Did you see fewer moving vans this summer in Chicago. It's one sign of the tough rental market.

Let?s face it, it’s a scary time to be a landlord. The apartment rental market is facing difficulties like never before. For the first time in six years apartment rents are down nationwide. Fueling the fire are investor-owned properties (usually condos or town homes), which has expanded the rental supply by roughly 50 percent. Whether landlords own or manage 200+ units or 2 units, everyone is feeling the pinch. Here is where I see problems and opportunities in this market.

The Current Rental Situation in Chicago

1. The rental market and the job market run parallel to each other. Unemployment is up, hiring and recruiting have slowed, and people with jobs are scared that they are going to get laid off.
2. Consumer confidence is very low. People are more money-conscious now then they have been in the past. It is expensive to move and people are taking that into consideration when their renewal letter arrives.
3. There is still an over-abundance of inventory on the market. As mentioned earlier, the “shadow market” has expanded rental stock by over 50 percent.

The Bad News?

In my experience, most of my rental clients are either people relocating to Chicago or recent graduates. I see fewer people in both categories this season. Fewer college graduates are getting jobs right out of college and the job market has tightened with respect to new hires and moving allowances. There are still college graduates getting jobs right out of college and people are still relocating to Chicago, just fewer than in years past, which is creating a more competitive marketplace?especially since there is more inventory available. So, the number of “new” renters has slimmed down and existing renters are staying put, downsizing, moving in with mom and dad, or moving in with more roommates to save money. Of course, downsizing and consolidating living space by living with more roommates creates movement in the marketplace, however, it is just not enough to stimulate market prices positively. Further, this mentality contributes to fewer livable addresses and more apartment inventory, which drives the price of rentals down across the board. Once the job market improves, people will be back in the market looking for new places to live.

The Good News?

Yes, the apartment rental market is facing difficulties like never before. However, despite these recent challenges, a large majority of renters are still looking for a new place to live this year and more than half are planning to pay the same or more in rent. Here is why?

1. People still want to try out living in new neighborhoods or cities.
2. Renters want more for their money and are willing to negotiate.
3. There are a lot of renters out there looking for an upgrade and more amenities.
4. There are tons of rental incentives being offered to renters. It?s hard to pass up on a good bargain.
5. Although unemployment has reached over 11 percent in the Chicago metropolitan area, there are companies that are still hiring.
6. Some landlords have increased rents not knowing that their tenant?s income has decreased. Or, they don?t care. This decreases a renewal rate which means movement in the market place.

My Advice

1. Be sure to stay in tune with news related to employment and the shadow market.
2. If you have leases expiring, be sure to send renewal letters out 60-90 days out.
3. Study what rents are going for in the neighborhood before sending your renewal letters. It’s never been easier to do with sites like rentometer.com, craigslist.com, and chicagoreader.com.
4. If you think your unit(s) is underpriced, consider moderate increases (2-5%).
5. When tenants decide not to renew, maximize exposure by taking quality photos of the apartment when it is clean and use them in advertisements.
6. Keep the building exterior and common areas as clean as possible while marketing the property for rent. It makes a huge difference.
7. Price your property in alignment with the market. Nothing costs more than an empty unit.

Thanks to John Benson for sharing today’s photo via the Creative Common’s License.

Chicago's Row Houses Are a Favorite Rehab Target

Over the past few months, I have noticed more and more home insurance activity:

• People picking up houses in foreclosure to fix it up to rent out;
• Buying foreclosures to move in to eventually;
• Renovating homes to flip them;
• People who can?t sell their homes either (1) renting out their homes or (2 ) even walking away from their homes.

Whatever the reason is, please understand something very important: A standard homeowners insurance policy does not provide coverage for vacant homes, homes under construction, being renovated, or rented to others. A standard homeowners insurance policy is designed and rated for the insured who plans on moving into the home permanently. If there is any variation of this, the policy becomes null and void?immediately.

What should you do if you or a client find themselves in one of the above mentioned situations? Call you friendly neighborhood insurance agent and explain the change in risk. By doing so, you will have the appropriate coverage to protect your biggest asset?even if that asset is not working for you at this time.

An Example of When Standard Homeowners Insurance Won’t Work

A client is buying a foreclosed home in Chicago because it was such a great price. The client does not have any immediate plans on what to do with the home.

• Option 1 Keep the home as is, vacant, and maybe sell it in a year or two.
• Option 2 Rehab the home: update the kitchens, bathrooms, windows, paint, and possibly rent out.
• Option 3 Rent out the home as is, until the market gets better and then re-evaluates the options.

Most times, clients call and tell me that they are buying this home and it will be “owner-occupied” because that is what the loan requirements state. Most insurance agents will write an “owner-occupied,” standard home insurance policy because (1) the client doesn?t disclose the truth or (2) the agent isn?t providing the level of professionalism that the client needs. A good insurance agent will ask the right questions to get to the truth because it is the agent’s job to protect you in the event of a loss.

