Author: ft Editorial Staff

Reinstatement and redemption periods during foreclosure

This article reviews the time periods for curing delinquencies on a real estate loan and when the loan must be paid in full.  Recession-induced defaults  A government declared recession (two quarters of declining gross domestic product) has become a period commencing roughly 24 to 36 months into a regime of a continuous incremental rise in short-term rates orchestrated by the Federal Reserve (Fed). August of 2004 (and of 1988 and 1999) saw the planting of the first seeds of one such possible recession when the Fed started the continuous periodic bidding up of short-term rates. Thus, the Fed deliberately engineered a pace of slower growth for the economy; a deceleration of economic activity — the sales of real estate.  The rise in short-term rates until they exceed the long-term rates is designed to reduce the long-term growth of price inflation in, among other things, real estate assets. In a word, the real estate boom was over as of August 2005, commencing a recognition of the plight of those who acquired real estate during the boom and were now unable to unload it for the price they paid.  Flipping property within six months of purchase and seeking a profit based solely on an inflating market had run its course, a sort of nation-wide Ponzi scheme fed primarily by home builders and Wall Street bankers. The process will occur again following...

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Recovery of residential turnover costs

This article reviews how rent is a residential landlord’s sole source for funds to pay for tenant turnover costs. The security deposit plays no role The landlord of an apartment complex is determined to reduce or offset the costs of tenant turnover by shifting the costs directly to the tenants. An increasing number of his tenants are staying for ever shorter periods of time. On vacating, the units are re-renting quickly at competitive rates, keeping lost rent due to “turn-around” at a minimum. However, each tenant turnover of a unit requires expenditures for: refurbishing the unit to eliminate the cumulative effect of normal wear and tear, such as painting the walls, deep-cleaning the carpet and dry-cleaning the drapery; advertising the unit’s availability to locate a tenant; time and effort spent showing the unit and clearing prospective tenants; and the property manager’s tenant-origination fee. Since the rate of tenant turnovers is exceeding normal expectations, the landlord’s net operating income (NOI) is being reduced by what has become excessive refurbishing and reletting costs. [See first tuesday Form 352] From the landlord’s point of view, the NOI consists of the remaining amounts of rental income generated by the property which remain after deducting expenses incurred to operate the property — prior to deductions for interest paid on purchase and improvement loans, principal reduction on the loans and depreciation. The landlord is concerned...

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December 2007 Supreme Court Watch

Supreme Court Watch This monthly update presents real estate related issues pending before the United States and California Supreme Courts. Cases are listed by subject matter. Cases with opinions issued by a lower court and accepted by the United States or California Supreme Court are located in the “Recent Case Decisions.” Cases currently under review and pending before the United States or California Supreme Court are not citable illustrations of law. An asterisk (*) indicates cases added since our prior issue. United States Supreme Court Government Property BP America Production Co. v. Watson (No. 05-669) – Whether a statute of limitations period applies to federal agency orders demanding the payment of money claimed by the agency under a lease agreement. California Supreme Court Construction Crawford v. Weather Shield Mfg., Inc. (S141541) – Whether a subcontractor can agree with a general contractor to defend the general contractor in lawsuits arising out of the negligence of others. Contracts Edwards v. Arthur Andersen LLP (S147190) – Whether all employee non-competition provisions in employment agreements are unenforceable or only those employee non-competition provisions which prevent an employee’s pursuit of a lawful trade or business on termination of the employee. Sterling v. Taylor (S121676) – Whether oral evidence can be used to clarify the ambiguities in a written agreement to provide the terms needed for an enforceable agreement. County Ordinance Application Travis v. County...

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Assigning your purchase rights

This article reviews the assignment of the investor’s purchase rights held in a property to a substitute buyer, be it an investment group or a resale buyer on a flip. Syndicating or flipping a property An enterprising, but undercapitalized, equity purchase (EP) investor thoroughly investigates a residence in foreclosure. He is ready to make an offer to purchase the property from the owner- occupant. However, the investor is not financially capable, or does not want to purchase, rehabilitate and carry the property by himself. Accordingly, the investor will sell or exchange his purchase rights to: a buyer who will pay cash to acquire the EP investor’s purchase rights, becoming the substitute buyer — an activity called flipping; or a group of cash investors who will join with the EP investor to form an LLC and fund the purchase price and carrying costs of ownership — called syndication. In the case of a resale to a buyer other than his investment group, the investor will either: assign his right to purchase the real estate to a substitute buyer and escrow will close in the name of the substitute buyer; or resell the property through a separate purchase agreement escrow instructions to close concurrent with the closing of the EP investor’s original purchase escrow. The “initial” buyer Acting as an individual, the investor contracts to purchase the residence by entering into...

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November 2007 Legislative Watch

Recorded documents determine date a lien expires Amended by SB 2624: Civil Code §882.020 Unless the recorded document that creates a lien on real property to secure a debt expires earlier, the lien expires and is no longer enforceable by any means after the later of the following times: if the final maturity date can be ascertained from the recorded document, ten years after that date; or if the final maturity date cannot be ascertained from the recorded document or if there is no final maturity date, 60 years after the date the document was recorded. Prohibited fees in sale of defaulted common interest development (CID) Amended by SB 2624: Civil Code §1367.1 A trustee foreclosing an owner’s separate interest in a common interest (CID) development cannot charge fees exceeding statutory limits plus the cost of service for either of the following: the notice of default to the owner’s legal representative; or the decision of the board of directors of the association to foreclose upon the separate interest of an owner by giving notice by personal service if the owner occupies the property or by mail if the owner does not occupy the property. The owner’s legal representative is the person whose name appears as the owner of the separate interest in the association’s records, unless the owner has designated another person as his legal representative in writing and...

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Zestimates are great conversation starters with sellers and buyers. Zillow has done more for our bottom line than NAR ever has or will. Don’t fight the current of the river, learn to run with it. Disruption is inevitable in any industry that is fragmented or inefficient. Granted, it does feel like armchair experts and platforms are plentiful in real estate these days, but when the tide rolls out we will see the value proposition of the truest professionals in this industry shine once again.

Justin Bonney, on Zillow’s impact on the real estate industry

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