Seattle Real Estate Advocate: NorthwestElegance.com

Beware of the Changes to the Contract by the REO Addendum!

Joy Canova - Seattle (Coldwell Banker Bain) — Tue, 08 Dec 2009 20:28:15 -0600

Dwight's analysis demonstrates proof positive that buyers need strong Realtor advocates when entering into a purchase and sale agreement on distressed property purchases.

For that matter, the current market conditions call for buyers to have sole representation by a full-time dedicated Realtor on any purchase.

Via Dwight Bickel (Rainier Title):

There are now a lot of listings that are REO sales.   Those are Real Estate Owned by the prior lender, after that lender became the "successful" bidder at its foreclosure sale. REO Sellers are not normal sellers. If you are a selling agent negotiating a purchase of REO property, you should be prepared to inform the Purchaser about some differences.

The REO Seller usually provides an Addendum changing the usual terms of the Purchase and Sale Agreement [P&SA]. This post discusses three changes that are important to the Purchaser: (1) the form of deed, (2) the form of title insurance and (3) the designated escrow agent.

Last month I met a real estate broker who told me about a recent purchase of an REO property for himself. He got a great sale price. However, the REO Seller provided a Quitclaim Deed with no promises about title, and the closing agent in Florida did not get a title insurance policy for the Purchaser. I advised him to immediately order a title insurance policy (I do that a lot), and to hope the title company would be able to insure he was the owner of the house and it was free of prior liens.

The Form of Deed.

The REO Seller will change the usual P&SA form by an Addendum that changes the form of deed to be provided. Usually, the REO Seller will agree to provide a Quitclaim Deed, "Special" Warranty Deed or Bargain and Sale Deed. See my 7/24/09 blog post, What Promises of Title are Given by a Foreclosure Sale or Bank Sale?, for a full explanation of the differences in the promises of title given by those deed forms.

It is reasonable that the REO Lender will not warrant the condition of title.

The prior lender doesn't know much about the property being sold. Its employees didn't live there. The people that were living there lost the property by foreclosure. There could be active disputes about boundaries, the location of improvements, or compliance by the improvements with covenants, easements, zoning, building regulations, etc., that the REO Seller will not know about.

The REO Seller hired someone else to conduct the foreclosure. The REO Seller will not promise the Purchaser that the title has been properly foreclosed. The REO Seller will not promise the Purchaser that the foreclosure eliminated liens on the property arising from the prior owners. In fact, often there are foreclosure problems and prior liens still have foreclosure rights that can be enforced against the Purchaser.

The Purchaser therefore must entirely rely upon the owner's title insurance policy for protection. If there are title disputes going on with that property, if there are problems with the prior foreclosure, or if there are unknown liens still encumbering this property, the Purchaser will only be able to seek indemnity from the new title insurance policy, not the REO Seller.

The Form of Title Insurance.

The REO Seller will change the usual P&SA form by an Addendum that changes the title insurance for the Purchaser. The NWMLS P&SA form used in most of Washington states that the seller will pay the premium for the ALTA Homeowner's Policy of title insurance. Often, the Addendum does not obligate the REO Seller to provide any title insurance for the Purchaser. Other times, the REO Seller will only agree to pay the lower premium for the basic, standard coverage owner's title insurance.

The primary reason for the REO Seller to change the title insurance is simply to save money on the costs of the sale. The seller doesn't really care about the title insurance protecting the Purchaser.

If the REO Seller is not obligated to provide title insurance at all, that will save about $900. If the Seller is providing only the standard coverage, that will save about $125 compared to the Homeowner's Policy form.

Since the REO Seller does not receive normal promises about the condition of title, the Purchaser must rely entirely on the title insurance. The Purchaser should make sure that a policy is issued! And, not just any policy.

The Purchaser should choose a title company that will conduct a good title search of the prior foreclosure. A new home owner wants a house that is free from title problems. Even if a title insurance policy provides protection, an owner's claim is an upsetting process.

It is Federal law [see Section 2608 of RESPA,] that the REO Seller may not require the Purchaser to use the title insurance company chosen by the REO Seller, if the Purchaser will receive purchase money funds from a federally-related mortgage loan. The REO Seller may have an arrangement with its designated title company, but the Purchaser may prefer a different company.

If the purchase is improved residential property, the Purchaser should choose the additional protection provided by the new ALTA Homeowner's Policy. See my 5/13/09 blog post, What is Different about the ALTA Homeowner's Policy?, for a full explanation of the differences in protection provided by that policy compared to the standard coverage basic owner's form that is for unimproved and commercial property.