The Possible Solutions

• Solution 1 The client purchases a Vacant Building policy that not only protects the mortgagee’s interest but it also protects the client’s interest because he just spent $340,000 on a home and if it burns down, the client would want the home rebuilt. A $ 340,000 Vacant Building policy will cost $1396 per six months. The client can lower the amount of coverage to fit their risk tolerance and budget. At $200,000, the six month premium drops down to $842.
• Solution 2 The client needs to purchase a Builders Risk policy, again, to protect the mortgagee and their selves. The Builders Risk policy covers not only the existing structure, but all of the money you will invest into the home. The client is planning on spending $260,000 on the full, gut rehab of the home. A $600,000 ($340,000 existing structure + $240,000 renovations) will cost only $1,200 per year.
• Solution 3 The client needs to buy a Dwelling Fire policy, again, to protect the mortgagee and their selves. The Dwelling Fire policy will provide coverage for the existing structure, and more?very similar to a standard home policy. It will als, recognize the fact that the home is being rented out and in the event of a loss, the policy will reimburse the loss of rent you will experience. A Dwelling Fire policy will also provide the client with Liability and Medical Payments to Other coverage. This is important for the client to protect their financial exposure, in case your tenants have a party and someone gets hurt. Here is the kicker: A $340,000 Dwelling Fire policy will only cost $921 per year.

As you can see, a good insurance agent will make sure the client is protected, and the costs of doing so are minimal when compared to the worse case scenario?of having no coverage.

Be prepared to wait if you are involved in a short sale purchase

The first thing I learned as a transactional real estate attorney was the only sign of success to the parties involved is a successful closing. For many years the fact that the buyer and seller both signed the contract was an assumption of success. I was always confident that I could resolve most issues with the other party?s consul under the attorney review provision of the signed contract. In the last few months this has changed and there are no longer any assumptions of success until the deal is closed and funded.

More and more the factors influencing a closing are affected by third parties?not the contract and its principals: the buyer and the seller. I have found one of the biggest pitfalls to a successful closing has been short sales, a relatively new type of transaction to even the most experienced real estate agent and mortgage professional.

The Problem is Closing Short Sales

Although the buyers are hearing it is a ?buyers market,? in a short sale the advantage for the buyer is presumably the price. Where these deals are falling apart is as a result of the rest of the factors of the transaction. The buyer nor the seller is in control of the closing date. The bank controls not only the minimum price, but the closing date as well. My experience has been the closing date can be set anywhere from 90 days to 8 months after the contract is signed. It is not just the purchase price agreed to on the contract and what the property appraises at, but the seller?s financial situation and the bank?s investors that come into play. There is no rhyme or reason to how each transaction is evaluated by the bank.

What Can a Buyer Do?

The buyer needs to be educated before the contract is signed. This means they have to understand that a short sale is subject to leinholder/bank approval. What differentiates this from a foreclosed property is the seller still owns it. The property is sold ?as is,? so once the contract is signed there is no negotiation on inspection issues. This is a major issue if the buyer is obtaining a loan and even more of an issue if the buyer will be using FHA financing. In many cases the buyer (not the seller) must be prepared to take care of any inspection items prior to closing or the mortgage will not be funded.

Delayed Closings Cause Lending Problems

With the ever changing loan guidelines and the length of time from contract to closing, many times the mortgage program the borrower relied on in executing the contract has been modified or is no longer available. Typically these issues can be resolved with the lender. Some situations I have come across are either where the transaction fails to close when the bank increases its down payment requirement where the buyer was approved many months back or when the buyer has suffered a change in income or credit history during the pendency of the contract, making the borrower ineligible for the loan by the time the transaction is ready to close.

Buyers Must Be Flexible and Patient!

When the deal is good enough, a buyer should be flexible and stay focused on the big picture?getting an exceptional price. If you are purchasing a short sale property, be prepared for the deal to take a while. Lenders are overwhelmed and these transactions can take months to complete.

We would like to thank It’sGreg for kindly sharing today’s photo via the Creative Commons License.

So, you are facing foreclosure, and are worried and scared and don?t know what to do? Well, you are not alone. Millions of people nationwide have been foreclosed on or will be soon. There?s been all kinds of blame and finger-pointing (see my Who?s to Blame post for further info on that), but that’s not what this article is about. Something happened, and you got behind on your mortgage (and surely a lot of other things), and now you?re in a pickle.

What is foreclosure?

You Can Push Back on Foreclosures...Despite What You're Told

Foreclosure, or FC for short, is when a bank or lender takes steps to take your house away because you have not made the payments. You took out a loan, and for whatever reason fell behind on your payments, and the bank is trying to cut their losses by taking the house and selling it. It?s perfectly legal, and although it may appear that they are your nemesis, they aren?t necessarily the bad guys. I?m not taking the banks? side or defending them, I?m just telling you that they are in business to make money, like any business. Some time ago, you signed a promissory note saying you would send them a check every month, and for whatever reason, you couldn?t hold up your end of the bargain. I?m not here to judge; it happens to a lot of people, but if you don?t make your payments, they get to take your house. Maybe it?s not really your fault, and there were circumstances out of your control, but that?s just the way it is.

What is the Foreclosure Process?

I want to start off by saying don?t panic too soon. Some people think that if they are 15 or 30 days late on a payment, the hammer is going to get dropped on them, but this just isn?t so. Banks don?t want to foreclose on a house. Almost all of the time, they are going to lose money on a foreclosure. They would much rather get your monthly check and go about their business. Banks don?t want to take your house; they have to take it because they aren?t getting the money that was promised to them.

