BILL CHERRY'S GREATEST DALLAS PARK CITIES REAL ESTATE BLOG

I’m on a tear and I admit it!

I’m tired of people allowing major repairs and renovations to their homes without a city or county building permit. 

A few months ago, I realized that a 1,500 or so square foot addition was being built on the back side of a nice home in my neighborhood.  It was hardly visible from the street. 

There was no one living there.  It had been bought as a short sale by a professional “flipper.” 

One evening after the workers had left, I looked to see how the construction was coming.  I saw major code violations, and that’s when I realized that there was no building permit posted.

Being the busy body that I am, I called the city building department.  The fellow looked the address up, and said, “They have a permit for the dumpster that’s in the street.  I don’t see any need to check for a building permit.”

So that meant that all of the work -- ESPECIALLY the framing, plumbing, electrical, HVAC -- was probably being done by handymen and workers without required licensing.

Recently, I have watched a number of roofs in our area as they are being replaced because of major hail damage.  Out of all of them, I’ve only seen one building permit posted.

Roofing is tricky business.  If you don’t do it right, the chance of failure and extensive damage from the weather is extraordinary.

One roofer was installing a new deck over the rafters.  He and his crew were nailing the deck upside down! 

Others were not correctly felting the valleys.  Almost all were shorting the number/type of nails the manufacturer requires for each shingle.  Others were not overlapping shingles correctly.

One time, about eight years ago, when Patty and I were looking at houses to pick our new Dallas residence, we saw a garage conversion that had electrical outlets totally wired with lamp cord!  We wouldn’t have bought the home anyway, but if memory serves me, the asking price was more than $300,000!

A house ready, willing and able to have a major fire, and on top of that, the outlets were not grounded.

So what liability transfers to real estate agents and brokers who knowingly handle the marketing of such properties?

BILL CHERRY, REAL ESTATE BROKER

Dallas – Park Cities
Since 1964

214 503-8563

I am not an attorney; however, I’ve been forced to mess with Wills and Living Trusts for at least thirty years.  One of them was one that one of my mother’s attorneys convinced her to initiate to replace a Will that had been drawn by another of her attorneys a few years before.

So the other day, a friend of mine, knowing all of this, asked me to address what I feel are the issues with Living Trusts because in his own case, he is beginning to see “cracks” in his that he doesn’t like.

I thought I’d share with you what I wrote to him..my sole opinion. 

Remember, I live in Texas.  Each state has its own probate laws.  Nevertheless, generalized, the following is reasonably standard.

If you find merit in it, please make sure that you let your attorney, financial advisors and family weigh in before you make any decisions. 

I believe that the main problem with Living Trusts is that for all practical purposes that they exist is to keep your business as a secret from the world.

Often it's claimed, and in some states it probably is, cheaper to administer at death rather than to probate a full Will.

And that's the very selling points that lawyers push as being so wonderful about the format. 

However, in almost all cases, that simply isn't true in Texas.  It is true that legal fees for drawing the documents necessary for a Living Trust exceed those for a simple Will.

The other selling point is that everything addressed in the successor Trust is a secret from public record and, in the main, probate court scrutiny. 

The third is they are almost always drawn so that the trustee does not have to post bond.

(Like it or not, that is primarily because bonding companies charge high premiums to insure non-professional trustees because their past experience with non-professionals is that claims paid are high.  That's a sure indication that bonding companies know something you need to know.)

And just as bad, they are often drawn wereby there is no requirement for annual audited financial records.

If the trustee is sued by a beneficiary for any actions other than alleged fraud that the trustee has committed on behalf of the trust, the trust pays all of the trustee's legal expenses; the trustee is defending the integrity of the decisions of the trust which are, in fact, the trustee's. 

The trust doesn't pay the expenses of the person who is suing unless, of course, the trust looses the law suit and the court awards attorney fees to the plaintiff.

Another thing that is wrong with them is that the trustee is usually a beneficiary.  Like it or not, it is a conflict of interest.

Experience has shown that trustees often give weighted consideration to what will personally benefit them rather than equally to all of those designated as beneficiaries

If a trustee wants to force compromise by the other beneficiaries, often the trustee need only drag its feet in making timely dispositions to the beneficiaries.

