Should You Refinance Your Home Mortgage?

Drop it by at least 1% on a comparable Mortgage.

Typically a good mortgage broker will tell you that you need to drop your interest rate by 1% to make it worth your while and pay all the fees (origination, appraisal, recording, etc.).  So if your rate is 7% or more and you are planing on staying in the home, it should be a no-brainer… refinance!

Consider the Terms of Existing Mortgage

You also need to consider the terms of the existing loan.

Are there any prepayment penalties, or prepaid mortgage insurance?

Is the Mortgage (Note and Deed of Trust)  a fixed or a variable rate loan?

Right now the variable rate loans are still in the 4%-5% range and some HELOCs (Home Equity Lines of Credit) are running even lower.

Variable Rate Loans - are not by definition bad and can be useful for the right circumstances.  For example if you know you will sell your home (due to kids leaving, divorce or marriage plans, etc.), then a 3 or 5 year fixed rate loan that is a lower than a fixed rate loan now and adjusts later might be the best decision for you.  A good mortgage broker or lender should discuss your overall financial picture with you and try to help you determine what will best fit your needs.   The bottom line is you are borrowing money and the lowest interest you can pay on that money is the best deal… but you need to look at both the short term and long term realistically.

A key problem with these ARM (Adjustable Rate Mortgages), that has given them a lot of bad press and even the blame for the flood of foreclosures on the market, is that they were sold to people unscrupulously (not explained accurately) or the people were just more optimistic about their futures than they should of been, but they have been used successfully by millions of people.  

You have to pick the right tool for the Job.  As a rule for the average homeowner, first time home buyer, etc. I would recommend a fixed rate 30 year note and suggest strongly to them that they should regularly pay in an extra couple hundred dollars to pay it off in 15 years. 

What position is the loan you want to refinance and are their others that will be affected?

If you have a second or third mortgage, It is rare but possible for them to complete a subordination agreement, to allow the first to be “re-written” and/or remain in “first” position.  It might also be possible to consolidate multiple loans into one loan, however if you go over 80% of the value then you will be paying mortgage insurance often called MIP or PMI. 

The Mortgage Insurance Premium, effectively raises your interest rate, but will go away after you reduce the mortgage principle balance to 78% of the LTV (Loan to Value).  It is like the Credit Card “Insurance” protection that if you lose your job they will “hold” the account “for only .89 per 100″ (just pitched to me today on an account with a balance of over 13,000, so for only…. $115/MO insurance, I can have the surety that if I cannot pay, I won’t have to.   It is basically an extra 1% (.089) of interest monthly which is effectively raising my interest rate by 10% annually…. Thanks but NO THANKS… I never do this!)

The MIP or PMI is not that expensive but is usually about 1 to 1 1/2 percent additional interest or at least cost to you, which is a cost of borrowing the money, so I call it interest even though it is actually insurance.

Insurance Sucks, but is a necessary evil in our society.  But Credit Card Insurance and Mortgage Insurance in general should be avoided wherever possible.

Other Considerations…

It is amazing but very few people actually read their Note and Deed of Trust, but they really should…

The Note and Deed or Trust or in some cases a Mortgage, defines all the terms surrounding your debt and its expected repayment as it relates to the lender (usually a bank). 

The Note and Deed of Trust also defines what constitutes a default of the terms and what the default interest rate and penalties are.  The other critical thing is when the Deed of Trust is recorded, this defines the order…. So your primary loan is usually in the first position.  Subsequent loans would take, second, third, etc.

A Deed of Trust is a three party document, you have the Lender, the Borrower and the Public Trustee (at least in Colorado).  This is a publicly recorded document and it defines essentially a contract of your repayment.  If you should default on this contract, i.e. not pay your mortgage, then the lender/bank has the right to foreclose on the Note and Deed of Trust by filing a Notice of Election and demand.  

PLEASE NOTE:  If you are behind on your current mortgage your chances of refinancing are probably very low.  Your best bet is to try to do a Loan Modification.  A late mortgage payment is a big credit score ding that stays with you for about 2 years, it is essentially the same as a Short Sale.

