Tuesday, December 30, 2008
Good News for Buyers
Not such good news for sellers, but CNN reports a record 18% drop in home prices over the last year: http://money.cnn.com/2008/12/30/real_estate/October_Case_Shiller/?postversion=2008123009. Prices are down, interest rates are at their lowest level in 37 years... what better market conditions could exist for a potential buyer? If you have been thinking about a new home purchase, this is a great time for you, especially if you don't have a property to sell. So go ahead, do your part to give our ailing economy a shot in the arm. It's patriotic!
One Story that Explains The Mortgage Crisis
Thanks to my assistant, Lynna Henderson, for pointing me to the attached article in the International Herald Tribune recounting the activities of Washington Mutual over a several year period. Amazing stuff! http://www.iht.com/articles/2008/12/28/business/wamu.php?page=1
Wednesday, December 24, 2008
More on the refinance craze...
CNN reports a frenzy of refinancings! Should you join in? Read this special report at CNNMoney.com: http://money.cnn.com/2008/12/24/real_estate/when_to_refi/?postversion=2008122414.
Estate Planning for Pets
It might sound crazy to some, but more and more people are including provisions for their pets in their estate plans. While it is certainly possible to make informal arrangements with a loved one to adopt your pets in the event of your demise, many are opting to formalize those arrangements in written legal documents. Pets play a very significant role in the lives of many individuals, so it only makes sense that they would want to be sure that their pets are properly cared for after their death. Being the owner of two dogs, two cats, two hamsters and a Russian tortoise (who will no doubt outlive not only me but my teenage daughter, its owner, as well), I certainly understand the importance of pets to a person and a family. So how do we ensure the proper care of your beloved animals after you are gone?
Legally, a pet is considered tangible personal property which will pass according to your Will. An important consideration is the selection and designation in your Will of an appropriate beneficiary/caretaker for your pet. It is also wise to name at least one alternate caretaker in the event that your first choice is unable to serve for the duration of the pet’s life.
You may also wish to provide a source of funds to the caretaker to cover the costs of your pet’s care. In estimating the correct amount, you should consider your own annual costs for food, veterinary care, grooming, supplies, boarding and the like, in relation to the pet’s probable life expectancy. You might choose to make a conditional or unconditional outright gift of that amount to your pet’s caretaker, or you might prefer to protect those funds by the establishment of a trust for that purpose. Leona Helmsley aside, while some states do permit the pet itself to be named as beneficiary of such a trust, in Massachusetts the beneficiary of such trust must be a human. The actual structure and terms of the trust, and the named trustee and beneficiary, would be determined based on a variety of factors to be considered as part of discussing your overall estate plan.
Short of your death, another concern is your pet’s fate if you become incapacitated. The inclusion of provisions for your pet’s care in a comprehensive Durable Power of Attorney would address that circumstance and ensure that your pet will be properly looked after if you are unable to care for your pet yourself.
If you are a pet owner and already have estate planning documents which do not address these issues, it may be time for an update. If you have not yet gotten around to putting your estate plan into place, the resolution to do so is a great way to begin the new year, whether or not you are a pet owner.
Wishing all a jolly Christmas/Hanukkah/Kwaanza/Festivus/General Relaxation Day!
Friday, December 19, 2008
Yes, Virginia, it IS time to refinance
In the wake of the Federal Reserve's latest interest rate cut this week, home mortgage interest rates are at their lowest level in at least 37 years. Now most certainly is the time to refinance your adjustable rate mortgage into a thirty-year fixed rate product, or to refinance to reduce your current fixed rate and lower your monthly payments. Read more about this in today's Washington Post, http://www.washingtonpost.com/wp-dyn/content/article/2008/12/18/AR2008121803532.html. So delay no more! You will reap the benefit and stimulate the economy at the same time.
Saturday, December 13, 2008
Reverse Mortgages
Reverse Mortgages are available to seniors as a way of supplementing income and providing additional cash flow for living expenses. A reverse mortgage allows a senior homeowner to access the equity in her home as cash without an immediate repayment requirement. Instead of the homeowner making the mortgage payments, the lender pays the homeowner, and no payments are required until the homeowner no longer uses the home as her principal residence. The homeowner can choose to receive the mortgage proceeds as a lump sum, in monthly or quarterly payments, or even as a line-of-credit.
To be eligible for a reverse mortgage, a borrower must be at least 62 years old, own and live in the home, and have little or no existing debt on the property. Loan amounts and interest rates available depend on the value of the home and the age of the borrower. The older the borrower, and the more valuable the home, the more that may typically be borrowed.