In some circumstances, the Purchaser may also want an extended coverage policy including a survey of the new property, to reveal issues with boundaries and the location of improvements. That policy form also provides protection against unrecorded liens, such as for labor or materials provided for recent improvements to the land prior to the sale.

The protection provided by title insurance varies quite a bit between these policies. The premium varies too. With typical transactions, the seller pays for that premium.

The real estate sales professionals should not choose the title insurance policy for the Purchaser. They should inform the Purchasers what the proposed P&SA provides about the duty of the Seller to pay toward the policy for the Purchaser. They should inform the Purchaser that different policies are available, but the Purchaser will be responsible for the premium above what the Seller will reimburse.

The title company will provide information about the policies and the premium for different levels of protection. The Purchasers may inform the escrow agent about their choice of policy even if the REO Seller Addendum does not obligate the Seller to pay the premium.

The Designated Escrow Agent.

Another common change made by the Addendum provided by the REO Seller is to designate a particular escrow agent. The REO Seller often has a special arrangement that provides convenience and much lower escrow fees due from the Seller. Usually the designated escrow agent is not located in Washington.

All escrow agents are not the same. A Purchaser should very carefully review the escrow instructions for the proposed transaction.   In the transaction discussed at the beginning, the escrow did not obtain a title report and did not arrange title insurance for the Purchaser. It is very risky to presume the foreign escrow agent will perform the same duties that are commonly done in Washington.

The foreign escrow location causes some inconvenience for the agents and the Purchaser to get paperwork to escrow and of course the Purchaser will not be able to visit the escrow office to sign loan documents.

Similar to the change of the title insurance form, the primary issue for the REO Seller is the cost of the closing. The REO Seller will probably be paying no escrow fee, or a smaller fraction than usual. The foreign escrow agent fee is often quite a bit less than a typical escrow fee.   You get what you pay for with escrow services. The Purchaser may prefer to pay extra to receive escrow services by a local escrow agent.

The REO Seller in some cases will not agree to a local escrow agent even if the Purchaser agrees to pay the difference. This month, CA passed a law ["The Buyer's Choice Act"] allowing purchasers of REO property to choose their designated escrow agent. That does not affect Washington transactions. My experience is that the REO Seller will allow the change as long as the Purchaser pays the fee.

Inform the Purchaser.

None of these changes made by the REO Seller on the Addendum are necessarily right or wrong. If you are representing the Purchaser, you should inform the Purchaser about the changes and their options.

Let's help pet owners! Make condo listings explicit!

Joy Canova - Seattle (Coldwell Banker Bain) — Sun, 27 Apr 2008 22:02:20 -0500

Seattlites love their pets. But, alas, it is not that easy to make a search for pet owners who want to buy a condominium. Our MLS here in the Northwest has several options for a listing on the issue of pets:

No cats. No dogs. No dogs or cats. No restrictions. Subject to restrictions. See Remarks.

Now, if you check "no cats", does that mean dogs are allowed? What about the reverse for "no dogs"? "No restrictions" works well -- I love that one, but I do not see it often enough.

Most often, agents like to use the "subject to restrictions." This tells us absolutely nothing unless accompanied by remarks, and that is rarely done. So, I wind up calling the agent, who often does not know. Its a long process for a simple search. Ugh.

The one that drives me crazy is "See Remarks." I can count on one hand how many agents include remarks when they make that indication.

So, I am asking ... can we all make a commitment to research condominium rules about pets and be kind enough to include them in our listing remarks? Better yet, petition your MLS to include a section for pets remarks if none currently exists. Pet owners will love us for this.

Relocation -- Calling All Great Tips!

Joy Canova - Seattle (Coldwell Banker Bain) — Mon, 14 Apr 2008 10:49:52 -0500

What are some of you best tips for working with out-of-town clients relocating to your area? Here's a few of mine to get started:

1. Send an information packet with maps, especially those that designate neighborhood names.
2. Develop a relationship by both phone and email. Get to know the personality/needs of the buyer.
3. Create an online search for the client to use themselves, with the parameters of neighborhoods that may work well for their needs.
4. For their first in-town visit, create a tour that includes shopping areas, recreations, schools, etc. Have a couple of listing tours in each area.
5. Conduct an orientation meeting that describes the contract and negotiation customs of your region.
6. Show your prospective clients Coldwell Banker's Home Price Comparison Index so the buyers can relate their home local home's value to your region.

What are some of your great techniques? I would love to hear them!

Uh, oh. Take Another Look at "Ignore the Headlines"

Joy Canova - Seattle (Coldwell Banker Bain) — Sun, 16 Mar 2008 11:54:23 -0500

Not too long ago, a firestorm of posts hit Active Rain when Time Magazine published an article titles "Ignore the Headlines: by Dan Kadlec. Well... not just AR, but the blogosphere in general was all aflutter.

