Tag Archives: Reiss

Choosing a Real Estate Agent

Posted on by

US News & World Report quoted me in 6 Tips for Choosing a Real Estate Agent. It opens,

Selling a home has become easier over the years with online services to help the seller set a price and advertise, but most homeowners still hire a real estate agent.

While many agents have deep experience and know their markets intimately, newcomers abound – people looking to cash in when the market is hot and may not even work at the job full time. So experts advise homeowners to look carefully for an agent with the right combination of experience, knowledge, work ethic and personality.

What is a Realtor? Typically an agent is someone licensed by the state to sell real estate, while a broker is a manager of a team of agents. A Realtor is a member of the National Association of Realtors, the industry’s main trade group, which requires members abide by certain ethical standards. Experts suggest sellers use agents who have received more than minimum training required in their state.

“In California, the requirements for a real estate salesperson’s license are very low, basically, three classes and a test,” says Bryan Zuetel, a real estate attorney and broker in Orange County, California.

“Almost any agent can get a listing, enter the property into the (multiple listing service), create some flyers, hold open houses and fill in blanks on the contract forms,” Zuetel says. “However, most agents do not understand, but should understand, the complex contract terms, implications of an unhappy party in the transaction, legal requirements for the numerous disclosures, appropriate negotiations during the escrow period, conflict resolution via mediation or arbitration, and the remedies under the contract.”

Do your homework. Law professor David Reiss, academic program director at The Center for Urban Business Entrepreneurship at Brooklyn Law School, says it’s important to check out a prospective agent with previous sellers.

“Some real estate agents are great at pitching themselves but not great at marketing homes once they have the listing,” Reiss says. “Getting recommendations from friends and relatives will give you information that the agent herself or himself would not provide. Do they return phone calls promptly? Are they creative problem solvers? Do they educate themselves about the pros and cons of the home and (comparable properties in the area)?”

Contract Selling Is Back, Big-Time

Posted on by

The Chicago Reader quoted me in The Infamous Practice of Contract Selling Is Back in Chicago. It reads, in part,

When Carolyn Smith saw a for sale sign go up on her block one evening in the fall of 2011, it felt serendipitous. The now 68-year-old was anxiously looking for a new place to live. The landlord of her four-unit apartment building in the city’s Austin neighborhood was in foreclosure and had stopped paying the water bill. That month, she and the other tenants had finally scraped together the money themselves to prevent a shutoff and were planning to withhold rent until the landlord paid them back. Exhausted with this process and tired of dealing with “slumlords,” Smith wanted to buy a home in the neighborhood to ensure that she, her mother, Gwendolyn, and their dog, Sugar Baby, would have a stable place to live. But due to a past bankruptcy, Smith thought she would never be able to get a mortgage. So when she saw a house on her street for sale with a sign that said “owner financing,” she was excited. The next morning, she called the number listed and learned that the down payment was just $900—a sum she could fathom paying. “I figured I was blessed,” she says.

Her good fortune continued. A man on the other end of the line told her she was the very first one to inquire. The seller, South Carolina-based National Asset Advisors, called her several more times and mailed her paperwork to sign. Smith says she never met in person with anyone from National Asset Advisors or Harbour Portfolio Advisors, the Texas-based company that owned the home. But she says the agents she spoke with assured her that her credit was good enough for the transaction, despite the past bankruptcy. Next, they gave her a key code that allowed her to go in and look at the house, explaining that she’d be purchasing it “as is.” Smith thought the two-flat looked like a fixer-upper—the door had been damaged in an apparent break-in, and there was no hot-water heater, furnace, or kitchen sink—but given her poor luck with apartments of late, she felt she couldn’t pass up the chance to own a home. Both she and her mother, now 84, had been renting their whole lives; after pulling together the down payment, they beamed with pride when, in December 2011, they received a letter from National Asset Advisors that read “Congratulations on your purchase of your new home!”

But within a year, Smith discovered that the house was in even worse shape than she’d realized. In her first months in her new home, Smith estimates that she spent more than $4,000 just to get the heat and running water working properly, drinking bottled water in the meantime. Then the chimney started to crumble. Smith would hear the periodic thud of stray bricks tumbling into the alleyway as she sat in her living room or lay in bed at night; she began to worry that a passerby would be hit in the head and soon spent another $2,000 to replace the chimney. Public records show that the house had sat vacant earlier that year, and the city had ordered its previous owners to make extensive repairs.

