Title Insurance

Title insurance is a type of insurance that a purchaser of a property (other than a coop which will be discussed later) should buy at the closing of title. This insurance will insure the purchaser's ownership of the property free of any liens, claims or encumbrances. Most people just think it is a fee that has to be paid at closing and is of no significance. In reality, however, it is no different than any other type of insurance in that you buy it and you hope you never have to use it. But if you do have to resort to filing a claim with the insurance company, you will be very thankful that you purchased the insurance (even if at the time you were annoyed to spend the money).

A dramatic example of how title insurance protects a homeowner is as follows. You bought a house from John Doe. As it turns out, John Doe died three years prior to the closing. At the closing, a person with Jon Doe's ID signed the deed and took off with your money. After the closing, the real John Doe's daughter comes to the house and is shocked to see that you moved in to her deceased father's house. If you bought title insurance, and assuming this very simple fact pattern, the title company would be on the hook for making you whole as far as returning to you the money spent to purchase the house. As an aside, you will not be covered for closing costs.

This is a very simple explanation of title insurance and there are many other facets as well as different options of coverage available so if you have any questions, please comment (or email) and I will do my best to reply.

Time to refi

Just a note to all home owners that rates are very low and now is probably a good time to refinance. Wells Fargo's website has 30 year fixed mortgages at 5% (with 1 point).

CEMA, rates and bank closing costs

The fact that a CEMA is utilized, either in a refi or a purchase, can have an effect on the interest rate or other bank closing costs. In a residential transaction, the lender pays .25% of the mortgage recording tax. On a loan of $400,000.00, the bank has to shell out $1,000.00 which they would save on if the prior lender assigned its mortgage to your lender. Because the loan costs the bank that much less to close, they are making more money on it. This is one of the many factors that go into the bank's formula when figuring out the rate and costs to charge a borrower. Of course, they are not going to tell you this so it is your duty to bring it up.

I would tell the bank to reduce the rate slightly and once you are rebuffed (most likely) tell them to waive the application fee or processing fee. Explain to them that by doing the deal as a CEMA, they are saving on the mortgage tax that the lender pays so in essence, you are helping them out. Just my opinion, but I am pretty confident that they will waive something to make you happy and close a deal.

Mortgage tax credit - save on condo purchase

When a sponsor sells a condominium unit, a purchaser may be entitled to a credit on the NYS Mortgage Recording Tax. There is a complicated formula used to determine the amount of the credit but if the sponsor has a mortgage on the condominium (and unit) which is dated no more than 2 years prior to the sale of the unit, some credit is due to the buyer.

However, sponsors are smart. It has become common practice for the contract of sale of a condominium prepared by a sponsor to state that if any credit is due to the buyer, the buyer will pay that same amount to the sponsor. In effect, what the sponsor is saying is: "you (Buyer) were expecting to pay the full mortgage tax and I don't want to disappoint you, so, whatever you save, you pay to me". The sponsor is right in that the buyer ends up paying the same amount except that a portion is going to the sponsor rather than the State.

As we all know, the current state of the market is such that sponsors need to sell and so as a buyer, there is much more negotiating power than say, 2 years ago. So, when negotiating, give an offer that you are comfortable with but also add that any mortgage tax credit will not be paid to sponsor. This can save you thousands of dollars depending on the circumstances of your transaction.

Coming back soon

I got a little busy over the past month but I will continue posting regularly after Thanksgiving.

I got some new ideas to really spruce up the blog so stay tuned...

CEMA

It looks like the CEMA posts are getting the most attention on this site and so I wanted to direct new visitors to my post of September 2, 2008 for a concise tutorial on the NY CEMA process and its benefits to both buyers and sellers.

As mentioned, on refinances of residential properties, CEMAs have been the norm for years for anyone dealing with a reputable mortgage broker. However, most buyers did not pursue this option on purchases even though it would have saved thousands on closing costs.

Comments and questions are welcomed from visitors to this site.

REO listings

I across this website that has direct links to several banks' REO listings including Fanny, Freddie and Countrywide. I skimmed through them and there are some well priced houses (at least well priced for now). Again from, my experience, you should be able to get a substantial reduction from the listed price.

If you make an offer and your offer is accepted, make sure an attorney reviews the contract. The REO contracts are very tough on purchasers in that often the bank wants the purchaser to pay transfer taxes (which are a seller's charge). Brokers will tell you that this is how it is but you must negotiate this point. The bank will not kill a deal over $3,000.00.

Anyone needing further advise may contact me via email or phone.

REO houses

Due to the rotten state of the real estate market, REO houses, houses owned by banks after the foreclosure have become very attractive buys. I have seen banks accept offers as low as .50 cents on the dollar meaning, if the bank foreclosed on a loan of $450,000.00 and no one purchased the house at the foreclosure auction, the bank will sell that same house at $225,000.00.

You can get listings for REO properties on various websites or through brokers. Some banks have their properties listed on their websites (for example EMC Mortgage's properties are at here). My advise is if you see a REO house that interests you, make whatever offer you want without any shame. What will probably happen is that the lender will negotiate a price with you and maybe you will get a steal in this market. Remember, the bank may very well sit on the house for years and years to come and have already taken a loss on their books.

How to make an intelligent lowball offer.

Many houses have been lingering on the market for many months and the sellers are desperate to get rid of them. Many of these sellers would probably like to just pay off their mortgage, closing costs and broker and walk away. If you have the time, you can try to figure out what price point would accomplish just that.

For houses in the five boroughs, you can go on the ACRIS website online (click here) and find out whether there is a mortgage on the house and what the original mortgage amount was. With that information, you know approximately how much money the seller needs to be at a break even point (assuming its a fairly recent mortgage) and you can make an intelligent offer. Outside the five boroughs try logging on to Propertyshark.com. You never know the situation of the seller until you make an offer.

A recent popular trend is for sellers to apply for a "short sale" with their lender. This means that the seller will try to convince the bank to accept a lower amount of the balance due on the mortgage. If the lender agrees, then the seller will be able to sell the house for less than the amount due on the mortgage.

I will post more about this in the future but for now, buyers should know that they should not be afraid to make low ball offers.

The Credit Crisis = buy a house for cheap

I think its time to discuss whats going on in the market right now. Due to the current climate on Wall Street and the coverage that the "Credit Crisis" has received on the news over the past few weeks, it is probably not a great time for everyone to look for a house. Its also probably not a great time for anyone to sell a house.

What I am seeing is that there are plenty of people just casually seeing what available as far as inventory but not pulling the trigger. Obviously this is a good decision as we wait and see the direction of the market in the coming months.

However, there are two pieces of advise I can give those looking for a house: (1) don't be afraid to make a low offer, and (2) get listings of REO properties (properties owned by the bank after foreclosure).

Above I will discuss both.