How Do I Get My Deposit Back?

This week I had a curious email with the following request for assistance:

Hi Dane

Being from UK I am not sure how things work there, I attempted to purchase a property back in April, put a deposit down, after which I had an inspection done which found some things had been damaged in the property since I viewed it. I decided not to proceed.

The Agents (mine and the seller’s) both refuse to respond. I have found from title escrow company I needed to sign a cancellation form so I have done this, but it looks like the seller is refusing to sign it, so my deposit is being held.

How do such cases get resolved? As you can see we are now in October and still I am getting no response from agents and stone wall from the title/escrow company.

Rgds
Martin

My Reply: Hi Martin, Thanks for your question. I will have to give you a fairly generic answer because I don't have all your particulars at hand. As I understand this, you placed a deposit on a property in April, and following the inspection decided not to go forward. If you were working with a Realtor who was representing you (as a buyer’s agent), this probably would not be an issue, but apparently you have an agent representing the seller--and the seller also has an agent representing him.

The situation here is pretty much two against one. (Two agents against you) So where do you go from here and what's the next step? My professional opinion is you need to find a young hungry lawyer. At this point you are in quicksand and need an ally.

I will assume that the property in question is a house, and that the inspection showed some damage or unseen wear that has cooled your desire to own this property. I will also assume that the seller was thrilled to get your offer, which may have been for more money than he was expecting to get--meaning that your withdrawal from the transaction leaves him with no buyer in that price range. (And no real willingness to relist the property and sell it to another party.)

Typically a case of this kind is settled with the seller coming to grips with the deficiency in his property and either offer to make the repair or returning your deposit and life goes on.

But because the seller is unwilling to return your deposit, probably he has given you a reason--I would suppose he is saying that there was a time period in which you could have withdrawn, but he didn't hear from you and that time frame has expired and so now YOU either have to perform (buy the house). OR he gets to keep your deposit as "liquidated damages". This would be a fairly common response from a seller faced with losing a sweet deal.

The seller himself is probably not holding your deposit (escrow) money, that's the job of the listing agent or the escrow company. I will tell you from personal experience that nobody wants this kind of deposit money in their accounts--especially if they suspect the house is never going to close. So here are two good things you probably didn't suspect, (1) whoever is holding the funds wants to rid themselves of your deposit. And (2). Interpleader is an informal real estate court, which if you ask to have the case sent there, will hear your case and rule on who gets to keep your funds. It's not free, so you need to think over that avenue of redress. At Interpleader, they may give you back all the deposit, they may split it between you and the seller, or they might give it all to him...it depends on their findings. You can invite your lawyer to come and help you.

If the deposit in question is less than $5,000, you can skip Interpleader and take the seller to small claims court. There you may have a real judge hear the case but more likely you will be asked to sit with a mediator who will hear both sides and suggest a fair way to settle, if you both agree the case will be closed, if you don't agree, get out your wallet because the next steps will be costly, and you will begin to learn the intricacies of the American Legal System.

Or you might change your mind, and decide to buy the house. You may offer a little less for the property than you first did due to the problems unearthed during the home inspection. I don't know the real facts or the personalities involved, but if that house was worthy of your offer 6 months ago, you might still want it for the "right" price.

Martin bear in mind that Florida does not allow Realtors to practice law, so my answers are only my answers, but I wish you success and hope you do consult a real lawyer.

Dane Hahn is a real estate professional practicing in New Hampshire and Charlotte and Sarasota Counties in Florida. You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312

ReMax Chairman Dave Liniger: A Letter to President Obama and Governor Romney

 The following letter was issued October 25, 2012, to the Candidates from Dave Liniger,

Co-Founder and Chairman of RE/MAX, LLC

We have just witnessed the last of three presidential debates in anticipation of elections now just 2 weeks away. Considering the depth of these debates and the months of political advertisements in this campaign, it is discouraging that there has not been a serious discussion about housing. As leaders, you ignore housing at our peril.

Although the economy is recognized as the single most important issue in this campaign,
and housing is commonly blamed for the recession and sluggish recovery, it is unimaginable that relevant solutions to housing issues have not been front and center. Over 3.5 million homes have been foreclosed on in the last four years, another 3 million are likely in the next four, one in 213 homes had a foreclosure filing in the third quarter, and over 10.8 million homes remain underwater with mortgages greater than their market value.

