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CC&R’s Do they expire?

June 12, 2017 By Tayson Rockefeller Leave a Comment

Note: the following information is a culmination of opinions from local professionals (including my own), none of which whom are attorneys. The below information should be verified with legal counsel in the event the information is to be used in real-world application.

First, a quick overview as to what CC&R’s are. CCR stands for covenants, conditions, and restrictions. Basically, they are the rules of a subdivision or neighborhood. The goal is to help preserve property appearances and values. They are filed in the record associated with specific subdivisions against every lot or home owner, who is required to abide by them.

Several times over the course of my career in real estate I have run into a situation where I am told that CC&R’s are no longer binding, have expired, or cannot be upheld. In most circumstances, I believe this is wishful thinking. It is not uncommon, however, for a developer to outline a term of existence for these documents. The general idea would be to protect values while the developer is selling lots, but to allow those within the homeowners association to make amendments as they see fit once the community has evolved or built-out. Oftentimes, the magic number is somewhere around 20 years. The wording could be tricky and state something along the lines that the documents dissolve once the development has built out. It doesn’t necessarily have to outline a timeframe, date, or number of years. It can be something that triggers the termination, though I personally wouldn’t find this to be as definitive.

The above being said, a couple of other questions along these lines I often times get asked:

-Why terminate CC&R’s?

The simplest answer in my opinion to this question is trends in real estate and lifestyle. A couple of examples would be brick construction or large square footage. In the 50s, brick construction was extraordinarily popular. Today, masonry is very expensive by comparison, and fairly uncommon. The same goes for square footage. Currently, the trend for new construction is not only modern, but simplistic. Often times, simplistic means small. This has been one of the biggest challenges with our evolving local market, smaller homes are popular today, but weren’t 10-15 years ago when most of these developments were created.

-Can CC&R’s be terminated without expiring or dissolving naturally?

I believe the answer to this is yes. Every set of CC&R’s has a section that dictates how the CC&R’s can be amended, or presumably terminated. Most of the documents I have reviewed for local developments require 60 or 70% of the home owners vote, or two thirds. In some cases I have seen 90 and even 100% requirement to amend these documents.

Circling back to the amount of knowledge I have on the topic – it’s limited. When some people ask the question, I think that they already know most of the answers I have described above. I think what some are looking for is an obscure law or case law that would allow for termination of documents if they are not upheld, or a certain amount of time has passed without an active homeowners association. To that end, I cannot say. In my opinion, and attorney would best be consulted to (try to) answer these questions. Better yet, Idaho case law, might help answer these questions if such case law exists. My only advice in this scenario would be not to make assumptions when it comes to documents recorded against a piece of property.

Transactions and Utilities

April 17, 2017 By Tayson Rockefeller Leave a Comment

Fall River Electric

Here in Teton County Idaho, closing a transaction is a bit more complex due to the proration of utilities at closing. A couple of things need to be taken into consideration. Those items typically include property taxes, electricity, liquid propane or oil, water and sewer bills, local improvement district assessments, and so on.

Most of the above items will be addressed in any real estate transaction in most every state. Here in Idaho, taxes are assessed in arrears. I have written a few different articles on how property taxes work, I’m happy to provide that link. If anyone has pre paid their taxes, they will get a credit at closing. Otherwise the seller might have a deduction on their closing statement. In this scenario, the buyer would be responsible for the entire tax bill when it comes due.

Things I would like to focus on would be electricity, liquid fuel, and Municipal Water and Sewer bills.

When it comes to electricity in Teton County Idaho, the provider is Fall River Electric. Fall River Electric is actually a co-op with over 13,000 members in three states and eight counties. The co-op owns and manages several hydro-electric stations in the region. The co-op operates on a non-profit basis with a primary goal to deliver safe and reliable electricity to it’s owners. Revenue that exceeds the cost of delivering this service is allocated back to the owners in the form of capital. This capital is distributed approximately every 20 years. Over time this Capital accumulates. So, what happens if you sell your property prior to receiving your funds whereas co-op only distributes every two decades? The answer is that you are still entitled to these accumulated funds, but you can’t receive payment until distributions are made. With that being said, if you’ve owned the property here in Teton County for any significant amount of time, it’s a good idea to make sure you continue to keep your account address updated with Fall River Electric. In the short-term, you will be working with prorating electricity charges through the date of closing. Fall River is extremely efficient when it comes to keeping track of member accounts. It is a good idea for a new buyer to set up an account prior to taking possession, and providing the exact date of closing. If the seller also provides the exact date of closing, Fall River Electric can bill accordingly. For this reason, we usually don’t see any prorations on a closing statement when working with your real estate agent and Title Company. It’s also important to remember that Fall River ties the bill to the property, not the owner. Even if the owner leaves an unpaid balance, it will run with the property and the new owner will be responsible to make that payment. Most of the title companies are very good about making sure balances are current prior to closing.

