jdsupra.com | April 7, 2014
By Barry Fagan
Superior Court judge George Bowden ruled that Bank of America’s actions had been “unfair and deceptive” and voided the foreclosure.
Judge George N. Bowden of the Superior Court in Washington State ruled against Bank of America (BoA) in a foreclosure battle that ended with the nonjudicial foreclosure sale under the Deed of Trust Act (DTA). Bowden acknowledged that this case was like most; “convoluted in the minefield” that is the Mortgage Electronic Registration System (MERS) system. Bradburn, the homeowner, was told by BoA “that he should stop making his mortgage payments so that he could qualify for refinancing.”
BoA ensured that this homeowner was in default of the mortgage by promising to refinance; then initiated litigation against the homeowner to retrieve the property for failure by Bradburn to remain current on his payments.
Bowden pointed out that the DTA “seems to contemplate a borrower and a lender with an independent trustee having the power to foreclose on the deed of trust in the event of default by the borrower. The lender would normally hold the underlying note and be the beneficiary of it. Here matters have been complicated by the sale of the underlying note from HomeStar Lending to Countrywide, which was later acquired by [BoA].”
This is another major victory against the unethical and illegal foreclosures industry that has left millions of Americans homeless. It’s also a strike against the widespread practice of having companies that have an incentive to foreclose act as the “trustee” on the home—in this case it was ReconTrust, which itself is a subsidiary of Bank of America. They’re supposed to be neutral under state law.
On July 1, 2014, 2013 CALGreen, Part 11, Title 24, of the California Code of Regulations will go into effect. As a result, certain nonresidential additions and alterations will trigger compliance with more stringent energy-saving measures for plumbing, electrical, lighting and heating, ventilation and air conditioning systems. It is expected that the implementation of these updated Title 24 regulations will result in increased compliance costs in the completion of tenant improvements in commercial buildings. The implications for sellers, buyers, owners and tenants of commercial real estate include the need to update lease forms to take into account the practical impact of these regulations on each transaction and each material work of construction.
2013 CALGreen, Part 11, Title 24, of the California Code of Regulations constitutes yet another enactment to promote energy efficiency in California. In cases of building additions of 1,000 square feet or greater and/or building alterations with a permit valuation of $200,000 or above, the new code requires installation and/or replacement of certain fixtures and installation of certain devices and circuits connected to a time clock to automatically turn outlets off, all in an effort to reduce energy consumption. These fixtures and devices include, but are not limited to, water conserving plumbing fixtures, “smart” thermostat systems, occupancy sensors and automatic shut off controls. It has been estimated that the cost of compliance to meet such requirements will range from $3.00/square foot to $6.00/square foot.
What You Need to Do:
1. Review the basics of the New Regulations. If you are in the process of negotiating a letter of intent or new lease with tenant improvements requiring a permit to be obtained after July 1, 2014, you should consider the impact of Title 24 on your transaction. Each letter of intent and lease should specify the respective obligations of the parties with respect to the installation and ongoing maintenance of such Title 24 fixtures. It is also important to include language regarding cost sharing of such expenses in any expansion rights provisions, rights of first offer or the like so that when a tenant exercises such rights, there is a clear statement of who is responsible for what costs.
2. Agree Upon a Clear Allocation of Costs and Responsibility. Commercial building owners, brokers and property managers should familiarize themselves with the requirements of 2013 CALGreen, Part 11, Title 24, of the California Code of Regulations. Depending upon the condition of and existing infrastructure within a commercial building, the cost of compliance may be quite significant. As a result, purchase agreements and leases should set forth a clear and concise framework for allocating compliance costs. One key point to consider is whether modifications to the base, shell and core of a building may be required in order for Title 24-compliant fixtures and equipment to be installed. Failure to address which party is responsible for the various modifications that may be required to achieve current Title 24 compliance may result in unnecessary and costly disputes.
Tips for Owners/Landlords. Commercial building owners should take Title 24 requirements into account in making representations and warranties regarding compliance with laws and energy efficiency measures. However, a simple disclaimer of responsibility and a typical “AS IS” provision may not be enough to exculpate owners from compliance costs. Work letters should be revised to allocate responsibility for revisions to core building systems in order to comply with current regulations.