Unlike a traditional second mortgage or home equity line of credit, with a reverse mortgage there is no requirement that the borrower have a certain income to debt ratio to qualify, and there are no monthly payments.
Even if the borrower lives longer than the term of the mortgage, she will not need to repay the loan as long as any borrower continues to live in the house and keeps the taxes and insurance current. And at the time repayment is due, if the house is worth less than the total amount due, the repayment is limited to a maximum of the value of the home.
The U.S. Department of Housing and Urban Development (HUD), which insures reverse mortages, recently adopted new rules increasing the loan limit to $417,000 for federally-insured reverse mortgages and establishing caps on the amount of fees lenders can charge. HUD also implemented the new “For Purchase” program, which allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from a reverse mortgage. This program will allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program will also enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs.
Reverse mortgages have long been a financial planning tool for older homeowners, and they are increasing in popularity. They are not for everyone, but for the right homeowner, they can provide the security of cash flow during retirement years.
For more information about Reverse Mortgages, visit HUD’s website at http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm.
To be eligible for a reverse mortgage, a borrower must be at least 62 years old, own and live in the home, and have little or no existing debt on the property. Loan amounts and interest rates available depend on the value of the home and the age of the borrower. The older the borrower, and the more valuable the home, the more that may typically be borrowed.
Unlike a traditional second mortgage or home equity line of credit, with a reverse mortgage there is no requirement that the borrower have a certain income to debt ratio to qualify, and there are no monthly payments.
Even if the borrower lives longer than the term of the mortgage, she will not need to repay the loan as long as any borrower continues to live in the house and keeps the taxes and insurance current. And at the time repayment is due, if the house is worth less than the total amount due, the repayment is limited to a maximum of the value of the home.
The U.S. Department of Housing and Urban Development (HUD), which insures reverse mortages, recently adopted new rules increasing the loan limit to $417,000 for federally-insured reverse mortgages and establishing caps on the amount of fees lenders can charge. HUD also implemented the new “For Purchase” program, which allows seniors, age 62 or older, to purchase a new principal residence using loan proceeds from a reverse mortgage. This program will allow seniors to purchase a new principal residence and obtain a reverse mortgage within a single transaction by eliminating the need for a second closing. The program will also enable senior homeowners to relocate to other geographical areas to be closer to family members or downsize to homes that meet their physical needs.
Reverse mortgages have long been a financial planning tool for older homeowners, and they are increasing in popularity. They are not for everyone, but for the right homeowner, they can provide the security of cash flow during retirement years.
For more information about Reverse Mortgages, visit HUD’s website at http://www.hud.gov/offices/hsg/sfh/hecm/rmtopten.cfm.
Tuesday, December 9, 2008
Estate Planning For Parents of Minor Children: "But We Just Can't Decide on Guardians!"
As parents of minor children, it is absolutely essential that you have an orderly estate plan in place. This at a minimum means executing a will, which is a legal document that sets forth your wishes regarding disposition of your assets upon death, designates those individuals who will be responsible for the orderly administration and distribution of your estate, and designates the guardians of your minor children. Also strongly advised is the creation of one or more trusts to hold and manage your assets for the benefit of your children during their minority in the unthinkable event of the demise of both parents.
The selection of a legal guardian for your minor children if both parents decease is perhaps the most crucial component of estate planning for young families. You may select grandparents, aunts and uncles, cousins, or even close friends who are not related. For many, the choice is easy or obvious. Yet for others, this can be a daunting and seemingly unsolvable task. I have had clients tell me that they really want to put their estate plan in place, but they cannot because they just can't choose a guardian. This is NOT a good reason to delay or suspend the creation of an estate plan. My advice is to select the best among the bad options. In the absence of your guardian designation, the courts will control the decision of guardianship, and your children may well end up in the hands of the person(s) you would least want raising your children, or even worse, in the social services system. So bite the bullet and make that decision, even if it isn’t perfect.
In addition to executing your wills and designating guardians, I recommend the creation of one or more trusts whose purpose it will be to hold, manage, spend and ultimately distribute your assets for the benefit of your children. Within the trust, you will designate trustee(s) who will be responsible for these tasks. The trustee(s) may or may not be the same person(s) as the designated guardians, and there are pros and cons to choosing the same person for both tasks. The trust will set out the terms on which your trustees will manage, invest and spend your assets for your children’s benefit during their minority. It will also allow you to determine at what age, or ages, your children will be entitled to receive outright distribution of all or a portion of their trust shares. In the absence of a trust setting out such provisions, the assets will be held for your children in a statutory (UTMA) structure, and will become available to your children free and clear at age 18. For most parents who have saved to fund their children’s college educations and want to ensure that the funds will be used for education and related purposes, this would not be the desired outcome. A trust permits you to delay outright distribution of assets until a later age, while still permitting the assets to be available to the children, at the discretion of the trustees, for appropriate uses.
