Home Sale Hindsight

Tara-Nicholle Nelson
Inman News

Q: I signed a contract to buy a short sale in January 2010. The owners filed for bankruptcy and I was told that the agent was a short sale specialist and they had a bankruptcy lawyer.

The sellers’ bankruptcy went to court and was made official a few months ago. Last month, the contract was approved (by the bank), but I was just now told of a second lien for over $100,000 with (another company)! Now, I’m told we’re waiting to see if the other company will approve the short sale.

A month has lapsed, with no word from anyone. I was told that the bank offered the (second lender) $3,000 to pay off the second mortgage, which seems to be the norm. I have basically no input on this deal and I am pretty much left in the dark. So here are my questions:

1. It has been one month since the bank approved the loan — how long will it wait until it forecloses on the home?

2. I have been told this deal has to happen because of the bankruptcy, but it just takes time. Is this true?

3. Is it possible to talk with the second lien holder and offer more money if the bank approves? If so, how can I communicate with that company?

4.The contract has expired with no addendum to prolong it. Should I extend it? I was told this was a good thing because I can look at other homes in the meantime, but can I lose this deal because the contract is invalid?

Am I being taken for a ride?

A: Lots of questions, but all very insightful ones — the mark of an informed and proactive consumer. Kudos on being so inquisitive and trying to make educated and smart decisions. Let’s dive right in.

1. Most often, short-sale approval letters from the major banks are good for 90 days from their issuance. However, many times, this can be extended if necessary to get the deal done, by requesting an extension from the short sale negotiator.

The foreclosure time frame is not related to the approval letter time frame at all; rather, foreclosure time frames run relative to when the seller stopped making the mortgage payments and when the lender issued the notices of default and foreclosure sale, as dictated in your state.

If the property was part of the bankruptcy, though, the lender may not be able to even initiate foreclosure proceedings without the permission of the bankruptcy court.

Be aware that the fact that you have a valid and/or approved contract with the primary lender in no way stops them from foreclosing on the home, legally speaking. The bank may simply refrain from doing so in an effort to let the short sale be completed, or it may have agreed or been ordered to refrain from doing so.

But nothing about your contract with the seller legally binds the bank from foreclosing on the home under the laws of your state.

2. It is possible that one or both lenders agreed to or were ordered to liquidate the property via a short sale during the sellers’ bankruptcy proceedings.

3. It is also quite possible for you, the buyer, to add a contribution to the $3,000 payoff that the first lender has allocated to the second lender. However, it can be tricky. What frequently happens is the second lender refuses to take such a paltry payoff.

If you simply counter by instructing your agent to add a few thousand dollars to your offer and asking the listing agent to up the payoff offered to the second lender by the amount you’re willing to contribute, you run the very high risk that when the first lender gets wind of it, that negotiator will want to grab that extra cash you tacked onto the offer price for the first lender!

This is why buyer contributions to second or other junior liens are very tricky. Ideally, they are included in the original offer before it is sent to the first lender for approval.

Yet and still, you may want to ask your agent to write up an addendum not offering to increase the purchase price — simply offering to pay a cash contribution in the amount of X dollars to the second lender as part of your closing costs.

The listing agent should get the green light on this plan from the bankruptcy trustee managing the matter and the first lender, in addition to the second lender.

4. Under most states’ short-sale addendum forms, your contingency periods do not begin to run and you may even expressly have reserved the right to look for other properties until all lien holders on the property have approved the short sale.

Signing an extension does not do anything to prohibit you from continuing to look at additional properties, which most short sale buyers do, in any event, until all of the sellers’ lenders/lien holders have green-lit the deal to proceed to closing.

In my opinion, it would be wise to get the contract extension. First off, the first or second lender will eventually require it before you can close the transaction. But more importantly, what do you think will happen if another buyer comes around and wants to pay more (believe me — it happens)?

Right this moment, there is nothing legally prohibiting the sellers from just taking their offer — the sellers are not in contract with you! Short-sale buyers have so few rights as it is, it makes zero sense to me to let the only legal connection you have to this property — your contract — lapse.

If I were your real estate broker, I would advise you to obtain an extension of the contract without further ado.

5. You didn’t ask for this, but it is very likely a legitimate reality for the short-sale approval from the second lien holder to take a month or longer — sometimes much longer. Realistic agents may not even request the second lien holder’s approval until receiving the approval of the first lender, and that bank’s allowance toward the second lender’s payoff.

Read up on short sales online and you’ll see that there’s essentially no mandatory or even standard time frame that bank approvals follow. One month is certainly not out of line.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor

REThink Real Estate

Tara-Nicholle Nelson
Inman News

Q: If I sign a "Buyer Representation Agreement — Exclusive" (form), can I cancel it at a later date? –Igor, California

A: That depends. Every year, more and more buyer’s brokers require their clients to sign an exclusive buyer representation agreement before they invest lots of time and gas money into the enterprise of helping them house hunt.

Sometimes this is because the agent has been burned by disloyal clients seeing a home with them, but then writing the offer with their cousin the agent, or with the listing agent, in an effort to get a rebate.

