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Tales From the Landlord Trenches

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | August 11th, 2017

Every landlord has tales to tell about the trials and tribulations of owning rental property. Here are a few of mine:

-- The flood. The house was between tenants when an upstairs water pipe burst. The water cascaded all the way down into the crawl space. After filling that area, it spilled out into the yard, creating a wading pool outside.

I didn’t find out until the four-figure water bill arrived. Fortunately, once I turned the water off, the accumulated water slowly sunk into the ground, and I made the necessary repairs.

-- Here today, gone tomorrow. When I eventually put that same house on the market, I fixed it up nicely, including the addition of a bunch of new shrubs. The day after the bushes were put into the earth, they were gone, just like that. During the night, someone had dug them up, leaving me nothing but gaping holes in the ground.

-- Tell-tale heart, Part I. My tenant was way behind on her rent. (I used to let people slide far longer than I should have: big mistake.) So I filed for eviction, and it took three months for the court to process it. The night before the sheriff was to knock on her door, she called me, crying, “Please don’t toss me out! I’ll pay you tomorrow.”

Bleeding heart that I am, I called off the eviction. Of course, she didn’t pay. And it took three more months with no rent to finally get her out.

-- Tell-tale heart, Part II. One of my tenants died of a heart attack in his bedroom. But sadly, no one knew anything was wrong until his rent didn’t arrive. It took days to locate his next of kin. After the police removed his body, a hazardous waste clean-up crew put the bedroom back in order.

-- Guns drawn. The only time I personally evicted someone, the experience scared the living daylights out of me.

I had rented the place to a man, his girlfriend and their children. The guy eventually split with his girlfriend but continued to pay his rent. He was habitually late, but he paid. And then he stopped. It took me several months to track him down, only to discover that he had declared bankruptcy and moved away. I couldn’t touch him for back rent.

But he had allowed his teenage son to remain in the house, so I still had to file for eviction. When I got the court’s permission, I went to the house, along with two deputy sheriffs. As we were about to bang on the front door, the officers pulled their guns, ready for anything.

I wasn’t ready for that, though. When they flashed their weapons, I ran like a scared rabbit around the corner.

Fortunately, the house was empty, but it had been trashed almost beyond reclamation. I had to completely strip it down and start over.

-- The gallon-gift guy. I once rented a room in a boarding house I owned -- five bedrooms, five tenants who shared the kitchen and living space -- to a fellow who was on unemployment at the time. I took a chance on him because he was willing to take the smallest bedroom in the house. He paid his rent faithfully for a couple of years, and then he stopped. Finally, after a few months with no rent, I told him he had to move, which he did.

Nice guy that he was, he left me a present: 50 or 60 1-gallon jugs full of urine. Rather than rising from his mattress to get to the bathroom, it appeared he’d just used jugs. But he never bothered to empty them.

I donned rubber gloves and a mask and proceeded to empty each one down the toilet. Then I carried the empty jugs down the stairs and into my truck and hauled them off to the dump. To remove the stench from the jugs that had spilled during his stay, I had to replace the room’s hardwood floor.

But the worst part occurred on my last trip down the steps with a handful of empty jugs: I missed the last step and broke my ankle.

Of course, there have been a lot of rewarding moments over the years, too. And not just of the monetary kind. The one I remember most fondly happened around Christmas, when a single-father tenant showed up at my front door with a frozen turkey.

Turns out, his church gave out the turkeys to parishioners and told them to distribute them to people in their lives who had done good by them. Since I had allowed him to be late with his rent, he said, he thought of me as one of those people.

I was really touched. But all in all, I’d say landlording isn’t for the faint of heart.

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Keeping Borrowers Happy

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | August 4th, 2017

There’s nothing that ticks off homebuyers more than their lenders taking time off.

They don’t even like it when a lender shuts down for a federal holiday, like most businesses. In fact, according to one recent survey, they don’t like delays at all.

Lenders getting their acts together will help customer satisfaction, says Mike Seminari of the Stratmor Group consulting firm. A former loan officer, Seminari is now the director of MortgageSAT, an interactive customer satisfaction tool for lenders. But borrowers can also take steps to keep the closing process moving smoothly.

For example, as a homebuyer, you can keep up with the bank statements, tax returns and pay stubs your lender will need from you. It can be helpful to have a checklist to work from: “If you don’t get a checklist, ask for it,” says Seminari.

You also should let your lender know what your expectations are: how often the company should be in touch with updates on your application, for instance, and how you want them to communicate -- email, text or phone. Seminari says borrowers who have to call their lenders frequently are among the least satisfied customers. So discuss your expectations up front.

“Coach your loan officer into giving you a better experience,” he says.

As measured by Stratmor’s National Borrower Satisfaction Index for the past 12 months, borrowers became somewhat steamed at their lenders last December. The index dropped two points from November, as back-office staff took time off for holiday parties and shut down completely on Dec. 25 and Jan. 1.

But then a funny thing happened.

Borrower approval of their lenders not only jumped back up in January, but it has stayed at the higher level ever since, despite an increase in loan applications during the spring -- a boom time that might have slowed lenders down and delayed settlements.

“Rather than decline in May 2017,” according to the report, “the average satisfaction score of MortgageSAT lenders remained at 91, a very good score, despite a 28 percent increase in second quarter 2017 origination volume” as projected by the Mortgage Bankers Association.

Why such good ratings?

In good news for consumers, the report suggests that lenders now are paying more attention to customer satisfaction. Branches may be actively competing with their back-office crews to show the bosses a better record on borrower happiness.

Hitting closing dates is key, and refinance customers, who have been around the track at least once before, are especially miffed if those deadlines are missed. The satisfaction number for refi customers crashes from 98 to 73 if the lender misses the closing date by more than 30 days.