Housing has always led the country out of the dark days of recession, but that has not happened this time. Still, housing does have the ability to promote a stronger overall recovery if it is allowed to do so. But it will take real political leadership in the White House and Congress to acknowledge this fact and take the appropriate steps.

It has been a long and painful road for homeowners and real estate professionals alike, but market performance in recent months has everyone feeling a bit more optimistic. Prices are rising and many underwater homeowners have received a lifeline. But we’re not on solid ground just yet. Significant obstacles remain on the road to recovery.

Simple steps would quickly increase home sales by another 700,000, create over a quarter of a million jobs and deposit millions of dollars into the economy. So, what are the obstacles?

One aspect of the fiscal cliff you have not discussed is the Mortgage Forgiveness Debt Relief Act of 2007, which is set to expire on December 31. If not extended, this has the potential of immediately reducing home sales by as much as 20%. Troubled homeowners who meet the qualifications for a loan modification or short sale are not likely to pursue either of these options if the remaining mortgage balance is considered taxable income.

Many of us in real estate have long been promoting the short sale as a viable alternative to foreclosure. In 2012, short sales began to shed their reputation as a cumbersome and time-consuming process, and their numbers have been steadily increasing. This helped reduce foreclosures and kick-start a struggling housing market. Now, the transaction that serves as salvation for many families facing foreclosure will come to an abrupt halt.

The CBO says a two-year extension will save distressed families about $2 billion. The average debt forgiveness in a short sale is $65,000. How are these struggling families going to pay taxes on this amount? Without debt relief they will eventually be forced into bankruptcy or foreclosure. What will the associated costs to society be then?

In normal times, most of us would never consider forgiving unpaid tax bills, but these are not normal times. It is more important for our country to get housing on a solid footing, put people back to work and have an economy that everyone can be confident in again. Just like a debt relief policy that is more appropriate to another place and time, unrealistic lending standards are also slowing the recovery.

Even with improving home sales, nearly 15% of sales contracts are falling through. This is largely the result of strict lending requirements. Obviously, we’re obsessed with fighting the last war. Today’s lending requirements may have prevented the housing crisis five years ago, but the pendulum has swung too far in the opposite direction. Otherwise creditworthy individuals are being denied or too intimidated to apply for a home loan.

Financing appears to be getting more difficult, not less. In August, the average FICO score of a rejected mortgage application at Fannie and Freddie was 734, two points higher than one year ago. And the average down payment of a rejected applicant was 19%. Historically, these are numbers that would seem like a solid lending risk, but for some reason that’s not the case today.

Additionally, requirements in the Dodd-Frank Consumer Protection Act that would unreasonably define Qualified Mortgages will certainly have the unintended consequences of making mortgages more difficult to obtain and perhaps add to the cost of financing a home. Even the authors of this legislation have said this was not their intent.

One proposal being considered that really shocks most of us in real estate is the elimination or reduction of the Mortgage Interest Deduction. This is not simply a loophole for the wealthy. It has been a mainstay of the middle class for many years, and by promoting homeownership it promotes a strong economy. Over 75% of homeowners utilize the deduction over the time of their ownership. Even a gradual elimination gives pause to many potential homeowners. This is the wrong approach at the wrong time.

Our message to you is simple, “First, do no harm.” Do not disrupt the ability of a fragile housing market to positively impact a stalled economic recovery at this critical time. Housing is a powerful economic engine that can easily add a large number of jobs and cash to the overall economy if it is not prevented from doing so.
The Debt Relief Act must be extended, reasonable lending standards established, housing-specific provisions of Dodd-Frank re-examined, and the mortgage interest deduction untouched. These steps will build a solid foundation, restore confidence, and provide clarity to lenders and relief to troubled homeowners. Take these simple steps and watch housing lead the country to real recovery, as it has many times in the past.

President Obama and Governor Romney, you still have time to detail your vision. For many Americans, housing is still a crisis and they are anxiously waiting for solutions.

Respectfully,
Dave Liniger
Co-Founder and Chairman
RE/MAX, LLC

Affordable Homes

It’s the Best of Times

Any Realtor you bump into will tell you that now is a great time to make a move into the real estate market.  So if you are thinking about buying a house, the selection, price and interest rates on mortgages could not be better.  Sometimes I hear mystics say that “the stars are in apogee, and this portends great things”.  Well my friends if you want a house, this time you’re in luck.