So how low will Mortgage Rates go?

Rates are low and no one knows for sure when they will go up but the consensous is that they will eventually go back up.  Based on the fact that they are at historic lows it seems inevitable.  Yet with the housing market being what it is, with a flood of Foreclosed, Reposessed, REO properties, often in “rough” condition, but still selling at a significant discount to the neighbors house that is a FSBO (For Sale By Owner) or the other neighbor who is trying to get the price from two years ago when the market was vibrant and a “sellers market”.  It is without doubt a “buyers market” right now.  Prices are down, bargains and deals are all over the place and interest rates are low.   

A key problem is the money supply is very tight.  The required credit score is much higher than it was two years ago.  Stated Income or “Liars” loans are a thing of the past, which I think sucks, cause a self employed Realtor has to “Project” or “Plan” on an income, but obviously is not in full control of that destiny, and for that matter neither is the guy who has worked for the County for 20 years or the big Corporation, etc…   None of us know the future, so I think the bias to W2 employees, by completely ditching the “stated income loan” is BS…. But that is just my opinion! 

I think this whole default debacle was created on Wall-street, when they packaged up ”crap” loans with a few “mid” rated loans and a few “good” loans and called it a “better than average” portfolio of loans and sold off these 100 million dollar packages at a higher than fair or market rate and then the crap loans in the portfolio started to default, now we have essentially a B rated “Bond” that is really a “D” or ”F” and it screwed up the trust and rate factors in the secondary market.

Overall is was a Madoff like plan to rob wealth from the masses…  This was done by Investment Banks, that our government Republican and Democratic has decided to “Bail Out” with our money… So now the Government is incentivising the banks to “work with people” and in my opinion promoting further default.

Its scary folks, but all we can really do is play the game as best we can amongst the rules and players that are present here and now.

I just heard today that many banks are currently holding onto some of their REO properties waiting to get a higher price… Apparently they are getting tired of losing money.   Those big bonus checks from the TARP money must be stopping…

Sorry about the rant.

So where will rates go?

Easy answer no one knows…  I think up eventually, I just don’t know when.  If you do an ARM you are betting they will go down or hold basically flat so you can redo the ARM or convert/refinance into a fixed rate mortgage if you stay in the home.

I remember paying 12% in the late 80s and thinking I had a good rate.  So everything is relative.  Right now rates are running in the low 5% range, but I also have a variable rate HELOC that is only charging me 3.5% right now. 

My General Advice on Mortgages is:

I usually recommend to my clients to get a fixed rate 30 year loan even if they intend to pay it off in 15 or 20 years.  Most loans allow prepayment of the principle without any penalties (you want this kind of loan). 

So if you have the 30 year loan and amortize your payments for the 15 year loan then you should payoff your home in 15 years, but if you get laid off or otherwise lose your income stream then you have a lower mandatory payment. 

Realize however, that even if you have been paying an extra 200 per month for 20 years if you don’t make the required minimum payment, they don’t count the extra you have paid toward the amount due.   Therefore every home owner should try to save up 3-6 months of mortgage payments to cover rough times.  

This is also where a second line of credit or HELOC (Home Equity Line of Credit) can come in handy and could be drawn down to cover the monthly payment of the first mortgage.  It can and should be used as a type of safety net.  Its best to construct or define your net before you need it.  Once you need it you may not qualify for it.  In otherwords they too look at ability to repay and employment, etc.   If you lose your job you might not qualify for a HELOC.  If you get the HELOC first, then lose your job, you can draw from the HELOC.  (They seldom if ever based on my knowledge - requalify the individual before drawing actual funds.  Therefore the static qualification now to establish the HELOC is good until you either close the account or try to refinance your first mortgage.

So happy borrowing and while I love cash buyers, they are typically retired people that have had a whole “successful” life to save up money or gain equity in their prior home, so for the proponents of ony ever buy anything with just cash…  My advice is think about borrowing, there are bargains everywhere and rates are low.  Keep you cash so you can be sure you can make the payment.  Borrowing and Lending and even charging interest aren’t evil as some would suggest, they are just business.

