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How to Breeze Through Inspection

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | March 4th, 2016

Many a sale has been killed by an independent home inspector's report.

But these days, an inspection is such a common requirement that there's just no way around it. So the best thing sellers can do is prepare for a top-to-bottom property examination -- and help their home obtain as clean a bill of health as possible.

For starters, it's wise to hire your own inspector to give your house a once-over prior to putting the place on the market. That way, you can identify any problems that could become bones of contention with your buyer, and repair them ahead of time.

After that, savvy sellers will prepare their properties for the inevitable inspection by performing all those maintenance tasks they've been putting off -- fixing those items they know full well are not working properly, but have been ignoring. This also generally makes it easier for the examiner to do his job.

Inspectors are not supposed to be lulled into complacence by a clean and well-maintained house. But some professionals in the field confide that just as an organized house makes a better impression on would-be buyers, so, too, does appearance have an impact on inspectors.

"A well-maintained home does not necessarily cause the inspector to 'go lightly'," a president of the American Society of Home Inspectors once told me, "but most will look with more vigor at houses that are not so well maintained."

Not all inspectors agree. Some say that a good professional will give every house the same thorough examination, no matter what shape the house appears to be in. They say a clean, organized house will make it easier for them to do their jobs, but it won't change how they do their jobs.

Either way, it's a good idea to clear the property from all debris and obstacles so the inspector can move around easily. Remember, he or she is going to want to walk all the way around the exterior.

Many examiners will provide sellers with a pre-inspection checklist so they can be sure the house is ready. These lists contain a slew of things you can do, from repairing cracked concrete sidewalks to fixing loose deck railings.

Inside, provide clear access to the attic and the crawl space. Often, these entrances are found in closets, so be sure to move out whatever clothes, shelves or shoes necessary to allow the inspector to do his thing.

If you have a basement, clear a path around the perimeter so the inspector can check out all the walls. Ditto for a path around the furnace, air conditioner and water heater, wherever they may be located in your house. While you're at it, replace the furnace and A/C filters.

In addition, make sure all electrical outlets and switches are in good working order. If you are not getting power from an outlet, have it fixed. If a lightbulb is burned out, change it.

Take care of those little things you've learned to live with -- a drippy faucet, for example, or a small hole in the wall that one of your little darlings put there with an errant toy. Typically, these are easy to fix. But if ignored, both the inspector and the buyer will wonder what else you've disregarded.

Proper maintenance reduces the number of flaws an inspector is likely to find, which in turn reduces the impact of his or her report to the buyer. "Lots of comments" on an inspection report -- even minor comments -- equals "bad house" in many buyers' minds. But a short list will lessen your exposure to nitpicking, nickle-and-diming and low-balling.

At the same time, some examiners don't like to see too much evidence of fresh repairs. A slew of fixes and recently performed maintenance tasks suggests that the house has been poorly maintained over the long haul, one inspector told me. A typical inspection takes about three hours, during which time more than 1,600 items, inside and out, are evaluated. But the examiner can't see behind walls or under roof shingles, so recent repairs may set the inspectors' antennae to wiggling.

For example, he's obligated to report that small hairline cracks in the foundation have recently been caulked and painted over. That could be insignificant. But since the degree of risk is unknown, it could be an indication that more expensive repairs are warranted. And that could turn your buyer off.

It's never a good idea to conceal defects, major or not. Not only is it illegal in most states, it is difficult to fool the expert eye of a trained inspector. Attempting to hide house problems is just about as effective as brushing and flossing for the first time in months just before going to the dentist. Inspectors are just too good at spotting clues.

If you are not adept at significant or complicated repairs, hire a reputable contractor. It's well worth the money, inspectors maintain. It's too easy to spot amateurish, sub-par work. And by using a professional, you can provide paid receipts and warranties to prove the work has been done properly.

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Rural Housing Covers Lots of Ground

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | February 26th, 2016

Rural America may not be as far away as you think.