And finally, rarely do the trustees have sufficient pertinent business and legal experience when it comes to managing a trust.  They just do not, and on the job training is costly to all.  And it may not be successful!

And just think, most trust agreements provide payment to the trustee for his services, and he’s paid before there are distributions paid the beneficiaries.

So contrary to what many attorneys claim ... that the cost of a trust is usually far less than messing with probate...is one with which I strongly disagree. 

At least with probate, the court must make certain that the testator's wishes are carried out, and that requires the executor to handle things the way the court instructs/approves. 

So it costs more....what is more important, having your wishes abided by or risking that the trustee will do things his/her way, knowing that no one is going to sue, and if they do, the trust pays the bill, not the trustee.

If your plan is to have a Living Trust, you might consider having it written so that the first generation receives the income off of the trust assets and has the right to some specific distributions on certain dates throughout their lives, but that the corpus itself passes to the second generation or a charity upon the death of the named beneficiary(ies). 

That helps stop a spendthrift. (Interestingly but predictible, unless distributions are spread out, most beneficiaries immediately by a new car and pay off their credit cards within sixty days of their new found "wealth.")

I would appoint a trust department of a national bank as the trustee, if possible. 

They not only manage things the way the trust agreement orders them to, but they make certain the thing stays legal, that income taxes and property taxes are properly filed and paid, and that regular accounting statements are provided the beneficiaries. 

Trust accounts are subject to regular audit by the bank's internal auditors as well as the national bank examiners.

And, professional trust companies of banks are always bonded.

If you decide to limit what certain beneficiaries will receive, you have every right to do that as long as you do not ignore naming them in the trust and Pour-Over will.  Name them in the trust, then say what they get. 

There doesn't have to be a reason for your decision to be specified.

Living trusts are often not fully funded.  As I mentioned above, they are accompanied by what is known as a Pour-Over Will.  

Its primary purpose is to make certain that any property that has not been deeded to the Living Trust prior to the time of your death, automatically passes to the successor trust at that time, and to name the trust that suceeds the living trust at the time of your death.

A Living Trust ends when the moment the trustor dies.

Make certain that as soon as the Living Trust is formed, that you have your attorney deed everything to the Living Trust, and that all future business is done under its auspices. 

That means separate bank accounts and seperate income tax filings.

In the case of your home, I believe that you will want to deed it to the Trust and retain a Life Estate.  Your attorney will help you make this decision.

Here is a word of caution:  Often attorneys leave "per stripes" as part of a will or trust.  Here is what it means:

“An estate of a decedent is distributed per stirpes, if each branch of the family is to receive an equal share of an estate.

“When the heir in the first generation of a branch predeceased the decedent, the share that would have been given to the heir would be distributed among the heir's wife and children in equal shares.” 

If you are going to specifically name each person/organization and what they will receive and under what conditions, you will want to make sure that the attorney does not inadvertently have per stirpes language in the document, as it could be conflicting.

Finally…

If you continue with the Living Trust, have your attorney draw up a Memorandum of Living Trust which you will sign and have notarized in a format that can be recorded in the deed records and the probate records of your county, then make certain it is promptly recorded. 

Its purpose is to notify "the world" that the trust exists and in general language, who the trustee is and who the beneficiaries of the remainder trust will be at your death.  Once you have it recorded, send a copy to everyone who is named.  This will keep the trustee from “inadvertently” failing to notify anyone of their good fortune…like your church, for an example.

Again, this whole piece is my opinion and from professional information I assume to be reliable.  If any of this strikes cords, print it out and have your attorney read and advise you accordingly.

BILL CHERRY, REAL ESTATE BROKER

Dallas – Park Cities
Since 1964

214 503-8563

One of the most asinine bits of false logic that stock brokers and many investment advisers have told clients for years is that the sales commissions on all life insurance annuities are outrageous.

That’s the primary reason given to convince investors to pick stocks, bonds, mutual funds and the like rather than annuities.

But the problem with that logic is an obvious one. 

Most people who purchase life insurance annuities do so to guarantee their capital for the life of the policy, guarantee the rate of return, and guarantee that they will not outlive the corpus and income stream of their investment.

