Thursday, September 21, 2006

The longest most boringest post ever

HOLY SHIT. I’m gonna rant about some BORING ASS SHIT. This is more for my own mental well-being than it is for you to bother reading. McSweeney’s is probably hilarious today. Go check that out instead.

Here in good ol’ Tejas, we don’t have state income tax. Most people cheer this, claiming that income tax is a socialist demon that needn’t exist in a state as independently great as ours. But really, we all hate the idea of income tax because if you added that to the exorbitant property tax and insurance rates here, we would magically OWE money for every day we slaved our lives away.

In that context: If you ever buy a home in Texas, there is something you will need to understand about that ownership:

DEDUCT EVERYTHING AGAINST YOUR INCOME THAT IS ALLOWED BY LAW FROM YOUR INCOME TAX. EVERY GODDAMN THING.

“Oh really?” You may be asking yourself. “Why bother with the headache of line items all over the place? I just Turbo-Tax that motherfucker and BAM! Done and DONE!”

Well, I’ll tell you why. Quite simple really: if you own property and you take the “standard deduction”, you are a sucker, a mark, an idiot, and there is a thick-as-thieves line forming at your doorstep to prove it.

DE-fucking-DUCT EVERYTHING YOU CAN.

It’s the ONLY way you’ll ever recoup all the fees, taxes and service charges associated with home ownership. The ONLY way. Because there are actual economic calculations involving the average amount of money that will be drained from an owner over the course of owning property in Texas. State/city/county/school taxes, Home Owners Insurance, utilities access (different from regular taxes), PMI, loan interest, various closing costs, appraisal fees, improvement application fees, re-construction application fees, and basic construction or recurring maintenance costs. The results of these calculations are extremely important to government and business alike (home sales and NEW home sales are two of the most watched measures of the domestic economy, and many believe they’ve been propping up our limping dollar for the past five years).

Not to impede anyone else’s campaign to purchase property, but there is a substantial vampire element that exists around every single inch of land ownership. The base assumption is that if you own land, you a) are responsible for all civic needs in all strata of civic need-dom wherever your property exists (theoretically, this responsibility translates to taxes based on your portion of “value owned” within whatever civic area). So, if the civic area decides that it needs some big-ass expensive shit that you don’t want, you’re pitching in regardless, for the greater good, whether you can actually afford to or not (roots of gentrification). And b) you are a willing teat for the throngs of little baby businesses that require your cash-laden milk. Just like death, it's coming. And you'll pay up goddamnit. One way, or another.

If you rented an apartment next door instead of owning your home, you would not be paying any of this directly, but your rent would probably go up proportionately to the owner’s increase in cost burden. So, in effect, whoever has the money to begin with, pays it in the end.

My current vampire element is PMI insurance. This is an obnoxious little fee which is borderline impossible to get around. The idea is this: if someone gets a loan to buy a domicile (not necessarily a house on land, could be a condo in space), the bank making the loan wants some reassurance that the buyer is serious about the purchase, and is responsible enough to take care of both the land and the loan payments. If the buyer can produce 20% of the cost of purchase (NOT 20% OF THE VALUE OF THE PROPERTY, because the bank will assume purchase price to be the “real value”, even if the price is WAY under market), then it will make the bank comfortable with the partnership, and it won’t require some loan service insurance, which is what PMI is. If you skip payments because you’re irresponsible or you keep losing jobs or develop a crack habit or whatever, the PMI bearer jumps in and covers the loan payment for you. Technically.

I’ve never known anyone who actually got to use this service because as soon as you cease making payments, your shit goes under lien, and is eventually repossessed, whether you have PMI or not. So it’s not an actual insurance.

It’s a fucking “you don’t gots enough cash up front for this shit” fee.

Now it used to be that once your principal payments (itty bitty portion of your initial interest-weighted mortgage payments) knocked that loan-to-purchase-price ratio to less than 80/20, the PMI would cease. Well, that 80/20 can move around based on all kinds of black-box factors, never in favor of the owner, to prolong the “necessity” of the fee. But IF you magically get the ratio in your favor, and IF you’ve owned your property for more than a year BUT NO MORE than five (five? How the fuck is someone going to pay 20% down on the principal of a mortgage when 90% of their mortgage payment goes to interest? Eh? Good scam), and you’ve had NO late payments in the last two years (basically: EVER), then you qualify to have a REAPPRAISAL (the fee doesn’t just “disappear”). And this reappraisal can ONLY be done through the bank’s “preferred” reappraisal service. “Preferred” makes it sound like there are options, with some being more “preferred” than others, but this is not the case. Here, “preferred” translates to “only”.

Lucky for you, according to the material sent to you by the bank, that reappraisal only costs $300 for an average single family home on an average size/shaped plot of land in an average area of town. If your property falls out of any of the those “averages” (80% of all properties in existence fall out of such averages) then it will likely cost more. But since they don’t specify what any of that means, you won’t know how much your reappraisal will cost until you request it, and then some dude comes out to wander around with a clipboard.

