Transaction Fees

John Wagner, one of our Klinge Realty agents, brought to our attention the lawsuit mentioned in the latest CAR update.

A few years back, a few realtors started tacking on additional garbage fees like the lenders do, calling them “transaction fees” or “document compliance fees”.  They justified them by saying the additional paperwork requires more people and processing, etc.

Finally, somebody had enough of it, and sued:

A broker must perform a specific settlement service to charge a $149 “administrative brokerage commission” fee under the Real Estate Settlement Procedures Act (RESPA).  That was the recent decision of a federal district court in Alabama in the case of Busby v. JRHBW Realty, Inc. (Case No. 2:04-CV-2799-VEH).  This decision serves as a good reminder for REALTORS® to refrain from charging unearned fees under RESPA.

In this case, a seller in Jefferson, Alabama agreed to pay the real estate broker a five percent commission.  However, during the closing and settlement, the broker also charged the buyer a $149 “administrative brokerage commission” (ABC) fee in connection with a federally-related mortgage loan.

The buyer paid the $149 ABC fee, but then sued the broker and succeeded in obtaining class action status for over 30,000 consumers.  The buyer claimed that the broker performed no services for the $149 ABC fee.  According to HUD, RESPA prohibits an unearned fee, such as when a “service provider charges the consumer a fee where no, nominal, or duplicative work is done.”

In response to the buyer’s claim, the broker argued that the ABC fee was for an array of services, including overhead expenses, regulatory compliance, technological enhancements, and additional commission.  The court, however, agreed with the buyer.  The court observed that the array of services listed by the broker were not settlement services because they did not occur at or before the closing, and any direct benefit to the buyer was negligible.  The court also pointed out that, as additional commission, the $149 ABC fee would be a duplication of the percentage commission already charged.

John mentioned that he has heard of agents charging $300 to $1,000 in extra fees, and their unknowing clients having to pony up, usually right at the finish line with no notice.  It is wrong, and it won’t happen at Klinge Realty.


De Luzion

This one sold for $850,000 in March 2007, which was the height of the craziest money.

Pseudo-banks were lending up to $1,500,000 with no down payment to anyone who asked with a decent credit score. We’ll call it the “Jenae-era”.

We’re only two years past it.

Don’t be surprised if we see more of these ‘higher-end’ properties going for half-off.  This 3,880sf house on 4.69 acres is now listed for $469,900: 

Foreclosures Coming Yet?

A good way to track foreclosure activity is to monitor the same four REO listing agents over time.  If the flood gates open, they’ll be the first to feel it.

Here are their numbers today – it looks like we’re going backwards:

APR 18, 2008 – 467 Actives/247 Pendings = 1.89

MAR 9, 2009 – 223 Actives/223 Pendings = 1.00

APR 28, 2009 – 140 Actives/199 Pendings = 0.70

I haven’t had any assigned to me since the first week of February.

Pre-Packaged Short Sales

The lenders have received numerous requests for loan modifications.

But many borrowers don’t qualify, for various reasons:

1. Too far underwater.

2. Lousy financial package (make too much $$, make too little $$, incomplete pkg., etc.).

3. Not primary residence.

4. Not a qualified loan program (not Fannie/Freddie, etc.).

The lenders/servicers are having to review each package, order appraisals, and make a decision.

If the borrower is denied, they are faced with either keeping their word and making their existing payments, or throwing in the towel.  The second choice means ride out the free rent while getting foreclosed, or try for a short sale. 

Both options will be costly to the lender.

The lenders have the loan mod package in front of them.  If denied, should they just go ahead and pre-approve the short sale?

On one hand, if they were proactive and offered a pre-approved short sale, they could efficiently resolve the case. 

If part of the package included a demand that the seller had to vacate, the short sales could compete with REOs – right now the REOs are pummeling the short sales in selling efficiency. 

Selling these homes faster and easier should mean more net proceeds to the sellers.

On the other hand, wouldn’t more borrowers take advantage of the system?

I think there are lenders out there that are contemplating this very question.

What should they do?

Oceanside Flipper

No techie asked to see one of these REOs after someone buy one, and what happens then. 

This house looked just like the $150,000 graffiti-mansion in Vista when these folks bought it for $163,000 in January, 2009.

They fixed it up quick, and in March listed it for sale – at $265,000.

It went pending the first week.  Here’s a youtube tour:

Buy REOs!