Tips for Tenants. Commercial tenants will need to ask more questions at the outset of a lease transaction to determine what work may be required to comply with the new Title 24 requirements. Tenants may wish to specifically state that any modifications of building systems necessary to meet the requirements of new regulations will be the obligation of t
Please contact us for additional information regarding 2013 CALGreen, Part 11, Title 24, of the California Code of Regulations so that we can assist you with drafting clear and concise language in your purchase and sale agreements, leases and letters of intent to avoid potential disputes. The entirety of Title 24 can be accessed at http://www.bsc.ca.gov/codes.aspx.
Mouse on the Dotted Line, Please
Since the start of the Internet era, there have been pioneering souls who wanted to digitize the closing process: Instead ofsign here and sign there, the idea is to replace pen-and-ink with electronic signatures and thus speed and simplify the closing process.
It sounds like a logical idea, but in practice it’s proven difficult. For instance, can a digital signature be forged or stolen? Will all parties to a closing accept electronic signatures? Can digital signatures be used on all documents or just a few? Are digital signatures too easy; that is, might people “sign” binding legal documents without sufficient notice or awareness, agreements that are one-sided or which truly lack mutuality?
Is an E-signature Really a Signature?
In 2000 — 14 years ago — the government passed the Electronic Signatures in Global and National Commerce Act, also known as ESIGN. The purpose of the legislation was to set out standards for electronic signatures to assure their safe use in business in place of “wet” or ink signatures
An electronic signature under ESIGN is generally defined as “any electronic sound, symbol, or process attached to or logically associated with a contract or record and executed or adopted by a person with the intent to sign the record.” However, HUD will not accept voice or audio signatures.
The results of the electronic signature movement have been mixed. You can order goods online with little trouble, but when it comes to real estate, the use of e-signatures to replace the borrower’s John Hancock has met with resistance. Why? Lenders and lawyers in many cases remain unconvinced, wondering whether the validity of a deed or mortgage note might be questioned years from now because an electronic signature was used to seal the transaction. Adding to the unease, mass data thefts raise questions about the security and validity of electronic transactions in general.
FHA Mortgages and Electronic Signatures
HUD has now stepped into the picture with a new set of rules which will allow the use of electronic signatures to speed the lending process. The guidelines apply only to FHA mortgages; however, if it can be shown that the process works with one type of financing, the standards set by HUD will undoubtedly spread throughout the lending system.
While HUD will accept electronic signatures for FHA mortgages with some forms and documents, it will not allow ink-free closings at this time. For instance, HUD will not accept an electronic signature on an FHA mortgage note before December 31, 2014. After that date, it will allow electronic signatures on forward notes but not for reverse mortgages, what HUD calls Home Equity Conversion Mortgages or HECMs.
Although HUD is willing to accept some electronic signatures, it’s not the only party with interests at the closing table. “At this time,” says HUD, “the use of electronic signatures is voluntary” so there can’t be ink-free settlements until everyone agrees to electronic signatures — including both the borrower and lender.
There’s little doubt that electronic signatures have the potential to speed and simplify mortgage closings, but just to be on the safe side, borrowers might want to retain a paper copy of all closing records for tax and estate purposes. After all, as Gandhi said, “there is more to life than simply increasing its speed.”
Getting the REIT Tax Treatment May Get Harder
Under Proposal, Fewer Companies Would Qualify as REITs
A plan to overhaul the U.S. tax code being floated by Republicans in Congress is rattling the real-estate world because it would limit the type of companies that qualify to become real-estate investment trusts.
Since they were established in 1960, REITs have received favorable tax treatment. They pay no corporate income tax as long as they earn the bulk of their profits from rent and distribute at least 90% of their income to shareholders as dividend payments. Congress created REITs as a way of giving small investors access to the commercial real-estate market and helping landlords diversify their investor base.
But in recent years, some critics have said that more companies are converting their corporate structure to become a REIT just to save taxes, even when they aren’t in a traditional real-estate business. Over the past two years, companies that own data storage facilities, billboards, casinos and prisons have sought REIT status. CBS Corp. CBS -2.18% last year said it would spin off its billboard business and apply to convert it to a REIT. One analyst estimated that the conversion would shift $145 million in 2014 cash taxes back to CBS.
