Episode Transcript
[00:00:00] Speaker A: Then our next topic today on Ask Joe anything is going to be about mortgage porting.
And I've seen several articles about this. We covered it in the newsletter as, again, just a catch up little article for real estate investors and others to review about mortgage porting, because it's evidently the new terms out there, the new buzzwords that we're seeing floating around the blogosphere on mortgage porting. And you got to think of it as sort of like teleporting, where you move one thing from one place to another and make it work. And in this case, you'd be moving a mortgage from one property to another property with the same borrower. In Florida, we call this mortgage spreading. We call it spreading mortgages. And we have spreader agreements. We've used these.
Gosh, I've been doing mortgage spreaders the entire time I've been practicing in Florida since 2001, we've done mortgage spreaders, which I guess now the new buzzword is mortgage porting, but it's not a new concept. I think where it sounds novel is when you're talking about using it on somebody's house. So let's say you own a house and you don't want to sell it because you have this great mortgage rate. You have a 2.75 or 2.5% mortgage on it for 30 years, $250,000 mortgage. So you don't want to sell the property because that means you're going to have to pay this mortgage off, and then you're going to go buy a new property, and you're going to have today's interest rates, which may be 7%, 6.5%, maybe as high as 8% on a 30 year mortgage. So why would you want to give up a two point something percent interest rate to go to an eight or seven or 8% interest rate? So understandable.
I wouldn't want to do that either. So it becomes this. Your home becomes these, what we call golden handcuffs. You can never leave it. So now everyone's come up with this idea, which is not a new idea, of mortgage porting, and it's where you sell the property. And instead of just paying the mortgage off, that mortgage ports teleports over to the new property you're buying, and the lender may receive the money at closing, or they may not even receive the money at closing. When you sell one property, it just goes, that money that would go to pay off your current balance at the mortgage instead of paying it off, goes straight over to the closing company that's closing your purchase of your new house, and then you use that money again and you keep the same mortgage. And then all you, you don't sign a new promissory note, or you may sign an amended promissory note that references your new property and your new address, but otherwise the terms stay the same. The lender stays the same, the borrower name stays the same, and you sign a mortgage spreader or mortgage reporting agreement. I've never seen a mortgage reporting agreement. I've seen a mortgage spreader agreement where they then spread the mortgage from the old property to the new property and they release the old mortgage from the old property. Just saying, okay, it's no longer a lien on this property, but now it's a lien on your new property. So you're substituting collateral, you release one property and you substitute collateral for the security of your mortgage for your lender over here. Again, we've seen this in commercial lending forever in Florida, where let's say you are a builder and you have a multimillion dollar mortgage and note that you have signed and use that multimillion dollar mortgage and note to buy a giant tract of land that you then divvy up into lots and you build houses on and you, you pay it down. But they, they just release the lots as they sell it. And now you go, okay, well, I've pretty much almost paid that off, but I got really good terms on it. I don't want that mortgage to go away and I want to go over here and buy this other big tract of land now. And the bank says, that's fine, you're paying us, you're great, we're happy with the interest rate we're getting. Let's go ahead and just spread the mortgage that was on that big tract of land over to the new tract of land. You don't even have to sign a new promissory note in that case because you're buying it in the same entity or whatever, and we're just going to spread the mortgage over to another piece of property. We do it with private lenders where we have private lenders who go, look, you know, he's not, he's, the investor is not going to pay me off. Instead, we're just going to take the money that I would be paid off. And instead of me being paid off, it's just going to go straight to the company closing the new purchase that they're doing to buy the new house that they're going to renovate or whatever. And so we go, fine, we'll just spread the mortgage over to the new property and we release it on the old one, spread it over to the new one and you're done. Substitute to collateral. So mortgage porting. Yeah. You see it a lot. I don't know that we're going to see it a lot in conventional lending. It'd be great. I think it'd be absolutely wonderful if Fannie Mae, Freddie Mac, fha Va, could come up with some guidelines and procedures about how this would happen. It would be absolutely wonderful. Because at that point, I think a lot of people who feel trapped by those golden handcuffs in their current home with their current low interest rate, they would be able to say, okay, well, I can go ahead and sell and I'll just take my mortgage I have now with the same rate and just go over and buy another smaller house with the same mortgage, basically. And that way I don't have to pay full documentary taxes again. I don't have to