Archive for May, 2009

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Mortgage ContractWith the tightening credit standards and increased down payment requirements in today’s mortgage industry, many sellers have become willing to provide financing for prospective buyers via a contract for deed.

In a contract for deed, which is also known as a “land contract”, the seller acts as the bank for the buyer.

All the terms of the “loan”, including interest rate, monthly payments, amortization schedule, length and down payment requirements are negotiable, just as all of the terms of the purchase of the duplex itself are.

While a contract for deed certainly avails a seller of more prospective buyers, it’s crucial that prior to offering it, he know whether or not his mortgage has what’s known as a “due-on-sale clause”, which may also be called an acceleration clause.

When contained in a promissory note, this clause stipulates that the original lender, or bank, may require the entire balance of a loan be paid in full upon the sale or transfer of any interest in the property used to secure the note. (Please know there are some exceptions between spouses, with estates, etc.)

These clauses came into existance in the 1970’s when double-digit interest rates made new loans unattractive. Buyers found if  they assumed a seller’s existing loan, they could usually obtain financing at a greatly reduced interest rate.  To stop this practice (and offer loans at higher interest rates), banks began using the due-on-sale clause.

The truth is, most of today’s mortgages have this language. In fact, in a Fannie Mae or Freddie Mac single family mortgage, for example, it’s usually found in paragraph 17, where it’s called the “Transfer of the Property or a Beneficial Interest in Borrower”.

Uh-oh, right?

Not necessarily.

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Not to be outdone by TMZ, the $8000 tax credit rumor mill is buzzing that the on again off again monetization of the credit for use as a down payment mentioned earlier this month by HUD Secretary Shaun Donovan appears to be on again.

Then again, according to a Wall Street Journal report, the program was nepaparazziver off.  The FHA may well have simply needed to iron out some issues and get White House approval before the program can make its debut. 

Once in place, the Journal anticipates it may take several weeks for the program to become operational.

The plan had been for FHA approved lenders to be authorized to provide bridge loans to first time home buyers secured by the tax credit the buyer will be receiving.

Nonprofit organizations, as well as state and local agencies would also be authorized to provide the loans in the form of a second mortgage secured by the house.

This program would allow people who haven’t owned a home in the last three years to use their anticipated tax credit as a down payment on property. Of course, this “first time home buyer tax credit” extends to any principal place of residence, including duplexes and other multi-family units.

Both the real estate and home building industries believe this initiative would go a long way toward jump starting the housing market.

And you thought government news wasn’t as juicey as Hollywood’s.

Minneapolis Duplex Sales Send Mixed Messages

said on May 26th, 2009 categorized under: Twin Cities Real Est


which way?Which do you want first? The good news? Or the bad?

Chances are you’ve already heard the bad on CNN or MSNBC. The monthly Standard & Poor’s/Case-Shiller National Home Price Index reported national home prices dropped 19.1 percent in the first quarter. In all, home prices have now fallen 32.2 percent since 2006.

It gets worse. Between February and March, Minneapolis posted a drop of 6.1 percent; the biggest monthly drop on record for any of the 20 major metropolitan areas in the index.

But remember, all of this news was for the first quarter. It doesn’t take into account what we’ve seen here since April.

MAAR announced in its weekly activity report this morning that new listings for the week ending May 16 were down 10.2 percent from the same week last year. In all, there are 20.5 percent fewer listings on the market now than there were at this time last year.

Pending sales, meanwhile, eclipsed the 1200 mark for the first time in three years. In fact, the 1,235 sales are up 36.9 percent over the same stretch in 2008.

And the duplex market?

Pending sales continued their strong performance; up 32 percent over last year. Of those properties that received purchase agreements,  82.9 percent were lender owned or mediated. Seventy-seven percent of the transactions for the same week in 2008 involved a bank in the negotiations.

Last week’s euphoria proved short-lived, with the average off market price for 2009 being just $118,156. This figure was far below the average sale price of $145,311 set during the week in 2008.

New listings were down 5.7 percent, however, which should ultimately bode well for future price increases.

Once again, it’s wait and see.