Good Day!  Chris

Chris Ormsbee is a license Real Estate Broker in the State of Colorado.  He works for Century 21 Action Realty in Montrose, CO 81401 at 1245 E Main St, right on the NW corner of Main St. and San Juan Ave.
Chris Ormsbee is not a lawyer or an accountant but he is a “real” person and an Internet Marketer and he has occasionally slept at THE Holiday Inn Express!

Check his other stuff out at:

On Facebook as myself: ChrisOrmsbee

Real Estate Blog: http://www.YourCOREAdvisor.com/blog

Divorce Advice Blog: http://www.thedivorceworkshop.com/

Wacky Ideas, Thoughts and Whatevers: http://ideasthoughtswhatevers.blogspot.com/

From where I am sitting, I am still seeing a relatively high number of foreclosures in our area.   I think our market tends to lag the general market by about a year to 18 months. 

Some predict a further mushrooming of this effect as many banks have been waiting to test the water and see what is coming next.

Montrose Colorado is a beautiful place to live and was growing at a good pace and is still expected to double in size over the next 10-20 years. 2 Years ago this was easy to believe.  Now I think it will be pushing clear to the 20 year mark, unless the money supply situation straightens itself out.

Banks supposedly have money to lend (hundreds of millions of it financed off the tax payers backs).  But Banks are not lending as much as they want to because of new regulations and policies enforced by underwriters to ensure safer loans.  Whether you are for or against this doesn’t really matter. Tight lending it is stopping people from buying and selling homes, that would of otherwise been bought rather than rented.

At the same time Credit Card companies are squeezing already strapped people (including me), by cutting their credit limits down and raising interest rates.  Eliminating peoples “Cushion” or “Float” Capital.  This is particularly important for the small business owner with one or two employees who’s cash fluctuates with jobs as they come and go or pay or delay… 

This means people like Realtors and small contractors who rely on credit to finance their business are unable to finance their business and are tapping into any savings or reserves they may have.    They are probably losing out on some jobs because of this lack of available credit.

Many also do not understand that once their credit limit is cut, if their balance exceeds 50 % of the allowable credit, then it docks their credit score, possibly preventing them from getting a home loan.

The credit crunch is real and its affecting hundreds of millions of people and guess who is making money off of it… The banks, the same banks that got us into this mess.  I know there are thousands of “preachers” out there who support that everyone have a “strong” or even entirely cash position and boy wouldn’t that be nice, but Credit is a lot like a drug, they get you hooked and used to using it and then when they cut you off you are in real trouble.  Its unfortunate that they are using the current housing crisis as a time to try to make more money off the backs of the struggling American and that they have overtightened the money supply for home loans.

Montrose Colorado really didn’t have a foreclosure problem, until the money supply dried up.  This stopped construction and caused lots of layoffs and for people like Realtors, their income was halfed, quartered or even eliminated, leaving the them with a deficit.

I personally had a sizable chunk of savings and available credit for “down times”, but it has been eroded and used up and I can’t just force people to use me or to even decide to buy a house. 

I have never worked harder and been paid less in my life.

There is a glut of inventory on our market and many prices have not fallen yet to where I feel they will actually be purchased.   Most shoppers are looking for a 50 cent on the dollar deal…  Few exist.  Those that do are offered from “motivated” banks, but they usually require a great deal of repair and fix up, so this usually cuts out the first time home buyer and focuses on the investor.

Then President Obama decides that we will incent or attempt to force banks to do Loan Modifications with their borrowers, but the process is extreamly slow, uncharted territory and many are getting ripped off by shisters advertising on the radio, internet or otherwise that they will take care of everything and they are not, the people still get foreclosed out.  Others upon ill advice of attorneys or other counselors or spinners are suggesting to people to miss a payment to begin negotiations.  While this kinda makes sense it is just increasing the problem and it screws ones credit up BAD for about two years.  This is basically the same as a short sale on your credit based on my understanding. 

