5 Good Questions Buyers May Not Think to Ask

First-time home buyers have a lot to think about, and sometimes they don't consider all of the factors that will impact their enjoyment of their new home.

A handful of recent home buyers in St. Louis say what they wish they would have asked before buying a property. The issues they raise are valid concerns for anybody buying a home practically anywhere:

• For pet owners: How welcome and comfortable will my pet be in this home? Are there any pet restrictions and is there a safe convenient place to walk a dog?

• For condo buyers: How often and by how much have the condo fees gone up in the past? Is there a maintenance fund, and how large is it? While past performance is no guarantee, stable fees and good planning in the past is promising.

• For homes with basements: Does water sometime seep into the basement or other parts of the home? Has this property ever been flooded?

• For everyone: Who are the neighbors? Do any of them have noisy animals or hobbies?

• For homes near vacant land: What is the future of the adjacent open land? Just because a piece of property doesn’t have anything built on it now doesn’t guarantee that it won’t.

According to and written by: Daily Real Estate News - National Association of Realtors  |  June 25, 2007

An appraisal of real estate is the valuation of the rights of ownership. The appraiser must define the rights he intends to appraise. The appraiser does not create value, the appraiser interprets the market to arrive at a value estimate. As the appraiser compiles data pertinent to a report, consideration must be given to the site and amenities as well as the physical condition of the property. An appraiser may spend only a short time inspecting the property, however, this is only the beginning.

Considerable research and collection of general and specific data must be accomplished before the appraiser can arrive at a final opinion of value.

Due to the many types of value, such as fair market value, insurance value, tax value and value in use, the need to precisely define the purpose of the appraisal is essential.

Appraisal Methods

An appraisal is an opinion of value or the act or process of estimating value. This opinion or estimate is derived by using three common approaches, all derived from the market.

1. The cost approach to determining value is to estimate what it would cost to replace or reproduce the improvements as of the date of the appraisal, less the physical deterioration, the functional obsolescence and the economic obsolescence. The remainder is added to the land value.
2. The comparison approach to determining value makes use of other "benchmark" properties of similar size, quality and location that have been recently sold. A comparison is made to the subject property.
3. The income approach to determining value is of primary importance in ascertaining the value of income producing properties and has little weight in residential properties. This approach provides an objective estimate of what a prudent investor would pay based upon the net income the property produces.

Then, after thorough analysis of all general and specific data gathered from the market, a final estimate or opinion of value is correlated.

Can Government Solve
the Foreclosure Problem?

by Attorney William Bronchick

Foreclosures are up nationwide, and will continue to rise as prices continue to go flat in many markets.  For some, the problem is painful.  Ask New Century Financial Corporation, the nation’s second largest subprime lender, who recently filed for bankruptcy.  Ask the guy down the block from you whose house is in foreclosure. 

Some pundits think the rising foreclosures will bankrupt our economy, causing pain for people who lose their business or job as a ripple effect of all these foreclosures.  Others think that the rise in foreclosures is a healthy adjustment to the end of a long real estate boom, and is nature’s way of taking care of a free-market economic cycle.

Who’s right?  Time will tell, but it’s alarming to see politicians trying to fix this problem.  Here are some of their solutions.

Give People Money

Tax the rich, give to the poor.  The federal government now wants to fund programs to help people stay in their homes.

A new bill in the Senate proposes giving money to people who can’t pay their loans.  We taxpayers are confused.  If these people are in trouble because they never should have been given such a loan, why should taxpayer money be used to keep them in their homes that they could not otherwise afford?

Maybe someone in Washington has the answer to that question?

Regulate Foreclosure Investors

I have written extensively about the assault on foreclosure investors that have been initiated by consumer advocate groups, resulting in a tsunami of new “Foreclosure Protection” laws across the country.

While protecting innocent homeowners from unethical investors is a good idea, new legislation is not always the answer.  Enforcement of existing consumer protection laws and prosecution under existing criminal laws is certainly a better option than creating new laws that limit the options of a seller in foreclosure.  The best solution to a foreclosure epidemic is a free market that allows investors to gobble up inventory.  By hamstringing investors with complicated, punitive regulations, it will only discourage transactions and result in more properties in lender inventory.  More lender inventory forces them to sell at lower prices, which hurts the entire real estate market. 