With an annuity, yhe policyholder knows he will receive a check of a specified amount each month for the rest of his life.  And further, he can designate a beneficiary for that portion of the corpus that has not been used prior to his death.

No other recognized investment vehicle can do that.

While the commission charged and earned on stock purchase and sales may be substantially lower than those on annuities, what does matter is if there is a possibility of loss!  That loss of capital invested in most other vehicles can easily and quickly overshadow the commission charged on an annuity.  In fact, the investor can be left with nothing, or next to nothing,

Many are experiencing this today, all the result of the conditions of the current world and US economies.

Before people over fifty years of age do anything, they should address how they will financially provide for themselves when they no longer work.  We’ll call those investments their “safe money.”

Safe money belongs in cash deposits, U.S. Government Bonds and appropriate life insurance annuities; not in speculations.  It's the money that will provide you a defined standard of living, and assure it for you no matter what's happening with the Dow Jones.

Here are the main types of annuities:

Deferred vs. Variable vs. Income Annuities

Fixed deferred annuities are the best choice if you want a guaranteed interest rate, the benefits of tax deferral, can afford to keep your assets in the plan for at least five years, are saving for your retirement and want to convert these funds to future income.

Variable annuities are appropriate if you can set aside a substantial amount of assets for ten or more years, are looking for tax deferral benefits, and are saving for retirement. 

Income annuities may be your best option if you are already retired or close to your retirement, want a guaranteed income in retirement, have a lump sum or rollover amount you can convert to an income stream, and are worried about living longer than your income will last.

THE EPILOGUE

My father was an executive with a major life insurance company for most of his adult life, and on the boards of directors of a number of others.

He did his best to encourage me to prepare for my retirement by using life insurance annuities.  I chose not to listen, instead worrying about what the salesman might make if I bought one.

My daddy was right; I was wrong. And that’s why I’m trying to convince you not to make the same mistake.

Study the products of several life insurance companies.  You'll find one suitable for you and your family.  Retired people usually don't have a second chance to rebuild their net worth.  You don't want to find yourself in that dilemma.

BILL CHERRY, REAL ESTATE BROKER

Dallas – Park Cities
Since 1964

214 503-8563

Those in the know have predicted that the number of homes that will be foreclosed in the US in 2012 will equal the total number of existing homes in the City of Houston, Texas. 

That’s more than 400,000 homeowners nationwide who will be kicked out of their house.

This number added to those who have already experienced homeownership defeat in the past few years, has caused developers of multi-family rental units to gin up their building programs.

The increased cost of building apartment units will be justified by market research teams because of the new pressures of demand. 

Rents will be predicted to be high enough to provide the owner with a reasonable rate of return.

The problem that looms in the background is what will happen when mortgage underwriting is relaxed? 

If it follows history, tenants will find that they can own their own homes for approximately the same or sometimes even less than what they are paying the landlord in monthly rent. 

The market will return to one of demand for homeownership, and there will be a serious glut of vacant apartments left behind. 

Of the two, I believe it would be far better for housing investors to buy single family homes at the discounted prices of today than to resume building multi-family apartment communities.

Additionally, they'll end up owning those homes for substantially less than it will cost builders to add new ones to the market once the single family housing market recovers.

BILL CHERRY, REAL ESTATE BROKER

Dallas – Park Cities
Since 1964
214 503-8563

I don't know how far his voice is heard, but one of the more vocal mortgage brokers in our area is Rodney Anderson.

He frequently gives minute or so tips via several of the Dallas radio stations.

I was surprised to hear him say the other day, “If you’re planning to put your house on the market so you can buy another one, be sure you qualify for a new loan before you do.  You could find your home sold and no place to move.”

That, quite frankly, is the insanity that lender rules have caused the U.S. homeowner market to diminish by at least 20% in most areas.

It occurred to me that the government should cause lenders to have relaxed underwriting rules for those people who buy homes out of foreclosure or REOs from lenders. 

It seems to me that would go a long way in causing the absorption this market needs to badly.