Other times, it’s because the broker’s office requires it, or because the agreement (like the California form you reference, the "Buyer Representation Agreement — Exclusive" form) very clearly specifies the things an agent does and doesn’t do, and allows the buyer and broker to agree in advance to forms of alternative dispute resolution, like mediation and arbitration.

In other cases, agents simply use these forms as a convenient, logical entree to the discussion of how agents get paid, why it’s important for the agent to actually write the offer, and other details of the buyer-broker relationship, so that the buyer is clear on exactly how it all works (and many homebuyers are not clear on this at the outset!).

On my very first transaction, the buyers (friends of mine) decided to go window shopping at open houses one Sunday when I was going out of town. I offered them a stack of my business cards, but they said, "No, no, we’re just looking. We’re not serious yet." They went out and — pursuant to Murphy’s Law — found the home of their dreams.

Despite their expression that they had an agent, the listing agent wrote up an offer on their behalf. Immediately, they left and ran to call me in their excitement!

They were thrilled, and knew I would be, too — they didn’t have the faintest clue that, by writing the offer with the listing agent, they had essentially decided they would no longer be working with me. They were flabbergasted, dismayed and apologetic when I explained what had happened to them.

They didn’t get the house, so it ended up being a non-issue. But forever after, I informed my clients up front how real estate relationships and compensation worked.

Perhaps the best feature of the form you’re considering whether to sign is its flexibility. In the first paragraph, it allows you and your agent to enter start and end dates for the contract. I’d encourage you to start out with a very short-term agreement, especially if you have doubts as to whether this agent is "your" agent.

To satisfy your agent’s (realistic) concern about being used to show houses, and then you buying a house with another agent, why don’t you sign the first agreement with a very short term — a weekend, say, or even a couple of weeks.

That way, you can have a clear conversation that this is really a trial, relationship-building period for you both. Then, when you feel a bit more comfortable, you can sign one for a longer period of time.

Most agents I know who use these agreements agree that they would never want to work with a client who decided not to work with them, and they have a professional policy of releasing clients upon request.

However, I’d encourage you to negotiate and sign an addendum that gives both you and the broker a 48-hour exit clause. If either one of you feels like breaking up with the other, you give a notice. That would provide 48 hours for the disgruntled party to cool off and make an effort to work it out, but would not bind either of you unreasonably to someone you don’t want to work with.

Happy house hunting!

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor

Law of the Land

Tara-Nicholle Nelson
Inman News

In May 2009, Candace Booth filed a Chapter 7 bankruptcy petition. Her outstanding debts were mortgages against a home she was in the process of trying to rent or sell, credit cards and an auto loan.

Booth had paid cash outright for her personal residence in March, 2009 by liquidating her retirement and brokerage accounts and obtaining a small amount of money from her daughter, according to court records.

In her bankruptcy petition, Booth listed her personal residence as being protected as a fully exempt homestead property under Florida Constitution Article X, Section 4(a)(1) and Florida Statute Sections 222.01 and 222.02.

Prior to the recession, Booth had been in business as a natural health consultant and also received some income via social security. Her business reportedly dried up during the recession, and by the time she filed for bankruptcy relief, she was earning $8 an hour working part-time in her daughter’s business, and had a negative net monthly income, according to court records.

After the evidentiary hearing in the bankruptcy court, the bankruptcy trustee filed an objection to Booth’s bid for homestead protection of her residence.

The trustee argued that Booth had purchased the property using non-exempt assets with the intent to "hinder, delay, or defraud" her creditors, as barred by 11 U.S. Code Section 522(o).

The federal bankruptcy court for the Middle District of Florida overruled the trustee’s objection and found that Booth’s personal home did in fact have homestead protection and could not be liquidated to pay her creditors.

First, the court explained that to defeat Florida’s homestead protection, the Trustee would have to show one or more "badges," or indicators, of fraud and extrinsic evidence of Booth’s intention to defraud her creditors at the time she purchased the home.

The court rejected the trustee’s argument that the following actions of Booth provided sufficient indicia of her intent to "hinder, delay or defraud her creditors," so as to invalidate homestead protection on her personal residence.

Recounting the unraveling of Booth’s financial stability fact-by-fact, the court determined that the sequence of events showed Booth’s innocent intent. Booth had obtained the home equity line of credit for her daughter’s use in financing her business; and her daughter had committed to making the monthly credit line payments, the court found.

Only when the economic downturn impacted her daughter’s business and prevented her from continuing to make the payments did Booth realized that the indebtedness on the line of credit had risen to $39,000, the court also found.

Booth quickly realized that she could not make the payments on the mortgage and the line of credit on her then-home and still cover her living expenses. She consulted a mortgage broker and was advised that she could not refinance the home due to its drop in value; a real estate broker she talked with advised her to sell or rent that home, and instructed her to move out of the property to maximize the chances of it selling.

He also reportedly advised her to purchase the second home to ensure herself a place to live. She was never advised by either professional that the option of a short sale existed, according to court documents.

Booth charged some living expenses and expenses of preparing the home for sale to her credit cards, but the court found that she did so with the full intention of repaying them.

When her own business deteriorated in April and May of 2009, she became unable to pay her bills. Booth, a 64-year-old woman, testified that she was panicked about having a place to live and didn’t think the matter through properly when she decided to buy a new home rather than simply pay off her mortgages with the funds from her liquidated retirement and brokerage accounts.