If you are going to do a Loan Modification, either do it yourself or call the state hotlines first.  Get references for companies from real people (preferably in your area and trust me its worth your time particularly if you REALLY want to keep your home).   Ensure that the hired negotiator will take no upfront moneys from you.  They only get paid when they get the Loan Modification with the exception of a small fee (under $150).  If they want more upfront money be very careful and require joint notification of each submittal and call the bank yourself to follow up with it.

Of course you can always call a Realtor for advice!  Ask a few questions to see if they know what they are talking about and if your not convinced, try another.

You can reach me at (970) 209-0252. 

Thanks Chris

NAR Real Estate Summit - Summary Videos…

Ok, here is a short post.  Some great informational video snipits from the Real Estate Summit.

http://www.realtor.org/meetings_and_expo/real_estate_summit

Check it out!  Elegant and well edited.  Takes about an hour to watch them all.  Some great ideas and explainations of what is going on… A view from the top!

Here is a link to the site for Loan Modifications

http://www.makinghomeaffordable.gov/

and if you want even more cool info check out:

http://www.realtor.org

They provide tons of free information and tips and keep you up to date on current affairs and new laws.

Chris Ormsbee and Your CORE Advisor say… “Yes, but only if your Bankruptcy Attorney or Lawyer says so…”

Does Bankruptcy Preclude A Short Sale -or- Does Our System Force Foreclosure?

I say not necessarily… The lawyers and attorneys seem to say yes… The IRS seems to say maybe…  The Banks don’t seem to care much….

Note this post is based around Colorado Foreclosure Laws and the economic area I am talking about is Montrose County and surrounding areas on the Western Slope of Colorado.  Still I think the issue is relatively the same throughout the United States of America at least, and probably beyond.

Does “The System” Make Banks, Lawyers, Accountants and Realtors Delay our Economic Recovery?

Maybe. 

I wonder about this, probably because I am whining about losing a deal… No big deal really, it happens all the time, but it is still frustrating and makes me contemplate why I do this for a living, and how the system works.  But essentially my “dead deal” was a short sale with a strong offer that died because of a Bankruptcy Attorney’s advice to “not waste the time on it, just let it go through the foreclosure and the Bankruptcy would wipe it all out.”

My thought is, that’s easy for him to say, but hard for me to swallow.  But hey I understand it may be the safest way to navigate the system and the least painful for our mutual client. 

So, next I will withdraw the listing & pull it off the market and the MLS because it can’t be sold, since the bankruptcy attorney and the client don’t want it sold.  So why advertise it?  Type up the amendment, email it out, then when I get it back, I will have to spend an hour inactivating it in the MLS and getting the office file together, scanning, making copies, etc. to update the file to close it out.   More free work…

So I was deleting spam comments here on my blog site and decided to post the topic and my opinions here.  As usual I am nothing but long winded, but hope you will find it educational or at least entertaining to hear my rants and opinions mixed with a few facts.

What happened to make me carry on like this?

Today (6-15-09) I lost a deal and a listing, that was slotted to be a short sale. 

I had received a reasonable offer, 13% below list price and the approximate payoff for the notes against the house.  It looked to be a very good short sale candidate where the first would be paid off entirely and the second would receive about $10,000. 

The offer was good.  It was a fair price and strong with a large down payment. 

For this deal, the commission was 6% and was split evenly.  The selling broker (with the buyer) would get 3% and my Office and I would get 3%.  I actually end up with about .75% on a 6% commission because I am currently part of the Montrose Gold Team and we split all our commissions 50-50 and this is after the Office and Century 21 Corporate take out about 50%.  Still on this deal it would have been about $1,000 and would have almost made my mortgage or my child support payment.  But, it’s definitely be better than nothing.   So really to me were talking $1,000.00 bucks vanished to $0.00

Plus it would of also helped: my partner, my broker, C21, the title company, the appraiser, the home inspector, the Selling Broker, his Company, his franchise (if any)… each with their little slice of the commission pie.

