Ensure Smooth Transaction by Protecting Your Credit Identity

He has struck again. As some of you know, an identity thief hit me about three years ago and opened several cell phone accounts in my name. Like many consumers who have been victimized by this ever-growing crime, I didn't know anything about it until I was denied credit with a cell phone company who asked why I needed another cell phone when I already had five open with them. Oh, by the way, you owe us $1,200.

It took a few days to clear up that episode and about a year later, the ID Thief struck again. I was ready that time with alerts set up on my credit reports, requiring any issuer of credit to call my home phone first before approving. That's what happened and we thwarted the attack.

Then last week hit.

Before I go into Part Three of this credit story, let me just reiterate the importance of protecting your credit, first of all, from your own misuse -- too much debt, missing payments, etc. -- but also from those in our society who would lift your identity and mangle your credit as easily as pick up a piece of candy at the corner drug store.

For a detailed step-by-step approach to understanding how ID theft happens and what you can do to protect yourself, let me refer you to the Federal Trade Commission's webpage on this crime.

Here, you'll find a complete guide on how ID Theft happens, and also what to do if you find yourself the victim of ID Theft, including worksheets, phone numbers of the credit bureaus, etc.
For most home purchasers, without good credit, you can't buy a parking spot, much less the home of your dreams. Don't wait until your mortgage application to see if you are who you think you are. The home purchase process is fast paced -- taking weeks, not months to complete. If you wait until you make application to ensure you have clean credit, you may find yourself with an identity mess that takes too long to remedy.

Is it a large problem? The National Criminal Justice Reference Service reported that in 2004, 3.6 million households, representing 3 percent of the households in the United States, discovered that at least one member of the household had been the victim of identity theft during the previous six months. Two-thirds of those households lost money due to the theft at an average loss of $1,290.

This problem's not going away. And as I found, it will probably follow me the rest of my life. In talking these issues over with a fraud representative from one of my credit card companies, he said, "Once you take care of it, they'll stop for a while, then just wait. About a year later, you'll start seeing credit issues again." And that's about how long it took.

What I have found is frightening. Our Social Security numbers area handed around between corporations like a cheap date's phone number. My particular bandit now has my number (where from I have no idea). He had one of my credit cards in his hands that my credit card company had provided him when he convinced them that he was me. Fortunately, the company has a system set up where they notify me by email whenever a change is requested by me. If it's not me -- please call. I did and they cancelled the card.

Here are some items I've been seeing continuing to happen across the credit arena that should change -- if not by corporate self-policing, then by legal edict. Until they do, we consumers are pretty much on our own to protect ourselves.

Medical insurance providers continue to use our SSNs on their member identification cards.
Twice this week, when the credit departments of both Sprint/Nextel and Cingular called me to verify I was requesting more phones, they asked me to "verify" my SSN with them to make sure I was who I said I was.

(Never give your social security number to anyone who has called you. I reprimanded the callers and talked with their managers. Will this change, who knows? Spring/Nextel, Cingular -- wake up, dudes, the credit coffee is spilling over.)

Payroll departments printing your SSN number on your pay stub.

Merchants who have still not converted over to the receipt system that blanks out your credit card number on the stub except for the last four digits.

Companies/agencies/organizations continuing to use the SSN as an identifier. (I gave blood recently and they wanted my SSN. Why? They didn't know, it was just on the form.)

As you invest in real estate, your credit becomes a pivotal part of the plan. Without it protected, you'll not only have credit headaches, you'll be limited in how you can grow your personal wealth. Take notice and take action.

Published: July 14, 2006

Grandpa's Liens Could Cause Bumps in Transaction, Inheritance

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," according to mtgprofessor.com. "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 the real estate pie 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.

www.FindLaw.com provides a more in-depth look at this financial instrument: "[A lien] gives you standing as a creditor to be paid from proceeds if the property is sold or refinanced. Because property to which liens are attached often changes hands or is refinanced, usually a lien will eventually produce enough cash to pay off a judgment, with post-judgment costs and interest."

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.

(This is especially true for investors purchasing a house in foreclosure -- title search done early is imperative.)

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. Again, FindLaw.com warns: "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."

Published: July 7, 2006

Sellers Face Contingent Dilemma

Contingencies in contracts will always exist. It is a rare thing to find a written contract which satisfies both parties right up front without a contingency.

In a sellers market, even if the buyer writes it with no contingencies, the seller will tack on a few of his own -- must find home of choice, comes to mind. Even so, when sellers add contingencies, it's usually only a couple that are easily remedied and which don't cost the buyer much money. When buyers add contingencies, on the other hand, it means the seller may face delayed expenses (such has home inspection defects) or have the chance that the house may not sell at all. Here's what I mean.