In May 2009, Candace Booth filed a Chapter 7 bankruptcy petition. Her outstanding debts were mortgages against a home she was in the process of trying to rent or sell, credit cards and an auto loan.

Booth had paid cash outright for her personal residence in March, 2009 by liquidating her retirement and brokerage accounts and obtaining a small amount of money from her daughter, according to court records.

In her bankruptcy petition, Booth listed her personal residence as being protected as a fully exempt homestead property under Florida Constitution Article X, Section 4(a)(1) and Florida Statute Sections 222.01 and 222.02.

Prior to the recession, Booth had been in business as a natural health consultant and also received some income via social security. Her business reportedly dried up during the recession, and by the time she filed for bankruptcy relief, she was earning $8 an hour working part-time in her daughter’s business, and had a negative net monthly income, according to court records.

After the evidentiary hearing in the bankruptcy court, the bankruptcy trustee filed an objection to Booth’s bid for homestead protection of her residence.

The trustee argued that Booth had purchased the property using non-exempt assets with the intent to "hinder, delay, or defraud" her creditors, as barred by 11 U.S. Code Section 522(o).

The federal bankruptcy court for the Middle District of Florida overruled the trustee’s objection and found that Booth’s personal home did in fact have homestead protection and could not be liquidated to pay her creditors.

First, the court explained that to defeat Florida’s homestead protection, the Trustee would have to show one or more "badges," or indicators, of fraud and extrinsic evidence of Booth’s intention to defraud her creditors at the time she purchased the home.

The court rejected the trustee’s argument that the following actions of Booth provided sufficient indicia of her intent to "hinder, delay or defraud her creditors," so as to invalidate homestead protection on her personal residence.

Recounting the unraveling of Booth’s financial stability fact-by-fact, the court determined that the sequence of events showed Booth’s innocent intent. Booth had obtained the home equity line of credit for her daughter’s use in financing her business; and her daughter had committed to making the monthly credit line payments, the court found.

Only when the economic downturn impacted her daughter’s business and prevented her from continuing to make the payments did Booth realized that the indebtedness on the line of credit had risen to $39,000, the court also found.

Booth quickly realized that she could not make the payments on the mortgage and the line of credit on her then-home and still cover her living expenses.

She consulted a mortgage broker and was advised that she could not refinance the home due to its drop in value; a real estate broker she talked with advised her to sell or rent that home, and instructed her to move out of the property to maximize the chances of it selling.

He also reportedly advised her to purchase the second home to ensure herself a place to live. She was never advised by either professional that the option of a short sale existed, according to court documents.

Booth charged some living expenses and expenses of preparing the home for sale to her credit cards, but the court found that she did so with the full intention of repaying them.

When her own business deteriorated in April and May of 2009, she became unable to pay her bills. Booth, a 64-year-old woman, testified that she was panicked about having a place to live and didn’t think the matter through properly when she decided to buy a new home rather than simply pay off her mortgages with the funds from her liquidated retirement and brokerage accounts.

Because the court found Booth’s testimony to be credible, it refused to find that she had the intent to defraud her creditors when she purchased her personal residence. Accordingly, the trustee’s objection to Booth’s home’s protection from her creditors under the Florida homestead statute was overruled.

Because the court found Booth’s testimony to be credible, it refused to find that she had the intent to defraud her creditors when she purchased her personal residence. Accordingly, the trustee’s objection to Booth’s home’s protection from her creditors under the Florida homestead statute was overruled.

Book Review: ‘The Simple Dollar’

Tara-Nicholle Nelson
Inman News

Book Review
Title: "The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams"
Author: Trent Hamm
Publisher: FT Press, 2010; 272 pages; $19.99

When it comes to personal financial advice, the field of books and blogs and gurus is cluttered.

And when it comes to changing human behavior — especially ingrained money patterns around indebtedness, spending and saving — it takes a very special touch to move the needle.

This genre is somewhat formulaic: tell a relatable story of inspiration, throw some action steps in and wrap it in a catchy brand — fini.

But what’s not so simple is truly capturing the heart and mind of a debt-ridden reader and striking upon the precise mix of words that flick their mental and behavioral switches so that they do something, and eventually many things, differently today, tomorrow, next week and next year than they did before they opened your book.

Paradoxically, blogger and author Trent Hamm’s book,"The Simple Dollar: How One Man Wiped Out His Debts and Achieved the Life of His Dreams," manages to achieve this not-so-simple, but very worthy aim.

Every word, action item and story told in this book, the literary manifestation of Hamm’s stripped-back brand, blog and message, is fully infused with a tone of straightforward, profound simplicity.

"Debt is a prison you choose." "Life is more unpredictable than you think … and almost all planning ignores that fact." "Focused debt repayment changed our lives." Hamm shares his (sometimes unconventional) epiphanies, the story of how he arrived at them, and then provides very immediate, powerful tips.

Here’s his story, in (very brief). Hamm was saddled with debt so large he feared opening the mail when his lovely wife found that — surprise! — she was pregnant.

A tearful breakdown at the sight of his infant son and the thought of how his debt would impact his child’s life served also as the breakthrough that propelled Hamm to begin a systematic program of slashing expenses, rethinking his family’s above-its-means lifestyle and selling stuff to reduce his debt, an exercise he eventually began to blog about.