At least 50 million of us live in it, and it takes up at least three-quarters of the country's real estate -- making rural housing a huge market.

According to the Housing Assistance Council, a Washington-based nonprofit, non-metro areas make up 75 percent of the country's landmass and 17 percent of its population. But if you go by other definitions, such as "non-urbanized," rural areas count for 98 percent of these United States and a third of the country's population.

What's more, rural locations are much closer to big urban areas than you might think. In Ohio, for example, most of the state's 88 counties are considered partially or entirely rural. Only Cuyahoga (Cleveland) and Summit (Akron) don't qualify at all.

In Texas, Denton, Johnson and Ellis counties -- all near Dallas -- are called rural by Uncle Sam, as is Montgomery County, north of Houston. And in California, all of San Bernardino County and most of Riverside County are rural by government standards.

Financing for rural housing is a complicated mix of private banks and federal funding. It mirrors nonrural areas in that there are two government-sponsored enterprises designed to increase the funds available to your lender. But they are not necessarily the ones that initially come to mind.

Farmer Mac is a much smaller version of its residential cousins Freddie Mac and Fannie Mae, buying loans already made by local lenders on the so-called secondary market so they can have more money to lend out to people buying homes.

Then there is the Farm Credit System (FCS), which is similar in concept to the Federal Home Loan Bank System. FCS lenders, which don't take deposits, make home loans; however, their bigger business is in farm loans.

The farm mortgage is a fascinating hybrid of home loan and business loan. And while it is considered niche lending, it is a sizable niche.

Total farm mortgage debt stood at $315 billion in total credit as of 2013, the last year for which figures are available, according to the Department of Agriculture (USDA). That total is split between real estate and non-real estate debt (mostly equipment loans), with real estate being the bigger piece.

Farm mortgages also differ from their urban and suburban counterparts because of the size of farms: The land is often worth more than the improvements on it.

The biggest farm mortgage lenders are members of the FCS, which hold $85 billion in debt, according to USDA. Commercial banks, which hold $69 billion in real estate debt, are second, and insurance companies are a distant third at $12 billion.

USDA is also a residential lender through its Rural Housing Service and the Farm Service Agency. It also supports rural rental housing.

But just because some rural housing needs are taken care of by Farmer Mac and the FCS, that doesn't mean Fannie Mae and Freddie Mac -- by far the larger secondary market agencies -- are not players when it comes to the exurbs.

Under the Housing and Economic Recovery Act of 2008, the two government-sponsored agencies have a "duty to serve" three traditionally underserved markets: rural housing; manufactured housing, a substantial part of which is rural; and affordable housing preservation. The regulatory Federal Housing Finance Agency is currently considering how to implement this duty to serve.

Manufactured houses, still known in some parts as "trailers," are a staple of many rural communities. They're built in factories and trucked to their final destinations, where they are either placed on permanent foundations or left on their trailers so they can be moved again. Production of these homes has undergone a sharp drop since the housing crisis, but the market has been recovering in recent years.

According to the Census Bureau, shipments of new units reached 70,500 in 2015. That's up from 54,900 in 2012, 60,200 in 2013 and 64,300 in 2014. But it is nowhere near the 1999 peak of 374,000 units. The average sales price as of September 2015 was $70,700, the bureau reports.

Manufactured housing is a split category when it comes to lending. A loan on a factory-built house (as opposed to an on-site, "stick-built" property) counts as a regular mortgage and is eligible for purchase by Fannie and Freddie if the borrower owns the land beneath it. If not -- and a large majority of such houses are located on rented trailer park slots -- the loan is categorized as a much higher-priced "chattel" mortgage.

In the last 20 years or so, specialized lenders called Community Development Financial Institutions (CDFIs) have sprung up in many rural and tribal areas to promote economic development in low-income areas. And much of their efforts go toward housing.