I can’t recall interest rates ever being lower than they are today.  So when you read that they are at historic lows, believe.  Compare today's 30-year fixed-rate average of between 3% and 4% to those days only a few years ago when 6-7% was the norm—or better yet back in the 1980’s when I personally got a mortgage at 18.5%!  So now can you see why everyone is buzzing about the great deals to be had!

Home are now at their most affordable on record. These low prices upset sellers and tax collectors—but they delight buyers.  As a buyer, you should be thrilled that home values have dropped across much of the nation. There is also a huge supply of distressed properties on the market, which sell for steep discounts.

With all these great deals it's easy to get carried away, nobody wants that, in fact a good Realtor will help you curb your enthusiasm. The bitter lesson, often learned too late by millions of foreclosed homeowners is to buy within your means, and don’t get a mortgage that can adjust itself out of your affordability range. It’s too easy to ratchet up a notch and over buy. Just because you're approved for an X dollar amount doesn't mean you should spend that much.

Actually, it all comes back to affordability.  Realtors say that home prices are affordable when the median price of the homes in your market is less than three times the median annual earnings in that market.  Meaning if the median annual income is $50,000, and the median price of homes is $150,000 or less, then the market is affordable.  So, how much home can you really afford? Consider the following.

If you have a salaried job, this can be as simple to calculate as looking at your earning statement, but if you work on commission and tips, it's important you consider both high income and low-income months.  Your friendly banker will do all of this math for you—and will consider your credit score as well.  If that’s acceptable, they will probably be willing to loan you about 3x you annual earnings.

Consider your monthly expenses, not just now, but what they might be after you’ve found your dream house. If you’re chasing a fixer upper, factor in the costs of the “fix” and then double that cost.  And don’t forget monthly cost of child support, alimony, student loans, credit cards payments, car loans, and other debts that must be paid each month.  And besides your monthly debt load there are extra expenses including: cable, Internet, cell phone, gas, food, entertainment, clothes, travel, etc.

If you are applying for a 30-year mortgage, don’t plan to sell the house in only a year or two. Homes just aren't appreciating fast enough for you to use the appreciation as your personal piggy bank. You will probably need to stay put for at least five years before you would break even on a sale.  If you think moving up or out the next 3-5 years is in your personal future, look for a home that will have strong resale appeal, and either consider a 10 year mortgage—they’re a little more expensive, or make 13 monthly payments each year, applying the 13^th payment to the principle—which will put you in better shape when you sell.

Today's job market is still a little shaky. While the unemployment rate has improved a tiny bit, many still struggle to find jobs. What would happen if you were to lose your job? Would you still be able to pay your mortgage?  You may be interested to know that about 65% of the homes that sold in Sarasota County last month sold for cash—they transferred with no mortgages at all.

Lenders expect today's buyers to have at least 20 percent to put down in addition to closing costs. So a $200,000 house will require a $40,000 down payment. If you have this money (in addition to an emergency fund) call me today. If not, you might want to consider a less expensive house or possibly suggesting to the seller that he take back the mortgage to get you into the house with a future refinance to pay him off; you last option is simply saving more money and waiting to buy.

Dane Hahn is a real estate professional practicing in Charlotte and Sarasota Counties, reach him at 941-681-0312 or dane.hahn@gmail.com.

Foreclosure? No Problem.

