With over three decades of real estate experience, I have a perhaps old fashioned perspective on the real estate business. Personally, I’ve never used a transaction coordinator. I’m a hands-on broker who feels that if you want to ensure something gets done right, you should do it yourself. With that said, I can see the benefit of using a TC especially for very busy agents, as well as new agents who may not be fully aware of the required timelines and forms required to ensure a timely close.

To me, it’s always been the broker’s duty and responsibility to not only negotiate the sale, but to ensure the escrow runs in a timely manner. If you delegate part of your responsibilities to a pseudo-employee, it only seems reasonable that you should pay for this service. After all, you cannot delegate away the responsibility for insuring the quality of the work by the TC. *To view the full post, please visit the San Diego California real estate market blog.

When a Home Foreclosure Bargain Costs More Than it Should

By Bob Schwartz, Certified Residential Specialist, California Real Estate Broker

If the news is correct, there are bargains to be found in buying foreclosure homes in California. To be sure, a savvy investor can find a gem among the ruins of the real estate market bust. A good sales price is not the only dollar figure to keep an eye on, though. You must pay attention to your other costs!

It behooves you to always seek professional representation by a real estate agent but that is still no guarantee that you won’t over-pay by hundres, or even thousands of dollars, in unnecessary costs.

The insidious implementation of a new rip-off tactic makes it extremely difficult to discern until after the sale has closed. Even when closed, your own real estate agent may not want to bring this to your attention, because they too will suddenly realize the lack of due diligence on their part, has cost you, the buyer, unnecessary costs and fees.

Currently, these buyer rip-offs are occurring on bank owned foreclosures and short sale properties. Typically, in these transactions, services such as escrow, title, and natural hazard disclosure are selected by the seller or seller’s agent. The vast majority of buyer’s agents do not counter the services because they don’t want to jeopardize acceptance of their offer. In normal situations the fees for these services are very similar from one company to another.

In California, title companies are tightly regulated, as are the escrow companies that they control. But, independent escrow companies do not have their fees regulated. This non-regulation of fees is a key to this rip-off. The term rip-off is used here quite liberally, but if the fees are properly disclosed and the buyer is aware that they are extremely high, and it is their decision whether to move forward with the transaction, in that case, there’s nothing wrong. A buyer likely won’t be happy over-paying escrow fees but if they believe they are getting a steal on the value of the property, then they may proceed just to insure their purchase.

It is not so much the exorbitant fees being charged by independent escrow companies that constitute a rip-off but the charging of the exorbitant fees without timely, proper disclosure that is a problem. Presently, this has been seen mostly in the Orange County and Los Angeles areas.

Exactly what are these exorbitant fees charged to buyers? The main fee is the escrow fee that the buyer is required to pay. I was told by one major lender that the buyer’s escrow fee on a $265,000 bank owned foreclosure was $1400. Typically, the buyer’s portion of the escrow fee on such a sale would be approximately $680. Some other high fees are: E-doc fee of $150, which would normally cost about $75; a notary fee of $250 to notarize the loan documents in the escrow office; in one case a mobile notary was required for a fee of $350 and lastly, a loan tie-in fee of $300, when typically it runs about $100.

Typically on a bank owned property and or short sales the lenders require certain boilerplate, documentation to accompany any offers or they provide this documentation as part of a counteroffer. It’s in this documentation the lender states which companies they require for the various services necessary to close the transaction. To my knowledge, the amount of fees these lender selected companies are going to charge is not a required disclosure.

The buyer’s real estate agent should not put too much credence in the fact that the offer they drew up states that the escrow fees are to be split 50-50. In the boilerplate, lender required documentation; it may state that the escrow is to go through XYZ Escrow Company. Another document will state that the XYZ escrow company is an affiliated or bank owned subsidiary. In this case, though technically the bank and the buyer are both paying an exorbitant escrow fee, the bank is actually paying their half of the fee to themselves. Although I have no documentation, it could also be that the required vendor boilerplate documentation states that the lender’s maximum contribution for the escrow fees will be a specific number and anything above that will be picked up by the buyer.

Even though I do not have exact information as to how these exorbitant fees are being disclosed or if they are being disclosed, I am 100% certain that these exorbitant fees are being charged on many bank owned foreclosures and short sales. The charges far exceed the norm, thus in my opinion, meet the criteria of a “rip-off.”

One major San Diego lender informed me that so far this year they originated new loans on about 30 bank owned or short sale properties. In every transaction, the escrow fees charged were way above the norm.

An easy solution is if California would control the independent escrow fees. Even if motivated to do so, and not coerced by special interest lobbyists to look the other way, it won’t happen immediately. For now, buyers’ agents involved in these types of sales must request up front disclosure of all buyer costs. If the agent doesn’t automatically do it, then the buyer will have to stay on top of the representation and ask for disclosure of costs. Contemplating the purchase of a California bank owned foreclosure or short sale? Caveat Emptor!

Read more of Bob Schwartz’s 'tell it like it is' real estate opinions & subscribe to his free RSS feed at: San Diego real estate market blog.

In the San Diego housing market the undisputed hottest selling properties are bank-owned, foreclosed homes and condos.

Many San Diego home buyers are exhibiting characteristics of the famous Alan Greenspan term, “irrational exuberance.” Use of the terms, “bank owned,” “bank foreclosure,” “lender reposition,” “foreclosure sale,” etc., are sure to draw a crowd to view the property. If the property shows half-way decently, there will be offers, and sometimes multiple offers.

