Author: ft Editorial Staff

Evaluating the carryback note

This article presents reasons why investors purchase trust deed notes at a discount and the calculations used to produce a desired yield.   Economic factors in a discount A trust deed investor, after investigating the real estate securing a trust deed note and before preparing an offer to purchase the note, must calculate the discount necessary to set the price he is willing to pay to buy the note. Most trust deed notes available to be purchased by trust deed investors are carryback notes created on the sale of real estate and junior in priority to an existing first trust deed. As carryback paper, a second trust deed note will most likely be sold at a discount. A discount on the sale of a carryback note will be demanded by investors to deliver the investor a market-level yield, since carryback paper usually: bears interest at a below private-money market rate; has low periodic payments on a long amortization period; and has a medium- or long-term due date. The market rate of interest sought by investors in second trust deeds is influenced by the risks of loss and management inherent in a second trust deed investment. The short-term rates, influenced by the federal rate, and long-term mortgage rates, influenced by prospective inflation, are not the basis for rates charged by second trust deed investors. They are not concerned about either...

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Purchaser’s lien

This article discusses a buyer’s use of a purchaser’s lien to enforce a return of monies paid toward the purchase price when a seller breaches a purchase agreement. Statutory lien against the seller’s property A real estate broker employed by a seller misrepresents to a prospective buyer the construction (replacement) costs of a building located on a parcel of real estate. The representations result in the buyer and seller entering into a purchase agreement. The buyer makes the agreed-to down payment on the purchase price and escrow closes. After closing, the buyer constructs further improvements on the property and pays taxes and insurance premiums. Later, the buyer learns the broker misrepresented the costs incurred by the seller to construct the improvements. Demand is made on the seller to return all monies the buyer paid on the purchase price, the cost of the additional improvements and the taxes and insurance premiums, called rescission. The buyer will return the real estate to the seller, called restoration. Does the buyer have a remedy against the seller to recover the payments made toward the purchase price and the expenses related to the property? Yes! The buyer is entitled to a purchaser’s lien which he can foreclose on the property being reconveyed to the seller. The lien is for the amount of payments made on the purchase price, plus expenditures made to improve the...

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Form 310 – Seller’s net sheet

This article reviews the listing agent’s use of a checklist to prepare an estimate and disclose the expenses a seller will likely incur to fix up the property for marketing, provide reports to prospective buyers and close a sale. A full copy of the form is available form-310.pdf so you can follow along with the instructions. Financial consequences of a sale Probably the most pressing concern sellers of real estate have about selling is the amount of money they will receive for their property on a sale since what sellers receive on closing is not the full amount of the purchase price, although the amount they will receive is a calculable part of the price. While a seller may not straight out ask the listing agent what amount escrow will hand him in exchange for conveying his property to a buyer, the serious nature of the unspoken concern the seller has about the amount of money he will carry away from the closing is implicit. Sellers always want to know the amount of money they will actually receive as net sales proceeds for transferring ownership. The sole reason for employing an agent is to convert the seller’s equity into cash by selling the property at the highest possible price. Significantly, a seller on listing his property for sale has a motive which drives his decision to acquire cash, if...

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Home Mortgage Disclosure Act

This article discusses the prevention of lender discrimination under federal law. Lenders release home loan data The federal Home Mortgage Disclosure Act (HMDA) seeks to prevent lending discrimination and unlawful redlining practices on residential loans or home improvement loans by requiring lenders to disclose home loan origination information to the public. [Department of Housing and Urban Development Mortgagee Letter 94-22] State and federally regulated banks, and persons engaged in the business of making home loans for profit, are required by the HMDA to compile home loan origination data for submission to their respective supervisory agencies. [12 United States Code §§2802; 2803; Calif. Health and Safety Code §35816] Completed loan applications and loan originations to finance the purchase, construction, improvement of the loan applicant’s home or to refinance an existing home loan are considered home loan originations. [12 USC §2803(a)] Federal disclosure requirements For lenders with total assets of more than $28 million and for-profit mortgage lenders with total assets of more than $10 million, the lender is required to compile data and make it available to the public. The data will include: the type and purpose of the loan; the owner-occupancy status of the real estate securing the loan; the amount of the loan; the action taken by the lender on the application; the sex and race or national origin of the loan applicant; and the income of the...

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The home inspection report

This article introduces the seller’s and listing agent’s use of a home inspection report to document the present physical condition of the listed property for prospective buyers. Transparency by design A seller of a one-to-four unit residential property, on entering into a listing to sell the property, is asked to give the listing agent authority to order out a home inspection report (HIR) from a local home inspection company as part of the seller’s cost to market the property for sale. The listing agent explains the HIR will be used to complete the seller’s Condition of Property (Transfer) Disclosure Statement (TDS). The report will then be attached to the seller’s TDS to more fully inform prospective buyers about the actual condition of the property. On receipt of the report, the seller could act to eliminate some or all of the deficiencies noted in the home inspection report. On the elimination of any defects, an updated report should be ordered out for use with the TDS. The seller’s TDS, as reviewed by the listing agent and supplemented with the HIR, will be used to inform prospective buyers about the precise condition of the property before they make an offer to purchase. Thus, the seller will not be confronted later with demands to correct defects or to adjust the sales price in order to close escrow. The property will have been...

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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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