Mark and I, too, wrote about it on the Seattle PI Real Estate Professionals blog. Beyond the Market Numbers took the perspective other factors are always at play in real estate decisions. We posited that even if one could align market forces to extract a perfect time for prices and interest rates, it remains that people have their own timing about when they need to buy. And timing costs money in other ways besides interest rates.

Boy, are we glad we did not thump our chests and declare the article as "the answer", whatever that might mean. Turns out, numbers do not compute. Here's the chart, do the math yourself (if you need help, check the comments on our PI blog - link above):

That said, great agents understand that buying real estate can require a superior lender to keep a sharp eye on the market, available products, and trends of rates. Knowing when to lock your rate can be an art form! Do not let your clients skimp on sound lending help.

It would be nice if we could tell every buyer, "Buy now. It will always costs more later." Fact is, that is only true in a general sense -- other factors are always at play. This is the very definition of our jobs: look at all the facts and create a plan to help your buyer have the best outcome possible.

The other side of condo inspections

Joy Canova - Seattle (Coldwell Banker Bain) — Sun, 02 Mar 2008 11:56:05 -0600

Do you always encourage condo inspections? Perhaps you should. Farren West, of Key Inspections (Puget Sound, WA), outlines how condos can be examined:

"There are two types of condo inspections. One is considered a "Interior Only" condo inspection. This encompasses inspecting the interior of the condo of the interested purchasing party. We will inspect everything from the sheet rock in providing moisture intrusion testing (with a moisture meter) around toilets, showers, sinks, functionally testing all appliances stoves, fireplaces, dishwashers, microwaves, doors, windows, etc., safety testing garage door openers, smoke alarms, locks, electrical outlets (polarity, grounding, etc with electrical tester), stove anti-tip brackets, open and inspect electrical panels, thermal testing(digital temperature guage) furnaces & a/c and other heat sources for heat distribution.

Then there is a complex condo inspection. This encompasses the above mentioned items and all exterior components directly attached to your unit. We will enter if safely accessible the attic, roof, crawlspace, and siding testing for a variety of concerns, not limited to moisture intrusion, pest activity, and a variety of safety hazards.

If an interior only inspection is the chosen for the buyer we highly recommend reviewing the most current meeting minutes for the Home Owner Association and review the most current "Reserve Study" that was completed. Reserve studies are provided to give an association insight on when components will need to be repaired/replaced. For example a Reserve Study should tell you when the roof was last serviced, cleaned/sealed etc depending on the material and when will there need to be a new roof installed. This information will give the home owner association the details to properly assess there fund reserves to see if there are properly collecting due to pay for a new roof, driveway, etc. "

Consider this: As we earnestly advise clients to read Resale Certificates and association meeting minutes, combine that with an exterior inspection. Not all home owner associations conduct inspections as often as they should. Relying on the association to know all the problems your buyer will encounter is a disservice.

Instead, inspect the exterior / envelope of the property, and then scrutinize the association. How much do they know about the condition of the building? How much regular maintenance is behind schedule? These are predictors of sudden future assessments. Move beyond the condo inspection to obtain a richer picture of the purchasing risks and your client will thank you most sincerely.

Anyone remember the concept of home as nest egg?

Joy Canova - Seattle (Coldwell Banker Bain) — Tue, 12 Feb 2008 11:22:32 -0600

My mother has always been a great saver. Having come through the depression as a child, she recalls a change in attitude and cultural mindset of the "rainy day" concept of saving. Homes were nest eggs for retirement or money to pass along to children. What has happened since then that we are all so willing to go into debt and cash out our homes?

Many things. We now believe it proper to change our standard of living by spending all me make. Easy credit helps us drive even beyond that point. We even permit our government to do the same. In fact, the bully pulpit of the our legislative leaders tells us to go forth and spend as good Americans should.

But, its more than that isn't it? Even those of us who try to save have trouble doing so. And the resources for help with education costs, medical emergencies, and the like just do not exist anymore.

Enter the perfect storm for a credit crises and a great likelihood of people losing homes. Homes that have become the only source of assistance in a time of need.

I would like to challenge all real estate agents to counsel every buyer client we meet to establish a "rainy day fund" for emergencies. We should all do everything we can to let our nicely leveraged money of our homes grow.

Walking the Fine Line with Clients

Joy Canova - Seattle (Coldwell Banker Bain) — Sat, 02 Feb 2008 13:09:09 -0600

How does an agent walk that fine line between advising clients and not assuming decision responsibility?

