Charm City Baltimore Real Estate: Baltimore, Maryland Real Estate & Homes

Refinancing? Taking out a home equity line?

Both of these are fantastic ways of capitalizing on today’s very low interest rates, and the fact that major banks are beginning to loosen the credit strings a little bit. But, as a consumer, one of the things to which you need to pay close attention is that these loans actually die when they are paid off. Otherwise they can rise from the dead, like a bad Halloween movie character, to wreak havoc on your future happiness! <Insert evil laugh here.>

I recently represented a Seller who had refinanced more than ten years ago. When it came time to sit down at the settlement table to sell this house, the title company confirmed that the old loan, which he thought had been paid off more than ten years earlier, had never been recorded as paid.

This is probably more common than you would think. This client had let the new lender pay for the costs of refinancing – like most people would – and the title company they used had neglected to follow through on recording the payoff of the first loan. So, it should be easy to go back to that lender and that title company and get proof of the payoff, right?

Wrong. In the intervening decade the housing crash had taken place. Both the lender and the title company were no longer in business. A new lender had bought out the old one, but they had moved all these old files into “deep storage” and they said it would take two months to retrieve the file. The house was supposed to change hands in two weeks. Obviously, this was a nightmare to rival any Halloween scary tale!

Likewise, most home equity lines do not go away when the balance is zero. The line of credit remains open, even if unused. That often shows up as a lien on the property that has to be satisfied before the property can change hands. This also can be an unwelcome surprise right before settlement.

So, when you sit down to refinance your loan or write that last check to pay off the home equity loan, think about these zombie stories and take care to 1. Ask the title company to send you confirmation that the loan payoff has been recorded, and keep on them until they do, or 2. Write a letter to the bank to accompany the equity line payoff and ask them to close the loan. Follow up with them to make sure it gets done.

If you plan on selling your home and have also refinanced in the pre-housing crash days, it wouldn’t hurt to be pro-active and follow up with the title company who conducted the refinance and make sure that the old loan payoff was recorded.

This way, no old loan zombie will ever rise up on a dark and stormy night to threaten your future happiness!

Its late Spring-early Summer, the beginning of Damp Basement Season, the homeowner’s nightmare. There’s no greater issue in real estate than water penetration into the house, usually the basement level, and what to do about it. When I bought my own house, the previous owner had installed a perimeter drain and two sump pumps, so I thought any water issues had been dealt with. But they did not keep my basement from looking like the Lower Branch of the Patapsco after the first summer thunderstorm.

Until about 60 years ago, basements were not generally considered living spaces suitable for finishing off with drywall and carpet. Old foundations, whether brick or stone or even block, naturally allow a certain amount of moisture to get through. In the older neighborhoods of Baltimore, cellars or crawlspaces have dirt floors. The vast majority of Baltimore’s housing stock was built BEMC (Before the Era of Man Cave). So whether you are looking for a home, have just bought one, or are thinking of selling, you most likely will be dealing with water issues at some point.

Here are a couple of things to look for so that you can catch problems when things are dry, before that hurricane-driven downpour builds a close relationship between you and your wetvac.

1. Look at the guttering and downspouts. Are they clean? Clogged gutters fill and overflow before they can move the water to the downspout, bringing water right next to the foundation wall. Can you see where the rainwater goes once it leaves the roof? In some areas the original builders put underground rainwater drain lines to the curb, so the downspouts may empty directly into a pipe opening right next to the house. This may have been a great idea when everything was new, but if the house is 30 years old or more, that underground drain has almost certainly become blocked, either by tree roots (and the tree could be long gone) or the drain pipe has collapsed with age and deterioration.

In years past, some builders in this area routed rainwater from rear roof gutters back into the house through pipes that connected to the main sewer line. This was an issue in my basement, because during a subsequent renovation one of those drain lines was cut off and the back gutter was emptying into a drain that went nowhere. That water had no place to go, except to bubble over and go into the ground right beside the foundation wall and then onto my basement floor.

They may not be pretty, but plastic downspout extenders that carry rainwater at least three or four feet from the foundation are the best, inexpensive, foolproof method of making sure none of that rainwater comes back in through the foundation walls.

2. Is the yard landscaped and graded to carry water away from the house? It does no good to evacuate the water four feet away from the foundation if the yard slopes and brings it all right back. That is especially true around old window wells. Old homes tend to have window wells made from brick, where both brick and mortar have cracked and now allow every drop of water to come through and have free entry right back to the foundation wall. Putting fancy coverings over the window well will do no good if the earth around it funnels every drop right back to the house.