Stop the Foreclosure Process

The Government of the State of Massachusetts just handed the State Banking Division the authority to put up to a two month delay on any lender foreclosure.  All a homeowner has to do is file a complaint with that office. 

It is not year clear on how many lenders this will affect, but certainly this move is troubling.  If the government’s action is based on a consumer complaint, what kind of complaint deserves the kind of government involvement that stops a lender from collecting on its debt? 

Certainly, any homeowner whose legal rights have been violated under state or federal law can stop or delay a foreclosure with a court order.  Opponents, of course, will argue that since these people in foreclosure can’t afford lawyers, they won’t have the means to seek this remedy.  Such is life, that people who are in debt can’t afford lawyers to protect their legal rights.  Do people in $1,000,000 homes deserve the same protection as people in $100,000 homes?  Do lenders and their shareholders have the right to foreclose and get their collateral back? 

And, think about the next logical step... will the government stop allowing landlords to evict if the problem gets bad enough?

Stop the Lenders from Lending

Nobody can seriously deny that lenders got sloppy in how they lent mortgage money over the last 10 years.  As a result, many people got into loans they couldn’t pay back, and we now see the consequences. 

Conversely, with the exception of gross overreaching by mortgage brokers, it’s hard to deny that most people didn’t understand the risk involved in borrowing money they couldn’t pay back.  If you buy a house with no money down and a negative amortizing loan, you are gambling that you will make more money in the future and/or the price of your home will increase.  If you are wrong, you lose your home.  That’s the gamble.  It’s like Vegas, except for one thing – the house doesn’t win when the customer loses.  Everybody loses, except the attorneys who get paid to foreclose. 

Should the government stop lenders from offering “risky” loans?  The answer, I believe, is emphatically “NO”.  If lenders go too far, they suffer financially.  Thus, the market will take care of itself, in that lenders who lose profits will tighten up loan regulations, and Wall Street will downgrade or reject portfolios of risky loans. 

Before you get too excited by this last paragraph, I do believe that some regulation is appropriate to protect the consumers and shareholders from getting duped in the process.  Additional disclosures to both homeowners and Wall Street investors are appropriate considering the large number of defaulting subprime loans.  However, if people want to borrow money under risky terms and lenders want to lend under a high risk of loss, why should the government stop them?  Pawn shops, check-cashing stores and used car lots all operate on a high-level of risk. 

Step Up Enforcement of Existing Laws

Instead of stopping the business, I believe the government should throw money at enforcement.  Prosecute the bad people and leave the options open for people who want to do business under their own terms.  There are enough existing laws that give the state and federal prosecutors plenty of room to go after bad operators, and many of them already have.

The government can put bandaids on it, but only the market can solve it the foreclosure problem.  When demand exceeds supply in a given market, prices will go back up, and people will have enough equity to sell their homes.  Somehow, I don't imagine people will learn their lesson and, thus will continue the same cycle in the future.  But, most Americans believe it is not the government's job to stop people from willingly doing stupid things. 

When it comes to your financial decisions, be responsible, read the fine print, and remember... "buyer beware".

IRVINE, CA - RealtyTrac^® released its May 2007 U.S. Foreclosure Market Report, which shows a total of 176,137 foreclosure filings — default notices, auction sale notices and bank repossessions — were reported during the month, up 19 percent from the previous month and up nearly 90 percent from May 2006. The report also shows a national foreclosure rate of one foreclosure filing for every 656 U.S. households during the month.

“After a barely perceptible dip in April, foreclosure activity roared back with a vengeance in May,” said James J. Saccacio, chief executive officer of RealtyTrac. “Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year. Certainly not every community nationwide is seeing an increase in foreclosures, but foreclosed properties are becoming more commonplace and adding to the downward pressure on home prices in many areas.”