Had Smith approached a bank for a mortgage, she likely would’ve received a Federal Housing Administration-issued form advising her to get a home inspection before buying. But as far as she recalls, no one she spoke to ever suggested one, and in her rush to get out of her old apartment, she didn’t think to insist.

The documents Smith signed with Harbour and National Asset Advisors required her to bring the property into habitable condition within four months, and with all the unexpected expenses, she soon fell behind on her monthly payments of $545.

Smith’s retirement from her job as an adult educator at Malcolm X College, in the spring of 2013, compounded the financial strain. Living on a fixed income of what she estimates was around $1,100 a month in pension and social security payments, she fell further behind, and the stress mounted.

“When we got to be two months behind, they would call me every day,” she remembers.

National Asset Advisors also began sending her letters threatening to evict her. That’s when Smith had a heart-stopping realization: She hadn’t actually purchased her home at all. The document she had signed wasn’t a traditional mortgage, as she had believed, but a “contract for deed”—a type of seller-financed transaction under which buyers lack any equity in the property until they’ve paid for it in full. Since Smith didn’t actually have a deed to the house, or any of the rights typically afforded home owners, she and her mother could be thrown out without a foreclosure process, forfeiting the thousands of dollars they’d already spent to rehabilitate the home.

“I know people always say ‘buyer beware’ ” she acknowledges. “But I’d never had a mortgage before, and I feel like they took advantage of that.”

What felt like a private nightmare for Smith has been playing out nationwide in the wake of the housing market crash, as investment firms step in to fill a void left by banks, now focused on lending to wealthier borrowers with spotless credit histories. In a tight credit market, companies like Harbour, which has purchased roughly 7,000 homes nationwide since 2010, including at least 42 in Cook County, purport to offer another shot at home ownership for those who can’t get mortgages. Such practices are increasingly common in struggling cities hard hit by the housing crash. A February 2016 article in the New York Times titled “Market for Fixer-Uppers Traps Low-Income Buyers” examined Harbour’s contract-for-deed sales in Akron, Ohio, and Battle Creek, Michigan. The Detroit News has reported that in 2015 the number of homes sold through contract-for-deed agreements in the city exceeded those sold through traditional mortgages.

*     *     *

Contract-for-deed sales also offered an attractive loophole from the growing set of regulations on traditional mortgages following the financial crisis. “In the same way that you saw [subprime lenders like] Countrywide get really big in the late 1990s,” says David Reiss, research director of the Center for Urban Business Entrepreneurship at Brooklyn Law School, “one of the real attractions for the businesses operating in this space is that they are underregulated.”

Is Trump a Negative for the Housing Market?

Posted on by

TheStreet.com quoted me in Is Trump a Negative for the Housing Market? It opens,

At first blush, real estate industry professionals saw a lot to like with the election of Donald Trump to the presidency. Trump was and is pro-business, and he made his billions in the commercial real estate sector. This, real estate pro’s thought, is a guy who has the industry’s back.

But not every real estate specialist views the Trump presidency as a net positive.

Take Tommy Sowers, from GoldenKey, a real estate technology platform with locations in San Francisco and Durham, N.C.

Sowers holds a “strong belief” that President Donald Trump will actually be detrimental for the real estate industry, making it less affordable for Americans to buy homes.

“During the campaign, Donald Trump spoke about home ownership numbers being the lowest they have ever been since 1965 at 62.9%,” says Sowers. In a nation where homeownership is seen as synonymous with the American dream, it’s no surprise that he wanted to highlight this low rate and suggest ways to increase it, he says. “The reality is that his policies and actions indicate the opposite,” he says.

Sowers lists several reasons why Trump may not be the industry savior some real estate professionals might have counted on:

Rising interest rates – “While this responsibility sits with the Federal Reserve, which has kept interest rates low in recent years, Trump has blasted them for doing this stating that they are ‘creating a false economy,'” Sowers explains. “Most economists predict that interest rates will now rise in 2017.”

Dismantling Government Sponsored Enterprises (GSEs) – “During the 2008 financial crisis, the taxpayer bought out Fannie Mae and Freddie Mac and now under government control they play a greater role than before the crisis in sustaining real estate sales and providing liquidity to the housing market,” Sowers says. “Trump wants to privatize them – a shake up to this arrangement could mean that banks stop offering the lower cost 30-year fixed rate mortgages.”

