Uncle Sam's New Mortgage Tax

Headlines today report of a discouraging new tax being levied on new purchase loans and refinances.

Here is a video from CBS:



This is what happens when government spends more than it generates in revenue. If they will tax mortgages, what else will they tax? Your auto loan? Your student loan?

The dark cloud that looms is that the Feds have now created a dependency on Federally backed financing to help generate tax revenue. That can create all kinds of mischief, including an incentive to increase government's involvement in its already near-monopoly in residential lending. However, there is a silver lining.  If the taxes increase to a substantial level, it may be an incentive for private lenders to step in and provide a more affordable option to borrowers.

The best policy decision would be to get the government out of the mortgage and housing business.

Oops! I Stepped in HUD: Top 6 Reasons to Avoid HUD Homes

Once in a great while, I experience something so ridiculous that I find myself bereft of words to express myself.  I had two experiences like this recently working with buyers to purchase two HUD homes.  One client was an owner-occupant.  The other was an investor. The grievances are many and poignant. Hopefully, by sharing our ulcer-inducing experiences, you will come to the same conclusion I have regarding HUD homes.  Here are six reasons you should think twice before placing an offer on a HUD home:  

1.  Appraisal Aggravations - When entering a purchase contract, HUD boasts that it will provide an appraisal it has conducted on the property in advance.  This sounds sweet and endearing doesn't it?  Well, there is a catch. If the appraisal expires sometime during the contract period, the buyer has to pay for a new appraisal at their own expense.  In marketing we call this the bait-and-switch.  What would otherwise be a selling point of HUD homes turns instead into a slap to the face of buyers.  This happened to my clients during a recent purchase.  The new appraisal cost an outrageous $690.  HUD refuses to order a new appraisal at their expense unless the buyers cancel their contract, lose their earnest money, and start over by winning the competitive bid process again.  Nice!  

2.  Field Service Insanity - HUD contracts with independent companies such as Sigma out of San Diego and AMS to make sure the properties are secured and winterized. A buyer cannot turn on the utilities for an inspection or an appraisal, unless they work through one of these companies.  You would think this would be easily done through a phone call to an 800-number or via the internet.  No!  Instead, buyers are required to fill out a form, include a cashiers check for $150 (non-refundable), snail mail it to their office, then wait three more business days for a response.  The only contact number is a long distance area code.  Then they send the buyer an email granting permission to turn the utilities on at the buyers expense and then only for a 3 day window of time.  Of course, buyers can only hope that both their home inspector AND appraiser (if HUD's appraisal has expired) have an open calendar to fit into this brief 72 hour window of opportunity.  Typically, this coordination has not gone well and utilities have to be turned on multiple times...at the buyer's expense of course.   

I am aware of an experience where the field service provider would not give permission to turn on the water.  Yet, HUD also required that ALL systems be checked including plumbing in order for an appraisal to be completed.  So, one person says don't turn the water on and the other person says that it has to be turned on to complete the transaction. The buyer's were caught in a wasteful bureaucratic crossfire and charged late fees for it by HUD...for more on this read on...

3.  Extortion Fees - HUD charges $25 per day that a buyer extends past the original contract deadline.  They charge buyers $375 at a time.  They refund the difference at closing or waive the fee if the delay is their fault...unless you are an investor.  If you are an investor, you are charged the fee even if the delay is HUD's fault.  HUD could drag its feet indefinitely and run the meter up while investor-buyers wait to close on a home.   

Also, the field service providers charge $150 to re-winterize a home when the water has been turned on during winter months.  But, local plumbers only charge $90 for the same service.  The field service providers are making $60 to make a phone call to local plumbers.  How do I become a field service provider?  This parasitic fee fleeces all buyers.

4.  Non-Refundable Earnest Money - Investors are charged a much larger earnest money deposit than end-user buyers. To add injury to insult, HUD deems the investor's earnest money NON-refundable upon contract acceptance!  Investors are also granted NO due diligence period. HUD unreasonably expects investors to spend money inspecting the property before they even know if they can buy it or not. This totally contradicts market practices. 

5.  Commission Forfeiture - If a contract extension request is not completed on time, HUD forfeits the buying agent's commissions!  Now, doesn't that give you a warm fuzzy feeling all over?

6.  Deadline Nonsense - HUD requires to be notified 5 business days in advance to set up closing.  That means that once docs are ordered and received by a lender, HUD takes up to 5 more business days to close the file.  This adds another layer of aggravation to buyers who have cleared today's difficult underwriting standards to wait around an extra 5 days to close.  Keep in mind that many buyer's contracts have to be extended (and thus pay the $25 per day "extortion" rate) to fulfill this requirement. 

There are more complaints but this should be enough. The HUD home system is convoluted and completely contradicts market tradition...let alone being a buyer friendly enterprise.  Rather than creating incentives for homeowners, the system badgers them with fees, deadlines, and bureaucratic nonsense.  Who wants to put up with that?   

My buyers had terrible experiences during this process.  I refuse put my clients through this needless hassle any more.  You and I deserve much better than what HUD has to offer.

 

JUST SOLD! Super Bargain Breadbox Cottage

I just closed with a buyer on this super bargain home.  This was another exasperating HUD home experience.  Look for a post soon with all the mind blowing details of the journey to close this house.

To show you the intrinsic value of this property here is some background history.  The home sold in 2006 for $98,000.  Then it went into foreclosure and it was listed for sale in August 2011 for $65,000.  We viewed the property in October and the next day the sellers reduced the price to $58,500.  We immediately placed an offer for $56,000 and our offer was accepted.

With 4 Beds 2 Bath and a 2 Car garage, the home retails for about $120,000 in the market place.  Rents are estimated around $850-$900/mo.  My clients plan to repair and rent the home for positive cash flow.  Repairs are estimated at less than $10,000.

Congratulations to my buyers on an excellent purchase! 

If you are in the market for a bargain investment property like this one, contact me today.   

JUST SOLD! South Ogden HUD Home

I recently closed on a house with a buyer shopping for an affordable home.  During our shopping experience we stumbled upon this property on 39th Street in South Ogden.  

The home was a HUD property and listed at $87,200.  It had previously sold for $128,000 in September of 2008.  We placed an offer at $85,000 with $2,550 in seller concessions.  Our offer was accepted.

Then began the long winding bureaucratic road to close the transaction.  I will elaborate on my client's bewildering experience in a later post.  Let it suffice for now that HUD homes are not the wonderful thing they are touted to be.     

Anyway, congratulations to my client's for bearing through the tediousness of it all and coming out in the end with a bargain property that meets their needs.