Buying after Bankruptcy, Short Sale or Foreclosure

I hear questions from time to time from people about the guidelines relating to buying a home after a bankruptcy, short sale or foreclosure. While the requirements are not universal, here is a matrix that was put together by Homefront Mortgage that I found quite useful.

https://images.agentcenter.com/client/3/9/9/36993/CREDIT_MATRIX.pdf

What Every Real Estate Professional Should Know About Land Surveys

A surveyor friend at Site Surveying & Mapping relayed a story about a last minute dilemma they faced that almost killed a closing for a Realtor on a million dollar deal. How did it happen? How could it have been avoided?

Do you ever wonder what type of survey you might need on your site? What are the differences in an ALTA/ACSM and the standards within WAC 332-130? Can I just use the existing survey provided by the Seller?

Having these questions asked over and over lead to the creation of a booklet which will hopefully serve as a good reference for people in understanding Land Surveys as they pertain to the Real Estate Professional.


Link to the full article:
http://www.slideshare.net/JeffMcCann/cfakepathrealtor-and-the-land-surveyor?from=share_email

http://www.outdoor-perspectives.com/

Lot Shortage

Even as foreclosures continue to flood some of the worst-hit housing markets in the country, economists are beginning to sound the warning that today’s extremely low levels of new residential production could lead to significant housing shortages, especially among market-rate rental apartments, as household formation rates return to normal.

The housing downturn and economic recession have kept household formation rates at below-normal levels for roughly three years, said NAHB Chief Economist David Crowe. As the economy moves to higher ground, the housing market will begin to feel the pressure from new households, he said, and there will be a surge of demand from echo boomers, who comprise an even larger group than their baby-boomer parents.

NAHB economists project that the industry will need to deliver 16 million homes over the next 10 years to keep pace with demand. As the excess inventory is worked off, which is likely by the end of 2012, the long-run demand for new housing — based on population growth, immigration and the replacement of losses from the housing stock — will average approximately 1.5 million single-family and 300,000 multifamily units annually, or about 1.8 to 1.9 million total starts.

Coming off extremely low levels of construction, starts last month were running at a seasonally adjusted annual rate of 591,000, a level that is far below what will be needed.

When housing starts bottomed out in the first quarter of 2009, they were running at only 27% of average starts during the “normal” production period of 2000 to 2003, according to analysis by NAHB. This year, production is expected to rise to 45% of normal, with a further increase to 67% of normal next year.

The road back to normal levels of residential construction will be longer for some states than others. By the end of 2011, the top 20% of the states will see their production levels back to normal. Those states include Montana, Wyoming, North Dakota, New Mexico, Kansas, Oklahoma, Texas, Louisiana, Mississippi and Alabama.

So, how long will it take to bring new Lots on-line in the Puget Sound to meet our coming demand? The average nunber of years (from plat application to recording) in King County for single family lots has been 4.75 years!

Average processing time (in years): (Source, New Home Trends)
-----------------------------------------------------------------------------------
King County: 4.75 years
Other Cities in King County: 3.26
Pierce County: 5.44
Other Cities in Pierce County: 3.25
Snohomish County: 3.09
Other Cities in Snohomish: 3.09
Thurston County: 3.09
Other Cities in Thurston County: 2.85

$1.4T in real estate loans coming due

A new report from the Congressional Oversight Panel says failed commercial real estate loans could mean the closure of smaller banks, empty buildings and another blow for the U.S. economy.

* Commercial property values have fallen more than 40% in the past 3 years.

* Unlike residential mortgages, commercial loans are refinanced every three to five years. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will come due for refinancing, the report says. For nearly half of them, borrowers could struggle to get new financing because they'll owe more than the properties are worth.

By DANIEL WAGNER
AP Business Writer
WASHINGTON — Over the next several years, failed commercial real estate loans could litter American cities with empty stores and office complexes, cause hundreds of bank failures and weaken the economy, a watchdog report says.

Banks face up to $300 billion in losses on loans made for commercial property and development, according to a report released Thursday by the Congressional Oversight Panel. The panel monitors the government's efforts to stabilize the financial system.

The report says the defaults could lead to reduced lending and cause the eviction of families from rental properties. Bank failures also could contribute to job losses and hurt the economic recovery.

Smaller banks are more vulnerable to the losses than their larger Wall Street counterparts. That's because commercial real estate makes up a larger portion of their portfolio.