pay full intangibles taxes again on the note and mortgage. I don't have to pay all these additional fees for a whole new loan. I can just, and I'm not getting a higher interest rate. I'm keeping my same interest rate that I know with the same servicer, the same bank. I keep making my payments the same as I've been doing. So it would be great. And I'm a big advocate for that. I think it'd be wonderful. I think it would really clear up a lot of the lack of supply that we have in housing right now. Because big part of the reason we have such a shortage of supply of housing in the United States right now is because you had all these boomers, the largest generation we'd ever had in the United States. They moved from starter homes to larger homes and larger homes and larger homes throughout their life. And now they're in these big houses and they're retired and they're done and they don't want to maintain these very large houses anymore. So maybe they've paid their mortgage down from 600,000 to 300,000 and they want to downsize from this now million dollar house to a $400,000 house. So wouldn't it be great if they could just say, okay, we'll just put my mortgage over to that new house and I'll just keep it and I'll keep making the mortgage payments. It's just on a smaller house now. And now this much larger house has opened up so someone else can move up into it, freeing up another house. Someone can move up into that. And just so on all the way down, down that domino effect of people being able to move up into houses, because that is the problem we have. We had back after the war, we had the baby boomers. As the baby boomers came of age, they needed lots and lots of starter homes. A starter home is 1400 square feet. So they built just tons and tons of 1400 square foot homes all over America for these baby boomers. Well, as the baby boomers aged, eventually the millennial generation came along, which again was the next largest generation right behind the boomers. So the millennials come along and they're going, well, we need starter homes. Well, unfortunately, they did not continue to build starter homes. They stopped building them because the boomers were making more and more money and could afford and wanted larger and larger homes. So instead of building starter homes, they were building mid to large homes for moving up for legacies. And now there was this huge shortage of starter homes. Well, now millennials have aged in to where they're at a point. Now they've saved their money because they couldn't buy a starter home. They rented longer. They lived with mom and dad, they lived with relatives, they had roommates, whatever, and they saved up more money. So now they can go, well, I don't really need a starter home. I can go straight into a mid sized to a larger home.
But those aren't freed up either, because grandma and grandpa and mom and dad cannot afford to sell those properties and then take out a new mortgage at the new higher rate. They just don't want to. They don't want to give up their mortgage. So it's cheaper to stay in this larger home and maintain it than it would be to go to a smaller home with less maintenance because the interest rate would be so much higher than what they're paying now. So that's mortgage porting. Also, throw in a little bit there about the entire supply demand dynamic that's going on, and let me just talk about that supply demand dynamic just a little bit more.
We talk about boomers and millennials because those two generations were about the same size. I believe millennial generation may have been a little bit, may have been a little bit bigger than the boomer generation, just in demographic size. But in between there you had the x generation, which was my generation, and the x generation. We were one of the smallest generations ever. So there was plenty of housing for us, fortunately. So we were very fortunate and we had housing available. I mean, my first home was a, I believe it was about a 1600 square foot house, a split level in Asheville North Carolina. And I remember we got it. We did not want to spend over 200,000. I believe we got it for like $198,000 back in 90, 98, 99. And now that home, I have no idea what it would be worth, but I know it's definitely worth a whole lot more than $198,000. And then we sold it a few years later for around 250 and then moved to Florida. And then in Florida, we were like, we're not going to pay more than 250,000. And we ended up spending 257. And we got a 3500 square foot home. So we moved up because all these houses were available and the prices were staying low because our generation was so small coming in that price, there wasn't a supply problem. There's plenty of supply, so prices could stay pretty low and stable. And the Z generation that's now coming up, the Z generation is doing better than any other generation in recent history since these statistics have been kept. As far as owning their own homes, they as a percentage own their own home at this stage in their life. At a certain age, I think it's like 22 to 25, they have a higher percentage of homeownership than the boomers, the Xers, or the millennials ever had. And that's because, again, the Z generation is a very small generation. And again, there's plenty of homes out there that they can buy, and they come out with great interest rates, especially if they were able to buy before COVID hit some zs, I know bought during COVID while the rates were really low. And they're just doing great as a generation. The Z generation, financially, compared to millennials, they're doing really well.