BILL CHERRY, REAL ESTATE BROKER

Since 1964
Serving Dallas and the Park Cities
214 503-8563

The Washington Post has published the winning submissions to
its yearly neologism contest, in which readers are asked to supply alternative meanings for common words.

The winners are:

1. Coffee (n.), the person upon whom one coughs.

2. Flabbergasted (adj.), appalled over how much weight you have gained.

3. Abdicate (v.), to give up all hope of ever having a flat stomach.

4. Esplanade (v.), to attempt an explanation while drunk.

5. Willy-nilly (adj.), impotent.

6. Negligent (adj.) describes a condition in which you absentmindedly answer the door in your nightgown.

*(My favorite) 7. Lymph (v.), to walk with a lisp.

8. Gargoyle (n), olive-flavored mouthwash.

9. Flatulence (n.) emergency vehicle that picks you up after you are run over by a steamroller.

10. Balderdash (n.), a rapidly receding hairline.

11. Testicle (n.), a humorous question on an exam.

12. Rectitude (n.), the formal, dignified bearing adopted by proctologists.

13. Pokemon (n), a Rastafarian proctologist.

14. Oyster (n.), a person who sprinkles his conversation with Yiddishisms.

15. Frisbeetarianism (n.), (back by popular demand): The belief that, when you die, your soul flies up onto the roof and gets stuck there.

16. Circumvent (n.), an opening in the front of boxer shorts worn by Jewish men.

BILL CHERRY, REAL ESTATE BROKER

Dallas - Park Cities
Since 1964

214 503-8563

NEIL AND TOM LEWIS
Circa 2000

For more than 40 years – since I was in the 10^th grade – Tom Lewis and his younger brother, Neil, have been two of my friends who are also two of my heroes.  (Neil is about 8 years younger than Tom.  I'm a year younger than Neil.)

Tom was a radio newsman after he returned from the service and had gotten his degree from Texas A&M.

And Tom looked especially great when he flew down Galveston’s 39^th Street in his circa 1954 MG roadster with the top down, on his way to cover a breaking story.

I wanted to be Tom. And I wanted to have the personable attributes of both Neil and Tom.

Then Tom became a life insurance agent whose clients were primarily those who needed complex coverage. He finally retired, but not before he was nearly 80.  (Health issues were starting to get the best of him.)

In 1955 or so, Neil and I were both soda jerks at Fuqua’s Drugs Store.  I worked on the air at the radio station then, too. 

Neil and I learned a lot about business and customer service from the owner, Luther H. Fuqua.

Neil has been a top producer for well-known South Texas home builders for many years.  In recent ones, he's been with Brighton Homes.  Before that, D.H. Horton.

As the years have passed, both Tom and Neil and their families have managed their ways through one tragedy after another.  Through it all, their families’ and their personal faith have remained strong.

In fact, along the way, both Tom and Neil studied and became Roman Catholic deacons. 

That’s a cleric position that is one step down from an ordained priest.  I greatly admire those of my friends who, as adults, have chosen this path. 

Another deacon is Galveston's former city manager, Doug Matthews.

I thought you’d like to hear what Neil had to say about home sales when he responded to an email I sent him last week:

I'm still working......selling homes for Brighton Homes in Baytown.  Contrary to popular belief and the news reports, our business is good.  The company sold more homes in Houston last year than any year in our 32 year history.  I have been blessed enough to have sold 5 since December 27.

Isn’t that a good sign from a guy who knows what he’s talking about? --- Neil Lewis, a new home salesman who blows no smoke.  Never has, never will.

BILL CHERRY, REAL ESTATE BROKER

Dallas – Park Cities
Since 1964

214 503-8563

          One of the foremost authorities and a teacher and consultant on the Constitution and the U.S. Government is Dr. Chester A. Newland, a distinguished professor at University of Southern California.

           Patty and I studied under him forty years ago, and we both feel what we learned from him has been an invaluable asset to us. We have remained his disciples. We often look for political philosophical answers by saying, "What would Dr. Newland say?"

<<=== Dr. Chester A. Newland

          I’ve written about Dr. Newland in previous activerain blogs.

          As a result of that education in U.S. Government, one of the concepts that has bothered me for years is one that has its root in the Pollyanna. 

          That is, it does if those who claim allegiance to it want the U.S. Government to adhere to its principals.

