One of my clients recently closed on a loan with a preferred Loan Officers at Bank of America. Al McGuire's a great lending consultant, but he, like many corporate professionals, is controlled by the bureaucracy and less than efficient processes of large corporate entities. While he was being controlled by bureaucracy, I implemented every strategy possible to get my client the best overall deal, prior to presenting the contract to the bank for mortgage approval. Since the Underwriter was dissatisfied with the purchase price of the contract, she thought for sure the appraisal would be lower, thus forcing the contract price down. After receiving the appraisal first and restricting it from the buyer, she immediately questioned the appraised value, which was higher than she expected. Then she begin a relentless pursuit to disregard the terms of the contract by requesting an appraisal review and requiring the appraiser justify and validate his report details. After his legitimate validation of comparables and details, she began requesting repairs to the property based on details not present in the appraisal report. In essence, making “blind” requests.
When is it appropriate for an underwriter to request repairs on a home they've never seen? When is it appropriate for an Underwriter to request repairs when she hasn't seen the inspection or read the repair items already negotiated for the buyer in the contract? Why would an Underwriter care if the grade around a house was sloped unevenly or the life expectancy of a roof is 2 vs. 4 years? How does that impact the value of the loan? Those are minor compared to HVAC, electrical, or plumbing and structural issues. The bank requires homeowner's insurance, which will cover damages if something happens to the home after closing, so those protections for the mortgage are in place.
Why did the Underwriter shift her attention from the loan approval process, which was already past the original closing date, to the condition of the house? If she read the contract and understood the items agreed upon by the Buyer and Seller in the contract, she would see clearly that the Buyer had a Full Homeowner's Insurance, Primary Mortgage Insurance, several repairs already underway and a Premium Home Warranty paid for by the Seller. Be mindful that the repair improvements do increase property value, so there’s just cause to re-appraise for an even higher value. Specifically, I negotiated HVAC, Circuit Breakers, Refrigerator, plumbing repairs, and window replacements for my client, all with city permit approved workmanship. These improvements are definitely more important than 2 feet of dirt in front of the house and the condition of a roof that’s already been certified by a roofing professional? This is a perfect example of how large banks control the real estate industry through the mortgage process, causing property values to decline to crisis levels. I don't know a single soul who purchases real estate in hopes that the value decreases. If you know someone that invests in declining commodities, please tell them to call me.
The Underwriter's reason for doing that was that she questioned the purchase price of the contract initially and thought that the appraisal would come in lower, thus allowing Bank of America to loan less money in that area, 30310, which happens to be labeled a high mortgage fraud area. This lower valuation of properties in the Black community allows cash flowing investors to come into our community, create unattractive images of the community to minimize home values. Then their “inside” investors can buy properties at ridiculously low prices and then sell them for a nice profit. You may ask, how do they “flip” the property in the current market? Well depending on who’s making the loan, they can decide to make it a difficult underwriting process or a convenient underwriting process because the Underwriter is “god” as far as the loan approval is concerned. They can question anything they want to and are given the authority to question if they feel like it without any major supervision or influence by their management. In fact, in this case, the Loan Processor who works directly with the Underwriter took this file to her supervisor and the supervisor told her not to bother the Underwriter, the final approval is completely up to her. Be mindful that the Underwriter is not a licensed real estate agent, appraiser, or inspector.
Meanwhile, hard working homeowners living in the area struggle to keep their homes and its value, but can't get a 2nd mortgage to upgrade their property to maintain its value. Not because they haven't tried, but because the bank makes it extremely difficult to get a fair loan without these types of blind obstacles placed in the way of the general consumer. Eventually many of them are forced out of their homes only to have an investor purchase it with ease in the mortgage process. They easily get funding to upgrade the home, based on finished appraised value I might add, and make a profit without ever living in the home or community.
