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Friday, August 28, 1981

Monday Open Thread

This is your open thread for today. Please post random links and off-topic discussions here.

Sorry about going AWOL this weekend. I was... busy.

28 comments:

ctcbelieve said...

I have a couple of questions that I'd like to throw to the collective wisdom of the readers.

My wife and I are looking to rent a SFH (postponing the decision to buy, thanks in part to the information provided on this blog). We looked at a place yesterday where the owner was asking $1800, which he said was his mortgage payment. He told us that he was moving out because he was purchasing a new place, which he closes on next month. He also told us that he used the equity in the rental for a down payment on his new place. How does that process work? Second, if we're paying the amount of his mortgage, he should be able to pay the bank, but there's no guarantee he will. If he doesn't pay his mortgage, could the house be foreclosed on, and if so, what does that mean to us as renters?

Lastly, he's supposed to close on his new place on Sept 21, so we talked about us moving in on Sept 25. Are closings ever delayed/postponed? If so, how would that affect us?

I appreciate any responses! Thanks!

synthetik said...

Sounds like an FB and I wouldn't do it. Better to be safe and not rent from an "investor" at this point in the game.

S Crow said...

Ctc-

First, closings are delayed on a regular basis for a variety of reasons--too many to list.

Secondly, it is easy to verify what the owner has outstanding and paying on the mortgage (generally).

Third, the question that the existing owner may or may not pay his mortgage and the potential for the owner to go into default is a good one. Certainly, you want to protect yourself from having to move in the event of a worst case scenario. Foreclosure is that scenario, but there may be some things you can do to protect yourself or at least fore warn yourselves of impending landlord problems. I'm not an attorney but perhaps one or two that sleuth this site could lend a hand.

Someone who is using his house (your landlord) as a piggy bank to finance another property means that there is potential for your landlord to be highly cash flow negative. You mention $1800 would cover his payment. I suspect that is only for the 1st mortgage and not for the HELOC or straight 2nd they used for a downpayment on another property. It's something to keep an eye on.

The other thing that popped into my head is if a landlord is clearly negative cash flow stressed: how are they going to pay for that maintenance issue or broken pipe. Who's responsible for upkeeping the grounds?

I digress.

Mikhail said...

What are the legal rights of tenants if they have a signed lease? Can a new owner just boot the tenant? Wouldn't the tenant still have a right to remain in the place even in the event of foreclosure?

I seem to recall reading about how one of the biggest problems foreclosure experts faced in the early '90s was getting rid of tenants in the properties they just acquired?

synthetik said...

I'm not sure of all negative scenarios that exist, but in the last 3 years we've had two:

1. Landlord was unable to return our deposit (we sued and are still in process of collecting), going on almost 2 years now.

2. Landlord decided it was "time" to sell, so he raised our rent after 1 year term 15%. We moved (essentially were evicted). Some states have a cap - we didn't bother checked, we moved to Seattle.

I don't think it's possible for you to be evicted in any case, but life could become a lot more interesting.

Do yourself a favor and rent from an experienced landlord.

Anonymous said...

You may wish to view his loans.
This will give you a better idea of how solvent he is. To do this in King County go to this website

http://146.129.54.93:8193/search.asp?cabinet=opr

If in Pierce County, go to this website.

http://hartweb.co.pierce.wa.us/localization/menu.asp

If in another county then do an internet search for your county's public records website.

From these websites you will be able to see the loans that this person has taken on properties in the county. If a loan is a fixed loan then the terms will not be displayed. If however the loan is an ARM or if there are HELOC's taken, then the terms will be displayed. Given that he probably used a HELOC in order to extract equity for his speculative new purchase, you should be able to find this. Keep in mind that it may take months for these records to be placed on the public records websites.

This will help you decide if he is a good candidate to rent from.

What I am finding is new subdivisions are filled with ARMs and HELOCs, while order subdivisions are filled with less ARMs but with many HELOCs.

