In 1940 almost 28 percent of adults between the ages 25 and 34 lived in a multigenerational household.  By 1980 that percentage dropped to 11 percent.  By 2010 that percentage shot up to almost 22 percent.

 Percentage of Adults Ages 25-34                                                                                                                Living in Multi-Generational Household

Why the increase?  The bleak economy, of course.  The unemployment rate for young adults has climbed since 2007 and many have taken jobs that they didn’t really want but needed to take and approximately 1/3^rd have gone back to school. 

Not only are they moving home to save expenses but approximately 1/3^rd are delaying either marriage, parenthood or both.

If you look at the 18 to 34 age range, almost 40 percent are living in multigenerational households. Anyone with older children are aware of this trend.  In many cases, the children cannot afford to live away from home.  In other cases, they would rather stay at home to have more money to spend on something other than housing and, in some cases, they are living at home to help their parents make the mortgage payment.

For many baby boomers one of their burning desires was to own their own home and their home became a symbol of their success.  As they became more successful, they bought bigger and more expensive homes.  Even as empty-nesters they often moved into the biggest, most expensive homes of their lives.

Will the younger generations ever look at housing the way their parents did?  Many are going to live in a multigenerational home for a good share of their lives and many have seen the horrible financial consequences their parents have suffered in connection to their home debt.  Once they move out are they going to want to own a home?  Are they going to see their home as a reflection on how successful they are?  Are they going to see owning a home as a way to accumulate wealth or will they fear that ownership of their home potentially will potentially cause financial hardship?

Babyboomers couldn't wait to live on their own and to ultimately buy a house.  There was a stigma to still living at home.  If you think that that stigma still exists or that the young adults are miserabley trapped into this living arrangement, consider this:  according to the Pew Research Center, 78 percent of adults ages 25 to 34 living in a multigenerational huosehold say that they are satisfied with the arrangement.  Furthermore, 61 percent say that have friends or relatives that have moved back home due to economic conditions in the last few years.  

What this demographic ultimately wants with respect to real estate is going to have a fundamental impact on the real estate industry.  The likelihood that young adults are going to follow in the footsteps of their parents with respect to housing seems remote.  Understanding the importance they place on ownership of a home and the type of housing they want is going to be a key factor in suceeding in real estate as we go forward.  If you continue to market towards the hopes and goals of babyboomers you most likely are going to miss the market with the boomerangers.    

Let's face it, most middle class Americans between 45 and 65 years old have been very successful. Every year things got better for them.  Better jobs, better pay, better everything.  When set backs happened. it was seen as a temporary situation that would soon be a distant memory.  Lose a job?  So what, get a better one.  Have business troubles? Start a new business.  Need (or want) something? Borrow the money, becuase there will always be more money tomorrow to pay off the loan.

Sure enough, it always seemed to work out for the best.  

As a result of this experience, many felt that there was no room for failure.  Buck up.  Work harder.  If things weren't going well, that was on you.

Then the world changed.  Sometime around 2007, the real estate world imploded and the financial system nearly failed.  Since that time, the value of all of the assets accumulated by middle America has plummetated while their debt load remained the same.  Credit that was so easy to use to deal with cash flow problems dried up.  Middle America for the first time in their lives had to cut back.  Businesses started a downward trend that forced them to cut back.  Jobs were eliminated and/or salaries and benefits were cut.  Many of those cut were at the top of their profession with a highly regarded companies where there never was a fear of losing jobs.  But they made too much money for this economy.

Who wants to hire someone who is 45 to 65 years old?  There are plenty of younger workers who need work and will be happy to recieve a fraction of what the older worker would be happy with.  While the 45 to 65 year old worker has developed tremendous skills in their old job, those skills don't necesarily transfer to a new job.  

In the meantime, the bills continue to come.  Since their income has dropped, they start to sell their assets that they don't "need".  Unfortunately, everyone else is doing the same thing and nobody wants to pay much to buy a "wants".  Next, they start spending their savings and retirment accounts to keep everything going until they get back on their feet again.  But every day that goes by brings them closer to the day of reconing and they know it.

