Fair Housing

Fair Housing Acts prohibit discrimination based on race, color, sex, national origin, religion, disability, or familial status in real estate transactions involving residential property. It is sad that it has to be written up as a law, rather than us realizing for ourselves that it is wrong to discriminate in the first place. Some of the noted forms of violations as it applies to real estate transactions are described below.

Red Lining is the practice of lenders conspiring to refuse loans to applicants in certain neighborhoods in order to keep the minorities out.

Steering is the practice of showing or targeting only specific neighborhoods based on discriminatory criteria. So, if you ask your agent to show you properties that meet only a specific criteria based on one of the protected classes described above, your agent has to politely deny your request. Likewise, a seller insisting that the buyer be restricted to a certain class is a violation of the law. This does not mean that it is illegal to reject some one with a bad credit score as it is not discrimination based on the protected classes described above.

Block Busting or Panic Peddling is the practice of a broker hoping to profit by persuading home owners to sell claiming minority groups are moving into the neighborhood.

An important fact to keep in mind is that Fair Housing Acts does not apply to commercial properties or for owner occupied properties with less than 4 rental units. A wealth of information is available at the Housing and Urban Development web site.

If you feel you have been discriminated against, you can file a complaint with the Housing and Urban Development (HUD) within 1 year of the violation.

Foreclosure Prevention

Foreclosure is a process through which a lender can recover the loan by taking ownership of the property used to secure the loan if the borrower defaults in making payments.

A property goes into pre-foreclosure when the lender files a public notice of default after a borrower defaults on the loan payment. During pre-foreclosure, the borrower has the right of redemption within a grace period specified by state law. The borrower may sell his property during the pre-foreclosure period to pay off the loan. The lender may also agree to sell the house at a price lower than the current loan amount and release the borrower of the obligation to pay the remainder through a process called a Short Sale. At the end of the pre-foreclosure stage, if the owner has not been able to reinstate the loan or sell the house, it is sold at a public auction. The auction usually takes place at the county court house, and the property will be sold to the highest bidder.

Take steps to take control your finances as I discussed in Independence Day and try to cut down unnecessary expenses as much as you can to become a frugal spender.

Beware of scams. You should NOT have to pay for counseling when HUD approved free services are available. Look for the links below.

If you are behind in payments and have received a letter from the lender

• Contact the lender immediately to try and work out a payment plan to catch up with the payments you have been unable to make. It is very important that you DO NOT ignore these notices. The problem will not go away if you ignore the notices, and it will only make matters worse. If you communicate with the lender, at least you have a chance of negotiating better terms with your loan, or try to work out a payment plan while you look for a job or put your house up for sale. Lenders, faced with many foreclosures, are willing to work out loan payment arrangements, but you have to take the first step by contacting your lender.
• If you can come up with the costs required to cure foreclosure, you have the right of redemption within a specified time period.
• If you cannot sell at a break even price, you may still be better off selling the house at a loss than continue to loose more money. You maybe able to negotiate a Short Sale, a process by which the lender agrees to sell your property at a loss, and release you of the additional loan obligations.

If you are still making payments and is facing a rate reset.

• Contact your lender and try to work out a payment plan or see if you can you refinance under better terms. Lenders are not in the business of buying and selling property and they don't want you to loose your house, because its costly for them as well. It takes time, money and effort for the lender to foreclose, renovate and put a house back on the market. So, you do have some bargaining power.
• Shop around for loans at better terms with other lenders.
• If you are unable to secure a new loan at better terms, consider selling your property.

In any case, do your best to educate yourself about the options that are available to you. I have done the research and listed my sources below.

Homeownership Preservation Foundation offers free counseling and claims to have provided advice and education to more than 300,000 homeowners since 2002. Click here for other HUD Approved Housing Counseling Agencies

Department of Housing and Urban Development is a good source of information about foreclosure prevention.

• Foreclosure Prevention.
• How to Avoid Foreclosure - A good article that mentions how to avoid scams as well
  
• You Can Avoid Foreclosure and Keep Your Home
  
• Housing Counseling: Georgia
• Housing Counseling: Other states
• Counseling and education for Native Americans

From Federal Reserve

• Foreclosure Resources for Consumers

From FreddieMac

• Avoiding Foreclosure

From IRS

• Foreclosure and Debt Cancellation

If you want the legalities, find the foreclosure law for your state

• Foreclosure Law for your state

Foreclosure Information for Veterans

• Foreclosure Information for Veterans
• Department of Veterans Affiars

Independence Day

On the 4th of July 2008, we celebrate the 232nd occasion of The Declaration of Independence from the British which occurred on July 4, 1776. This certainly is a great cause for celebration, as we all are grateful for the fruitful lives we enjoy today due to the sacrifices made by those before us. This is also a time for us to think of our own independence; independence from debt, which leads to true liberation. Each of us should try to declare independence from debt by taking action to minimize and eliminate unhealthy debt. The day we achieve that, is a day of true independence that we can celebrate for ourselves. Here are 12 suggestions that you can try.

