Legal Disclosure

Daily Real Estate News | Friday, September 30, 2011


Starting Saturday, many borrowers in pricey housing markets may find they’ll need a higher down payment or pay higher rates. The size of mortgages that the government will back in several high-priced regions is set to drop on Oct. 1, which some analysts expect will serve as another thorn to the housing market.

In 2008, Fannie Mae and Freddie Mac raised its cap on conforming loans up to $729,750 in some of the most expensive housing markets so that larger mortgages would be available to home buyers. But those caps are set to reset on Oct. 1, scaling back to a maximum of $625,500 in some areas of the country.

Housing analysts say the drop will make it more expensive and harder for some buyers to qualify for home purchases in expensive markets, particularly along the coasts.

“The down-payment issue is the most significant aspect form borrowers standpoint,” says Greg McBride, a senior financial analyst at “These changes will price some prospective borrowers out of the market.”

Source: “Big Borrowers Face Larger Down-Payments, Rates,” MarketWatch (Sept. 30, 2011) and “Big Mortgages: Harder to Get and More Expensive With Loan Caps,” CNNMoney (Sept. 30, 2011)

Read More:
On Loan Limit Drop, Middle Faces Hard Hit

House Fails to Vote on Extending Loan Limits

How to Win Over Buyers

No matter how well educated your buyers are, they still need information on how a real estate transaction works. Use consultation appointments to inform them and become a trusted resource in the process.

May 2011 | By Rich Levin
Buyers are more educated in today’s market. They have more access to information regarding properties and their value. Plus there are practically unlimited real estate resources online for practitioners.

These combined factors should make the real estate professional’s job easier, but for many, they don’t. Why? There are two problems:

  • The information may not be accurate or relevant to a specific market.
  • The information is almost certainly incomplete.

“An Educated Consumer Is Our Best Customer”

Two adages speak to today’s buyer:

Whether the real estate pro finds buyers easier or more difficult to work with depends on whether that practitioner respects and completes the buyers’ education.

Have the buyers obtained a copy of the contract and paperwork online? Probably not, and most paperwork has many pages plus addenda. Do the buyers know what real estate trends apply to their market? Do they know what to do when the inspection reveals a problem?

Contracts, inspections, financing, negotiation — there are far too many steps in the transaction process for most buyers to pick up on their own.

A Simple and Powerful Process

The most successful buyer’s agents learn to ask a few simple questions (adjust to the circumstances of you and your buyer accordingly):

“The purchase documents in our area are six pages, plus disclosures and addenda. Has anyone given you a copy of the latest documents and reviewed with you the parts that are going to be relevant for your purchase? I find it helps a lot to be familiar with the documents so you aren’t seeing them for the first time when you’re making that $200,000 decision. Would you like to get a copy and take a look at those together?”

“There are inspectors, appraisers, attorneys, title companies, lenders, and real estate agents involved in the transaction. Would it be helpful to go through the process step-by-step so you know what to expect and get some idea of what might come up? It often reduces some pressure and allows you to enjoy the process with greater confidence. Would that be helpful to you?”

These simple questions lead buyers to make a consultation appointment, which can establish enormous confidence and trust in you, the agent. Buyers subsequently go along more easily with your recommendations through the negotiations, which actually can reduce the number of homes they need to view. They find the experience so valuable that they begin to refer you to friends and relatives.

At the consultation appointment, review each step of the process, educating and preparing buyers. Do they understand the type of financing they’re trying to get? Do they have any questions about it? Even if you don’t have the answers, you can take the lead getting a clarification and making sure buyers are aware of what’s included in their closing costs and their payments, and in reducing cash needed with seller contributions.

You also should explain what buyers can expect: Describe problems that could arise and how you’ve solved them and protected buyers’ interests in the past.

As you conduct these presentations, you’ll quickly discover two things: how much buyers don’t know — even the educated ones — and how much they misunderstand. As you realize the value and power of these consultations, you’ll learn to go into deep detail, continuously confirming buyers’ understanding.

Changing laws and financing situations — such as explaining short sales and foreclosure procedures — are just a few reasons that the time you spend preparing buyers works to everyone’s benefit.

Brokers Expect REOs to Trigger More Legal Disputes

Nearly 60 percent of real estate professionals say they believe REO-related disputes will increase over the next two years. What’s more, 76 percent said they believe it will be among the top three issues they will face in real estate, according to the National Association of REALTORS®‘ newly released 2011 Legal Scan: Legal Issues Facing Real-Estate Professional.

