Episode 009 – Interview w/ Jon Wax
In today’s episode, we go right to the news and Tom and Ron are already salty about something they’ve read — something a “journalist” is calling Shadow Banks. Ron takes issue with how deceptive the term is and how they are throwing around the label onto mortgage institutions that don’t necessarily deserve it. Tom chimes in to take the financial journalism to task for how everyone wants to call “first” to claim that Real Estate is in a bubble or headed to catastrophe in a desperate grab for “clicks” on their website — when nothing could be further from the truth (or at least a very long ways away). Tom then introduces us to the concept of “What is a Natural Hazard Disclosure?” along with our guest, Jon Wax of American West N.H.D.. Jon and Tom discuss what the N.H.D. covers and how it can instill confidence by providing information of material facts and helps the buyer sidestep surprises. Jon then briefly discusses the difference between the N.H.D. and the T.D.S. (Transfer Disclosure Statement). After that, Tom and Jon talk about the importance of getting the N.H.D. delivered from the seller to the buyer as soon as possible in order to avoid potential delays in the escrow process. We then discuss Mello Roos fees and how it is the N.H.D. company’s responsibility to report them. Jon also let’s us know about the various things a seller should be looking for when choosing a competent Natural Hazard Disclosure company and how the companies compile all the hazard information they receive. We close up by discussing if there is anything like the N.H.D. in any of the other states. There’s a lot of great, often overlooked information in this episode! We hope you’ll us know what you think in the comments!
Speaker 1: [00:00:30] Welcome to the Clarified Realty Podcast. Exposing the real estate secrets your agent doesn't want you to know. Here's your host, Tom Clary.
Tom Clary: Welcome to the Clarified Realty podcast. [00:01:00] I'm Tom Clary, real estate agent, licensure and in the currently cloudy yet still beautiful state of California. We just had a little drizzle of rain, a regular downpour for us but things are drying up again. Thanks again for coming back. Also here is my sidekick/loan officer Ron Bruno, Ron, how are you doing today?
Ron Bruno: Fantastic, Cubbies are in the World Series.
Tom Clary: Oh, Jesus, I knew that was going to be part of this. I am absolutely not even interest in sports. [00:01:30] There's not even like a little cell in me that is even remotely interested in sports and somehow I still feel some sort of emotion for all the Cubs fans who have waited so long. I actually know that much about it that I can actually feel empathy and celebrate with you guys.
Ron Bruno: It's all because of a little goat. That's what it's all about.
Tom Clary: I have no idea what that means.
Ron Bruno: Oh, you never heard about the billy goat?
Tom Clary: No, tell me very quickly about the Billy goat. We have a big podcast here but I got to hear a story about a goat.
Ron Bruno: [00:02:00] So the billy goat story is, I don't know the specific years, but essentially what happened was there was a proprietor of a bar and he had a billy goat and he brought this goat to the games and the fans they said, you got to get this goat out of here. And he said, you know what, forget it, and I'm paraphrasing, he said forget it, there's no way and the Cubs are cursed. You will never win a World Series again.
Tom Clary: Is that really where that curse ...
Ron Bruno: That's where it came from.
Tom Clary: Like I said, I don't know anything about sports [00:02:30] but like Boston had the curse of the Bambino, right? Basically they gave Babe Ruth over to the Yankees.
Ron Bruno: That's right.
Tom Clary: I know more than I thought I did. So it's the same kind of thing. There was a curse, I didn't know that.
Ron Bruno: There was a curse upon them. The last time they won the World Series was 1908, last time they'd been to the World Series was 1945. There were articles in The Chicago Tribune that were actually talking about there [00:03:00] are people that are in retirement homes and they're on their last leg. They're in hospice and they all had their hats on and they're like, this is our last chance, we're just holding on for life to see the Cubs win.
Tom Clary: I hate to say it this way though but maybe they're watching the T.V. thinking it's all like they're getting delusional.
Ron Bruno: Possibly.
Tom Clary: There's no way. Oh my God, I'm passing over to the other side. There's no way that this is happening.
Ron Bruno: It's a movie script at this point.
Tom Clary: Wow, all right, well very good. Well listen, we have [00:03:30] a really great guest today that we'll be talking to him in a second. It's Jon wax from American West NHD reports. That's NHD as in natural hazard disclosures. We'll be going over what NHD's cover, how they impact the buyer and the seller. What the hell are they even for in the first place.