Nevada, Colorado, California post top foreclosure rates
Nevada registered a May foreclosure rate of one foreclosure filing for every 166 households — the nation’s highest for the fifth month in a row and nearly four times the national average. The state reported a total of 5,235 foreclosure filings during the month, a 40 percent increase from the previous month and nearly five times the number reported in May 2006.

Colorado documented the nation’s second highest state foreclosure rate, one foreclosure filing for every 290 households — 2.3 times the national average. The state reported 6,321 foreclosure filings, a nearly 9 percent increase from the previous month and an increase of more than 50 percent from May 2006. The state’s foreclosure total was eighth highest among the states.

California foreclosure activity increased 30 percent from the previous month and more than 350 percent from May 2006, boosting the state’s foreclosure rate to third highest in the country. California documented one foreclosure filing for every 308 households, more than twice the national average.

Other states with foreclosure rates ranking among the nation’s 10 highest in May were Florida, Ohio, Arizona, Georgia, Michigan, Indiana and Connecticut.

California, Florida, Ohio document largest foreclosure totals
For the fifth straight month California reported the most foreclosure filings of any state, with 39,659 in May. Florida reported 21,704 foreclosure filings, the second biggest state total. Foreclosure activity in Florida increased 52 percent from the previous month and 144 percent from May 2006, raising its foreclosure rate to one foreclosure filing for every 336 households — fourth highest among all the states.

With 13,214 foreclosure filings reported in May, Ohio documented the nation’s third highest state total for the third month in a row. The state’s foreclosure activity increased 16 percent from the previous month and more than 150 percent from May 2006, resulting in a foreclosure rate of one foreclosure filing for every 362 households — fifth highest among the states and 1.8 times the national average.

Other states with foreclosure filing totals among the nation’s 10 highest in May were Texas, Michigan, Georgia, Illinois, Colorado, Arizona and Nevada.

California cities continue to dominate top metro foreclosure rates
The cities with the nation’s top three metropolitan foreclosure rates were all located in California, and three other California cities also documented foreclosure rates among the top 10.

A 49 percent increase in foreclosure activity ensured that Stockton, Calif., would continue to register the highest metropolitan foreclosure rate. The city reported one foreclosure filing for every foreclosure filing for every 88 households — nearly 7.5 times the national average.

Merced, Calif., documented the second highest metro foreclosure rate, one foreclosure filing for every 100 households, followed by Modesto, Calif., with one foreclosure filing for every 118 households. Other California metros in the top 10 were Riverside-San Bernardino at No. 5, Vallejo-Fairfield at No. 6, and Sacramento at No. 7.

Other cities in the top 10 were Las Vegas at No. 4, Denver at No. 7, Detroit a No. 8, and Miami at No. 10.

Rates Spike as Treasury Yields Rise
Thursday, June 14, 2007 - Freddie Mac

In the fall of 2006, Congress passed the Pension Protection Act of 2006, part of which was designed to give those who inherit a 401(k) or other workplace account from someone besides their spouse the same tax benefits they would get if they inherited an IRA from that person. Unfortunately, the law was confusing and less generous than it first appeared. The IRS recently offered guidance to help clarify its intent.

What remains unchanged is that when you inherit an IRA from someone other than your spouse, you have to begin taking distributions from the account, but they can be spread over your lifetime. In the case of an inherited 401(k) or other workplace account, however, you have to withdraw the proceeds based on the employer’s rules, which typically means taking the money in a lump sum or over a five-year span.

Based on the tax benefits, an inherited IRA is a better vehicle than a 401(k), as you’re able to stretch distributions out for a longer term, which lets your money grow tax-deferred for a longer time. Distributions from traditional IRAs and workplace accounts are taxed as ordinary income. From a tax standpoint, it’s almost always best to stretch out distributions as long as possible so the money can continue to grow tax deferred.

The key benefit of the Pension Protection Act is that non-spouse beneficiaries can roll a qualified employer retirement plan directly into an inherited IRA, which wasn’t the case before. The IRS’s recent guidance notes this applies to 401(k) plans, 403(b) plans and 457 plans for government employees.

