Tayson Rockefeller, Author at Teton Realty Blog

Owner Financing (Information for Sellers)

December 13, 2019 By Tayson Rockefeller Leave a Comment

As usual, I’m including my disclosure up front. The information I am providing is generic information that I believe is accurate. By no means, however, Am I guaranteeing the accuracy of this information, nor am I suggesting that you owner finance property as a buyer or seller without consulting with an attorney.

Back in 2015 I wrote an article about the difficulties of finding someone willing to owner finance their property. Much like today, 2015 was an expanding economy and existing home inventory was low. As a result, I still haven’t run into too many sellers willing to owner finance their home. On the flip side, land inventory is high by comparison (though not as high as some try to lead us to believe) and offering owner financing can be a useful tool to help sell your property if you have the means and interest in doing so.

From the buyer’s perspective, things aren’t all that different than purchasing property with a traditional lender. The seller has the flexibility to offer lower down payment requirements, and usually payments are made to a third-party servicing company who would collect principal, interest, and even property taxes just like a lender would. The buyer and seller negotiate who will pay the servicing fees, but they are very affordable.

That being said, I’m going to focus on how the process will work for the seller of a property, and try to explain some of the risks associated.

Typically, real estate is secured by a promissory note and deed of trust or a mortgage. The mortgage or deed of trust is the contract between the buyer and the lender that creates a lien on the property, and the promissory note is the “IOU” that contains the promise to repay the loan. A mortgage and a deed of trust function differently, and typically mortgages are only used for large agricultural property. A deed of trust has its advantages for the lender, and it’s what we use in almost every circumstance (in Idaho) as mentioned. For that reason, I’ll focus on a promissory note and deed of trust.

Deed of Trust

A deed of trust involves 3 parties. The trustor (borrower or buyer) the beneficiary (lender or seller) and the trustee. The trustee is an independent third-party that would hold the legal title to the property. The trustee also has the ability to sell the property at public auction if the buyer defaults, more on this later.

Once the buyer and seller come to an agreement with respect to the amount financed, interest rate, how much the late fee will be, the loan maturity date and so forth, the terms are written into the promissory note. Additional terms can also be implemented into the promissory note such as language not permitting construction, a due on sale clause in the event the property is transferred, intended use, and so on.

Now that we have a promissory note with the terms, and a deed of trust outlining the parties involved and contract, they closing can take place at which time the buyer becomes the new owner and begins making payments. As mentioned above, an escrow company is usually hired as part of the agreement in order to collect payments and disburse funds.

Loan Payoff

Once the loan is paid off, the trustee releases the deed of trust and files the warranty deed at which time the buyer is the legal owner without a lien on their property (assuming they don’t have any other liens on the property). This is all fine, but what happens if the buyer neglects to make their payments. How does the foreclosure process work?

This is where the biggest benefits of a note and deed of trust come into play. A deed of trust offers a much faster foreclosure process when compared with a mortgage.

Default

Late fees and interest are outlined in the promissory note as mentioned above. Default occurs after the loan becomes more than 30 days past due. Once the trustee is notified, they file the notice of default.

Foreclosure

The foreclosure period begins after the notice of default is filed, and is 120 days. During this time, a number of attempts to collect payment must take place. Usually, the trustee will appoint a “substitution of trustee” (or foreclosure company) who will ensure all of these steps are properly handled. These steps include:

3 attempts must be made to reach the owner within a 7-day period. Additionally, notices must be mailed to all publicly known addresses, as well as any junior lien holders. Finally, notice must be ran for 4 consecutive weeks in the newspaper.

If the trustor brings payments current and pays any applicable late fees and interest, the process ends. If all of these steps are taken and the trustor does not bring payments current to end the process, an affidavit is filed within the first 100 days of the foreclosure period proving that all of the proper steps had been made to contact the owner.

At the end of the 120 days, a public auction is held for the owed amount including late fees, interest and attorney’s fees. The owner may choose to offer the property for less than the owed amount. In the event that the property is sold above the owed amount, and there are no junior lien holders, that amount would go to the seller of the property. If the property is not sold at auction, the property would go back to the original owner.

Cost

Foreclsoure companies usually charge a few thousand dollars to handle this process, but it can vary. In addition a title search called a TSG or Trustees Sale Guarantee must be completed to identify any new liens on the property. This cost is based on the amount of the property, so the fee will be higher for more expensive properties.