On my blog post on the Seattle PI, I discuss how great outcomes to home inspections arrive from client empowerment. Preparing a client for inspection decisions goes a long way in having a buyer truly understand the risk trade-offs one assumes when purchasing a home. The risks are theirs alone to assume or not. The great service from their agent will be the opportunity to contractually have the time and means to investigate fully, not decide what to accept or reject.

Being conscientious about providing advice does not end with protecting oneself from lawsuits. Important, yes. But, the side benefit comes from the security your client feels in their own abilities to make wise decisions when presented with important choices. As their agent, you are truly building a sound relationship for the future.

As we counsel and educate, let's remember to build a partnership for the future by playing our roles to everyone's future benefit.

How Far Will They Go???

Joy Canova - Seattle (Coldwell Banker Bain) — Wed, 09 Jan 2008 09:35:36 -0600

How far will your Realtor go to act in your best interests?

If a $300,000 property meets your needs, but you are qualified to purchase at $415,000, will your agent encourage you to consider that listing? Will you even learn about it?
How will your Realtor counsel you if you considering selling your house, but you are uncertain about the timing? Will you get unbiased advice about the possibilities of delaying your sale?
When considering an offer price, how hard will your agent work to get you the best (lowest) price? Will you have research of comparables available for your consideration?
Will your Realtor advise you on the merits of planning for a future purchase, rather than strain your current financial ability?

If you answered "yes: for each of these questions, good for you. You may have an advocate Realtor working for you.

I say "may" intentionally. Pay attention to the degree to which your agent pursues your best interests.

When your agent clearly works hard for your benefit without concern of their personal gain, you clearly have an advocate. That's Integrity!

Congratulations!

We did it! We found a house! Not so fast...

Joy Canova - Seattle (Coldwell Banker Bain) — Sat, 24 Nov 2007 11:20:19 -0600

Think finding the house is the goal? Think again. That is just part of the puzzle.

First you need a contract to offer to the seller. Just 10 years ago, the purchase and sale agreement (the contract for purchase) on my home was just 2 pages long.

Currently, a common contract in Washington State can be composed of at least 10 different forms, is about 20 pages long or more, and can contain over 65 blanks and choices. To say it is a complex task is an understatement.

Even after the original negotiation for purchase, further agreements can be necessary for every contingency in the contract. There are specific time periods assigned to each condition response and even the absence of reply can mean an automatic yes or no depending on the party responsible.

Will the lender send the loan documents to escrow in a timely manner? If not, you may miss your closing date. Furthermore, the fees and monies escrow expects to be paid at closing should be checked for accuracy.

So what's the real goal? To find the house, yes, but also to close the deal with no unintended consequences. Pick the right agent that is dedicated to seeing you through the obstacles that spring up before closing -- select a real estate advocate!

How does one go about finding an advocate? Ask!

Ask your potential Realtor how they monitor a transaction. Are there regular communications with the lender -- "How are those loan documents for escrow coming?", with the escrow officer -- "When will I see the HUD-1 Settlement Statement?", with the title representative -- "Anything out of the ordinary in the title report that you can explain to my client?".

Agents as advocates should be the rule of the day in a high investment, complex purchase. Realtors: How do you guide your clients after mutual agreement? What shloud a buyer expect of their Realtors during the closing period?

Network Groups and Volunteering -- Does it hurt or help your business?

Joy Canova - Seattle (Coldwell Banker Bain) — Tue, 13 Nov 2007 10:27:17 -0600

I chose only one big thing - just one. I joined a business/networking organization to increase my visibility and develop some lasting relationships for giving and receiving referrals.

My business partner and I are very particular about who we recommend to our clients and others. It seemed incumbent upon me to be hands-on in my networking -- to really gain personal knowledge of my fellow businesspeople.

You see what is coming, don't you? I joined a committee. Next thing I know, I am recruited to the board of directors. Now I am president-elect and take the office of president in 2008.

I just cannot help myself. I love to solve problems; I love to reach goals. Put me in a situation where leadership is needed, and I want to take my skills for some exercise.

I cannot report too many closings from my volunteering. I look at it as a long term investment. However, I have met some great business associates for my clients -- lenders, insurance, etc. I have also made some wonderful friendships.

Nevertheless, I have to be careful with my time. These activities are not "A" tasks. So far, so good. I am using efficiency to keep my hours down. Although, I know a presidency is different. I will have to be mindful of that. And I do volunteer in my neighborhood, too; but, those activities are on much smaller scales.

A colleague of mine is involved in a great number of boards. Some of them pretty high profile in the real estate world. Yet her business is suffering. Is it something else -- the market, for example -- or perhaps a balancing problem?

What is your experience in networking activities and volunteering? How do you manage the balance of time you devote? I'd love to hear about your experiences.