According to Accountingweb.com, financial advisors and other tax professionals were taken by surprise by the limits of the perceived benefit. According to the IRS’s clarification, the law does not apply retroactively (i.e., it applies only to non-spouse beneficiaries who inherited workplace accounts from people who passed in 2006 or later) and it applies only when the employer’s plan allows the transfer to a beneficiary IRA.

There are also strict guidelines regarding the ways under which non-spouse beneficiaries can qualify for a rollover. Unless all the steps are accounted for, the payout may end up being less than anticipated, or worse, your plan may be completely disqualified:

If you have any questions about an account you’ve inherited, speak with your accountant or financial adviser.

According to ©2007 Wells Fargo Bank, N.A.

Economic Commentary

June 11, 2007

Higher rates are here to stay (for a while).

To the surprise of many, including us, interest rates have jumped in the U.S. in recent weeks.  Yields on 10-year Treasury notes, for example, were around 4.60 percent in early May – and as of Friday morning (as this commentary was being written) they had climbed to 5.23 percent.  Interestingly, while short-term rates have risen too, they’re not up by as much as long-term rates.  The yield on the 2-year Treasury note is up by about 45 basis points, compared with the 60-65 basis points that the 10-year note has increased – resulting in a modestly steeper yield curve (although it remains historically flat).  Why have interest rates skyrocketed so much in such a short period of time?

Most analysts would agree that there are three drivers of nominal interest rates: movements in the demand/supply of loanable funds, changes in inflation expectations, and changed expectations of monetary policy.

·        Demand/supply of funds: real economic growth has been fairly weak over the past year, culminating in first quarter real GDP growth of only 0.6 percent.  Moreover, there doesn’t appear to have been any significant lessening of foreign demand for U.S. financial assets or a sudden drop in domestic savings.  The consensus forecast is for a pickup in the pace of economic growth to somewhere around trend in the second half of the year, but that view has been in place for a while.  So it doesn’t appear that there’s anything here that would cause a sudden and dramatic increase in U.S. interest rates.

·        Recent hikes in energy prices have driven overall inflation higher, with the 12-month change in the consumer price index accelerating to a 2.5-3.0 percent range in recent months.  At the same time, however, core inflation has been edging down.  Moreover, measures of expected inflation (either directly from surveys of consumers or indirectly from comparisons of Treasury yields with their equivalent inflation-indexed securities) have not changed significantly – even as energy prices rose.  So, as with the supply/demand for funds, there is little here that would suggest a jump in interest rates.

·        Finally, the market’s view of Federal Reserve monetary policy has changed in recent weeks – moving from expectations of one-to-two 25 basis point easings before the end of 2007 to no change in policy before at least the end of this year.  This would be sufficient to move market interest rates up by around 50 basis points (assuming market participants were expecting 50 basis points in Fed easing over the next year).

Why the change in expectations of Fed policy?  Recent statements from members of the Federal Open Market Committee (FOMC – the monetary policy-making arm of the Federal Reserve) suggest that they have some concerns that core inflation could reaccelerate (despite its recent move downward) as food and energy inflation move upward.  Additionally, some FOMC members have suggested that they would prefer to see core inflation fall not just to the top of the Fed’s implicit target range, but well within it.  These recent statements make it clear that the Federal Reserve continues to view the chances of higher inflation as being a bigger risk to the economy than slower economic growth.  Consequently, it will take either a period of even slower economic activity than we’ve seen, or further (and sustained) declines in core inflation to cause the Fed to consider easing monetary policy – and thus allow interest rates to drop significantly again (assuming no changes in the other determinants of interest rates).

As a result, we (along with many other analysts) have changed our projection of the federal funds rate.  We now expect no change in monetary policy this year, keeping the federal funds rate at 5.25 percent, and only one 25 basis point easing move next year – with the federal funds rate ending 2008 at 5.00 percent.

This will be an important week for economic data, highlighted by inflation and retail sales.

·        On Wednesday, the import price index is expected to increase by 0.2 percent in May – with only a modest increase in imported energy prices pushing it up.

·        Also on Wednesday, retail sales for May are projected to rise by 0.7 percent, and by 0.9 percent excluding autos – suggesting that consumers are still spending.

·        Additionally on Wednesday, business inventories should increase by 0.3 percent in April – given already-known data on several of its components.

