The housing crisis and economy have introduced quite a few new “words” and terms to the English language. Yet another has emerged in the past few weeks of the foreclosure debacle. “Robo-Signer”. I don’t think there is a Wikipedia entry for it yet…but I’m sure there will be. After a little research, the earliest mention I could find of the term was January 29, 2010, on Matt Weidner’s Blog. Matt is a foreclosure defense attorney located in Pennsylvania.

I am not sure if Mr. Weidner coined the term, but here’s my definition of a Robo-Signer. A Robo-Signer is a bank or mortgage company employee who signed an extraordinarily large number of foreclosure documents over a short time. Simple math (no calculator necessary) demonstrates that there is no way humanly possible that these employees were able to review these foreclosure documents with the amount legal care and diligence required. The slew of lawsuits and the foreclosure moratorium are the off-spring of these Robo-Signers.

No one is really sure whether the fallout from these Robo-Signers will hurt or help the economy. I’m pretty certain, some attorneys will cash in…but other than that, who knows how this will all unfold.

The Hawaii Bureau of Conveyances is the state body that records all real estate transactions. Like many states, Hawaii is facing some budget challenges due to the current recession. Those budget issues are having an impact on staffing at the Bureau. As a result, the Bureau has some new rules that will go into effect as of July 1, 2009 that could potentially impact a real estate transaction. Here is a quick summary of the changes.

• No Specials: The Bureau of Conveyances will no longer allow specials regardless of the liability
  (dollar) amount. Specials are where title and escrow are able to submit documents to the bureau on the same day of recording instead of a day or more in advance as is the norm.
• No Pulls: The Bureau of Conveyances will no longer allow documents to be pulled once they have
  been submitted for recording.
• Projects or Bulk Recordings: No project/bulk recording will be allowed during the
  last five business days of each month.
• Recording Fee: The Regular System Recording fee will increase from $25/document to
  $30/document. Land Court document Recording fees are not affected.
• Good Funds: Documents will not be submitted unless escrow has good funds in hand
  two business days prior to recordation.

The new Good Funds rule is going to have the biggest impact on buyers and sellers. As it stands now, loans are taking longer. Buyer’s and sellers are going to need to make sure they allow sufficient time to close to accommodate longer loan processing and more time at the bureau of conveyances. The no specials rule will also have an impact. Specials were helpful if there were any delays getting documentation from a lender and there was a threat that recording may have needed to be pushed back. While there were no guarantee on specials, that safety net is no longer available.

I have been using the term short sale regularly on our blog as this type of listing increases in frequency. In using this term, I have made the assumption that most understand the term short sale. That is probably an incorrect assumption. Going back to square one, according to the Hawaii Association of Realtors a short sale is defined as “a sale where: 1) the liens of a property combined with the associated costs will exceed the purchase price of the property and 2) the seller will be asking the lien holder for a release of the lien on the subject property without a complete payoff”.

The seller does not necessarily have to be late on payments. They can be fully up to date. If a seller is at risk of foreclosure, delinquent in their payments, has a lien for nonpayment or is at risk of a lien, this is defined by the state of Hawaii as being a distressed property. It is worth reiterating that short sales and distressed properties are not mutually exclusive. You can be a short sale without being distressed. You may also be a distressed property without necessarily being a short sale.

What does this all mean for buyers and sellers?

For sellers, you need to be aware that a short sale may have legal, cash, credit and tax consequences. Prior to listing your property, you should talk to a qualified Hawaii attorney and/or a CPA. Once your property is listed it will be the responsibility of the owner / seller to communicate with the banks. You may get some assistance from a title and escrow company when you accept an offer. Your real estate agent will not be able to talk to or negotiate with the bank. The process of working with the bank can be lengthy.

For buyers interested in short sale properties, I think it important that you keep in mind that this can be a lengthy process. Bank response times on offers vary widely. Some banks have become more efficient and can respond within a month. I have seen other banks where the length to respond stretches over 6 months or more. There are no guarantees that a bank will accept an offer either. You may receive a counter from the bank or in some cases an outright rejection. Sellers may submit multiple offers to the bank so it is possible that other buyers may trump your offer. The good news is that you can structure your contract in manners such that you have no real obligation to the property prior to the banks acceptance. Even then, you are still likely to have contingency periods for inspection.

There are some well priced short sale listings on the market, so the process and the uncertainty should not necessarily be a deterrent. We recently helped a buyer close on a great short sale in Haiku. If you have additional questions on short sales and distressed properties, feel free to contact us for further clarification.

Understanding the Term in Real Estate and the Role of the “As-Is” addendum.

I read a good article today on “As-Is” addenda and real estate contracts on the Inman News Network. The purpose of this blog post is to help define what “As-Is” means in Hawaii, situations where buyers might encounter “As Is” contracts and buyers rights and protection with As Is contracts.