In the long-term, Hamm ended up with zero debt and the resulting freedom to become a full-time writer and family man.

It is Hamm’s utterly relatable, everyman-turned-extraordinary story; his willingness to share the action steps he gleaned along his path that make "The Simple Dollar" interesting, readable and actionable.

Hamm is just a regular guy, like you and me, whose love for his son inspired him to get out of the debt hamster wheel and the resulting career rat race trap.

But it is his tone and voice that place his advice in that small slice of money advisories that simply make you want to follow it. Super simple. No perspective on the finance industry to push or investment theory to espouse.

Just: Here’s what I did, why I did it, and why it will work for you. And here’s how to get started, and how to stay inspired. You literally read it and just want to do some of this stuff, stat.

Another strength of Hamm’s advice: it is immediate. Every chapter concludes with five steps to achieve the top-level aim discussed in the chapter, and many of the steps can be executed or started that very day.

Momentum-builders? Check. Some steps speak directly to the challenges of maintaining that momentum, staying the course — probably the toughest part of this type of major behavior change.

Finally, Hamm thinks about and writes about his money, his debt and his life in a very real-world way that many financial advisers ignore. So many pundits assume that debt reduction is a worthy goal in and of itself, and that no additional motivation for taking the challenge of eliminating debt is necessary. Not so.

Hamm’s tack is much more reality-based, especially for Generations X, Y and Z: debt traps you. It limits your options. It forces you to do work of a particular type, for a particular amount of time, in a particular location and for a particular employer that is very likely not what you would choose if you could choose freely.

The potential freedom from these traps is a source of virtually endless motivation for a sustained debt-elimination regimen.

"The Simple Dollar" offers real-world advice for real people looking to free themselves from their debt and the limitations it places on the rest of their lives.

Appropriately, the advice contained therein does relate to, but is certainly not limited to financial advice.

There is much in "The Simple Dollar" about shifts in the way you view yourself, your life, your time, your family and your future, as well as the way you approach topics ranging from the grand, like your life goals and your relationship with your partner, to the petit, like cooking, eating, buying books and shopping for clothes.

For it’s uber-applicable steps, I would recommend "The Simple Dollar" strongly to anyone who struggles with debt, or spending less than they make. But I would go further and insist that you read this book if you are interested in creating an alternative, sustainable lifestyle without necessarily having a 9-to-5 job.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor

Mood of the Market

Tara-Nicholle Nelson
Inman News

Most of us equate grieving with the emotional process that follows a death of a loved one. In fact, to grieve is to mourn and process any grave loss.

At this stage in the game, the average American has lost tens or hundreds of thousands of dollars’ worth of the value of their home, with 25 percent having lost so much that they now owe more than their home is worth, according to the Wall Street Journal.

I’ve been both an observer (in some cases) and participant (in others) in the evolution of this grief throughout this recent market decline, as it has played out in the lives of those around me and in the trending topics I’m asked to weigh in on online.

And it struck me recently that what I’ve been observing can perhaps be best understood and analyzed in the rubric provided by the five stages of grief, first articulated by Elizabeth Kübler-Ross, author of the seminal work, "On Death and Dying."

Originally, these were intended to apply to help understand the human emotions that play out when you or a loved one has recently passed away or been diagnosed with a terminal illness.

As the model matured, though, even Kübler-Ross herself began to understand that these stages were applicable to many other types of catastrophic losses and tragedies outside of the realm of death and dying.

Kübler-Ross’s steps, as applied to losing a home’s value — or even losing the home altogether — might look like this:

Stage 1: Denial. "Eh, the market’ll bounce back pretty quick." "The government/banks/Bush/Obama/Fed won’t let it get much worse." "The Realtors have a powerful lobby." "Markets go up and down — market cycles are par for the course."

Stage 2: Anger. "Are you kidding me?!" "My place is worth 50 percent of what I paid for it?!" "This is all a conspiracy — the government/banks/Bush/Obama/Fed were all in on this." "Those idiots who took those stated-income loans/those idiots who walk away from their homes are responsible for this whole mess." "It doesn’t pay to do the right thing and pay your bills on time, I guess."

Stage 3: Bargaining. This is submitting a loan modification application that begs for a major principal reduction, or insisting that your real estate agent must have pulled the wrong comparables to arrive at such a low value. Bargaining is about delaying or postponing the inevitable foreclosure, for many who have taken hits to their income or are facing looming payment increases.

Stage 4: Depression. Those who are missing payments may stop opening the mail or answering the phone entirely. Guilt blossoms here, as does the tendency to "awfulize" and focus on the feeling that their credit will never recover, they’ll never be able to find another place to live, they’ll never get another home, they’ve lost everything, etc.

Those who aren’t missing payments, but are realizing the serious extent of their lost value, may mentally spin on the feeling that they’re trapped: they’ll never be able to move. They’ll never be able to refinance. These feelings are not reality-based, but it feels very real to them at the time.

Stage 5: Acceptance. In this context, acceptance often includes an acknowledgment that you may have made some mistakes in your earlier mortgage decision-making. It often also includes a detachment and a dis-identification from your home.