The Federal Deposit Insurance Corp., which manages bank failures and insures deposits, is under stress that will intensify over the next few years, panel chairwoman Elizabeth Warren said in a call with reporters.
Small- and mid-size banks have been failing at the fastest rate since the savings and loan crisis of the 1980s and 1990s. The failures are due mostly to bad loans they made for commercial projects.

Banks often lent too much for land and buildings whose prices were inflated by a real estate bubble. They also relied on rosy assumptions about the profitability of retail and office projects and did not consider the possibility of a severe recession.

Commercial property values have fallen more than 40 percent in the past three years, the report notes.

Some have been unable to pay the loans. Others have stopped paying because they now owe more than the properties are worth. Losses are mounting for banks, more of which will close. That could spell trouble for the economic recovery, said Warren, a Harvard law professor.
“If hundreds more community banks go under, the effect would be to ... dump sand in the gears of the economic recovery,” she said.
Unlike residential mortgages, commercial loans are refinanced every three to five years. Between 2010 and 2014, about $1.4 trillion in commercial real estate loans will come due for refinancing, the report says. For nearly half of them, borrowers could struggle to get new financing because they'll owe more than the properties are worth.

The report attributes the looming crisis to failures of bank management and supervision. It says banks made loans based on property values inflated by the real estate bubble. They sometimes acted carelessly “in a rush for profit,” the report says. Banks and their regulators failed to consider the possibility of reduced consumer demand from a severe recession, the panel says.

The panel criticizes the Treasury Department and bank supervisors for not putting smaller banks through “stress tests” like those done last year on the nation's 19 largest banks. Warren notes that Treasury Secretary Timothy Geithner resisted calls to conduct public stress tests of smaller banks.

The Treasury Department referred to comments by Geithner that bank regulators routinely conduct such assestments confidentially.

Warren also noted that last year's tests gauged banks' strength only through 2010. The commercial real estate threat looms largest in 2011 and beyond.
The report says loan failures could weaken the financial system because banks that fear major losses will be less likely to lend. Economic recovery depends on the free flow of credit.

The report offers no specific recommendations. But it calls on the Treasury to enact a comprehensive plan to handle the expected crisis.

The bipartisan panel is one of three oversight bodies Congress mandated for the bailout at the height of the financial crisis in October 2008. It makes periodic assessments of how the government is managing the rescue program.

The bailouts also are subject to review by the Special Inspector General for the Troubled Asset Relief Program and the Government Accountability Office.

Lenders — and tenants — like 'apodments'

It's a rooming house. You get a single bed, table, chair and refrigerator. No closet and you share a kitchen facility. While older rooming houses dot the City of Seattle a new one hasn’t been built from the ground up for years. At $500-650/month, it’s fully leased out. Will there be more like it to come? Some say the developer used a loophole and the rooming house didn’t go through the environmental and design review like “congregate housing” normally would. Stay tuned.


Real Estate Buzz: Lenders — and tenants — like 'apodments'
Daily Journal of Commerce
By MARC STILES
Real Estate Editor

Those who doubt whether small and humble are good traits to bring to a development project haven't been paying attention to what's been occurring on Seattle's Capitol Hill, where Calhoun Properties and Kauri Investments opened Videre, a congregate-style apartment project, last summer.

The 46 units average 130 square feet. (That's not a typo.) Each comes with its own bathroom, bed, table, chair and fridge. Tenants share very basic kitchens — one for every eight units — and pay $495 to $650 per month, which also covers utilities, including broadband Internet. Videre leased up pretty much right away and today there's no vacancy. So it's no surprise that Kauri and Calhoun have been raising rents.

“Residents speak with their checkbooks,” says Dirk Mulhair, who operates Calhoun Properties with his father, Gary.

Now comes the real stamp of approval from someone with an even bigger checkbook: Sound Community Bank. It is providing permanent financing at a fixed rate of 7 percent for 10 years with 30-year amortization. These days, that's “pretty awesome,” says Kauri Chairman Jim Potter.

Despite the project's solid economics, lining up financing wasn't easy. Community banks are under pressure not to lend on commercial real estate in general. The Videre, with its tiny units — “apodments,” Dirk Mulhair calls them — and communal kitchens, is especially difficult. For Fannie Mae and Freddie Mac, which will still finance multi-family projects, the unique character of Videre put it out of their comfort zone, said mortgage broker Dan Piantanida, vice president of GP Realty Finance, the Bellevue company that lined up the deal.

“We've just never seen a product quite like this,” he said. “It took some education on our part.” Once he went over the economics with Sound Community Bank representatives and had them visit Videre, which is at 216 23rd Ave. E., the deal was done.