The Hawaii Purchase Contract describes the purpose of an “AS-IS” addenda as the following:

“Property is being sold in its existing condition. Except as may be agreed to elsewhere in Purchase Contract, seller will make no repairs and will convey Property without any representations or warranties, either expressed or implied.”

As mentioned in the Inman article, the term “As-Is” addendum can be a put-off to buyers. Some buyers may assume that the home has a lot of problems that may be expensive to repair. That is not always the case. If the listed property is a second home and the seller has not been on the property in some time, some seller’s will opt to sell the property “as-is” because they are unaware of the current condition of the property or unavailable to make repairs. We are also finding that most short sales and bank owned properties will require an “As-Is” Addendum. Banks usually know nothing about the condition of the property, nor do they want to make additional expenditures on the property when they are already losing money on the sale. In both the absentee owner and the bank sale situations, the “As Is” addendum are less a reflection of the condition of the property and more a reflection of the seller’s circumstances.

It is important to note, that even with an As-Is addendum, the buyers of a property are afforded two basic means of protection. First and foremost, the seller is obligated to disclose any known current or previous defects to a property. The buyer will receive a disclosure statement shortly after their offer is inspected. The buyer has a period of time to review the disclosure statement. If it is not to their satisfaction and they cancel in writing during the disclosure review period, they will be eligible for a complete refund of all deposits. The buyer also has the opportunity to do their own inspections of the property. In the state of Hawaii, a buyer has an inspection period. During this period, the buyer is encouraged to hire a professional building inspector. If the results of the inspection are not to the satisfaction of the buyer, the buyer may cancel the contract. If the contract is canceled in writing within the specified inspection period, the buyer would receive all deposits in full.

I have even seen some circumstances where buyers have requested and received repairs after signing an “As-Is” addendum. In these circumstances, the buyer has discovered a significant issue with the property during inspection. While the seller is not obligated to credit the buyer or to make repairs, they will need to disclose this newly discovered defect to any future buyers. In some circumstances, a seller may find it is better to acquiesce to a willing buyers request for repairs than to put the property back on the market with newly discovered issues.

One other thing to keep in mind is that an “As-Is” addendum can be used as an aid to buyers. While it is more common in seller’s markets, we are still seeing some situations on Maui where multiple buyers may put in an offer on the same property. In these situations, sellers may be more receptive to a cleaner “As Is” offer.

I have recently shown both land and condominiums that were subject to special assessments. Realizing that not everyone is familiar with the term, I thought a quick explanation might be a good blog post. Community associations and home owners associations may need special assessments when a subdivision or condominium complex requires a maintenance project that can not be funded entirely through the association’s financial reserves. These special assessments may come in the form of a one time charge or it may be pro rated over a number of months.

Condo associations require individual condo owners to pay monthly maintenance fees. Those maintenance fees are allocated in part to ongoing expenses such as grounds maintenance and insurance. A portion of maintenance fees are also used towards establishing financial reserves to fund larger maintenance projects. Depending on the size and scope of the project, those financial reserves may be inadequate. For example, Sugar Beach condominiums in Kihei is in the process of repairing the stucco on the exterior of the building and doing a complete overhaul of its central air conditioning system. They have had to levy a special assessment on the condo owners to cover the considerable expense of the project.

In the case of home owners associations, you are more likely to see special assessments if a property has private roads or private water. There have been instances on Maui where a subdivision’s private water system has required a significant overhaul. In those circumstances, the cost of replacing or overhauling the system will be dispersed amongst the individual owners.

How do you know if a property you are interested in requires a special assessment? If a special assessment is planned or ongoing, the seller of the property is required by law to disclose the assessment. Buyers should also request to review home owner’s association or condo association documents. Recent meeting minutes from the homeowners association meetings may include notes about maintenance problems or projects that could be forthcoming. Documents detailing the associations reserves can give you a sense of how well an association would be able to weather an upcoming maintenance project without levying an assessment. Low reserves combined with low maintenance fees could be a harbinger of future assessments. Not all subdivisions and condos are going to have special assessments. If an association keeps close tabs on maintenance issues and keeps solid reserves, the less likely you are to see assessments. Contact us today if you have any questions about assessments.

Fractional Ownership is a term that you will begin to hear more frequently on Maui. While it is being heralded as a new big thing in real estate, it is also a type of ownership that has seen little government regulation or scrutiny. As this market emerges, it is still the wild wild west with unresolved issues on title, zoning, liability, taxation, local government regulation, condominium association and homeowner association regulation, and issues as of yet unknown. We will continue to monitor this emerging market and pass along new information as it becomes available. Stay tuned.