The Problem With Condos

If you're thinking about buying a condo, you should be aware that FHA has tightened their requirements for condo approval. That means that a condo association must be well-run before they will make a loan in that community. Some of the new guidelines are:

--All units and common elements must be completely built.

--No single entity can own more than 10 percent or more than one of the units, whichever is greater.

--At least 50 percent of the units must be owner-occupied.

--No more than 15 percent of the units can be more than 30 days delinquent on assessments.

--No more than 25 percent of the total floor area can be used commercially.

--At least 10 percent of the annual budget must go to reserves.

Now this is a good thing if you're buying a condo FHA, because it gives you some security that the association is sound. But if investors are buying up condos in the community, the owner occupancy rate can drop below 50% after you buy it. Or more than 15% of your fellow condo owners could become late with their HOA payments. That means when you go to sell in the future, FHA will not approve loans in that community and your pool of potential buyers has just shrunk, resulting in a lower selling price. (!)

It's risky to buy something where the value can drop because of something you can't control. Nevertheless, if you're determined to buy a condo, consider the following points resommended by RISMEDIA:

"7 Questions to Ask Before Buying a Condo"
RISMEDIA, May 21, 2010--You've found your dream condo, and you're ready to relax among the mango trees and swaying date palms. Hold everything. To keep from getting stuck with a lemon, you've got to do some homework. Here are the seven most important questions you need to ask before buying a condo.

1. "What's the Beef?"
Take a look at the minutes of the condo association board meetings to see what the owners have been griping about. If everyone was complaining about the faulty plumbing or the gardener's absence, you know that the complex is having management difficulties. Even if there aren't any complaints, reading the minutes will reveal the sorts of projects that are under way at the complex -- projects the seller may have neglected to mention.

2. "Who's Been Naughty and Who's Been Nice?"
Find out the delinquency rates of present owners. If people aren't paying their association dues on time, that is either a sign of discontent or an indication that the association might be underfunded.

3. "How Much Is In the Repair Fund?"
Ask if the community has done a reserve-fund review in the past five years. Lester Giese, the author of The 99 Best Residential & Recreational Communities in America, recommends the following formula: If the complex is one to 10 years old, the reserve fund should have 10% of the cost of replaceable items (roofs, roads, tennis courts, etc.). Between 10 and 20 years old, the repair fund should be at 25% to 30%. At 20 years, that amount should be 50% or above. Residents who brag that they don't pay much in maintenance may be in a complex that either is not being kept up well or is living beyond its means.

4. "Can You Cover Me?"
If you look at nothing else, get a copy of the certificate of insurance, which is a summary of the association's policy. First see if the replacement costs covered by the policy are an accurate estimate of the cost of rebuilding. Then make sure that the policy has a building-ordinance clause, which means that the insurance will cover the cost of bringing the building up to code if there is any rebuilding to be done. On older buildings, there may have been many code upgrades since the time of construction. Finally, make sure that you understand exactly what the association policy covers and what you are responsible for. The smart condo owner will insure his or her personal belongings, along with any other items within the unit that are not covered by the association's policy. If you have trouble understanding the insurance lingo, take the insurance certificate to an agent whom you trust and who understands the state laws.

5. "Does the Association Present Any Legal Problems?"
Buying a single-family home without a lawyer is no big deal for many people. But with a condo, there's so much more involved. Contact a local real estate lawyer and have him or her go over the bylaws of the association. Do they make sense? Are they consistent with the state laws? Giese, the author, once found that the association bylaws of a large garden-style condo complex had been lifted from the books of a high-rise condo, leaving confused tenants with rules about shared hallway space and the correct use of garbage chutes. Benny Kass, a Washington real estate attorney, recommends that you also have your lawyer screen the association at the local courthouse, to see if any owners have filed suit against it.

6. "Is the Complex Renter-Friendly?"
If the renter population is over 10%, there should be clear rental policies, either listed in the bylaws or tacked on as an amendment. Does the management company find renters for you? If so, do they get enough good renters? Ask other tenants about their experience. In addition, ask to see the association's rental lease, and have a real estate lawyer look it over. Keep one thing in mind, though: An association can change its bylaws to prohibit or restrict renting at any time. The more owners who rent, the less chance that will happen.

7. "Am I My Community's Keeper?"
Watch out for a condo whose owners manage the place themselves. Although many are operated efficiently, self-management can lead to more hassles for owners -- especially those who live thousands of miles away. If the complex is professionally managed, check out the management company as thoroughly as you check out the association. Ask other owners. Ask people in nearby buildings. And be sure to interview the day-to-day manager directly. If you hook up with a bad manager, you can be sure of this: Your dream condo will keep you up at night.

Califonia's Tax Credit Monies May Go Fast

The $100 million allocated for California's first-time homebuyer tax credits may be depleted in about 10 to 20 days or sooner, according to C.A.R.'s Economics team. California's Franchise Tax Board (FTB) plans to begin accepting applications on May 1, 2010 for tax credits up to $10,000 for first-time homebuyers and for homes that have never been previously occupied. However, the total tax credit allocation for all taxpayers is $100 million for first-time homebuyers and $100 million for new homes, both on a first-come, first-served basis.

C.A.R.'s forecast of 10 to 20 days to deplete the $100 million allocation for first-time home buyers is based on estimated May sales figures and other parameters. It does not take into account the possibility that buyers scheduled to close escrow in April may delay closing until May to take advantage of the tax credit. If a shift in closings from April to May occurs, the first-time homebuyer tax credits may be depleted even more quickly than indicated above.

