Avoid Deed Recording Scams

Lately, several of my clients have contacted me shortly after closing indicating that they received some kind of letter from what sounded like a government agency, etc.  The was urging them to pay a fee to receive a certified copy of the deed to their property.  Do not fall victim to this scam.  The closing attorney who conducted your closing will get your deed recorded with the county and send you a copy of the recorded deed for free (this is included in the attorney fees that you already paid at closing).  Once it is recoded, it is permanently on file at the county courthouse so that even if you loose that piece of paper, it can always very easily be looked up in the courthouse records to show that you are the rightful owner of the property.  These companies are simply purchasing mailing lists of people who recently closed on a home and trying to scare them into paying a ridiculous fee to obtain what they will obtain for free automatically.

Not a day goes by without seeing news articles about the Atlanta Real Estate Market and the United States housing market that references median home price. Just today, there was an article on CNN touting that home prices had fallen by 4.6% in Q1 2011. There is a big problem with this logic. Most often, if you read past the headline, you will notice that the author is referring to median home prices falling and trying to pass that off as an indication that home prices have fallen. In reality, these are 2 very different things.

A Little Math Review – essential to understanding this (skip this section if you are fluent in medians and averages)

If you recall back to your early school days in math class, you once learned about Averages, Medians, and Means. The median is merely the number in the middle of a set of numbers if they are put in order (it’s not to be confused with average). So, in the set of numbers (10,20,500,10000,2000000), the median of these numbers would be 500 (the number in the middle of the 5 numbers – 2 numbers are higher and 2 are lower). The average would be calculated by adding the numbers and diving by the number of numbers; so in this example, the average would be 402,106 – very different from the median.

Here’s why it is wrong:

So now that we have reviewed that math, I would like to ask: What relevance does median home price have on the price of tea in China? When I hear that the median home price is down by 4.6%; which is what the above referenced CNN article was touting, all that tells me is that more cheaper homes have sold than high end ones. Well, duh! Unless you have been living under a rock, you would know that the real estate market of today is heavily driven by first time buyers and the inventory is filled with foreclosures. There are many more foreclosures of entry level houses than there are high end houses (at least up to today that has been the case); perhaps because the wealthy folks are better positioned to weather the economic storm that we are in. So, with more entry level buyers and the better deals in the lower end homes, it is rather obvious that more lower end homes have sold recently than high end homes; so if we take all the sales that took place, put the sale prices in order and find the exact physical middle number of the set today, we will get a much lower number than if we did the same thing in days when there were more higher numbers in the set; but does that really prove prices have fallen this quarter? Absolutely not.

Follow the same logic and I have aged 49 years in the past 40 years:

To point out the idiocy of drawing a conclusion about home prices based on median price, I will use an analogy of median age in the United States. In 1970 when I was born, the median age in the U.S. was 28. In the 2010 Census, it was 36.5; If you follow the exact same logic the reporters use on home prices using median figures and apply it to my age, it would stand to reason that since the median age in the U.S. increased by almost 9 years, that I too have aged an additional 9 years; making me 49 years old even though I was born in 1970 and this article is being written in 2011.

How to really tell what the market is doing:

It seems much more logical to assess the health of the housing market by looking at transaction volume (number of closes sales) and perhaps the ratio of closed sales to active inventory (the absorption rate). In the Atlanta market, both of these are UP (yes, you heard right). 2% more homes were sold in the Atlanta market in Q1 2011 than were sold in Q1 2010. The inventory levels are also lower (less homes on the market). So, the market’s health is definitely improved this year over last. I would also like to add that even though 2% doesn’t sound like a significant increase, in 1Q 2010 we had the first time home buyer tax credit in place and in 2011 we have no such incentive. So, I think it is very significant that 2% more homes were sold without the credit this year than were sold with the credit last year. Yet, other than my lonely blog, I don’t see very many main stream news channels reporting this. Instead, they choose to continue to put a negative spin on things by focusing on median home price; which really doesn’t tell us anything worthwhile other than perhaps that people are buying less elaborate homes as a trend and McMansions have perhaps fallen out of fashion; at least temporarily.

It happened again to me today: I had a buyer client that was somewhat interested in a home that had been on the market for 2 years. They were taking some time to think about it and, sure enough the home went under contract while they were deciding. If this happened once, I would call it coincidence, twice and it’s bad luck; but similar things have happened to me so many times that I have begun to wonder if some kind of supernatural forces are at play in the home shopping game. Call me crazy; but it almost seems as though when a buyer goes into a home and likes it, they leave behind an energy that tells other potentially interested buyers that there is someone else that likes this home. People generally want what other people want too because if another person likes it too, it is a vote of approval on the decision and validation for the buyer that they are making the right choice rather than going against the grain and liking something that nobody else wanted. This “energy” causes the next person who looks at the home to like the home more because they are now aware on a subconscious level that it is ok to like it. Does anyone else have more logical explanation as to why events like this continue to happen so frequently and how my listings seem to get the most traffic and interest the minute I get the first offer on them – even before the public is made aware that negotiations are taking place?