It is good to see that you are renting instead of buying in this market. It is also good to see that you are educating yourself by asking questions of those outside the mortgage/realestate industry.

Crashcadia.

Mikhail said...

If you have a signed lease, I don't think there is much anyone can do to boot you out even in the case of a foreclosure. Until the lease expires, that is.

Of course, it definitely makes sense to try and avoid having to deal with hassles of changed ownership, and shoddy landlords, so the advice given in this thread on investigating the owner makes great sense.

Anonymous said...

I have found a number of people who purchased second homes for rental, have loans that state that they need to be owner occupied, and yet, they are renting these properties out. Some of my coworkers have found the same thing happening in their neighborhoods. Often the interest rates are higher if the property is not owner occupied.
Just last week I am told that my sister-in-law was told to vacate her rental property for a day while it was inspected. This was done so that the owner could claim she occupied the property.
I think this is may be as prevalent as those inflated incomes on all those no doc loans.

Do any of you have similar experiences?

plymster said...

What's up with WaMu? It's one of the region's largest employers, and seems to be making some scary choices:

- Concentrating on high risk mortgages and cost-cutting via off-shoring which is contributing to a decent (arount 4-5%) number of layoffs across the nation
- Taking on more high riskmortgages
- Fighting to keep those mortgages risky

I like WaMu, generally speaking. I don't get the impression they're out for my blood as much as most banks. Fortunately, they're hedging the high-risk behavior with some fee-heavy acquisitions, like Providian Financial Corp. (credit card company). That said, their strategy of selling off their more or less stable 30-year fixed mortgages in favor of building their sub-prime lending portfolio makes me fear for my favorite thrift. If they start having a hard time, what does that mean for Seattle?

Anonymous said...

Just got this e-mail from my boss:

"Hi Everyone

You may or may not know that Phil and I put an offer on a house on Mercer Island and we need to find a buyer pretty quickly for our house. I’ve attached the link to the listing. Feel free to forward to anyone you may know who is out house shopping!"

Another sign of the times. Trying to find a buyer quickly.

Here is a link to the house they are selling.

http://joe.mywindermere.com/lid8538258

Anonymous said...

"If you have a signed lease, I don't think there is much anyone can do to boot you out even in the case of a foreclosure."

Laws vary from state to state, but this statement is generally not correct. If this is a genuine concern, you should check with an attorney.

Anonymous said...

Anonymous said...
Thanks for the link to the Public Records.

I could not believe what I found. I know my neighbors were up to something when an appraiser showed up in the spring and a month later they had a new car. Now I know why.

They took out a $40K Heloc to buy it. They also have an 8.5% Arm locked in at $280,000 with the reset date next summer. This is going to be a disaster..

christiangustafson said...

Start selling your stuff!

Sonic Boom in Ballard paid me $286 this weekend for my old CDs. What a great deal! Now they're stocked up on Gary Numan and Kraftwerk for a while.

I'm seeing a lot of garage sales in Ballard/Crown Hill. Empty storefronts on Westlake Ave. The car dealer at Denny & Westlake is having a sale on their stock of used Range Rovers and Jaguars.

I'm sure those are really popular right now. I want a square SUV that barely gets two digits of gas mileage, or an unreliable Jag that looks like a Ford Taurus. Of course!

Lake Hills Renter said...

Those public record sites are great, aren't they? I was very happy to see my landlord has a 30/fixed on the place I'm renting!

Anonymous said...

It has been an eye opener for me as well.
I have been tracking this housing bubble for about two years now and I started viewing loans via the county websites at about that time. It is truly frightening.
All of these suicide loans will end with just that.
The amazing thing is, just when you think you have seen the worst possible loan, then another one comes along that makes your head spin. I have noticed that as this bubble has continued on, the loans have gotten progressively worse. It appears that they are starting to scrape the bottom of the home buyer barrel. I think that by next spring, the Puget Sound market will fully recognize that the toast is burnt.

