Sticking to a budget? Tips for affordable and easy home upgrades

Living on a budget is the norm, rather than the exception, in the current economy.  Whether you’re trying to entice potential homebuyers or just want to give your living space a quick spruce up, here are a few tips for making a big impact in the look of your home without breaking the bank:

• Start small.  Small improvements – like a fresh coat of paint or an attractive new floor – truly update a home because people’s eyes tend to notice surface areas first.  Experts agree that these upgrades make all the difference to prospective buyers as well. According to the International Association of Home Stagers, investing in small upgrades can increase a home’s value as much as 7 percent – and a new floor has been proven to return nearly twice the value for every dollar spent.
• Shop around.  From mattresses and dining room sets to LCD televisions and sofas, you might be surprised to find the home decor items on your shopping list at budget-friendly spots like thrift stores, boutiques and warehouse clubs.

  For example, quality flooring is available at Sam’s Club.  Traditional Living laminate flooring combines low-maintenance and authentic good looks with the outstanding value pricing for which Sam’s Club is known.  Its glueless click installation makes Traditional Living flooring an ideal weekend do-it-yourself project – saving additional money on installation.  The superior protective surface provides durability and scratch-resistance to stand up to years of heavy foot traffic from kids and pets.

  “More consumers are on the hunt for retail locations that offer premium home products at bargain prices,” says Sherrie Towne, assistant marketing manager of SimpleSolutions, LLC, which distributes Traditional Living.  “For example, the cost of a Sam’s Club membership plus the cost of Traditional Living laminate floors is approximately 30 percent less than the price of premium laminate purchased at another retailer.”
  
  

• Accessorize, accessorize, accessorize.  If a new sofa or coffee table isn’t in the budget, infuse a room with energy and color by adding simple finishing touches like pillows, artwork and rugs.  Flea markets, estate auctions and garage sales are unexpected sources of one-of-a-kind – and often inexpensive – accessories that add color and personality.  In the bathroom or kitchen, swap out existing hardware on cabinets and drawers to quickly create a more up-to-date look.
• Clear the clutter. Piles of papers, toys and books can detract attention from the unique items that make a house a home.  If your space – and your budget – is tight, organize everyday items with furniture that pulls double duty such as a storage ottoman or a bookshelf with built-in compartments.  And if you’re putting your home on the market, professional home stagers suggest removing one-third of furniture from public areas like living and family rooms to create the illusion of extra space.

For more information on the Traditional Living collection, visit www.traditionalliving.com

source:  ARAcontent

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When Should an HOA Be Able to Restrict an Owner’s Right to Rent Out His Unit

Is it fair for an HOA (Homeowner Association) to prohibit or restrict a unit owner from renting out his property?  Should there be a law about this?  In California, these issues are currently being argued in both the legislature and the courts.  In some other states the issues may already be settled; in others the debate is no doubt going on.

There is little argument that a homeowner association, at its formation, has the right to adopt rules restricting the ability of its members to rent out their units.  Indeed, buyers of units in a newly-built ocean front condominium might want assurances that units in the building cannot be rented on a short term “vacation rental” basis.  Moreover, it is common for association rules to stipulate that leases of units must contain a provision requiring that the tenants will abide by the association’s rules and regulations.

HOAs can be formed with pretty much whatever rules they (usually, the developer) choose.  Prospective buyers can then decide if they want to live in a community that is subject to such rules.  But what about an existing association that wants to change its rules – more frequently, to adopt rules concerning matters where no rules existed before?

The governing documents of HOAs contain procedures for changing or adding on to the rules and regulations.  No one would suppose that amendments could never be necessary or desirable.  Further, different associations may have different procedures for making changes. S ome might require a 2/3 vote of members for certain kinds of issues.  Others may delegate considerable power to the Board of Directors in the matter of modifying or adding to existing rules.

California law – as a result both of court cases and legislative action – provides that changes to association rules cannot be arbitrary. They must be reasonable.  They must not violate public policy.  They must bear a relationship to the association’s goals.  Importantly, there is a presumption of reasonableness to the rules, or changes to the rules, that are duly adopted by an HOA.  If someone objects, the burden of proof falls on them to show that a new rule is unreasonable.

