Mobile MSA 2010 FMR

The 2010 Fair Market Rents have been released by HUD for the Mobile MSA area.

Take a look

Final FY 2010 FMRs By Unit Bedrooms
	Efficiency	One-Bedroom	Two-Bedroom	Three-Bedroom	Four-Bedroom
Final FY 2010 FMR	$580	$620	$700	$917	$1,082

Here is a link to the details

Property Management and the Challenges it brings

I'll bet most people think Property Management can be a cake walk. All you do is collect rent right? Wrong. The issues that arise can be quite challenging and sometimes require a good amount of time, research and intelligent thought.

This week's challenge for me and a couple owner's was HOA foreclosures. Yes folks, here in the great state of Texas the HOA (home owners association) can foreclose on your property for non-payment of HOA dues. Its actually a pretty good racket if you are the HOA and attorney representing the HOA. Here's what happens:

Each year the HOA dues are due before Jan 31 for the upcoming year. If you fail to pay the dues, late fees are assessed, interest is accrued and eventually the HOA hands over your delinquency to an attorney who tacks on a bunch of fees ($1000 or more) and files for a non-judicial foreclosure for money owed. Sounds great huh? Now lets plug in some numbers and see how ridiculous this can really be:

Lets say you bought a house a couple of years ago for $150,000. You have a mortgage on the home and the house is located in a subdivision that has an HOA. Yearly HOA fees are $200. When you bought the house, the HOA fees for that year were paid at closing. By the end of that year a bill is sent from the HOA to the property for next year's dues. You never received the bill. Why? You do not live there, a tenant does. The tenant throws the mail addressed to you away thinking its junk mail. Makes sense right? How much crap to you get in the mail when you by a new home. Tons. I'd trash everything too.

Well the new year is rolling along and the HOA is continuing to send bills to the property address. The tenant continues to trash them. Your HOA dues are not getting paid. Now lets say this has gone on for over a year and now you owe the HOA for two years worth of dues and some late charges and interest. Your total bill is now $800. Lets repeat this, your bill is now $800. Not $8000, $800. Ok.

The HOA hires an attorney who's job is to collect the dues owed to the HOA. The attorney starts sending letters to the house. The tenant trashes them. Now attorney's are SUPPOSED to be smart right? Well a smart person might think, "let's look at the tax records to see if mailing address for the tax bill is different from the property address". Smart right? 1 min later and a visit to one of the Online tax offices and the attorney could have the answer. But no. The Attorney does not do that. Instead the attorney continues to send mail, and accumulate fees.

Now your bill is growing. There is no limit to what the attorney can charge, as long as its "reasonable". Yah lets see the definition of a "reasonable" amount for attorney's fees. The HOA and the attorney now decide that since their efforts are not yielding the results they are looking for (or maybe they are depending on the attorney and HOA), its now time to file for non-judicial foreclosure for the past due fees. Hey why not? The HOA could own your $150,000 property for two years worth of HOA dues. Thats a hell of an investment!

Foreclosure is filed and now your house is up for sale at the 1st Tuesday of the next month. The amount? $2500. Wow. For $2500 someone could own your house and your equity. How can that be? That's TX law. I could go to the foreclosure auction at the county courthouse and buy your house for $2500. Now I own the home subject to your existing liens (your mortgage), but man you were a good buyer and plopped down 20% when you bought your house and have been timely in paying your mortgage and taxes. Your mortgage payoff is $119,000 and your house is worth $155,000. That's pretty easy math in my book. $2500 for $36,000 in equity. Yah ok, i'll take that.

But wait, isn't there a right of redemption period? Yes there is. You have 180 days from the time a notice is mailed to you from the HOA notifying you that the property has been sold. You can payoff the new owner, plus 25% interest and any expenses incurred by the owner for the property. Oh no big deal right? Wrong. The notice was again mailed to the property address and the tenant again throws it away. So all this has happened without your knowledge. Now I'm loving life. I have $2500 invested in your property, $36000 in equity, and a mortgage I never had to apply for that is not even in my name or on my credit. Nice!

If you are the owner, you are hating life. If you are the HOA you got your money. If you are the attorney you got your money. If you are the new owner, you got a house and equity.

Something is wrong with this scenario. But that's my opinion. I welcome yours.

Tenants in Foreclosed Properties Now have 90 days to Vacate

New Federal law passed May 20th 2009 gives tenants a minimum of 90 Days or more to vacate the foreclosed property. This law applies to all states. In addition, tenants must be allowed to stay in the property through the end of their lease, with two exceptions:

1. The new owner wants to occupy the property as a personal residence, and
2. There is no lease (month to month), or there is a lease but state law allows the lease to be terminated at any time upon notice.

The tenant must be a bonafide tenant who continues to pay market rent and is not in violation with the terms of the lease agreement.