[youtube][/youtube]Real estate isn’t like a Rolling Stones tune.

A seller can’t always get what he wants, or needs, out of the Minneapolis duplex or multi-family property he’s selling.

The market determines the value of investment property; not the amount of capital gains tax a seller may have to pay when he sells, nor the amount of money he’s put into the property.

What contributes to value?

First, duplexes can be difficult to price because there are two distinctly different markets for them: owner-occupants and investors.

For today, I would like to discuss an investor’s perspective.

Unlike single family homes, duplexes are not valued by the amount of finished square feet, nor the numbers of bedrooms or bathrooms.

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HUD Reverses Position On $8000 Duplex Down Payment

said on May 21st, 2009 categorized under: Buying A Duplex


3D?????????Last week, HUD Secretary Shaun Donovan announced a government plan that would allow first time home buyers to use the $8000 tax credit as a down payment via a bridge loan program.

It seems in the days since, HUD has reversed their position, taking the program out of the spotlight entirely.

Apparently there was fear the  proposal was too similar to the now-illegal seller-funded down payment assistance programs like Nehemiah, Genesis and Ameridream. IRS officials also expressed concern that the proposal could complicate tax issues.

Therefore, HUD has withdrawn the proposal.

While this is disappointing to lenders, home builders and Realtors who felt the ability to use the tax credit as a down payment would open the housing market for more first time buyers, I feel that the proposal existed at all is reason for optimism.

The administration clearly understands that while there are qualified first time home buyers ready to jump start the housing market, many are simply short some or all the required money for a down payment.

Simply helping them bridge that gap might be the missing ingredient to get things rolling again.

Stay tuned.


success and victory!!!I was so startled this morning by the figures I was seeing for the Twin Cities duplex market that I almost fell out of my chair. Maybe Minnesota should make seat belts mandatory for office chairs too.

And after carefully recalculating, I think a mandatory helmet law might be a good idea too.

The average off market price for a duplex that received a purchase agreement the week ending May 9, 2009, was $144,238.

For the same week in 2008, the average sale price was $124,195.

That’s an increase of just over $20,000. This is only the second time this has happened in the year I’ve been watching.

It wasn’t just the prices that were up. In all, 40.9 percent more multi-family homes received purchase agreements than did for the same stretch in 2008.

Of these, 86 percent were lender owned or mediated. Sadly, this also represents an increase over last year, when “just” 76.9 percent involved a lender in the negotiations.

New duplex listings were down 19.7 percent from early May last year as well. A shrinking supply of inventory might explain the accelaration of duplex prices, but one week does not constitute a trend.

Over in the single family market, however, an improved pattern is emerging. On average over the last six weeks, more than 1000 purchase agreements have been signed a week; with numbers increasing over the week before in each.

In fact, the 1,185 pending sales for the week were 26.6 percent higher than the same week last year.

Of course, in this market, there are still obstacles worthy of protective gear.

Sales over $190,000 are down 19.2 percent from last year.

Over the last three months, sales of homes that are not lender mediated are down 17.6 percent from 2008.

And, as we keep hearing in the media, sales of new construction homes have dropped 16.8 percent from a year ago.

Perhaps a flak jacket is also in order…


HUD Secretary Shaun Donovan

HUD Secretary Shaun Donovan

Remember when Congress abolished seller down payment assistance programs like Nehemiah and Ameridream last fall?

At the time, many Realtors saw the move, however well-intentioned, as disastrous to the housing market. See, while there are, believe it or not, many first time home buyers with excellent credit, they haven’t all saved quite enough for the FHA‘s required 3.5 percent down payment.

What’s more, one of the most traditional sources of down payment assistance; mom and dad’s 401(k), isn’t as plentiful as it once was.

Well, in an address to several thousand Realtors earlier this week, HUD Secretary Shaun Donavan said the Federal Housing Administration is going to allow its lenders to allow homeowners to use the $8000 first time home buyer tax creditas a downpayment.

