Exclusive Buyer Agency Agreement ~ Bi-Lateral Accountablity ?

The real estate professional who is representing a buyer (or seller) has great responsibility to his client; a fiduciary duty perhaps, certainly an agency duty; a moral, ethical, legal one; in addition to other professional Codes of Conduct.  Why then are the duties and loyalties in working with a "client" uni-lateral rather than bi-lateral? 

Why should certain duties and obligations only apply to you, and not to them as well ?   If you failed to act in a given circumstance, under-performed, or committed an "Error & Omission" that could get you in deep trouble or jeopardize your license, there would be consequences and ramifications, wouldn't there be ?  Yes, of course there would.  So why then are our "clients" or customers held to no bi-lateral accountability or responsibilities ?  Why do they do the things they do and play the games they play with us. Why you ask ?  Because we allow them to and give them every opportunity to, that's why?

Imagine if when you went to go pump gas for your car, you could just drive off without paying and there would be no consequences or ramifications for that.  Imagine if you could walk into any bar or restaurant and order up like there was no tomorrow; steak, lobster, Dom Pérignon or Moët et Chandon champagne, caviar; all the finest -- then just walk out after you've consumed the meal.

Because of "drive-offs" or "walk-outs" gas stations require you to pay-before-you-pump or if a bartender did not recognize you as a regular patron they'd ask to "swipe your card" and the normal consumer wouldn't think twice about that, raise a fuss or walk away.  I wish I could be the real estate bar tender with a buyer and say, "let me swipe your card please" -- but why do we as an industry allow people to walk-out or "drive-off" on us all the time with no consequences or ramifications? Because we allow them to; that's why !

(update 10/2012: actually thanks to emerging technologies this IS possible now for sole proprietors or independent contractors to take credit card payments directly without the need for establishing a commercial account with MasterCard~Visa~Amex)

Should the buyer be going behind your back and contacting the listing agent or owner directly to be shown a property or writing a contract on it, or engaging in any other activity which undermines your ability as an agent to represent them ?  Should they in the first place disclose to you and furnish to you necessary information to determine or reasonably establish their ability to purchase the type of property contemplated ?  Should the buyer exercise due diligence, and also be working exclusively with the agent; or be running multiple agents around concurrently without disclosing that to the others, and have the attitude that who ever shows me the right house first will get to write the contract ?  (this goes to the heart of that "hire a taxi driver and locksmith for the day" thing I've talked about in a previous rant, uhm i mean blog  8-).

Furthermore, what happens if their life situation materially and significantly changes during the course of your [implied] agency agreement with them?  They loose there job, illness or death in the family, decide not sell the house because they just met that person of their dreams who's moving in, cannot buy the house because they just found out the wife or domestic partner is "expecting" and need to stay put where they are -- all the real life things that can and do happen which are no fault or beyond the control of the agent.

After substantively working with a "client" such as this, should they be allowed to just walk out on us without having to pay SOMETHING for our professional services, time, advice and counsel, and out-of-pocket expenses incurred on their behalf and for their benefit ??  They walk away with something; valuable knowledge and information about the market and about real estate in general; what are we left with ?

What if you were at a restaurant and ordered that big meal I described above and said, "oh... i just got an unexpected phone call and cannot finish the meal or those drinks I just ordered (which were already "served up" to you or which you partially or totally consumed) ... so see ya later... buh-bye, I am out of here [without paying]" ?? 

I am not saying that EVERY buyer or client is like this and would like to think that by and large most would be ethical or do the right thing (like paying the tab or the gas before driving off); but I cannot think of any other business or industry that lets the consumer just walk out without paying like real estate does. The only one that I can think of would be a lawyer taking a case on a contingency basis on a personal injury type of case; but the person is RECEIVING money in this case and not spending it like in real estate so the incentive to stick with the agent or representative who will be getting you money rather than helping you spend it is a completely different dynamic.

I hope to see one day Realtors band together with greater solidarity over this issue and help STOP making it easy or facilitating the consumer of our professional services with just walking out on us and leaving us stuck with the bill.  There's probably not one Realtor out there who hasn't got burned, so you KNOW what I am talking about here....

Until that day happens, I've got my "what-ifs" covered in my own personal Buyer Agency Agreement contract.  As I said in a previous blog post, your broker won't really care because he/she was not the one who got burned, and the NAR forms offer no protection for the agent.

So, instead of Realtors descending upon Capitol Hill this past week to lobby Congress about some other issue, they should have all been descending in droves upon their local or National board to get things changed and have the Association, who we pay good hard earned money to, be even more supportive of us.  They already are extremely supportive of us by the way, and the National Association of Realtors does an outstanding job overall; but this is just one area where I think they could take a much harder and stronger stand on for us...

Subprime Debacle - How Did We Get Into This Mess In The First Place ?

I have read a veritable cornucopia and plethora of news articles, journalistic exposés, video, etc (some of which are posted here on my blog - See "House of Cards" video from 60 Minutes)  but none have summed it up as well as this article below or have gotten to the real "ground zero" cause for the whole sub-prime lending debacle that led this country into the recession that it STILL is in today.

It also behooves me to think that quite a large number of media article headlines are labeled very poorly or incorrectly IMHO and AFAIAC.  The headline should be basically what the article is about or its main point.  Is the article below really about how borrower attitudes changed, and do you really care about that part of the story ?  No !  It really is about; as I captioned this article, "Subprime Debacle - How Did We Get Into This Mess In the First Place"  That would pique someone's interest more.... the answer follows below, and I will step down from my soapbox now.  : )


New Mortgage Guidelines Changed Borrower Attitudes --  (excerpts from article copied below)

The new study, authored by Clifford Rossi for a research arm of the Mortgage Banker's Association, claims banks took on greater and greater risk by adopting new kinds of exotic mortgage loans that were originally developed for sophisticated borrowers, not the general population.

Riskier mortgages such as option ARMs and negative amortization ARMs were originally developed by Golden West Financial for their upper echelon borrowers. Golden West, a onetime mom-and-pop savings and loan in California, marketed these loans to borrowers that it knew were "creditworthy and financially strong," according to Rossi.

Other banks, such as Countrywide, Washington Mutual and IndyMac, then started to make these exotic mortgages available to the general population. All three of those banks are now out of business because of these risky loan choices. Golden West also lost billions on these option ARMs. Wachovia bought Golden West and ended up imploding.

Now these exotic mortgages and sub-prime loans are blowing up in the face of bankers and investors, as millions of borrowers who were steered into these products are in foreclosure or walking away from their commitments. The study quotes former Federal Reserve Chairman Alan Greenspan as saying a few years back, "Where once more marginal applicants would simply have been denied credit, lenders are now able to quite efficiently judge the risk posed by individual applicants and to price that risk appropriately."

It is doubtful that there are many out there who still think Greenspan was right.

Mortgage Brokers - Yield Spread Premiums, Are You Being Ripped Off ?

Congress definitely needs to continue in their efforts to start leveling the playing field against banks and financial institutions and the consumer.  Enough of constantly being squeezed by the (insert appropriate body part here)  !!

