Friday, July 07, 2006

Liens on your home

Liens on properties have existed probably since the sale of real estate began. A lien is simply the lender's right to claim the borrower's property in the event the borrower defaults. If there is more than one lien, the claim of the lender holding the first lien will be satisfied before the claim of the lender holding the second lien, which in turn will be satisfied before the claim of a lender holding a third lien, etc.
The word itself comes from the Old French, according to Dictionary.com. It means to tie, bond or constrain. Thus a lien on the property places a constraint on the title which needs to be removed before it can be sold free and clear.
Liens are a necessity of owning a piece of real estate for most people. Your mortgage is a lien; however, there are more liens than just for mortgages. Non-real estate companies and entities can order liens on your property. Creditors, the IRS, subcontractors, even your homeowners association, can all order a lien on your property.
Liens can take a homeowner by surprise. If you ever have a dispute with a creditor and in the absence of pesky phone calls think they just got tired of chasing you down, beware. You may have a judgment on your credit and a lien on your property. They're going to get their money, they'll just be patient about it.
Such is the case of a 93-year-old grandfather whose children wrote me regarding his reverse mortgage with a balance of $240,000. When his children researched about selling the house and paying off the mortgage and using the proceeds to pay for assisted living, they found three judgment liens on the property.
The question in an email to me was: "What happens if there is not enough money to pay off all the judgments? How do we get the title cleared for the new buyer of the house? I understand that the judgments are paid in order of date of filing but what do we do with the other judgments -- do they stay with my father or the property?"
Keep in mind, the lien debt has nothing to do with the mortgage amount. The creditors want their money and the lien is just a tool for them to force the landowner to pay up. The liens stay with the property, and liens don't have to be removed before transferring title from one owner to the next, but the purchaser needs to be aware that there may be other debt connected to the house besides the mortgage.
In the above case, the property can be transferred to the kids easy enough, but then they must still deal with the liens. If they sell the house, the proceeds of the sale will generally pay off the liens in order. If the new owner wants to transfer the property to someone who will need financing or who wants clear title, however, the lien will have to be cleared up. In the real world, judgment liens tend to get paid off sooner or later.

Thursday, July 06, 2006

Too many agents

Last year the State of California was turning out licensed agents at the rate of slightly more than 5 per hour. I'm not entirely sure that this counts as an increase in productivity, but the rate has gone up to 6.5 per hour. That's 24 / 7. 155 new agents everyday. 365 days a year. Last year there was one real estate agent for every 81 Californians. Now the ratio is 1 for every 74. And the population of the state has been growing.

As of May, California has a real estate licensee population of 500,053. If they all lived in the same area -- without even including their families -- that would constitute California's fifth largest city, with a population greater than those of Long Beach, Fresno, or even the state capital, Sacramento.

We've noted before that the phenomenon itself is not new. Every time there is a sustained upswing in the real estate market, the agent population grows. And now, as during other strong markets, the rate of increase in agents soon outpaces the rate of increase in sales. In the past three years California has recorded single-family home sales of more than 600,000. Each of those years has been a record year. Six of the last eight years have been record years. That, of course, is phenomenal.
But, whereas the sales growth has tended to be in the single digits (last year, though a record, was not even a full 1 percent above the year before), the growth in agent numbers has been double-digit, running 12 to 14 percent. What was true last year is, as it were, even more true today: The number of people at the table has increased greatly, but the size of the pie has not grown proportionately.

Moreover, it appears that the pie is shrinking. Statewide, sales were down on a year-to-year basis more than 20 percent in May. Yet there is no sign of a let-up in new license applications. Last year, the number of new sales license exams administered during the January to May period was 69,130. This year the number is 69,017.
California Real Estate Commissioner, Jeff Davi, recently told the directors of the California Association of Realtors® (CAR) that he expected the licensee population to reach 600,000 before it begins to drop back down. Whether or not that is correct, it is a safe bet that it won't be long before the number of licensees is greater than the number of sales.

Imagine a chart with two lines on it. One records the number of real estate sales. It has been slowly growing the past three years, from 601,770 to 624,957. Now it appears to be heading back down to somewhere between the mid to upper-three quarters of 500,000. The other line records the number of licensees. Three years ago it showed 352,143. Today it stands at just over 500,000. It shouldn't be too long until the lines cross.