But before we get started as usual Ron, I think you have some news that you wanted to go over, some real estate news.
Ron Bruno: I do. Tom and I we are part of various [00:04:00] Facebook groups and in this particular one it was an industry group on Facebook and Business Insider had published an article that says "shadow banks" are setting up the next housing crash. So, I was looking at it and I'm like, okay wait, so first of all, I've heard of shadow inventory. We've heard about shadow inventory.
Tom Clary: Let me briefly kind of describe what that was.
Ron Bruno: You do that.
Tom Clary: When the crash happened 2009, 2010, there was a lot of inventory [00:04:30] that was basically the banks. They didn't put on the MLS, they basically let it just kind of sit there and wait for the market to basically catch up with it because if they tried to sell it at that time they'd be taking an incredible hit on it. So basically it was like homes that didn't even exist. You'd drive by them, you'd see the grass kind of growing high and you'd go whoa, is anybody living there? Actually it was probably foreclosed on and the banks just kind of owned it. So that's what shadow inventory [00:05:00] was.
But now this is something completely different. They're calling it shadow banks.
Ron Bruno: They're calling it shadow banks. So what they say, it says, okay, who's doing the lending. More and more non-banks evocatively called shadow banks, they have now overtaken commercial banks to grab a record slice of government guaranteed mortgages. And what they're saying is these banks are different. They typically borrow from Wall Street hedge fund, private investors or banks to make loans, quickly sell them to mortgages, Fannie Mae and Freddie Mac. And then it goes on and on and on.
But what they're doing is they then illustrated [00:05:30] here, the top 10 originators, shadow banks originated 63% of the mortgages. So what they're saying is that in the past you had traditional banks. So the retail banks they generated the majority of the mortgages
Tom Clary: Wells, Bank of America.
Ron Bruno: Wells, Chase, Bank of America. You walk into one of those banks. We talk about in some previous podcast and you get your wells loan. That's how it's always worked. Well they're saying because of these mortgage banks, these are shadow bags. They don't follow government.
Tom Clary: Even that name is just so, [00:06:00] it's so misleading because the actual term for a shadow bank, I looked this up on Investopedia, is "A shadow banking system refers to the financial intermediaries involved in facilitating creation of credit across a global financial system but whose members are not subject to regulatory oversight. The shadow banking system also refers to unregulated activities by regulated institutions."
This upsets me more because, if you think about it, at the end of every single podcast, what am I saying. I'm saying [00:06:30] NMLS ID number. So, we're highly regulated. A mortgage bank is highly regulated right and we're selling to government entities Fannie and Freddie and we are going according to their guidelines.
Now we don't have overlays which means that we don't have these restrictions on top of those guidelines to protect the banks and everything else. So we're just going off of Fannie and Freddie. So, the fact that they put our company's name [00:07:00] and they tied it all together that's just really poor reporting and that's one of the things that when you mention on your discussion on rant if you will on the last podcast about you have to be careful of the headlines. You need to make sure that you don't just go off of face value, you need to read further into it.
Ron Bruno: Because you're going to be as I said on that podcast that it's the difference between either being guided or being led. [00:07:30] And that's really what you want to make sure that you are being guided and that someone isn't just leading you. Let me just go into briefly what bugs me. I'm so angry about this article, is that it's one of those things where when they think that something's going to come up like a crash or something like that, everybody wants to jump on it like first, I said it first. I was the first one. I was the person who told everybody that you shouldn't be doing, out in the market you shouldn't be doing [00:08:00] finding homes, whatever, blah, blah, blah.
This is one of those articles. It is all about fear, it is only about fear. And it's all about getting more readership for their website. Let me explain to you also.
Tom Clary: It's almost like click bait.
Ron Bruno: It's 100% click bait.
Tom Clary: It is click bait so that people they send it around, they share it and they get more readership and everything else. And it's funny because when I looked at shadow banks and I'm like, what is a shadow band, what's an example. Payday lenders, [00:08:30] pawnshops. These are unregulated entities that are out there but a mortgage bank is not a pawnshop. Right, and they were lumping them kind of all in into that one bag. And shadow, that word, I mean ...
Ron Bruno: It sounds Russian.