How many vacant building sites are there? (Really)

November 14, 2019 By Tayson Rockefeller Leave a Comment

I’ve been reading a number of articles lately referencing the impact all of the development in the late 2000s had on Teton Valley. Many of these articles compare today’s potential problems with those of the subdivision development era. Glampgrounds, RV parks, and certainly any further land development have been targets, often for good reason. While I agree that the amount of development that occurred in the late 2000s was extreme, I believe that the perceived impact and comparison to some of these other projects is also extreme, and in many cases exaggerated. I’ve heard numbers from 7000 to 16000 undeveloped building lots in Teton Valley which off the cuff, sounded high to me. So, I decided to investigate.

My first thought was that I would have to find a list of the available subdivisions, add up the number of lots in each, and subtract lots with improvements. This seemed like a daunting task. Fortunately, I learned that Rob Marin, the county’s extremely talented GIS coordinator had already done the heavy lifting. He based his analysis on subdivision lots, which is exactly what I would have done. After all, the purpose of the comparison and root of the problem is indeed subdivision lots. He determined (with a small margin of error) that there are 8,454 subdivision lots in the county, and that 3106 had improvements as of the date of Rob’s study, leaving 5,348 vacant subdivision lots in the county.

***Now might be a great time to read one of my past articles, With so many available building sites, why is it so hard to find what I am looking for?

Admittedly, this sounds like a lot. It is a lot. The question is, and point of my article; is the number of vacant building sites really as detrimental and overwhelming as it appears and is made to sound? Here are a few points from the devil’s advocate, speaking in generalities.

1) Some subdivisions really do, in my opinion, exist in a vacuum. What happens in or with them really doesn’t have very much impact on the rest of the real estate market. Example: Tributary, FKA Huntsman Springs. There are roughly 500 vacant building sites in Tributary. This is almost 10% of the 5,000 vacant building sites mentioned. The same goes for many other large-scale developments such as River Rim Ranch. Could it be construed that these developments are problems in and of themselves? Sure. However, if real estate prices plummeted, or skyrocketed in Tributary, I don’t feel it would have a major impact on the rest of the real estate in Teton Valley.

2) We know that roughly 65% of the available building sites are vacant, or at least have no improvements. There are approximately 300 subdivisions in Teton County. For the sake of making a point, imagine that each of them has roughly 25 lots. Each of those have 8 or 9 houses. A few of those own the neighboring lots. This isn’t the case, but it puts things in perspective.

3) Teton Valley is big. If you start breaking this down by quadrant, for example, the southeast corner of the valley (better known as Victor) doesn’t really have a problem as there are relatively few subdivisions with little to no improvements. Things are much closer to the scenario I outlined in point 2 above, if not better. Yes, I know there’s a counterpoint to every point I’ve made here. Some of the big subdivisions that are mostly vacant are considered to be the biggest part of the problem. The issue isn’t necessarily consistent across the board as mentioned in point 2, and while things are looking pretty good in Driggs and Victor, Tetonia has a huge ratio of some of these subdivisions with very few, or no homes at all. In any case, it is what it is. They are what they are, and they’ll sell when they sell. We can’t take away land from those who invested in a piece of Teton Valley just because we now recognize that things got carried away a decade ago. As a final point, throughout the course of my career, there have always been approximately 500 building sites on the market at any given time. I suspect that isn’t going to change anytime soon, so I’m not particularly worried about extreme changes with respect to value. The key takeaway is that there are a few (several) problem subdivisions out there. However, in most cases they are being farmed, waiting for their moment to become a neighborhood. I believe in responsible growth, and hope we can learn from mistakes relative to oversupply and over-development, but I hope past mistakes don’t prevent Teton Valley from growing responsibly.

Manufactured vs. Modular, What’s the Difference?

October 16, 2019 By Tayson Rockefeller Leave a Comment

With building costs continuing to rise, the popularity (or at least the idea) of prefab homes also continues to grow. As a result, I have seen an increase in interest for land that will accommodate these types of homes. However, there seems to be some confusion as to what “these types” of homes are, and what the differences are between manufactured vs modular homes. This confusion has lead some subdivision homeowners associations disallowing anything but stick-built, and has made it difficult for those interested in anything other than a stick-built home to find suitable land.

I’ll save the difficulties and challenges finding suitable land for another post, but I would like to dive into the differences between these types of homes to help shed some light on the issue. Note that some of this is subject to my own experience and opinion. Also, the terms associated with the different types of homes tends to vary by region.

Manufactured: This can be confusing because a manufactured home is prefabricated just like its modular counterpart. Manufactured homes, however, are built in compliance with FEDERAL HUD manufactured home construction and safety standards. They usually have a metal frame which serves as the floor system, as well as the frame for the transportation system. They then can be set on a permanent foundation, but don’t necessarily have to be. These types of homes have transportation size limitations. This is often where you hear the phrase “double wide”, meaning two finished portions of the house that are put together on one permanent foundation at a later date.

