San Diego Housing Bubble News and Analysis

Good common sense approach. Unfortunately, too many people refuse to smell the coffee and believe that they are entitled to a large profit. Every month that passes, their properties will be worth less and eventually, they will either give up and stay (if they can afford to) or throw the keys back to the lender.

Smart move on your part.

So you committed loan fraud (gave a kickback of $20,000 to the buyer) to get a deal done. Good job. You should all be proud.

Cash back is legal if it's being done correctly. For instance I agreed to purchase a place at a certain price but want to upgrade the carpet, then the cost for new carpeting could be added to the purchase price. This cost would be held in escrow and will be released to pay for the new carpet installation.
Personally I will not do this, why do I want to make 30 years payment on new carpeting.

wrong thread

Snail -

The point that San Diego was making is that if there is any repatriation of funds between buyer/seller that is done outside of escrow then it is mortgage fraud without question. I could not tell from the original post if that 20k was done in escrow or out of escrow, thus I did not comment.

SD Realtor

The 20k was done within the escrow agreement, all was legal. I am not sure what the person used it for. In hindsight, I am sure they spent it on crap and didn't roll it back into the place. Once again, this was done prior to the recent bubble bomb and before brokers and lenders started to realize there was as much termoil in the industry as originally thought.

When my wife and I left our place, we left flowers and a card welcoming the person to their new home. We even left our phone number so that if they had any questions they could contact us. We never heard from them.

Who knows, the point is: If you want to sell in this market, I believe you have to be willing to stop thinking of your home as an investment or a cash cow. You have to be willing to get out in practical terms. Lowering the price a great deal is practical in many ways.

edit: question answered

done outside of escrow then it is mortgage fraud without question.

SD, is there is anybody that suppose to be somehow investigating this type of funny transaction and make people at least cringe when somebody is asking for this kickback? Is the bank doesn't care anymore?

SD, can people use these kick backs for closing costs?

How is it any different when a developer sells you a house for $600k, gives you 35k in free upgrades and give a broker co-op of 25K? Seems like the same shady kind of wheelin and dealin but on a corporate level.

Please consider these answers I give as speculative and my opinion, not fact. People in the know can correct me if I am wrong.

Lostcat - Your post was a very good example of how to sell and sell fast. I think it was well done and you should be congratulated on the sale. Also I actually read the post and could not tell whether the 20k was done in or out of escrow but because you had a Realtor my guess was that it was done in escrow.

Snail/Lostcat The way the credit is performed will depend on the terminology used in the purchase contract, request for repair, or addendum used to originate the credit. For example, if the terminology used was "seller shall credit buyer for non recurring closing costs" then the credit may ONLY be used for those closing costs that are non recurring. If the credit is not fully consumed then the balance should actually go back to the seller. If the credit was for a request for repairs, then generally the money will be held by escrow and distributed to the contractor used by the buyer to perform the upgrades/repairs.

You guys see what I am saying? The credit is tied to the nomenclature. Now I have read plenty of posts claiming that many a transaction has occurred where a buyer walked away with a huge sum of cash and these claims have been made where this happened through escrow. I am not disputing that this is true or not true. I will say it has never happened in any transaction that I have been involved in. Furthermore I do not believe any lender would have authorized this as well.

Lostcat - First off, you will notice that builder incentive programs ONLY are available if you use the preferred lender. Why is that? Well obviously the builder has worked out a deal with the lender. Think about it, why don't builders allow you to shine the incentives and lower the price? Well because they really really really want to keep the price intact, (and of course they TOTALLY ream you for those supposed upgrades)....So yes it does seem shady and indeed it is... just on another level like you implied. However it is done with the knowledge of the lender. They wash each others hands, capiche?

SD Realtor

I think that (legal) money back at close option is one that buyers like even more then a lower price. I know on my loan, the buyer paid into escrow. This was a mix of cash towards points and the rest in cash to pay for a furnace that was missing and a condemned fire place. The fire place I am fixing myself and I found a furnace on craigslist for free.
Thus, instead of low balling the price dramatically of the home which in the end only changes the payment by a small amount, I closed 5% off the price got 3 points paid by the buyer (13k) which dramatically lowered my payment and 8k cash for repairs that I put in towards my 6 months of reserves.
I spent 3 years waiting to buy our home and once the market started tanking, the homes that allured us the most were the ones with a price about 8% under comps with 20k or so back for one reason or another (i.e. One was a 30 year smokers house)
If I were selling right now and had some margin I would make it the lowest comp in the neighborhood and offer 20k or so in closing incentives. People like cash.

Some of those singing the praises of cash back may be missing the point that it misleads the lender into lending too much. The lender ends up lending money for whatever the buyer wants to spend it on. Loans like that are risky and should bear a higher interest rate. Cash back is a way to get the lender to charge a low-risk rate for a high-risk loan without the lender's knowledge or agreement.

I don't know if it's legal, but I would feel defrauded if I were the lender.

Patient renter in OC

I don't know if it's legal, but I would feel defrauded if I were the lender.

You should feel defrauded, because when the bailouts hit full steam during this election cycle, we will ALL be lenders... =8^O

During the recent Bernanke questioning a senator already pulled the political trump card: "but the children are weeping". I'm pretty sure I heard him mumbling something about rumors that Countrywide printed mortgage applications on the hides of slaughtered baby seals. I figure that once Elton John writes a song about foreclosure families, I'm just going to get it over with and send all my money in to the IRS.