In the survey of real estate agents, brokers, attorneys, and educators, survey respondents said disclosure in these transactions remain a main culprit to problems, pointing to banks and listing brokers who sometimes fail to disclose known material defects about a property.

Overall, according to the 2011 Legal Scan, the top three issues that cause the most disputes in a real estate transaction are dual agency, disclosure, and breach of fiduciary duty.

Short sales, in particular, are causing more disputes in some of these areas, the survey found. Short sales are more commonly being listed in “as-is” condition, which has “resulted in a decline of quality of seller disclosures,” the survey notes. Another disclosure problem reported is the failure of listing agents to report that the property is or will soon be in a short sale situation.

Source: “Brokers Foresee an Increasing Number of Lawsuits Related to Short Sales,” Realty Times (July 26, 2011)

Strategic default smarts

By Tara Tran • Jul 7th, 2011 • Category: Feature Articles, Journal Articles, July 2011 Journal


This article reviews a newly-developed Fair Issac Company (FICO) analytics model which predicts a borrower’s likelihood to exercise a strategic default and revisits the financial advantages of a strategic default for a negative equity homeowner.


FICO findings

Fair Issac Company (FICO) researchers have developed new analytics to predict a borrower’s likelihood of walking away from a mortgage – a strategic default – whether or not he is delinquent on his payments. The rise in strategic defaults over the past year is of concern to mortgage lenders. Thus, FICO consulted with them (not underwater homeowners) to develop the analytics with the purpose of preventing strategic defaults and their costly impact on lenders, investors, homeowners and the housing market.

35% of mortgage defaults in September 2010 were strategic, an increase from the 26% more than a year earlier in March 2009 according to a University of Chicago Booth School of Business study. 22.5% of residential mortgage defaults nationwide were strategic in the third quarter of 2010. This number increased to 23.1% in the fourth quarter of the same year.

In negative-equity-laden California, strategic defaults are also widespread (more so than the nation as a whole since California is a nonrecourse state and lenders cannot viably threaten to sue for their losses). There were 45,380 strategic defaults in 2009 – 80 times the number in 2005. [For more information on the strategic default trend, see the August 2010 first tuesday article, Fannie Mae, our government and strategic defaults.]

FICO researchers found borrowers who walked away from their mortgages had common traits including:

  • higher FICO scores;
  • better credit management (understood financial statements);
  • less retail balance (did not need credit to buy);
  • shorter length of residence on the property and thus greater likelihood of a negative equity; and
  • more open credit in the past six months with which to purchase items. [For more information on FICO’s findings on strategic defaulters, see the FICO article Predicting Strategic Default.]


The study concluded the degree of difference in the loan-to-value (LTV) ratio between the current market price for a home and the mortgage owed on the home (home price depreciation) is not as strong of an indicator for predicting a homeowner’s ability or willingness to strategically default. However, the study did conclude a borrower with a stronger history of good money management and a higher credit score tended to strategically default at a higher rate than other borrowers.

FICO and mortgage servicers are alarmed of the increasing frequency of strategic defaulters and warn homeowners of the consequences of walking away from their mortgage payments. Not only will homeowners suffer a 150+ point hit to their credit scores, but they may also face higher rates, tighter terms for other types of credit and a bump in insurance premiums. FICO goes on to implicitly threaten the homeowner who reverts to renting after walking away by saying landlords will be more unwilling to accept them as a tenant when they see a strategic default on the tenant’s credit record. [For more information about the fallacy of FICO’s argument, see the June 2010 first tuesday article, The FICO score delusion.]

This is a fabrication of the worst type. FICO and the lenders they consulted with (who incidentally are the ones who pay FICO for the use of their algorithms) have an economic interest in keeping California’s population of negative equity homeowners imprisoned in their underwater homes. The truth is, any landlord fully understands that a strategic defaulter is going to make a very fine, long-term tenant if they have a job and otherwise pay their bills – and most all do since they made the sound decision to strategically default.

Walking away is for smart people, and lenders know it

Several studies over the past years have already observed strategic defaulters tend to hail from a more financially savvy crop of people. The recent FICO study repeats this conclusion of which many of us are familiar.