1. Take inventory of your income vs. expenses. First step is to figure out what your income is and what your expenses are. If you don’t know what, how and where you are spending your money, you might as well walk blindfold in a mine field.
2. Make a budget. Now that you know your income and expenses, you have to make sure you are spending less than you make.
3. Recognize that there is healthy debt and unhealthy debt. What I call healthy debt is debt that can work for you, such as your home mortgage, since the interest paid on your mortgage is tax deductible. Unhealthy debt is debt from Credit Cards or Auto loans where the interest paid is money gone from your wallet for ever. Automobiles and consumer goods are depreciating assets as the value will continue to depreciate over time.
4. Automate your bills. If you are making your purchases on credit cards, make sure you pay it off before the due date every month. If you sign up for online banking, you can automate the payments, so you will never be late. Also make sure you join rewards programs that will give you something back. If you are going to have to spend the money anyway, why refuse to get something back?
5. Debt consolidation. If you have credit card debt, take steps to consolidate your debt and make a plan to pay it off ASAP. Credit card debt is usually the worst kind of debt as they allow you to make minimum payments while sucking you dry.
6. Figure out all the other unnecessary expenses and take steps to minimize them. We all know that we have little choice when it comes to energy costs, but you can save by packing your lunch instead of eating out, etc.
7. Organize yourself. If you want to track every little expense as it happens, try Xpenser to help you track them. If not, at least try to write down your major expenses.
   
8. Make sure you put aside some savings every month. If it is not possible to save, at least try not to spend more than you make.
9. Become a lender. If you have additional money, you could become a lender yourself thru Prosper. Remember that lending is a risky business, so do your research and make sure you are investing "only what you can afford to loose".
10. Contribute to your 401K. If your employer has a matching 401K program, make sure you contribute at least the minimum required to get the maximum matching from the employer.
    
11. Learn to become a frugal spender and try to make the dollar go as far as possible. You work hard to earn your money, why should you let it leave your pocket too easily?
12. Seek the assistance of a financial planner if you must. Suze Orman always gives good advice.

Should I buy or rent?

If you are in it for the long term, this is a great time to buy with the low interest rates and dropping home prices. However, the decision to buy or rent should be based on many factors such as your financial stability, stability of your job and what stage of life you are in. In a nutshell, buying may be a good option for you if you have a steady income and a stable life and would like to plan for your future. On the other hand if you are uncertain about your financials, or if you are not sure where your next job takes you, you might be better off renting.

When you rent, you are paying some one else's mortgage, and additional profit as well. Every month, you are parting with money that could be your future savings; you have chosen to rob yourself and to make the property owner richer. Why do you want to keep throwing away your hard earned money when you can contribute that towards owning your own home?

When you make the decision to buy your home, you are making a decision that will profoundly change your life. You are taking charge of creating your own destiny, one of creating a financially secure future for you and your family. Of course, you have to be cautious, plan carefully, and make responsible decisions that meet your budget. Failing to do so, and buying into bigger dreams that you cannot afford is a sure way to loose as can be evidenced by the current state of affairs in the real estate market. For a little increase over your monthly rental payment, you get a better quality of life as an owner.

If you choose to buy property, I strongly recommend a fixed rate mortgage, because you can plan on your monthly mortgage payment being the same.

Lets consider the advantages of renting

1. After the lease terms are satisfied, you can leave with a few months notice.
2. If you have to break the lease, its not as disastrous as not being able to pay your mortgage
3. If something breaks down, just call the landlord to fix it

Disadvantage of renting

1. No savings. Every month, you pay in advance for the privilege of living at your apartment
2. Every time the lease expires, the landlord wants you to sign a new lease, with a rent increase
3. Noisy neighbors. Need I say more?

Now lets look at the benefits of owning a own home.

1. Tax benefit. Interest paid on your home is tax deductible.
2. Homestead exemption to provide additional protection for the home owner.
   