What this means to you:

Tenant - As a tenant who is residing in a property that has been foreclosed on, you have the right to stay in that property a minimum of 90 days from the day notice is served to you. You must continue to comply with the terms of the lease agreement including the payment of rent on time.

• What happens to my Security Deposit? - The previous owner or property management company should transfer your security deposit to the new owner or property manager of the foreclosed property. Within 30 days of vacating the property, your security deposit is sent back to you minus any deductions allowed by the lease agreement.
• I am on a Month to Month lease, what happens to me? - As a tenant on a month to month lease you are allowed to stay up to 90 days from the date notice is served to you.
• Do I have to stay? - No. The new law provides the tenant with the right to stay. It is the tenants choice whether to execute this right.
• My lease expires within the 90 day period, do I have to leave as soon as it expires? - No. You can stay for 90 days.
• I do not have a copy of my lease and neither does the new owner, what happens now? - You would be considered to be on a month to month lease paying market rent and subject to the 90 day period.

New Owner - As the new owner of the foreclosed property, you have to provide the tenant with a 90 day notice to vacate the property. This applies to lenders, investors and owners with the intent to occupy the property

• We just purchased the property at foreclosure auction, what should we do? - First thing to do is get in touch with the current tenant and let them know that you are the new owner. Get a copy of the lease agreement from the tenant (if one was not provided to you from the previous owner or property manager). Determine if the tenant wants to stay.
• We were not provided with the tenants security deposit - If the previous owner or property manager did not transfer the tenant's security deposit to you, it is not your expense to give a security deposit back to the tenant.
  
• We are not experience landlords, who can we contact to help? - An experienced Attorney, Property Manager or Licensed Real Estate Agent can provide the expertise you need.
  

Have questions? Contact us. We can help.

Texas Lease Option - Is it Legal?

Many questions arise when the strategy of Lease Options, Lease Purchase or Rent To Own (here after referred to as LO) are discussed for Texas residential real estate. The biggest question is:

"Is it Legal?" - Yes.

I am not a lawyer, but I can read and comprehend. This posting is my interpretation of the Texas Property Code as it relates to Lease Options in Texas.

LOs are discussed in Chapter 5 of the Texas Property Code, Subchapter D Executory Contract for Conveyance.

The first thing to point out is that the law only applies to residential real estate that is used as a purchaser's residence.

Secondly the Law applies to Options to purchase real property that includes or was executed with a residential lease agreement. Some people may interpret this and state that if the Lease Agreement and Option to Purchase agreement are kept separate from one another, this law does not apply. I interpret this as:

if you are leasing a property and the tenant has an option to purchase the property, this law applies.

An LO contract of 3 Years or less has fewer restrictions than an LO over 3 years in length. Something to point out, if the parties to the LO contract of 3 years or less, extend the contract past 3 years, the contract is now subject to the more stringent LO law. see law

LO's of 3 Years of Less

Here are the subsections on the Texas Property Code that apply to LOs of 3 years or less:

1. Sections 5.063-5.065
2. Section 5.073, except for Section 5.073(a)(2);
3. Sections 5.083 and 5.085.

Sections 5.063 - 5.065: Default by Purchaser and the Rules that apply.

5.063 Details the rules a Seller must follow when a Purchaser is in default of the LO agreement. An example of this would be a purchaser that has not made a monthly payment.

5.064 States that a Seller may cancel an LO agreement or accelerate the funds due when a Purchaser is in Default.

Example: Purchaser has not made their monthly payment. Seller has sent Notice to Purchaser detailing the Seller's intent to cancel the agreement if funds are not paid. Purchaser fails to make monthly payment within 30 days of the date Notice was given. Seller cancels the LO agreement and keeps the Purchaser's Option Fee.

5.065 Details the Purchaser's right to cure a default of the LO agreement. A Purchaser has 30 days from the date Notice was served to take the necessary actions to cure their default.

Example: Purchaser in the previous example receives Notice from the Seller that they intend to cancel the LO if payment is not made. Purchaser pays the past due amount, and any late fees, to bring their account current within 30 days of the date Notice was sent.

Section 5.073: Contract Terms of the LO agreement
This section details terms of the LO agreement that must be included.

1. Late Fees: Late fees cannot exceed the lesser of 8% of the monthly payment or the actual cost to administer the late fee.
2. A pre-payment fee or penalty is not allowed.
3. Forfeiture of the Option Fee or Option Payments for Late Payments are not allowed. A Purchaser that is in Default of the LO agreement may have their Option Fee and Option Payments forfeited.
4. A Seller cannot increase to the purchase price, option fee, or option payments in response to a Purchasers request for repairs.

Section 5.083: Purchaser's Right to cancel LO Agreement for Improper Platting

If the Property was platted incorrectly, the Purchaser may cancel the agreement. An example would be the Property was not subdivided correctly by the Seller.

