Saturday, August 14, 2010

Bureaucracy: The Fastest Way to Slow Things Down

A while back I wrote about my foray into the real estate market as an investor purchasing a second home in which I likened the experience to playing Monopoly.  Buying a property in Monopoly, for those of you who grew up without any siblings, consists of landing on a space that holds a property, looking at the amount required to buy said property, and giving the banker (usually the child with the strongest will who wants to be in charge) the appropriate amount.  The banker then gives you the "deed" and the transaction is complete.

In the real world, there are commissions to pay (selling agent, buyer's agent, mortgage broker) and paperwork to complete.  It is said that the seller pays the commissions, but if the buyer is providing the funds to the seller, aren't they in fact paying the commissions?  I digress.  During the last several months I determined that the best way to finance the second home was to clear out our savings account and place it all on "Mama's Cooking" at the racetrack.  Heather would have none of it, despite the 20:1 odds, so I had to revert to plan B, which involves the aforementioned mortgage broker and a lending institution.

I found a mortgage broker with reasonable fees and a great interest rate through Zillow (I'm not kidding) and started down the road to financing.  I quickly realized that there were two options to finance the investment property.  Option 1 was to take a mortgage on the property, which would be classified as an investor loan, which has a higher interest rate.  Option 2 was to refinance our primary residence and use those funds to buy the investment property with cash, which allowed for a lower interest rate.  I opted to take that route, and the beauracracy began to wield its ugly head.

Over the course of the last few weeks I have been required by the lending bank to provide the following in order to take a mortgage on my home (which I own free and clear):

Purchase title insurance.  Really?  Because I'm afraid the previous owner might have a lien against the house?  But I am the previous owner.  I have owned the property for 3 years.  I understand the need for title insurance on the home I am buying but on the house I live in and am refinancing?

Write and sign a letter of intent.  I had to write a letter stating that I am refinancing my home to purchase an investment property, and that I will use savings to finance the remainder of the purchase.  I had to submit a bank statement showing said savings, and Heather had to sign a letter saying she was ok with using this money since her name is on the account.  What does it matter how I use the money?  Could I not refinance my home and blow the money at Vegas if I wished?  The bank has a lien against my home for a reason - if I can't pay my new mortgage they get the house.  Who cares how I spend the money that they loaned me in return for the lien?  Then when Heather signed the statement on using the savings and the statement on how the mortgage money would be spent I had to reaccomplish the latter document with just my signature, since she's not on the loan. ???? Really?

Submit a quote for homeowners insurance.  This one makes sense.  I had to show that my home is insured since it is the collateral on which the loan is based.  No wait, the bank didn't want to see the insurance on the house I live in, but the cost of the insurance for the home I'm buying.  The one they have no vested interest in.  Why?  Because they consider monthly homeowner's insurance premiums (as well as the annual property tax) as "debt".  I actually lost my patience on this one and asked the mortgage broker if they wanted to see my monthly cable bill as well since that could easily run higher than the insurance.  I know, don't shoot the messenger.

Once we jumped all the hurdles Heather and I were finally able to sign the mountain of paperwork that comes with taking a home loan.  On one of the forms Heather noticed that I had signed but forgotten to date it, so she dated her line and my line.  That was a mistake.  Two days later the title company informed us we would have to not only reaccomplish that form with my handwriting for my date (because apparently having 30 sheets of paper with my signature and date accompanied by one sheet with my signature and someone else's handwriting for the same date is unacceptable to some bean counter hunched in a cubicle somewhere) but we also would have to resign the "right of rescision" paperwork, which means instead of closing on the home on Monday we have to start the mandatory three day waiting period over again and the bank won't release the funds until Wednesday.

The sad thing is that all of this analness is not ultimately driven by the bank's lack of desire to lend money, but by the government's felt need to insert itself into every facet of our daily interactions.  I would not want to wade through the volumes of regulations that have driven every piece of paperwork I had to sign or create.  Buying property was so much easier as a kid.