3. Unlike renting, you are saving for the future with every payment.
4. Appreciation over a long period of time. Housing generally appreciates over a long period of time as population increases and the need for housing increases as well.
5. Improvements pay off. You can make your home more appealing by doing little things like landscaping, or upgrading your home incrementally. These improvements will add value to your home that the next buyer will find more appealing
6. At some point in the future if you decide to sell your house, you should have built up equity that will be yours.
7. Though I don’t recommend it, you can borrow against your equity in times of need.
8. No more rent increases (If you get a fixed mortgage)
9. You are the king of your castle. You dont have to live by the rules of a landlord anymore.
10. Pride of ownership. Its the American dream.

Disadvantages of owning a home

1. You have to be financially responsible. Not being able to pay the mortgage can be disastrous
2. Not able to relocate as easily since you have to sell or rent your home first
3. If something breaks down, YOU have to pay to fix it

Buying is the only option that will help you save for the future with every payment. However, buying is certainly not the best option for everybody; that decision should be based on many factors including your ability to buy and continue your payments, how long you plan to live in the area, and how stable your job and life is, and what you expect from home ownership.

You can use The New York Times calculator to figure out the numbers.

What to do about high gas prices

The price of gas has been going up too much too fast. The pain at the pump is starting to affect people to the point of having to worry about gas thieves as illustrated by this story.  Here is a car that that 157 miles to the gallon, and is affordable.  Hope this will come to the USA soon.

Lowest Gas Prices in Buford, Cumming, Duluth, Johns Creek, Norcross, Suwanee

Atlanta Gas Prices provided by GasBuddy.com

Unfortunately, the prices will keep going up till we, as consumers learn to cut back and send a clear signal to the oil companies that we are willing to let go of the conveniences in exchange for lesser gas prices. So, lets explore a few ideas that can make a difference in the long run if we learn to make a few sacrifices. Doing nothing about it is a clear signal to squeeze us for more money. We have to recognize that small changes add up... a river doesn’t start as a river, but as tiny streams that adds up to make the whole.

Break free from the convenience tax. When you see the gas station on the opposite side of the road advertising gas for less, but you turn to the one with higher price because its on the same side of the road as you are driving due to the inconvenience of having to make an additional turn, you have sent the oil companies the message to take your pants a little lower next time. Break out of this habit, and not will you be saving a little bit of money that adds up over the years, but also are sending the message that you are not willing to pay for the convenience. Just to do the math, if the savings is 10c a gallon and you have a 11 gallon tank that you fill 4 times a month.

10c * 11 gallons * 4 times a month * 12 months = $52.80 per year. Seems like a small gain for the extra effort, but that’s at least an extra tank full per year. If we assume 50 million people would try this out, that’s $2,640,000,000 ($2.5 billion) of profit prevented from going into the pockets of oil companies in exchange for minor conveniences!

Use discount gas sellers such as Costco, Sams Club and Kroger groceries with gas stations. Yes, sometimes you have wait in line a few minutes, but this is one of those convenience penalty points I mentioned earlier. If you are out of gas and one of these stores are not close by, put in just enough gas to get to one of them. Only time I would fill a tank elsewhere is when I am in an extreme hurry and I can't get there without a full tank. If more people are willing to try this, it will send a clear signal to the oil companies. You know this works, because the gas stations close to one of these are always cheaper than ones further away.

Plan your trips better. See if you can combine several trips into one by re-shuffling priorities or limitations. Lets look at a simple common sense example to illustrate the point. Suppose you have to buy groceries and also go the gym, you might be thinking of doing it in 2 trips because you don’t want the groceries to spoil while you work out at the gym. By reversing the order, first going to the gym and then buying the groceries will help you combine the 2 separate trips into one.

If you have to travel to multiple places, try to find the best route by using online resources like google maps or yahoo maps. They both support adding multiple address and you can re-arrainge the route by dragging and dropping the markers to find the best route for you.

GPS to the rescue If you are on the road a lot and have to go to unfamiliar places, or the kind that gets lost a lot, consider buying GPS system. The money saved would pay for itself over the years.

Ditch the gas guzzler if possible If you have an gas guzzler that you bought when the gas was cheap, consider trading it in for a more fuel efficient one or a hybrid. Other option is to go all electric, but you are somewhat limited by range and cost of the vehicles.

Heres some info about electric cars

Zap World
ZENN Cars
Phoenix Motorcars
Dynasty Electric Car Corp
Commuter Cars
Plugin America
Green Basics
Tesla Mortors for those with deep pockets
EV Wrold


Just to get some idea of how much money we spend on gas, lets assume that you drive 15,000 miles a year and the gas is at $4 a gallon. Here is the math for running the vehicles for 5 years.