The frustrating thing to me is that this would of been money injected into the Local Economy NOW!  Not less money in future, which will likely be in about 6 months or 12 months from now with an REO.  In the Battle of REOs -vs- Short Sales, the REO moves more money out of town. 

Why you might ask? 

Because the Bank hires an Asset Management Company (not based here), a lawyer (not based here), a title company (often not based here), contractors (often not based here - usually through a national service chain like Service Magic).  These are often national companies and operate with high efficiency (heavy work load for the individuals employed there).  They offer low rates and standardization for the banks, kind of like bulk pricing, still, they erode the local economies sucking money out of them.   This isn’t necessarily bad, but in a small economy and community like ours, I think it makes a difference. 

Montrose Colorado depends heavily on the construction industry providing jobs through growth and new home or commercial development to allow many of those who live here to sustain their standard of living and keep their homes.  Many foreclosures in our area are from people who were working in the construction trades.  Many are Realtors, because homes aren’t being sold and their “net” pay after expenses and splits, etc. is eroding more and more each year, with increasing fees and expenses.  Yet amazingly the Lure of “the easy life of a Realtor” still brings plenty of competition and pressure for competitive commission rates. 

If you were planning on opening up a business this kind of trend would be bad.  Still many enter the life of a Real Estate Agent or Broker and think it will be easier than it is.  Many fail because their bank account of savings is not big enough to “front” their debut as a Realtor before they turn a profit.  Others come in well funded, well known in the community, etc. and immediately rocket to success.  Its the old adage “it takes money to make money.”

Ultimately, a local Realtor will still sell it and probably get paid a fair commission for selling the “Short Sale” turned “REO”. 

However, the Asset Management Company takes a cut as a referral or membership fee for assigning the listing anywhere from 25-50% of the listing commission.  This is steep, but when compared to the cost of advertising and branding its not that bad from the Realtor’s perspective.  

This money moves out of the local area though!  Your local area, my local area, doesn’t matter where you are unless you are in a place that is pulling more money in from this kind of thing than it’s sending out.

But the Montrose Gold Team (Diane Haynes and Chris Ormsbee at Century 21 Action Realty) believe - 

“A little bit of something is a lot better than a whole lot of nothing.”

We try not to be greedy and take what we can get.  Plus we do work with many of the Asset Management Companies and handle a lot of REOs, so its not all bad for us.

Yet it seems to me that this lost Short Sale is a lot of lost value or at best a delay of otherwise attainable local income, especially for Realtors, Mortgage Brokers, Appraisers, etc.  The REO in my opinion has a larger impact on the local economy by essentially requiring more money from the transaction to move out of the community.

I called the seller to tell them about the offer.  They informed me they had gone ahead and filed for bankruptcy.  I am not privy to the details and do not even know the attorneys name.  

I told the client that I wasn’t an attorney or an expert in the area of bankruptcy.  However,  based on what I had been told by other attorneys, the issue of a short sales and a bankruptcy is that if the bank clears the asset and then treats the short amount as a forgiven debt then the seller or person declaring bankruptcy could end up with a tax liability after the bankruptcy.  

So in this clients example, say $30,000 in loan principle is forgiven, if they were in a 30% tax bracket then they could end up owing about $10,000 in income tax on this amount.  

So I advised the seller to talk to their attorney about the matter. 

By the way, I do believe everyone should have an attorney to represent them and guide them through the process of Bankruptcy.  Bankruptcy is a serious deal with serious consequences.  It has recently been  tightened up from what I understand to discourage its over use.  

However, with all the current workout, bailout programs in the works and on the horizon (for better or for worse), who knows, they might come up with a streamlined “take your debt and shove it” plan to allow bailouts for people who qualify…

My clients did talk to their attorney and today the client informed me that he had advised them to not go forward with a short sale “it wasn’t worth their time or the hassle…, just let the property go through foreclosure”.