What it also advertises — to the endorsement of lenders — are the detrimental effects of walking away from a mortgage. Agents and brokers must construct the bigger picture, especially in California where underwater homeowners collectively hold over 2,000,000 negative equity mortgages. [For more information on the relationship between higher credit scores and strategic defaults, see the October 2009 first tuesday article, Financially savvy homeowners turn to mortgage defaulting as a strategy.]

California negative equity homeowners have the short end of the stick with black-hole assets on their hands, so the question they should be answering is not whether a strategic default would be a in the best interest of their lenders. Rather, they should be considering whether a strategic default would be a prudent choice for their personal financial situation.

It’s true, homeowners will see a hit to their credit scores from a strategic default — and of course FICO will highlight this since the media often overstates this figure — but homeowners must not be inveigled into staying in negative equity properties by the vague economic threat of a lower FICO score. It’s not about the FICO score alone, but the costs versus benefits analysis of the homeowner’s individual situation.

Either a homeowner can continue to siphon his money into a dead-end loan, or he can save that money and invest it into a much more lively investment — improving his family’s standard of living.

Paying lenders the full amount on an underwater home is not what is going to fuel the recovery of a family or the California economy — what we need is to put cash in the hands of negative equity Californians.

A strategic default when the LTV is above 125% is not a dishonest financial bailout – it is prudent business decision. It may temporarily hurt the pride and credit scores of California homeowners, but these things are soon remedied. [For more information on when to strategically default, see the May 2011 first tuesday article, Short sale or foreclosure? The naked truth for underwater homeowners.]

Paying lenders the full amount on an underwater home is not what is going to fuel the recovery of a family or the California economy — what we need is to put cash in the hands of negative equity Californians. If they aren’t going to get any cramdowns in bankruptcy courts, they need to exercise their legal right to strategically default — that “put option” in every trust deed. Besides, it’s what all the smart people are doing anyway, right?

– ftCopyright © 2011 by the first tuesday Journal Online –;
P.O. Box 20069, Riverside, CA 92516

Readers are encouraged to reproduce and/or distribute this article.

To The Weekly Update And More

Have you ever noticed that anyone can find data to support their own perspective or opinion? During a typical week you will hear things like home prices are down, sales are up; more houses are underwater, etc. Depending on the message you want to send you can always find the numbers to support your statement. Our favorite is:

“Inflation is benign, if you exclude food and energy prices”. OK, if we did not
have to eat or get to work this may be true. Some people don’t have to drive,
but everyone eats. There are some fundamental truths, at least in our opinion
;-). Let’s review a few of these:

1. It is a great time to be a first time home buyer. Rates are low and there is plenty of inventory; there are some great values out there and it is time to act.

2. We don’t have 500+ flavors of loans anymore however there are many creative ways to finance properties. Granted you really have to qualify for the loan now, (not the worst thing in the world).

3. We said it before and we will say it again, if it were not for FNMA or Freddie Mac we could not even imagine what the real estate market or what our nation would look like at this time. We and a lot of smarter people than us know at this time private capital is not ready to step up and fill this void. We are not comfortable yet, with the government’s proposal to abolish the GSE’s (FNMA and Freddie Mac). This week on one of the business channels there were two senators (one Republican and one Democrat) touting the replacement of FNMA and Freddie Mac with five companies guaranteeing loans. Their explanation of how five companies would function better than the two existing GSE’s was very fuzzy and non specific, typical politician speak.

4. We all need to thank the National Association of Realtors and their president Ron Phipps for taking the message to Washington and the press.

The three points of NAR’s message: Do not wipe out the home interest deduction, do not wipe out the GSE’s and do not get rid of loans with less than 20% down. Bravo and a big thank you to NAR, you go Ron! By the way NAR has some very interesting statistics regarding the housing industry on their web site

Levine, Two Thumbs Up

Last week in honor of Mother’s Day, CMG sponsored the Alison Levine event and it was great! Over 300 attendees had the opportunity to be inspired by this successful business woman and world class mountain climber. Ms. Levine also makes the time to empower women in third world countries through her various philanthropic organizations. Guests enjoyed tasty complimentary refreshments and each guest received a pink metal water bottle to commemorate the event. During the Q and A time, a member of the audience commented how refreshing it was that there was nothing for sale. Sorry if you missed this wonderful afternoon, the presentation was very inspirational and informative for everyone.

It’s Like
Ripley’s…Believe it or Not!