Cutting FHA home insurance – This was one of Trump’s first acts in office, making it more expensive for borrowers to insure their homes, Sowers notes. “His pick for Treasury Secretary, Steve Mnuchin, wants to limit the mortgage interest deduction,” he adds. “This may not impact the average US homebuyer but in many areas across the country the average home is above the threshold of $500,000.”

Immigrant confidence – “We are a nation of immigrants and many are here legally with green cards,” Sowers states. “His latest immigration policy has sent shock waves to foreign investors and will likely stunt confidence in immigrants that are here legally from buying a home.” President Trump has said he hopes to encourage further building with the National Association of Home Builders, he adds. “However, with so many immigrants working in the construction industry, his policies are likely decrease the speed of development,” Sowers says. “With less new homes being built, people are likely to wait and not move or buy a new house.”

There are other areas of concern, experts say. For example, reducing government regulations may thrill real estate professionals, along with buyers and sellers, but industry experts say that will actually hurt the U.S. housing market.

“Trump’s commitment to weakening the Consumer Financial Protection Bureau and the consumer protection provisions of the Dodd-Frank Act will have a harmful impact on the housing market in the long run,” predicts David Reiss, a law professor at the Brooklyn Law School, in Brooklyn, N.Y.

Reiss says Trump and his allies argue that Dodd-Frank has cut off credit, but the numbers don’t bear that out. “Mortgage rates are near their all-time lows,” he says. “Dodd-Frank, which created the CFPB and mandated the Qualified Mortgage and Ability-to-Repay rules, put a brake on most of the predatory behavior that characterized the mortgage market before the financial crisis. Getting rid of Dodd-Frank and the CFPB may loosen mortgage lending a bit in the short term, but in the long term it will allow predatory lenders to return to the mortgage market, big-time.”

“We will the see bigger booms followed by bigger busts,” he adds. “That kind of volatility is not good for the housing market in the long term.”

Understanding FSBO

Posted on by

US News & World Report quoted me in 3 Things to Know About Selling a House on Your Own. It opens,

The internet is full of sites that help homeowners sell property on their own, promising thousands in savings by avoiding commissions, but the National Association of Realtors says commission savings on a for-sale-by-owner transaction, or FSBO, are more than offset by lower sales prices.

The truth lies somewhere in between, according to most objective analysts. So for most sellers, deciding whether to go FSBO is a tough call.

Ali Wenzke, a Chicago writer with a blog called the Art of Happy Moving, says do-it-yourself transactions have worked well for her.

“My husband and I have sold two houses FSBO and purchased one home without an agent,” she says. “Be objective. Work hard. Be flexible to do showings at any time.”

“Anyone can do it and the average home is shown five times or less,” says Sissy Lappin, co-founder of the FSBO website ListingDoor.com.“The notion that no buyers or sellers can understand or manage what happens in a transaction is simply absurd.”

One thing is sure: the average seller’s experience does not necessarily apply in any specific case. What matters is whether you can succeed with a FSBO, regardless of whether your neighbor has.

Adjust your expectations. Experts do agree that FSBO novices should be realistic. Even if you get top dollar and avoid the agent’s commission, the process can be a time-consuming headache. And even if you don’t have an agent of your own, you may have little choice but to pay one representing the buyer, cutting the savings in half.

“While listing on your own seems easy, you are in fact replacing a job which you usually employ a broker to do full time,” says New York-based real estate agent Dylan Hoffman, who is not a fan of FSBOs. “You will need to organize showings, tours, previews and open houses. Plus all the back-end work, like maintaining photos and descriptions on websites, checking for a clear title, etc. An owner would also take on the role of marketing, both digital and print.”

The internet has made the process much easier, with many sites now offering listings, advice and services like printing signs. For a fee, usually several hundred dollars, some services will get your home on the multiple listing service used by real estate agents and buyers, though Lappin says it’s good enough to list on a site like Zillow.com, which is free. The goal is to save the agent’s commission, typically about 6 percent of the sales price, or $18,000 for a $300,000 home.

“FSBO has grown up and sellers don’t have to settle for a red-and-white generic yard sign,” Lappin says.

She says the seller of a $400,000 home with $60,000 in equity would spend 40 percent of that equity if they paid a real estate agent 6 percent commission, or $24,000.