BTW, I had to re-write the headline for this one too.  The article below is entitled, "Mortgage Brokers and Borrowers: Congress Weighs Their Rights."   Do we really care whether Congress weighs something or not, or do we just want the damn things fixed ?  I could have also re-titled the article as, "Congress Working on Ways to Prevent You From Being Ripped Off By Mortgage Brokers"  : )    I will once again step down from my soapbox now. LOL


Real Estate News - HousingWatch.com (excerpts from article copied below)


Lenders would like to scratch an amendment to the financial regulation bill that tells mortgage retailers that they can't have their cake and eat it, too. The amendment would give lenders a choice of getting paid directly by the consumer through upfront fees, or by a higher interest rate for the customer -- getting what is essentially an advance from the lender against that extra future income from the loan. They can't get both.

Oregon Sen. Jeff Merkley (D), pictured above, introduced the amendment, which passed the Senate on May 12 by a 63-36 vote. It strikes at the heart of how mortgage brokers and loan officers make a living by targeting the "yield spread premium," a form of compensation to mortgage brokers. Loan officers employed directly by lenders get similar compensation for pushing higher interest rates, called an "overage." Yield spread premiums give mortgage brokers a powerful incentive to push borrowers into loans that are more expensive than they otherwise qualify for. Researchers analyzing subprime and other high-interest and high-risk loans made during the real estate bubble have found a lot of evidence that yield spread premiums led many borrowers to take out loans that would become difficult or impossible to pay, and pushed many who qualified for prime loans into taking out subprime mortgages instead.

The Merkley amendment keeps the one arguable benefit of yield spread premiums – they give consumers the ability to pay the broker's fees over time, instead of upfront – but makes it much more difficult for brokers to collect excessive payments from consumers. It also requires lenders to make sure borrowers have reasonable ability to pay back their loans.

Real Estate Humor - Cartoon

Real Estate Humor - Cartoon

Ok, I've posted alot of blog articles here lately with a sort of negative vibe to them; although they're great real life stories and could prevent these things from happening to someone else and could hopefully influence other real estate professionals to not allow customers or "clients" to get one over on us all the time and be held more accountable.  So... here's something to lighten to mood : )

Buyer Agency Agreement - Another Reason I Require A WRITTEN One

Although it was totally ILLEGAL and unethical of a loan officer or mortgage broker to do, here's what they told the "client" I had been showing properties to for quite some time as a "buyer's agent" during a tough Seller's market period:

"We can get you a better interest rate on your loan, but you'll have to dump your current Realtor and go with mine"

Since the buyer hadn't signed anything and didn't put down a retainer fee or deposit with me, what do you think they ended up doing ?  The right thing ?  Hell no, he heard "cha-ching" only in his head and probably didn't hesitate for a fraction of a second and said, "sure, I'll go with your guy no problem...

The loan officer stole the "client" from me and engaged in a GROSS, nefarious and egregious violation of RESPA; but what recourse did I have after the damage had already been inflicted ?  None !  I discovered all this later and the "client" openly admitted that this was what had occurred when I confronted them about it; and in an almost cavalier manner, said "what did you expect me to do?"  The mortgage broker who stole the "client" was obviously getting a "kick-back" from his Realtor so it was in his best financial interests not to see the client's deal consummated through me.  And to add further insult to injury I was the one who had referred the buyer to this particular mortgage broker.  Good one guys !!  I don't blame you, but only myself for allowing this to happen in the first place.  Where you find money; you'll find dishonesty, immorality and corruption.... 

So, this is yet one more real life anecdote and lesson why the "client" cannot or should not always be trusted in an informal or "implied" agency situation even if you are acquaintances or so called "friends" with them.  Business is business as they say...

Had I had that WRITTEN and EXPRESS Exclusive Buyer Agency Agreement, with my own added Addendum and stipulation of extended "Procuring Cause" if the buyer walks or unilaterally revokes the buyer agency agreement; I might have had some solid grounds to seek legal recourse against my former "client" and the loan officer or mortgage broker.

Brokers - Agents Pay Brokers, Brokers Don't Pay Agents

An agent (listing or buyer agent) invests all his time, funds and energies in procuring new leads-clients, marketing, advertising and and managing their current sales.  Other than providing the "privilege" of doing business or perhaps having a nice office to bring a client too (professional "curb appeal" if you will) there is little to nothing that the broker actually contributes to the agent's business.

Does a broker typically contribute to the agent's business expenses in any way; i,e. help with or subsidize any adverting or marketing expenses, annual MLS and Association of Realtors dues, lockbox service costs, etc, etc ??   I realize that they too of course are running their own larger scale business and have commercial building office lease and operational costs; but they in essence just sit back and collect agents' commissions as a sort of "toll gate or booth" right or privileged of doing business or passing through the "system."

Brokers ~ Agents or Licensees, No Broker Affiliation Required !

If you looked at a State's categories of licensed professionals or trades, you will find that nearly all other licensed professionals or trades can operate independently or individually if they so chose; appraisers, home inspectors, lawyers, CPA's, beauticians, cosmetologists, contractors, etc.  There is no requirement for example for an attorney or lawyer to be affiliated with a managing legal "broker" firm as an "Associate" - they are free to open their own practice regardless of years of experience or years licensed.  


The purpose and goal of real estate boards is to require real estate practitioners to be licensed or become a "licensee" and to protect the public by requiring their licensure and other requirements; no felons, convictions, criminal records, need to take continuing education, etc.  Real Estate licensees (Realtors) are also required to carry "E&O" (Errors & Omissions) professional liability insurance; as do attorneys.

I'd say with the basis of these basic requirements the public at large IS protected and there is no real direct or tangible benefit to a client or end user of real estate services for the person to be affiliated with a broker.  I would like to see legislation introduced to repeal this requirement and allow real estate licensees (Realtors) to work or practice independently, as do other licensed professionals.  

I always get a kick out of a person invariable asking who I work for or what broker I am affiliated with.  This seems to be more important; the brand recognition than the actual experience of the agent for some inexplicable reason.  I tell people I do not work for them; that I pay them and bring my deals to them, and that the broker is not the one who will be out driving you around, showing you properties, writing contracts, listing or marketing your house for sale.  In fact you'll more than likely never even see them or meet them.  My "office" is actually my car, my home office; my laptop, telephone, GPS and other tools of the trade. We'll probably almost always be meeting at either my home office or your home to meet and sign any documents, or somewhere out on the street mutually convenient or sitting down together to discuss things meeting over coffee or a bite to eat.  We will rarely, if ever, really be basing our operations from the broker's office.

This is another compelling argument for allowing agents, licensees or "Realtors" to practice independently without being tethered to a broker, who does little to nothing anyway.  I can hear a broker up in arms now over reading or hearing what I've just said saying how much "oversight" is required and how these levels "checks and balances" are required.  The only checks that most brokers ever do is to take a cut of the agent's commission and deposit that "check" into their bank account.  

The public is still protected by a broker's absence from the equation... 