Modular: As defined by the State of Idaho division of building safety, a modular building is any building other than a manufactured home that is entirely or substantially prefabricated or assembled at a place other than the building site. I would personally add: Modular homes have construction standards set by local, as opposed to federal regulation. The easiest and best explanation I have seen is that modular homes cannot be moved. It is feasible that a manufactured home could be split, or picked off its foundation, moved to another foundation and placed or reassembled. (Note that when I say “cannot be moved” I have to be careful here, knowing that even stick built homes can be moved.) Sometimes modular home companies create their own category of homes such as a “phased built” or “systems built” to further differentiate and separate their product from a manufactured home. However, in my opinion, these are one in the same as modular. A modular home doesn’t have to be completed in major sections. It could be completed in wall sections and assembled on a permanent foundation. They would normally be transported on a flatbed trailer as opposed to a trailer integrated with the structure.

For further clarification; in my opinion, the following are all forms of modular homes, all of which would be subject to local building codes and inspections which would later receive a standard certificate of occupancy:

– a tiny home built in a factory or shop and delivered to a permanent foundation that conforms to local building codes and receives inspections similar to those required for stick built homes.

– a home constructed in small sections (such as individual walls) potentially with pre-installed siding, floor systems and precut materials installed on a permanent foundation.

– a “kit” home delivered in panelized sections installed permanent foundation.

RV’s: To make matters more confusing, we are beginning to see a rise in popularity of RV style tiny homes that can later be converted to permanent structures. Again, much of this is all subject to local and federal laws. A company building a custom home classified as an RV with wood siding and residential windows would need to comply with Transportation Department requirements in order to be legally transported, but this type of dwelling (RV) may have challenges in obtaining local zoning approval. For example, RVs can often only be parked in one location for storage, and if they are going to be used as a dwelling, can usually only be done so temporarily. In addition, parking an RV may require a special permit.

Idaho Division of Building Safety information for Tiny Houses, Manufactured Homes, Modular Buildings & Recreational Vehicles can be found HERE.

To be continued: Suitable land for manufactured or mobile homes and RVs.

The Customer ISN’T Always Right!

September 16, 2019 By Tayson Rockefeller Leave a Comment

The customer ISN’T always right!

I was watching a YouTube video about landscaping (DIY purposes) and ran across an interesting video I could relate with titled “When the Customer is Wrong”. It showed me some similarities and perspective with my career and areas of expertise. The example that resonated with me was protecting the client from themselves.

People tend to become emotionally tied to what they are buying or selling. In the case of the landscaper, the homeowner wanted the contractor to remove a pool and install a patio which was cost-prohibitive because of the soil composition. The contractor made the homeowner aware of the potential costs associated, but his emotions pushed him to go forward with the project. The contractor, adamant and concerned with not only the cost but the long-term viability of the project pushed back and ultimately was able to talk to homeowner into filling the area in and creating some natural grass and landscape at a much lower cost ensuring the homeowner that he could later install the patio after they were able to monitor ground movement.

Real estate agents are faced with similar situations. This contractor talked his customer out of investing thousands of dollars into the project of which he was already mobilized and prepared to do. As professionals, we also have to show our customers the long-term ramifications of trying to purchase something that doesn’t fit their needs or that may be a bigger project than their emotions are allowing them to see.

Similarly, and in many cases even more challenging is the razor thin line we balance between with respect to sellers and what they should do. Sellers oftentimes ask for opinions and advice, but don’t always heed that advice. Buyers can be emotionally attached to something they want which is an easy concept to grasp. We all like things that are new and shiny. Sellers, on the other hand, are emotionally attached to something that they have lived in, and shared life experiences in. This is why in so many cases, providing opinions of value can be so sensitive to many homeowners.

A classic approach includes sellers who only recognize, and only explain the great aspects of the home they live in. This is a classic trap for many rookie real estate agents. They are being sold by the homeowner. This can lead to overvaluation and extended days on market which usually equates to buyers expecting to be able to negotiate further. We also have to be careful about how we approach sellers when they receive good offers. What a broker might see and know is a good offer, a seller might view as a terrible offer. Trying to tell someone that a good offer is good can oftentimes lead them to believe that you weren’t working in their best interest, it can be messy.

Personally, I try to find ways to show my customers that I genuinely care about their investment or potential investment. I try not to think about my bottom line as a rule of thumb. The more I want something, the more my emotions can play tricks on my own mind. Working in your client’s best interest, genuinely, usually works itself out. However, it doesn’t mean these awkward situations don’t come up, and it’s a part of a broker’s job to know how to handle and articulate these situations.

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