What kind of homes sell without an agent? The National Association of Realtors says about 10 percent of home sales are conducted without an agent, though some critics say the figure is higher. The association says the average FSBO sells for 13 percent less than the average agent-assisted sale. Again, critics like Lappin disagree, with many noting the association’s studies do not look at comparable homes and lump in mobile homes and other inexpensive properties, as well as intra-family deals that tend to have low sales prices. Association figures do show that FSBO is less common with high-priced homes.

FSBO advocates generally agree that doing it yourself is more difficult for the seller, and can take longer. Though you might catch a buyer’s eye right off the bat, the FSBO approach is relatively passive, as you won’t have an agent steering buyers your way. Obviously, the seller must be available to show the house, and that can require weekdays, not just Sunday afternoons.

“It takes a lot of people skills to sell your own home,” says law professor David Reiss, director of The Center for Urban Business Entrepreneurship at New York’s Brooklyn Law School. “Can you engage with potential buyers even as they are criticizing your house and the choices you made about it? Can you distinguish serious buyers from window shoppers? Can you negotiate without giving away the farm or playing too hard to get?”

Anti-discrimination laws limit what you can tell buyers about issues like the ethnicity of neighbors, or even the number of school-aged kids or seniors on the block. And you have to be willing to show to all comers.

Going it alone also means you won’t have an agent’s advice setting the home up to it up to look its best, though you could hire a professional stager.

Bad Credit/Good Credit

Posted on by

OppLoans quoted me in Bad Credit Loan Coming Attractions! It opens,

Everyone is talking about bad credit loans these days, and Hollywood seems to be taking notice. (Editor’s note: They’re not.) All the newest films are about bad credit lenders! (Editor’s note: They’re really not.)

With so many people wondering what their loan options are, we thought you might enjoy hearing about the hottest upcoming films that deal with bad credit loans, which we may or may not have made up entirely (Editor’s note: We did).

If you have a not-so-hot credit score and you’re worried about getting a loan, these upcoming blockbusters might help you figure out which bad credit loan works best for you.

THE INTEREST RATE DECEIT

Tammy is just an everyday woman who needs a loan for some car repairs. Unfortunately, her credit is quite low. She sees some advertisements for bad credit loans, and figures the safest choice would be to pick the one with the lowest interest rate.

But, spoiler alert, there’s a big twist! The loan she chose had so many fees, it ended up being more expensive than the loans that had higher interest rates. If only Tammy had made sure to compare the loans using their APR, or annual percentage rate—she might have met a better fate. The APR tells you the full cost of a loan, including interest and fees, so it’s the best way to avoid an unpleasant twist in your story.

David Reiss, a law professor and editor of REFinBLOG.com (@REFinBlog), gave us an example of why APR is so important: “It would help a potential borrower compare the cost of credit between one loan with a 5 percent interest rate and one with a 4 percent interest rate that charges a point at origination.”

In other words, a loan that charges a fee when you take it out could actually be just as expensive or more expensive than a loan with higher interest rates and no fees.

Calculating APR

Posted on by

photo by Scott Maxwell

OppLoans quoted me in How (and Why) to Calculate the APR for a Payday Loan. It reads, in part,

Sure, you may know that taking out a payday loan is generally a bad idea. You’ve heard a horror story or two about something called “rollover”, but if you’re in a jam, you might find yourself considering swinging by the local brick-and-mortar payday loan store or looking for an online payday loan. It’s just a one-time thing, you tell yourself.

It only gets worse from there… Once you start looking at the paperwork or speaking with the sales staff, you see that your payday loan will cost only $15 for every $100 that you borrow. That doesn’t sound that bad. But what’s this other number? This “APR” of 400%? The payday lender tells you not to worry about it. He says, “APR doesn’t matter.”

Well, let’s just interrupt this hypothetical to tell you this… When you’re borrowing money, the APR doesn’t just “matter”, it’s the single most important number you need to know.

APR stands for “annual percentage rate,” and it’s a way to measure how much a loan, credit card, or line of credit is going to cost you. APR is measured on a yearly basis and it is expressed as a percentage of the amount loaned. “By law, APR must include all fees charged by the lender to originate the loan,” says Casey Fleming (@TheLoanGuide), author of The Loan Guide: How to Get the Best Possible Mortgage.

But just because a loan or credit card includes a certain fee or charge, you shouldn’t assume that it’s always going to be included in the APR. Fleming points out that some fees, like title fees on a mortgage, are not considered part of the loan origination process and thus not included in APR calculations.

“Are DMV fees connected with a title loan? Some would say yes, but the law doesn’t specify that they must be included,” says Fleming.