I would agree it is misleading if the lender does not know, but money back for legit repairs has been a part of loans for years (as I remember it can be up to like 10% or something) a loan expert or realtor could answer this (comments?), plus having a seller pay points is totally legit. Basically, having the seller pay your fees is legit money in your pocket and lowers your payment a win/win for buyers. My point then being that money in hand is more attractive to buyers then a lower price, and this string was about the best way to sell a home in this market. As a recent buyer, I felt that this was relevant.

"Being that jerk that I am, my realtor evenutally talked the person up to $435k, which was above my original asking price, but still far below what others were asking in the hood. The property closed escrow for $455k, of which $20k was given back to the buyer."

In this case, the price of the home was raised to cover the $20,000 payment to the Buyer. The Seller didn't make any concessions.

Something was manipulated (appraisal and loan?) to allow the Buyer to get an additional $20,000 from the Lender.

Thanks SD Realtor I've been reading your posts for a long time now. You always have a world of insight into the real issues. Not just bitter responses.

Like I said, in hindsight, I am sure what happened is the broker over charged the person on their closing costs. In other words, the broker probably charged the buyer the $20k to close, in addition to the 2% broker fee. This is probably why the told my realtor that they couldn't afford to go higher than $435 sell price. They knew they could find a comp for $455k at the time, which would result in a huge profit for them to close the deal at the buyers expense.

It's really unfortunate and I hate that I possibly contributed to it looking back. I hope that the industry cleans up and becomes more respected once again.

I was first made aware of this when my neighbor sold his house for "$775,000" 2 years ago. When I saw the comp on MLS, I was thrilled.

I saw my neighbor shortly afterwards and congratulated him on the sale at $775,000. He said to not get too excited because that price included a $50,000 kickback to the Buyer so he only netted $725,000. At the time, he wasn't sure if it was legit or not because the 2 brokers worked it out with the Buyer.

After selling your house, did you end up renting or did you buy another house? My biggest question in this type of market is that for people like me who are still renting, should we "wait it out" for the market to reach its bottom (or at least stabllize) before buying? Thanks!

dingdong if you can hang in there and continue to rent then I would advise to go ahead and keep renting. How long until bottom is the ageless question that has always been the single most discussed question on the board. I think it will take at least a few years until we hit bottom. It doesn't mean you have to wait that long. Complexities such as the value of the dollar, interest rates, and other topics make the amount of money you will save a bit harder of a calculation to make. Conventional wisdom would say that if you can wait, then definitely try to keep waiting.

At least that is what I am trying to do but it is causing alot of stress for my family.

SD Realtor

Wait wait wait. Home ownership doesn't feel any different than renting. O wait, yes it does. You'll have less to spend on fun and your house will never be where you want it. Your wife will start shopping because she wants this and that, etc... and you'll be stuck in front of the TV watching HGTV thinking to yourself what a lie the who concept of fixer upper is.

Rent, enjoy life, save, and just be ready to jump in when you know it is the right time.

"Rent, enjoy life, save, and just be ready to jump in when you know it is the right time."

So lets see... having rented the past 3 years and moved three times because the landlord wanted to sell the home does indeed point out the first and most annoying part of renting. You are not the master of your own home. After the first two moves we stopped hanging pictures because of fear of having to move yet again. We cannot make any major changes to the home we live in. We cannot do any major changes to the landscape or the yard. Our landlord is okay but recently has amnesia about the condition of the home when we moved in. He seems to be in absentia when things like the sprinklers break or the plumbing craps out. Since I do not own it I am not going to pour money into the home for quality fixes.

Now yes we have saved money renting but at $2500 a month rent we have not saved a whopping pile of money. Scripps has depreciated some so that is the only reason I keep doing it. As for the rent, we need a big home with a big yard that is tolerant of animals and such, so our choices were limited. We took it.

I am not saying we are not saving money because we are mostly due to depreciation in the area. I have enough of a dp to buy close to what I want and my mortgage would equal or be a little less then my rent but insurance and property taxes are not included in that calculation. Obviously if you are a single person or a couple it is alot easier to rent then if you have a couple of kids/pets and in laws living with you. My wife doesn't shop because she wants to per your comment above. She runs two businesses and raises two kids and somehow puts up with me. She is pretty much way to busy or tired to shop.

So for certain people or lifestyles, I do not believe renting is the shangri la that the above statement portends it to be. Again, I am not saying go out and buy. I am just saying that at least for us, renting kind of blows.... I do it because I believe I will save money in the long run.

SD Realtor

Are rents over priced too in SD? I wonder if anyone keeps track or if there is a way to keep track of the number of business that leave San Diego and move out of state?

Maybe office vacancy rates in SD would illistrate, indirectly how business are opt to stay out of SD because of high rents and home ownership costs.

SD Realtor, I hear you about the moving of the photos, but I would much rather move pictures from a rent than I would move pictures from a forclosure.

SDRealtor,
That was well said. That is the number one reason to buy now if the time and price is right for you. Your bit about it being hard on your family is exactly the reason we bought. Basically my wife said to me, "I don't want to move again, unless I decide." Thus, my values of having a stable living environment for my family is more important then seeing my home as anymore then a 30 year investment, where I pay it off and then live in it with my wife with no payment until we are old.

dingo, when you move again in five years, because of job, or divorce or whatever; all those nesting instincts will be revisited in a different light. Perspectives change, which is why using economic fundamentals for something as large as a house purchase are so paramount.

Josh