The ratings by purchase customers, who may be first-time buyers who are new to the game, drop only slightly with that delay: from 94 to 90.

Refi borrowers anticipating lower house payments “clearly are unhappy when that reduction is delayed,” said the report. Another source of animus: Borrowers seeking a cash-out refinance to consolidate credit-card debt “face unanticipated late charges if their loan closes much later than expected.”

On the purchase side, borrower impatience may be lower because closing dates are often keyed to something beyond the lender’s control.

Should borrowers seek out lenders that are better at satisfying their mortgage customers? Is a hometown lender better than a national bank, for instance?

Not really, the study indicates. There’s not a big difference between the giants of the business and smaller, local establishments. Satisfaction may even decrease with the size of the lender. Small lenders generated a satisfaction score of 87: the same as midsize firms, but four points less than national lenders.

There are a couple of other things borrowers can consider when choosing a lender. One is whether the loan officer will attend the closing. Some don’t, and if there is a problem, chances are good the closing will be delayed for hours or even days.

Stratmor not only advises its officers to attend closing, it also warns them to arrive on time. The borrower certainly will, and has often taken time off work to do so.

Another thing lenders should be doing is reaching out to their borrowers in advance of the closing.

“The 86.4 percent of borrowers who recall being contacted before closing -- not a tough thing to do -- recorded a borrower satisfaction score of 93,” the study found. “Compare this excellent score to the low score of 61 recorded by the 8.1 percent of borrowers who said they were not contacted.”

That simple step results in a 32-point satisfaction swing.

-- Freelance writer Mark Fogarty contributed to this report.

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Co-borrowing Is On the Upswing

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | July 28th, 2017

Ever since Ugg married Meg and they purchased their first cave, there have been co-signers.

Back in the day, it was probably Pop Brutus and Mom Brunhilda who helped the kids qualify for their first place. Nowadays, it’s usually still Mom and/or Dad who join the youngsters on their first mortgage.

But it can be anyone, actually: another relative, friend, employer, roommate, significant other or even an investor, any of whom can agree to be on a mortgage that the first-timers couldn’t qualify for on their own.

Nationwide, 22 percent of houses purchased with financing in the first quarter of this year involved co-borrowers, according to ATTOM Data Solutions. That’s up from 20 percent for the same period last year. The rate of co-borrowing is even higher in 11 of the country’s largest cities. In Miami, the rate was 40 percent; in Seattle, 37 percent; in San Diego and Los Angeles, 28 percent.

The main reason homebuyers need co-borrowers is because they can’t qualify to purchase the house they want, says ATTOM executive Daren Blomquist, who co-signed for his wife’s sister and her husband so they could afford to buy in pricey Southern California.

The reason many first-time buyers can’t qualify is partly because houses are so costly. Housing prices are so high in some places that if younger folks don’t have help, they might be relegated to the rental market forever.

But even if prices are reasonable, some buyers don’t have the credit scores, credit histories or the debt-to-income ratios to buy. And many buyers are simply looking at houses beyond their means.

The situation is so dire, says Blomquist, some companies are offering to help young buyers in exchange for a piece of the action in the form of shared appreciation. Outfits such as unison.com and gocobuy.com are “institutionalizing the idea of co-borrowing and shared equity,” he says.

All of this begs the question: How should you approach a co-borrowing situation, both as a buyer and as a co-signer?

Actually, the most important part isn’t getting into it; it’s getting out of it. While clear heads still prevail -- that is, while both sides are excited about the deal and there have been no disagreements yet -- you should sit down together and decide how and when the deal will end.

How long will it last? Long enough, certainly, for the buyer to build up his credit, income and cash reserves so he can eventually buy out the co-signer. But what if interest rates are so high at that time that it would be unwise for the buyer to seek a new loan? In that regard, the deal might include some kind of buffer, either a period or time or a certain mortgage rate.

Of course, the main thing to decide is what share of the profits the co-borrower will be entitled to, if there are, indeed, any profits to split. A relative may not want anything in return -- thanks, Mom and Dad -- but someone else might want a healthy chunk. Say, 50 percent.

But how do you determine profit? It’s easy if the buyer agrees to sell and move on. But if there is no sale, you’ll need to know what the place is worth at the time the deal is to be dissolved.

Here, an appraisal, the cost of which should be borne equally, is in order. But if one side or the other disagrees with the valuation, it might be a good idea for each party to pay for their own appraisal. And if there is any difference between the two, you might agree now to split the difference down the middle.

What about losses? If the value of the property goes down, will the co-signer share in the loss, and to what extent? By the same percentage as he would had there been a gain?

Another aspect of the deal that people tend to forget: improvements made to the property during the co-ownership period. Usually, the buyer foots the bill for things such as landscaping and any additions. But will he have to share in the value of these and other features that add to the home’s worth?

Co-borrowers need to realize that while they are a co-signer on the mortgage, they are not on the title and have no ownership interest in the place. Yet, their own debt-to-income ratio could take a hit because they have incurred debt by co-signing. Consequently, their ability to obtain their own mortgage, home equity loan or even a credit card could be limited.

Remember, too, that if your buyer doesn’t make the house payments as promised, the lender will come to you for redress. You will be responsible not just for the payments but also late fees -- and, if it comes to that, collection fees and lawyer’s fees. And of course, late payments are likely to take a heavy toll, as is your personal relationship with the buyer.

To protect themselves, co-borrowers should insist that both they and the buyer be billed separately by the mortgage company so you will know within 30 days or so if your partner is tardy. That way, you will be able to address the issue before it gets out of hand.

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