·        On Thursday, the producer price index (PPI) for May is projected to increase by 0.5 percent in May, with the core rate up by 0.2 percent – with food and energy prices the biggest part of the gain.

·        On Thursday, initial unemployment claims should drift up just a tad to around 314 thousand for the week ending June 9 – not much of a change from recent weeks.

·        On Friday, the consumer price index (CPI) is projected to rise by 0.7 percent, with the core rate up by only 0.1 percent in May – moving the 12-month change in the core rate down to a gain of only 2.2 percent.

·        Also on Friday, the current account deficit for 2007Q1 is expected to increase to $203 billion – mostly in response to the widening trade deficit.

·        In addition on Friday, industrial production for May is projected to climb by 0.2 percent, with capacity utilization slipping to 81.5 percent – with utility output moving back to more normal levels.

·        Finally on Friday, the University of Michigan’s consumer sentiment index should be little changed at around 88.1 for the first half of June – with higher energy prices offsetting the record (at that time) stock market and stable job markets.

David W. Berson

Fannie Mae Economics and Mortgage Market Analysis

This article submitted for your review by: 

Becky Butcher

Bremer Bank

Brainerd, MN 

1031 Exchange Deadlines and Due Dates

The successful completion of a 1031 tax-deferred like-kind exchange transaction requires Investors to comply with certain deadlines pursuant to Section 1031 of the Internal Revenue Code, which have been further clarified within Section 1.1031 of the Department of the Treasury Regulations.

The 1031 exchange deadlines consist of the 45 calendar day identification deadline and the 180 calendar day (or less) exchange period.  These deadlines can not be extended under any circumstances, unless the President of the United States declares a natural disaster area that affects the properties or parties involved with the tax-deferred like-kind exchange transaction.

45 Calendar Day Identification Deadline

Investors completing a tax-deferred like-kind exchange transaction must identify their potential like-kind replacement property(ies) to their Qualified Intermediary no later than midnight of the 45th calendar day following the close of the relinquished property sale transaction.  For example, if the sale of the Investor's relinquished property closed on October 31 the first day of the 45 calendar day identification period would be November 1 and the 45th calendar day deadline would be December 15th.

This deadline is exactly 45 calendar days, so if the 45th calendar day lands on a Saturday, Sunday or legal holiday, the deadline is NOT extended to the next business day as it is in other parts of the income tax code and regulations.

Investors should plan ahead once they have decided to complete a tax-deferred like-kind exchange transaction.  The 45 calendar day identification deadline will arrive very quickly.  Investors may wish to approach and negotiate with the buyer of their relinquished property for an extention of time to close the transaction in order to provide more time to locate and identify suitable like-kind replacement properties.

The formal identification should be made in writing to the Qualified Intermediary via fax, U.S. Mail or overnight courer. 

Investors can change their mind by formally revoking their identification of their like-kind replacement properties and subsequently submit a new identification form at anytime during their 45 calendar day identification period, but may not change their mind after this time frame has passed.  Revoking and submitting a new identification form does not change or reset the original 45 calendar day identification deadline.

The act of altering, changing, amending, swapping or back-dating a like-kind replacement property identification form in order to save a tax-deferred like-kind exchange transaction is classifeid as income tax fraud, and Investors should avoid any Qualified Intermediary that engages, permits or suggests any such practice.

Failure to identify like-kind replacement property(ies) within the 45 calendar day window will result in a failed tax-deferred like-kind exchange transaction, and the subject transaction must be recharacterized as a taxable sale rather than a tax-deferred like-kind exchange.

180 Calendar Day Exchange Period

Investors must complete their tax-deferred like-kind exchange transaction, which includes the receipt of title to all of their like-kind replacement properties, no later than the earlier of:

(1) midnight of the 180th calendar day following the close of the relinquished property sale transaction, or

(2) the due date of the Investor's Federal income tax return for the tax year in which the relinquished property was sold, including any extensions of time to file.

