I received a call from a young lady the other day.  She said she had gone into a Detroit home being showed by a metro Detroit real estate agent.  The buyer said it was a very nice home.  She was calling me to get pre-qualified for a mortgage.

As she explained what was going on with the home purchase I quickly decided I wanted nothing to do with this deal.  The real estate agent was going to commit fraud.  The asking price was $95,000 for this Detroit Home.  The real estate agent/seller was going to give the buyer $20,000 cash back on the day of closing.  It was not going to be disclosed on the HUD Settlement statement.  The lady said that way the bank would not know about it.

This is fraud!

You can not get cash back on a home purchase and not disclose it to your mortgage company, or the cash back is not disclosed on the closing paperwork.  It is fraud plain and simple.  To this lady it was a lot of money.  A half year of work.  Who wouldn't want that cash.

But what she didn't understand is that she was borrowing the cash, that she would be paying interest on the money, and that she was overpaying for the home.

All she saw was the $20,000 cash.  Probably more money that she has ever seen at one time.  No wonder she was sucked into this deal.

She went her way to find another mortgage lender because she would not listen to me.  Good luck because she is going to need it.  So if the seller, mortgage person, or real estate agent offers you money back on the side..... Run  

Michigan Property tax information

When closing on Metro Detroit Real Estate you will notice on the first page of the HUD Settlement paper (the page with all the numbers) tax pro-rations

The tax pro-rations are the money the buyer owes the seller for the unused portion of Michigan property tax that the seller has paid.   In Michigan Summer tax bill is sent out on July 1 and the Winter tax bill is sent out on December 1.  In most Michigan counties the summer tax bill is the bigger bill.  In most Michigan counties the tax bill is paid forward.  So the winter tax bill is paid on Dec 1 2007 and covers from Dec 1 2007 until Nov 30 2008.

To explain this easily lets say the summer property tax bill is $2400 and the winter property tax bill is $1200.  Let's say we are closing October 1 2008.  So the seller paid the summer tax bill ($2400) as of July 1 2008.  So breaking it down each month  is $200.  (2400 divided by 12 = $200)  So if the seller paid the in July and we are closing in October, the seller will have used up  3 months of his money ( July, August, September)  So the buyer owes the seller 9 months of the unsed summer tax money.  9 months times $200 = $1800

The Michigan property tax pro-rationsfor the winter tax is figured the same way.  The seller paid the winter tax on Dec 1,2007.  So the seller has used up taxes all the way to October 1,2008.  So the Seller used Dec, January, February, March, April, May, June, July, August, September.   So the seller has used up ten months.  So the buyer only owes the seller 2 months of the unused taxes.  So the winter tax bill was $1200 divided by 12 months = $100 a month.  So the buyer owes $200 for the winter property taxes.

So the total Michigan property tax pro-rations the buyer owes the seller as of October 1, 2008 is $1800 (summer tax) and $200 (winter tax) for a total of $2000.

For more on closing costs, Michigan mortgages,  Metro Detroit mortgages, or fighting your Michigan property tax assessment, understanding your Michigan tax bill

As a Michigan mortgage person I know everything about a persons financial well being when they come to see me.  We know their assets, their income, their expenses.  We can deduct from talking to our clients their lifestyle and their theory of money.  We can even tell things about our clients by their credit report.  Where they spend their money and how much they spend at certain stores. 

One of the biggest downfalls I am seeing from parents is that they are paying to support their kids.  Some of my clients have gone over board and have their finances in turmoil.  All because they were supporting their kids and their overspending lifestyles.

I  am not one to talk.  We support our son Ryan to the fullest.  A couple of weeks ago we moved him from the suburbs of Chicage into the city of Chicago.  It was 3 flights down and 4 flights up.  My wife was exhausted and needed a day of rest after working herself to death for three days.  When he first moved out there my wife Marianne bought him everything he needed.  So I am not one to talk. 

But at some point we all need to let go.  When you go to help your kids out of a mess.  Step back and think about it.  Sometimes the best thing we can do is let them learn on their own.  I have had clients pay for their kid's apartments after they graduated from college ( three years after).  I have had clients pay for their kids foreclosures (twice) and there were not special circumstances other than the kid living beyond their means.