Gas Guzzler, assuming 15 mpg
(15,000/15 mpg) * $4 a gallon = $4000 a year => $20000 spent on fuel for 5 years of operation.

Gas Sipper, assuming 30 mpg
(15,000 miles/30 mpg) * $4 a gallon = $2000 => $10000 over 5 years

Toyota Prius, assuming 45 mpg
(15,000 miles/45 mpg) * $4 a gallon = $1333 => $6665 over 5 years

Difference between the gas guzzler and the Prius over 5 years is $13335. If you assume we have 1 million gas guzzlers on the road, that’s $13 billion of profits to the oil companies! If we can reduce these profits by a few $billion, do you think that would send a clear signal to the oil guys?

If we realize the fact that the small changes we make has a huge impact collectively, we should be able to overcome price gouging by the big oil companies.

Would I get a better deal from a builder without an agent since they don't have to pay the agent?

This is a very good and valid question to ask; after all, if a buyer can avoid the 3% or so paid to the selling broker, shouldn’t the buyer be able to negotiate for that much less? At first glance, it would seem like a good assumption to make.

As much as this seems to make sense, this is not the way it works in real estate. The reason has to do with how the commission for selling is set aside, which is pre-determined as I explained in the section titled Agent Compensation. A builder generally does not sell their properties directly; they either enlist the services of a broker or have sales agents of their own. These agents have the best interest of the builder in mind, not that of the customer. This should be obvious; after all, when you go to buy a car, you don't expect a car salesman to work in your best interest, do you?

If a customer walks in without an agent and purchases property, the agent acting on behalf of the builder (the listing agent) is entitled to the full commission, instead of having to split it with the buyer's agent. It is not passed on to the buyer as one would think. Of course, one could argue that the listing agent would be more inclined to sell the property to such a customer even at a lesser price as he/she can get a bigger commission. However, the flaw with this argument is that it is the seller/builder that has to accept the offer, not the listing agent. The listing agent has to present all offers to the seller, and it is entirely the decision of the seller to accept, reject, or make a counter offer. So the question of an agent willing to lower the price for a customer without buyer representation is nothing but a myth. Not only that, by choosing to go at it alone, you have thrown away the wealth of knowledge and experience that an agent can help you with. Do you know how to protect yourself from unforeseen circumstances? Who do you turn to when you have problems? Just because a buyers agent is paid from the sales commission set aside by the seller, doesn’t mean that the agent has to look out for the best interests of the seller. An agent has to work in the best interest of his client and that is determined by one of the two documents a buyer chooses to sign; Exclusive vs. Non Exclusive agreement. If you want your agent to work with your best interests in mind, choose to be a Client by choosing the Exclusive agreement as opposed being a Customer with the Non Exclusive agreement.

Who are you? A Client or a Customer?

To those not familiar with the real estate law, the words Client and Customer may mean the same. However, these two words have a huge difference to the real estate law and how the Fiduciary Duties of an agent is determined.

A customer is simply a buyer that an agent may offer assistance to make his or her purchase. A salesman at a clothing store, assisting a buyer with the purchase of a suit is a good example of this. The salesman may offer assistance in locating a suit that fits well for the buyer, and make suggestions and offer opinion about how good the fit is, but the salesman's fiduciary duty is to the store owner, not to the customer. The only duties owed to a customer are that the agent is to be fair and honest. Likewise, when an agent works with a buyer as a customer agent's fiduciary duties are to the seller, not to the buyer. This can be misleading because the agent helps you in locating the properties and making the offer. However, the agent must act in the best interest of the seller.

The duties offered to a client goes far beyond this; In addition to being fair and honest, an agent must be extremely loyal and put the interests of a client before his own; there should be no conflict of interest and the agent is accountable for his actions. In other words, the agent promises to be your best buddy that looks out for your best interest in the real estate transaction.

It is generally in the best interest of a buyer to be a Client as opposed to being a Customer as you are getting the fiduciary duties of an agent for no cost out of your pocket. The only disadvantage is if you are dealing with a seller that is not wiling to pay the selling agent's commission, which is not very common. In that situation, the buyer may becomes responsible for the selling agent's commission. One can run into this situation if you had registered with a builder or a "for sale by owner" first, and then found an agent later on and decides to buy that same property and the seller is not willing to pay the sales commission since the buyer came to him first without an agent. Most new construction requires that you specify your agent at the time you register with them, because they are not willing to pay an agent when they found a Customer of their own. Why should they split their commission, when they don’t have to? In this situation, the listing agent representing the builder can enjoy the full commission by themselves!