The growth in nontraditional REITs has caught the attention of lawmakers, who are trying to raise revenue by closing tax loopholes. The intention of the REIT-related measures in the draft tax-overhaul bill “was to preserve the original intention of REITs and to prevent manipulation for tax purposes,” according to a spokeswoman for the House Ways and Means Committee.
Under the proposed tax overhaul, written by committee Chairman Dave Camp (R. Mich.), real estate is defined for tax purposes as assets other than land that have a depreciable life span of at least 27.5 years.
According to the National Association of Real Estate Investment Trusts, under this provision, properties such as cell towers and billboards, which under current tax laws depreciate much more quickly, wouldn’t be considered real estate, and companies that own them couldn’t qualify as REITs.
A separate provision would exclude the cutting of timber, currently considered a sale of real estate, from qualified REIT income.
It isn’t clear whether existing REITs that don’t fit under the new rules or companies in the process of converting would be affected by the change. Nareit has come out strongly against some of the new rules, saying the plan would “unduly and inappropriately restrict or constrain REIT-based real-estate investment.”
The draft bill also contains proposals that would make it more expensive for companies to convert to REITs. One rule would require a non-REIT company to immediately recognize a taxable gain when they convert, based on the difference between the newly formed REIT’s market value and the preconversion company’s tax basis.
Under the new rule, “No companies with built-in gains would ever convert to REITs again,” said John Rayis, a tax partner in the Chicago office of Skadden, Arps, Slate Meagher & Flom LLP. “You’d have to pay a tax today on the property appreciation, even if that gain hasn’t been realized yet.”
REITs have become one of the darlings of Wall Street because they constantly have to raise equity, which means a consistent stream of underwriting fees for banks. And because of their high dividends and track record of providing a steady flow of business, REITs are able to access capital markets cheaply.
Political observers have noted that Mr. Camp’s tax bill has little hope of being passed before the end of 2014, an election year that likely will be Mr. Camp’s last as Ways and Means chairman. The bill hasn’t been formally introduced, only circulated for discussion. But REIT industry experts say the draft could set important precedents for future tax change.
“If I’m a corporation right now considering a REIT spinoff, I’m very interested in this bill because I want to know, can I get this deal done before the boom comes down?” said Martin Sullivan, a former Treasury economist who works for the nonprofit group Tax Analysts, a Virginia publisher of tax news and analysis.
REITs already were under the microscope in Washington. Last June, the Internal Revenue Service told several companies hoping to become REITs that their applications could be delayed while the government reviewed what kinds of companies can qualify. One of those companies was data-center operator Equinix Inc. EQIX +0.53% In November, Equinix reported in a securities filing that the IRS had resumed making rulings on REIT applications.
“We are continuing to progress with our plans to convert to a REIT on January 1, 2015,” said Melissa Neumann, a spokeswoman for Equinix, in an email.
Equinix declined to comment on what effect the bill might have on its conversion. CBS declined to comment on its application.
Mortgage Underwriting: What You Need to Know to Get Approved in 2014
This month, the Consumer Financial Protection Board (CFPB) put into effect new rules to protect mortgage borrowers from taking on more debt than they can handle. Despite the good intentions of these new guidelines, you might want to hold yourself to an even higher standard when deciding how much mortgage you can afford.
One of the provisions of the new rules has to do with the relationship between monthly mortgage payments and the borrower’s income. The new guideline is that total debt payments, including the mortgage, should not exceed 43 percent of the borrower’s income. There are exceptions to this rule which would allow you to take on debt payments even higher than 43 percent of your income, but if anything, you should go the other way. In many cases, it is questionable whether it would be wise to tie up 43 percent of your income in debt payments.
Income Considerations: Be Conservative!
Here are seven things to think about before tying up as much as 43 percent of your monthly income in debt payments:
- Your tax situation. Depending on you tax situation, it may be that 43 percent of your monthly income actually represents well over half of your take-home pay. This is especially true if you live in a city and/or state with especially high local income taxes on top of the federal tax.