If you can manage these rainwater issues before it penetrates the foundation, you will solve a majority of your wet basement problems. After removing my front downspouts from the old underground drains and extending them away from the foundation, discovering and dealing with the cut off drain line in back, regrading around one problem window well, and replacing one downspout with a larger version to carry off more water, the basement of my 90-year-old-home has been dry for over a decade. And as far as I know, those sump pumps STILL have never been used.

Rain water penetration is not the only source of wet basements, however. Homes have sometimes been built in areas where the ground water level is unusually high, and basements can be damp without a heavy rain to blame. This water wells up from beneath the house and finds its way through the base of foundation walls. This type of problem requires the services of your local waterproofing company. The perimeter drains and sump pumps they install will collect water below the level of the current floor and prevent the water intrusion from happening in the first place. Then it can be pumped away from the house where it will be harmless. Disclosure of such a condition by an honest Seller is the best way to make sure that a Buyer is aware of such a condition, since the water table rises and falls over time depending upon long term weather trends.

As we head into spring, there’s some great news brewing in the housing market. But, don’t take my word for it, here’s what other news sources have to say.

First, the RE/MAX National Housing Report for March put it best:  “For the first time in 18 months, home prices in February rose higher… Prices in the 53 cities surveyed by the RE/MAX National Housing Report rose by 1.1% over February 2011. Home sales were even higher, up 8.7% from one year ago. With a positive sales trend of 8 straight months above the previous year, it’s looking like 2012 will witness a very strong home-selling season.”

That should be enough reason to set off some fireworks. But, there’s more. The Huffington Post uploaded an article on the housing market in early April under the headline, “Renting a Home Costs 15 Percent More Than Buying One.” That turns common wisdom on its head, since historically renting a home has been as much as 10 percent cheaper than owning one.

Not anymore. Because of very low vacancy rates — at a ten year low — rental rates have skyrocketed. In fact, a recent report by the National Low Income Housing Coalition found that it would take a minimum wage worker 100 hours of work per week just to afford rent. Even the average American renter, making a little over $14 per hour, needs a 29 percent raise to be able to afford an average apartment and have enough money left over for other expenses. Ready to ask your boss for a 29% raise?

With mortgage rates still very low for qualified buyers, its clearly time to buy. The website rentorbuybaltimore.com recently compared the costs of buying a $200,000 home against renting a $2,000 per month apartment — not uncommon these days in the harbor neighborhoods. The results, according to a New York Times calculator, showed that after just two years buying was better than renting. After five years, buying that home saved nearly $64,000 over renting.

Buyers are returning to the Baltimore area home market in droves this spring. There are even multiple offers coming in on desirable homes. If you were waiting for signs that the housing crash was over, then this is your time.

While the market has been flooded with good news in the last few weeks, an end of the year reflection still shows we have lots of work to do in the new year.

For a transcript of this podcast, please email me at .

As we begin the last month of the year, I wanted to review where we stand in the real estate world, both nationally and in Maryland. 2010 will be a critical year for many of us, not only for those involved with property, but for the economy in general.

We’re certainly better off in this holiday season than we were a year ago. At the end of 2008 the country felt like a roller coaster car speeding down the tallest slope with no brake and nobody at the switch. Right now, 2009 looks like the turning point, with the economy beginning its long climb up the next hill, real estate stabilizing and just in need of a little push to get back on the track. But there are several issues looming for next year which will really determine how things go for the forseeable future. Here are a few lumps of coal for your stocking:

• A recent Washington Post article quoted a national survey by the Mortgage Bankers Association which found that more than 14 percent of borrowers were in trouble on their mortgage. That translates into 7.4 million households either currently delinquent or in the foreclosure process, the highest level this particular survey has ever recorded. That means we have not seen the peak of foreclosures — and with unemployment continuing to rise the numbers will only get worse.
• The Baltimore Sun, again using information from the Mortgage Bankers Association, reported that in Maryland roughly 10 percent of homeowners deemed good credit risks were in trouble with their mortgage. We’re not talking subprime mortgages here, the widely known source of the financial troubles, but prime borrowers. Again, blame rising unemployment which has destabilized the family budgets of people who have had a history of prudent financial management. In round numbers, this adds 77,000 homeowners to the list of those at least one month behind on their payments.
• Recent widely reported gains in regional home sales and a decrease in the housing inventory seems to be coming from short sales and foreclosures going under contract (and not necessarily going to settlement). From my anecdotal sources, traffic on regular owner-occupied listings — where a bank is not involved — is practically non-existent. This means that unless you’re in distress and buyers smell blood, they aren’t interested in seeing your listing. And, as we saw in the last item, there could be 77,000 more properties on that distressed list that we have to work through next spring.
• Most of our buyers, especially first time homebuyers,  in the last year have used FHA loans because they had the least stringent requirements for credit score and money down, and allowed more generous assistance from Sellers. So while the extension of the tax credits until the end of June, 2010 is a wonderful thing, it seems to be coming with a simultaneous tightening of credit from the FHA. The Washington Post reports that new FHA guidelines currently under development will raise the amount of money required from buyers — from 3.5% of the purchase price to 5% of purchase price — while cutting the allowed Seller contribution in half (from 6% to 3%). Not only will this shrink the pool of qualified buyers considerably, the FHA will also raise the capitalization required from lenders who issue FHA insured loans — a move that will most likely cut the number of loans available, if not the number of lenders who will consider issuing them.

