Archipelago Of Accounts – The Banks Always Win

At work, our health insurance has been switched to a high-deductible PPO. Not to worry, we’ve also been granted Health Savings Accounts (HSA) in which to save money, tax-free, to pay bills before meeting the deductible.

That’s all well and good, but I can’t shake the feeling every time legislation comes out to do some activity (retire, save for education, health care) the only winner is the financial services industry.

Here’s why: all of these activities requires one to maroon a slice of money into an account designated for that purpose. What comes with accounts? That’s right, fees to the bank. The Wells-Fargo HSA we’ve got is $4.25 a month (paid, for now, by work). That’s $51 a year to hold money. The interest rate is a paltry 0.1%, so with $2000 in that account (the minimum cash balance before we’re allowed to invest), I’d make about $2.00, (net -$49 if I was paying the fees, as I will one day) Thanks for nothing. Further, while some banks graciously waive fees for meeting minimum balances, it’s harder for many people to meet the balance since their money is split so many ways.

These accounts limit my flexibility to spend as life events occur, limit the returns on my money, and cost me fees, and headaches. More statements to read, cards to carry, and fine print to decode.

If costs are to be tax-deductible, why not fix the tax code instead, so that all medical expenses, instead of those over a certain amount, are tax deductible, instead of these shameless handouts to the banks? Let me deduct things come tax time.

The Sad Story of 8 Theriault Court, Cambridge Massachusetts

If you’re buying a house, prescription especially if you’re putting less than 20% down and/or the house is on a private way, capsule you may want to read through our long and stressful ordeal that cost us many months and $20,000.

8 Theriault Court

In March 2010, we set about buying 8 Theriault Court, Cambridge, Massachusetts, owned by Catherine and Rafael Clemente, Jr. The house was listed at $449,000. We submitted an Offer to Purchase the house for $420,000, and after negotiations and an inspection, we agreed upon a purchase price of $434,000 and signed a Purchase & Sale (P&S) agreement.

We also made these concessions in the P&S at the seller’s request:

  • We proposed to put down $10,000 as a good faith deposit, but the sellers required a 5% deposit. We acquiesced and our total down payment held in escrow with Coldwell Banker (seller’s realtor) was $21,700.
  • We were willing to accommodate the new home search of the sellers by agreeing to a very flexible closing date up to June 30, 2010 (up to 86 days from the date of the signed P&S).

Mortage loan attempt #1

After finalizing the P&S agreement, it was time to apply for a mortgage. During the mortgage approval process, the appraisal came back with a value of $417,000 on April 22, 2010. Based on this appraisal, we went back to the sellers to negotiate a selling price for which we could obtain a mortgage, based on the true value of the house. We were only able to renegotiate the selling price down to $425,000, with us bringing cash to closing to make up the difference between the appraised value we could seek a mortgage for and the amount the sellers wanted to get for the house.

As part of the price renegotiation, the sellers changed the realtors’ commission rate from 5% to 4% without first getting permission from our realtor. Our realtor was cornered into accepting this pay cut or risk our losing the opportunity to buy the house.

At this point, we also discovered that our first mortgage loan was turned down due to a private roadway way issue (more about that below).

Mortgage loan attempt #2

We knew that we’d have to try another loan provider and would, thus, need to have another appraisal conducted. As part of our new price negotiations with the sellers, we also had to agree that if this second appraisal was,

“…higher than the purchase price [of $425,000], then the parties agree to negotiate in good faith relative to increasing the purchase price with a cap on the purchase price of $434,000.”

This provision was definitely in the seller’s favor, as they explicitly ruled out lowering the price should the second appraisal affirm the low valuation of the first. Despite all of these provisions, we decided to press on.

The second appraisal came back at $415,000 on May 21, 2010, confirming the earlier appraisal’s assertion that the sellers, at $425,000, were getting more for the house than it was worth.

During this period of time, we had about a week of daily negotiating around P&S amendments, pushing the mortgage contingency date back day by day as we waited for mortgage approval.
When approval arrived, it was conditional upon securing private mortgage insurance (PMI). Because we were paying 10% down to close on the house, we needed to secure PMI. Our mortgage broker and lawyer seemed certain that PMI is almost always approved. We thought we were good to go for closing, so we let the mortgage contingency date slide by.