You no longer see it as your everything, who you are, or your biggest asset. You may begin to see it as your biggest liability or, more neutrally, simply a building, a belonging, a place to live — but certainly not the only place you could live or home you could or will ever own.

At the acceptance stage, efforts to save it at any means necessary start to seem an immature flight of fancy, and your intention may shift to saving your other financial assets. In this stage, those committed to living in their homes stop railing at what is unfair and begin to express gratitude that they can still afford to make their monthly payments, when so many cannot.

But this is also the stage when people start consulting attorneys and accountants to help them decide whether to walk away.

In my observations, the manner, speed and severity at which a homeowner experiences these stages of grieving has a lot to do with how hard their local market and their home’s value was hit, and with what else was going on for in their scenario, what other what other simultaneous personal catastrophes they were experiencing in the realm of their finances. Did they suffer through a long, drawn out loan-mod limbo?

Denial and bargaining might stretch out for as long as your bank seems like they are considering your workout package, and their bargaining and anger phases tend to fall in reverse order. Anger erupts only after they realize the futility of all the effort you put into the bargaining vis-a-vis your loan-mod application.

These folks tend to go from anger to acceptance with lightning speed — many even walking away from their homes or surrendering them via deeds-in-lieu of foreclosure — proportionally as fast as their loan mod process was slow.

Were there dozens of other foreclosures on the block or in the complex? If so, the anger stage might be more like an intense rage that banks weren’t doing more to help your neighbors stay in their home, snowballing into an avalanche taking your home’s value down, too.

Lost a job? Your mortgage rate adjusted and payment increased, but the value reduction made it impossible to refinance?

Any of these such events that renders someone unable to even make their mortgage payment can force owners quickly out of denial and hold them much longer in depression.

What would Kübler-Ross recommend? She would point out the eventual acceptance that most will arrive at is a blessing that ends the suffering of the earlier stages. But she might also speak on her belief that "everything in this life has a purpose, there are no mistakes, no coincidences, all events are blessings given to us to learn from."

Kübler-Ross thought this sentiment applicable even to — perhaps especially to — the tragedies. In the real estate sense, the tragedies could be losing value in your home or losing the home altogether. The treatment for this grief? Find the lessons, accept them, and keep on living.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor

Home Sale Hindsight

Tara-Nicholle Nelson
Inman News

Q: We tragically lost our home in California to foreclosure in 2008, after doing everything we could to try to keep it. A check was given to us in exchange for the keys. Sometime later we received a lien for the back HOA dues owed. Is that legal?

If the bank takes back the home, does that mean that the HOA dues would be paid by the bank or negotiated with the buyer? –Laurence

A: Sorry to hear that you’ve had such a tough time, Laurence. First, let me explain one item of your letter that’s somewhat unrelated to your actual question for the readers I know are wondering. Many banks offer foreclosed homeowners a move-out assistance payment known in the industry as "cash-for-keys" to leave the property in good condition when they vacate. It sounds like that’s the check you received.

But onto your question — unfortunately, your situation is quite common. Many foreclosed homes in developments managed by homeowners associations (HOAs) are months’ or years’ worth delinquent on their HOA dues at the time of the foreclosure.

Given that foreclosure takes six months or longer in most areas, the vast majority of owners facing foreclosure are very aware that it’s coming. The vast majority of these people stop paying their property taxes and HOA dues when they realize that they’re going to lose their home.

The type and extent of HOA collection efforts, which are legal, depends on the terms of any agreements that you signed when you bought the property, the laws of your state, and the factual scenario surrounding your home, especially after you lost it. Let me outline the landscape of this for you.

Virtually everywhere, HOAs are authorized under state law and the terms of the complex or subdivision’s covenants, conditions and restrictions (CC&Rs) to place a lien on the property once your dues fall delinquent by a certain amount (usually a certain time period, like 90 days behind).

However, this lien is placed against the home itself, not your personal property, salary or bank account.

The HOA may require the lien to be removed before the title to the property can be transferred to a new buyer, which would mean either the bank or the next buyer would have to pay the lien off to close the deal (many banks do in fact pay these types of liens off when they resell a property after foreclosure).

However, you should be aware that it’s totally in the bank’s own discretion whether or when it tries to sell your former home. In some instances, the bank does not even attempt to resell the property for months or even years following a foreclosure.

And it may do nothing to pay off the delinquent dues until it absolutely has to — which is when escrow closes on its resale of the home.

Under the terms of many HOA agreements and CC&Rs, the HOA may pursue a variety of traditional collection efforts — including siccing a collection agency on you or taking you to court — until the back dues are paid. The HOA doesn’t care who pays them — you, the bank or even the eventual buyer — but it does have the right to take legal means to collect the money until someone pays.

Your next step should be to closely read the lien you received a copy of — it is probably a lien against the home, not a levy against your personal property or bank accounts. Paying the lien off to clear the property is no longer your responsibility — the bank will deal with that.

However, do be aware that the HOA can and may pursue you for the delinquency personally, if it chooses to do so before someone else pays it.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor

REThink Real Estate

Tara-Nicholle Nelson
Inman News

Q: Am I responsible for homeowners association (HOA) dues on a foreclosed home even if I didn’t sign the HOA agreement? I am on the title and mortgage. I co-owned a home with a friend and it was her responsibility to pay the mortgage and HOA dues because she was the one living there.

