Dear clients and friends,
First and foremost, we hope that all of you are well and remain safe and healthy during these trying times.
We are getting many questions from our clients about the real estate market during the pandemic. We had a great conference call with Crescent Title’s Bob Bergeron & Assurance Financial’s Brent Edwards and Elizabeth Selasky Monday, and I thought I’d share some Q&As from that call as well as our take on things about day-to-day real estate operations.
Next week: an update on the real estate market – expected changes in activity, challenges and opportunities.
1 Q: Is the real estate business shut down?
A: No, we are open for business and still helping our clients. Lenders, title companies and appraisers are all clearly essential businesses. The Governor’s office has advised that realtors and home inspectors may continue working.
One may wonder if all of this is necessary or really essential, and for some clients, it is not. We are involved in situations where clients are still eager to go to closings; buyers may lose a great interest rate; sellers important plans will be disrupted – if we don’t close on time. For one of our buyers, the seller refuses to extend the inspection period because they have a backup offer!
2 Q: What is RealMike Partner’s and McEnery Residential’s policy on agents working?
A: Our office is closed and we are all working normal hours from our homes.
- No face-to-face meetings unless absolutely essential –
- No face to face meetings unless our clients and our team members are comfortable
- Case-by-case common sense rules after that. Showing a vacant house on lockbox? Probably yes! Asking a tenant who is sheltering in place to let strangers in their house? Almost always No!
- If we do decide to meet others, we will abide by well-established protocol
- 6’ distance, way less than 10 people, washing hands, etc.
3 Q: Can we still look at houses? Are open houses still going on?
A: We can still show houses on a case-by-case basis. First and foremost, everyone must feel comfortable and all must abide by general safety rules – minimal numbers of people, 6’ distance, washing hands. Vacant houses have lower risk than occupied houses. Most importantly, take advantage of online photos and especially, virtual tours. Technology now allows us to present almost 3D, walk-through virtual tours that are actually pretty fun to check out.
4 Q: Are closings taking place?
A: Yes – many title companies are open, and lenders are funding loans. These companies are asking as many employees to work remotely as possible. For closings, they are sending documents electronically for review as soon as possible. Assurance Financial for the past few months has sent the majority of the loan pages to be electronically signed before closing. At closing, the CD (Closing Disclosure i.e. monetary Settlement Statement), Deed, Mortgage and Note must be signed in front of a notary and two witnesses.
5 Q: Wait, that’s already 4 people meeting, not counting the other party, realtors, lenders, and that wonderful person who bakes cookies at every closing. How does that work?
A: Separating the parties! One or both parties can stay outside, even in their car, and the notary and witnesses can come outside. A notary can bring the paperwork to a party’s home, and the signing can take place on the front porch. Family members or neighbors can serve as witnesses (from a distance). Realtors, lenders and cookies are all nice, but absolutely do not need to be present. As an industry, title companies have adapted best practices to improve client and employee safety.
6 Q: I heard congress was going to pass a law allowing for remote, electronic notarization.
A: That might happen, but state law usually governs those type of rules. In Louisiana, real estate sales and mortgages require meeting a notary in person with two other witnesses (aka authentic acts). The Governor can’t change that by decree, the legislature would have to pass the law.
7 Q: What’s going on with mortgage rates?
A: Rates dropped to historic lows, near 3% starting a few weeks ago. Then last week they started climbing again, briefly hitting 5% on Friday the 13th. That high rate was caused by a liquidity shortage in the secondary market: as you have probably heard on the news, there has been high demand for cash. The institutions who buy loans needed their cash for other purposes and thus were demanding a premium to buy loans. Furthermore, with the previous weeks’ drop in rates, lenders simply became overloaded and raised rates to slow down new applications. That all seems to be settling this week but expect more volatility in the coming weeks.
Overall, we do expect rates to stay very low for the foreseeable future. Buyers or homeowners refinancing loans should stay in close contact with a great local lender like Assurance to decide when to ‘lock’ their rates.
8 Q: What do you mean, rate lock?
A: Lenders will guarantee the mortgage interest rate for a period of time – usually 30 days. If the rates go up, the buyer still gets the lower, locked rate at closing. Today lenders are suggesting 45-day locks because we expect delays in closing. Rule of thumb: to extend 15 days, there is a fee of 0.25% of loan amount. That’s not new, that’s just typical charges to extend a loan. (It’s an upfront fee, not a rate increase)
9 Q: Are appraisers still working?
A: Appraisers are considered essential services and are still working. For some loans in the last few months, Fannie Mae has issued “Property Inspection Waivers” meaning appraisers don’t have to visit to inspect the property. (This is different from a home inspection, I know, too many confusing terms in this business)
This week Fannie / Freddie has issued “Property Inspection Waivers” for all purchase and refinances for rate & terms. Appraiser may do drive-by appraisals without entering the property. This does NOT apply to cash-out refinance or government loans (FHA/VA/RD)
10 Q: So an Appraiser has to come in my house?
A: Yes, for FHA/VA/RD or cash-out refinances or private lenders. For purchases or rate&term refinances with Fannie Mae or Freddie Mac, no visit (appraiser’s inspection) is required. Getting access is a case-by-case basic – the seller can open the house, open interior doors and let the appraiser come in and inspect, measure and leave.