We came late to the bubble, and given time this bubble would implode on its own. I think that the housing/credit led recession that we will be entering later this year or early next year will indeed put the final fork into it.

It is amazing to watch this all play out. I am most thankful that I am going into this with eyes wide open. So many people are going to be hurt in so many ways. I feel sorry for all the children of all those over extended home owners. They are the ones that will truly suffer.

Crashcadia

Anonymous said...

In Washington State, you can be evicted within 20 days of a trustee sale on a foreclosed property.

That said, you'd have more than 20 days' notice of eviction, because as a resident of the property, you would be contacted prior to a trustee sale.

Anonymous said...

Take a quick look at Craigslist house and apartments for rent, there are more inexpensive rentals than we were seeing 6 months ago.

Even in the north end, it was rare to find decent/modern houses for less than $1/sq ft/month. Now there are quite a few.

I'm not seeing the tightening that the PI does. Maybe because they only looked at buildings with 20+ units.

Anonymous said...

Interesting post on craigs list: http://seattle.craigslist.org/see/trd/199993961.html

ctcbelieve said...

This post relates to the first post in this thread and subsequent comments.

To anonymous who posted a link to the public records site, THANK YOU VERY MUCH!!

To everyone else who replied, thanks for your insight!

I did a little sleuthing around, and thought I would share what I found with the group. Here's a timeline of important events:

- 6/6/2003 Landlord buys property for $237,600 using a $190,080 first deed of trust and a $35,600 second deed of trust (10 year HELOC).
- 4/11/2005 Landlord takes out a $108,600 30 year HELOC
- 9/14/2005 Landlord grants another deed of trust for $314,000. There are subsequent documents that indicate the original $190,080 deed of trust was paid off.

The public records website doesn't have any more recent records. The landlord told us that he was using the equity in his rental home for the down payment on his new place. Zillow values his home at $378,000. So does that mean he could have taken out another $64,000 ($378,000-$314,000) HELOC? If so, then this isn't recorded yet.

A 30 year fixed at 5.96% (latest figures from Bankrate) amortizes to $1875/month, so this roughly corroborates what he told us (that he wanted $1800/month rent). It also would seem to confirm s-crow's hunch that it doesn't include his HELOC. If he took out $50k for a downpayment, that would amortize to $610/month (10 year HELOC at 8.12% - Bankrate).

So if this is true, he's clearly cash-flow negative, and could be in a very difficult situation should he run into any troubles.

To make matters worse, all the documents I reviewed included him and his wife, but she was not there when we visited the house, nor did he ever mention her. So I believe that they recently divorced. So he could be paying alimony on top of everything.

Everything that I've discovered throws up red flags for me. The hard part is that my wife loves the place and really wants to move in.

I hope that my little journey into real estate public records is illuminating to you. It certainly was for me!
ctcbelieve

Anonymous said...

Most often you will find that a divorce will show that there are quit claims deeds filed. Just to be on the safe side, you should run his wife’s records. Then do what I do and search nearby counties. You would be surprised at how many of the specuvestors own properties in other nearby counties as well. There is an enormous amount of speculation going on in the Puget Sound region. It is most prevalent in areas that sport new subdivisions. Take a look in the Pierce County areas of Orting, Sumner, and Bonney Lake. These areas are having rapid expansion and are attracting the first time home buyer and speculators. There are some truly horrifying loans being taken out in these areas.

Crashcadia.

The Dave said...

ctcbelieve...

In the end whatever the landlord is paying for the mortgage is irrelevant. If he were paying $2500 a month would you pay that much in rent?

It is odd that he would even bring up his mortgage unles he is trying to guilt you into paying more than the place is worth or make it seem like you are getting a "deal".

The points brought up about his experience and position are probably more important. Also, if a landlord "includes utilities" it is because he wants them to be in his name and is likely claiming the house as a primary residence for tax as well as loan games. Neither of these are necessarily a problem except that they are an indication that you are deling woth someone shady.