They're sort of four steps ahead in that race than where the millennials were at the same time in their life. So that's just my two cent on that and how that all works with demographics and supply and demand and what we'll see and how that interplay with all these new creative ways that people are thinking about how we can free up some supply for all the demand that is out there. And mortgage porting, mortgage spreading is definitely one of those tricks. I mean, that people may want to start thinking about and talking to your legislators, federal legislators, not state legislators. Start talking to your congressmen and your federal senators about, hey, can you guys go to Fannie Mae and Freddie Mac, maybe have some hearings about how we could allow people to port their mortgage, to carry it from one home to another without having to take out a whole new loan? And Congress has that capability if they can agree to work together on something constructive, that it would happen this year. But if the housing supply does not start to free up, we're going to have pretty much an entire lost generation of homeowners, by percentage of homeownership in the millennials, that they will have never been able to get the same traction of homeownership that the, the boomers enjoyed and the Xers have enjoyed, and that the Z generation is now enjoying. And so we have to start getting creative on this, because the idea that interest rates are going to fall precipitously anytime soon is a pipe dream. I don't see that happening at all anytime in the near future, barring any super unforeseen event that may happen that would cause that to happen. But we will continue to see a problem with supply for all the demand that is out there when it comes to homes for the time being.
And the last ask Joe, anything comes out on these new HOA rules that take effect on July 1. And you've probably seen this. I know we discussed it.
I was at the fund assembly, which is over 1000 or 700 something lawyers. We all met in May, title, real estate, title lawyers from all over the state of Florida. We come together once a year. And part of that three day continuing legal education is we study legislative events, legislative changes that are coming down the pike. And one of them was definitely all these new HOA statutes for homeowners associations and condominium associations, and there's no way I can cover them all. I would urge you, if you live in a homeowners association or a condominium association, I would urge you to read as many news stories as you can about this, because there were over 50 pages changes. Now, Florida, probably not as many as California, but Florida has just an insane amount of statutes and regulations around homeowners associations and condominium associations.
And over the past few years, it sounds like maybe some of these board members on homeowners associations, I mean, condo associations has always been an issue. So with condo associations, years ago, they built mechanisms at the state level to hear disputes between owners and their associations.
And they had training already built in that if you sit on a board of an association of a condominium, you had to have certain education certificates behind you before you could take your seat on the board disclosures, just all kinds of regulations around simply serving on a board notices and how that's all handled and what they can do and what they can't do as a board to try to level out that playing field. But homeowners associations have been a little more freewheeling over the years in Florida, it's been a little more, you know, do whatever you want.
And because you're homeowners, you've got space between you. You're not sharing walls and ceilings and floors where you can hear each other and smell each other, cigarette smoke and dogs and animals cooking. You're not so worried about pipe bursting in the unit above you when you live in a single family residence, because it's your house. If the pipe burst on the second floor, that's your problem anyway. But in condo, it's always been more regulated because of that. But the legislatures evidently felt a need to pass an entire just overhaul when it came to homeowners associations and tweaking the condo associations, too. And they included education requirements before you can sit on a board of an HOA. But what I see here, and I've seen this in multiple states where I've practiced over the years, and there's always this, there's always a pendulum swing. What goes up always comes down. What goes left always goes right, and vice versa.
And in this case, it sounds like the legislators had heard from a lot of their constituents that their homeowners association board had gone insane.
They called them crazy karens, the Krazy Karens. On the homeowners association board, they were reporting every weed. They were finding them for everything.
Every weed in their yard, every piece of mold on their roof, every clogged gutter, every oil stain in the driveway, every flag that was flown, every plant that was planted, you know, every color of house that was ever painted was being reported by the Hoa and then fined. And the legislators apparently had enough. And this is sort of goes back to the first thing I was talking about, that when legislators hear enough complaints and enough constituents calling them, saying, you gotta pass a law, you gotta do something to get this reined in, eventually it will happen. Eventually legislators will act. They will hear enough of it. And where it usually happens, it starts at the layman, the homeowners, the citizens that are affected. They're calling, they're complaining. Then they start complaining to realtors. Realtors start hearing about it. Lawyers start hearing about cpas, property management companies, community association management companies. All these people start hearing these same complaints, and they all start calling their legislators. They grab their legislators at town halls. They grab them when they see them in the local cafe, and they go, I want to tell you what's going on out here. And after a while, the legislators, they start talking amongst themselves, and they're like, hey, maybe we do need to pass a law. So at this point, they swung from having pretty strong freewheeling hoas to now they've put the elastic bands on the hoa to say, you guys are going a little crazy and we're going to pass some laws that reign you in because you've gotten a little power hungry and you've got a little nuts.