- Mortgage rates. While the interest component of mortgage payments is factored into the 43 percent rule, higher payments make more sense in periods of low mortgage rates than when rates are high. Why? Because with low mortgage rates, a greater portion of your monthly payment represents principal instead of income. That means you are getting more value back in the form of home equity, rather than simply losing it to the lender in the form of interest. According to the Federal Reserve, 30-year fixed mortgage rates are currently about 4 percent lower than normal, so this would qualify as a period of relatively low mortgage rates.
- Retirement and other savings. Lenders are allowed to consider the impact of savings on the ability to repay, but you should flip that around and think about how the mortgage payments will affect your future savings. How will you ever be able to save for retirement if a disproportionate mortgage payment dominates your budget? Unless you are well ahead of schedule in accumulating a nest egg, make sure you leave room in your budget for retirement saving.
- Job security. As many people have found out in recent years, when you lose a good-paying job, it is not always easy to find a replacement at the same income level. So, before you take on a mortgage payment that pushes your current income to the maximum, you should think about how certain you are of maintaining that income over the long haul.
- Rent alternatives. If you live in an expensive area where your rent payments are already pushing close to 43 percent of your income, then you would be much better off with mortgage payments at that level so you can build home equity. On the other hand, if rents are much cheaper than a mortgage payment would be, you might be better off continuing to rent for a while so you can save up for a larger down payment. This will give you more home equity right off the bat, and allow you to take on a smaller mortgage payment.
- Other debt. Other debt payments are factored into the 43 percent debt-to-income calculation, but you have to ask yourself what the term of that debt is. If, for example, you are a year away from paying off a car loan, that means you will soon get more breathing space in your budget. On the other hand, if you still face several years of student loan payments, you may want to shoot for a less burdensome mortgage payment.
- Earnings potential. Taking on a mortgage payment that stresses your budget is one thing if you are early in a career with much higher earning potential, but it could be a long-term burden if you are near the peak of your career earnings. Consider your future earnings potential when deciding how much mortgage payment to take on – but in this economy, don’t fall prey to being overly optimistic.
The new CFPB rules are designed to address some of the worst lending abuses of the housing boom. The fact that some people took on debt-to-income ratios that were more than 43 percent of income shows just how excessive some of those lending practices were. The further you stay on the low side of that debt-to-income guideline, the further your situation will be from the default epidemic of the mortgage crisis.
Credit Scores: Mortgage Lenders Ease Requirements
According to a report prepared by Ellie Mae, a mortgage technology company, the average FICO credit score for approved mortgage loans dropped to 727 in December 2013. It was 748 a year earlier.
The average credit score for home loans backed by Fannie Mae and Freddie Mac also dropped a little; December 2013 borrowers had an average credit score of 756, down from December 2012′s average of 761.
Refinance mortgages backed by Fannie Mae or Freddie Mac were approved with an average credit score of 729 in December 2013; this was a significant drop from the average credit score of 763 in December 2012.
Only 46 percent of mortgage applicants approved had credit scores above 750 in December 2013 while approximately 57 percent of applicants had credit scores over 750 a year earlier.
Mortgage Credit Scores: What’s Going On? – -
Reasons for approving mortgages with lower minimum credit scores include mortgage lenders’ growing confidence as the economy improves and mortgage defaults decrease. As rates rise and refinancing activity dries up, lenders may also exercise more flexibility with credit scores in order to encourage more business.
While this isn’t life-changing news for would-be mortgage applicants with sub-par credit scores, a mortgage lender’s willingness to work with less-than-perfect credit is a positive sign in the aftermath of the recession.
But wait — there are conflicting opinions concerning how or if mortgage lenders will change their minimum required credit scores for any but the best-qualified applicants. Mortgage applicants with credit problems can expect to encounter glitches on the path to mortgage approval.
Mortgage Underwriting Policies: Out with Overlays — or Not
Another practice that can limit a mortgage applicant’s chances of approval is the use of “lender overlays.” Lender overlays are underwriting requirements, imposed by lenders, in addition to the guidelines set out by Fannie Mae, Freddie Mac or the federal government. Overlays create extra hoops for applicants to jump through (or get stuck in).