Truth is stranger than fiction! We have a loan in process where the borrower currently owns two houses (rentals) in Antioch. One of the properties was purchased recently (October 2010) as a non owner occupied property. The borrower is being transferred by his company from San Francisco to
Contra Costa County. The new purchase will be owner occupied. The underwriter suspended the loan requesting a letter from the borrower to explain why he is not throwing one of his tenants out to move into one of the homes he currently owns in Antioch. Just when we thought we could not be
shocked by anything else! We are not making this stuff up.

It is always a good time to thank you for thinking about us. Erin and I appreciate your business and the trust you have in the Meredith Team.



Meredith Mortgage Team, CMPS

Certified mortgage planning specialist

“We Will Always Have Your Best  Interest In Mind”   


Erin & Kathleen

The Bay Area’s Premier Mortgage Banker and Broker

(925)983-3048 office

(925)226-3215 efax

(925)918-0585 mobile

Apply For Mortgage Financing with The Meredith Team, Click Below:

The Home Ownership Accelerator  is helping people pay
off their mortgage in record speed…click here

Watch Your Words in Listing Ads

The wording you choose in the ad for your listings is important if you want it to grab the right buyer attention.

A study by the University of Guelph in Ontario analyzed the wording of more than 20,000 Canadian home listings and found that a listing’s phrasing can influence a home’s sale price as well as the length of time it took for the home to sell.

For example, when the listing’s ad incorporated words like “beautiful” — rather than “move-in condition” — the sale price was influenced by 5 percent or more, as much as $15,000 on a $300,000 house.

Other words that reflected “curb appeal” or the attractiveness of the home, such as good neighborhood or excellent upkeep, also were found to help the property sell faster than homes that were described as “value” and “price,” the study found.

“There’s usually something that can be said in a positive way which will force a buyer reading an ad to see opportunities,” says Catherine Lindstadt, a licensed associate broker at Prudential Douglas Elliman Real Estate. “It’s important to help a seller elaborate on their home’s assets with details and to give the buyer a visual.”

Instead of saying “spacious,” she prefers key words such as “open floor plan,” “vaulted,” or “high ceilings.”

A University of Texas at San Antonio study found in analyzing agents’ comments left on the Multiple Listing Service that comments that state facts about a home also are associated with increased selling prices.

“Buyers are attracted to amenities that can be verified–new roof, new carpeting, updated kitchen, beautiful landscaping, golf course community, lakefront, waterfront, gated community,” says Marie Montchal, a licensed associate broker and senior vice president of relocation and ancillary services at Daniel Gale Sotheby’s International Realty Relocation Center.

But beware of the word “new,” she says. “I know that ‘new kitchen,’ ‘new bath,’ ‘new roof’ and ‘new windows’ is inviting, but I have a guideline of two to three years, or ‘newer’ if it’s older than that,” she says.

Source: “Making ‘House for Sale’ SING: When Writing Your Ad, the Right Words Can Pay Off,” Newsday (Feb. 25, 2011)

Read More

8 Steps to Writing Effective Advertising Copy

Watch Before You E-mail, Court Says

E-mails are just as binding in real estate negotiations as traditional ink-on-paper contracts, according to a state court ruling in New York regarding a real estate dispute.

“Given the vast growth in the last decade and a half in the number of people and entities regularly using e-mail,” handwriting and e-mail should now basically be considered one and the same, ruled the Appellate Division, First Department of State Supreme Court in Manhattan, N.Y.–which handed down its ruling on Oct. 5, but it mostly went unnoticed by the public. The ruling was appealed this week to New York’s highest court, the Court of Appeals.

The case–Naldi v. Grunberg–stems from accusations of a breach of contract in a commercial real estate transaction. The court’s ruling, which also applies to residential transactions, is expected to bring some clarity to how legally binding e-mail is in real estate.

“As much as communication originally written or typed on paper, an e-mail retrievable from computer storage” is proof of a deal, the court said.

Robert J. Braverman, a Manhattan real estate lawyer, told The New York Times, “you need to be mindful of what it is you are saying in electronic communications.” For example, a broker or seller who uses a phrase such as “$700,000 was more of what I had in mind” in an e-mail “might have a problem,” Braverman says.

Mario J. Suarez, a lawyer at Thompson Hine, says adding a disclaimer on e-mails may help. The e-mail disclaimer may read something like the communications “shall not be deemed an offer, as no documents are binding unless and until executed.”

Source: “E-mail May Be Binding, State Court Rules,” The New York Times (Feb. 17, 2011)

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