Brokers - say, "We have XXX number of agents in our office" : )

Ok... that's great; and of that XXX number you have, how many of them are actually producers or just dead weight on your roster and a number for you ???  Broker's jaw drops, and no answer...

Ok, then let me ask you this next question then; of the XXX number who are not producing or who have not have had a sale recently; what are you doing to get involved, monitor the situation and help them or support them to get more sales, which ultimately puts more money in your cost center too???  Broker blinks his/her eyes and stammers for what to say...

Ok... then let me also ask this next question; to what extent are you a "managing & supervising broker" which the real estate board regulations REQUIRE you to be and to be actively involved???  Broker starts to get fidgety and uncomfortable at this point ; )  LOL 

Ok... one final question (broker probably thinks, OH, THANK GOD!) are you merely a "recruiting broker" (who cares more for the number of agents he/she's got on the roster with the "numbers game" mentality that of all those numbers on the roster he/she'll get lucky and a few top producers) or are you an actual and true managing & supervising broker" ?   The broker says, "no, of course not; I am not just a recruiting broker, but I am a managing & supervising broker"

They thought they were off the hook by this point, then the interviewing agent asks,

"Ok, great.... then can you tell me something about your management style?"   Broker is ready to throw the interviewing agent out of his office by this point.  LOL  : )

Agent stands up, concludes interview, shakes hands and walks out saying, "nice to have met you and good luck with your business" ... as he sets his sights on the next broker who he thinks will be worthy of sharing his commissions with!

Buyer Agency Agreement - Fool Me Once.... Fool Me Twice

I actually had a case once where after showing and describing to who I thought was my "client" numerous properties both in person and via e-mail listings (yes, Peter, this one is for you) he ended up putting a contract on a property that I had shown and described to him.  I had just trusted him and handled it informally and had not asked him to sign any buyer agent agreement.

Could I claim "Procuring Cause" and try to lay claim to any part or portion of a commission or even a "finders fee" ?  No !  Without any type of buyer agency agreement in place, I had absolutely no recourse whatsoever.

I got burned on this one and this is why I will not work with a "Buyer" unless I have an Exclusive Buyer Agency Agreement in place that also calls for or has a provision or stipulation in it that even if the Buyer Agency Agreement expires or is revoked or rescinded unilaterally by the Buyer; that if they subsequently put a contract on a property that was "shown or described to them" by me within a certain period after either expiration or unilateral rescission of the Buyer Agency Agreement, my broker and I are legally entitled to claim and assert "Procuring Cause" and lay claim to the buyer agent/broker commission, either through legal action against the Buyer and/or through Association of Realtor arbitration with the buyer broker/agent who received the commission at settlement.

It would be the fault, and legal culpability, of not only the buyer for failing to disclose to broker B the existence of my "extended" Procuring Clause provision but also broker B failing to ask buyer if they were still under any type of enforceable contract with another buyer agent, licensee or broker.  This is also why, when I am working with a Buyer who does sign my Exclusive Buyer Agency Agreement, I also have a stipulation regarding the aforementioned so that neither myself nor my broker find ourselves in a dispute over the commission later.    

I simply will not be the chump that does the dirty work and shows a "client" numerous properties; then when they are ready to put a contract on a property they run to to their friend or buddy who is a licensee to write the contract and collect the commission. (Kristy, this one is for you).

I had another incident exactly like this where a woman (Angela, this one is for you) was using me to show her properties and would call me frequently for other landlord/tenant advice; then one day I happen to run a search of local public records on her (as I suspected I had been or was being "hoodwinked") and much to my shock and surprise I see that she had just bought a property.

And the crowning glory of them all is this one: after showing what I thought was a true "client" numerous properties on weekends over the course of a couple months, certain red flags starting going up and I flat out confronted them and asked whether they were REALLY looking to buy a home or not.  They confessed, and said they were new in town and were told if they just called a Realtor they could get a free sight seeing tour and be driven around and shown numerous areas of the metro area to get a feel for things and where things were if they just pretended to be house hunting !!


Fool me once.... shame on you; fool me twice... SHAME ON ME.  I WONT BE FOOLED AGAIN !! 

Unfortunately the National Association of Realtors (NAR) Buyer Agency Agreement forms absolutely SUCK !!! and provide little to absolutely NO agent protection provisions or clauses; they are overly buyer friendly and allow the buyer to walk under any circumstances even after substantively engaging the services of the agent/broker. They could not give a damn whether you get burned or not.  Your broker who sits in his office won't give a damn either, because there's no loss to him and he wasn't the one out their beating the streets with a deadbeat or sociopath "client".  

So... being a Paralegal and thinking about all the "what ifs" and based on past experiences such as those described here in this post, I developed and drafted my own Agent Retainer/Deposit Agreement & Exclusive Buyer Agency Agreement Addendum that is incorporated by reference and attached thereto or made apart of the Association of Realtors form.  It is perfectly legal, binding and enforceable.

First Born ?

It has been said that you ideally want to be the first born.... and the third listing or buyer agent the person has gone through.  By the time they've been through a couple of other Realtors they are just beginning to listen and respect the professional advice and counsel you are trying to give them. I like that Frank Sinatra song, "I Did It MY Way" -  that's all fine and good... but not at my expense baby !

Exclusive Buyer Agency Agreement

"Brian, we'd like to go out this weekend and be shown some properties. What time can you pick us up?"

(of course the caller would not want to hear any of this, all they want to do is just be shown properties and have someone drive them around -- for free with no strings or commitments involved or attached.) -- Tim & Debbie this one's for you.  I understand you went through several Realtors before finally buying a place.  I feel shot at and missed and am glad we didn't end up working together, or I'd be one of those first couple or few who got burned. or whose services you "stole" before you finally wisened up and got with the program.

This is how I weed or cull the serious from the curious and the prospects from the suspects.  Any real or serious able, ready and willing home buyer would not or should not have any problems with these reasonable and fair requests below.  A lawyer would not just go jump in his car upon request and start filing motions, pleadings, court orders, etc without first being retained and knowing everything about the case, right ? RIGHT ! My script would go something like this:


I am just as anxious as you are to get started and I appreciate the opportunity to be your Realtor and look forward to working with you.  I am a licensed professional, however, and before we just jump in the car and go out looking at properties we'll need to sit down together first at my office and discuss a few things and put together a plan of action or strategy together based on a clear understanding of what your needs and search criteria or parameters are -- otherwise I'd just be your "taxi driver and locksmith for the day" which I can do for a fee of course.  Before going out with a prospective client I require four (4) things:


1)  A signed Buyer Agent Agreement form

So I know whether I am representing you in the capacity as an exclusive Buyer Agent, or merely assisting you as an uncommitted agent and who will actually be working as a sub-agent for the Seller.  This makes a big difference in fiduciary duties, disclosures, and the approach I'll be working with a person. In other words, am I your actual and designated exclusive buyer agent and representative for not only today but beyond until you buy a house and go to closing on it, or would I just be showing you properties for the day as a Seller's sub-agent?  If it is the latter that you want, or you want to work with multiple buyer agents at a time, then I'd in essence just be the taxi driver and locksmith for you of the day, in which case I charge $XXX per day to take you out. If we write a contract on a property today, and it goes to settlement; then I will gladly refund that amount for today's services to you.

