CNN Money article interviewed 5 homeowners and asked that same question. To homeowners a house is more than a house, it’s a home, and many of them have decided to stick it out and keep the home. One lone couple has decided to walk away, citing attempts to work with the bank for a principal reduction of $100K, and when that didn’t work letting it go to foreclosure for a $250K loss to the bank.. Hah, banks are not giving out principal reductions .. at least not that I have heard of. Banks are playing hardball and not giving up much ground, although you would think they would work harder to avoid foreclosure. After all, who got the bailout money?
I read through the comments, and most of the peanut gallery was upset with the lack of responsibility people are showing by walking away from their homes. While I sympathize with the sentiment (or may I say jealousy), is it really a lack of responsibility, or just a sober and difficult financial decision? Let’s see, I could run through all my saving and go broke or I can jettison this asset that the very bank that lends on it caused a credit crisis that caused it’s value to drop beyond all the worse case scenarios I ever considered.
I thought the commenter that professed disbelief at the 50% drop in value was cute. I recently received an offer of $55,000 for a house that has a $186K note on it. I should be lucky to only have a 50% drop.
02.13.09
4 mortgage limit lifted by Fannie Mae
I recently viewed a real estate presentation. The speaker was visibly perturbed by the recent decision of Fannie Mae to limit investors to 4 mortgages. His point was that experienced investors will help the housing recovery by buying the REO/foreclosed properties and holding them. Helping clear the inventory of bank owned properties on the market could only help the housing market. But by limiting investors to 4 mortgages, Fannie Mae was unnecessarily limiting investor activity that could help the economy.
I’m sure he was pleased by the recent announcement by Fannie Mae, that it will be updating its guidelines so that investors will be able to obtain financing if they have between five to ten mortgages not four (note that the mortgages can be with any lender, not just Fannie Mae). Not surprisingly the criteria is more stringent than in the past, bigger down payments and a minimum credit scores of 720, but at least for those who qualify the artificial ceiling of 4 mortgages has been lifted.
01.05.09
Buckle down, the housing market isn’t going to get better
The new year, out with the old, in with the new! Many people are glad to see 2008 go. It was the year where a bad housing market turned into a freefall rout. Where many lost their jobs. So you can’t blame folks for having a lot of hope for a 2009 that is better than 2008.
With the new year comes economic outlooks and predictions. I recently listened to an interview with Harry S. Dent, an economist known for accurately predicting the Japanese decade long recession, and the DOW hitting 10K, back in the 80s. According to Harry Dent, we are just in the beginnings of another great depression. While 2009 might see a short lived rally in the stock and housing market, overall we are in for several more bad years according to Dent.
Harry Dent will be speaking at Wealth Summit Live, an event in Orlando on January 24th and 25th, featuring a number of well known speakers geared towards helping people succeed despite the dour economy.
If you invest in real estate, I would recommend listening to the interview with Dent. Even if you don’t completely agree with him, his knowledge of trends and how they impact the economy is a message any investor should listen to. You can access the interview for no cost by registering at the Wealth Summit Live site. Maybe I will see you in Orlando!
12.21.08
Loan modifications for the non-delinquent
Some of us already knew it was possible to get a bank to do a loan modification prior to delinquency, now Fannie Mae joins the party. Kenneth Harney’s column in the Sunday San Francisco Chronicle announced that Fannie Mae will allow borrowers to request alterations to their mortgage even if they have never been late.
Essentially a loan modification is when a bank agrees to changes the terms of your mortgage due to financial hardship. Most banks won’t reduce the principal owed, often leaving the property underwater, but they will lower the rate (I recently heard of a mortgage that was modified to an interest rate of 1% for 5 years) and they will extend the term (ie. from 30 years to 40).
The loan modification industry is a wide open field and lots of confusion abounds. The feds have been slow to put any regulation in place, so as usual the market is making it’s own rules. Unfortunately, some people are getting scammed by brokers that say they will negotiate the loan, and then disappear with the fee. But loan modifications can work and for some people banks have been quietly modifying loans even before the mortgage ends up in the loss mitigation department. Some banks are even proactively looking for signs of distress and contacting the borrower early.
Harney’s article is a good read and documents that a trend that was already underway comes into the mainstream with the Fannie Mae announcement.
11.28.08
Happy Black Friday
Happy Black Friday! For those of you with money, all sorts of assets are for sale at rock bottom prices. Go forth and buy!
- In many parts of the country you can scoop up houses for less than the cost of building them. A friend of mine is buying houses in Florida for $25,000 when just a few years ago they were selling for over $100K. I challenge anyone to be able to build a home at $25,000 (mobile or pre fab homes don’t count).
- Stocks are for sale, Warren Buffet is reportedly on a buying spree. And why shouldn’t he be? With his knowledge of what constitutes a good company (my guess is that no or low debt on the balance sheet is one criteria) he can get good company stock for cheap.
So those of you with cash that are sitting on the sidelines, buy an asset! It is almost hard to go wrong. Invest for the long term and be prepare for prices to dip more .. but if you have the long term view you will be ok. To me real estate seems more like a sure thing than stocks, but it depends on what you know best and your willingness to manage your asset (stocks don’t stiff you for 2 months rent and then leave a mess to clean up).
And, if on this Black Friday, you insist on being a consumer rather than an investor, you still have great bargains awaiting you. New cars are selling for thousands less than they did just recently. The settlement on a wrecked 2006 Prius was enough to buy a brand new 2009 in one case. Dealers are so desparate that there are buy one and get one free deals out there. Anyone up for two Dodge Rams for the price of one?