Nonetheless, being the knowledgeable real estate consultant I am, I always explain the importance of getting a Home Inspection and Survey, if you're planning on renovating or building additions. So my client was already aware of the major issues of the home and we were addressing those. The underwriter never bothered to ask the buyer for the inspection or read the contract. Steve Goolsby, with Top to Bottom Inspections exposed everything that was wrong with the home. I like working with professionals like Steve because he’s a retired builder and knows homes like I do. In this case, additional inspections were done by Electrician Patrick Cheney, an HVAC inspection was done by Marvin Horton, and Mold Remediation inspections were done by Jason with Breathe Easy Mold Remediation. All are partners in my network of professionals so my clients know they have a solid home and a great investment at closing. None of these professionals rated the Underwriter's requests as a major concern.
Let's think like a buyer for a moment, isn't it your decision whether you want to purchase the home before the underwriter intervenes with frivolous repair requests that you may have other plans for when you purchase the home? Do you see how this is overstepping authority as an underwriter? Be aware of this when you purchase your next home! Being the professional strategist and negotiator I am, I immediately suggested re-directing her focus to the loan approval process by FHA guidelines, since the buyer had an A FICA score and thousands in the bank to close. I also sent a 2nd copy of the contract to remind them that they were delaying closing, which was already 14 days past the original contract closing date. It was clear that the since of urgency and the "Time is of the Essence" Disclaimer in the contract meant nothing to the underwriter. You must insist that your lender honor your contract and abide by the timelines of the contract. If you don’t you may find yourself in breach of contract and indebted for additional fees. That’s another client story. I finally thanked our loan officer and processor for their diligence and advised that he will be in front of another Mortgage Lender within 48 hours if they did not have the loan approved and in the Closing Department of the bank and our Attorney, Ganek, Wright, & Minsk, within the 48 hours. If it must be delayed, it won’t be on your terms. It closed in 42 hours.
Banks with controlling percentages of spoiled inventory strategically restrain the buyer or home owner from having ANY equity by challenging appraisal values that come in higher than the sales price. We’re working as a community of professionals to sell property at fair market values, not at salvage rates just because the bank as inventory from bad loans. I want the public to realize the bank's strategy is to keep prices low to offload spoilage inventory on their books to the investor community so they don't have to lend as much to get rid of the excess inventory? If you look at an amortization schedule of your loan and consider your total payout over a 30 year mortgage, you’ll quickly see that it doesn’t matter to the bank how much they sell it for, in the long term, they will make lots of money on the loan.
Well I'm encouraging newer agents to recognize that a part of your responsibility to your clients is to add value to their purchase, which doesn't always mean selling at the lowest price, but instead selling at the most equitable price. Each sell that increases in value mathematically and unequivocally has a positive impact on the value of the neighborhood. That is of most value to the buyer since after closing day, the buyer is now a homeowner in the community and directly impacted by the lower prices. Suddenly, that great deal has put a dent in their future equity potential.
We need to focus on ways to improve value in the black community. It starts with a respect and understanding of what curb appeal means to value. Keep your front yards clean. Paint your homes regularly and perform additions to your home with the appropriate permits, following building code. That adds value to your home because you can prove to a willing buyer that these are sound upgrades. Otherwise, you’re decreasing your own home’s value and that of your neighbors with sub-standard workmanship. Don't park vehicles on the grass or on the street for extended periods of time. Cars are depreciating assets and shouldn’t be associated with real estate, an appreciating asset in most standard economics books. Report code violations to the authorities. Call me if you have questions about abandoned property. As a real estate consultant, in most cases I can help find the owner to have issued addressed according to applicable laws if there’s no contact or response.
Here's another question, who's appraisal is it if the Buyer pays for it? Well, my Buyer and I didn't even know the bank ordered the appraisal, nor did we know the appraised value until AFTER the bank received the appraisal and started asking all these off the wall questions. FYI, Appraisers are ONLY licensed and trained to give an assessment of VALUE, not to assess the condition and function of the home's elements. An Inspector is licensed and trained to give an assessment of the condition and function of the home's elements. If you have an experienced Appraiser or Inspector, they should be able to give a knowledgeable account of how one affects the other, but legally they can not be the source of the other professional opinion.