Homeowner associations are essentially very local governing entities that have jurisdiction of a single subdivision or community of homes. Often, homeowner associations have a set of bylaws or covenants and restrictions that are supposed to be designed with the goal of preserving property values and aesthetics of the neighborhood. During the real estate boom of the previous decade, many homeowner associations in the Atlanta area and I’m sure other areas as well had adopted restrictions that would prohibit homeowners from renting their units out or limit the number of rental units allowed as a percentage of homes in the entire subdivision. The thinking was that having a large number of rental units can devalue the neighborhood as tenants who do not have an ownership interest in a property are not likely to take as good care of a property as the actually owner occupant homeowner would. In theory and at that time, this was logical thinking and, generally speaking, it was beneficial to the community to have such a restriction.

Fast forward to current times when the housing market is not what it used to be and while there are still pros and cons to such a restriction on rentals, it seems that now having such a restriction can do more harm than good to a neighborhood. Home values in the Atlanta area have fallen in most cases a minimum of 20% in value. Therefore, a large percentage of people who purchased their homes in Atlanta within the past 5-6 years are now upside down on their homes; meaning that they owe more to the bank(s) than their home is worth. Most people including myself firmly believe that this drop is temporary and things will eventually recover; so for those who can simply stay where they are, there isn’t much reason for alarm. However, if you are a person who has to move due to job relocation, divorce or other significant life change and you are upside down on your home loan, you have some tough choices to make – none of which are ideal. Your only options plain and simply are:

Keep paying your mortgage, property taxes, insurance, utilities and maintenance costs on a vacant home that nobody is living in for several years until the market recovers and you can at least sell for enough to clear your loan. For most, this is not a viable option because they simply can’t afford to pay for this home and the new housing that they had to get in their new location.
Stop paying their loan and simply allow the bank to foreclose on the property and take it back through repossession or sell for fair market value and hope that the lien holders will approve a short sale.
Rent out the property for enough to cover their carrying costs and hold onto it until such a time as the market conditions are more favorable for selling.
If a homeowner association takes option 3 off the table, they only leave 2 remaining options. Hopefully for the neighborhood’s sake, option 1 is possible and the homeowner is willing and able to perpetually pay to keep the house and yard up to par with nobody living in it. Most of the time, this is either not the best choice for the homeowner or simply unaffordable. For those cases which will be the majority, the ONLY option that remains is to do a short sale and/or allow the home to go into foreclosure. Let me assure you, if the home goes into foreclosure, it will be maintained a lot worse than it would if it had a tenant in it. Also, there would be nobody paying any HOA dues for the property until the bank gets it sold as a foreclosure, and the sale price of the poorly maintained home will be significantly lower than the non foreclosure comps; thereby lowering the value of the neighborhood in a very real and concrete way.

So, when looked at with a dose of reality, it is easy to see that HOA restrictions on rentals force more people into option 2 (foreclosure) and thereby do much more damage than good in today’s market. Please feel free to share this information with your HOA board and I urge you to have them reconsider and revise the covenants before it is too late and the damage is done in your community. If you have a different perspective and wish to state your case in support of such restrictions in today’s market, please comment on this post and I would love to hear your side. However, I anticipate that the only arguments I will get are people who say that they would prefer people sell their homes for high enough prices than the neighborhood is currently worth and pay off their loans. Unfortunately, that is no more possible than selling your car for $10,000 above Kelly Blue Book Value.

Many counties in Georgia offer seniors a very large break on their property taxes. In most cases, the discount is related to an exemption of the school tax portion of the bill. However, it’s important to note that each county has different restrictions, qualifications and amount of discount offered. I recently called most of the local counties that I frequently service and inquired about the specifics of each counties plan. Overall, what I found shows that Cobb County offers the most generous discount and Fulton offers the least. If you are interested in this information for another county, please feel free to contact me and I’ll be happy to assist you. Also, please note that while I believe this information to be accurate, it is not warranted in any way:

County Senior Property Tax Discount
Cherokee At age 62, you will be exempt from 100% of the school tax portion of your property tax bill up to a cap property value which fluctuates each year. For 2009, the cap is $358,475; so if your property is valued above that price, you’d get the maximum discount which would be 100% of the school tax for a property of that price and don’t get any additional benefit for more expensive homes. However, at age 65+, you get to remove the state portion of your tax bill and the property value cap limitation goes away; so you would get the full benefit if you own a home over the cap value and you are over 65 years of age.
Cobb At age 62+, you would be exempt from 100% of the school tax portion of your bill with no income or property value restrictions. This is clearly the most generous senior tax break on the books in GA.
Fulton Fulton is known for having high taxes and although they claim to have a senior exemption, it is likely not significant as they refused to tell me what the qualifications are and how much the discount is. They follow the policy that AFTER you buy a home, you apply and they will tell you if you qualify and how much you qualify for. Because of their secretiveness and reputation for having the highest tax rate of all of the GA counties, I have to assume that their discount is filled with restrictions and is virtually worthless. I did get them to mention that you get nothing if your income is above a certain level that fluctuates and is currently $55,742.
Forsyth At age 65, you get the state and school portion exempt; which is typically 82% of your total tax bill. I don’t believe there are any income restrictions either. The only restriction they mentioned is that the home has to be your one and only primary residence; so if you are claiming an exemption on property even in another state, you wouldn’t qualify.
Paulding At age 65+ you get exempt from ½ of the school tax portion of your bill; but only if you earn less than $10,000/year not including private retirement, disability, 401K, and Social Security. At Age 70+, the discount increases to all of the school tax portion.