Typically, the foreclosure process doesn?t get started until the homeowner is 120 or 150 days past due. So, if you become 30 days past due, but keep sending in one payment every month, that is called a ?rolling 30?, and you honestly aren?t in any risk of foreclosure at that point, despite what the schmuck from the collections department is telling you. I have heard of times when a homeowner is 60 days down, and they offer up one month payment, but the lender refuses it. If you are 30 days down, they may take only one payment, but once you become 60 days delinquent, the answer is ?No, you cannot give us one payment, you now owe us two, and it?s two or nothing.? This one has always mystified me; it just doesn?t make sense. So, the moral is, if you can prevent becoming 60 days late by hook or crook, do it. I don?t want to throw out bank names for fear of getting sued for libel or slander, but some of the big names are guilty of this.

Try to See Trouble Coming Before It’s Too Late

If you had some unexpected expenses, and it looks like you might not be able to make a payment, but you are still working, and you aren?t late yet, and your credit is still OK, you can possibly refinance. There are programs out there for people who have current loans with Fannie Mae, Freddie Mac, or FHA that allow people to refinance with little or no equity. You do need to have a job, though. If it?s the end of May, and you don?t think you are going to be able to make you June payment, call to do a refinance NOW. Even if you can only lower your rate and payment just a little bit, you can likely skip one or two mortgage payments, maybe get an escrow refund, and have a new, lower payment. It may be just enough of a shot in the arm to keep out of trouble.

How Can I Fight Foreclosure?

So, 120 days passes. You get a knock on the door from the sheriff, or maybe a bonded messenger because there are too many being served for the sheriff?s department to handle. This can be a scary moment and very intimidating. ?Are you Joe Homeowner?? he asks. ?Umm, yes I am,? you reply. He hands you the envelope with court papers and your heart sinks. Maybe you want to cry. This would be one of the times that it is OK for a grown man to cry. After you are done sulking, inevitably you will say, ?What now?? That?s what I want to help with.

Sometimes the papers will have a court date already assigned. Most of the time, it will give you 30 days to file a response with the court. And then if a response hasn?t been filed (it will cost over $100 to file, by the way), the plaintiff (bank and their attorneys) will file for a default judgment of foreclosure because of a failure to respond, which you will get a copy of, along with the date and time of the court hearing. GO TO YOUR COURT HEARING. On your first time through, the judge will almost always grant another 28 or 30 days continuance to respond, but usually only once.

So what kind of ?responses? can you file? Well, I want to start off by saying that I am not an attorney, but I know what I know because I talk to a lot of people, and kind of know the ropes. Two of the most common, and most effective, are alleging RESPA violations, and requesting that the servicer, ?produce the note,? which I will get into shortly. There are many things that can count as RESPA (Real Estate Settlement Procedure Act) violations, many of them small technicalities, but enough to help your case. I can tell you from experience that most loan officers aren?t terribly detail orientated. This means there can be small mistakes on your paperwork you can use to your advantage. The documents you?d likely want to focus on are the Truth-in-Lending disclosure, the Good Faith Estimate, the Servicing Disclosure, and the HUD-1 Settlement Statement. If you are going to try this route, it may be wise to get an attorney, as they will know what mistakes are ?fatal blows? and which ones aren?t. These mistakes are more common than you might expect.

If you do nothing, a default judgment of foreclosure will be entered. With the judgment comes a 90 day ?redemption period?, meaning that you get 3 months to get caught up, should you win the lottery, get a big bonus, or maybe an inheritance. Assuming you haven?t gotten any windfall, after the 90 days is up, they can set a sale date for your house to be sold. They must give you a minimum of 60 days notice prior to the sale date. After the sale you have a minimum of 30 days after to get out, or risk being thrown out, which you really, really don?t want to happen. If the sheriff knocks on your door with an eviction order, you have about 15 minutes to get your bare essentials, and they change the locks, and put your stuff in storage, which you can pick up later. This is a very ugly scene you want to avoid. So, from the time you get papers, you should have a minimum of 7 or 8 months to get out (30 days to file a response, 30 days continuance, 90 days redemption, 60 days for sale, and 30 to eviction), and like I mentioned earlier, you don?t get papers until you are 4 or 5 months down, so you are probably looking at a year or more from the time you made your last payment until you have to get out. Another sad fact is that after foreclosure, many houses sit vacant for a year or more. There was even one non-profit agency advocating the evicted break back in and take back their house because it ?s better for the neighborhood to have an occupied house than a vacant house. Not that I?m recommending anybody do anything illegal, but if you resume residence, and can prove it (with utility bills and such), they have to go back through the whole eviction process again, even though the house isn?t yours anymore.

Produce the Note Defense

The other defense I like is the ?produce the note? strategy. As you probably know, your mortgage note can, and probably has, be sold one or more times. A common scenario is you close with mortgage company XYZ. Within the first month, they sell the servicing (who takes your checks) to mortgage company ABC. ABC might sell it again to mortgage company DEF. Now, theoretically, all the paperwork gets moved with the sale or transfer. But, in reality, many times it does not. And, even if it does get transferred, it may be lost, or may be stashed in a warehouse with tens of thousands of others, and very difficult to locate. There are a few steps to this process. First you have to mail a legal request to the lender and their attorney to ?produce the note,? and file this request with the county. After that you wait 30 days and file a ?motion to compel? asking the judge to order the bank to come up with the original promissory note. They then have 30 days to produce it. If this is done before the judgment of foreclosure, it may not make it to foreclosure. There was a story on TV about a lady who was basically living free for 2 years because the lender couldn?t come up with the note, and about a judge who threw out many foreclosures because of this. They have to prove you owe them the money. If you do this after the judgment has been entered, and the note is not produced, you may have to file an appeal, or a motion to vacate the judgment, or a motion for a stay on the sale and eviction. If the judge grants a stay until they can produce the note, you are still technically ?in foreclosure,? but your house won?t get sold, and you won?t be evicted. It?s sort of ?in limbo,? but it beats getting kicked out. And, if they do produce the note, you go back to the 60 days notice before sale, and another 30 to vacate, so it?s not like they can just come up and throw you out with no warning. There is a great site that details how to mount this defense, and has template forms you can fill in.  Again, you can probably do most of this on your own, but it?s not a bad idea to hire some legal help.