A Washington, D.C. area seller writes that he has "drastically lowered" his price, has a great agent and is "very realistic about the market," but that he's turned down two contingent contracts with unrealistic buyers. Having lowered the price to 30 percent below appraised value, the two contracts have both been contingent on the buyer selling his or her home first before completing the sale.

In further discussion, both buyers, according to this seller, are very unrealistic about the value of their own homes, and want to put them on the market way overpriced.
"They think my house is a great deal because I have lowered my price," Tired Seller writes. "Then they write a contract based on the equity they 'assume' they have in their home. They want to list it way overpriced ... . My plan is to just keep lowering the price until it sells. Any advice?"

First of all, if you've already drawn two contracts, then you may have hit the low-enough point. Now, work on the marketing and seller subsidies up front. In addition, before rejecting an offer outright, I would write a counter that the buyer can only list the property for a certain amount. Don't say, "market value price," go ahead and have your agent draw up a comparative market analysis on the buyer's house and base the price on that CMA.

In addition, ask the buyer to follow the same modus operandi you have -- be willing to drop the price every other week until it draws a contract. Write all this verbiage in the "Other Terms" section of the contract. Remember, in real estate everything is negotiable.

When a contract comes through, in a buyers market a seller needs to remember to keep his or her cool. You don't need to roll over a play dead, accepting any terms the buyer offers. Remember, you have a contract in your hand. While the buyers may have dozens of other homes to choose from, they have chosen yours because it obviously fits their housing needs. They also obviously like your price, so now concentrate on the terms. In today's market, if your house is priced right, then you only have to focus on terms to get a winning contract on the board.

The challenge of accepting a contingent contract in many MLS's around the country, is that the status changes from Active to Under Contract/Contingencies. The problem with that is with so many homes on the market, 99 percent of buyer agents search only Active listings for their buyers -- they rarely seek out UC/Contingencies status. Why bother? They are obviously in negotiation with a buyer already.

So switching the status may mean your home lingers toward closing while waiting for the buyers' home to sell. On the other hand, the buyer becomes much more motivated to sell and may be willing to drop the price right away to elicit a quick sale.

The No. 1 contingency in contracts today is the home inspection. Instead of fearing this contingency, the astute seller will conduct his or her own home inspection and fix the problems before the buyer finds something later. Be tough on your own house. If it has an old air conditioner -- have it worked on and serviced. Make sure all the plugs work properly.

If you are a do-it-yourselfer, make sure you have the permits or at least professional inspections necessary to show you did the work right. I've seen sellers redo the plumbing and/or electrical work of the previous owner who was a DIY because they just didn't know it was done wrong.

In other words, the seller who anticipates the challenges from a buyer will be ahead of the game. Don't wait till you "find out" that you have termites -- look it up and uncover the defect before it's a surprise. Be willing to accept contingencies, but also be willing to negotiate to make it work for you as well.

Published: June 30, 2006

Wake Up Buyers -- Deals Abound

It's not a buyers market officially in a lot of areas, but it's now starting to favor buyers after years of transactions where buyers had to escalate prices by the tens of thousands and nix home inspections, appraisals and the like. Thus, my advice to buyers -- get out there and catch a deal while you can.

All the indicators keep pointing to a healthy, vibrant real estate market in most cities around the country. Slowing down, doesn't mean dead, it just means, well, slowing down.
In the last five years, several markets have created an astounding amount of job growth, which is the first indicator and supporter of a robust real estate market. Washington and its Virginia/Maryland suburbs lead the way in the six markets that created more than 100,000 jobs in five years:

Washington DC: 369,000
Miami: 253,000
Phoenix: 221,000
New York: 157,000
Los Angeles: 155,000
Houston: 118,000

Economic forecasters predict that in the next four years, the Washington, D.C. area will create 40 percent more jobs over that period than were created in the last four years. With that kind of growth, why the slow down in the market? It's for a multiple reasons:
Rentals are cheaper than owning. In the markets above, appreciation upwards to 50 percent priced or shocked some buyers out of the market. Thus they turned to renting instead, hoping to wait for the market to slow down or slip back.

"The rental market is very good right now," says Leonard Wood, an apartment and condo builder from Atlanta and chairman of the National Association of Home Builder's Multifamily Leadership Board. In an e-newsletter from NAHB, Mr. Wood said, "Over the past three years, there have been thousands of rental units converted and sold as condos and, at the same time, few new rental apartments were being built. This leaves us with a supply-constrained market while demand is growing."

Rising mortgage interest rates. Part of the economic cool is orchestrated by the Federal Reserve's moves upward on interest rates. A growing economy can turn into an inflationary economy -- which damages buying power for homeowners and consumers of all products alike. Thus interest rates are raised to slow down the economy. As interest rates move up, buyers are edged out of the market.