They call this phenomena “Boomerang Buyers”. These are the families who lost their home to foreclosure following the housing crash are now re-emerging and looking to buy again. And well they should—if they can get the money. It's much cheaper to own than it is to rent (at least for now, before the presidential election messes up our tax regulations). Many folks who lost a house, or short sold their homes will be eligible to buy a new home with FHA financing, in just three years.. Any one with a house for sale should have a burning interest in reaching out to these “boomerang” foreclosure buyers. For example, some builders and Realtors are offering fliers that detail mortgage eligibility rules for families who have undergone a foreclosure or bankruptcy. Essentially they are saying, “all is forgiven—if you want a house we'll figure a way”. In a story from the The Wall Street Journal on this topic, they reported that in order to qualify for a mortgage backed by the Federal Housing Administration (FHA), families must wait three years or more to apply again following a foreclosure or short sale. Three years ago about 729,000 households were foreclosed on during the housing crash--meaning these folks are now eligible to apply for an FHA mortgage – up from 285,000 a year ago, But just because “boomerang” families are allowed to apply again for financing for a home purchase doesn’t mean they’ll qualify for a loan. The rates are very low just now, but there's the matter of a down payment—think 20% for now. And these families will still have to show a strong credit score and meet stringent underwriting standards. For those who remember the flipping TV shows that have run over the years on HGTV (for example), or who have purchased the “No Money Down” sales programs sold on late night TV, you might want to start looking around for an investment property. Flipping is back, even if no money down is tougher to work out than the TV guys said. Many of the short sales over the past year or so were sold to folks who felt they could use the house for a year or two and then sell for a profit. With the prices strengthening and the inventory thinning out, the “flips” seem to come back on the market with a makeover—usually new kitchens and lots of fresh paint. Recently I showed a home in a tony neighborhood in Sarasota that was priced at $160,000. When I looked up the most recent sales for that street, that particular house had sold in January 2012 for $114,000. Today it has a new roof, granite counters, stainless appliances, a new “hardwood” floor, and lots of fresh paint. My clients loved the interior, but didn't like that it had an old pool and no garage. In the old listing it had a carport but no dining room; now it has a dining room but no carport. It's probably worth the money and I expect it to be sold pretty quickly. Dane Hahn is a real estate professional serving Sarasota and Charlotte Counties. He can be reached at dane.hahn@gmail.com or by phone at: 941-681-0312. See him at www.danesellsflorida.com www.danesellsflorida.com.

Good News; Bad News for Real Estate

Finally some good news: The housing market is recovering faster than expected and according to all the “experts” the economy likely won’t fall off the much discussed “fiscal cliff.”  44 economists recently surveyed see GDP (gross domestic product – the value of all goods and services produced in the United States) rising just 1.9 percent in 2012 before reaching a 3 percent pace by the fourth quarter of 2013.

Followed by some unhappy news:  Employment growth is forecast to weaken. The panel predicts that the unemployment rate will rise to 8.1 percent by the end of the year. Remember the unemployment rate? It’s the most-watched measure of the country’s economic health, and has been a prime issue in the presidential election campaign. It fell to 7.8 percent in September. But before that report, the rate was 8 percent or higher for 43 months. September’s lowish rate is likely to be restated over the next few weeks.

The economists, who were surveyed Sept. 14-26, revised upward their previous estimate for single-family housing starts and now expect them to increase 23 percent to 750,000 units in 2012. Continued improvement is seen in 2013 with a 13 percent rise to 850,000 units. Home prices are now projected to rise by 1.5 percent in 2012 and 2.8 percent in 2013, more than the economists expected in their May forecast.

A widespread concern about the economy has been the combination of about $1.2 trillion in spending cuts and tax increases that will kick in starting next year, risking a giant fiscal shock if Republicans and Democrats don’t reach a deal on a budget. But a majority of the economists are confident that won’t occur.

"We think the recovery is for real this time around," said Rick Palacios, senior analyst with John Burns Real Estate Consulting. "If you look across the U.S. economy right now, there are only a handful of industries looking at 20-30% growth over the next 4-5 years, and housing is one of those."

Home builder stocks are up 162% in the last 12 months, led by a 250% jump at Pulte Group (PHM). Other leading builders including DR Horton (DHI), Toll Brothers (TOL), KB Home (KBH) and Lennar (LEN) have all seen their stocks more than double over that time. New orders at publicly-traded builders are up 30% since January, according to Kim Barclays Capital put out a report recently forecasting that home prices, which fell by more than a third after the housing bubble burst in 2007, could be back to peak levels as soon as 2015.

"In our view, the housing market had undergone a dramatic over-correction during the prior five years, resulting in pent-up demand for housing purchases that would spark a rapid rise in housing starts," said Stephen Kim, an analyst with Barclays, in a note to clients. In addition to what Kim sees as a big rebound in building, he's bullish on home prices, expecting rises of 5% to 7.5% a year.

Construction is expected to be even stronger, with numerous experts forecasting home construction to grow by at least 20% a year for each of the next two years. Some believe building could be back near the pre-bubble average of about 1.5 million new homes a year by 2016, about double the 750,000 homes expected this year.

The experts forecast:

• Inflation will remain low next year. The Federal Reserve’s preferred measure is seen rising 1.9 percent in 2013 while the core Consumer Price Index, which includes spending on everything except food and energy, is projected to increase 2.2 percent.