Tom Clary: It sounds malignant. It sounds something like, we're the shadow bank. We go under the radar and we do deceptive horrible things.
Ron Bruno: It's like cloak and dagger. Weird K.G.B. stuff.
Tom Clary: Look, here's the reality of the situation. [00:09:00] We're always asked the question are we headed for a crash. After the craziness that we've gone through it is a completely acceptable understandable question. Are we going towards a crash? It is my feeling that we are not and I've told you this time and time again that if I see one coming I will let you know. Okay. That is my promise to you. Even if it hurts me I'm going to tell you that there's going to be a crash.
But here's what I'm looking at. If you look at historical [00:09:30] appreciation of homes you're looking at basically, it usually runs about 3% a year. If we look at it it's kind of like a straight line on a graph of about a little more than 3%. If we look at that compared to what sales are like right now, home prices are actually under that line. So while everybody's saying that prices are going crazy we're actually slightly below where we should be at. So, is there a crash? I don't see it coming. But I certainly don't think that putting out a post like this on a website helps anything. [00:10:00] And if anything, creates an irrational fear that keeps people away from actually finding what are really good deals.
I'm out there on the streets and I'm actually seeing investors still investing. We have properties, we're having investors still show up and they're making offers. If they start running for the hills, then you should be starting to run for the hills.
Ron Bruno: And you know what's really interesting is, so you go on, you read the article and then you see all the comments. These comments, they're by [00:10:30] realtors. But you can tell who is a strong agent who is a weak agent and who is a protector agents. The weak agents, they pick up on this stuff and they start to snowball with it.
One of the comments they said, well, I'm seeing that the ninja loans are coming back. So I see stated income coming back with the Fannie and Freddie. That is 100% wrong because Fannie and Freddie you have to document income. Now there are stated income loans, where are they though? Where [00:11:00] are stated income loans? They are on non owner occupied or investment properties. That's where they are and they're with private banks and those banks are taking, they're assuming the risk associated with those loans.
So the comments that also makes me a little fiery about it.
Tom Clary: And it's so incendiary too. I was joking about this. The picture that is on the story ...
Ron Bruno: We're going to post this article.
Tom Clary: [00:11:30] We'll post a link to it so you can actually see it and have a laugh. But basically, the picture is of the stadium in Detroit where ...
Ron Bruno: Ford Field.
Tom Clary: Being imploded. Could you have anything, we're about to be blown into pieces. You better watch your butts, we're about to be destroyed. Nothing could be further from the truth. I understand why Ron is so kind of up in arms about this. It was I [00:12:00] think 100% misleading story. You need to be careful out there guys. If you get yourself educated, if you get yourself informed, you can weather the storm and you can find things out there, just get educated and nobody's going to lead you in the wrong direction.
Ron Bruno: That's right. And if they wanted to be more accurate they could have shown the Bears team this year imploding instead of Ford Field with Detroit, because Detroit is actually pretty good this year. Chicago Bears not so much.
Tom Clary: [00:12:30] Yeah, you lost me at sports.
Ron Bruno: No problem. We'll have a recap. I'll teach you.
Tom Clary: We've gt a great guest with us today. Like I said before it's Jon wax from America West NHD Reports. He's been in the business for over 22 years, educating and providing a natural hazard disclosure services. He was the affiliate of the year for the Beverly Hills Greater Los Angeles Association of Realtors BHGLAR [00:13:00] as we affectionately call it in the industry. He's also the affiliate of the year for the escrow Association of San Gabriel Valley. Nice to have you here Jon, thank you so much for coming.
Jon Wax: Thank you. I'm excited, it's wonderful to be here.
Tom Clary: Why don't we start off with just a little bit kind of background for you about how you got involved in the industry and how did you come across doing what you do?
Jon Wax: I was involved in a transaction with a lender, kind of a friend of mine. And after the [00:13:30] Northridge earthquake he said, you know what, I was talking with a geologist and I think this is going to be a very important field that we should get involved with and he started his own NHD company back in 1994 and that's how I got involved with it. He asked me to come on and started the business and get out the word about how important this information is.