I honestly hadn’t thought about the extra hassle it might put the client through and I don’t think they should suffer any more than necessary.  My client expressed concern that I wouldn’t get paid and hoped the bank might list the property with me.  I told them that wasn’t likely, yet, they might list it with my partner or someone else in my office.  I assured them that their interests were what we were concerned with and not if or what I made.  That is the relationship that wasw defined in my listing contract with them, particularly when accompanied by the Short Sale Addendum in Colorado, that essentially gives them an anytime out if they want it.

It is frustrating as a Realtor to put all the time and energy into a listing and get an offer only to be told you cannot close the deal.  Still we always have to “bow” to the attorneys advice.    Plus I have a fiduciary duty to my client to look out for their best interest.  Typically this relates to money, but it makes sense it might also relate to time or in this case less pain and suffering (i.e. the time involved, extra paperwork, etc.).   I personally feel that this is part of my duty and from the courses I have attended it seems like the laws would require close examination of up front fees, etc. to defer this risk.  The risk of no pay is just part of the territory.

This particular client-attorney, didn’t relay back or express concern over the “phantom income”, just the hassle and time.  Yet I am still concerned about its possibility.

Regardless, I think if this phantom income showed up you would probably be able to negotiate it down at least with the IRS.  The State might be another story.  Colorado at least can  be a  bear to deal with.   A good accountant or CPA could also probably advise you how to avoid paying anything in this situation.  Still it sounds like a hassle and out of pocket money (CPA and legal bills) for the folks.

Plus, I just don’t think it is fair.  I think if you are forced to go through the “hell” of bankruptcy and going to live with that on your “record” for about 10 years, then it seems fair that you shouldn’t end up owing for things related to the liquidation of the assets for the bankruptcy.  

It is my understanding that it is entirely up to the banks discretion as to how they treat the “short” amount.

Is it a deficiency or is it a forgiveness of debt? 

Who knows, but I think you could contractually cover this with the bank and or get a letter or understanding or addendum to contract that dictates that it be handled in the desired manner for the situation.   

There is little true benefit to be gained by any party trying to make any of the other parties suffer unduly in this process, yet it happens.  This ultimately creates inefficiency, delays and in some cases damage to the properties. 

Some people strip their homes of everything (light fixtures, appliances, cabinets, boilers, furnaces, etc.), because they are upset the bank is taking it.  This is not smart.  DO NOT DO THIS.  If you piss the bank off they are very likely going to come after you with a judgment and attempt to collect the deficiency debt.  If you can evade them… and your vindictive, then fine, do what you want, but you will likely end up paying one way or another over time.

Otherwise, if you are in this situation, cooperate, stay in the home, take care of it and make plans to relocate shortly after the foreclosure sale date, they usually have to “evict” a lot of people and if you leave “nicely”, they might pay you to go… (Cash for Keys) to help you get moved into a new place, put down a deposit on an apartment or whatever.  Usually in our area the amount is about $500-$1,000.  But you have to move out by a scheduled date and leave the place clean and free of debris.  It sure sounds like a better option than dodging a judgment or at least avoiding the even higher judgment due to the damage caused by vacancy and the delayed time on the market and the further discounted price of an REO.  So I really think the Short Sale is a better way for the bank too.

An abandoned vacant home decreases in value over time because of a lack of personal TLC (Tender Loving Care).  If you stay in your home and take care of it, it preserves the value plus gives you a “free” place to live for a while (free -meaning - ”your not paying the mortgage during this time” .)  In some places when a home goes vacant, gangs move in or severe vandalism occurs.  So if the owner stays in the home until or even slightly after the sale, then it helps to protect the bank’s asset.

Obviously if a person isn’t going through or doesn’t plan to immediately file for Bankruptcy, then it makes more sense to do a Short Sale (only get about a two year credit ding) and then get a forgiveness of debt with the income as opposed to the deficiency judgment, where they can continue try to collect the deficiency from you.  Its worth it for your credit and for the local economy to deal with it this way.