Some analysts have said that mortgage lenders may be willing to reduce or eliminate lender overlays if economic conditions continue to improve.
So far, most lenders have not reduced or stopped using overlays. Other economists and analysts believe that new federal “qualified mortgage” regulations will encourage mortgage lenders to maintain or further strengthen their mortgage approval requirements.
Lower Credit Scores, Less Cash and
Unfortunately, the recession has caused home buyers to be less prepared to buy homes. The Ellie Mae report notes that homeowners who wanted to trade up were frequently blocked by a loss of home equity. The report also found that the weak economy made it more difficult to save for a down payment due to low yields on savings and ongoing unstable economic conditions.
Ellie Mae reports that mortgage applicants are also carrying more debt. Average total debt-to-income ratios (DTI) for home buyers were little changed in 2013, but the average total DTI for refinancing rose from 33 to 41 percent in 2013. For FHA loans, the average total DTI was 42 percent. Fannie Mae currently allows manually underwritten standard home loans a DTI maximum of 45 percent.
Based on a moderate pace of economic recovery and mortgage lenders’ desire to avoid losses created by unsound mortgage approval guidelines, It’s likely that minimum credit score requirements will not change or may be lowered minimally until the economy shows a strong recovery and mortgage applicants can boost their savings and pare down their debt.
This might sound a bit silly but it is something I have really been wanting to do and thinking about off and on for many years now and I believe that now is as good a time as any. Most of the group members know I am an active real estate investor and also the founder of ListedBy.com. You likely do NOT know I also have been an avid runner for many years and love competing in shorter 5K, 10K and half marathon races. (Kudos to any of you superstars out there actually doing a REAL full marathon!)
As someone with an entrepreneurial spirit whenever I have ran these races I often thought how fun it would be to put on a race myself and of course give the proceeds to a worthy cause.
I actually tried to look in to it a few times over the years, but the only little minor issue with that is I KNOW ABSOLUTELY NOTHING ABOUT IT WHATSOEVER!=) Not only that but I have searched and searched and to my amazement there is seemingly not any companies out there you can pay to set up and organize your running event. Having noted that little detail I highly recommend anyone responding to this report considering that as a side business as your competition would be minimal!
So after all of my rambling here the main point of this post is to tell you that we at ListedBy strongly want to put on a 5K fun race to benefit a worthy cause and we NEED YOUR HELP to do it.
We are looking for someone that has race/event planning experience that can assist in locating the race location, setting it up with the city, and coordinating all aspects of the “on-the-ground” event itself. Our expertise is marketing so we will use our contacts with our advertising partners to get the sponsorship for the race and get the event exposure to our 650,000 members of our website so we can have a great turnout hopefully. We also need and want as many volunteers as possible. The race coordinator can be volunteer or for the right person we could be open to paying a fee from my own pocket on this.
The second thing we would really like to get the opinion of the group on is what type of charity could benefit the most. I personally have always supported and been thankful for St. Judes and they seem to be really well run, but since we are in real estate we have been trying hard to think of any good real estate related charities we could send proceeds to. Even if you can’t volunteer or attend the race your opinions on that are more appreciated than you may know and really do help as finding the best and most worthy cause I am sure is everyones top priority. Thanks again to all of you that took the time to read this and I am excited to hear your opinions and hopefully see you all at the race when we have it set up!
Fill out the survey below to give your opinions on the race or to volunteer!
Be forewarned I’m not much of a blogger, or a “typer” for that matter so please buckle up and get ready for a lot of typos, exclamation points and use of the term “Exceptional” but hopefully also peppered with some beneficial real estate knowledge!
My team has been telling me for a while that I personally need to do more blogging for the site and share some of my personal real estate investment experiences and strategies.
With me focusing the last several years specifically on purchasing owner financed income producing properties, I thought that this would be the best topic for me to start with and one of the areas that I can add the most EXCEPTIONAL knowledge and expertise.
I travel all around the country to most of the BIG real estate investor and agent events and I truly have NEVER met anyone that does the strategy in the way that I do it, and in truth since 2011 across the board with my strategy specifically on owner carry properties I have averaged a greater than 30% cash on cash ROI! This is because to some extent we throw conventional wisdom out the door, and we only focus on one thing “CASH-FLOW”. The property that we purchase simply becomes more of a vessel to create an exceptional cash on cash ROI, almost like an ATM more-so than looking at it as the typical brick and mortar investment some do.