Tom Clary: Right. And just so you guys all know that basically an NHD disclosure report is mandatory [00:14:00] as part of the transaction in a real estate transaction here in California. So, for those of you out in Wisconsin or Illinois, we're going to touch upon what your versions of it possibly are and we'll discuss that later on but this is a kind of a very specific California thing because it was kind of a way for basically inform the person who is a potential buyer of real estate of potential hazards that are in his area that basically. And we'll go into what those things are.
[00:14:30] I really want to kind of basically before we even get started with that, I want to kind of set the stage for when the natural hazard disclosure is introduced into the transaction. Basically, as a buyer, you've had your offer accepted. The earnest money has changed hands and the inspection period begins. In the residential property agreement contract that period is 17 days but you can make it 10 days if you want to make your [00:15:00] offer more attractive to the seller. You can even make it zero days, we don't recommend that but you could make it zero days.
So you're sitting there and your stomach's in knots. You're worried about what's the process going to be like. What are you going to find out about the house? What secrets are going to be uncovered? And then you get this email, used to be papers but now it's an email and it's the NHD. You open it up and it says that [00:15:30] the house has this hazard or that hazard and you may not even had your home inspection yet. Your knee jerk reaction is to panic. Oh god, the house is on a fault line. The fault zone, you know, we need to cancel the deal.
But wait, take a deep breath. The NHD is really a great tool. It actually is there to reduce your fear. Remember, anything that increases your knowledge decreases your fear. Before, these were required people had to guess if their homes were in dangerous areas. [00:16:00] If you look at it that way, the more you know the more confident you're going to be in making your purchase. Right Jon? Isn't that a good way to look at it?
Jon Wax: Yeah, that's a good way to look at it. What I say to agents that I work with is order it as soon as you get your listing. There's no charge to the seller if escrow doesn't close, but the more information you can get and have available to answer any questions and avoid surprises because surprises [00:16:30] cause lawsuits that you are able to get to them then the less chance that there's going to be a stumbling block when you get finally to escrow and close escrow smoothly.
Tom Clary: Right. We'll go a little bit more in depth a little bit later on the podcast about why you want to get that disclosure taken care of so early in the process if you're a seller. And really has to do with the deadlines that you have. So we'll go into that in just a minute. Why don't we kind of start in the most basic. What is the NHD? [00:17:00] Like I said, it's required but what hazards does it cover?
Jon Wax: The NHD report or Natural Hazard Disclosure report is a report that deals with material facts. Material facts are if it's in a flood zone, if it's in a fire zone, is in an earthquake fault zone, is in a seismic hazard area. These are all parts of the NHD report. The requirement is state level information [00:17:30] however most companies including ours provides local information because if there's ever a discrepancy between the two, the local information will be ruled to be what is in effect and the judges will rule towards that information so you have to have both.
Tom Clary: So really briefly because we can't really go to in depth here but go through those different hazards and how are they defined, how are they determined.
Jon Wax: [00:18:00] Okay, I'll start with fire. There's two. There's the very high fire severity areas which are maybe unincorporated or up by the mountain areas and you're going to have to pay additional fire insurance because of that. This is the ramifications of being in those zones. Another one is the state responsibility area, that's the one where if you have a property and there's a dwelling on it you may pay another $150 [00:18:30] extra per year to have that property in there for fire prevention and education and the state and the local fire departments are the ones who are responsible for that fire.
You have the very high flood. Some are quite sizable. There's one that runs from Prado Dam all the way out to the Long Beach Harbor and they fan out [00:19:00] there. And unfortunately, these can be changed maybe every six months so you do have to get your reports updated and you do have to get a complete report. There's the dam inundation area which I just talked about. And the interesting thing is if there's a 1% that one foot of water if the dam broke or there's a trench will rain that would be on that property, that's what they consider the zones to be.
Earthquake fault zone. Well, [00:19:30] there are properties that are already built in that particular area.
Tom Clary: The vast majority of the Las Angeles area is pretty much a fault zone.
Jon Wax: True.
Tom Clary: If you live here you can expect that the ground is going to shake every once in a while.
Jon Wax: We're going to rock and roll. In some places you're going to rock more than others. There is no requirement to get additional insurance although it's highly recommended and lenders will [00:20:00] request that you get it but the state is the best place to get it because a lot of them are not insuring properties from independent private [inaudible 00:20:13]. If they're in there, it doesn't mean that you're going to sustain more damage or what not, it just depends on which way that earthquake is moving and rolling.