Donovan said the change will help consumers buy a home.  According to the plan, the FHA’s approved lenders will be permitted to “monetize” the tax credit through short-term bridge loans. Via this mechanism, eligible home buyers will be able to access the funds immediately at the closing table.

The change had been called for by the National Association of Realtors.

Details of how all of this would work haven’t been announced.

Does A Bad Appraisal Equal A Bad Investment?

said on May 14th, 2009 categorized under: Financing


Hand mit Stift macht Häkchen auf einem KlemmbrettIs a duplex a bad investment if it doesn’t appraise for the price listed on a purchase agreement?

It depends on whether you’re the buyer or the seller.

With a flood of foreclosure properties dragging down property values overall, it isn’t altogether uncommon for a property not to appraise.

Even if many of these duplexes are selling for comparable prices to the one you’re buying, they may not be able to be used as comps; simply because they don’t have a recent rental history for an appraiser to use in an Income Approach to valuation.

So what happens when the property doesn’t appraise?

There are several possibilities.

First, the seller could reduce his price to reflect the value determined by the appraiser. Of course, this would benefit the buyer greatly.

The buyer or seller could also order another appraisal to disprove the first.

However, if the buyer intended to use FHA financing, there’s a problem. FHA appraisals now essentially follow a property for six months. So, even if another buyer comes along to purchase the property, there  is a record of the previous appraisal, which will prevent her from agreeing to a higher price.

On the other hand, if the buyer was using conventional financing with a 20-25 percent or more down payment, the low appraisal does not “follow” the property. In many cases, the lender, loan officer and Realtors involved may attempt to work with the appraiser to re-examine the value by providing additional comps.

If the value doesn’t change, the original lender may be unwilling to finance the purchase.

This does not prevent the buyer from ordering another appraisal, using a different lender, which may result in a more favorable outcome.

Of course, both the buyer and seller also have the option of simply walking away from the transaction.

Does the low appraisal mean the duplex is a bad investment?

As always, if the numbers work, and are in keeping with the buyer or seller’s financial goals, no.

Minneapolis Duplex Market No Longer In Park

said on May 12th, 2009 categorized under: Twin Cities Real Est


Parking lotThere seem to be a lot more cars in the parking lot of my office late at night these days.

And the Weekly Market Activity Report from MAAR explains why.

Sales of single family homes for the week ending May 2 were up 26.3 percent over last year at this time. Active listings are down 19.5 percent from last year, which is contributing to the 24.5 percent drop in Months Supply of Inventory over the past year.

In the duplex market, there continues to be increased activity.  The number of properties that received purchase agreements for the week was up 43.75 percent over the same stretch in 2008.  Bank owned properties comprised 93.4 percent of the week’s pended properties, up just 2.78 percent over last year.

What may well be the most encouraging sign of all, however, is this year’s average off-market price was$102,556; just slightly below the average sales price for the period in 2008 of $105,050.

The amount of new inventory continued to shrink as well, with 62 new listings entering the market. This is down 23.5 percent from last year’s mark.  Perhaps best of all, the week’s new inventory consisted of  just 62.9 percent lender owned or mediated duplexes.

If the trends continue, I may find myself fighting for a parking space.

Minneapolis Requires Owners to License Relatives

said on May 11th, 2009 categorized under: Legal Stuff


A family photo near house. Isolated on a white background.The Minneapolis Star Tribune reported last week that the city of Minneapolis has changed the rules for “relative homesteading”.

Relative homesteading is when an individual owns a second home, and allows a relative to live there, rent free. This helped the property owner qualify for owner-occupied property tax status, and, until now, avoid paying a $65 rental license fee and the avoid the required city inspections for rental property.

A 2008 change in state law requires a property to be registered with the city if the owner receives any kind of compensation for allowing occupancy of any part of the property.

Compensation does not have to be in the form of rent. It may be as simple as the relative living there maintaining the property in lieu of rent.

As a result of the new statute, the City of Minneapolis’ Inspections Department decided to require all single-family relative homesteaded properties to get licensed. This was done with a goal of increasing the safety of these properties through inspections.

The new rule doesn’t apply to small multi-family properties like duplexes and triplexes.

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