For months, I have been telling people that the opportunity to buy is now and that waiting for the so called bottom is a mistake. Those who listened to me took advantage of the market and closed on their homes this month. They will enjoy a purchase price as low as low can be. In many cases, prices in line with what the same home cost 10 years ago. In addition, they are enjoying a 4.5% 30 year fixed interest rate. For those who have missed the boat, interest rates have already gone up by almost a full percentage point in the last week alone. The going rate now is closer to 5.25% – 5.5%. This .75 difference in rate may sound like a small amount; but take out any loan calculator and you’ll quickly see that it equates to about $200 / month extra payment on a $400,000 house. That means that what cost $2,000 a month last week will now cost the owner $2,200 for the same house. A 1% rise in rates is about equivalent to a 10% rise in price in terms of monthly costs. So, effectively the payment on that $400K house is now equivalent to the payment you’d have if you bought it for $440K last week. Additionally, home sales are up and the value priced properties are now getting multiple offers and bidding wars. It stands to reason that prices will begin to rise soon as well. Though it is probably too late to buy at the most opportune time, I believe things will only get less favorable for buyers from this point forward. The prices and interest rates we have now are still incredibly low and this could very well be the last chance to get in before the train pulls away. Don’t get left out and kick yourself for waiting too long and missing the opportunity to buy a home in this unprecedented buyer’s market.

If you’re out looking for a deal on a home and notice some new construction that is bank owned, you may tend to assume that since the home is new there will be less problems with it and it might be a better option than an older resale. While this could be true on some properties, make sure you consider the following:

 

  1. Notice how many other homes in the subdivision are either empty lots or vacant homes. If the community is less than 75% sold, it could take a considerable amount of time for the other properties to be sold. The vacant lots can require some maintenance such as weed control that the bank owner is not likely to do. If there are a lot of partially complete vacant homes, these could become hazards and eye sores to the street as children begin to play in them, etc.
  2. Check the health of the Homeowner Association. Many new construction homes are part of a Homeowner Association (HOA) that collects dues to maintain common areas and shared amenities such as pools and tennis courts. If there are only a few occupied homes, these few homes will need to pay high enough dues to cover the costs of maintaining these areas without having the benefit of more homes to share the costs with.
  3. Since the foreclosures are as-is sales, make sure the home is complete. Often, these new construction “bargains” are sold as-is meaning that if the electrical wiring is only half installed or the kitchen cabinets aren’t in yet or the floors aren’t finished, what you see is what you get. Make sure to at least ask if a C/O (certificate of occupancy) has been obtained. That at least means that the county has inspected the home and determined that it has all of the basic needs to be moved into by a homeowner. Of course, cosmetic items are completely ignored by the county inspectors.
  4. If you do buy a partially finished home and plan to finish it on your own, make sure your lender will be willing to make a loan on it. Most lenders will not lend you money to buy an unfinished property or they will consider it a construction loan; which will at the very least preclude you from getting those 4.5% interest rates that are around these days and might prevent you from being able to obtain financing.
  5. Even the best built homes need some tweaking and fix ups after the 1st year. That’s why most builders offer a 1 year walkthrough to address the issues that come up after closing such as nail pops, squeaky floors, etc. due to normal settling that occurs in the first year as well as things that went unnoticed during construction. Since you won’t have such a warranty on a foreclosure, you will be absorbing the risk on your own. Additionally, you will not have any recourse if there turns out to be a major issue. For example, if the home is built on a sink-hole and develops structural issues shortly after closing, you have nobody to go back to since the builder is not the one who sold you the house.

In summary, there are some fantastic deals out there and in many areas new construction prices have come down more than resales. These can be good deals; but when deciding to buy one of them, make sure you take these factors into consideration to evaluate whether it’s really a good deal or not.

On Sunday, April 26th, 2009 you will have a chance to sample food from over 70 restaurants in the Marietta, GA area at the 16th annual Taste Of Marietta event. In addition to fantastic food there will be live music, family fun and arts and crafts booths. This is a very popular event and tends to get crowded. Come early as parking is often limited. It is a great way to spend the day with the family or if you are new to the area you can check out what Marietta has to offer. Last year this even drew over 75,000 people. This year, the weather is supposed to be beautiful so I would expect it to draw even more. Some new events this year include a cooking demonstration stag. Admission is FREE and parking is FREE. The restaurant booths will charge a nominal fee for samples of their food (.50 – 5.00 each). The event is taking place right in the historic Marietta Square area. You can find out more details by visiting www.TasteOfMarietta.com. I hope to see you there.