It seems to me that if the deal were negotiated correctly, where the bank agreed to treat the amount as a deficiency rather than a forgiveness then there would be no issue with a short sale in a bankruptcy other than the time.  The deficiency and its related judgment would be wiped out by the bankruptcy.  Surely an Attorney could write his letter of authorization to stipulate the accounting procedures to be applied otherwise no deal.  Seems like it could be made into templates where it was easy enough to either request the deficiency or the forgiveness of debt, depending on the clients needs…

Unfortunately some attorneys, I think are more self serving than others and seek maximum billing hours.  Others are so narrowly focused on their area of expertise that they can’t see out of those boundaries anymore. 

I am sure my time is much cheaper than that of an attorney and eventually the asset has to be disposed of.  In this case, it will go through the sale at foreclosure and after about 4-8 weeks the bank will order a BPO (Brokers Price Opinion), then they will list the property with an REO Agent.  Usually, a different agent.  So I don’t get paid for my initial marketing efforts or my time.

Eventually the home will be sold, usually after about 6 months in our market as of 6-15-09.  That is, if they are aggressive on price, otherwise it will sit for even longer. 

Banks are usually pretty methodical about dropping the price monthly after reasonable time on market with no offers.  The Bank hires an Asset Management Company to dispose of the property.  They clean it out, get one or more BPOs and property inspections, handle the eviction of any tenants or owners.  Often they will offer cash for keys if the people will clean out the house and leave it in good condition.  The Asset Manager sets the price, usually based off of the Brokers Price Opinion, but not always.

Still the bottom line is this home will more than likely sit vacant for at least another 6 months, due to the Bankruptcy Attorney’s advice that its not worth the trouble to try the short sale.  I am not saying this advice was wrong… I am just frustrated by the ever increasing amount of “free work” that Realtors are doing.  If we don’t step up to the plate and try to help these people in a jam, then who will.   But we don’t always get paid well, or paid at all for the amount of time that goes into it.  I do it for Karma, plus I already have the knowledge, since I am interested in purchasing these types of properties so I got well versed in the specifics of the process.

Being occasionally prone to conspiracy theories, I wonder if the lawyer might just want to rack up more billable hours by handling the negotiations with the Banks Legal/Bankruptcy Department. 

Realtors, are always referring people to attorneys.  Clients often don’t go and when they do it seems the Attorney can sometimes complicate things or kill the deal. 

All I ask is that the Attorneys out there give us Realtors a little respect and think of us and the fact that we need to make a living as well.  I think they should also think a bit about the overall economy and the effect the vacant home will have on the surrounding homes and neighborhood for at least the next six months.  Plus the home as an REO property will usually sell for less.  When that home sells for less it has a harder impact on the neighbors and ultimately the bank and the original investor(s) who held the notes… 

I believe these are largely people issues.  Realtors are usually pretty good about dealing with people issues and thinking outside the box.  I think Lawyers are the same way.  They deal with people.  They think creatively.  But the key difference is in training, attitude, payment and billing… 

Lawyers require extensive schooling and training, plus difficult Exams.  They worked hard, they’re usually smart outgoing people and they usually think fairly highly of themselves.  So the Lawyers charge for it.  And in a convenient and collaborative fashion the legal industry has created the enviable concept of a retainer (pre-paid billing cushion account) and then they bill hourly and/or task based, plus can assign assistants or subcontractors mostly all on an hourly based billing.   The detail on these bills is often lacking based on the amount they usually concern.  And, the bill better be paid up or the Lawyer quits working….

Real Estate Licenses don’t typically require much training.  In Colorado, you can do a crash course in about a month, pass the test, and all the background checks and have your Colorado Real Estate License in about 3 months.  Realtors might think highly of themselves or not, but in general they don’t charge for it.  The Realtor usually works with ”no money down” on a leap of faith that the client will stick with them through the listing and sale or the purchase of their home.  And the Realtor has a fiduciary duty to the Client, but the Client often has little fiduciary duty to the Realtor.  So I think based on our code of ethics that it would be considered unethical to put the Realtor’s financial concerns in the way of the Clients.