Piantanida said it's ironic that these days, when experts say that the region's apartment vacancy rate is headed toward historic highs, it's easier to secure standard financing for apartment projects than nontraditional multi-family developments, such as Videre and Calhoun Properties' other boarding house-like properties.

Calhoun owns a total of 140 units in the University District and Capitol Hill, including the ones at Videre it owns jointly with Kauri. All 140 units are leased, Dirk Mulhair said.

The idea of rooming houses — all that density along with what Dirk Mulhair says is their reputation as “crack-ridden, slum-lord-owned, rundown places” — is enough to scare off even the boldest of investors and the bravest of tenants. He says the key to operating a successful boarding house is a hands-on management style that emphasizes respect and dignity for tenants. “We are very customer-driven.”
Calhoun and Kauri refer to their tenants as “partners.” Dirk Mulhair says he knows every resident by name. The process of signing a lease is thorough. Properties have onsite managers and security systems, and the buildings are regularly maintained.
Residents range from baristas to white-collar professionals who live outside the city but want a place to stay when they're in town.

The formula works in good times and bad, according to Piantanida's research. Over the last five years, he says, the vacancy rate for these kinds of projects is less than 1 percent. Plus, Seattle “needs this kind of housing.”

“There's a very deep market for this kind of product,” says Potter. The key is finding in-city sites close to transit lines, grocery stores and other necessities.
Not surprisingly, he and the Mulhairs plan to build more “apodments.” Potter talks about doing three this year, and says he's talking with the Seattle Housing Authority about a project at Rainier Vista. He has another site lined up in Seattle but won't say any more about that until the deal closes this spring.

Innovative Land Use Techniques, Part 1

Copy of slide show materials from last weeks real estate presentation

http://http//www.slideshare.net/JeffMcCann

Q & A's on the Homebuyer tax credit

January 26, 2010
Sorting through the homebuyer tax credit
By CAROLE FELDMAN
Associated Press Writer

WASHINGTON — If you bought a home in 2009, you could be eligible for a tax credit. Figuring out which one can be confusing.
There's one credit for first-time homebuyers and another that primarily benefits homebuyers who owned a home before. But don't mix it up with the first-time homebuyer credit in 2008, which actually was a long-term loan.
There are maximum income levels and maximum sales prices. And vacation homes or rental property don't qualify.

“If you want to spend two hours reading the instructions and translating them and finding out whether you qualify, yes, it's relatively simple,” said Jeff Schnepper, an MSN Money tax expert and author of “How to Pay Zero Taxes.”

Some questions and answers about the homebuyers tax credit:

Q. What's the purpose of the credit?
A. Congress passed the tax credits in an effort to boost the struggling housing industry and fight recession. Indications are that it's had an impact. The National Association of Realtors reported that November sales of existing homes were up 44 percent from a year earlier. Although new home sales dropped in November, figures from the Commerce Department show that they're up 8 percent from the low in January 2009.

Q. How many people are claiming the credit?
A. “In all, 4.4 million households are expected to claim the tax credit before it expires,” Lawrence Yun, the Realtors' chief economist, said.

Q. How many versions are there?
A. There are actually three.
The first credit, for first-time homebuyers, was really a long-term, interest-free loan that has to be paid back over 15 years. The maximum credit was $7,500 for a principal residence purchased between April 9, 2008, and June 30, 2009.
The second iteration made the first-time homebuyers credit a true credit — it doesn't have to be paid back — and raised the amount to a maximum $8,000. It applied to homes purchased between Jan. 1, 2009, and Nov. 30, 2009.
The third change extended the eligibility dates to homes purchased through April 30, 2010. It also added a credit for long-time homeowners who purchased a new residence between Nov. 7, 2009, and April 30, 2010, but at a reduced value — up to $6,500.

Q. Do I automatically qualify if I purchased a house during those periods?
A. No. To qualify, the house has to be used as a primary residence. If purchased after Nov. 6, 2009, it cannot have cost more than $800,000. If you're a long-time homeowner, you had to have lived in the same house consecutively for five out of the last eight years, though you need not have lived in or owned that house at the time you buy your new home.
For homes purchased after Nov. 6, 2009, the credit also begins phasing out for individuals with modified adjusted gross incomes above $125,000, and for married couples filing jointly with incomes above $225,000.

Q. How does the Internal Revenue Service define a principal residence?
A. “Your main home is the one you live in most of the time,” the agency said. “It can be a house, houseboat, mobile home, cooperative apartment or condominium.”