          It’s libertarianism.

          And a lot of people – especially the young people – are rabidly supporting the concept and those politicians who claim it to be their mantra.

          A libertarian in its purist form is a person whose philosophy is that each individual has the absolute right to make his own decisions, unobstructed by the state.

          Libertarians feel that allowing orderly and practical intrusion by any government is the quickest way to a collectivist capitulation.

          While it seems to me there is too much governmental intrusion in the U.S., a pure libertarian philosophy could quickly make things worse.  Balance is the key, the key that none of the political parties seem to want to support.  

BILL CHERRY, REAL ESTATE BROKER

Dallas – Park Cities
Since 1964

214 503-8563

Investors and savers often misunderstand what are properly categorized as speculations rather than legitimate investments.

To be a legitimate investment, the financial vehicle must provide a regular and reasonable cash return to the investor – a reasonable payment for the use of the investor’s money or property.

The investment in many of the vehicles classified as "speculatives" is driven by fear of the future of conventional investments and perceived fear of the county's future. 

And the value of those speculatives increase and decrease proportinate to the general populations fear.

There are also investments that are speculations for other reasons.  Growth stocks, for an example, are not legitimate investments, they are hybrid speculations.  A significant part of the investor's portion of the earned income is invested back into the "growth" of the company rather than sent to the investor in dividends. 

Here are some others:

Precious Metals – Gold, silver, platinum, copper and the like
Precious Stones – Diamonds, emeralds, rubies, etc.
Venture Capital Funds
Many Common Stocks, especially Initial Public Offerings
Vacant Land
Casino Gambling
Lotteries
Race Horses

Here are some categories that are more likely to be legitimate investments:

U.S. Bonds
FDIC Insured Bank Savings Accounts
Life Insurance Annuities
Life Settlements - Category: Viatical Settlements
Income Producing Real Estate

Life insurance products offer a special advantage in that they are not subject to most court ordered judgments.  Many physicians, for an example, who practice in high-risk fields like neurosurgery, purposely buy large insurance policies where they harbor money in the policies' cash value provisions.  This protects it from, say, malpractice liability suits.

BILL CHERRY, REAL ESTATE BROKER
Dallas - Park Cities
Since 1964

214 503-8563

A couple of years ago I visited with a well-known financial planner who has practiced in the Dallas-Ft. Worth area for a very long time. 

He asked if he could give me his sales pitch for a new financial product he was selling to clients. 

When he finished, I buried him with logical questions.  He was unable to correctly answer most of them.

It led me to take a chance and ask him a bold question. 

 “How much could you raise today if you sold everything you own but your home?” 

"Do I have to answer? he asked.

"Yes you do."

The answer was a shocking $40,000.

So here was a person who, himself, would soon be entering the elderly classification, and who, for whatever the reason, had no measurable net worth. 

Later I checked the public records and found he had IRS tax liens against him totaling more than $1 million.

Perhaps his advice to his clients was correct, but he, for whatever reason, had not been able or unwilling to adopted it for himself and his wife.

Paradoxically, he was advising others how to invest so that they would be prepared for being financially secure, and his own personal practices, because he had failed to prepare his own financial future, deserved explanation.

 There is a concept that is difficult for those under 65 to fully comprehend and understand.  Those nearing and within their retirement years are interested in only three things: 

• Will they live until they die without running out of money?
•  Will a substantial part of their assets be easily accessed without serious penalty should they need to make an unexpected withdrawal?
•  Will their assets be protected against judicial judgments?

Financial planners who are recommending and selling products to the retired and the elderly whose recommendations do not sufficiently address these three components are seriously violating their fiduciary responsibility.

Meanwhile, the questions everyone should ask of a financial consultant that they are now or are considering using are these:

• What’s your personal net worth?
• Are there any judgments against you?
• Are your federal income taxes current?
• Have your licenses ever been revoked or suspended?

There are a lot of these guys out there.  You certainly don't have to pick the first one who comes along and invites you to his seminar that comes complete with a free dinner or snacks.

BILL CHERRY, REAL ESTATE BROKER

Dallas - Park Cities
Since 1964

214 503-8563