2)  Agent Retainer Fee Deposit

If after meeting and having an initial free consultation with me you decide that you would like to retain my professional services for as long as it takes to find the right house for you and to go to closing on it, then we will need to sign that Exclusive Buyer Agent agreement that I just spoke about previously, and I also require an Agent Retainer Fee Deposit, which you can pay by check.  I will not cash that check but will merely hold it  in your file as a deposit (all of this is clearly spelled out and stipulated in my agent retainer agreement form).  Generally speaking, the Seller will pay the buyer agent brokerage fee or commission for you and you would be getting my professional services free of charge or no direct out-of-pocket expense to you; however, until such time as you do go to settlement I will be the one who incurs actual out-of-pocket expenses advanced to you or on your behalf.  Therefore, the deposit is required to cover or recuperate actual out-of-pocket expenses i will be advancing you in the event that you do not buy a property for any reason.  While I wish I could take every case on a "pro bono" basis or receive some type of government grant for my professional services; this is how I make my living...      

3)  Buyer Has a Lender's Pre-Qualification or Pre-Approval Commitment Letter

I need to know what type of financing you have applied for (VA, FHA, Conventional) and what lender conditions or requirements are involved in the purchase of our new home which may impact what price range we are looking for homes in, the amount of down payment required, etc.  If you own a property now and are going to keep it as an investment property and rent it out, will your lender require you to have your property already leased out prior to you entering into a sales contract for your new home ?  If  you are "trading-up" for a newer or larger home (or even trading-down for a smaller one) will your lender allow you to do a "bridge-loan" type of arrangement where you can settle on your new home and carry the mortgage also on your existing home until you have your present home under contract ?  All these things can, do and will affect timing considerations on contract presentations as well as the contract's terms, contingencies and closing dates. I need to know or have some idea about all this before we just jump in the car looking at properties; unless of course you opt for that "hire a taxi driver and locksmith for the day" arrangement.

4)  Are there or will there be other people influencing 
or part of this transaction that I may not be aware of ?

If there are parents, grandparents, boyfriend/girlfriend, domestic partner, financial adviser, spiritual adviser, mentor or any other person or party that will be involved in the decision making process, or who is not on the loan application or who will not be on the deed, but who will be involved in the process of buying a home with you; I need to know and meet with everyone who you (and I) will be working with -- whether that be directly or indirectly.  If there are others involved who I may not be aware or need to give you "approval" for you putting a contract on a property, we will all need to go out looking at properties together to the maximum extent possible; as I cannot be showing the same property on multiple occasions to  multiple people in your party.  If this does apply to you, then we (uhm.. I mean YOU) can rent a bus and we can all go out at one time and show up at each property like The Partridge Family bus !  LOL  : )

MBS = Mortgage-Backed Securities

A mortgage-backed security (MBS) is an asset-backed security or debt obligation that represents a claim on the cash flows from mortgage loans, most commonly on residential property.

First, mortgage loans are purchased from banks, mortgage companies, and other originators. Then, these loans are assembled into pools. This is done by government agencies, government-sponsored enterprises, and private entities, which may offer features to mitigate the risk of default associated with these mortgages. Mortgage-backed securities represent claims on the principal and payments on the loans in the pool, through a process known as Securitization. These securities are usually sold as bonds, but financial innovation has created a variety of securities that derive their ultimate value from mortgage pools.

CDO's = Collaterized Debt Obligations

Collateralized debt obligations (CDOs) are a type of structured asset-backed security (ABS) whose value and payments are derived from a portfolio of fixed-income underlying assets. CDOs securities are split into different risk classes, or tranches, whereby "senior" tranches are considered the safest securities. Interest and principal payments are made in order of seniority, so that junior tranches offer higher coupon payments (and interest rates) or lower prices to compensate for additional default risk.

US Senate Subcommittee Paints WaMu as Subprime Poster Child

In a Senate subcommittee panel hearing last month, Washington Mutual (WaMu) was painted as the poster child in the financial crisis sub prime lending debacle. Here are some excerpts from another source reporting on it:

"Washington Mutual built a conveyor belt that dumped toxic mortgage assets into the financial system like a polluter dumping poison into a river," said an outraged Levin (pictured). In its wake, WaMu and its peers have left the financial equivalent of a Superfund site that will take years and billions of dollars to clean up.

In the end, Levin's evidence and vivid imagery of WaMu's "toxic conveyor belt" leaves the lasting impression. And he rightfully points out that WaMu did not act alone. "Down river, there was Wall Street, with its huge appetite for these mortgage-backed securities," said Levin. "They bottled that polluted water, slapped a label on it from the credit rating agencies that said it was safe drinking water, and sold it to investors."

And let's not forget the watchdogs. On Friday, the inspectors general for the Treasury Department and the FDIC are expected to release a report criticizing the two agencies' oversight of Washington Mutual.

When Treasury Bonds Drop, So Do Mortgage Rates

Below are excerpts taken from a great source article which shed some positive light or prognosis on the US housing market for summer 2010:

Europe just delivered the U.S. housing market a pleasant surprise for summer. Thanks to the financial chaos across the pond, experts are forecasting that mortgage rates may fall to 4.5 percent over the next few months, rather than shoot up to 6 percent, as previously predicted.

Amid concerns about the global economy, America is looking like a safe bet in terms of investment. The rates on the bonds decrease when there is more investment; when Treasury bonds drop, so do mortgage rates.

Mortgage rates declined this week, upending predictions that rates already had hit rock-bottom and would be increasing again as the Federal Reserve's mortgage-securities purchase program ended. The reason: Investors from around the world who are finding refuge in U.S. Treasury bonds.

Not everyone believes the lower rates will boost the number of home sales. Unemployment remains high, and qualifying for a mortgage is not as easy as it once was. Nevertheless, the low rates and large number of homes for sale scream opportunity for buyers.

Open Houses - Don't Work

Here are two great articles which compound my previous blog entry about Open Houses in that they; A) don't work, and B) pose a HUGE risk for the agent or homeowner.

Here are the links, but I have pulled out the key points or excerpts from each article and copied below:

http://www.housingwatch.com/2010/05/25/open-houses-puzzle-british-home-buyers/

http://realestate.msn.com/article.aspx?cp-documentid=13108451


But do open houses actually work? There seems to be a consensus that they don't do much for the seller, except in cities such as New York, where foot traffic is high. One New York broker says she garners 50 percent to 60 percent of her sales through open houses. Brokers in other cities around the country say open houses generate less than 10 percent of their business.

Many agents now refuse to hold open houses, considering them a waste of time and a security threat. And many sellers now prefer to open their doors to serious buyers only.

"Many sellers are just a little bit leery of having an open house," says Pat Vredevoogd, agent and broker-owner of AJS Realty in Grand Rapids, Mich., and incoming NAR president. 