Generally, if the Client has consideration for his agent, this situation will never arise. If you don’t or can't trust your agent, my recommendation is that you find another agent. One should never sign up with an agent that you don't trust or feel comfortable with.

Now that I explained the advantages to a buyer as a Client, I should also state the advantage to the agent, which is that the agent is working with a buyer that has promised to compensate the agent for his efforts; a client that he can trust as well, for the mutual benefit of both. Who would you work harder for, one who makes a commitment or one who won’t? So, how do you become a client or a customer? That is determined by which agreement you sign; the Exclusive or Non Exclusive agreement.

Exclusive vs. Non Exclusive agreement

When you enlist the services of a Real Estate agent in Georgia, you will be asked to sign one of two forms; either an Exclusive or Non Exclusive agreement. The Georgia Real Estate Law requires that one of these two forms be signed prior to buyer representation, which determines the capacity at which a real estate agent owes his or her Fiduciary Duties to a Client or a Customer. You are a Client if you sign the Exclusive agreement and a Customer if you signed the Non Exclusive agreement. Essentially, an agent is obligated to look after the best interests of a client, while the duties offered to a customer is simply that of locating suitable property. In other words, when you sign the Exclusive agreement, your agent must represent your best interests, while signing the Non Exclusive agreement means that the agent is supposed to represent the best interest of the seller. This may sound very confusing, but when you look at how sales commissions come into the picture, who represents who has great implications.

To understand the full implications of the Exclusive and Non Exclusive agreements, we have to take look back at history and how agents are compensated for their effort. There was a time when all buyers were strictly considered Customers and the agents solely represented the seller's interests. The life was simple; the agent represents the seller, and gets paid by the seller, much like a sales person at car dealership. When the law was changed to allow for buyer representation, this complicated the situation; now who pays for the buyer's agent for his efforts, when a buyer’s agent tries to squeeze the seller on buyer’s behalf? Legally, the answer is quite simple, and well defined. However, the general public is not well informed and is suspicious of agent's intentions, even when signed up as a client.

It is generally advantageous to a buyer to sign the exclusive agreement as an agent owes Fiduciary Duties to a client. This is a benefit that comes at no cost to a buyer. You could choose the non-exclusive agreement and be a customer if you are well informed about real estate transactions and want to go at it on our own, but still needs some assitance. However, remember that the agent's fiduciary duties belong to the seller with this agreement.

Read my other article titled Who are you? A Client or a Customer? to understand more about the differences between a client and customer.

Agent Compensation

The question of who compensates for the buyers agent is well understood, except under very rare and unusual circumstances that can easily be avoided. It is always advantageous for a buyer to enlist the services of an agent rather than buying on your own, because an agent is experienced in the process and knows how to protect you and give you advice about unforeseen circumstances.

There are generally no out of pocket expenses to a buyer for using the services of a real estate agent. Agents are compensated from a portion of the proceeds of a sale that is set aside as commission when a seller enters into an agreement to sell property.

1. Selller enters into a Listing Agreement with a broker (Listing Broker) at which time a sales commission is agreed upon.
2. Listing broker lists the property in Multiple Listing Service, and agrees to share the commission with any broker that brings in a buyer (Selling Broker).
3. At the time of closing the sale, commission is split between the listing broker and the selling broker.

So, the commission for a buyers agent generally is always paid by the seller, though indirectly by the listing broker cooperating with the buyers agent. In case there is no selling broker, such as when buying a new home without buyer representation, the listing broker is entitled to the full compensation. In certain situations, a seller may offer additional incentives to brokers to ensure that their properties are actively shown to all buyers. However, there should be no conflict of interest and the broker/agent always has to work with the best interest of the client. Note that I mentioned broker, in the above explanation, because all clients belong to the broker, not the agent. The agent makes even less, after having to split the commission yet again with his or her brokerage company.

Agent, Broker, what’s the difference?

A real estate agent is one who has obtained a real estate salesperson's license and works under a broker. A broker is an experienced real estate agent that has obtained a brokers license. Only a broker is allowed to operate a brokerage company and every real estate brokerage company has a managing broker. The listing agent is an agent acting on behalf of a seller, after having entered into an agreement to sell property. Similarly, a listing broker is the broker of the listing agent that is representing the seller. A buyer's agent is an agent assisting a buyer in locating a property suitable for the buyer. A buyer's agent is also called the selling agent in a real estate transaction to refer to the fact that this is the agent that produced the willing and able buyer in the real estate transaction. An agent's duties to a client are the same as those of a broker's duties to a client. For more details, please refer to the Wikipedia