For the first time in their lives, they feel helpess to deal with their problems and have no hope that the future is going to be better.  They consider themsleves "losers".  Afterall, they took all the credit when things went well so how can they not take all of the blame when things go bad?

The truth of the matter is that they took too much credit when things went well and are taking too much of the blame when things went bad.  Because they are facing something that they never have faced before, becuase they are in depression and becuase they are desperate for a solution they are vulnerable for the first time in their life.  

When you are vulnerable, you need help from a trusted advisor.  Not someone selling false hope. Someone who can objectively look at all of the options available to the borrower to help create a plan to get them out of this horrible place.  Often the borrower will need a number of professionals who can work together to come up with and execute the plan.  Because everyone i sfacing a different situation, has different goals and fears, no one plan is right for everyone.  Beware of the "simple, one-fits-all" solution.  

The good news is that there is a plan that is right for you.  The key to any plan is to get you to a place where you can start to move forward again while at the same time perserving whatever assets that can be protected in the plan you chose.  Once you clear out the old debt, you can start re-building your credit and can start saving so that you actually can retire some day.    

The non-lawyers that we often see drafting contract for deeds are real estate agents and title companies. In both cases, unless the person drafting the contract is also an attorney, they would be practicing law without a license.  Without a legal background, how does the lawyer know all the legal risks associated with the contract and the options available to the client to best protect their position?

It is not just non-lawyers who shouldn't be drafting contract for deeds.  Just having a law degree does not mean you have the knowledge and experience to properly draft a contract for deed.  While I am a licensed attorney and have some knowledge of criminal law, the fact is, I don't have enough knowledge or experience to represent a client facing criminal charges.  Likewise, many lawyers don't have enough knowledge or experience to properly draft a contract for deed for a client.

Contract for deeds are vital documents involving a great deal of money.  A bad contract for deed will haunt the client and can expose them risks that they aren't even aware of.  Anyone who tries to make you believe that drafting a contract for deed involves just "filling in the blanks" does not truly understand the risks associated with contract for deeds and what can be done to limit those risks. Anyone who says they can draft a "standard" or contract for deed that is "fair" to both the seller and buyer, also does not understand the legal issues that need to be negotiated between the seller and buyer whose interests are very different.

A seller or buyer needs to understand their possible risks and obligations under a contract for deed and ways to limit those risks and obligations.  In other words, they need someone who can draft a contract for deed that best protects their interests, something that only a knowledgeable, experienced real estate attorney can do.    

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Nothing is certain about short sales except that it continually changes.  A recent change that we have become aware of is that Wells Fargo has recently came out with revised Short Sale documents.  While they are not yet being required in all Wells Fargo short sale transactions, you need to be on the look out for these new forms becuase they have significant changes.

Not only are the changes significant, it is our view that no real estate professional should sign these documents.  To sign these documents would put you at risk with your client, the government and the short sale lender.

Short sales are risky enough without this added risk.

To view the new forms and read a more complete description of the objectionable changes, click the following link:  Danger, New Wells Fargo Short Sale Documents Put You At Risk

Bank of America and Ally Financial have agreed to participate in a test program designed to provide princple reductions for qualifying borrowers.  At this time, the programs are limited to areas hardest hit with foreclosures - California, Arizona and Michigan.  The program is funded by the US Treasuries "Hardest Hit Fund".

While we don't know the criteria or whether the idea of principle reductions will spread, it certainly is worth noting that lenders are now putting their toes in the water that they vowed never to enter.

For more on this story, click the following link:  Housingwire Prinicipal Reduction Story

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Short sales are a tough business - a long slow, unpredictable process.  Even if you get through the process there is no guarantee that the buyer will still be there.  Another huge hurdle has arisen.

THE FANNIE MAE SELLING GUIDE MAY PREVENT FANNIE MAE FROM PURCHASING MORTGAGES USED TO BUY PROPERTIES DURING THE PERIOD OF REDEMPTION.

The selling guideline is poorly written and it certainly can be argued that it either does not apply to Minnesota foreclosures because there is no there is no unexpired redemption period when the short sale closes because the owner has to redeem in order to complete the sale.  There is also a procedure to deal with this situation that is set out in the selling guidelines.