Oh, and you have to request it. Otherwise, it is likely that they will just continue charging the PMI fee forever, and you’ll never meet “Chuck” from Waco and his nifty, yet sometimes broken tape measurer (the only tool apparently necessary for granular property appraisal).

After the request, the bank sends you a fee notification which states that it will cost $350, not $300. You’ll likely ignore this, thinking “inflation’s a bitch!” but this dismissal is the start of your downfall. Forms accompany the fee notification. So you fill out the long forms with lots of information about you and your property, and then fax (fax? Seriously? Is this 1987 or what?) over payment information. BEFORE any reappraisal process begins.

They call a day later to set up a physical appraisal.

Then the dude shows up at your crib on the appointed date, and pokes around for a whopping five minutes. Scribbles shit on Xeroxed forms and doodles some floor plans. He’ll probably use your bathroom. Then he leaves.

A week later, you’ll get another letter telling you that it’s $500 instead of $350 because your property is outside one of many “averages”. Big surprise.

Defeated and deflated, because in the midst of the time that has already passed during this process, the cost for reappraisal has jumped 66%, AND you’ve paid yet another PMI. Awesome.

You go ahead with the hike in reappraisal fees because hey, they’ve probably already finished the damned thing and were just waiting to juice you for even MORE cash. Painfully evident.

Once you fax (again with the goddamn faxing) your agreement to the higher cost, you call the bank to get an e.t.a. on when the reappraisal will be done. They tell you 10 to 14 business days (two to three weeks) before they receive the report from their “preferred” appraiser. Then they’ll “process” that report between 7 and 10 business days (two more weeks) and get back to you. IF the reappraised amount puts you ABOVE the necessary value ratio, they will begin the process for the removal of PMI. If not, they’ll simply collect the $500 and tell you to go hate-fuck yourself. Sucker.

You won’t even ask how long the “process for the removal” might take, because you already know it’ll be “x to 10 business days”, pushing into at least two more PMI payments in the interim, and you just don’t give a shit anymore. But you do ask whether or not they would refund any PMI payments made between the actual DAY of the reappraisal (a good month or two before they decide on the fate of your PMI payment plan), which is the real day at which the new value was calculated, and the day they notify you that there is no longer a need for this fee.

They will tell you no. You will ask why not. They will tell you “because we already collected those payments before the decision was made.” To which you’ll respond “well then I don’t see your company’s motivation to expedite this process.” And they’ll reply, rather cheerily that “we don’t want you to be paying PMI any longer than you need to, so we would get rid of the payment as soon as possible.” Fried, and amazed at the ridiculousness of such a dumbass statement, you’ll retort “well, that doesn’t make any sense considering YOU decide when YOU get to stop collecting this fee from me, and you won’t be returning any you collect in the interim of this process.” Noting your sliding interest in the whole thing, they’ll craftily say “sir, we don’t want you to be paying anything you don’t have to, so we’ll stop collecting the fee as soon as we know that.”

With your mind wandering off to lunch land, tired of trying to figure out why it is that you must endure this bullshit graft, you decline further discussion of the matter.

And go take a long poop to cleanse your soul, realizing that you WILL pay up, one way or goddamn other. But you’ll keep trying. And collecting all those receipts and tax write-off notations for this year’s dance with the tax man.

Some people believe that getting what is called a 80/20 loan* will get you out of paying PMI. And it will. But it will replace that PMI fee with higher interest loan fee, which will be either equal or more than the PMI fee in the long run. And it will be paid to the same bank and its “preferred” coalition of fee collectors. Best case scenario for you, the budding real estate impresario: a wash. Worst case: you’ll pay MORE in the net, but think you’re so smart that your bigger brain got you around those pesky tricksters! But no. Not even close. Awesome.

*this is a two-part home purchase loan scheme where you put NO money down on a purchase, put 80% of the thing into a long-term regular mortgage loan, and then borrow the other 20% at a higher rate (because it’s technically a signature loan) to fill in for the 20% necessary to avoid paying PMI. Theoretically this might work, but it never actually does.

3 comments:

Anonymous said...

I think there is a built in ratio for the sheer volume of ways "the man" tries to fuck you based on how much of your neck is on the chopping block. Financial institutions always seem to find intricate ways to fist you over a given maslow pyramidical need. Home ownership is the last bastion of corporate mafioso lynching.

On one hand home ownership is a great long term value investment. On the other hand there is nothing about the industry that teaches joe blow how to safely and equitably make real estate investments over the long haul.

I reccommend anyone making under 6digits to buy the smallest meakest house they can afford. Unfortunately in the real estate game the more money a given investment cost the more easily hidden and exponetially intricate are the periphreal fees. Theres a reason the rich are misers, its not cause their cheap chumps; and not because they're all greedy (though many are) but they know the value of small investments (less headaches+less penalties+less hidden fees=Smaller investments)

Benji said...

As a soon-to-be homeowner, the husband of a bookkeeper and the son in-law of a CPA, I can tell you Craig is basically 100% correct on this front.

He was also right about McSweeney's. The Philip Graham dispatch was buoyed by wit and sagacity.

Anonymous said...

Kai Ryssdal, watch out!