Friday, November 30, 2018

Most Californians Have Insufficient Insurance Coverage

Owning real estate has inherent risks. From burglary to floods and fires, your possessions or your home itself could be damaged substantially by forces outside of your control. Fortunately, we have insurance to deal with those exact circumstances. In fact, when we handle an escrow for a real estate transaction involving a lender, the buyer is almost always required to get fire insurance (especially in California) before the purchase is allowed to go through. The lender (usually a bank) provides the buyer with the capital they need to purchase the property, so it makes sense that the lender would want to protect their investment in case of a disaster like a fire.

Over the past few weeks, many California home-owners were struck by tragedy when forest fires did damage to thousands of homes, some burned completely to the ground. In the aftermath, now that the fires have been contained, they have to figure out exactly how far their insurance coverage will get them since homeowners on average tend to be significantly underinsured. Insurance companies, like all other companies, are in business to make a profit. They don't want to pay any more money than they have to, so if you're one of the unfortunate Californians having to deal with this, you really need to be proactive.

Even if your home isn't in one of the current fire zones, you need to be vigilant for the future, because these forest fires have become an almost-yearly feature for Californians. Be careful with every document you sign regarding your insurance coverage. In order to maximize their profits, especially in a high-risk state like California, some insurers have been adding extra provisions to policies when customers come in for seemingly-routine renewals. The new provisions will often limit coverage for smoke damage (as opposed to damage from actual flames) or will set a short time limit within which a customer must report such damage.

One of the most common issues that homeowners run into is not being insured enough. Often, it's because of the rising costs of building materials. Now, insurers suggest that you get coverage for more than what you think you need. You can overapproximate material and labor costs, and some policies even let you include upgrades for changes to the house's wiring or for the cost of personal property, like televisions and computers. To get coverage for those products, though, you should take a video of your home and its contents, to provide proof to your insurance company if they try to give you a hard time about it.

Some insurance companies have decided to leave California entirely, stating that it's too expensive to provide insurance in an area so prone to wildfires. Others charge incredibly high rates, set exorbitantly expensive to make sure they can cover their costs in the case of a disastrous wildfire. One state-sponsored program, the California FAIR Plan, provides less costly coverage than most private companies, but will only provide up to $1.5 million in replacement costs, so you should think carefully about whether you would be sufficiently covered before you purchase such a plan.

Find out more about us at Any Questions? Contact our Escrow Expert! Sepulveda Escrow Corporation (818) 838-1831. Follow our company on FacebookTwitterLinkedIn, and Google+.

Friday, November 9, 2018

Common Real Estate Scams and How to Avoid Them

Just like with most other areas of business, the real estate industry has been the target of many types of very creative and successful scams. While scammers are an unfortunate part of all industries where the exchange of money is involved, real estate especially has been a focus in recent years, likely because many more real estate investors these days are not local, and instead invest from afar. When someone can afford to invest in lucrative real estate across the country without ever leaving their home, they gain valuable convenience, while at the same time opening up themselves to risk.

One of the common scams is referred to as a "land contract sale" scam. A land contract is a document that spells out the legally-binding agreement between a seller and buyer, in which the seller of the property agrees to finance the buyer's side of the sale. Basically, the seller of the property becomes like a bank, in situations where the buyer doesn't have the credit history to get a real bank loan. So, instead of getting a mortgage and paying the interest and principal to the bank over an average of 30 years, they work out a payment plan where they pay the seller "mortgage-like" payments over 30 years (or often a shorter period, with a balloon payment at the end).

The existence of land contracts is important in the real estate industry, in that it allows people with little credit history to start down the path to home ownership earlier than they normally would be able to. Unfortunately, because of how the contracts are designed, sometimes sellers are able to take advantage of their buyers. The seller will put extremely strict requirements in the contract, intended to force the buyer to break the restrictions, thus making the property revert back to the seller's ownership. Or, they might make the interest rate on the payments much higher than any rate a bank would set. Sometimes, they even choose not to file the land contract and take out loans against the property, until it gets foreclosed upon. Land contracts don't always have bad outcomes, but if you're ever in a situation where you might need one, you should have your legal representation take a thorough look.

Lending scams tend to be very common as well, especially among people with little credit history (or very bad credit scores). Some (often unlicensed) lenders will be willing to lend an investor a lot of money to purchase a property and fix it up but will charge a much higher interest rate and have a shorter period in which the borrower must pay back the loan. They will also often charge high upfront fees for "loan insurance." The way to avoid this type of scam is to be wary. If a lender doesn't have very many questions for you, or if they don't ask for your credit information, it's probably a scam. As the saying goes, "If it seems too good to be true, then it probably is."

Rental scams, which don't necessarily affect real estate investors directly, do affect people in the real estate industry quite often. The scammer will find vacant houses, often for sale or for rent, and will post their own listings, claiming to be looking for tenants. A potential renter will sign a fake lease created by the scammer, will wire or mail a security deposit and the first month of rent, and will never receive the keys to the property in response. The scammer will tell their target that they live out of town, which is how they explain why they can't give the prospective tenant a tour. They also quote a rent price significantly less than the going market rate, to help convince tenants to move fast on the "opportunity." It is suggested that homeowners looking to sell or rent should clearly place signage with contact information, in a location that can be clearly seen by prospective tenants.

One of the most costly scams out there is a classic. The scammer (sometimes the actual seller, or sometimes just a random person), will convince the prospective buyer (usually an out-of-town investor) that the property is of higher condition than it actually is. They accomplish this by insisting on using their own inspectors, who give the prospective buyer a false report. They will also not disclose liens on the property or significant unseen damage (like termites or mold in the walls). One way to avoid this scam (though not foolproof by any means) is to only purchase properties listed on trusted platforms like the Multiple Listing Service (MLS). Additionally, out-of-state investors who aren't able to come and actually see every property they invest in should still visit the area at some point and find real estate agents and inspectors who they can trust to be honest. There's no perfect way to stop yourself from getting scammed in any industry, but being careful in all of your business decisions is a good start.

Find out more about us at Any Questions? Contact our Escrow Expert! Sepulveda Escrow Corporation (818) 838-1831. Follow our company on FacebookTwitterLinkedIn, and Google+.