It is well known -- except, perhaps, to those 55,000+ people each year who are getting a California real estate license -- that it's pretty easy to get into the real estate business, but pretty hard to stay in it. A recent CAR study that tracked 100 new agents over a five-year period found that 57 percent of them had dropped out by the end of five years. And that was during the best real estate market in the history of the state.

So lots of those new licensees have, and will, drop out. CAR's chief economist, Leslie Appleton-Young, has been quoted as saying that new agents all have one or two DNA sales in them. Which is to say: transactions with relatives. But, after that, most of them can't sustain. Of course not. Look at the math. Even with two "sides" to a sale, when there are more agents than sales, it isn't enough. There may be 500,000 licensees in the state; but there aren't 500,000 people expecting, or trying, to make a living in the real estate business. Still, it's a lot of licenses.

Wednesday, July 05, 2006

Home values expected to drop

In an earlier life I was the owner of a mortgage bank. Golden West Funding was a wholesale and retail lender who made residential loans and then sold the loans in the secondary market to large mortgage investors including Fannie Mae and Freddie Mac. Mandatory reading for operational staff was the quarterly housing report published by PMI Mortgage Insurance Company. PMI evaluates all the major housing markets across the country and issues their findings from which bankers and investors used to determine their level of risk for residential loans.

In a market where home values are expected to rise, our risk in making 95% or 100 percent loans were minimum since values were expected to increase along with our security. In areas where prices were expected to fall, we would be more conservative in lending especially with high loan–to-value loans or low and no-documentation loans where more emphasis is placed on the property’s value than the borrowers documented ability to repay the loan.

The most recent quarterly PMI publication has many local bankers concerned with their findings. PMI has determined that the Sacramento Region has a 58 percent chance of declining property values over the next two years. The region ranked fifth among the 13 U.S. cities most likely at risk for falling home values during the next two years. Eight of the 13 riskiest U.S. markets were all in California. So what does this all mean to the players in the real estate market?

Lenders will be more cautious in evaluating a borrower ability to repay the loan. What a unique concept! It could actually be healthy for the long-term housing market. No one wants delinquencies or foreclosures to increase. Borrowers who have no equity in a home are the first default candidates.

Sellers can expect to receive less for their house than their neighbor did last year. They missed the high price point of the last 5 years. Sellers should either drop the price of their home now before the market declines or postpone their selling plans for two years. Buyers will have more opportunity for making a really good deal on a home than at any time in the last five years. Many agents should investigate a new line of work.

The PMI Report included some good news about the area economy and PMI officials were quick to point out that our real estate market wasn’t going to crash only land softly. Job growth in the region has been strong, unemployment is lowest in the state and interest rates are still low in comparison to historical average. The report did not speculate as to how much property values will fall or how long until they rebound. A decline of 20 percent over this year’s record high would still make for a 170 percent appreciation rate over the past eight years.

Tuesday, July 04, 2006

Happy Birthday America

On this day in 1776, the Declaration of Independence was approved by the Continental Congress which was the beginning of America as a sovereign nation. While we celebrate the day with parades, fireworks and backyard barbecues, it's nice to be reminded of how far we've come as a nation.

In July 1776, there were 2.5 million people living in the colonies, according to the Historical Statistics of the United States: Colonial Times to 1970. Today, we are approaching 300 million. Nearly 70 percent of the adult population are homeowners.
Today, we are still a nation of immigrants, although many have been here for generations, and a few can point to ancestry that dates back to the colonization of the Americas. In remembrance of our immigrant past, here is how "Coming to America" stands today.

In 2004, the number of foreign-born residents in the United States was 34 million, accounting for 12 percent of the nation’s total population. Another 30 million Americans were "second-generation," meaning that at least one of their parents was born abroad. In 2004, 53 percent of the nation's foreign-born population was born in Latin America. The number of immigrants granted legal permanent residence in the United States during fiscal year 2004 was 946,000, and more than one in four settled in California.

From Oct. 1, 2003 to Sept. 30, 2004, 537,000 people became naturalized U.S. citizens. Mexico contributed the highest number of naturalized citizens in 2004 (63,800), followed by India (38,000), the Philippines (31,400), Vietnam (27,500) and China (27,300).