Loan Modification Can Help

One other option may be loan modification. This is where a lender agrees to modify the original loan terms to allow for you to stay in the home under new terms. These can be hard to get, and I have heard stories where a servicer has agreed to a modification over the phone, the homeowner has signed the papers and sent them in, but their house has gone into foreclosure or continues through the process in the meantime. The right hand may not know what the left hand is doing, so don?t put all of your proverbial eggs in the ?loan modification? basket, because the lender likely isn?t. You can try to make a loan mod go through, but don?t ignore the above advice either. It?s also noteworthy that above defensesw (produce the note and RESPA violations) can be used as leverage to force the bank into a modification.

Ownership Defense

Another option is called term ownership. It?s something between renting and owning, and relies on an obscure aspect of the law known as conditional ownership. A good description of the system can be found at www.termownership.com. Stephen Weeks is the attorney that developed this defense. I?ve corresponded with him a bit, and his a good guy, and very knowledgeable. He can be contacted at Weeks@WeeksLaird.com

Final Option: Bankruptcy

One last option is bankruptcy. There are two kinds of bankruptcy, or BK. One is a Chapter 13. This is where the court mandates a repayment plan over the course of 3 or 5 years, and all of your debt is included. You must prove the ability to repay for the court to approve a Chapter 13. And if you fail to make the required payments, the bankruptcy can be dismissed, and the foreclosure is back on. Most BK attorneys will give a free consultation to those interested in filing. Chapter 7 is where all of your ?unsecured? debt (credit cards, etc-not mortgages or car loans) is wiped out. You must be current on your mortgage if you plan on keeping your house, and there are very tight income requirements now (as opposed to a few years ago) for filing Chapter 7.

As you can see, there are several ways to help you fight foreclosure. I hope I?ve given you a better understanding of the process of foreclosure, and maybe some hope for those of you in trouble now. I also want to ask any of you who are behind on your mortgage or facing FC to take a hard, honest look at your situation. For many people, if you lost your job and have been out of work for several months, or had some sort of medical problem where you couldn?t work, but now are back on track, fighting to save your home may be a good idea. For some, if you are just in over your head, you have to ?know when to fold ?em?. Don?t let your emotional attachment to your house cloud your logic. Sure, you love your house. It?s your home. You have memories built there. But if you are making much less now than you were previously, or maybe just bit off more than you could chew, you might want to consider the steps here as a stall, so you can save up as much as possible so that when it comes time to move, you have money for a security deposit and all the other costs associated with moving, and be in a better position when it?s ?go time.? Yes, uprooting your life and you family to move to a new (and probably much smaller) place is no fun, but having to move with no money saved up and no plan in place is even worse.

I sincerely wish the best for anybody reading this. I know we are living in trying times right now.

We would like to thank redjar for sharing today’s photo via the Creative Commons License.

Ok, so just about everybody has heard about loan modifications, or loan mods for short. They are also called loan workouts, loan restructuring, among others. I’m going to explain what types of loan mods exist, and who can or can’t likely get them.

What kind of loan modifications are there?

The stress of problem mortgages can be overwhelming

There are a few different flavors.

Tack it on the back A common one is for people who are behind in their mortgage payments right now, to take the past due and put it on the end of the loan. Let’s say somebody has a $200,000 mortgage, and is behind three payments at $1500 each. If there was a temporary reason the homeowner got behind, like a job loss, and now they are making income again, the bank can put the past due at the end of the loan and give the homeowner a fresh start.

Recasting If somebody had an adjustable rate mortgage (ARM) that went up after 2, 3, or 5 years, and the payment jumped up, the lender can “re-cast” the ARM for a longer period to keep the payment the same. Let’s say somebody had 5.5% on an ARM, and on the adjustment date it went up to 7.5%. Depending on the loan size, the difference can be hundreds of dollars monthly. This can obviously cause some hardship for the homeowner, especially if they are making less now than before, like much of the country is experiencing. What the bank might do in this case is either “fix” the rate for another 2 or 3 years so the payment stays the same, or just convert it into a fixed rate at the same rate. These types of modifications are almost always contingent on the homeowner having good payment history prior to the adjustment.

Debt forgiveness A third type is debt forgiveness or principal reduction. This is common in short sale scenarios. Let’s say somebody owned a house that was once valued at $300,000. They had 90% LTV financing for a loan amount of $270,000. And now they have to sell the house because of job relocation or because their income level has changed and they need to downsize. But the problem is that the house that was once worth $300,000 can now sell for only $240,000 (a 20% drop from peak value is not uncommon these days). The bank knows that if they have to foreclose on the house, it would sell at auction for much less than the $240,000, so they agree to accept a smaller payoff because it is a smaller loss. Short sales are also common for somebody facing foreclosure for the same reason-the bank is taking the lesser of two evils. If a $300,000 house goes into auction, it may sell for $170,000 or $200,000, but if the homeowner sells it, it will go for much higher, and the bank will save thousands in principal and legal fees.