Q. How do I claim the credit?
A. There's a form, 5405, to fill out. You'll also have to submit a copy of your settlement statement, usually Form HUD-1, with the names and signatures of all parties, the property address, the sales price and date of purchase.
To avoid refund delays, the IRS recommends that long-time homeowners who purchase a new home also provide documents to show they meet the requirement for consecutive years lived in their old house. These can include mortgage interest statements, or property tax or homeowner's insurance records.

Q. Do I have to wait until I file my 2010 taxes to claim the credit for a home purchased before the deadline in 2010?
A. No. “You can choose to claim the credit on your 2009 return for a home you bought in 2010 that qualifies for the credit,” the IRS said.

Q. I purchased my home in 2008 and filed for a credit on my tax returns. Do I still have to pay it back?
A. Yes. When Congress did away with the repayment requirement, it did not do so retroactively.

Q. What if I want to keep my original house and use it as a rental property?
A. If you qualify for the credit as a long-time homeowner, nothing in the law requires you to sell the original house. However, you must make the new one your primary residence.

Q. What if I decide to sell the house I got the credit for or convert it to a rental property?
A. You will have to pay back the credit if you don't keep the purchased house as your permanent residence for three years.

LAND ENTITLEMENTS

Real Estate Dictionary: Entitlement--The right to develop land with government approvals for Zoning density, utility installations, occupancy permits, use permits, and streets.

In essence, Land Entitlement is what happens with a project before a shovel of dirt is turned.

Entitlements are the backbone of any development. Entitlements dictate “what, where and how much” can be built on a particular property. The “what, where and how much”—have a lot to do with determining the value of a property. A property that has a large number of uses is typically more valuable than the same property with a very limited use.

Entitlements are a legal agreement with the governing jurisdiction to allow a certain development to occur on the site. Entitlements outline the density, function and setback requirements allowed for the property.

Typically, developments can only be financially viable if they can obtain a certain density or usage. Entitlements are the key to legally securing this right from the governing jurisdiction.

When reviewing a development application, a jurisdiction will consider potential impacts such as traffic and environmental risks as well as community acceptance of the proposed development. They will likely require studies from the owner as well as proposed conceptual designs of the project.

Applying for entitlements is a challenging process. Depending on the size of the project and intended use, entitlements can take from a few months to many years to obtain. This is in large part based on the complexity of the project and public acceptance of it.

Community Banks Must Lend

I agree, the construction sector has been hit harder by this economic downturn than any other industry. Additionally, Pat Hillyer raises a sound point, "we" need to let our legislators know what is going on. We need banks to start lending to our local builders to bring jobs back.

The Miter Box
A Cross-Section of News and Opinion--Julianna Ross
With unemployment at historically high levels and billions of dollars flowing into the financial sector from Federal bailouts, taxpayers expect the needs and provisions to eventually intersect and provide relief to so-called ordinary Americans. Extensions of unemployment benefits and first time homebuyer tax credits are nice, but it’s hard to erase the vision of financial fat cats rolling in enormous pay bonuses just months after enjoying bailout dollars plucked from the pockets of the nearest newborn.

Irrefutably, no single industry has been hit as hard in this economic correction as construction. The construction sector is unique because it encompasses numerous and diverse fields factored into the GDP including real estate, utilities, wholesale, local government, forestry, manufacturing, transportation and warehousing, waste management, and science (a burgeoning profit center churning out all those new-fangled sustainable products). Yet mention homebuilder’s plights these days and it seems like every politician, regulator and lender is content to ignore one of our country’s most potent employment engines.

“Banks are so focused on the mess they’ve created for themselves,” says Nick Schmitt, a local private investment and banking consultant. “They are focused on their problem loans instead of the future. Once TARP is gone, banks will have to turn to entrepreneurial ways to generate new loans.” In a climate where many builders say it’s hard to even get a bank’s attention unless they stop paying on their loans, there is no reward for good behavior and understandable frustration. “I’m being forced into an early retirement,” says one Seattle builder, 42, who has as an exemplary lending track record. This is a builder fueling the other small businesses of local suppliers, employing staff and quickly selling through his stock of well-designed homes, even throughout 2008 – 2009.

Martha Rose, one of King county’s first spec builders of sustainable housing, launched an ambitious letter writing campaign on behalf of her business and the opportunity she sees as having a permanent impact on how people build. “The letter explains that spec construction loans must be made available to builders of homes that are super energy efficient. Green builders do not have access to other sources of funding and currently are lumped together with all spec builders,” she writes on her blog. The letter is to accompany an individual or business moving their money out of federally funded banks and into community banks, in return for the local banks agreeing to lend again, this time to responsible and environmentally minded builders.