So, suppose you had purchased a unit in a common interest development as your residence.  Suppose also that the HOA had no rules regarding the ability of an owner to rent out his property or properties.  Over the years you acquire a few more units for the purpose of renting them.  You might even purchase some in partnership with your children for the same purpose.

Then, members of the association become concerned that the number or rental units and the character of the renters are becoming a problem.  A study group is formed and additional rules are proposed.  An election is held and the proposed rules are adopted.  According to these new rules, no more than a certain number of units in the development may be rented at any one time. No owner is allowed to own more than two rental units.  Leases are subject to the approval of the HOA.  No leases may be longer than one year. Existing leases will be honored, but, at the termination of the lease, if the owner has more than the allowed number of rentals, the unit cannot be re-rented.

Is this fair? Is it reasonable?  Should the law allow it?

The scenario sketched above is, in abstract, similar to the case of Sierra Dawn Estates Homeowners’ Association v. Isabelle Harrison et al., recently heard by California’s Fourth Appellate District Court of Appeal. In an unpublished decision filed June 23, 2010, the court upheld the actions of the HOA.  The plaintiff has filed an appeal with the state Supreme Court.

Directors of the California Association of Realtors® (CAR) were concerned that the rules adopted by Sierra Dawn went too far.  CAR filed a friend of the court brief on behalf of the owner of the units.  Basically, the brief argued that the right to lease one’s property is a fundamental property right.  “This fundamental right should not lightly be taken away from those who acquired real estate with those rights intact…  Any attempt by a home owner association to take away the fundamental right to lease one’s property without adequately accommodating existing owners’ investment backed expectations should be considered unreasonable…”

The brief urged that, as is common with new ordinances adopted by local governments, it should at least be required that existing uses be “grandfathered in.”  If not, many owners of rental units would be forced to sell – a significantly negative option in a market such as this one.  However, as noted, CAR’s reasoning did not prevail at the appellate court.

On the legislative front, CAR introduced a bill, AB 2259 (Mullin) which would have provided that a no-rental rule adopted after Jan. 1, 2009 would not affect units that were purchased prior to the passage of such rule.  The bill passed both houses of the state legislature, but was vetoed by Gov. Schwarzenegger.  His message stated that such matters were best decided at the HOA level.

This year CAR is sponsoring AB 1927 (Knight).  In original form it required that it would take a 2/3 vote of an association membership to impose rental prohibition rules.  That has been amended to say that the vote must be according to an association’s existing governing rules.  The bill seems likely to pass.  No one knows what the Governor will do with this one.

Source:  Realtytimes.com, Bob Hunt

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Seller financing – an option that requires careful review

Real estate prices today are historically low because there are far fewer buyers than sellers.  Foreclosures continue to flood the market with bargains.  But people seeking to buy real estate during a severe recession often are unable to qualify for financing even though interest rates are enticingly low.

In such times, seller financing can be used to obtain a premium purchase price.  Not only are the underwriting process and financing fees and costs avoided, but the seller often will finance a much higher percentage of the purchase price than would a typical mortgage lender. If and when interest rates increase, sellers can benefit by providing seller financing at a lower rate.

Seller financing has become something of a lost art.  Following is a brief review of major issues that should be resolved carefully and that typically require the assistance of a real estate attorney.

Before even offering seller financing, the first question is whether state and federal consumer-protection laws are applicable.

If in any one year a seller will engage in multiple sales of dwelling units to owner-occupants, then multiple consumer protection laws are likely to apply.  The Truth in Lending Act, the Real Estate Settlement Procedures Act and the recently signed Consumer Protection Act are a few.

The CPA is much broader in its application and its restrictions as compared to older consumer-protection laws like TILA and RESPA. To be exempt from the CPA:

Seller financing for owner-occupied dwellings cannot exceed three transactions in any 12-month period;

The seller cannot have participated in the construction of the dwelling;

The financing must be fixed rate for at least five years and be fully amortizing;

The seller must determine in good faith that the buyer can repay the loan;

The financing must be subject to reasonable annual and lifetime limitations on interest-rate increases; and

The financing must meet any other criteria the new federal consumer-protection agency may prescribe.