PMI Denied

Ater the mortgage contingency date, two different PMI company underwriters decided that, based on the comparable houses selling in that neighborhood, 8 Theriault Court was worth less than our mortgage amount. They wouldn’t underwrite the insurance to finalize our mortgage loan approval. They wouldn’t say how much they thought the house was worth, but our denial letter said the following:

“The property does not meet [insurance company’s] minimum underwriting standard due to nonsupport of value from comparables,“ and, “The property does not meet [insurance company’s] minimum underwriting standards due to overall poor functional utility.”

And the other denial said, “Comps do not adequately support value.”

Despite these developments, the sellers were unwilling to come down in the selling price.

Mortgage loan attempt #3

Not being able to secure a conventional mortgage loan, we decided to instead pursue a government loan via FHA. FHA regulations require either the presence of an easement on the title documents of all properties on the private way, or a roadway maintenance agreement signed by all property owners abutting the way, stating that owners of the properties agree to share responsibility for the repair and maintenance of the road (excluding plowing by the City of Cambridge) and allowing them to access their own houses by driving over the roadway section in front of their neighbors’ houses. Neither of these exists among the six property owners on Theriault Court and the sellers were unwilling to make any effort to ask their neighbors to sign an agreement so that we could obtain an FHA loan and close on the sale. As a result, we were unable to get an FHA loan.

Backing out of the purchase

At this point, we could not get a mortgage loan to close on the house, due to the house’s low value and the private way issue, both of which were beyond our control. The P&S document specified that the deposit belonged to the sellers once all of the contingency dates had passed, but we hoped, as reasonable people, that we could reach an agreement with the sellers to compensate them for expenses related to canceling the sale, such as breaking the lease on an apartment, and still have a large amount of our deposit returned to us.

That was not to be, as the sellers made a quick offer of $2,000, backed by a notice to our lawyer that they had retained counsel to litigate over the matter, if necessary. In the end, after consulting our own legal counsel and determining we would be unlikely to come out fiscally ahead (due to the cost of retaining counsel) if we choose to litigate the matter, we negotiated with the sellers to give us back a mere $4,000 of our $21,700 deposit. They pocketed the rest. In addition to losing $17,700 of our deposit, we were also out several thousands of dollars for the inspection, appraisal, and attorney costs, bringing our total loss on this real estate transaction to around $20,000. We also lost out on the opportunity to get the first-time homebuyer’s credit of $8,000.

Lessons learned

Overall, we learned a lot about how to better protect ourselves for situations beyond our control. We now seek to protect other potential buyers, of any home, from encountering the same problems. Unless you are able to put 20% down on a house and forgo needing PMI, make sure your P&S agreement includes contingency for you to get out of the deal if PMI is denied after the mortgage contingency date. Also, if the property is on a private way and there is no written agreement in place, be prepared to go door to door asking the neighbors to sign a private roadway agreement—and know that there is no guarantee that they will sign a legal document proposed to them by a stranger.

The biggest lesson we learned is that if the sellers are unreasonable early on, as you negotiate on various things, or are unrealistic about the worth of the property in the face of mounting evidence to the contrary, walk away while you still can, because they’re not going to get any more reasonable as time passes. There are other houses out there and it’s not worth the stress and potential fiscal losses.

Postscript

The house at 8 Theriault Court is back on the market, this time at $439,000. Based on the two appraisals conducted just four and five months ago, and unless the market or the house has changed significantly since that time, the house is likely not worth even that amount.

High Trek (Stingy) Adventures

Kristi and I joined forces as team “puppy nappers” for yesterday’s scavenger hunt race around Boston. I think we ended up somwhere in the middle of the pack after a couple of hours running around Boston’s south end, Harvard Square, and searching for a clown in the Public garden. It was a good (if tiring) time.

I was disappointed at the beginning of the day when they announced that the race had raised $350 for a local AIDS group that had provided volunteers. The race had 250 teams at $86 a team, so that’s $21,500 in revenue. While not run as a fundraiser, that’s a pretty poor showing. That aside, this thing is a huge cash cow. There’s a whole raft of sponsors that surely covered all the prizes and gift bags and then some so their only expenses are salary. It was hard to say who was an employee vs. a volunteer, but the number is probably no more than 6, more likely 4 or so. Not a bad gig if you can get it, as they say.