I have added the youtube to this post and you can see an actual example of how it works, the youtube is almost 3 yrs old so I probably need an updated one made but I still believe it gets the point across and it directly explains how we can take a 12% ROI and instantly turn it in to a 33% ROI with the same property, and the same purchase price AND with the same overall revenues generated by that same investment property.
Yes I know what you might be thinking, he finally writes his first blog post and cops out with a youtube instead! Either way I sincerely hope there is some exceptional info there that you find at least somewhat enjoyable, and anyone that comes across any Owner Financed real estate opportunities please send them to me as I almost certainly would at least want to make an offer on the properties!
If you have a property that you would like to send to me that can be purchased with owner financing, or you have interest in partnering on some of our owner carry basic properties that we see then you can please email me HERE – - http://bit.ly/1g2RXHG
As real estate investors and agents the market stats and trends that we are seeing right now are always on our minds, but sometimes it is even more important to look 6, 12, 24 months outward and beyond to properly formulate our investment strategies and educate our clients to know what to look for when making their long term plans. With that in mind we wanted to feature some content from the “the economist outlook” blog that we found interesting looking at the stats of new home starts in January 2014 and how that projects to the market in the future. See the content below and please comment with how you believe this projects out in the real estate market:
January Housing Starts
In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses the latest housing starts data.
- New home construction fell notably in January, partly due to inclement weather conditions. Housing starts dropped 16 percent from the prior month, to a seasonally adjusted annual rate of 880,000 units. Activity plunged 70 percent in the frozen Midwest. The West region, less impacted by the weather, experienced a 17 percent decline.
- One major bottleneck to the housing recovery is the lack of inventory. The supply of existing home inventory (2 million listings) has been bouncing along at a 13-year low, while new home inventory (180,000 listings) is essentially at a 50-year low. Consumers, including many trade-up buyers, want to see more listings before deciding to make the transition.
- The supply can be genuinely relieved from increased new home construction. As people trade-up into new homes, they will open up existing homes on the market. Based on historical trends, housing starts should be at least 1.5 million annually. We are well short of that today. Many small local builders have been complaining about the difficulty in obtaining construction loans. Local community bankers in turn have complained about burdensome new financial regulations coming out of Washington that make it difficult to lend for the construction of new homes. The large publicly-listed builders who can tap Wall Street funds are taking advantage of the fact that the smaller guys are shut out of the market.
- The housing starts forecasts are for 1.2 million in 2014 and 1.4 million in 2015. That is still not sufficient. Home prices will be moving higher as a result.
- Several fanciful new homes were built on the northern side of the DMZ line in Korea many years ago. They were purposely built to be seen from South Korea with plain binoculars, showing presumably a higher standard of living in the North. A closer look, however, reveals only pure facades with hollow interiors. As everyone knows now, South Korea has economically taken off while North Koreans face constant fear and live daily on the edge of starvation. South Koreans could easily be living under the same inhumane horrible conditions had it not been for the U.S. who came through during the Korean War. Over 30,000 Americans gave their lives with many not knowing why they were halfway around the world in a strange country. To those affected families, I hope they get some comfort in knowing at least 50 million South Koreans are living comfortably. One testament of the prosperity is the country’s ability to spend on leisure and recreation, including participating in the Olympics. The sound of Olympic skates cutting through ice, from the author’s point of view, is a tribute to all U.S. servicemen and women.
At ListedBy.com and the real estate and investment networking groups we are thankful for the sense of community we have together as a group and value the opinion of our members typically even more than our own. One of the most exciting things about being a part of such a BIG and ever growing community is we can see trends in the country by watching the trends amongst ourselves. So having noted that we thought it would be exceptional to hear from you what your “surprise markets are in 2014! We personally are based in California and have invested heavily in west coast regions mainly las vegas since 2011, but we are projecting Utah to be a hidden market with projected upswing. If you have a comment or question on this please post it below and thanks so much as always for your use of our site and LinkedIn groups!