As the nation celebrates its birthday, the number of Fourth of July Cookouts is estimated to be huge with approximately 150 million hot dogs to be consumed. That's one frankfurter for every two people in the U.S. Over $211 million will be spent on fireworks, with the majority of fireworks imported from China.
About $5.5 million has been estimated in 2005 as the dollar value of U.S. imports of American flags; the vast majority of this amount ($5 million) was for U.S. flags made in China, and about $349 million is the annual dollar value of shipments of fabricated flags, banners and similar emblems by the nation’s manufacturers, according to the latest published Economic Census (2002) data.

Plenty of U.S. towns have names like Liberty, Independence, Eagle and Freedom, the most well-known of which are Liberty, MO (28,528), Eagle Pass, Texas, with 24,847 residents, Independence, MO, with 111,023 residents, and Freedom, CA, with 6,000 residents.

Happy July 4th

Monday, July 03, 2006

Celebrate our diversity

I though I would provide you with a little humor this morning on the eve of the birth of our nation. This has been around for a few years with some recent modifications.

DEMOCRAT
You have two cows. Your neighbor has none. You feel guilty for being successful. Barbara Streisand sings for you.

REPUBLICAN
You have two cows. Your neighbor has none.
So?

SOCIALIST
You have two cows.
The government takes one and gives it to your neighbor.
You form a cooperative to tell him how to manage his cow.

COMMUNIST
You have two cows. The government seizes both and provides you with milk.
You wait in line for hours to get it. It is expensive and sour.

CAPITALISM, AMERICAN STYLE
You have two cows.
You sell one, buy a bull, and build a herd of cows.

DEMOCRACY, AMERICAN STYLE
You have two cows. The government taxes you to the point you have to sell both to support a man in a foreign country who has only one cow, which was a gift from your
government.

AMERICAN CORPORATION
You have two cows. You sell one, lease it back to yourself and do an IPO
on the 2nd one. You force the two cows to produce the milk of four cows. You are
surprised when one cow drops dead. You spin an announcement to the
analysts stating you have down sized and are reducing expenses. Your
stock goes up.

FRENCH CORPORATION
You have two cows.
You go on strike because you want three cows. You go to lunch and drink
wine.
Life is good.

JAPANESE CORPORATION
You have two cows. You redesign them so they are one-tenth the size of
an ordinary cow and produce twenty times the milk. They learn to travel
on unbelievably crowded trains. Most are at the top of their class at cow school.

GERMAN CORPORATION
You have two cows. You engineer them so they are all blond, drink lots of
beer, give excellent quality milk, and run a hundred miles an hour.
Unfortunately they also demand 13 weeks of vacation per year.

ITALIAN CORPORATION
You have two cows but you don't know where they are. While ambling around,
you see a beautiful woman. You break for lunch. Life is good.



TALIBAN CORPORATION
You have all the cows in Afghanistan, which are two. You don't milk them
because you cannot touch any creature's private parts. Then you kill them
and claim a US bomb blew them up while they were in the hospital. You
take the restitution check and plant opium poppies.

IRAQI CORPORATION
You have two cows. They go into hiding. They send radio tapes of their
mooing.

FLORIDA CORPORATION
You have a black cow and a brown cow. Everyone votes for the best looking
one. Some of the people who like the brown one best, vote for the black
one. Some people vote for both. Some people vote for neither. Some
people can't figure out how to vote at all. Finally, a bunch of guys from
out-of-state tell you which is the best looking cow.

CALIFORNIAN
You have a cow and a bull. The bull is depressed. It has spent its
life living a lie. It goes away for two weeks. It comes back after a
taxpayer-paid sex-change operation.
You now have two cows. One makes milk; the other doesn't. You try to
sell the transgender cow. Its lawyer sues you for discrimination. You
lose in court. You sell the milk-generating cow to pay the damages.
You now have one rich, transgender, non-milk-producing cow. You change
your business to beef. PETA pickets your farm. Jesse Jackson makes a
speech in your driveway. Cruz Bustamante calls for higher farm taxes to
help "working cows".

Hillary Clinton calls for the nationalization of your farm "for the
children". The L.A. Times quotes five anonymous cows claiming you groped them. You declare bankruptcy and shut down all operations. The cow starves to death.
The L.A. Times analysis shows your business failure is Bush's fault.




Ken Calhoon, Broker
Your friend in the foothills
530-885-9590
cpilothill@aol.com
http://www.kencalhoon.com/

"We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."....Declaration of Independence, in Congress, Jluy 4 1776