Some, she says, are worried about letting complete strangers roam freely through their house, with access to electronics, jewelry, prescription drugs and personal information. Others just don't want their neighbors and a host of other so-called "looky-loos" wasting their time just for a look at their décor. 

And many agents won't do them for security reasons, as a number of their fellow Realtors have been attacked and some even killed, as they sat in an empty house alone and vulnerable.

Rea Estate Humor - Cartoon

Open Houses - HUGE Liability & Risks Involved.

Burglar posing as potential homebuyer. Unless the house or property is vacant, the homeowner will have many valuable personal property items and possessions in their home. I am not a big fan AT ALL of doing Open Houses for my Seller clients as a listing agent. Rarely if ever does it actually serve to get the property under contract and serves more to appease the owner/seller that you, the listing agent, are actively marketing their home and trying to solicit offers from a bona fide and qualified buyer. More often than not, it just merely serves to allow all the nosy neighbors to stop in and check out their neighbors house inside, or just curious tire kickers who've got nothing better to do on a Saturday or Sunday and just freely walk into homes to check them out.

There have been many documented and publicized incidents of people showing up for an open house and ransacking medicine cabinets, vanities, or linen closets looking for prescription meds while the listing agent Realtor is engaged with another looker or party who stopped in. "Uhmm, excuse me, is it ok for me to use the bathroom?" [open house visitor] "Oh yea, sure go ahead" [listing agent].

Typically the owner(s) of the property are told politely by the listing agent to "get lost" while the Open House is being conducted so as not to hinder, hamper or interfere with prospective buyers showing up. This whole process of showing an owner's property creates an ENORMOUS liability and risk for not only property inside but for personal safety as well. There have also been well documented and publicized incidents of Realtors being alone in a house for an Open House and being assaulted, raped or even killed by a criminal perpetrator.

I always carry a firearm (legally and lawfully of course) whenever conducting real estate activities. I pack my .45 Cal Taurus and/or a .380 for personal protection. Although Realtors are cautioned about taking someone out to see properties; especially if it is in a secluded area and/or at a vacant property; you never know what could happen when you're heading down into that basement in a vacant or unoccupied house. I also have the "client" go first up the stairs when looking at upper levels zones of the house and to go first when heading down the stairs. As a man, and packing heat, I am not too concerned about it or if anything should ever happen but I know immediately and instinctively what to do; but I do caution female Realtors about this inherent danger and risk.

The thing about an open house is; that despite your best efforts to allow only one party in at a time, invariably you could easily find another Realtor showing up at the same time and either leaving the door open with their lockbox key or letting someone else in right behind them who said, "Yea I am a Realtor too, don't close that door please" Next thing you know you could have several people going in all directions in the house and you as one person conducting the Open House could find yourself easily loosing control over the situation.

Later that night or next day when the homeowner calls you and tells you certain valuables have been stolen or prescription meds taken; what are you going to do and how are you going to handle that one ?! Do you think that "Guest Registry" you had at the entrance is going to do you any good ? Half the time the people don't leave their real names, address or contact info anyway because they don't want to be followed up on by the Realtor or don't want to be put on a snail mailing list or e-mail list either. Do you think that sociopath "perp" is going to leave his/her real identification information for you ? Please... come on ! Get Real (pun intended LOL). What are you going to do have a Cop standing there and running a background check on everyone who stops by ?

On another related house showing note, as a buyer's agent when you are out showing a house and enter the home or property using your lockbox key, close and lock the door behind you. As you are leaving the property close and lock the door and place the key back into the lockbox shackle, even if another party is there standing outside waiting to get in. NEVER hand off the key to someone who says, "Oh, I am a Realtor too, no need to close the door just hand me the key please". The [GE Supra Key] lockbox system has an "audit trail" of everyone who electronically opens the door with one. Without being rude or arrogant, you could politely explain that to the next party and tell them you're sorry for the inconvenience but it is best if they open the door using their own lockbox key so their "signature" is on file as having shown the property. That way if anything does subsequently happen, it won't be on your "watch" or because you just handed the key off to someone you do not necessarily know is in fact a Realtor or not.

Real Estate Humor - Cartoon

Banks Making Money From Short Sales ?

Video - Appraisers ~ HVCC (Home Valuation Code of Conduct)

Video Humor - Bubble Bursts on Hitler

Freddie & Fannie Won't Pay Down Your Mortgage

President Obama suggested that Freddie Mac and Fannie Mae reduce a borrower's loan PRINCIPAL as part of measures to help troubled homeowners keep their home in a loan modification or "forbearance" plan. I don't blame Freddie and Fannie for saying, HELL NO ! It's bad enough as it is, now you want us to pay down their loan too ?!

Realtors Descend Upon Capitol Hill

Well... actually they ascend (to go up) on Capitol Hill because it actually does sit on a slight bluff and they would have to walk up the stairs of the US Capitol Building.... but first they all would have to descend (to go down) there; but that also assumes they are all coming from north of Washington, DC to travel down there to DC. What if they were all coming up from the south ? Then they would be ascending upon the Capitol in more ways than one ? LOL : )

Ok, ok.... the real story here is that they (ehem, WE) are there this week to lobby Congress to oppose a proposed amendment by Senator John McCain (R-AZ) to shut down Freddie Mac and Fannie Mae. "Congress must restructure Fannie Mae and Freddie Mac in a way that keeps the federal government involved in the secondary market to ensure mortgage liquidity in all markets and in all conditions. In past economic crises, private capital flees the market first," said Giovaniello. Actually, I think they really should be shut down; especially in light of their DISMAL malfeasant performance and involvement in the whole sub-prime lending debacle.

Realtors want both the House and Senate to pass H.R. 5072, sponsored by Reps. Maxine Waters (D-Calif.) and Shelley Moore Capitol (R-W.Va.), that would strengthen the Federal Housing Administration while still allowing access to safe and affordable financing by responsible borrowers. They also pressed legislators to pass H.R. 2483, by Reps. Brad Sherman (D-Calif.) and Gary Miller (R-Calif.) that would make the current FHA loan limits permanent. The current limit in high-cost areas, set to expire Dec. 31, 2010, is $729,500. This is sensible and I go along with this. "You must tell your Senators and Representatives that legislation should not increase buyer down payments," said Jerry Giovaniello, NAR senior vice president and chief lobbyist.

Of course increasing buyer down payments is sensible, although it would certainly make it more difficult for people to buy and own their own home; so you can see why Realtors would oppose any such measure that could affect their livelihood and decrease home sales. Greater down payments (or lowering the LTV - loan to value ratio) obviously gives lenders greater protection in the case of default. Perhaps a solution could be that if someone wanted or needed to put down less than 20% down payment (your typical conforming and full doc loan) they would pay a higher interest rate on the loan than someone with the same credit score and debt to income ratio who was putting 20% or more down ? Less risk, less interest rate ? Greater risk, greater Interest rate ? Given a full doc loan where the buyer could afford the payments and had a low debt to income ratio, there really is no reason to restrict the amount of down payment. The banks would make more money by financing it over a longer period of time actually. And if the banks want the loan "insured" somehow (as with a FHA loan), why not also require the borrow to pay for loan "insurance" if the LTV is above a certain threshold ? They already do that in a way, but they call it the "MIP" (mortgage insurance premium) or "PMI" (private mortgage insurance) but it is not so much "insurance" per se that would kick it in the event of default, but is really just extra money that goes back to the bank or lender; almost like that higher interest rate thing I suggested above if someone wanted or needed to put down less than 20%.