11 Q: Are Home Inspectors still working?
A: Depends on the inspector and property. Vacant houses, usually yes. Occupied houses will be a case-by-case and inspector-by-inspector basis. Keep in mind that under normal circumstances, an inspector can see 4-6 people at every inspection, and they often perform 3 inspections per day. Understandably, many don’t want to take that risk and have paused inspections until April 13th.
12 Q: How are tenants faring in all of this? A: Access to tenant-occupied property is discouraged but can be considered on a case by case basis. If seller and tenant agree, we can allow buyers, inspectors and appraisers to access the property. Again, minimal people at the same time, avoid touching things (open doors first!) and most importantly, everyone must feel comfortable.
13 Q: Can a landlord evict a tenant for refusing access during these times?
A: Many tenants today are understandably hesitant to allow strangers in their apartments. Most leases (read the fine print) require tenants to allow access to landlords and their agents to show the property with reasonable notice. Refusing access can be a violation of the lease.
Practically, this is all but unenforceable today: There is moratorium on evictions in New Orleans until late April, probably late May. Sellers can offer rent abatement for cooperation, and if allowed at all, visitors should ‘keep their hands in their pockets’ during viewings
14 Q: So if tenants can’t get evicted, do they have to pay rent? What about mortgages?
A: Rent and mortgage payments are still due and owed, they just can’t start evictions. If you stop paying your rent or mortgage, you could still be subject to eviction or foreclosure in the future.
There now appears to be national moratoriums on evictions, foreclosures and utility payments. Be sure to stay up on local changes as well. This is a fluid situation than can change between local and national rules, so to be safe, assume that the stricter rules apply.
15 Q: Is mortgage relief available?
A: Programs are in the works but nothing is finalized yet. About 65% of mortgages today are government-sponsored (Fannie/Freddie) or -guaranteed (FHA/VA/RD), so expect some national programs to be announced soon. The feds consider lower mortgage rates for purchases and refinances to be an economic stimulus, so they are encouraging folks to keep making loan applications.
After Katrina, it was very typical for lenders to defer 3-6 months of payments, adding the accrued interest to the back of the loan. They added those missed interest payments to the principal, extended the term by a corresponding number of months ad recalculated the payments. Expect a similar program to be announced soon.
16 Q: I heard the courthouse was closed. How can real estate closings still take place?
A: NOLA clerk of court is accepting curb-side drop off of docs to be recorded 9a-1p, so mortgages and sales can be recorded. (Jefferson parish has had electronic filing now for several years. The title company just scans the docs to the parish
17 Q: How can I get title insurance if the courthouse is closed? How can they check the title?
A: Title abstracts are getting harder, but certainly possible. Typically, a title abstractor conducts a search online and also visits the courthouse to examine older printed documents they may need to fully research the title (i.e., the public record of who has owned property and any outstanding liens such as mortgages).
Title companies are not restricted to examining printed forms at the courthouse. Some like Crescent Title have their own proprietary database with about 20 years of their own records. There are also 3rd party databases and of course, the Orleans Parish online database in still available.
Sellers and their agents are urged to contact the most recent title company who closed a sale or refinance for the property owner. If the next closing is not with the same company, ask them to share their files with the title company who is closing. (Title companies are chosen buy buyers, not sellers). Of course, we will be more prudent when working with our sellers, an d asking for copies of deeds, successions (i.e. estate/probate) or other paperwork that a title company will need.
Unfortunately, if a succession needs to be done, divorce decrees issued or historic research needed, a closing may not be possible until courthouses re-open and legal work is completed.
18 Q: Aren’t contracts automatically extended for Acts of God?
A: Louisiana state-mandated purchase agreements do not have Act of God or Force Majeur clauses. While we see special clauses in contracts during hurricane season, they typically don’t cover pandemics. (Are pandemics acts of God? Stay tuned, lawyers are prepping their cases as we speak)
Going forward, we will recommend that our clients include extension clauses in their purchase agreements in case there are delays related to the pandemic, and allow additional work for title work if there are any questions. For pending contracts, buyers and seller should negotiate reasonable extensions rather than cancelling contracts.
19 Q: What should Property Owners do? Where can we find resources?
A: The National Association of Realtors has a great page with all sorts of resources for property owners. They will have very current updates on mortgage relief and other steps the various agencies are doing to help the real estate market.