I guess we as Realtors, must suck as negotiators compared to Attorneys, because our payment plan and business model suck compared to theirs.   Ha Ha.

I don’t know what I can do about it, other than go to law school, because if I start telling people I want a retainer and an hourly rate for Real Estate Services then they will go knocking on the next guy’s door.  So until we wake up in a new world, we will probably continue to work based on faith and trust and within the wonderful systems that define how the cogs turn.

As always if you need help with a foreclosure, a purchase, an investment property, the latest Real Estate Get Rich Quick Course you just bought…. whatever, give us a call, we don’t have a clock to start the billing and we will do our best to help you.  But remember WE ARE NOT ATTORNEYS OR ACCOUNTANTS - WE ARE JUST REALTORS.

Chris Ormsbee - I am a Colorado Licensed Real Estate Broker and a Realtor - Working for Century 21 Action Realty in Montrose Colorado.  My Office Phone is - (970) 249-7777.

Loan Modification Assistance Rules Change

or Are Reinterpretted

Erin Toll with the Division of Real Estate, which is part of the Department of Regulatory Agencies (DORA) for the State of Colorado, has recently published a new “Position Statement” about Loan Modifications (aka Forbearance Agreement). 

The new position seems to be that it is not the place of Real Estate Brokers to assist in the Loan Modification and that anyone that does assist either needs to work for the Government agencies or needs to have a Mortgage Brokers License.   

This is fine with me as I would never charge for this type of thing anyway (so it is just more free work that I don’t need) and the new rules say a Mortgage Broker can charge up to $300 even if the loan doesn’t go through. 

I assume if it does, the Bank will pay them a commission just like they pay a Real Estate Broker a commission in a short sale.  

It think the State of Colorado and Erin Toll are trying to protect members of the public from being taken advantage of by unscrupulous entreprenuers charging large fees for attempting a mortgage modification.

It points out that it doesn’t cover people who work the help lines set up by HUD or other government agencies.   So please take advantage of these services.  Like the Colorado Foreclosure Hotline that can be reached at 1-877-601-HOPE.  Or on their website at http://www.coloradoforeclosurehotline.org/ .

I think one thing worth noting is that few point out that the homeowner themselves can often do a workout with the lender directly.  It just takes a little education and confidence to get it started and then a little diligence and persistence to follow through with it. 

They will require a bunch of documentation just like in a short sale.  The will want taxes, paystubs, bills, a loan application and/or financial statement….divorce records, doctors bills, a hardship letter.  Its a lot of stuff but it isn’t rocket science.

Tips for Your Own Workout

A few tips for homeowners attempting their own workout:

1. Put your loan number on each page of paperwork that you fax or send into the bank.
2. If you are tech savy and have a scanner, ask the loan workout representative if you can email them a pdf file of the scanned documents.   But don’t just assume they got your if you do this.  Make sure that you get them to send you a confirmation of receipt and or confirm it with them on the phone.
3. Be dilligent in trying to contact your lender’s workout representative, they are busy, this is why often these days it can be easier to reach them by email. 
4. Ask them to email you something and then you will often get their return email address that you can try corresponding to. 
5. If your person won’t call you back try going back to the generic queue and waiting for a real person and explain you have been trying and trying to get ahold of this person and it is urgent (if it is) and they will often be able to “buzz” them in such a way that they will actually pick up their phone.

To me email in some ways is a better form of communication for this type of activity because it creates a trail, but its not perfect and its not always private.  But for example the required list of documents the lender wants is much more easily digested in clear readable form of an email than you trying to write it down as they quickly rattle it off. 

What I can do for someone is help them sell their home.  If this requires a short sale so be it.  If they want to keep their home then they should try a workout or a reorganization bankruptcy with a workout.

Right click the following link to download a pdf file of the position statement.

                       state-of-colorado-dora-position-statement-on-loan-modifications

The position was published first on November 19, 2008, then revised on December 11, 2008.