Payment or rate reduction One last type is payment reduction or rate reduction. Again, if somebody is struggling, but the lender believes they could stay current with a lower rate or smaller payment, they might agree to it because it is the lesser of two evils. They are making less on the loan, but it beats foreclosure. If somebody is making less income now, the bank may agree to lower the payments to help the homeowner stay current. Another way to lower the payment is to stretch out the note for 40 or 50 years. Many banks will do this in lieu of lowering the interest rate because then they can lower the payments to help the homeowner and still make the same interest. In a settlement with the State of Illinois, mortgage giant Countrywide had to re-cast all of its stated loans that their retail branches originated to do the new payments on full documentation, and give homeowners payments they could actually afford. There were people who got 2 or 3% over 40 or 50 years because of this.

But why can’t I get a loan modification?

So here is the hard pill to swallow: most borrowers who have been perfect on their pay history cannot get any help. “But I pay my mortgage on time, why won’t they help me? That doesn’t make any sense!” Oh, if I only had a nickel…

Banks, lenders, and investors (who buy mortgage paper) do it to make money. It’s a business. They don’t care about you, or your home, or your kids’ college fund. They care about the bottom line. I’m not bashing them; that’s why any business exists, be it insurance, car dealers, or any of the hundreds of retailers at the Woodfield Mall: to make money. UNICEF doesn’t do mortgages. Once you understand this, you’ll understand why you may or may not be able to get a loan mod. If the bank doesn’t see you as a risk for default, they won’t do a loan mod, plain and simple. If you make timely payments, and have been doing so, and are still living in the house, your odds of getting a loan modification are slim and none. (And slim just walked out the door.) Because, “I want a lower payment, and because I don’t want to be upside-down on my house,” are not compelling reasons for a lender to do a loan mod. I’m sorry to say it, but that is the harsh reality.

And loan mods will likely not be offered to somebody who has a lot of equity. If you owe $100,000 on a house that is worth $250,000, and you are having trouble with the payments or facing foreclosure, you are also unlikely to receive help. Why? Because if that house goes into foreclosure, the bank will get all of its money and then some. If that house goes to auction, it might fetch $135,000 or $150,000, more than enough to cover accrued interest and legal fees. Lenders and investors will take the route that is the most profitable or causes the least loss. Again, it’s a business, and they make business decisions. The president wants to stop foreclosures, the lenders just want to stop their losses.

Loan modifications often depend on your lender

And it matters matters a lot who has your loan. If yours was a Fannie Mae or Freddie Mac “conforming” loan, you are more likely to get a loan modification. This is because Fannie and Freddie are government-controlled; they are better able to absorb losses, and they are under pressure to help stem foreclosures. And if you have a HUD-backed FHA loan, your odds are even better. FHA rules state that a lender MUST try to work something out before foreclosure. Since the loan is insured by HUD, they can call the shots. Now, a FHA lender may not offer a modification up front, but if the borrower asks for it, they are obligated by law to try to come to some resolution before foreclosing. This certainly slants in favor of the homeowner, but most people aren’t aware of this, and just throw their hands up in defeat. And certain lenders, including Countrywide and Chase, have made headlines for their efforts to try to stem foreclosures.

What if your loan isn’t a Fannie Mae, Freddie Mac, or FHA loan? Well, unfortunately, your odds are much worse. If you have a “sub-prime,” “portfolio,” or “alt-A” loan, you will likely only get a modification if you fit one of the above described scenarios. Lenders and investors have taken huge losses on these types of loans, and if they aren’t at risk of taking further losses, it is unlikely you will be able to accomplish any kind of loan modification whatsoever.

Don’t kill the messenger, I’m just telling you like it is.

It looks bad for me getting a loan modification, but I want to try. What do I do?

This part won’t make me any friends. I’m sure you have probably heard of loan modification companies. Many of them are very good at what they do. But, they aren’t doing anything for you that you likely couldn’t get done yourself. As a loan officer, I get approached by loan modification companies all the time, but I can’t, in good conscience, charge somebody (who is already in financial trouble and doesn’t have much to spare) for something they can do themselves. Now, I want to forewarn you, it will be an uphill battle regardless of your situation. If you think it is worth it for somebody else to fight for you so you don’t have to worry about it, then a loan modification expert may be for you. When you call, you don’t want to talk to the customer service schmuck. He can’t do anything for you. You want to get to the loss mitigation department. It’s an entirely separate department from the general customer service. They should be able to give you a phone number and an address for them. Loss mitigation is the department that tries to minimize losses, and that’s who you want. The best advice I can tell you is to be the “squeaky wheel.” Call them and write them. And call again and write again. You may spend an awful lot of time on hold. You may wait days or weeks to have a call returned. It absolutely will not be easy. But, if you are talking to right department, and are persistent-call, write, fax, send smoke signals if you think it will help and you fall into one of the groups that should quality for a loan mod, you should eventually get it done.