Instead of the underwriter providing a copy of the appraisal to our client first, they attempted to alter or influence the professional opinion of the Appraiser before the Buyer ever had a chance to review the appraisal to make his final decision to purchase the home. Isn't that mortgage fraud by influencing the information or use of the appraisal? Examine case law on mortgage fraud between the years of 1998 - 2006. Or simply ask me because I dealt with this exact situation personally in 2005. I'd be willing to argue in court that its fraud and a conflict of interest for the Buyer. He paid for decision-making information which was withhold from him and used against his best interest. It’s a classic example of negligence. It hindered his ability to make an informed decision to purchase during his binding Due Diligence Period. I stepped in and forced the bank to release the appraisal to him so he could review it before his Due Diligence Period expired. The Seller could have decided to terminate the contract and start a best and highest bid session with other potential buyers after the Buyer put up $400 for the appraisal and had a nice earnest money deposit in escrow.
Normal real estate transaction protocol is that the Buyer receives the Appraisal FIRST since the bank is requiring the Buyer to pay for it. Legally, the appraisal is personal property secured with cash by the buyer and should be delivered to him as soon as possible after completion. The buyer then has the right to distribute it to the bank for review AFTER he has decided he wants to move forward with the purchase of the home.
In any due diligence inspection process, the Buyer is using the appraisal to make an educated decision about purchasing the property BEFORE the Due Diligence period ends. Bank of America requires the Appraiser to NOT distribute or disclose any information about the appraisal to the Buyer until only 48 hours prior to closing. That is WRONG from every angle. The BUYER clearly needs the appraisal information, in conjunction with the inspection, to determine the value of the home before he gets into a fully bound contract without any leverage to terminate and receive an Earnest Money refund.
In normal transactions, the bank chooses the Appraiser since it is lending on the value of the property. Historically, the bank will have the Appraiser contact the Buyer or the Buyer's Agent to arrange payment and to schedule an appointment to access the property. After the Appraisal is complete, the Appraiser sends it to the Buyer and the bank or they send it to the Buyer first and the Buyer will share it with the bank for final review. Legislation resulting from the mortgage fraud and lending crisis of 2006 was created to prevent this from happening, yet its still strategically in place. The problem is the consumer isn’t being educated about the process, so they don’t know to question it. I’m strongly suggesting you question it or work with me and I’ll make sure the process works in your best interest.
Bank of America is notorious for controlling and delaying real estate transactions in excess of 3-6 months. More controls need to be applied to banking procedures. Banks are the sole reason for our current economic condition. They ultimately create unnecessary problems that the agent ends up having to resolve if your agent or broker is knowledgeable about how to resolve it. I have noticed that with all the newer agents out there, we’re all new at some time, their lack of awareness of contractual protocol prevents them from recognizing the problem exists. In such cases, the bank wins and the client loses. Bank of America, specifically, needs a DOUBLE DOSE of Six Sigma Process Improvements. The DMAIC cycle is begging Bank of America to open its eyes and implement it! See the DMAIC cycle on my website homepage. http://www.6sigmaconsultingllc.com/
I’m asking you share this with your friends and family so they’re aware of this trend? It's been going on since the 1980's, starting with re-gentrification in the Piedmont Park and Grant Park areas. I'd bet because no one knows to talk about it until a crisis occurs. I encourage you to share your story with me also by following my blog. I'll give them a voice. If you have friends, family, or relatives in any of the "suppressed" areas of Atlanta, let them know that if they don't see the value of their home as an investment and extension of your financial plan, someone else will. Remember, with investors targeting specific neighborhoods because of future development in prime urban locations, it only takes a little cash in the bank and about 60 days to take your home if you're not maintaining it. The banks and investors want control and ownership of inner city property, such as along the Bankhead Hwy (excuse me Donald Lee Hollowell Hwy.) corridor for the multi-billion dollar developments planned for NW and SW Atlanta over the next 20 years. Ask me about TAD, Tax Allocated Districts, areas to invest in now for future equity gains. The first distribution of tax dollars already happened in 2010.
My goal was to help my buyer purchase with equity at closing, thus increasing his ROI. And yes, my Buyer did have equity at closing and I negotiated replacements to every major function in the house. He's very pleased with his final product and still experiencing savings from his former leasing expense. His home will be used in all CMA’s in his area for the next 6-12 months, thus increasing values for future home sales. How many buyers can say that in this market? As the old saying goes, that which affects a portion, inadvertently affects the whole.
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