Barack Obama Rally In Boston

Kristi and I went to a rally for Obama in Boston last night. It was much bigger than I expected, though in retrospect I think I should have expected more. It was my first time at a political event of any kind. I enjoyed it a lot, despite all the standing around. He invited everyone to head up to New Hampshire to volunteer there (reminding us “its only an hour away”), so who knows, maybe I’ll try my hand at canvasing one of these days.
Me at the rally
Barack

Obama

Andrew Sullivan writes a great article “Goodbye To All That” in this months Atlantic painting 2008 Presidential election as the continuation of the Boomer-generation’s civil war that started with Vietnam and lumbers forward even now, and more importantly how Obama can bridge that bitter divide (claiming more republicans would vote for him than any other democrat) and rebrand America.

There’s also a follow up interview with the author.

A recent NYT op-ed mentions this article too.

Full-time student

For a little while at least, I’m a full time grad student. I finished up my fifth class (wireless sensor networks) this summer to reach the halfway point in my master’s program and was starting to think about going full time.. in fact I’ve thought about it the last two summers because the Tuft’s CS program really isn’t conducive to part time study. All the “interesting” classes are offered at 10:30 unfortunately. I’d also been interviewing for new full time positions. In the midst of that deliberation this time around, I had the good fortune to get laid off from my full time job…

So now I’m taking Intro to Machine Learning, Intro to computational biology and a seminar on Brain-Computer interaction. I’m also tagging along with one of my advisor’s research groups which will hopefully afford me the opportunity to carve off some work to get started on my Master’s degree project.

In my (ever declining) free time, I’ve also been doing some Ruby on Rails work for a small company in Cambridge as a contractor.

Citizen Kebinger

I became an American citizen today, just ten days short of nineteen years after moving here and about a year since applying. There were 98 other people from 30-something countries being naturalized as well. First we all stood in line to check in and give up our green cards (which went into an official looking Target bag), Then we waited more after being seated, during which we were told some rather hokey stories by a manager in the Immigration Services office and read and re-read our letters from the president (Dear fellow American…)

Once the judge arrived, things moved quickly- first we all said the oath together, then the judge made a nice speech. Due to the hokey stories and the fact that I wasn’t running away from religous persecution or civil strife, I expected to view things through my usual detached, ironic perspective, but once things got going, I found it quite moving.

After the judge was done speaking, a grade school daughter of one of the fresh citizens led us in the pledge of allegiance and that was it. We filed out a row at a time to collect our certificates of naturalization and that was that.

Here’s me before the ceremony, permanent resident card in hand:

beforenatphoto.jpg

And afterwards, government-issue mini flag in hand:

afternatphoto.jpg

Big difference eh?

Without insurance

I saw this disturbing story (via the wesabe blog) about a woman who can’t buy health insurance because she had a bout with cancer. Being without dental insurance bothers me enough, ( i still kick myself for not picking up the COBRA coverage before the deadline – the thought of paying for a root canal out of pocket gives me the shivers) but the thought of no health insurance is terrifying.

I can’t believe that we, as a country can’t solve this problem and make it easier for individuals to obtain insurance. By insuring everyone, even the young and relatively healthy, the risk is spread around enough that it is overall more affordable for everyone. Surely having portable insurance would allow people to start their own businesses or just take extended time off to do something different, which would have to be a boost to the economy. It seems like the anti-health care forces would have us believe that any insurance changes would be bad for small business, but I can’t believe that is truly the case if we do it right.

New MBTA website: wow!

The MBTA today unveiled their new web site, and all I can say is wow. Its way more than I would have expected out of them (this is a site where the outages page was updated by hand editing before). Theres a clean and modern new look, plus an array of new, useful tools.

Theres a revamped trip planner integrated with google maps, with “suggest” for landmarks when you type (which doesn’t work quite right yet..)

My favorite, and the most impressive is the new My MBTA feature which allows one to save planned routes and sign up for customized alerts. (but I’m not sure if they email them). There’s a hidden, unlinked tool (with the old look) called VIP Alerts that seems to let one do email and sms alerts.

UPDATE: It looks like the MBTA didn’t like people using the t-alert system before it was public so they took it down.

There’s another tool that isn’t linked up yet (it’s commented out in the source, I wonder why?) is system schedules for your ipod.

Hyperopia

The New York Times Magazine had its annual year in ideas issue this past sunday – one of my favorites was Hyperopia, which is the idea that in the short term, one feels guilty for not getting enough “stuff” done, but over the long term, one looks back and wishes he or she had more fun back then.

This is on my mind as I finish off a class (man machine system design) where I really haven’t learned much and the assignments are so long that the professor has to be a sadist of some kind, as I try to figure out what I’ll take next semester (the evening class pickings are lame) and why I’m getting a master’s degree in computer science the first place.