A simple essay such as this cannot fully set out all of the considerations which go into a comprehensive estate plan for young families. The message here is simply that if you are the parents of minor children, I believe you have a responsibility to have wills and a trust in place. It is a gift that you will leave to your children in the unimaginable circumstance that neither parent survives to see your children into adulthood.
The selection of a legal guardian for your minor children if both parents decease is perhaps the most crucial component of estate planning for young families. You may select grandparents, aunts and uncles, cousins, or even close friends who are not related. For many, the choice is easy or obvious. Yet for others, this can be a daunting and seemingly unsolvable task. I have had clients tell me that they really want to put their estate plan in place, but they cannot because they just can't choose a guardian. This is NOT a good reason to delay or suspend the creation of an estate plan. My advice is to select the best among the bad options. In the absence of your guardian designation, the courts will control the decision of guardianship, and your children may well end up in the hands of the person(s) you would least want raising your children, or even worse, in the social services system. So bite the bullet and make that decision, even if it isn’t perfect.
In addition to executing your wills and designating guardians, I recommend the creation of one or more trusts whose purpose it will be to hold, manage, spend and ultimately distribute your assets for the benefit of your children. Within the trust, you will designate trustee(s) who will be responsible for these tasks. The trustee(s) may or may not be the same person(s) as the designated guardians, and there are pros and cons to choosing the same person for both tasks. The trust will set out the terms on which your trustees will manage, invest and spend your assets for your children’s benefit during their minority. It will also allow you to determine at what age, or ages, your children will be entitled to receive outright distribution of all or a portion of their trust shares. In the absence of a trust setting out such provisions, the assets will be held for your children in a statutory (UTMA) structure, and will become available to your children free and clear at age 18. For most parents who have saved to fund their children’s college educations and want to ensure that the funds will be used for education and related purposes, this would not be the desired outcome. A trust permits you to delay outright distribution of assets until a later age, while still permitting the assets to be available to the children, at the discretion of the trustees, for appropriate uses.
A simple essay such as this cannot fully set out all of the considerations which go into a comprehensive estate plan for young families. The message here is simply that if you are the parents of minor children, I believe you have a responsibility to have wills and a trust in place. It is a gift that you will leave to your children in the unimaginable circumstance that neither parent survives to see your children into adulthood.
Friday, December 5, 2008
Time To Refinance Your Home Mortgage?
Is it time to refinance your home mortgage? The New York Times thinks so. Rates have dropped, and mortgage applications are up. If your credit is good and you have at least 10 to 20 percent equity in your home, you are a good candidate for refinancing, and this could save you substantial money on your monthly mortgage payment. Read what the Times has to say about this at http://www.nytimes.com/2008/12/04/business/04refi.html?_r=1&adxnnl=1&emc=eta1&adxnnlx=1228496528-TOleZIqt0+u7goQtpYZDNA .
Tuesday, December 2, 2008
Do I REALLY need that owners title insurance policy?
I am often asked by home buyers whether they really need to buy owners title insurance. The answer is an unequivocable "absolutely". I know insurance is one of those products that people love to hate—you spend a lot of money on something you hope you will never need, but isn’t that the point? Owners title insurance provides a whole lot of protection on the most valuable investment most people will make in their lives. The premium is paid only one time, at the purchase of the policy, and the protection remains in effect, with an inflation factor on the coverage, for as long as you own the home. Not such a bad deal.
So what does owners title insurance cover? In my view the most important thing it insures against is human error. In preparing for a purchase, a title search will be done at the registry of deeds. Said registry of deeds is run by humans, and errors in the indexing of documents are inevitable. If a name is misspelled, or some other irregularity occurs as a document is input into the system, it may not thereafter show up in a chain of title search. Among other things, title insurance protects against many defects in title that a proper registry search would not reveal.
The benefit of owners title insurance is more often not that it indemifies for a loss, but rather that it provides "costs of defense" in the event of a claim. In truth, most title defects are fixable, and it is rare that a property owner experiences a total loss of title. Costs of defense means that if an insured defect in your title is discovered, the title insurance company will step in and take the responsibility to cure it. One of the most common uses of title insurance is the situation when you are about to sell your house, and a few days before closing you are notified that an old mortgage from a prior owner in the chain of title was never discharged, or that the discharge was in some manner defective. Without owners title insurance, odds are the closing will get postponed while you scramble to track down a lender who may have merged 4 times since the original transaction in order to get the correct discharge. If you have an owners policy, on the other hand, in most cases your title insurer will agree to indemnify the new buyer, lender and title insurance company and clean up the problem, without any delay in closing.