• Consumer spending will be weak. The panel revised its forecast for growth in consumer spending downward to 1.9 percent in 2012 and 2 percent in 2013, reflecting slow personal income growth and limited job gains.

• Longer-term interest rates should rise. The yield on the 10-year Treasury note, now 1.66 percent, is forecast to climb steadily to 2.3 percent during the fourth quarter of 2013 as the Fed draws nearer to reversing its policy of extraordinarily low short-term rates.

• Stocks will rise modestly. The Standard & Poor’s 500 index is predicted to be 1,450 at year-end and 1,520, or 5 percent higher at the end of 2013. The key market barometer is currently 1,429.

• Corporate profit growth will show moderate but less-than-average increases. After-tax corporate profits are projected to rise 7 percent this year and 5 percent next year, below the 10.2 percent average of the last 20 years.

Dane Hahn is a real estate professional practicing in Charlotte and Sarasota counties. You can reach him at dane.hahn@gmail.com or by phone at 941-681-0312.  See him on the web at www.danesellsflorida.com.

Credit Score Primer

Alex Trebeck: “Its a three-digit number that carries a lot of influence over your future. It can dictate whether or not you'll qualify for a home, car, or business loan. It can also be the deciding factor in whether or not you qualify for a low interest rate, or no loan at all.”

Informed Contestant: “What is a credit score, Alex?”

OK, sorry for the TV drama, but I'm out of town this week, doing a little drift fishing in Montana and Idaho. And I thought a little primer on credit scores might be appropriate. Credit scores are created by witch doctors using complicated algorithms and there are a whole flock of factors that can contribute to its number.

To keep this column short and sweet I will assume you already know that a credit score is a number from 200 to 800 that reflects your payment and borrowing history. Your credit score will be modified down if you are a big spender, and up if you make payments faithfully and on time. These are some of the things that lenders use to decide a number of factors, including whether or not to lend any money at all to you.

There are three main reporting agencies: TransUnion, Experian, and Equifax. They claim to have different ways to assess your credit and assign credit scores to each and every American—but oddly their scores for any one of us are usually pretty close.

Can a credit score from these agencies be biased? The simple answer is no. Your credit score is a true and honest reflection of your debt and payment history. This means that neither a lender nor credit agency can "have it in for you." You are the only person responsible for your score. This is their way of saying if your score is low, it's your fault.

Here are some of the factors that contribute to your score:

Lenders want to see that you have a history of multiple types of credit. This can include credit cards, installment loans, and mortgages. You will have a higher score if you can demonstrate that over time you have managed credit and made timely payments.

The more debt you have the riskier you appear to a lender. This means paying down or off debt is a great way to make yourself more desirable for a home loan. But before you scream, discuss your own credit history with a lender. You may find that you can raise your credit score by canceling a few old cards (maybe even ones you forgot you even had), and by moving some debt from smaller cards to one main card with a lower (even an introductory) rate. Lenders who see that you have five credit cards, each with a ceiling of $10,000, will assume that at some point you might owe $50,000. That will cause them to think twice about lending you a mortgage.

You want to be on time with every bill. This includes everything from cable and phone to credit card payments. Late payments may be reported to the credit reporting agencies and will negatively affect your score. Even small amounts need to be paid—I once had an auto insurance policy that was billed to me monthly, I paid them in advance every three months because it was easier, but it showed up that I wasn't making timely payments. So be careful...

Do NOT under any circumstances open any new lines of credit, no matter how small, before you start looking for a home, nor even if you have found a home but not closed yet. Any new lines of credit will dock your score and may indicate to a lender that you are on a spending spree. Folks who arrive at the closing table in a newly financed car, may find they no longer qualify for their mortgage.

Younger borrowers are always at a slight disadvantage because they have a shorter credit history. A longer credit history gives lenders a better picture of what kind of borrower you really are.

Be sure to check out your credit report three times a year at annualcreditreport.com. It's free, easy, and secure. You'll have to pay a nominal fee in order to see your score, but checking out your report can help you assess areas that need improvement or areas that have errors which need corrected.
Dane Hahn is a real estate professional practicing in Englewood and Sarasota. He can be reached at dane.hahn@gmail.com. You can see him on the web at www.danesellsflorida.com.