Applications for the California tax credit must be faxed to the FTB after escrow closes. The FTB will update its website when the 2010 application form and other information become available.

7 Great Customer Service Words

While we were in Victorville working on a rental property, we stayed at the Hilton Garden Inn. Crystal pointed out that there were no napkins to go with the cookies and the employee behind the counter said “Thanks for bringing that to my attention.” Wow! How refreshing that was!

Most of the time we’re dealing with utility companies or government agencies, or banks, or other so-called “service” companies and all we ever get is “That’s our policy sir.” As if putting “sir” on the end makes it polite, and shows how they have such excellent their customer service. Why not tell it like it is? “I don’t care about your problem, so you can just drop dead, sir.” The attitude of most people on the front line with the customer is appalling. “I get a paycheck on Friday whether I help you or not, so I’m not going to help you, sir.” Sure gives you a bad opinion about that company and tells you what they really think about their customers. How much better is it for your business to take responsibility for fixing something that’s wrong and make a friend at the same time?

We’re going back to Victorville this weekend and I know we’ll be staying at the Hilton Garden Inn.

Investors Back in the Market, Cash is King

Investors are back in the market, and they’re paying all-cash, mostly for property under $500,000. The effect is to freeze out first-time home-buyers who need a loan. Banks are still chary about providing loans. About the only loans left for first-time buyers are FHA and VA loans.

So, while the first-time buyer is working through the loan process, the investors are swooping in and buying the best property, which, after making minor repairs, they are putting back on the market. Sometimes, they rent out the property hoping for more appreciation down the road.

Appraisals are also affecting buyers who need a loan. Appraisals lag the market because they use past data, typically six months worth, to calculate current market value. When a market has bottomed out and begins rising, appraisals often come in under the value agreed upon by the buyer and seller. Banks are requiring buyers to come up with extra cash to make up the difference. First time buyers are having a hard time doing this, so we’re seeing many more sales fall out of escrow than normal.

Another thing hanging over the market is the so-called “shadow inventory” of bank-owned property that has not been put on sale. How many properties the banks are holding is a mystery, but, they may not be accumulating as many as the pundits believe. Large investing companies are buying multiple properties at the foreclosure auctions. The banks have finally realized it’s better to take their losses there rather than go through the time and expense of re-habbing and putting the properties on the market..

Home and pending sales were down in January, which is not unusual at this time of year.

The decline in sales is not a result of reduced demand, we are seeing multiple offers on the best properties in the best neighborhoods, rather it was produced by a lack of inventory, or should I say, a lack of desirable inventory.

We expect sales to regain their momentum through the Spring because of the extended tax credit and because this is historically the prime time for home sales. After that, all bets are off.

Remember, the real estate market is a matter of neighborhoods and houses. No two are the same. For complete information on a particular neighborhood or property, call me.

P.S. The FHA requires all condo projects to be re-certified before they will make a loan. To find out if the condo project you’re interested in is eligible, go here: https://entp.hud.gov/idapp/html/condlook.cfm

San Diego County foreclosures drop in December

San Diego County saw the number of foreclosures drop across the board in December. There were 1938 Notices of Default filed versus 2565 in November, 2008 Notices of Trustee Sale versus 2119 in Novemeber, and 814 properties went back to the bank versus 953 in November.

We know that several banks announced that they would not be foreclosing nor evicting people during the holidays. "The dramatic drop in foreclosure activity may have been a Christmas gift to homeowners," says Sean O'Toole, founder and CEO of ForeclosureRadar.com, "however, giving rising mortgage delinquencies it is becoming increasingly clear that foreclosure activity no longer fully represents market realities".

In other words, the market really isn't what the numbers the numbers say. The shadow inventory is alive and well!

What you weren't told about November's foreclosure numbers

"Figures don’t lie, but liars sure can figure."

This quote by Mark Twain has never been more relevant than in our day. With contradictory statistics bombarding us daily, a thinking person has to wonder what’s real and what is a lie.

Let’s do a real life example. In November there were 29,597 Notices of Default filed in the state of California. In October there were 36,531. Now suppose you see a news report that reads “Foreclosure filings drop 19% in November, another sign that the recovery is well under way.” Is that true?

Well the first thing is that the article writer has an obvious agenda, that of convincing you that a recovery is well under way. News reporting should be objective, meaning that reporters should not draw far-reaching conclusions from one data point. The second thing is that the statistic itself is a lie.

Do the math and you will see that there were 6934 less Notices of Defaults filed in November than October, and then divide that by 36,531 to see that the number is indeed 19% less. So how is it a lie?

Well here’s what you weren’t told - there were only 18 recording days in November versus 22 in October! The lower total in November was due to the difference in the number of days documents could be recorded and NOT fewer filings each day. 36531/22=1660 per day for October and 29597/18=1644 per day in November, a difference of only 1%.

So please be very skeptical about what you see in the news. To get the facts today you have to avoid the slanted reporting and do your own research. One source that I use is Foreclosure Radar (www.foreclosureradar.com). According to their December newsletter, “The simple reality is that homeowners are continuing to enter foreclosure faster than they are coming out. This will likely continue until we see meaningful progress on loan modifications, or the often predicted “foreclosure wave” finally occurs.”

The banks' solution to the mortgage crisis these days is to "amend, extend and pretend." This video talks about "shadow inventory", "strategic default", and from the street predictions about 2010.