real estate

How MERS Grew from a Solution Into a Problem

MERS, the Mortgage Electronic Registry System, is a legal fiction that—on paper—owns about half the mortgages in the United States. It was created in 1995 as a solution to the problem of slow-moving county property records offices. Banks and investors needed mortgages to move faster, so they registered once with the county in the name of MERS . . . and then basically lost track of the paperwork.

The New York Times explains why, but here’s the gist of it.

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Big surprise: greedy subprime security buyers didn’t listen to their own consultants

Tracy Warren was a quality-control consultant for Bear Stearns and other mortgage security purchasers on Wall Street. Her job was to review mortgage loans to determine whether they had merit for investment purposes. (She saw the loans after they were made, but before they were sold to investors and led to the national economy’s crash-and-burn act.)

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Apartment foreclosures multiply homeless and problems

When we talk about the foreclosure problem, we usually focus on the effect on the borrower-owner who had a a loan they could not afford. But where the borrower was a landlord, foreclosure causes a raft of problems for tenants, as well.

A Star Tribune story on a mass eviction in North Minneapolis illustrates this well.

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Minnesota lawmakers consider three foreclosure bills

The proposed bills would work together to address the deepening foreclosure crisis in Minnesota. From the StarTribune:

  1. One would prod homeowners facing foreclosure to get help, even forwarding their phone numbers to foreclosure prevention counselors. It would also give tenants notice of pending foreclosures and spell out the terms for owners to get their homes back after a sheriff’s sale by paying off the entire mortgage and foreclosure fees.
  2. Another bill would erase eviction notices from the records of renters removed from foreclosed properties.
  3. The third would help authorities to declare vacant properties abandoned so new owners could take over faster.

I think many homeowners could use a bit of prodding to take action, and tenants in foreclosed properties need help, as well. And it only seems logical not to punish tenants with an eviction when their landlord could not keep up with their mortgage properties. But while I sympathize with the sentiment behind the third bill, I wonder whether how prone to misuse it will be.

Closing documents may be requested prior to closing

A colleague who recently purchased a home passed along the following:

When I purchased my home this summer, I contacted my mortgage consultant about one month in advance and told her that I wanted to see all my loan documents prior to closing so that I could read them over. [ . . . S]he told Edina title that I was an attorney and wanted to review the paper work prior to closing. Edina Title in turn, contacted my soon-to-be mortgager, who complied. They were able to get me the documents about one week prior to closing. I’m glad I did request and receive the information. Interest rates were incorrect, my name, etc. It was quite the topic of conversation at closing. The women representing Edina Title indicated that no one ever requests to read the documents prior to closing, and no reads the documents at closing.

Along with my other best advice for homebuyers (hire an attorney), this is an excellent practice. Demand to see the closing documents so that you can make sure they are accurate and make any necessary changes before the closing. If you do not understand what you are looking at, spend a few hundred dollars to hire an attorney to make sure that your home purchase, probably the most expensive transaction you have ever taken part in, goes smoothly.

(Think about this, you can hire an attorney to review documents and accompany you to closing for anywhere from a few hundred dollars to about one thousand dollars for a more expensive attorney. You pay your realtor anywhere up to 6% of the purchase price–$6,000 on a home purchased for $100,000–but the realtor is not paid to look after your best interests. An attorney is.)

Appraisers Pressured to Inflate Home Values as the Real Estate Market “Softens”

With home prices falling–or at least slowing down–real estate appraisers are facing greater pressure to overstate home values. The pressures come from all sides, but this is not really new. The pressure may be great now, but it has always been there. The greater the home price, the higher commissions will be, the more interest will be recovered by lenders, etc. With sales slowing, it becomes more and more important for those parties to increase the value of each sale.

A greater appraised home value, of course, does not mean that the home is worth more. It means that the happy new homeowner is stuck with a loan greater than the amount they can expect to recover on sale. If this trend is truly occurring, then it does not bode well for the housing market in years to come.

Resolution #1: Get An Attorney For Any Real Estate Transaction

I see a lot of people with predatory lending cases concerning real estate. I take an incredibly small percentage of those cases. This is not because I have no pity for the consumers who are my potential clients, it is because given the facts of their situations, there is little help I can give. And the tragedy of it all is that the reasons I cannot help are similar in many cases.

Mortgage brokers are not in business to help consumers. They are in business to make money. Most consumers are hardly sophisticated enough to look after their own best interests, and there is little an attorney can do after the deal falls apart and foreclosure looms.

If you are looking to purchase a home, refinance, or engage in some other real estate transaction this year, hire an attorney. A mortgage broker will take a fee of thousands of dollars. An attorney in most simple real estate transactions will probably cost $500-$1,000, and their job is to represent your best interests, nothing more. They have no stake in the transaction, and can save you thousands more than their fee.

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Freakonomics Blog: “This Is the Sound of Chinks Appearing in Armor”

Real estate listing services will, from now on, be required to treat listings from discount brokers the same as those from traditional (read: high-priced) agents. This is good news for consumers on both sides. Sellers using discount agents will get equal booking, and buyers will have an easier time finding homes where the list price is not inflated by traditional realtors’ fees.

In plain English, this could mean that home prices trend slightly downward as traditional agents are forced to compete with discount agents.

Winona Daily News: “An $830,500 Difference: City Ordered to Pay $903,000 for Land it Originally Thought Worth $72,500”

When the city of Winona decided to take Rich Mikrut’s access to his truck-to-train transfer station, they offered him a measly $72,500. Mikrut was forced to use residential roads (probably not so easy when your business is giant shipping containers), and was buying up nearby properties to build his own driveway. Rather than settle for the $72.5k, Mikrut took the city to court and was awarded $903,000 for the city’s taking.

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