At some point they need to grow up financially.  Cutting the purse string will make them learn the basics.  I believe it is ok to help them out if you can afford it financially.  But remember you have to have the money to retire.  You should have the money to help the kids out.  To bankrupt yourself or to go into foreclosure yourself for your kids may not be the best move.

But who am I to say.  It is your life and your kids.  What ever you do think before you refinance your home.  Think before you take the cash out to give to your kids.   

photo courtesty of http://www.freephotos.com

Michigan Title Insurance 

 In metro Detroit real estate transactions and refinancing title insurance costs sometimes make up the majority of the closing costs.  It is not unusual for title closing costs to be over $1000.   I recently had a $12,000 cash home purchase deal quoted.  The title insurance was $279 and the closing cost was $200.  That was almost 4% of the price of the home!  Sometimes I am outraged at the costs but then I remember what how it protects the Metro Detroit Home buyer.

Title companies issue a title policy and you pay an insurance premium for the title policy.  They issue you a title commitment showing what liens have to be paid off at closing.  The title company requires that for clear title.  Banks require that to get a mortgage. 

The title insurance premium pays for the time prior to the date of closing.   That shows the title is now clear at the date of closing and that all prior liens are gone.  That is what you pay title insurance for.  You want that .  You want the comfort of knowing your home has no claims on it.  That is what you pay title insurance for.

But the title insurance premium is so helpful when there are title issues that arise after a closing.  In Metro Detroit a few years ago a builder went out of business.   He had sold homes, closed on them, but had not paid all the contractors.   When the builder went out of business the contractors started putting liens on the sold Metro Detroit homes.  The home owners contacted the title insurance company.  The title insurance company that had the title policy had the responsibility of making good on having a clear title.  Even though the contractors put the liens on after the closing they had don the work prior to closing and were due money.  The title insurance company paid off the contractors to get rid of the liens.  The Metro Detroit home owners now had clear title.

At a closing I was just at 4 months ago the title insurance company issued a title committment.  There was no mention of overdue taxes on the commitment.  But after the closing Wayne County recorded a over due tax bill on a change of homestead taxes.  I knew nothing about it and the title company knew nothing about it.  But they would have been liable for the tax bill, and not the new homeowner.  The title has to be free of liens at the time of closing.

In Wayne County Mi takes a while to record items.  So sometimes items get missed by the title companies.  Title insurance protects you from those mistakes.   For more on Metro Detroit mortgages or Michigan mortgages go to the side categories.

My thought of the day is "The three great essentials to achieving anything worthwhile are; first, hard work, second, stick-to-it-iveness, and third, common sense."   Thomas Edison 

 Here are all the changes that are making a difference when buying Metro Detroit real estate.  It doesn't matter if you are buying Livonia real estate, a Detroit home, or an Oakland County home for sale.

 I recently read a blog about a guy who wasn't licensed in real estate that I believed was going to take advantage of seniors.  He wanted to have the seniors buy a home with a hard money loan.   He wanted a hard money loan to avoid FHA safeguards and check and balances.  ( Read the rules FHA has about flipping homes below)   Hard money loans usually have interest rates of 12 to 18% rate.  His company or friends would then fix up the house.  Their charges would be added as a second mortgage to the Metro Detroit home.  Then they would "try" to refinance the senior into a reverse FHA mortgage.  Then the senior would own a home that they have little or no investment into, and be able to live in it the rest of their lives payment free.

It is a great plan to buy Metro Detroit foreclosures and Metro Detroit real estate and have them appraise for a lot more when fixed up.  In theory it is great but Banks and FHA are looking at appraisals hard. 

For a home to be resold through FHA FINANCING, the previous purchase of that home must have happened at least 91 days ago. So, if you purchase a Canton home on April 3 of this year, you cannot get FHA Financing for the Metro Detroit home until approximately July 4.

Also any resales that occur between 91 and 180 days after the last transaction (SOLD) date have a 100% stipulation. If the Metro Detroit home is being sold for more than 100% of the last sales price, FHA will require additional documentation (i.e. a second appraisal) to validate value of the subject property.

So rehabbing or "flipping" through FHA is going to become much harder for inflated appraisals.  Homes that are not truly worth the price the rehabber is trying to get are most likely going to be rejected by FHA and the balance checks they have put into place. 

Check out the side categories for more buyers tips, and mortgage information.  Feel free to Search Michigan homes for sale on my other website.