Monday, March 14th, 2011, 10:43 am

The battle between MERS and its opponents continues.  The latest point has been won by MERS. The Supreme Court of New York has ruled in favor of Bank of New York Mellon in a challenge to a foreclosure based on a MERS assignment of mortgage.

The court found that the assignment of mortgage was made and the original note was in the banks possession before they commenced the foreclosure.

While MERS won another point, they have not one the match.  Other courts, including a New York Bankurpcty court has ruled against a bank foreclosing a MERS assigned mortgage.  This later case can also be appealed to the Court of Appeals. And, finally, would the judge have arrived at the same decision if the bank could not have proved that it possessed the original note prior to the commencement of the foreclosure.

The main point everyone should take from this latest case is that those that argue that it is a slam dunk that MERS will lose are wrong.  We have different decisions in many different courts and it will be some time before a concensus will be reached.   

The e-mails are coming in fast and furious, the phone won't stop ringing....everyone wants to know if Fannie Mae has enacted a new lending requirement that does not allow for short sales during the period of redemption.  Since a great number of short sales in Minnesota occur during the period of redemption, if true, this would be another blow to the market.  

First, some background.  Most states do not have a period of redemption following the Sheriff's Sale.  In Minnesota, the period of redemption for most residential properties is 6 months.  Once the Sheriff Sale occurs, the foreclosed mortgage is gone and the only way the borrower can keep the property is to redeem by paying the amount paid at the Sheriff's Sale plus reasonable costs.  The redemption must occur before the period of redemption expires.  During the period of redemption, the borrower continues to own the property subject to the Sheriff's Certificate and has the right or occupancy.

I don't believe that the rumour is true and, if it is, it is misguided.

On May 27, 2010, Fannie Mae issued Announcement SEL 2010-07, which was clarified by the August 12, 2010, Announcement SEL 2010-10 which dealt with mortgage loans secured by properties with unexpired redemption periods.  The most recent Fannie Mae Selling Guide dated January 27, 2010, left unchanged the August guideline on this issue.

So what, is this rule?  Well, as typical of so many rules, the language is not very precise which can and does lead to confusion.  The general rule states,"...The length of the redemption period varies by state and does not expire automatically upon sale of the property to a new owner."(emphasis added).

Unfortunately, this statement is incorrect at least in Minnesota.  If the sale to the new owner is by the borrower, the borrower will take the sales proceeds and redeem.  The redemption by the borrower stops the foreclosure and eliminates the Sheriff's Certificate.  

The only way that I can come up with a scenario where the statement is true is if the sale of the property is by the holder of the Sheriff's Certificate (normally the foreclosing lender) and not the borrower.  This sale would have to be subject to the redemption rights.  If this is what Fannie Mae is referring to, this would not impact short sales since the borrower, not the lender, is the seller.

Fannie Mae goes on to state,

"...although an unexpired redemption period will be generally be deemed to be an unacceptable title impediment, Fannie Mae will consider it to be acceptable provided the following requirements are met:

The property must be located in a state where it is common and customary to sell single family residential property during the redemption period.

The mortgagee policy of title insurance must take specific exception to the unexpired right of redemption but also affirmatively insure the mortgagee against all loss arising out of the exercise of any outstanding right of redemption, without qualification.

If any party exercises a right to redeem the mortgaged property, the mortgage must be paid off directly out of the redemption proceeds with no requirement for any further action or claim for repayment.

By delivering the mortgage loan to Fannie Mae, the lender warrants that Fannie Mae will not incur any loss due to the exercise of any party of a right to redeem the mortgaged property, including without limitation, a loss related to a borrower default due to a dispute with the redeeming party over the terms of the redemption, and lender agrees to indemnify Fannie Mae if Fannie Mae should incur a loss that can be directly attributed to the impediment(s)."

As pointed out earlier, I agree that an unexpired redemption period would constitute a cloud on title; however, if their position is that the redemption period continues to exist after the borrower redeems, I do not agree.  How can the property still be subject to the right of redemption that has already been exercised?  Makes no sense.