Section 5.085: Fee Simple Title and Maintenance of Title

This, in my opinion, is the most laborious and restrictive Section in the Law. This section details the items a Seller must do to keep the Purchaser informed if there is a Lien on the Property. In most instances, a Seller entering into a LO agreement will have a mortgage or deed of trust on the property. If the Seller does, the following must be done to stay compliant with the Law:

1. Within 3 days of entering into an LO agreement, the seller must disclose to the Purchaser a. the Name, address and phone number of the Lien holder
   b. The loan number and current balance of the loan
   c. the monthly payments and their due date.
   d. Disclose that if the Seller fails to make payments, the Lien holder has the right to Foreclose on the property.
   
2. The Seller must maintain the loan balance at or below the current amount due by the Purchaser.
3. The Lien holder must allow Lease Options and will allow payments from the Purchaser if the Seller defaults on the loan
4. Covenants are required to be included in the LO agreement. They are as follows:
   
   (i) a covenant that obligates the seller to make timely payments on the loan and to give monthly statements to the purchaser reflecting the amount paid to the lien holder, the date the lien holder receives the payment
   (ii) a covenant that obligates the seller to notify the purchaser in writing that the seller has been sent a notice of default, notice of acceleration, or notice of foreclosure or has been sued in connection with a lien on the property and to attach a copy of all related documents received to the written notice; and
   (iii) a covenant that warrants that if the seller does not make timely payments on the loan or any other indebtedness secured by the property, the purchaser may, without notice, cure any deficiency with a lien holder directly and deduct from the total outstanding balance owed by the purchaser under the executory contract, without the necessity of judicial action, 150 percent of any amount paid to the lien holder.

Conclusion:

Lease Options are legal in the State of Texas. LO agreements in Texas require additional Covenants, disclosures, and monthly administration than in other states, but they are definitely not illegal.

My advice, discuss the Law with a competent real estate attorney before offering a property for sale on a Lease Option contract.

Rent Increases - HUD Tenants

Are you a landlord who has tenants on one of the HUD Voucher Programs? Curious as to how much you can increase the rent for renewing tenants? Well this posting is for you. At the beggining of each fiscal year, HUD publishes the Annual Adjustment Factors (AAFs). The AAFs are used to determine how much HUD will authorize annual rent increases for current tenant contracts. The AAFs are determine by region and MSA's within regions. A table is published to use for calculating rent increases.

To calculate rent increase, simply multiply the Increase Factor by the current contract rent. For example, a house rented in Houston, TX at $1100 a month has an increase factor of 1.034 for a home with the highest cost utility included. The new rent is $1100 x 1.034 = $1137.

To increase rent, a 60 day notice is typically required for HAP contracts. If your current tenants lease is coming due, get those notices out and bump up your rents!

Sources:
http://www.huduser.org/datasets/aaf.html
http://www.huduser.org/datasets/aaf/FY2007_SCHEDULE_C_REV.doc

Fair Market Rents - What Are They?

Landlords who rent or are considering renting properties to tenants who receive government assistance through the HUD Section 8 voucher programs, should know what to expect in terms of market rent for your property. HUD publishes a Fair Market Rent schedule each year for every State.

What are Fair Market Rents?
Fair Market Rents (FMRs) are primarily used to determine payment standard amounts for the Housing Choice Voucher program, to determine initial renewal rents for some expiring project-based Section 8 contracts, to determine initial rents for housing assistance payment (HAP) contracts in the Moderate Rehabilitation Single Room Occupancy program (Mod Rehab), and to serve as a rent ceiling in the HOME rental assistance program. The U.S. Department of Housing and Urban Development (HUD) annually estimates FMRs for 530 metropolitan areas and 2,045 nonmetropolitan county FMR areas. By law the final FMRs for use in any fiscal year must be published and available for use at the start of that fiscal year, on October 1.

Here is a link to the 2008 Fair Market Rent schedule.

Fair Market Rents defined


Sources:
http://www.huduser.org/datasets/fmr.html

Section 8 Inspection Forms

For those of you who rent properties to Section 8 voucher recipients, here are a few forms for your reference:


Inspection Report Form

Expired Inspection form. Contains details about how properties are rated
5280a

Texas Property Code

Wondering what the law says about residential landlord tenant agreements? Here is the Texas Property Code

PDF and Word Doc Format

Texas Property Code in HTML format

New Alabama Tenant Landlord Law

The new Alabama Tenant Landlord Law goes into effect next month. Below is a few links to help us get up to speed on this new law. There are benefits for both Tenant and Landlord, so please read it.

http://www.arisecitizens.org/

Lanlord Tenant Handbook

Landlord Tenant Brochure

Lanlord Tenant Law Fact Sheet

Landlord Tenant Law