Liquid propane and fuel oil or diesel fuel is a different story. Idaho’s contract provides for a section that describes who is ultimately responsible to receive, or pay for any fuel left in a tank upon closing. Since we don’t have natural gas piped and metered in the area, and very few Community Propane systems with meters, this comes up frequently. If the contract states that the buyer is responsible to reimburse the seller at closing for fuel remaining in the tank, a representative from the title company who acts as a third-party will usually get a reading on the tank or a percentage level and to multiply that by the size of the tank and at the current rate. In this circumstance, you will see a proration or a credit or a debit on the closing statement. Build is less common, fuel oil is something that comes up periodically. If the buyer is not responsible to reimburse the seller at closing they are entitled to any remaining fuel in the tank. In this scenario, it’s easy peasy. If the buyer is required to reimburse the seller for the fuel remaining in the tank, it gets a little complicated without a gauge present to provide information as to how much fuel is left in the tank. The basic process for testing how much fuel remains in a fuel oil tank is basically a dipstick similar to you are car oil. Oftentimes The seller might top off the tank so that they can calculate based on a full tank. Alternatively, the buyer can top off the tank and deduct that amount from the total tank volume. There a few other moving factors with all of this, usually comma and more specifically with liquid propane, the tanks are never filled to 100%.

Water and Sewer is also a bit peculiar when it comes to the way things operate in Teton County Idaho. In most cases, the cities do not want to try to prorate to the day any bills as it complicates their Billing System. In most cases the buyer and the seller are able to come to an amicable agreement as to who will pay for it, or how they will split the difference. If a tenant resides in the property it can further complicate things as the city’s generally require owners to keep the city water and sewer Billings in their name since the owner is tied to the property and the Tenant is not. This allows the city to have better control with regards to who is using the service comma and who the owner is. If a tenant moves out of the property, they would rather be able to communicate with the owner as opposed to keeping track of the different residents or tenants in each property.

Time to sell: Landlord vs Tenant

February 12, 2017 By Tayson Rockefeller Leave a Comment

And I should have added real estate professional or Realtor into the mix…

Any of you that have a rental property, or a residence that has been converted to a rental property while waiting for this market to recover has probably had an experience with this. Now that the market has recovered, many of us whom have been waiting to sell are anxious to act, and these sellers have every right to do so, for the most part. It’s been a complicated life as a real estate professional watching this market through the recession and recovery. Many had to rent their property to offset the cost of ownership through the unexpected downturn nearly as decade ago.

This challenge comes at a time today when supply is low – hence the improving market. That supply however, unfortunately includes available rental properties as Commerce begins to grow and we begin to see a shift in population during that growth period. Now, those who have been operating their home is a rental property with tenants for the past several years are faced with a task at hand, transitioning from a rental property to a property that is for sale. This can be taxing for the tenant as well, who faces notice to vacate at a time when rental supply is so low. Throw the Realtor into the mix, and things get complicated.

Seller advise:

For the obvious reasons on behalf of the tenant, my first suggestion is to remember that it is a difficult time, and to be sensitive about certain issues. Providing notice to vacate in the middle of winter, for example, can be difficult for anyone. Next, review your lease agreement. Many leases have a provision for a 60-day notice to vacate if the property sells. If you own a property, you have every right to exercise this right, but do so in a sensitive manner as I have suggested above. If you are considering selling in the future, try to time this properly. To avoid major push-back, it might be best to wait until your lease is it month to month or in holdover status. After you review your lease, the next step would be to have an honest and straightforward conversation with your tenant or through, and with your property manager. Your tenant might be looking to vacate early, perhaps they are looking to purchase a home. There are numerous opportunities to resolve the problem before a problem develops. As a final bit of advice, once you have gone through the proper steps to make sure you are handling the process ethically and properly, remember that you are the homeowner. You have every right to sell your property, and when the time is right, don’t make the mistake of being overly sensitive to put your own interests at risk or to jeopardize a major decision. If the home isn’t kept in great condition, or the tenants are making demands about reasonable showing requests, it might be in your best interest to provide notice and market a vacant property. This could mean thousands of dollars difference in sales price. This is your home, and your investment.