These consumer-protection laws are complicated.  The CPA in particular requires significant legal work to determine exemption. Accordingly, qualified legal counsel should be consulted by any seller interested in financing the purchase of a dwelling unit intended to be a buyer’s residence.

Seller financing is simpler for commercial real estate, but many issues exist nevertheless.

First, the seller must decide what percentage of the purchase price to finance.  The higher the percentage financed, the higher the purchase price obtainable and the higher risk of buyer default.  The seller must find a comfortable balance between these competing factors.  Requiring the buyer to have enough skin in the game is an important consideration.

The type of seller financing instrument should depend on the percentage of financing.  If little or no down payment is required, then an installment purchase contract probably will be most appropriate.

A lease-with-purchase option should be avoided because under Oregon law it will almost certainly be treated by the courts as a disguised mortgage far less favorable to the seller than virtually any other seller financing instrument.

A buyer who pays a large down payment should insist on a trust deed as the financing instrument.  This provides better protection for the buyer in the event of a default.  Mortgages are rarely used as a financing instrument in Oregon because they are so favorable to the buyer.

If most of the price is paid via third-party financing and the seller is being asked to carry a second trust deed, then the seller must consider the risks of junior financing.  These risks may include violation of a prohibition on junior financing in the senior financing instrument that could trigger a foreclosure.

Ideally the seller would obtain not only written consent from the senior lender but also notice and cure rights.  Otherwise the seller can protect only its junior interest by coming up with the money to fully pay the senior lender if the latter is foreclosing.

At a minimum, the seller needs evidence from the buyer of the monthly payments to the senior lender to minimize the risk of a senior loan foreclosure.

Seller financing often is very difficult if the seller has existing financing on the property.  This is because the existing financing almost certainly will have a clause stating the financing is due and payable upon any sale of the property.

The lease-with-purchase option is often used as a means to avoid such a due-on-sale clause, but successfully doing so is tricky and should not be attempted without the assistance of qualified legal counsel.

When there is underlying financing, the buyer must be careful to assure application of buyer payments to the underlying seller loan, to avoid paying twice for the property.  Sellers have been known to disappear with all of a buyer’s payments in such circumstances.

Even if there is no underlying financing, the buyer needs assurance that the documents will be available once the purchase price is paid to clear the title to the property.  Sellers often can be difficult to find when the time comes to clear the title – particularly if an individual seller has died without a probate proceeding.  The best protection is to place all title-clearing documents in escrow at the outset to be recorded automatically upon full payment.

Finally, the seller must consider the tax consequences of any seller financing.  A qualified tax adviser should be consulted to determine and avoid any adverse consequences of seller financing.

Source:  IBR

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Commentary: Pendulum has swung too far on underwriting

As summer comes to a close, there’s still plenty of sunshine, but it seems few rays of optimism in the housing market.

Existing home sales in July were horrible.  New home sales were also down.  Unemployment remains stubbornly high as companies are seemingly content with staging a jobless recovery.

Foreclosures and short sales continue to depress values in all neighborhoods.

Mix all of this together, and the pessimism and fear just ooze from people.

The only residue from this is that mortgage interest rates – which feed on bad economic news – have never been lower for this generation. The irony, however, is that the people who seem to be able to take advantage of these rates mostly are those who least need the help. They’re the homeowners who still have significant equity and so are able to refinance or sell their home and move up and benefit from a 4.5 percent interest rate.  Or you have first-time buyers who think a 4.5 percent interest rate is not low enough.

Even Time magazine, in its latest issue, is questioning the validity and wisdom of purchasing a home in these times.

It’s been three years since the mortgage meltdown started and CNBC’s Jim Cramer told us that the government “knows nothing.”  Well, to many people, that may still be the case.

