Special Programs Means Potential Special Problems

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An e-mail I got from a single mother I spent two months working with before she found a special low income program for a property she wouldn't have been able to afford through me. The first paragraph is her addition to me on the front of a forwarded message. I've redacted information that might lead to specific identification of the culprits.



(I haven't been paid anything on this, nor did I expect to be, despite the fact that they told her that I would be to close the deal. She felt obligated to me, but who wants to stand in the way of a single mom finding and affording a better property?).





Dan - This is an FYI. I really wouldn't recommend this program for any of your other clients, or if you do get them involved that you warn them that things stand a good chance of not going as promised. Judging by what is happening to me, I doubt that you ever received your commission from these people.



-----Original Message-----



Good Morning DELETED,



My name is DELETED and I've purchased a condo at DELETED. My close date was supposed to be June 28th. On June 28th I went to DELETED Title and signed off on all the final paperwork and had my bank wire them over $7,000.00. My first scheduled move-in date was on Friday, June 29th. I had to cancel (the move - DM) because it wasn't recorded yet. On Saturday, June 30th I drove over to the DELETED Sales office (my phone and internet has been shut off and transferred) and spoke with DELETED. My next scheduled move-in date was Monday, July 2nd from noon - 4 pm. I asked him if I had to change my plans again and he said "No - because you were supposed to close on the 28th of June and I can go online and see that you have wired your money and completed your paperwork I am going to make an exception and give you your key and let you move in on Monday."



Early Monday morning (we) started bringing all of our boxes and furniture downstairs. At 9 am I rented a U-haul. At 11:30 I went over to the Sales office for my key. I had scheduled someone to pickup and deliver the appliances I purchased for 12:30 pm. (The person who had promised the move in) was "in a meeting" and nobody seemed to know anything about my key. By 1 pm I was quite upset because I still had no answers and only 3 hours left to accomplish my move in.



DELETED sent someone down to try and make things right. I don't think a sobbing woman in their office was very good for business. They went over to the Uhaul place and had the truck reserved until Friday of this week and bought a lock for it. They told me that they would pay my rent and that I could get reimbursed for food if I kept the receipts. Hopefully they will really do this. (it occurred to me later that they also promised me a key and broke that promise) DELETED is calling DELETED (Title officer) twice a day for a status update and what they keep telling me is that the paperwork from the City has not yet been received.



Can you tell me if there is a reason for this and when I might expect this paperwork to be completed?



I'm in a bit of a panic now (to put it mildly) because I need to be out of the apartment so they can clean and paint it over the weekend. I have so little information, I don't know whether to put my things in storage, board my pets and get a hotel for my son and myself. This is also very stressful because most of my money is tied up in the condo and I'm bleeding what little money I have left....sleeping in an apartment on my couch and hoping that the truck on the street in front of my complex doesn't get ticketed or worse yet robbed. Hauling everything back up two flights of stairs was pretty much out of the question (For health reasons - DM).



I feel absolutely miserable. It would be quite ironic to wind up homeless after all this.



If you can shed any light on what is going on, or help me plan what to do next I would appreciate it. I'm really in the dark here.



My phone and internet are at the new place. I had been taking vacation time to move in, but I don't see the point now, so I'm back at work trying not to worry.





This is, unfortunately, not an atypical experience. Public program means you're on a bureaucratic schedule. It's not that bureaucrat's money that's getting spent. They don't get paid any different whether your loan funds and you get your property today, next week, or never.



Furthermore, it has been my experience that companies with the ability to use restricted provider public programs are often looking to boost their profit margin, and because the competition is restricted, they can often get it. That's one of the reason that FHA (among others) is looking to reduce their annual audit requirements, so that the small brokerages and those with thinner profit margins might be willing to sign up and endure the hassles. I've seen firms charge two points and over half a percent higher rate because the competition was mostly eliminated, and what was left was other high margin places. Special programs nobody else has are a license to print money, particularly if access to those programs is restricted by the government. The fewer providers who can do it, the less competition there is, and usually, the higher the mark up they want in order to for the privilege of being one of the selected beneficiaries.



This is not to say that all public housing programs are difficult, or delayed, or costly. There are individual providers who provide just as good a product at just as good a price. However, the statistics seem to be a much higher than usual incidence of delays, costly extras, and just plain gouging going on due to restricted competition.



This is also not to say in any way, shape, or form that public programs aren't worth it. The lady could never have afforded this unit, part of an income restricted program, without a municipal government stepping up to the line on her behalf. Those with a knowledge of economics may realize that this means the other units were made more expensive due to this, likely pricing out other potential buyers so that this particular person could have a better unit. Robbing Peter (and Penny and Porgy and Poppy and pretty much everyone else) to pay Paul and the bureaucrats helping Paul, but that's a matter of housing policy supported by the voters, and my choice is to help Paul or not to help Paul. Peter, etcetera have already been robbed and they're not getting the money back. The bureaucrats will be paid exactly the same whether I help Paul or not. The only question will be exactly who gets this benefit, and I think that under the circumstances I might as well help Paul get them. And if Paul doesn't take it, somebody else will. From an individual choice perspective, such programs definitely assist people in affording housing superior to what they could otherwise afford.



However, you need to realize that there are likely to be delays and unexpected extras in a program like this. One of the requirements of many of these programs is a certain maximum amount of total assets - but if that's all you can have and you have to use some of them for down payment and closing costs, this can mean you're cutting it really tight as far as other expenses go. Indeed, on this scale, paying for an extra few weeks rent at your old place can be a real hardship - but that's the cold hard fact of what happens quite often. If you put in your thirty days notice to the landlord, you're stuck when escrow doesn't close on time. If you don't put in your thirty days to the landlord, you're stuck paying rent for the extra month, costing (in this case) a minimum of about 15% of her total liquid assets, never mind what was left over after what she paid.



There is no universal guide to this situation, and what works in some situations may be totally inappropriate in others. One of the best things is an elected ally in the bureaucrat's chain of command. Another is the willingness of a family member to step in with a gift or extend an interest free loan if you require it, because pretty much all of these first time buyer programs have income and asset limits, and if your cash falls short, everything you paid is pretty much wasted. You won't get the property, and you're unlikely to get that money back.



Caveat Emptor (literally!)

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This page contains a single entry by Dan Melson published on July 10, 2007 10:01 AM.

Investment Risk and Paying off the Mortgage Early was the previous entry in this blog.

Larger Loan Amounts: Tighter Rules for Lending is the next entry in this blog.

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