Unfortunately, it is now the commercial credit crisis that has many of those community banks landing in the regulation handcuffs of their bigger brethren. Everyone agrees, the old days are gone and aren’t coming back. What option does an entire segment of industry have in a time like this?

One source cites Oregon Congressman Jeff Merkley’s bill titled Banking on our Communities (www.merkley.senate.gov). It strives to put TARP funds to work in partnership with private investors, recapitalizing community banks so they can lend again to small businesses and consumers. In fact, private investors could be the biggest winners coming out of the crisis, as builders begin imagining new partnerships and ways of securing funding. “We all know when a void is created, it gets filled,” says Scott Cameron of Windermere. “The banks need a plan, because they’ve created a void.”

The NAHB’s Put Housing First coalition was successful in lobbying for the $8,000 first time homebuyer credit and also its extension. Now it’s time to form a new coalition and let our elected officials know that we want community banks lending to community builders and bringing back jobs. “Our banks and our legislators don’t understand, and it’s our fault,” states Pat Hillyer of Umpqua Bank. “You’ve got to let them know what’s going on.”

Senator Patty Murray’s office recently reported holding dozens of meetings with small builders and is introducing legislation after the Thanksgiving break to focus credit and support on community banks lending to local builders. “Start a parade, and I’ll lead it,” Senator Warren G. Magnuson once said, and it is time to get this parade started and push our elected officials to lead. The needs and contributions of Main Street homebuilders cannot be ignored.

-- Julianna Ross, Publisher, The Builder’s Journal
The Miter Box is an ad-hoc column welcoming opinions about all topics concerning the residential building market, particularly as they pertain to King and Snohomish counties of Washington State.

Rural zoned condominium lot

A family owned some property in the rural area of King County. The property included the main home as well as a secondary home that was built many years ago. They wished to have the ability to sell one of the homes and keep the other.

The normal way would be to subdivide the property via a short plat. Short platting the property probably would have cost them about $110,000 for applications, engineering, site construction, bonding etc. and taken about 3 years to complete. Unfortunately, they didn’t even have enough area (a large enough lot) to subdivide, so that wasn’t an option.

In talking with their engineer, they learned of a creative solution for their problem. Cramer Northwest Inc. advised them to do a Condo Survey. The Condo survey accomplished their objective utilizing a different code. In the end, they got their two lots (just like in a short plat) but at a fraction of the time and expense of one.

Method..............~Cost............Time

Short Plat.................$110,000...........3 years
Condo Survey..........$9,500...............7 months

===============================
Savings................91%..............80%

Disclaimer: The codes in your jurisdiction may not be the same. The key to this example is that the clients had two existing homes on the same lot. Please consult a professional such as Cramer Northwest http://www.cramernw.com/ to discuss your particular case.

Report Cards are in

Last week the Municipal League released a study titled "Rights, Wrongs and Reforms: Selected Issues on Land Use regulations in King County." Issues from multiple perspectives are discussed and worth considering.

http://www.mbaks.com/library/issues/LandUseReportFinal.pdf

High Appreciation hid a lot of mistakes...for a while

I have a very intelligent friend. Heck, some say his IQ is way up there near the genius level—but that doesn’t make him a smart real estate investor. Here was a lifelong engineer wanting to become a home builder simply because the market was so hot that no one could lose.

One day he called me and asked for a favor. He wanted me to look at a vacant lot he was considering buying to build a spec home on. I quickly did a CMA and a NewHome Trends report to pull up comparables and headed to the site. I spend two hours with him walking the lot and the neighborhood. We went through a due diligence checklist I worked up for him. While most things looked fine, there were still a number of questions he would need to get answered by the local planning department.

When he told me what he was going to pay for the lot I said I thought he was paying full retail price—and maybe even a little more. Off the cuff I told him if he could avoid adding a fire hydrant in the street, sprinkling the home and get a sewer easement from a neighbor (to avoid pumping the sewage up to the main) then he might be alright. If he couldn’t accomplish at least two of these then he was overpaying for the Lot. I recommended he get his questioned answered and then determine how much lower he needed to reduce his offer by to be safe.

He was in such a hurry to buy that he didn’t take the time to check into the feasibility items I warned him about. He believed that even if he was overpaying for the lot, he could make up the difference with the appreciation that was bound to occur on the land during the time he was building the home.

Unfortunately, there were too many instances like this where people were so excited to buy that they ignored market signs and failed to do the proper feasibility before buying land and homes.

A proper due diligence report would have identified many of the problems the Buyer ended up encountering.