Assuming Fannie Mae does take this position, the first exception should apply.  Single family residential properties are commonly sold during the period of redemption.

The second requirement is a bit more challenging.  It requires the title insurance company to specifically show the "unexpired redemption period".  I would, of course, ask,"Why do they have to show something that does not exist?".  They go on the state that the insurance company must give them coverage for any losses arising out of the unexpired redemption right.  Again, I would ask, "Why would you require a title company to show an excemption and then require them to insure over it?"  

Sometimes it is easzier to go with the flow, so the real question might be will title insurers do this?  I don't know the answer yet but, if they aren't showing in a short sale the title subject to the redemption rights, I don't see how insuring over them would cause a problem.

The third requirment should not apply to a short sale situation since there no longer is a redemption right.  If the sale is by the lender, selling the Sheriff's Certificate, the redemption proceeds would go to the holder of the Certificate.  The mortgage used to secure the loan to purchase the Certificate would have to have language in it requiring the redemption proceeds to be paid to the mortgagee.

The final requirement is that the lender indemnify Fannie Mae for any losses attributable to the "phantom" unexpired redemption rights.  This should be no problem since there are not redemption rights remaining and the lender has a lenders title policy.  Of course, that assumes that lenders understand Minnesota law, which is a leap of faith.

Legally, I see not reason to restrict sales of properties in Minnesota during the period of redemption. The seller is the borrower who has to redeem and provide good title in order to sell the property.  If Fannie Mae or anyone else, actually enforces a restriction on sales during the period of redemption, lenders should expect to obtain many more properties through the foreclosure process as many more short sales will fail.  It is hard enough to get a sale and short sale approval as it is, but to cut off another 6 months from the process makes short sales that much more difficult.     

To review Fannie Mae Selling Guide (January 27, 2011) Part B, Subpart 7, chapter 2-05, Title Exceptions and Impediments, click this link. 

There are now rumours of a new push by the Obama administration for loan modifications that involve prinicipal reductions.  To date, very few loan modifications have resulted in principal reductions.  There has been great resistance to doing so since nobody wants to agree to take a loss and there is a fear that doing so will encourage strategic defaults.  

Why the push for principal reductions?  As the foreclosures and the shadow inventory continue to rise, there is a growing consensus that the real estate market cannot right itself until the foreclosures are haulted.  They tried to stem the tide with the HAMP loan modification but it was not successful.  Some feel that with principal reductions, the success rate for loan modifications would be much greater and would advert a significant share of foreclosures.  

Of course, there is no indication that the lenders are any more willing to agree to principal reductions today than they were in the past; however, there are new factors at play that may force their hands.

All fifty states have banded together to investigate the major loan servicers.  PR wise, the lenders have taken a hit with the RoboSigning.  Politically, we are fast approaching another election where the Obama administration would consider it a political coup to be able to point to a plan that allowed a significant number of homeowners to save their homes.

Will it happen?  How will it work?  We don't know.  The fed's, the states and the major lenders are all going to have to come to an agreement - no easy feat.  On the other hand, many believe that if the pressure today does not result in such an agreement, nothing every will.    

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Every day it seems that a new set of numbers come out to tell us that the market has stabilised, gone down or is going up.  One day we've turned the corner, the next we are continuing are plunge downward.  

How can this be?  Numbers are numbers, right?  Well, apparently, it is not that simply.  It turns out that two leading sources for housing sales information, the National Association of Realtors and CoreLogic, have numbers that don't match.  NAR's sales number are approximately 20 percent higher than CoreLogic's!  

At this point, if you want to be cheered up, go by NAR's numbers.  If you want to expect the worse but hope for the best, go by CoreLogic numbers.

CoreLogic bases its numbers on recording data found at local courthouses while NAR uses sample data reported by local MLS services and then applies it to an economic model based on the US Census.  If that model is incorrect, it would skew the numbers.  NAR says that it is looking at the issue and may lower its numbers this summer.  

The following chart shows the existing home sales as reported by NAR and CoreLOgic.