Certainly the situation in residential real estate is worrysome as we head into the new year. But it might not be the most dangerous. Many experts are warning that the biggest problem looming on the horizon is in the commercial real estate market, as last week’s potential meltdown at Dubai World illustrated. While that particular sovereign wealth fund made European markets tremble, and we were told that the US market has little exposure to it, there are enough potential problems here at home to make us weak in the knees. Moody’s Investor Services reported last week that it expects the value of US commercial real estate to continue to fall well into 2011. This is on top of losses in this sector which have already totalled 42.9% since the peak in 2007. The total devaluation from the peak may well reach 55% before things begin to turn around.

The determining factor in these losses? Yep, you guessed it… unemployment. With fewer people working, office spaces and commercial spaces don’t need to be as big. Demand for office buildings drops, and fewer companies are growing and demanding more space from their landlords. Also, with more people encouraged to buy homes and get their tax credit, demand for multifamily rental units has also dropped, hurting landlords’ cash flow and making it more difficult for them to keep up on their mortgages.

Now, with all this coal in your stocking, remember you can’t really burn it anymore to lower your heating bills. Global warming, you know. Ho, ho, ho.

The dog days are done. All of us who make a living in real estate are anticipating the Fall Market, and hoping that there will be one. We’ve had a nice run of very positive sales figures in the last few weeks. How much of that will continue into the Fall? How much of the activity we have seen is due to the Obama Administration’s $8,000 tax credit for first time buyers? There are many unanswered questions as we look toward the end of the year.

Most writers and colleagues are unanimous that the tax credit should be at least extended past its current expiration date at the end of November. Some go so far as to advocate for broadening it to all buyers, not just first timers.

For Baltimore, a recent trade article regarding commercial property was ominous. Baltimore was listed as one of the ten most likely markets to see a second meltdown in commercial real estate because of rising vacancy rates and more inventory, without a pickup in accompanying economic activity. As September arrives, we have many questions and concerns for Autumn. Let’s cross our fingers and hope that things go better than the doomsayers expect.

A recent Viewpoint essay by Keith Losoya and Paul Warren in the Baltimore Sun have brought to light and incredible and outrageous fact: “Baltimore is one of only three large cities in the United States where the disparity between residential and business property taxes is so great the homeowners are, in effect, subsidizing commercial enterprises.”

The real estate industry has been warning the government of Baltimore City for nearly a decade that the city’s rebirth, growth, redevelopment and repopulation are seriously jeopardized by the enormous difference in property taxes between the city and the surrounding county. City residential property taxes MUST be lowered, substantially, in order to bring residents back from the suburbs and keep the new residents within the city limits.

But this revelation — that they COULD be substantially lower if commercial property taxes were brought more into parity — is especially galling. The Sun opinion piece used three adjacent rowhouses on Park Avenue in Mt. Vernon as an example. These three houses were constructed simultaneously and have significant interior space. One is residential condos, valued together at $830,000 for tax purposes. The next two are residential rental apartments. So on the surface, you’d think that they should have similar values. Yet one is valued at $309,100 and the other is valued at $231,800. No where close.

Now, I know that rental apartments are probably not in as good condition as a renovated, condo conversion. But certainly those buildings in their current situation are worth more than THAT. The authors of the essay have researched the disparity and estimated that in the last six months of 2007, the “average underassessment” of 118 commercial properties that changed hands was over 23%, which would add up to nearly $75 million that the city is NOT getting. That’s only on 118 properties!

The Mayor may not be in a political position to piss off the commercial property owners given her own troubles right now, but certainly the citizens and the City Council should take note of this and demand action to take the political heat and spread it around a bit. Otherwise the citizens would be justified in rising up to force the issue.