Thoughts on loan modification companies? DON’T pay up front

I have a few final thoughts on loan modification companies. This is for the most part uncharted territory, and the rules and regulations around them are murky at best. Sometimes the law has to catch up with modern day reality. First and foremost, DON’T pay huge fees up front. I have read a press release from the Illinois Attorney General’s office saying that it was illegal for loan modification companies to charge anything up front, and that they can only get paid once the mission is accomplished. I don’t know where the legal battles have ended up, but it seems fair to only charge people that you accomplish something for, or to keep the up front fees modest. I have heard of companies that charge a smaller fee up front, like $300, and a larger one once it is worked out. I have heard of companies charging $3500 or more for their services. The going rate seems to be around one mortgage payment, or maybe one and a half. Like almost all things in life, these fees are negotiable. The people who do loan mods are making commission, I promise you. Not that commission is a bad thing; loan officers and real estate agents typically get paid commission also, but you should know up front what you are dealing with. I heard one story where a homeowner was asked to pay a few thousand up front, but it would be refunded if they couldn’t complete the loan modification for him. What?! Why would you take anything at all up front then? That makes no sense to me.

Bottom line is: do your homework. Just like if you were going to buy a car or get a mortgage, you would do some digging, ask some questions, get some advice, and maybe shop around some. If you are going to hire a loan modification guy, do the same thing.

I wish the very best to anybody reading this in these trying times.

We’d like to thank spaceodissey for kindly sharing today’s photo via the Creative Commons License.

Are you pulling a dinosaur behind you while trying to sell your home?

Is your real estate agent evolving or are they a dinosaur? And you know what happened to the dinosaurs?

• The bulk of their explanation of their marketing of your home is connected to the MLS and print ads.
• The rest of their presentation talks about Realtor.com, their company’s web site and bundle the rest under ?all the others.” They think they can get away with simply stating it will be ?on the internet?.
• When you are not getting offers or activity they talk about canceling the MLS listing and how it will “refresh” the listing when in the realty is it no longer fools the agent or the consumer. It just irritates both of us.

The tools of marketing of a property have changed over the years as the consumers (potential buyers) have. Many of the listing agents say they have embraced the methods but how could they when they clearly don?t understand exactly how information is reaching the buyers?

Marketing Techniques Constantly Change

It?s constantly educating one?s self by attending seminars, webinars, and Internet searches. Where I get my best stuff from is the shared information amongst my piers. Although the major brands all have unique but extensive interactive marketing programs that distinguish one broker from another, the true optimization of a listing is done by the agent who knows how to use what the brand offers and then take control of their own listings.

The discussion a listing agent should have at a presentation should include keywords like syndication, SEO, and social networking. Tomorrow this list will likely change. Interactive marketing is a fluid medium. Every day I find new tools or improvements to services I am currently utilizing. This affords me the ability to enhance the marketing I am offering my clients on an ongoing basis. How we service our listings can no longer be services limited to a presentation updated by the brokerage periodically. The ability to grow with the dynamics of the medium differentiates one agent from another.

When agents say they did not get a listing or lost a listing because of marketing, it?s almost always because they think by being in the MLS or fed to their company?s website they have done their job in marketing a listing. This is the agent that is still talking about Sunday?s ad in the newspaper (is there still such a thing?) and does not know how to overcome talking about advertising that is obsolete.

Where are the consumers going? How to you get the information to find them? What websites are relevant in the home search in your marketplace? That is a discussion for the next post.

We would like to thank Mykl Roventine for so generously sharing today’s photo via the Creative Commons License.

Online Social Networks Can Boost Business

Amazingly, many agents out there are natural born networkers. Some…not so much. It doesn’t always come naturally. Networking is getting out there and meeting new people in a business or social context. The purpose is to meet people in the same line of work for referrals and maybe even a little fun. There are many venues in which to network. This is not easy for some if they are shy or socially challenged.

Office Meetings Aren’t Dumb

First rule of thumb as a real estate agent would be to attend any and all office meetings. What better place to meet other agents that know a lot about the industry. Also attending broker’s opens and open houses. Again, a chance to meet other agents that may have advice or more experience in certain areas.

Meet With Other Professionals

Meeting mortgage broker’s, attorney’s, title specialists, home inspectors, etc. can take place at socials like Agent Magazine Parties, National Association of Realtor awards parties, etc. These are a great opportunity to begin working with new professionals who can help both you and your clients.

Of Course…the Internet

Another fabulous social networking place is the Internet. This is great for those who are socially challenged. LinkedIn is a great business referral site. LinkedIn strengthens and extends your existing network of trusted contacts. It’s a networking tool that helps you discover inside connections. Other very helpful tools to keep you connected to your family, friends, and business associates are Facebook, Chicago RE Connect, MySpace, Twitter, etc.

Personally, I find networking to be as easy as checking my e-mail every day. I network at parties, events, and online. I always mention that I am a certified appraiser as well as a real estate broker. You never know whom you may be talking with or what their immediate or future needs are.

Rental Season is Coming Soon to Chicago

It?s no secret to anyone that the current sales market is less than ideal. Under most normal circumstances, average homeowners are holding on to their property and hoping for the housing storm to pass. But what if you have to sell? You could be someone who is being transferred to another city or state by your employer. Or, you might be like one of a million owners who are in financial trouble and simply need to sell.

Sellers Might Want to Consider Renting

People are faced with a difficult decision: Do I try and sell, and hopefully suffer marginal losses and manage the debt associated with selling in a down market? Do I attempt a refinance to bring down my mortgage payment? Or do I hold on and try to weather the storm a bit longer in hopes that the market will turn around? Any way you look at it, these choices seem grim. However, there is another option. It may make sense to rent your unit out for a couple of years.