Realtors also urged Congress to take action to enhance liquidity in the commercial real estate market to avoid driving down economic recovery. Most commercial mortgages, unlike residential mortgages, are short-term loans that re-adjust rates every few years, or must be refinanced. Lenders have not been willing to refinance such loans in the current economic crisis, thus throwing many commercial real estate properties into default. I definitely agree with this one ! If a commercial business had better loan terms on their property holdings and weren't going down or under, then maybe they could keep the employees they had or expand operations and hire more people having a positive impact and effect on unemployment.

Real Estate Humor - Cartoon

Video - House of Cards (part 2)

Video - House of Cards (part 1)

HOA's... or HA's ?

Ever notice how they are referred to now as "homeowners' associations" ? Why haven't people also correspondingly referred to them now as "HA's" then, instead of HOA's ?? LOL Or just use "POA" - property owners' association.

Then to make matters even worse, I also see people refer to them as home owner's association (meaning, belonging to only one home owner, or homeowner ?) WTF ?

Next thing you know, instead of the football Super Bowl ... we'll have the Superbowl, or the foot ball Superbowl. Come on people, let's get this straight and for heaven's sake (or is that heavens' sake meaning more than one heaven) know the difference between plural possessive and singular possessive and words ending with or without the letter S !

Don't even get me started about HOA's. I have seen "The Good, The Bad...and The Ugly" !!

Home Inspections - Shower Floor Pan LEAKS

I had a client and friend of mine get burned on this one; thank God we are still friends but I learned a very valuable lesson from this experience. In this case the Home Inspector who we selected and hired for the home inspection turned on the usual water valves in sinks, laundry room, kitchen and shower let them run for about the amount of time it takes to take a leak LOL, checked for leaks, and moved on with the rest of his home inspection. After my client/friend moved into the home and started taking showers in the upper level full bath, he discovered that the shower floor pan was leaking through to the lower level ceiling. The previous owner had just did some remodeling in the home and had re-did the shower stall and wainscot, so it was not immediately suspected and turned out to be a latent defect. The problem is: the home inspector's limit of liability is generally limited to the amount of the charge for his home inspection (typically around $400 or so depending on the size of the property). This is certainly not adequate recourse to do the repairs and fix the collateral damage involved; plus the time, aggravation and inconvenience involved in the repair process. Also, if you have or are thinking; "oh no problem, I have a Home Warranty that'll cover that" WRONG !! You can bet that the Home Warranty company will find any way possible to deny a claim or assert "pre-existing condition" or walk-thru type of way out of it.

Also, on a typical pre-settlement buyer's "walk-thru" (where appliances, plumbing and mechanical systems should be in "normal working order") latent defects may also not be discovered or found or which could be written up on the walk through addendum by the buyer's agent which could encumber (or prevent) the Seller's settlement or closing.

Also, ask your self what the vague and ambiguous home inspection contigency and walk-thru addendum contract language "in normal working order" really means ? Sounds subjective, doesn't it ? Would a leak or other defect in a mechanical system, HVAC, electrical, plumbing or appliance be "in normal working order" for a house given it's age or the age of that component ?

Solution: make sure the home inspector leaves the water running for at least the amount of time it would take for a very LONG shower or longer, then go back and check for leaks, or come back and do a follow up inspection later that same day or next if possible or feasible; even if the buyer or his agent is not accompanied by the home inspector they could come back and check for any signs of leakage themselves. Or... make sure you put some sort of contract stipulation in to cover latent defects not discovered or discoverable by the home inspector....

In all fairness to home inspectors, they unfortunately do not have Superman like ex-ray vision were they could peer behind or through walls (at least no yet - although technology may someday soon allow for this), and they are there to mitigate or prevent as much as possible the buyer from knowingly buying a property with major issues or not have the opportunity of getting out of the contract over major home inspection issues or negotiate with the seller for lower price and/or repairs. However, make sure your home inspector is not only a very good one, conducts due diligence, and lets the water run for enough time to check for leaks. Often alot of conversation or even banter also takes place between buyer, agent and home inspector. It is best to let him focus completely at the task at hand and you can always chit chat it up later after he has done a THOROUGH and COMPLETE job at the inspection !

When Will The Market Rebound ?

"Brian, when do you see the real estate market rebounding?" -- Anonymous

Everything in life and nature has its cycles; real estate is no exception. Generally speaking (in DC at least) there is a longer Seller's market period followed by a relatively brief Buyer's period where things stabilize a bit; like a boat that rights itself having a keel preventing it from going too far over board. Then it slowly goes back to a longer Seller's market period again. But the situation we are in now is unlike I have ever seen or studied. Supply and demand also plays a big part in it too, as well as a whole host of other factors that could affect the economy; i.e. wars, natural disasters, population, politics, Wall Street > Main Street mortgage funding pool, etc., etc.

Given my nautical example above- it would be one thing for a real estate buyers/sellers market to "list" or lean to starboard ( right - green) / or port (left - red) -- but to plunge straight down to the depths of the abyss is basically what happened to the US housing market starting in 2005-2006. "TARP" (Troubled Asset Relief Program) or "bale outs" have not raised us from the depths or provided to be an effective "bilge pump" .... so salvage efforts are still ongoing...

The "flippers" remind me of a large school or shoal of sardines or herring that suddenly disappears; i.e. Cannery Row. There are some absolutely great deals out there now to be had in foreclosures and "REO" (bank owned) sales; but I do not see investors snatching them all up like hot cakes. What are they going to do ? Put all their funds or eggs of their proverbial baskets in under performing or no performing assets ? When things start picking back up again, the investors will be back like the sardines or herring for the feeding frenzy when they can make a quick buck on a flip. Then the whole things starts again; greater demand, less supply. It has been said that the "flippers" were in large part fueling the "affluenza" craze of get rich in real estate schemes... Will be very interesting to see what happens in this next real estate decade 2010 - 2020.

If I knew or had all the answers or was the "Nostradamus" of real estate, I wouldn't be here writing this damn blog and would be on late night TV infomercials selling the next great "plan" ! LOL : )

Foreclosure, how much time do I have to get out ??

Dear Mr. & Mrs. XXXX:

You are in "pre-foreclosure" it sounds like to me. Typically you have around three months from the date of receipt of the Notice of Default to bring the loan current somehow through loan modification, forbearance or refinance, or by selling the property and paying off the existing mortgage (assuming their is equity in the property).