Consumer confidence. A recent Associated Press report pointed out that consumers are up and down on the economy. "Consumer confidence, which reached a four-year high in April, lost ground in May," AP quoted Lynn Franco, director of the New York-based Conference Board Consumer Research Center. "Apprehension about the short-term outlook for the economy, the labor market and consumers' earning potential has driven the Expectations Index down to levels not seen since the aftermath of the hurricanes last summer."

The challenge for home sellers and buyers is that economic forecasts many times are driven by the "feelings" of people and investors, rather than reality.

Here are the facts: Jobs "grew" last month. The Expectations Index was the second highest ever. Interest rates are still historically the lowest they've ever been. We are nearly at full employment. Fear, many times, drives a market, rather than reality. As a homebuyer looking for a house to live in or as an investment -- look to the facts.

When a market levels or cools -- this is when the smart consumer can really get his or her money's worth. How would you like to buy a house at a 5 or 10 percent discount? It's happening now in markets around the country. Sellers are still mopping up from years of equity growth, but they have to move now and are willing to negotiate downward on their asking prices.

(Sorry sellers, you're not going to like this next paragraph.) Buyers -- name your price. If the asking price is $500,000 -- start at $20,000 or $30,000 below. Start somewhere and get the ball rolling. Then start your list of add ons: home inspection, home warranty, closing costs (some loan programs allow up to 6 percent), and more. Don't be bashful.

My word to the sellers -- don't be offended. If your house has been sitting on the market for 60, 90 or 120 days -- consider that any offer is a good offer. Let the negotiations begin.

Published: June 23, 2006

"Losing" on Real Estate Price a Matter of Perspective

When it comes to pricing your house when you’re ready to sell it, keep in mind you must sell in the market you’re in today. It doesn’t matter what your former neighbor got six months ago, or what properties are listed for now. All that matters is this -- whatever the last sale price in your neighborhood of your model -- that’s probably your sale price now.

When you’re looking at what you’ll gain on the sale of your house, let’s keep it in perspective. If house prices increased year after year at 4 percent per year and then suddenly people were selling their houses for 1 percent less than last year’s asking price, would that be reasonable? If so, then when property is moving up at 20 percent per year for several years and then suddenly you have to sell it for 5 percent less than the prices last year, would that be reasonable? The challenge is when we move from percentages to dollar amounts. If 5 percent represented $5,000, most people wouldn’t blink. It’s when 5 percent represents $25,000 that sellers start to freak.

In the DC area, we were experiencing astounding rates of appreciation as a region, 20 percent from 2004 to 2005 prices. Many homeowners have experienced a doubling in property values over the last five years. The average home price is now about $540,000, according to the local multiple listing system. Now, price appreciation has subsided and is sitting at a mere 5 to 8 percent region wide (depending on where you’re standing). Sounds pretty healthy, still, right? You would think.

However, there are stories from the field on how sellers are defending their prices as if their lives depended on it. While sellers are sitting on hundreds of thousands of dollars of equity, they can’t stand the idea of dropping their price by $25,000 or $50,000 to sell it today. The house that was $260,000 in 1999, is now selling for $569,000 today. But some sellers now want that same type appreciation and can’t imagine selling it for less than $589,000. Bringing it down the $20,000 or $40,000 to sell the property seems, well, just not fair.

What’s even scarier are the agents who are defending their prices in a correcting market. I have to keep in mind that nearly half the agents in the country (as well as here in the Capital region) were not in business five years ago. They’ve just now entered a market where prices have to be corrected, dropped -- improved, as it were.

However, as I talk with agents around the region about their listings, they’ll be the first to let you know, "It won’t sell for what the seller’s asking," but they’re too afraid to tell the seller the sobering news.

The market is like playing Russian roulette. Sometimes you don’t know what you have until you pull the trigger. Somebody needs to blink. Sellers seem to be saying to buyers, "I’ll drop my price, just make an offer." While buyers are blankly replying, "I’ll make an offer, just lower your price."

It’s this stalemate that has played a part in creating an abundant supply of houses on the market in the DC area. We’re talking upwards to 200 percent more homes on the market in any given year-to-year comparison. And, folks, after a dearth of homes in this area, it’s a good thing. Is it affecting prices? Sure thing. Will prices come down? Absolutely. Are sellers going to lose money? Well – in some cases.

For sellers staying in the same area, keep in mind, if you have to drop your price by 5 percent, then the seller of the house you’re buying (usually a lot more expensive) is probably doing to drop the sales price by about the same percentage point. It means that while you may "lose" money on the sale of your home, you’ll more than likely "gain" it on the purchase up.
Keep in mind, the market is the market. When it’s time to buy, buy. When it’s time to move, then sell. Work with the market you’re in, not in the market you wish it would be.

Published: June 16, 2006