Title insurance companies have developed several different levels of policy coverage, and they do vary somewhat among the companies. In addition to insuring clear title, the standard owners policy insures against (a) forgeries in documents; (b) incompetency or incapacity of a signatory; (c) missing signatures; (d) undisclosed (but recorded) prior mortgages, liens, easements or restrictions; (e) errors in legal descriptions; (f) lack of a right of access; and
(g) deeds not properly recorded.
"Extended" or "enhanced" policies, which are available for about 10% more, also cover against such additional defects (depending on the policy) as: (a) off-record matters, such as claims for adverse possession or prescriptive easements; (b) encroachments; (c) off-record liens such as mechanics' or estate tax liens; (d) certain violations of land use (subdivision and zoning) laws; and (e) certain post-policy occurrences.
The loan policy that you will be required to purchase for your lender as part of your closing costs does not provide you as owner with any protection, so don’t be fooled. You need your own owners policy. If you purchase both the loan and owners policies simultaneously, the combined premium is discounted from the total amount which would be paid if they were purchased separately. Premiums are calculated at a fixed dollar amount per thousand of coverage, and in Massachusetts the premiums at present are the same among all title insurance companies.
So the next time you are buying a property and are asked whether you want the owners title insurance coverage, say yes. Don’t be "penny wise and pound foolish" and use this opportunity as a place to save on closing costs. Be sure to include the owners policy premium when calculating your probable total purchase expenses, and do the smart thing and buy the owners policy. Yes, it is one of those products that you hope you never need, but if it turns out you do need it and did not get it, you will be sorry.
So what does owners title insurance cover? In my view the most important thing it insures against is human error. In preparing for a purchase, a title search will be done at the registry of deeds. Said registry of deeds is run by humans, and errors in the indexing of documents are inevitable. If a name is misspelled, or some other irregularity occurs as a document is input into the system, it may not thereafter show up in a chain of title search. Among other things, title insurance protects against many defects in title that a proper registry search would not reveal.
The benefit of owners title insurance is more often not that it indemifies for a loss, but rather that it provides "costs of defense" in the event of a claim. In truth, most title defects are fixable, and it is rare that a property owner experiences a total loss of title. Costs of defense means that if an insured defect in your title is discovered, the title insurance company will step in and take the responsibility to cure it. One of the most common uses of title insurance is the situation when you are about to sell your house, and a few days before closing you are notified that an old mortgage from a prior owner in the chain of title was never discharged, or that the discharge was in some manner defective. Without owners title insurance, odds are the closing will get postponed while you scramble to track down a lender who may have merged 4 times since the original transaction in order to get the correct discharge. If you have an owners policy, on the other hand, in most cases your title insurer will agree to indemnify the new buyer, lender and title insurance company and clean up the problem, without any delay in closing.
Title insurance companies have developed several different levels of policy coverage, and they do vary somewhat among the companies. In addition to insuring clear title, the standard owners policy insures against (a) forgeries in documents; (b) incompetency or incapacity of a signatory; (c) missing signatures; (d) undisclosed (but recorded) prior mortgages, liens, easements or restrictions; (e) errors in legal descriptions; (f) lack of a right of access; and
(g) deeds not properly recorded.
"Extended" or "enhanced" policies, which are available for about 10% more, also cover against such additional defects (depending on the policy) as: (a) off-record matters, such as claims for adverse possession or prescriptive easements; (b) encroachments; (c) off-record liens such as mechanics' or estate tax liens; (d) certain violations of land use (subdivision and zoning) laws; and (e) certain post-policy occurrences.
The loan policy that you will be required to purchase for your lender as part of your closing costs does not provide you as owner with any protection, so don’t be fooled. You need your own owners policy. If you purchase both the loan and owners policies simultaneously, the combined premium is discounted from the total amount which would be paid if they were purchased separately. Premiums are calculated at a fixed dollar amount per thousand of coverage, and in Massachusetts the premiums at present are the same among all title insurance companies.
So the next time you are buying a property and are asked whether you want the owners title insurance coverage, say yes. Don’t be "penny wise and pound foolish" and use this opportunity as a place to save on closing costs. Be sure to include the owners policy premium when calculating your probable total purchase expenses, and do the smart thing and buy the owners policy. Yes, it is one of those products that you hope you never need, but if it turns out you do need it and did not get it, you will be sorry.
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