Buying and Borrowing

National front headlines for real estate news consistently call the market “robust” and the “latest figures don’t point to a housing crash,” according to Kenneth Harney from the Washington Post Writers Group. Mortgage rates have fallen steadily and are close to 40-year lows. The national economy looks promising, unemployment has declined and, he says, the number of pending home sales is up. In Santa Barbara (inclusive of Montecito) the 297 pending homes sales for the third quarter 2006 ¬¬¬¬¬¬¬¬¬¬¬¬¬¬¬was only six less than the third quarter 2005. It was the 277 pending home sales for the second quarter 2006 that was a significant 117 less than the second quarter 2005. At least there was an increase from the second to third quarter.

How does this positive national news console the Santa Barbara condo buyer who bought in December 2005 and sees a neighboring unit for sale for less money? Well, several answers. Local properties are selling; there are still multiple offers; listings still sell at or above the asking price; interest rates are extremely attractive; and a healthy national global economy means out-of-town buyers are still in a position to buy in Santa Barbara. You can take a page from Wall Street analysts who remind you that if you are investing for the long term, the market will fluctuate but you will end up on top. The same holds true for Santa Barbara real estate. I remember Mark Schniepp, an economic forecaster, saying that it has only been a recent phenomenon that people were buying homes for a return on their investment as opposed to a roof over their heads. We have been spoiled by the recent rapid appreciation but the long-term forecast calls for sunny real estate. Look at it another way: How much of your monthly rent is going toward equity in your abode? Vince Malta, the California Association of Realtors president, says that “since 1968, the long-term average price appreciation is nine-point-one percent.”

Donald L. Kohn, the Federal Reserve’s vice chairman, sees no imminent bust or crash but reiterates the oft heard “correction” that is taking place in areas of the country that appreciated quickly. Locally, like much of coastal California, we qualify as an area that had a strong run of appreciation fueled by frenetic buyers begging to throw as much money at the seller as they could borrow.

Speaking of borrowing, look out for form “4506-T” when you apply for your next loan. It’s been around for a long time, designed to give the lender permission to check with the IRS on your tax returns. It is for the “Stated Income Loans” where the lender does not require the borrower (usually an independent contractor-type) to provide his tax returns at the time of application. The borrower ‘states’ his income and the lender accepts that at face value. The IRS has updated the verification process for this form to the electronic age and lenders might actually utilize it more frequently. The warning is that you should never sign this unless its use is limited to 60 days. You don’t want someone else grabbing your returns a year after you fund your loan.

You might wonder why the lender would require you to grant them permission to peek at your tax returns after they just approved you for a loan that does not require you to show them your tax returns. Don’t they trust you? You might further wonder why, under these ‘stated income’ loans, that they never seem to check your returns. These are all very good questions but sometimes the “it doesn’t hurt to ask” rule doesn’t apply.

Here is a letter exchange I had with real estate broker, attorney and columnist Robert Bruss:

“Must a Judge Approve Property Partition?”

Dear Bob: You often discuss partition lawsuits where one co-owner wants to sell but the other co-owner doesn't. Does a judge have to grant permission for the partition lawsuit to force the sale of a property? If so, when one co-owner wants to buy out the other co-owner, might the judge deny a partition sale and allow the purchase by the co-owner?

Dear Mark: A judge doesn't have to grant a partition lawsuit brought by a property co-owner. But they usually do, even when a majority of the co-owners don't want to sell.

Of course, a judge can grant a continuance for one co-owner to buy out another co-owner. Anything can happen in a trial court.