Adding my observation to the above facts, I note that a number of lenders have hit on a marketing ploy to create a buying frenzy which guarantees an almost instant sale. In the majority of cases the offer(s) exceed what may have been realistically expected if the property was marketed the traditional way.

Here are some actual examples of this technique for San Diego home sales. *To view the full post, please visit the San Diego real estate market blog.

California legislators put a hundred million dollars on the table for first time homeowners to grab. Were they surprised when takers actually accepted the offer? Apparently this is so. They are now attempting to put more money in the coffers for this give-away.

The program is a tax credit that spreads across three years, in three equal payments, for buyers of new homes. The definition of new home is that it must be a single family residence, detached or attached, and never previously occupied. After purchase, the buyer must occupy the property for a minimum of two years and receives a credit of $10,000, or 5% of the price, whichever is less.

The program, passed in February 2009, put up one hundred million dollars for this incentive. Amazingly, this money was offered during a time when the state of California is, by some measures, bankrupt!

Now, there are two new bills pending in Sacramento that would add an additional $200-$300,000,000 to this program. In my opinion the original bill was unconscionable, considering the state of the California economy. To double or triple the original giveaway is totally incomprehensible.

These actions should definitely earn California an award for the greatest “tax and spend” state in our short history. Why does this bill only apply to new homes? If the state of California really wanted to help out the real estate market, why wouldn’t this bill apply to any home purchase?

It may be cynical, but could it be this just applies to new homes because the California new home builders contribute millions to the reelection campaigns of our state legislators? What would be extremely interesting, would be to look at the public record in one year from now to see how many state legislators who backed this program, received campaign contributions from new home builders.

For California homebuyers, especially first-time buyers, that qualify for the federal $8,000 credit as well as the California $10,000 credit, this is a great deal. But, is it really fair that tax payers are picking up the tab? Would it not make common sense if California wanted to pass such a program, to have it apply to all home purchases in order to reduce the current oversupply of existing homes? This program is doing nothing to lessen the supply of existing homes, vacant homes and bank foreclosures.

If this new buyer’s credit and pending new bills to escalate the funding, are not enough evidence that the California legislators ought to stay out of the real estate industry, perhaps remember what other mischief they’ve done. Mischief with good intentions and negative results is still mischief. These good folks extended the foreclosure process by 30 days in 2008, and then when that didn’t seem generous enough, added another 90 days this year. When you add up all the legal requirements, our legislators are practically offering almost a year of living “mortgage-free.” Are these California real estate laws really fair to the tax payers of California?

Sunshine and a Year of FREE Living

by Bob Schwartz, San Diego real estate broker, Certified Residential Specialist

The state of California has more than doubled the normal foreclosure time by an additional 90 days for homeowners with troubled mortgages.  This is on top of the 30 day extension put in to place in 2008.  Is this the state where living is free or are these actions only prolonging the pain?

Sen. Ellen Corbett (D-San Leandro) introduced a bill as an add-on to the California “budget” package to add a 90-day moratorium on California home foreclosures.  Gov. Arnold Schwarzenegger signed into the bill on 2/20/09.  It applies to owner-occupied homes and first-mortgages made from 2003 to 2007.  See my earlier post: ‘New Law Extends California Home Foreclosures (again) ‘published on March 12, 2009.

State regulators can grant loan servicers and lenders exemptions, if they have a mortgage modification program in place that meets certain criteria. These include programs that defer a portion of the principal, lower interest rates for at least five years, or extend loan terms.

In 2008, the state of California extended the foreclosure process by approximately 30 days by adding a requirement that lenders document their efforts to contact the delinquent homeowner.

So, now for 2009, the state of California has more than doubled the normal foreclosure time periods by extending the normal California foreclosure for an additional 90 days. This is after the 30 day extension applied in 2008. Instead of helping these actions are only prolonging the pain.  Perhaps the state should stay out of the mortgage business.

The market can’t recover until all these foreclosures get flushed through the system. Delaying the inevitable will not change the end result; it will probably only make it worse. In a declining market, the lenders will recover even less when the property eventually sells.

Personally, I’m not aware of one mortgage lender that starts the foreclosure process as soon as the homeowner is late one month. In the vast majority of cases, the lender does not start the process for four months or more.  Do the math:  Four months slow motion by the lender, the original 90 day foreclosure process (plus a 21 day advertising period), the 2008 delay of 30 days, and now the 90 day moratorium passed in February 2009.  That’s a potential of free living for almost a year!

Who is really paying for this ‘free California living?’ With a lot of these toxic loans being purchased by the federal government, it’s the U.S. taxpayer who is paying.

Other fallout resulting from the state’s legislated moratorium on foreclosures is the many homeowner associations adversely affected by a delay in collecting normal monthly maintenance dues. It’s a sure bet homeowners are not paying their monthly maintenance fees when they aren’t making their mortgage payments. Most San Diego monthly homeowner fees run over $250 per month.  Who ultimately pays for the additional $1,000 in delinquent dues? It’s the existing association homeowners. HOAs will either have to increase the dues, or require special assessments from the owners who are left. Once a property has been foreclosed, the lenders are responsible for paying the dues on the property.  All outstanding balances prior to the foreclosure date are wiped out! The “moratorium penalty” can be especially devastating for small condo complexes with six to twelve units, like those which dominate the North Park/Normal Heights neighborhoods in San Diego.

The California legislature continues to amaze … but not impress … with stupid ideas put into law.

Read more of my 'tell it like it is' real estate opinions & subscribe to my free RSS feed at: San Diego real estate blog.