Unfortunately the home foreclosed and now the HOA is threatening to sue both her and me for past dues. Am I responsible even though she was the only one who signed the agreement?

A: In the olden days, we used to call what you did "co-signing" for a loan. These days, most lenders use the term "co-borrowing," probably to make crystal clear to the co-signer/co-borrower what he or she is really doing: borrowing, to the same extent as the other borrower — in your case, your friend who actually occupied the home.

Sounds to me like crystal-clarity is exactly what was lacking in your situation. You refer, correctly, to your situation as having "co-owned." As you’re probably aware, that means that your friend’s foreclosure is also your foreclosure — for purposes of your credit and your ability to qualify to buy another home in the coming years. But I digress.

That relationship, that arrangement, of "co-ownership" binds you legally to a number of obligations beyond just the mortgage payment. HOA dues are one — although the recourse for nonpayment is generally a lien against the property.

It is very likely that, to close the transaction, you may have signed something, like the HOA’s covenants, conditions and restrictions (CC&Rs) — which you may have executed expressly or via their incorporation into the deed or legal description of the home — that bound you to pay the HOA dues.

It’s also possible, depending on the terms of the actual HOA documentation, CC&Rs and the HOA agreement you reference, that the HOA’s position is incorrect, and that their only recourse against you, as an owner who failed to sign an agreement to pay the dues, was to place a lien against and/or foreclose on the home.

The only way for you to get certainty on this is to consult with a local real estate attorney, who is familiar with the laws of your state and can review all the documents involved — everything you signed during escrow and at closing, as well as the HOA agreement you didn’t sign.

If the lawyer opines that the HOA has no recourse against you beyond a lien, I’d encourage you to have her engage the association directly in a conversation about the matter — or at least send over an opinion letter. And that may cost, as attorney fees aren’t cheap.

In fact, you might consider whether you’d prefer to negotiate a settlement with the HOA — even if you feel you’re not liable, after you’ve had a lawyer review the documents. The fact is, the HOA could still very well send a collection agency after you, or take you to court in an attempt to collect — even if it’s in the wrong.

And I assure you, the time and energy it would take you to defend a lawsuit or attempt to correct the matter with a collection agency might not be worth what you could simply settle it for.

I’m also interested in whether you had a written agreement with your "friend" and co-owner. Generally, in co-borrowing situations where the bills are going to be split other than 50-50, a tenancy-in-common agreement or some other written document that reflects the parties’ agreements about who will pay what is extremely advisable.

Did you have anything like this? Even copies of e-mails or other written communications, perhaps less formal than an actual contract?

In the event that you are held responsible or forced to pay any portion of the delinquent HOA dues, if you can document that she agreed to cover these items, you might be able to recover funds from her with an indemnification lawsuit (or the threat thereof).

Indemnification simply means a reparation, of sorts, that a court might order her to make if they found her responsible for your damages (i.e., the delinquent HOA dues you had to pay).

However, if you’re not able to document that she agreed up front that she would be responsible for them, a court would likely find that your damages were a more proximate, or direct, result of nothing but your own decision to co-own the property with her.

Either way, you can chalk this entire experience up as tuition — a very, very expensive lesson you’ve learned about not overextending your generosity. In many cases (not all), when someone needs a co-signer/co-borrower other than their parents or close relatives, it’s because their credit history is rough.

So, unless you’re in a financial position to cover when they miss payments, it’s best for you to not extend your credit — which is essentially what you do when you co-borrow — to them, either, or you’ll wind up in the same position.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor

Law of the Land

Tara-Nicholle Nelson
Inman News

James Carpenter signed an agreement to buy undeveloped land in Austin, Texas, in 2004, and obtained investment funds to finance the purchase from Sandra McBeth and James Reynolds, a married couple.

Carpenter informed McBeth and Reynolds that the buyer who had planned to buy the property previously had been unable to close the transaction because of an issue with the city of Austin around the ability to run water utilities to the property, but told the couple that the water issue had been resolved.

Carpenter entered into a limited partnership agreement with McBeth and Reynolds for purposes of acquiring the property. Carpenter signed the agreement not only on behalf of the general partnership, but also as the signor for two other limited partners participating in the transaction: Texas Water Solutions and Texas Water Management.

Under the agreement, McBeth and Reynolds deposited $800,000 in various earnest money deposit payments into escrow to activate the purchase agreement and extend the closing deadline five different times. Without notifying McBeth and Reynolds, Carpenter instructed the escrow holder to release the deposit funds to the seller.

Excluding McBeth and Reynolds, Carpenter then teamed up with a new set of investors and purchased the property via another partnership, then resold it at a profit of $140,000.

McBeth and Reynolds filed suit against Carpenter, alleging fraud, misrepresentation, conversion, and breach of contract against Carpenter, Texas Water Solutions and Texas Water Management. The jury verdict was in McBeth’s and Reynolds’ favor, awarding them more than $4 million in compensatory damages (including their out-of-pocket expenses and lost profits) and interest.