(hat tip to Nathan)

The Inland Valley Daily Bulletin.
Matt Wrye, Staff Writer
Created: 04/25/2009 06:21:38 PM PDT

“Economists and real-estate agents are counting on homeowner affordability to stabilize California’s housing market mess, but Bruce Norris couldn’t disagree more. Owner of The Norris Group, a Riverside-based real-estate investor and financial broker for other real-estate investors, Norris says it’s not what a home shopper ‘can afford to pay’ that’s key in turning this market around – it’s what they’re ‘willing to pay.’”

“He’s bucking the popular belief that a 5 percent or 10 percent price drop on Inland Empire home values will usher in the market’s bottom. Think 20 percent or maybe more, he said. ‘It’s because of the 1004 MC form,’ Norris said. ‘It’s very dangerous.’”

“This ‘market conditions addendum’ for appraisers to use – enforced April 1 by the mostly government-owned mortgage investors Fannie Mae and Freddie Mac and loan insurer Federal Housing Administration – might thrust the economy’s fragile mortgage system from its depressed state to something much worse, Norris argues.”

“The new addendum says a house must be appraised at the neighborhood’s median home value instead of market value, as long as the home is located in a downward market and as long as the mortgage is a Fannie Mae, Freddie Mac or an FHA-backed loan. Median home values in certain neighborhoods are taking a beating these days because their prices are skewed by dozens of foreclosures – which means nonforeclosed homes are slated to get hit by a double-whammy price-depreciation phenomenon.”

“Norris has already seen values stated on local home appraisals drop 20 percent in the past 3 1/2 weeks. ‘If this plays out, things will get much worse,’ Norris said. ‘We’re going to devalue the loan portfolios of almost every lender in the state of California. This could crash the system – it really could.’”

Upturn Predicted ‘this year or next’

From the U-T, note the last paragraph:

CAMBRIDGE, Mass. – The nation’s housing market may begin to recover this year, ahead of the general economy, but only if a lot of “ifs” go the right way, according to a co-author of one of the most-watched housing indexes.

Karl “Chip” Case, who helped create the Standard & Poor’s/Case-Shiller Housing Market Index, struck a guardedly upbeat tone yesterday at a conference at the Lincoln Institute of Land Policy.

“I’m optimistic,” said Case, an economics professor at Wellesley College in Massachusetts. “I think we’ll see housing turn around before other people do. I think we’ll see it turn up this year or next” before the rest of the economy improves.

The conference focused on the future of cities after the recession, and the advent of the Obama administration in Washington.

Case said various indicators point to stabilizing prices, particularly at the starter-home end. If that happens, he said, the rest of the economy is likely to respond similarly.

But Case couched his sunny outlook against a cloudy set of preconditions that must be met for the housing slump to end: rising housing starts, removal of the “toxic assets” weighing down lenders and investors, and renewed trust in banks’ balance sheets.

If housing does not recover, he warned, a general economic upswing “could take a very long time happening.”

Case also said the national housing picture is somewhat distorted by conditions in what he dubbed “Flocazn” – Florida, California, Arizona and Nevada – where more than 50 percent of all resales involve auctions of foreclosure properties, versus about 12 percent in the other 46 states.

He took particular delight in needling Californians for their undying belief in ever-rising home prices. But this faith is understandable, he said, because downturns in the 1980s and ’90s were followed by robust price recoveries and the 2000-01 recession did not result in any price declines.

“People in California know it’ll come back,” Case said.

This California article of faith is shared by many outside the Golden State. He cited an economist friend who complained that he had not sold his house even after two years on the market. Case gently reminded him that if he lowered the price, it might sell.

Klinge-Klang Index

Let’s examine the Case-Shiller Index methodology with the March sales in Carlsbad.

They only use SFRs, so the condos, mobiles, and multi-families are omitted, which is good.

Last month there were 43 MLS sales in Carlsbad, but only 20 of them would count towards the Case-Shiller Index.

The 23 that wouldn’t count:

11 – REOs

9 – Previous sale was brand new

2 – Recent sale was brand new

1 – No previous record

23 – Total

Here is the breakdown of the remaining 20 March sales:

Previous Sale % diff
+87 SS
-7 SS
-14 SS
-16 SS
-18 SS
-25 SS

The Case-Shiller method uses an algorithm for downweighting the older sales, which, if I’m reading it right, adjusts the data based on how far away each sale is from the first. It gives a lot of weight to the short sales and other highly motivated sellers, and discounts the how the long-timers did, but if all they want to do is measure off-peak pricing, it’s probably as good as any.

I like things simple, so I’ll just say that Carlsbad is around 2003 pricing.

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