Today?s post will focus on the Lakeview neighborhood rental market. (Lakeview is defined as Irving Park Rd. to Diversey Pkwy, Damen to the Lake Michigan?map below.) In order for potential sellers to make an educated decision on even considering the option of renting their home, it is important to understand what is happening in the market.

My Thoughts On Lakeview?Flat Rents and Landlords a Bit Panicky

Post-gentrification rental numbers put Lakeview at the upper-middle spectrum of the Chicago rental market (in regards to price, size, and amenities).  With a diverse renter base and an eclectic mix of condos and apartment styles, Lakeview, in my opinion will always do well, no matter what.  From what I’ve seen over the last six months (particularly this winter), landlords have been a bit panicky and frantic to get their places rented in a timely fashion.  I have never been asked more often about price and marketability than I have been this year.  Like any other neighborhood in Chicago, Lakeview is 90% price driven.  What matters most to renters looking during the winter is price.  Consumers know there is a housing crunch and they will try everything they can to capitalize on that.  However, come the spring, it’s a different story all together.

We are right on the cusp of the “busy season” in the rental business.  While traffic is picking up, and there is in fact a flurry of activity, the real wave has yet to crash.  Expect to see a massive swell of renters for all unit types within the next two months.  Year-on-year, 2009 is projected to be an outstanding year for the industry.  Having said that, my advice to landlords out there is:

1. Make sure you get your renewals done at least 60 days before the lease end date.
2. If you want to experiment with rent increases, do it 30-45 days before your lease end date.
3. Advertise your available units as soon as possible- however you go about doing that.  The more traffic the better.

I project rental averages in Lakeview to remain flat because landlords are worried about what people are going to do.  As unemployment increases, insecurity on whether units will rent will become more prevalent in the summer.  That’s not to say that a landlord who delivers a good product has anything to worry about.  If a unit is priced right, looks good on paper, and shows well, landlords will have no problem getting their units rented in a timely manner.

Lakeview Rental Data From the MLS

Studios (condo quality)
Average rental price: $900 for 500 square feet usually no parking available.
Average market time: 2 months

1 Bedrooms (condo quality)
Average rental price: $1.350 for 800 square feet.
Parking typically costs $100-150 extra, however most landlords use parking as a bargaining chip depending on the strength of the applicant.
Average market time: 1 ½ months

2 Bedrooms / 1.5 baths (condo quality)
Average rental price: $1,950 for 1250 square feet.
Parking: Same cost and principal as 1 bedrooms
Average market time: 2 months

3 Bedrooms / 2 baths (condo quality/few single families)
Average rental price: $3,000 for 2000 square feet.
Parking: $100-200 extra
Average market time: 3 months

4 Bedrooms (single family caliber)
Average rental price: $4,000 for 2600 square feet.
Parking: Included
Average market time: 3 months

5 Bedrooms + (Single family caliber or new construction)
Average rental price: $8,500 for 4,650 square feet. This is an average based on 5.5 bedrooms and 4 bathrooms.
Parking: Included
Average market time: 5 months

Some Basic Advice to Landlords This Rental Season

These stats are based off of activity over the last year. My advice to anyone thinking of renting would be to make sure that when you do decide to put your unit on the market for rent, be certain that your place is priced as good as or better than anything else out there. Like buyers, renters are very savvy and tend to know a lot more about the market than they are given credit for. A lot of newer landlords feel the need to price their property based on their monthly housing payment (taxes, assessments and mortgage). The fact is, you might not be able to cover all of your costs. If you can cover your monthly payments or even have a little postive cash flow; consider it a bonus.

We would like to thank TurkeyChik for so generously sharing today’s photo via the Creative Commons License.

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We all know that the major type of property changing hands and being built in the city of Chicago is Property Type-2.  The formal term is Single Family Attached and what most people call a condominium or townhouse.  With condominiums you will more than likely find a condominium association.  Condominium associations are set up to maintain the building and therefore maintain or improve property values. With the association comes fees which are called assessments. They are usually a monthly bill the owners have to pay so the association can pay for the exterior building insurance, building exterior maintenance, grounds upkeep, water, common area electricity use, and possibly trash removal.  (In Chicago, if the building has four or less units, trash removal is payed by the city.) Other possible expenses that would be covered by the assessment include door people, management company fees, maintenance person, elevator service, etc.

Decs & Bylaws, Rules & Regs

The typical association is set up by the original developer of the building, whether it be new construction or gut rehab. With the condo association there should be formal legal document called the condominium declarations (often called decs & bylaws), which describe the property, percentage of ownership, limited common elements such as hallways, parking, etc.  There will also be another formal legal document called the rules and regulations (commonly called rules & regs); they lay out what can and cannot be done in and around the building.  Examples of rules and regs are pets rules, pet weight limits, use of common areas, and even restrictions on smoking to name just a few.

Condominium Associations can be self managed or run by a management company.  Typically a smaller association will run itself.  This means each unit owner will more than likely take a roll in the management of the building. Electing a president, secretary, and most importantly the treasurer.  The treasurer is the person responsible for book keeping, paying bills, and making sure everyone turns in their monthly assessment on time. 