When the plaintiffs requested the court finalize the jury verdict into a judgment, the trial court ruled that the jury’s award of lost profits was based on insufficient evidence, but upheld the fraud and breach of fiduciary duty verdicts and entered a judgment awarding the couple $875,000 for their out-of-pocket expenses and interest.

All parties appealed, and the Fifth Circuit Court of Appeals affirmed the lower court’s ruling.

The appellate court explained that McBeth and Reynolds were not entitled to lost profits because they were unable to provide evidence establishing what their lost profits would have been "with reasonable certainty."

Because the second transaction was much less lucrative than the jury’s lost-profit award, and because there was no evidence presented as to what amount, if any, the limited partnership’s profit would have been, the district court’s refusal to honor the jury’s lost-profit award was correct, according to the Court of Appeals.

The court also rejected the arguments of Carpenter and his two limited partnerships that they neither owed nor breached any fiduciary duty to McBeth and Reynolds, citing the well-established rule of Texas law that limited partners owe each other the same level of fiduciary duties as general partners.

At trial, McBeth and Reynolds provided ample witness testimony to support the jury’s verdict that Carpenter and his two entities breached their fiduciary duties to the couple and committed fraud against them by virtue of intentionally misrepresenting both the status of the property’s water rights vis-a-vis the City of Austin and the city’s negotiability on the same.

Accordingly, the Fifth Circuit Court of Appeals affirmed the trial court’s entry of judgment awarding McBeth and Reynolds their out-of-pocket expenses plus pre- and post-judgment interest.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor

Book Review: ‘How to Invest $50-$5000′

Tara-Nicholle Nelson
Inman News

Book Review
Title: "How to Invest $50-$5000: The Small Investor’s Step-by-Step Plan for Low-Risk Investing in Today’s Economy"
Author: Nancy Dunnan
Publisher: HarperCollins, 2010; 272 pages; $14.99

We Americans eagerly await any investment tip uttered by Warren Buffett, and voraciously consume information about the strategies used by hedge fund titans and investment bank moguls. But the reality is that the vast majority of those of us who have funds of our own to invest are working with sums closer to $50 than $50 million.

Those oodles of zeroes are tossed around so carelessly in the financial media that many who come across an extra hundred bucks think they’re better off using it to de-stress with some retail therapy than to bother trying to "invest" such a small sum.

But according to financial adviser Nancy Dunnan, the author of "How to Invest $50-$5000: The Small Investor’s Step-by-Step Plan for Low-Risk Investing in Today’s Economy," that just ain’t so.

For 2010, Dunnan has published her 10th edition of this uber-usable book at a time when small sums are all most people have, creating both hope for the future and an immediate set of action steps for small investors at all levels to get some mileage out of whatever cash they do happen to have at hand.

In fact, Dunnan’s introductory message pervades the book: No amount of money is too little to invest.

Dunnan’s mastery of the behavioral and financial elements of personal finance is evidant throughout the book. She insists from the beginning that readers save something — anything — from their very next paycheck, if only to get into the habit of saving. She also provides a set of the "10 Dumbest Financial Mistakes People Make," so readers can spot their own "issues" and begin building momentum to correcting them, stat.

The "Mistakes" section and the evergreen yearly financial calendar in the first chapter are, by themselves, worth the cost of the book. Their easy-to-follow, uncomplicated format provide bite-sized, non-scary, crystal-clear action steps of the precise sort that empower even the worst of financial procrastinators to do something different than they’ve been doing for years.

Move your emergency fund from a bank savings account to a money market account or an online bank one week. Consolidate those 10 different accounts you have all over town into three the next week. Got a windfall you’re scared to invest? Break it down and make three smaller investments — Dunnan tells you where — over several weeks.

At the $50 level, Dunnan’s advice focuses mostly around becoming conscious of bank fees, interest rates and yields, and being more strategic about which "institutional cookie jar" (bank) you select to stash your cash. She also provides primers on credit unions and savings bonds for those trying to do something smart with 50 bucks.

For those at the next level, who have around $500 to invest, Dunnan still focuses on highly liquid, but interest-bearing, accounts, like interest-bearing checking and money market accounts, certificates of deposit (CDs) and mini-investor plans (she gives links!), treasuries and investment clubs.

At the $1,000 level, Dunnan encourages readers to dive into tax-advantaged retirement plans, like IRAs and 401(k)s, the different flavors of which she details in one of the most clear explanations I’ve ever read (and she gives even more links!).

For those with $2,000 to $5,000 to invest, Dunnan goes all out, providing specific recommendations about classes of stocks and funds that make sense for these largest of the small investors, as well as offering a roadmap to the research resources we need to consult before making such an investment.

Her appendices are mini-treasure chests filled with unique advice on a generous handful of important subjects, like where to get cash in a crunch, how to come up with college funds, and scams to avoid, what to do if you get fired or laid off, and Wall Street-speak translated into plain English.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor

Mood of the Market

Tara-Nicholle Nelson
Inman News

Homeowners, buyers and sellers have always been skeptical of real estate professionals. I’m certain this has something to do with the fact that real estate agents are perceived as making huge amounts of money, for what consumers see as little work.

(Hah!) It also arises out of the understandable skepticism of any professional adviser whose pay is 100 percent commission-based, meaning that if you don’t buy, they don’t get paid.