So it does happen.
And I'm sure that before I retire from practicing law, a lot of these things or some of these things will swing back the other way to release the regulations that are fettering association members, association board members, from doing what needs to be done to maintain their associations to the standard of appearance and quality and value that they bought in that association in the first place. One of the things I will point out is work trucks. A lot, a lot, a lot of associations in Florida have restrictions, just boilerplate restrictions in their declaration of covenants that says no work truck that has any kind of writing on it is allowed to be parked overnight. In view anyone? So if you work for a company that has a work truck with logos on it, you either had to have a way of peeling those logos off magnetic signs or you had to pull it in the garage and put the door down. And that has changed significantly. I would urge you to read the statute. If you sit on a board, talk to your community association managers. They are professionals who are studying this. This all goes into effect July 1. So you've got about two weeks to learn this stuff. And if you do not have a community association management company, I always urge associations, I don't care how small or how large they are, to please seek out a licensed community association management company and use them to ensure you are running properly, accounting for everything, properly noticing your meetings, properly holding your votes properly and timely, and enforcing your regulations squarely and fairly across everyone, that you are not singling anyone out and that you do not have just, you know, one board member who is angry at one neighbor and they use their power on the, on the board to exact retribution on this neighbor that they can't stand.
So that would be my caveat. Two of them, read, learn, study as much as you can about all these changes. Soak up as much information as you can about them because they are too numerous for me to go into here. And number two, if your association, if you sit on a board and you are self managed, even if you are a homeowners association, not a condo association, homeowners association, consider engaging a professional community association management company to manage your association. The fees are not that high to do this and have them manage your association, because number one, they're going to make sure you stay inside the lines, you color inside the lines on the new statutes and the new regulations.
But another thing that I've found that cams do, community association managers do is there's sort of this outside company that is above the fray. And in a way, they don't get embroiled in inter neighbor, inter neighborhood disputes between neighbors. They can sort of stay above that and go, okay, well, you're angry with each other, but here are the regulations. These have not been broken or they have been broken as far as the neighborhood, the rules and regulations of the neighborhood go. And if they've been broken, this is what we can do by statute. If they've not been broken, let it go. You know, don't go out there hunting. And also, they will.
They just bring dispassionate reason to association management.
They enforce the rules and regulations as the board tells them to. But if there has not been a violation, they will tell the board, this is not a violation. This is not something that needs to be done here. So that's my two cent on the new HOA regulations that are coming out. If you are a real estate professional in the state of Florida, you definitely as well need to be learning as much as you can about all the new regulations. Again, there's 50 plus pages of the, of revisions.
Not all of them will apply to everything that you're, you're facing in your daily life, but definitely something to be aware of, something to be thinking of, something to be learning about. And with that said, I'm going to sign off this episode of Ask Joe anything. But I would urge you, please, if you have questions, text us. We have a text number. You can record a voice memo on your phone and share it with us through a direct message through whatever platform you are using to either watch or listen to us here today.
You can also email us. You can go through our website, my Landtrustee.com, and get in touch with us through our website.
However you want to get in touch with us or call our main line. Just let us know if you ever have any questions about real estate in general, about land trusts, about the law as it may relate to you, even if it's an area of law that we do not handle, we are happy to refer you out. We know some really good attorneys who a lot of different things, and we can typically point you in the right direction to an attorney who will handle what you are facing and the best attorney that we know to handle that for you, so please feel free to always contact us for anything you may need. And until next time, I'm signing off.
[00:25:49] Speaker B: Thanks for listening to this edition of Trust this if you got something out of it, please press like and subscribe and give us a five star review to help us reach others who can benefit from this series. Until next time, keep aspiring to a better life.