Small vs. Large Buildings and Associations

Smaller associations tend to have lower assessments.  This is great for the cash strapped buyer.  However, the buyer beware! If the association is not putting enough money away to adequately pay for regular expenses and even worse, the occasional problem, there is a high probability the building will see a special assessment.  A special assessment may be levied against a unit for many items. A common one is having to put on a new roof.  This can be quite costly.  If the unit owner does not pay the assessment a lien can be placed on unit.  The lein will prohibit the owner from selling or refinancing the unit.  There is something to be said for strength in numbers.

With a larger association the buyer will run into higher monthly assessments.  This can be a good thing or a bad thing.  In a full amenity building the assessments can run to $1,500 per month or even higher.  This is especially true in older and vintage buildings that require relatively more maintenance than newer buildings. With larger buildings, the association will be run by a management company.  Depending on the management company, their fees can add quite a bit to the monthly assessment.  But, if you want a well run building you have to be willing to pay for it.  If the building is not well run, you at risk of your asset (home) depreciating.

Eight Questions to Ask Before Buying a Condo

My advice when out condo shopping is simple: ask as many questions as possible.  Here are my top questions:

1. What are the assessments?
2. What do the assessments pay for? What don’t they pay for?
3. Is the building self-managed?
4. If the building is managed by a property management company, what is the company? (Do some research and find out if they are reputable.)
5. How much money is in reserves?
6. Are there any special assessments now or expected?
7. Has there been any updating to the building, and if so, did the association do a special assessment or did they use funds from reserves?
8. Are there any pending lawsuits against the association?

Many first-time condo and townhouse buyers don’t completely understand what they’re getting into. It’s not bad, but it is something that should be understood completely before signing the mountain of papers at the closing!

Photo by Lucius Kwok

Depreciating Markets Make Pricing Difficult

I am both a real estate broker and a certified appraiser. You might not think this poses a problem in the real estate game, but it often does. But it often helps as well.  I recently had to talk to a seller I represent about a price reduction, and the way I did it might benefit you as well.

Appraisers & Agents: Two Different Points of View

Appraising and selling deal with the same house from completely different points of view. Wearing both hats at the same time is virtually impossible. Appraisers are 100% data driven. If it’s not quantifiable or verifiable, it doesn’t have a place in an appraisal. Agents, like appraisers, must consider data to help their clients, but agents must also be concerned with the less tangible side of real estate: the impact the light has on the mood of the study, if the closets need to be purged, making sure the soap scum is off the glass shower, and the many, many facets of human nature.  Real estate agents really have to love helping people without offending them.

How to Have the Price-Reduction Conversation

Because I’m licensed and certified in both appraising and selling, I often find myself mixing the two. Recently, I had to have a tough discussion with the owners of one of my listings. If you’re an agent, you too have had to fret and stew over having to make the price reduction phone call. If you’re a seller in today’s market, you’ve likely been on the receiving end of that call. It’s happening more and more frequently these days; all the analysis, data, and news is crystal clear: we are in a depreciating market.

So, how do you, Ms/Mr Agent, know how much to recommend lowering the price? How do you, Ms/Mr Seller, know if the reduction is warranted? How do you know it’s the right amount of reduction? Do you guess? Do you feel your way along? Instinct is important to an agent, but the appraiser side of me also forces me to present clear and strong data to my clients to justify why I’m asking for a price reduction in their best interest.

How to Calculate Depreciation (or Appreciation)

This isn’t difficult?it’s similar to what agents do every time they find comps to give a client.

1. Neighborhood ? First, you need to define your subject neighborhood. You need to make sure that the comparable homes you select are as close to your home as possible. If they are too far away, the comparisons won’t work. You also need to be sure you’re comparing apples to apples.
2. Closed Transactions ? Search for similar (comparing apples to apples) homes with CLOSED status inside your defined neighborhood. The search needs to be conducted in the same time period from 2007-2008 and then again 2008-2009.  For example, one search would be for Jan. 21, 2007 to January 20, 2008 and the second search would be from January 21, 2008 to January 20, 2009.
3. Median Price ? You can figure out how many parcels exchanged hands and what the median price point was. You do not calculate the average; you find the median. The median is the middle price. If you have seven prices, you sort them and the middle price is the median. For example, the median of {3, 5, 7, 8, 9, 10, 14} is 8, because there are three numbers below the 8 and three numbers above it. If you have an even number of prices, the median is the average of the two middle prices. For example, if you have {4, 6, 7, 10, 11, 12}, the median is the average of 7 and 10, which is 8.5.
4. Annual Depreciation ? You can then compare the median prices for the 2007-2008 year with the median of the 2008-2009 year and calculate the percentage of appreciation or, more than likely, depreciation. For example, if the median price in 2007-2008 for similar properties was $295,000 and in 2008-2009 it was $279,000, the amount of depreciation is (295,000-279,000) / 295,000 = 5.4%.
5. Monthly Deprecation ? You divide that number by 12 (5.4% / 12 = 0.45%) to get an idea of how much prices are depreciating every month. This will give you a good idea of what needs to happen to the price based on how long the home has been on the market.

This isn’t fool proof?it’s only as good as the comparables you select. The more similar the comparables are to your home, the more accurate it will be. If you select comparables well, it will give you an idea of what you need to be doing with the pricing of your listing or your home. This should give both Ms/Mr Agent and Ms/Mr Seller some numbers on which to base the decision of reducing the price.