Sounds like this is his first rental and that he is a little stretched. However, if he acts in a professional manner and does not seem to be playing games then you are probably no worse off. You can get equally screwed by a "professional" landlord.

Check him out to make sure it is not an impending disaster and make sure that he is liquid and can keep up with mainteenance but otherwise use your best judgment just as you would with any other rental management company or landlord.

Anonymous said...

I would have to agree with “the dave” and his comments.
From the loan data that you presented, he is not in all that bad of shape. Believe me, I have seen some real bad loans lately and this one is not all that bad in comparison.

The subsequent deed of trusts you speak of in your report on his loans are simply refies.

This landlord is probably thinking that whatever negative cash flow that he incurs will be made up for with an increase in equity. After all, we all know that house values only go up.

It may take years of falling house prices before he realizes that this probably wasn’t the investment he had planned it would be. In any case this does not show the pending doom that I see in so many loans as of late. The ones to watch out for are those that show a clear pattern of suicide loans, coupled with equity extraction, coupled with further investment into high risk properties.

I know a janitor who owns seven properties. All on ARMs and with no money down.

If we all would just become real estate speculators then we would all be rich and no one in this country would ever have to work again. Utopia I tell you.

Crashcadia

Anonymous said...

"If we all would just become real estate speculators then we would all be rich and no one in this country would ever have to work again. Utopia I tell you."

It is so true - this secret idea seems to be suddenly discovered by so many people around me: friends, relatives, co-workers,etc.

Anonymous said...

This is where the media needed to step in and provide balanced reporting. This just will not happen until the real estate advertisement dollar dries up and by that time, the damage has been done. Fortunately for some of us, there is a new media called the blog. This has allowed us to share ideas outside of the Main Stream Media. This site as well as others has been instrumental to my economic well being.

Thank you Tim for this most informative blog site.

Crashcadia

Eleua said...

I think the way it works goes like this:

If the LL sells to another party, the other party assumes the terms of the lease and any other encumberances on the property (unless satisfied by the original LL). IOW, if the property changes hands, you get to stay.

If the property goes to trustee sale, (almost)all of the encumberances get wiped out. That includes a lease.

The people that manage our place have several properties. Some of them pay the entire lease up-front. She told me of some writer that paid $50K for one year in a house. He wrote one check.

Aside from the obvious money management issues, if the LL defaulted, and the house went to trustee sale in 6 months, the dude would be out $25K and would have to resort to recovering the money in court. Fat chance, as many of the FLLs probably have zero net worth.

I don't mind paying quarterly, but that is as much rope I would give my LL.

ctcbelieve said...

Thanks to all for the useful feedback regarding my question. After discussing the things that we learned about our potential landlord and the suggestions given on this forum, we decided not to rent from the landlord. The risk of the closing being delayed was too high as well as the risk that the property could be foreclosed upon.

In response to Mikhail's question, who asked about the legal rights of tenants in a foreclosure situation, RCW 61.24.040(9) implies that the rights of the tenant are subordinate to the trustee. It states:

(9) If the trustee elects to foreclose the interest of any occupant or tenant of property comprised solely of a single-family residence, or a condominium, cooperative, or other dwelling unit in a multiplex or other building containing fewer than five residential units, the following notice shall be included as Part X of the Notice of Trustee's Sale:

X.

NOTICE TO OCCUPANTS OR TENANTS

The purchaser at the trustee's sale is entitled to possession of the property on the 20th day following the sale, as against the grantor under the deed of trust (the owner) and anyone having an interest junior to the deed of trust, including occupants and tenants. After the 20th day following the sale the purchaser has the right to evict occupants and tenants by summary proceedings under the unlawful detainer act, chapter 59.12 RCW.

To me, this clearly implies that a trustee can boot out a tenant under Washington state law.

Good luck to all and thanks Tim for providing this forum!

Eleua said...

Crashcadia,

You should use that name as a Blogger handle. I cannot think of a more appropriate name for a Seattle Bubble poster.

E

Crashcadia said...

eleua,

That sounds like a plan.