Tenant advise:

As a tenant, you likely have an interest in the property, this is called a leasehold interest. Basically, this gives you the right to occupy the property. These rights are associated with the lease agreement that you have in place. I have not had very many experiences (especially with property management companies) where these agreements are written illegally. Assuming your landlord or Property Manager has taken the proper steps to provide notice or to inform you they will be listing the property, you can review your lease to see what your options are. Remember that if you are in the middle of a tenancy with months left on your agreement, there may be a clause as I described above where the owner can provide notice to vacate upon sale or transfer of the property. On the other hand, as an owner, there a certain number of rights that you do not have. One of these rights include the right to sell the property (feel free to check out a recent post on the “bundle of rights” that come along with property ownership). You may feel upset about the situation for the reasons I described at the preface of this post. It’s not a great time to be a tenant without a place to live in this area. With that said, if you are at the end of your lease, the owner has the right to give you notice to vacate the property. If the timing does not work for you, the owner may be able to market the property for sale while you still reside in the property with the owner retaining the ability to provide notice when the property goes under contract or sells. If this is a goal you wish to accomplish, the first thing you need to remember is that it may not be an option. This does not mean that your landlord is a bad person. Second, go about it the right way. Be respectful and understanding of the situation. When your landlord or property manager meets with you, show them that you are capable of keeping a show ready home in good condition. Express your concerns, but understand their concerns as well. In my experience, the best way to get what you want is to go about it with respect and understanding. Providing push back and expressing dissatisfaction during these times is a surefire way to move in the opposite direction and potentially receive notice to vacate. Finally, if you are able to work out an agreement to stay in the property during the marketing period, remember that there may even be an opportunity that the new owner of the home will retain you as a tenant for sometime. If this is also something you would like to accomplish, remember that a buyer’s first impression will make all the difference if they are considering this, and there are more of these types of buyers than you might guess. Finally, when it comes to the real estate agent involved in all of this, they represent the seller. They should, and in some cases are required to report any problems with the property to the owner. Putting on a good show for the owner but not the real estate agent involved certainly doesn’t help the situation. If a real estate agent representing a buyer feels that you have been difficult to work with or don’t keep the property in good condition, you can bet that they won’t recommend keeping you as a tenant in the event the buyer is an investor owner, or does not need to take occupancy right away. If the real estate agent representing the owner is not providing reasonable notice to show the property, entering the premises without permission, or otherwise, feel free to speak with them or the owner. Having a good relationship with the real estate professional makes for a much easier process. Finally, if you are interested in purchasing the property, have that discussion with the owner prior to the home being listed. Unless the owner has provided for an exception for you to purchase the property, speak with a real estate professional if you would like to purchase the property. Working in the shadows to manipulate a situation into getting what you might want is not the right way to handle things.

Real Estate Professional advice:

We know that our job is to represent the seller when it comes to an active listing. Our job, however, is not to harass, or take matters into our own hands when it comes to working with someone who occupies a property. If a Tenant is causing a problem, it’s a discussion you should have, and in my opinion, must have with the owner of a property. If a home is not properly maintained, this could mean thousands of dollars for the seller. Remain neutral, and show respect to any occupant while also properly representing the seller.

Assumable Loans

January 16, 2017 By Tayson Rockefeller Leave a Comment

Most of us in the industry know that interest rates have already begun to rise, and while they are nowhere near historic levels, they are approaching levels we started to see prior to the recession. Average 30-year rates dipped into the low 3s at the bottom of the 2008 downturn, and held at these levels for some time.

While the recession was detrimental to most of us, many first-time home buyers with undamaged credit were able to purchase at very affordable prices, with very attractive interest rates. FHA loans also came back in full force due to their less stringent requirements for credit and other reasons.

FHA loans tend to have their ups and downs. More recently, the requirement for mortgage insurance to be carried until a debt ratio of 78% was reached was further implemented to stay with the loan, for the life of the loan. On the other hand, almost all FHA loans are assumable. This may afford new buyers the opportunity to inherit some of these FHA loans that were written while interest rates were abnormally low. Also, during much of this time, mortgage insurance was not required to stay for the life of the loan. These buyers may have the opportunity to assume the existing loan, and carrying a second loan at the higher rates for the difference. For loans held for a long period of time, there could be significant cost savings for these new buyers.

In case many of you are wondering, there’s really only one other loan product that is assumable, or at least the majority of the time. That product is the VA product. While the VA loans are almost always assumable, they can have a negative effect for that Veteran and their ability to borrow using the VA product in the future. VA loans have guarantee periods with dollar amounts associated with those periods of time. These dollar amounts are associated with how much the Veteran can borrow using the VA product. That amount has been just over $104,000 since January 1st of 2006. This number represents 25% of the total borrowing power. If the Veteran doesn’t use the entire borrowing power amount on one loan, they can use the remaining balance to borrow using the same loan product for another loan. However, if that loan is assumed, that borrowing power still counts it against the Veteran until it is assigned otherwise. This is an important element for those using this loan program to remember in the event the opportunity arises for this loan to be assumed.

For these opportunities to be a benefit to the buyer and the seller, all parties need to be aware of the current loan conditions, and if the seller has interest in allowing their loan to be assumed. This should also be explained to any real estate agents involved with the transaction, particularly the seller’s agent so it can be used as a marketing tool.

FHA Loan limits are increased in Teton County Idaho, currently at 625,000.

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