The federal CDFI Fund, a unit of the Treasury Department, supports small lenders through annual grants that have totaled $1.4 billion to date. A second program, the New Markets Tax Credit, awards tax credits rather than grants.

In 2015 alone, the Fund said, its awards helped finance more than 25,000 units of affordable housing.

-- Freelance writer Mark Fogarty contributed to this report.

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Closings Gone Wrong: From the Funny to the Frightening

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | February 19th, 2016

Buying a house is a journey that ends at the closing table, with a mountain of papers that most people don't read, and never will.

But sometimes, the trip doesn't end where it should.

Take the case from a couple of years ago, when a California closing agent called the lender to say that he couldn't attend the scheduled settlement because he'd been arrested on the way there.

Or the 2013 closing in Texas that had to be adjourned because none of the participants, aside from the settlement agent, spoke English, and he could not communicate with them.

Or the instance in Massachusetts, when the closing attorney passed away two days before escrow and no one informed the other parties. The borrower showed up, the seller showed up and the title company rep showed up -- but not, of course, the deceased attorney.

Anomalies, you say? Au contraire. Andrew Liput, CEO of analytics firm Secure Insight, has been collecting these and other closing-time tidbits for a decade. And he swears they're all true.

But mortgage fraud, which often happens at the closing table, is no laughing matter. The FBI estimates that 13 percent of all mortgage fraud occurs at the settlement table, and Liput estimates around $650 million in lender or borrower money is lost because of it. Not a lot of money in the overall mortgage industry, perhaps, but as Liput eloquently puts it, "not chump change, either."

And it's not just dollars and cents at stake: People run the risk of having their personal information compromised.

"Closing is a mystery to most people," says Liput. "They show up excited, but they don't have a clue to what's going on. It's an environment that's a good breeding ground for fraud."

The message, then, is to keep your antennae alert to anything that might seem out of the ordinary. Stay vigilant to avoid falling prey to con artists. Liput has plenty of tales of fraud in his hip pocket to serve as warnings:

-- Last year, an Alabama man was convicted in a $15 million mortgage fraud scheme. During the investigation, it was discovered that not only did the perp orchestrate the massive fraud with the assistance of several professionals, he also contracted with another individual to kill the straw buyer. Testimony showed that the "hit man for hire" lured the straw buyer to a wooded area and shot him multiple times. Fortunately, the victim survived.

-- A Maryland title agent was sentenced to 51 months in prison, followed by three years of supervised release, for conspiring to commit wire fraud in connection with a mortgage fraud scheme that resulted in losses of more than $4.8 million.

-- In 2002, a title agent's license to issue title insurance policies was revoked after she was convicted of theft for fraudulently endorsing checks at the title attorney's office where she worked. Despite her conviction, she worked at another title agency from 2007 until 2010, this time as a manager -- and once again engaged in fraud.

-- A settlement agent from Tennessee operated for three decades without the required state business license, only obtaining one when finally confronted with evidence of the state law. He maintains that no one had ever asked him about it in 30 years of practice.

-- A Virginia attorney was using his personal, husband-and-wife joint checking account as his trust account, and had been doing so for more than 20 years. Lenders and warehouse banks were happily wiring funds into that account without ever verifying the account's type or its owner. Even more amazing, regulators never performed an audit.

-- In California, a mobile notary who was being sent to close loans in customers' homes was on the nationwide registered sex-offender list. Lenders had no idea their clients were welcoming this person into their homes. Neither did the company that hired the individual, because it failed to conduct complete background checks on its notaries.

-- A Maryland-area title company owner, who was closing loans for large national lenders, had been previously convicted of wire fraud and had his licenses revoked. Neither the lenders nor the title underwriter for whom the agent wrote title insurance was aware of his past, or the fact he was unlicensed.

-- In 2012, an employee at a major title company was charged with seven counts of grand theft and five counts of money laundering for his role in embezzling $469,000 for gambling purposes. This wasn't some run-of-the-mill title agent: He was the company's vice president, as well as its in-house counsel.

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