You have not yet received the Notice of Trustee's Sale it sounds like. After a Trustee's Notice of Sale Date is recorded, posted, and scheduled; you may will have some time before the actual foreclosure sale date is actually held or occurs. After the actual foreclosure auction, you will have a short time period before either the buyer at auction or the bank (if there were no bids) begins or initiates the final eviction to remove the occupants from the premises, gain possession of the property and exercise their ownership rights and do with it what they want; rent,sell or flip it.

Hope this helps you understand the process and timelines involved...

P.S.

As I mentioned to you, a person can file Bankruptcy within hours of the Trustee's Sale Auction and this throws a "monkey wrench" in it for the lender; and they cannot proceed with foreclosure once a person files Bankruptcy !!

This is called the "Automatic Stay in Bankruptcy" which means no creditor (including the mortgage lender) can take adverse legal collection action (such as foreclosure, liens, levy on property, judgments, etc) while the person is under the protection and administration of the Bankruptcy proceeding.

If the owner files Bankruptcy, this will give the owner even more time because then their will be a Bankruptcy Court "341 Meeting of Creditors" scheduled subsequent to the Bankruptcy case filing. Once in Bankruptcy, the Bankruptcy Court Trustee (not to be confused with the Trustee for the lender) will typically try to sell the property for the mortgage company and will assign a Realtor to sell the property. The mortgage company could, however, file for a "Motion to Lift the Automatic Stay" and proceed with foreclosure; but often the bankruptcy court trustee will deny the banks motion and try to sell it himself through the Realtor assigned by the court. This all applies in a Chapter 7 (No Asset) case.

In a Chapter 13 Bankruptcy filing, or "Reorganization"; the debtor may be able to keep the home by filing a payment plan with their creditors to pay outstanding debts over time; usually a 5 year payment plan period.

Advice for Condo Owners - Homeowners (or renters) INSURANCE

Many condominium owners are under the impression that the condominium association’s master insurance policy (which is paid from the budget from unit owners' condo fees) will cover their personal losses when fire, flood or other disaster occurs. WRONG !!

This is not usually the case; most of the time, additional insurance should be purchased by both condominium owners and tenants to bridge the gap between the association’s insurance coverage and the actual loss.

The association’s insurance is based upon the requirements of the bylaws and typically includes property damage to the association’s buildings and personal property, general liability insurance for the common areas, theft and dishonesty insurance, and directors’ and officers’ liability insurance.

The property damage coverage under the master insurance policy is typically limited to replacing the structure of the building and those items that were conveyed to the original owner at the time the condominium unit was transferred from the developer (original floor coverings, bathroom fixtures, kitchen cabinets and appliances). It is important to note that most developers install contractor grade appliances, fixtures and floor coverings and that that is what will be replaced. If you upgraded your major appliances or cabinets to a better quality or replaced your carpet or wood flooring with better materials, you need additional insurance to cover the difference in cost. If you have placed carpet over your wood flooring, either the wood or the carpet will be replaced but the cost of replacing the other floor covering will probably end up being paid from your own pocket. In most cases - none of your personal items (furniture, artwork, computers, television, etc.) are covered under the association’s master insurance policy.

Some condominium declarations require the association to insure only “bare walls”, which usually is defined as the sheetrock. That means that the owner should have insurance that covers wall and floor coverings, including wallpaper and paint. Other declarations specify that the association is responsible for insuring the structure, which usually is defined as the studs and framing of the walls. In that case, the owner’s insurance would need to cover the sheetrock,drywall, wallpaper and/or paint.

In the case of a major flood or fire where you are unable to live in your unit while it is under reconstruction, you are almost always responsible for the additional lodging costs as well as continuing to pay your condominium fee and mortgage. Reconstruction could take several months, at least, and the additional living expenses can be a significant financial burden. You need additional insurance to cover these costs.

The association’s liability insurance generally provides coverage for injuries sustained in the common areas. If an injury occurs in your unit, the association’s insurance will typically not provide coverage. You need to have additional insurance to cover yourself if you are sued due to injury or damage to someone else’s property.

Finally, what happens if a contractor you employ, or you yourself, while making a repair in your unit, cause fire, flood or other damage? In these circumstances, you may find yourself responsible for picking up the cost of the association’s deductible ($5,000 to $10,000). You may also find yourself paying for repairs to your unit if the association’s insurance denies coverage on a claim because the cause of loss is not a part of the policy (water in a unit from ground flooding is a good example). In these cases, you need additional insurance to help you over the financial hurdle. Loss assessment insurance will take care of both the association’s deductible and non-covered claim issues, less your own policy’s deductible.

Having the appropriate personal insurance policies and an adequate amount of coverage is critical to your ability to recover after a disaster. Since insurance coverage varies from state to state and association to association, you should discuss your insurance needs with your agent to insure that you are fully covered, which usually means an “HO-6” policy. http://www.ho6insurance.com/

Make sure the insurance agent is aware that you live in a condominium. It is a good idea to take a copy of the section of the bylaws that relates to insurance with you when you talk to your agent so he/she can determine the coverage you need.


For those who are renting a condominium unit, your agent can assist you with a tenant’s policy that provides the appropriate coverage.

Finally, the FHA recently issued new requirements for condominium lenders mandating that if an association does not have comprehensive unit coverage, including finished surfaces of walls, floors and cabinetry, the owner MUST obtain an HO-6 policy if the lender wants to have FHA mortgage insurance.

While everyone hopes they never have to face a large loss, it really doesn’t take much of a fire, flood or water leak to do a lot of damage. Make sure you have what you need in place to protect you in case the worst should happen....

Advice for Sellers

Although the Buyer typically pays for and is responsible for procuring the Home Inspection and the Lender's Appraisal (these 2 elements are also typical contract contingencies); it is nevertheless a good idea for the Seller to procure both of these themselves in advance of putting the house or property on the market. The cost of both out of the Seller's pocket would be nominal, but the information obtained would be highly valuable in selling and marketing the home.

For example, the Seller would have the benefit of knowing what material defects or repairs (if any) would come up on the Buyer's home inspection which the Seller might otherwise be unaware of; and could either address any such issue prior to listing the home, factor that in to the sales price, or be able to address it later if it comes up during contract negotiations. Similarly, having an appraisal done at the time of listing the home for sale also puts the Seller's price (expectation & perceived value) on a firm objective foundation & limits the scope of contract price negotiation. The appraisal would not necessarily have to be disclosed to the buyer, but could be a very valuable negotiating tool or rebuttal should the Buyer's lender appraisal come in lower than what the Seller's was.

For example if the Seller got an appraisal done before putting the home on the market for $500,000, and the Buyer offered an amount higher than this, lets say $520,000 and the Buyer's lender appraiser valued the home at $520,000; then obviously disclosure of the lower price would undermine the Seller's price and position and would have been quite frankly stupid. If, however, the Buyer's lender appraisal came in lower than $500,000 and the Buyer was trying to either get out of the contract on the lender's appraisal contingency clause or negotiate for a lower sales price, then having such information in hand already would be very powerful leverage to refute the Buyer's position and aid in full contract ratification and settlement ; )

Straw Buyer Scams BUSTED !