Even so, from my seat as a mortgage banker and as a reporter who covered the housing industry on its meteoric rise to its crash, I’ve come to some conclusions and observations. So here they are:

• Things will never be as they were.  When then-President George W. Bush told a gathering in 2008 that the banks got drunk and now they have a hangover, he was right.

And like someone who had some bad tequila, it’s doubtful that they will go back to it any time soon.  Easy qualifying mortgages are a thing of the past.  Can someone get a loan?  Absolutely.  But be ready to hand over every single piece of financial information and be prepared to have letters of explanation ready to go for anything that might be harmless in your eyes, but a red flag to an underwriter.

• That being said, the pendulum has swung too far.  One of the things that banks learned in the meltdown was they never want to be subject to buybacks.  Buybacks happen when the investor who buys the loan scrutinizes it, and if there is one hair out of place, can toss it back to the originating lender and say they don’t want it.

That’s part of the reason why underwriters want to over-document the file – so that the investor has no wiggle room.  Eventually, there has to be some moderation.  Having a borrower try to explain a $500 non-payroll deposit into their bank account, while having more than enough other verified funds to complete the transaction, should not be a condition of getting a loan.  Today, it is.  Common sense lending has to return in some form.

• Housing won’t fully recover until something is done about home equity lines of credit that have put homeowners under water. Earlier this decade, banks tossed out home equity lines with teaser rates and lines of credit that would go up to – in some cases – 125 percent of a home’s value.

No problem while values were rising.  Home improvements were financed.  College educations.  Cars.  Boats.  It all made the economy hum.  Now the bubble burst and values have plummeted.

While the government has programs for underwater borrowers with just a first lien, very little attention has been given to those homeowners who can’t refinance because the holders of the equity line won’t subordinate to a new first mortgage.  So these homeowners are in limbo. They may be able to pay the mortgage and equity line, but when the prime rate starts moving up, watch out.

The brain trust at the Federal Reserve and the Treasury better be thinking about a roadmap for these people to follow.

• Appraisals.  With the advent of the House Valuation Code of Conduct, a firewall between loan officers and appraisers has been put in place.  Were there abuses before?  Without question.  Perhaps relationships between lenders and appraisers were too cozy.

But now with third-party management companies sending out appraisal requests on behalf of lenders and telling appraisers how much they can earn, the highly qualified appraisers are shunning the business and leaving the appraisals to the not-so-qualified.

Also, the unintended consequence is that there is no incentive for going out on a limb and maybe giving a higher value if it is warranted. The main goal for these appraisers is to stay on the management company’s approved list, and the best way to do that is to lean more conservative when appraising someone’s home, rather than going the other way, as long as the value can be supported.

You typically don’t get scrutinized if the value tends to be lower than higher.

Again, these are just observations on what has happened over the last three years.  Who knows what the next three years will bring.

Source:  Robert Nusgart is a loan officer with Prospect Mortgage LLC & IBR

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Prices Holding Up Well Despite Everything

One of the remarkable things about home sales today is the strength we’re seeing in the national median price. For July it was $182,600, up almost a percentage point from a year ago. That’s about what inflation is right now, according to the Consumer Price Index. When you consider the slowdown in sales volume now that the home buyer tax credit is ended, the resiliency in pricing is a bright spot.

NAR Chief Economist Lawrence Yun at his monthly press conference in Washington yesterday attributed that resiliency to the equilibrium of prices to household income (including mortgage-payment to income) and the drop in new-home construction.

In his analysis, homes are priced at a level that matches closely with households’ ability to pay. Thats’ a reasonable place for prices to be right now, all things considered, and he thinks any big swings up or down are unlikely in the next few months, even if home sales continue to struggle and inventories stay high.

Of course, if inventories stay high well into the fourth quarter, then home prices could once again come under pressure.

So, prices are aligned with the economy and interest rates remain historically low (4.42 percent on average). What’s missing is consumer confidence, and that appears to be dependant in part on evidence that jobs are growing.

Watch Yun’s press conference in the player above.

By Robert Freedman, senior editor, REALTOR® Magazine

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