This sets up a situation in which incentives seem to be structured around what’s in the agent’s best interests, even to the exclusion of the clients.

For the record, things are not always what they seem, in this respect — many a real estate agent is more concerned with their long-term professional reputation and earning the trust and lifelong business of their clients than they are with selling any particular home to any particular client at any particular time.

Trashing a client’s interests for a single commission is, as any agent who’s been in the business awhile knows, not in the agent’s best interests after all. But people think it is, and that’s the point.

I remember when late-night television seemed riddled with infomercial after infomercial touting all manner of real estate snake oil and "strategery," to borrow the term.

Back then, it was every legitimate real estate professional’s personal cross to bear (and opportunity to be a force for sanity and clarity in the world) to have to frequently answer questions about why this nonsense was, in fact, nonsense, and talk family, friends and acquaintances down from the delusions of easy money with no effort, credit or other investment (except for that paid to the wannabe guru hocking their books or CD kits on the infomercial, of course).

Then, the last few years happened — and a lot of people got burned by their own flawed decisions rendered truly dangerous by the flawed lending guidelines of the banks, for the most part.

Subprime and prime, stated and not, with and without downpayment money: Millions of homeowners are feeling like they fell for the okie-doke, buying a line of you-know-what from even the better lenders, brokers, appraisers and even our culture in general, in terms of the high value we Americans place on homeownership.

And millions more feel like their own decisions were sound, but that their home’s values and finances have taken a hit from their neighbors’ poor decisions to take on a snake-oily subprime loan, with the snowball effect of ending up in foreclosure or short-selling.

Accurate or not, this is the perception. Perception creates mindset, and mindset creates behavior, so much of the behavior we see from buyers and sellers in their real estate decision-making today arises from the skepticism they perceive as justifiable or even necessary self-protection from the real estate charlatans they think are lurking around every yard sign, inside every open house or on the receiving end of every online loan application.

But here’s the deal. All who claim they can teach, advise or guide you with respect to real estate are not created equally. Right now, I’m seeing a lot of scam-checking in active real estate communities online. And that’s fabulous!

But I’m also seeing a whole lot of skepticism about legitimate advice from legitimate agents. Agent wants you to be aggressive and offer more? Need a second opinion. Agent wants you to be conservative, or tells you that the stated-income, no-money-down, etc., loans aren’t available anymore? Need a second opinion on that, too.

What’s wrong with that? First, the logic is flawed. Consumers are showing a lack of judgment and discretion when they paint everyone who claims to be any sort of "real estate adviser" with a very, very wide brush.

And this lack of discretion can be injurious to a consumer’s best interests, especially in the context of a fast-moving real estate transaction, when it’s critical to be able to act quickly on your advisers’ recommendations.

The way real estate is set up is that the people with the deepest knowledge of local negotiating and contract practices in most markets also happen to be compensated by commission. That’s just the way it is — deal with it.

But, there are many of these people who give top-notch advice in their clients’ best interests, often to the detriment of the agents’ own best interests, as a matter of course. Skeptical? Find one of these agents.

But how do you know whether your skepticism is healthy or not? Here’s a litmus test. Those who have an overly skeptical, dysfunctional distrust of all real estate advice is that the folks who have this belief system tend to disbelieve not only the advice that is too good to be true, but also the advice that is too bad to be what they want to hear in any given situation.

They question the "too good" recommendations, like those of some (but not all) media investment gurus, with a hope that they really aren’t invalid, searching desperately for someone, anyone, who can validate that, yes, it is possible to start with negative $10 in the bank and flip your way to riches in 10 minutes, with a FICO score of 32.

But these same folks also question their local agent’s advice that falls under "too bad" with the hope that someone out there has a super-secret trick or stated-income loan program that is a workaround for their denial of a home loan because they have no job, no savings and a fresh foreclosure on their credit report.

Their mindsets and beliefs about what should be possible are still wacked out from the everything-is-possible mortgage guidelines of yesteryear.

The problem is that in real estate, if you ask enough people, you will get someone to tell you what you want to hear. So, find a trusted, local real estate adviser by referral, if possible, then do a social media check on them. Google them. Read their blog. See if they are active in discussions about real estate issues that may affect you on the Web.

And get real with yourself — Are you really looking for smart real estate advice from a professional? — even if it means you may hear that you need to save more money, pay down your debt, or work on your credit score.

As an informed buyer, your job is not to be unhealthily skeptical of everything any adviser tells you, but to wisely select your advisers, educate yourself before making decisions and exercise your best judgment and discretion in whether to follow any piece of advice.

In psychology, we’re taught that just because you’re paranoid doesn’t mean people are following you. The reverse is also true: Just because you distrust everyone doesn’t mean you’re receiving bad advice.

Tara-Nicholle Nelson is author of "The Savvy Woman’s Homebuying Handbook" and "Trillion Dollar Women: Use Your Power to Make Buying and Remodeling Decisions." Tara is also the Consumer Ambassador and Educator for real estate listings search site Trulia.com. Ask her a real estate question online or visit her website, www.rethinkrealestate.com.

Contact Tara-Nicholle Nelson:
Facebook	Twitter	E-mail	Letter to the Editor