Funny how the agents involved in this mortgage fraud scheme article from the Washington Post were all affiliated and had their real estate licenses with Fairfax Realty. I am sure Fairfax Realty does have some outstanding, professional and ethical Realtors; however its stuff like this that you do not typically see at other real estate brokerage firms like Keller Williams, Coldwell Banker, Long & Foster, et al, which tend to attract a much higher caliber professional ...

Sound like a familiar scheme or modus operandi (M.O.) of using "straw buyers" ... Anyone remember or heard of Modcom Realty ?? (MRIS Broker Code: MODR-1) and John "Mike" Cronin (MRIS Agent ID: 55797) [BROKER LICENSE REVOKED] and Fiaz Anwar (salesman or agent license REVOKED). These guys should have been the poster children for straw buyer scams....

BTW, one cannot prevail in a defamation of character, libel or slander civil action claim where the information posted, published in print, or verbally spoken or uttered is or was the THE TRUTH.

Appraisers - HVCC (Home Valuation Code of Conduct)

For every one of the Real Estate Appraiser Home Valuation Code of Conduct (HVCC) enumerated prohibitions, you must ask yourself how or why did all these rules and regulations get codified or put into practice? Why ? Because the appraisers and lenders were in collusion in driving up the price of real estate and "rubber stamping" or inflating home values on appraisals and for making loans they had no business making in the first place. That's why !

The present recession we are in now and the housing market bubble burst which began to unfold and unravel in 2005, like a car being driven off the cliff with a brick to the accelerator pedal, can be traced back DIRECTLY to the appraisers. Remember the steadfast rule; always follow the money [to uncover corruption].

Even if a lender was coercing or influencing an appraiser by the promise of more business referrals, or conversely the threat of not giving them any more business; they had the power to say NO, to be professional and ethical in their standards of conduct and code of ethics -- but they didn't ! So even though this "RICO" operation (Racketeer Influenced Corrupt Organization) that the mortgage lenders and appraisers ran, I blame the appraisers more since they could have stopped all this. Then of course there was Freddie Mac and Fannie Mae condoning and encouraging this whole scam. Then when they ran into problems... you guessed it ! TARP (Troubled Asset Relief Program) or BAIL OUT with taxpayer dollars to the rescue.

From my professional view as a Realtor, appraisers were highly uncrupulous and highly unethical and were DIRECTLY responsible for the mess we are in now with the housing market. Of course, they'll say Realtors are unethical or unscrupulous too, but a Realtor cannot make a penny in commission (whether as listing or buyer's agent) unless the buyer can first obtain financing, can go through lender underwriting, and the lender accepts a "satisfactory appraisal" of the property as a condition of the mortgage financing. Although Realtors obviously stood to gain also in a sales transaction; you will note that the Real Estate Appraiser and Home Valuation Code of Conduct linked above makes no mention of influence, coercion or collusion involving real estate brokers or agents with appraisers. This list of "Commandments" or "Thou Shall Not's" points the finger directly at mortgage brokers/lenders and appraisers...

Fraudulent Appraisals - HVCC (Home Valuation Code of Conduct)

"For anyone who assumed that the toughened real-estate appraisal rules imposed on the mortgage market last year would mean less monkey business in home valuations, here's a shocker: Fraudulent appraisals soared in 2009, according to a lending-industry study released this week, and they now represent the fastest-growing form of home loan fraud." -- excerpt from Washington Post Article May 1, 2010

And it's as the direct and proximate result of real estate appraisers "rubber stamping" and subjectively manipulating property values in collusion with sub-prime mortgage lenders that led to one of the greatest debacles and the fall of the house of cards. This not only led America into the deepest recession since the Great Depression of the 1930's but also affected global economies as well.

The new regulations intended and designed to help eradicate this long standing, pervasive and insidious problem with real estate appraisers appears to have made matters worse or exacerbated the problem. Case in point: my father recently re-financed the mortgage on his single family detached home in Burke, Virginia and the real estate appraiser would not make any adjustment in a sales comparable that was on a 1/5 acre lot (o.20) that was located immediately adjacent to a rail road track versus the subject property that is located on an interior spacious 1/3 acre lot (o.30) on a cul-de-sac. As I told the appraiser, would the value be the same if you were to give your wife or fiancee a 1/5 carat diamond ring versus a 1/3 carat diamond ring and tell her, "honey they are from the same mine so the 1/3 carrot diamond would not be any more valuable than the 1/5 carrot one I just gave you." The appraiser capitulated after I challenged his appraisal or OPINION of value and refunded my father the full cost of the appraisal.

I am glad to see that real estate appraisers are finally coming under the microscope with these new regulations, but more needs to be done...

Indonesia Considers Allowing Foreign Investors to Buy/Own Real Estate

"Proposed changes to property ownership laws for foreigners: Mixed messages are still coming in regarding the government’s intentions with possible changes to the property ownership laws for foreigners. One recent report indicated that the government wants to make Indonesia more attractive for foreigners to retire and are therefore considering allowing foreigners aged 55 years or older [retirees] to be able to purchase property here. However because with every ‘pro’ there needs to be a ‘con’, the eligible foreigners will only be able to borrow up to 50% of the properties value and the loan must mature in a maximum of three years. Hmmm.. " -- Article from What's New Jakarta

This seems very and overly restrictive and also raises the following questions:

1) what is the definition of an "eligible" foreigner ?

2) the 50% Loan to Value (LTV) ratio applies where the property land records reflect a "deed of trust" loan or mortgage on the property. What if the financing is obtained outside of Indo ?

To require that the mortgage loan term be a maximum of three years means that if financed in Indo, the banks will make far less money in interest than if the mortgage loan was for the typical 15 year (180 months) or 30 year (360 months) loan period typical of real estate financing in the US. Furthermore, mortgage interest can generally be an itemized Federal income tax deduction on IRS Schedule A, so by only having a 3 year loan period this also makes the prospects for a [US] foreigner less likely to buy property in Indo since they cannot "write off" or deduct mortgage interest from their gross income thereby lowering their final or overall net taxable income. This will definitely not serve to stimulate the Indo economy by making it overly restrictive and financially burdensome for a retired person [over 55 years of age] on a pension or fixed income to take out a 3 years mortgage loan on a second or vacation home or investment property; not unless of course the elderly retired person was very wealthy. This would be a highly counter-intuitive move by the Indonesian Government to even consider such a measure.

The US imposes a "FIRPTA" (Foreign Investment Real Property Tax Act) which basically works like this. A foreigner can own US real property; however, if they ever sell it or plan on "cashing out" on the appreciation of an investment property; not only will they be subject to Capital Gains taxes (unless a "1031 tax exchange" is done), but will also be subject to the FIRPTA tax at closing or settlement on the sale of the property as well. The underlying philosophy behind this is the US says, "sure you can come here and buy and own property here, but if you plan on "cashing out" and running back to your country with the money you made here in the US, then "Uncle Sam" and the IRS is going to take their cut first. Indo could do something similar...