According to David Reiss (@REFinBlog), a professor of law at Brooklyn Law School, “the APR adds in those additional costs and then spreads them out over the term of the loan. As a result, the APR is almost always higher than the interest rate—if it is not, that is a yellow flag that something is amiss with the APR.”

This is why it’s always a good idea to read your loan agreement and ask lots of questions when applying for a loan—any loan.

*     *     *

Why is the APR for payday loans so high?

According to David Reiss, “The APR takes into account the payment schedule for each loan, so it will account for differences in amortization and the length of the repayment term among different loan products.”

Keep in mind, that the average term length for a payday loan is only 14 days. So when you’re using APR to measure the cost of a payday loan, you are essentially taking the cost of the loan for that two-week period, and you’re assuming that that cost would be applied again every two weeks.

There are a little over 26 two-week periods in a year, so the APR for a 14-day payday loan is basically the finance charges times 26. That’s why payday loans have such a high APR!

But if the average payday loan is only 14 days long, then why would someone want to use APR to measure it’s cost? Wouldn’t it be more accurate to use the stated interest rate? After all, no one who takes out a payday loan plans to have it outstanding over a full year…

Short-term loans with long-term consequences

But here’s the thing about payday loans: many people who use them end up trapped in a long-term cycle of debt. When it comes time for the loan to be repaid, the borrower discovers that they cannot afford to pay it off without negatively affecting the rest of their finances.

Given the choice to pay their loan off on time or fall beyond on their other expenses (for instance: rent, utilities, car payments, groceries), many people choose to roll their loan over or immediately take out a new loan to cover paying off the old one. When people do this, they are effectively increasing their cost of borrowing.

Remember when we said that payday loans don’t amortize? Well, that actually makes the loans costlier. Every time the loan is rolled over or reborrowed, interest is charged at the exact same rate as before. A new payment term means a new finance charge, which means more money spent to borrow the same amount of money.

“As the principal is paid down the cost of the interest declines,” says Casey Fleming. “If you are not making principal payments then your lifetime interest costs will be higher.”

According to the Consumer Financial Protection Bureau (CFPB), a whopping 80% of payday loans are the result of rollover or re-borrowing and the average payday loan customer takes out 10 payday loans a year.

Reiss says that “the best way to use APR is make an apples-to-apples comparison between two or more loans. If different loans have different fee structures, such as variations in upfront fees and interest rates, the APRs allow the borrower to compare the total cost of credit for each product.

So the next time you’re considering a payday loan, make sure you calculate its APR. When it comes to predatory payday lending, it’s important to crunch the numbers—before they crunch you!

Kushner Conflicts with Fannie & Freddie

Posted on by
photo by Lori Berkowitz

Jared Kushner, Senior Advisor to President Trump

Bloomberg quoted me in Kushner’s Use of U.S.-Backed Apartment Loans Poses Conflict Risk. It opens, 

Jared Kushner relinquished control of his family’s multibillion-dollar real-estate business in January to eliminate conflicts of interest when he became a top White House adviser to his father-in-law, President Donald Trump.

Yet Kushner Cos. has apartment buildings from New Jersey to Maryland with more than $500 million in government-backed mortgages financed by Fannie Mae and Freddie Mac. That could put officials at those agencies in an awkward spot: If Kushner Cos. applies for a new loan, or wants to refinance, would Freddie turn them down? If Kushner Cos. fails to comply with the terms of a loan, will Fannie seek to foreclose on a property owned by the president’s in-laws?

“It clearly represents a conflict-of-interest because the government or the president can take actions that would benefit his family,” said David Reiss, a professor at Brooklyn Law School who has written about issues related to Fannie and Freddie.

Hope Hicks, a White House spokeswoman, said Kushner would comply with applicable ethics rules and would recuse himself from any discussions about overhauling Fannie and Freddie, which lawmakers have sought to do in recent years. Jamie Gorelick, an attorney who has represented Jared Kushner, didn’t respond to a request for comment.

Kushner Cos. says Jared’s White House position won’t have any effect on the family business. “The election has not changed Kushner Companies’ relationship with Fannie Mae and Freddie Mac,” said Kushner Cos. spokesman James Yolles. “And we will respond to policy changes like any other private company in the marketplace.”

The federal government took over Fannie and Freddie in 2008, amid the financial crisis, putting them under the control of the Federal Housing Finance Agency, an independent regulator.