NOTE:  Investors do not need to be concerned about part (2) above unless the first relinquished property transaction sold and closed within the tax-deferred like-kind exchange transaction closed on or after October 17th and on or before December 31st of any given tax year, which would mean that the 180th calendar day would fall after April 15.

Investors that have tax-deferred like-kind exchange transactions closing on or after October 17th and on or before December 31th of any given income tax year will have fewer than 180 calendar days to complete their tax-deferred like-kind exchange transaction, unless they file for an extension of time to file their federal and, as necessary, state income tax returns.  Once the extensions of time have been filed, Investors must complete their tax-deferred like-kind exchange transaction within the 180 calendar days before they actually file their Federal and, if applicable, state income tax returns.  Investors will never have more than 180 calendar days to complete their tax-deferred like-kind exchange transaction.

Should you have any additional questions with this please refer to a Qualified Intermediary or refer to Section 1031 of the Internal Revenue Code, also know as Section 1.1031 of the Department of the Treasury Regulations.

Let the Cleaning Begin
Start your yard cleanup by getting rid of debris. Take a walk around and pick up any tree branches or large sticks. This will not only de-clutter your yard, but it will also make it safe for you to mow the lawn.

Prune Away
Next, prune those shrubs and bushes. You can use a leaf blower on your trees and bushes to remove any dead leaves or loose branches. Also, take a look around your yard for any bothersome weeds you can pull up. Don't worry about letting the debris fall on the ground, you'll be raking that up later.

Break Out the Rake
Dig out your old rake and make sure it's still comfortable for you to use (a rake that is too short can cause some serious back pain). You may want to lay an old sheet out on which to pile your debris — that will make for an easy transfer into the trash. Once you have the yard raked, pick up the sheet from the corners and use it to slide the trash into a bag.

Ready, Set, Mow
You always want to get your grass looking its best, and a fresh cut always gives a yard the look of cleanliness. So whether you have decided to start with a new lawn or just patch your old one, mowing your lawn is a must. Be sure to mix up your mowing pattern to eliminate the chance of the soil becoming compacted, which inhibits the growth of grass. Help keep your grass healthy by giving it an early morning watering once a week.

Wash it Off
Rinsing off your home and driveway is an easy way to make it look clean. Use a power sprayer and begin by spraying your home, from top to bottom. Then use the sprayer to clear the driveway of debris and dirt. Streaky windows can be a nuisance, so before you wash down your house use a water-resilient product on your windows. That will make your windows resistant to water and dirt.

Daily Real Estate News  |  May 31, 2007 Mortgage Rates Hit Highest Point Since August

Mortgage rates increased for the fifth consecutive week, with the average 30-year fixed mortgage rate rising to the highest point since August, according to Bankrate.com's weekly national survey of large lenders.

The average 30-year fixed mortgage rate is now 6.47 percent and has an average of 0.26 discount and origination points.

The average 15-year fixed rate mortgage, popular for refinancing, increased by a similar amount, to 6.21 percent. With larger loans, the average jumbo 30-year fixed rate climbed to 6.68 percent. On adjustable rate mortgages, the average one-year ARM nudged higher to 6.09 percent while the 5/1 ARM jumped up to 6.37 percent.

“Mortgage rates often show short spurts of volatility and prolonged periods of little movement,” Bankrate notes in its survey report. “Mortgage rates had been confined to a narrow range of approximately one-third of a percentage point for nearly seven months — including weeks on end with virtually no movement. But they broke out of that range with this week's move, as hopes for a Fed interest rate cut continue to wane.”

Fixed mortgage rates have increased nearly one-third percentage point since mid-March. At the time, the average 30-year fixed mortgage rate dipped to 6.16 percent, meaning that a $165,000 loan would have carried a monthly payment of $1,006.30. With the average 30-year fixed rate now 6.47 percent, the same loan originated today would carry a monthly payment of $1,039.66. Fixed mortgage rates still remain a compelling refinancing alternative for adjustable rate borrowers facing sharp payment adjustments.

Bankrate's national weekly mortgage survey is conducted every Wednesday from data provided by the top 10 banks and thrifts in the top 10 markets.

This report according to the Realtor Magazine - May 31, 2007

Economic Commentary

June 4, 2007