The Northridge earthquake is an extreme example because I was living in [00:20:30] Tarzana at the time. There were three town homes and I was on the end, I was whipped out of bed, came out and saw in the morning there was a crack going down the middle of the middle one and you could follow the footprint going across the street towards Santa Monica. So, it just depends on where you were. I was about a mile away from where the epicenter was.
Tom Clary: I was actually sitting on top of it. I was actually in Northridge. There was something horrifying about [00:21:00] waking up, with being slammed against the wall.
Jon Wax: Being slammed up.
Tom Clary: Walking out of my front door and looking to the north and seeing the big gas pipe that had split up in [inaudible 00:21:12] and spewed like this tower of flames up in the air. Anyway sorry. It was so scarring every time that somebody brings up the Northridge earthquake.
Jon Wax: It was the most recent memory in our general area here in the San Fernando Valley. [00:21:30] There can be homes there. You cannot build on the fault line and that's where the big issues are. So if there's actual existing property and there's damage to it you cannot rebuild it, you cannot add on to a property. If it is on the actual trace line, it sits on the fault zone you can but there are specific requirements that you have to talk to the city and the local government as far as permits to do what you need to do.
Tom Clary: That's really the difference between the seismic hazard and the fault [00:22:00] line basically, correct?
Jon Wax: Well, the seismic goes a little bit further. We're just talking about earthquakes right now. Seismic hazard has two components. You have landslide which is a great example when you drive up towards Santa Barbara on the 101. You have the La Conchita site where people went down to get their coffee and newspaper and then the shaking and the upward thrusting caused the heavy saturated hillside to slide down and covered those properties as [00:22:30] well as the individuals that were in them. So that was a very sad situation.
Tom Clary: That was a horrifying landslide.
Jon Wax: Exactly. And then an example of liquefaction is you would have to have a high water table, a sandy type material and an earthquake for all those things. But a good example, I have two of them. One of them is going to the beach, you step on the wet sand and when the water comes in what happens, you go down. The Nimitz freeway collapse during the Oakland and [00:23:00] Giants World Series, that one, what happened is they they filled bulkheads and tried to create these beautiful condos and when the earthquake hit it remove the bulkheads and the condos as well as the freeway collapsed in on itself because it was on sandy type material and it was right there right at the Earthquake Center.
So, these are some of the things that are examples of what has to be covered. And it has to be right [00:23:30] currently on a state level although the local is very recommended.
Tom Clary: We've mentioned those kind of the main required ones. There are different supplemental things that also are sometimes included in the NHD, correct?
Jon Wax: Correct.
Tom Clary: So what are those things?
Jon Wax: Besides a lot of the overlap with the state and the local information we have additional, like if you drive up the coast you'll see tsunami [00:24:00] warnings. So we have to tell you if there's a tsunami right, wind bluffs and if there's high winds and things like that where the sand can be blown. Other things like right to farm, right to farm is another one, we have to tell you within a mile right.
Right here in Sylmar the ongoing mining operation we have to tell you if you're within a mile of the ongoing mining operation. This is not for gold or gems, [00:24:30] this is just strip mining to use it for cement and other types of building materials. These are all things that have to be in the report and we provide that too.
Tom Clary: One of my favorite ones I've seen is the ordinance that there is ...
Jon Wax: Military.
Tom Clary: The military ordinance hazard disclosure where basically they used to lob bombs around there.
Jon Wax: Or buried. The reason why it came in is because where El Toro [00:25:00] bases which is built over now, they did not have it fenced up and they didn't start to build their second phase and some kids went across and they dug up six inches down a great grenade that exploded on and that's where it comes in. Any time there's an issue like that, there's another addition to the report.
Tom Clary: Got it.
Jon Wax: So, these are what's creating that too.
Tom Clary: Just as an aside. So, in South Carolina where I grew up, in Charleston [00:25:30] from Hurricane Matthew they actually uncovered and they had to get a bomb squad for actual cannon balls that washed ashore on the Charleston beach as a result of the hurricane.
Ron Bruno: I don't know if that would have to be on some sort of hazard, it's sort, you know.
Tom Clary: Still, they had to call the bomb squad. It was ind of crazy.
Jon Wax: So it's the different cannonball than jumping into a pool and going cannonball.
Tom Clary: Now here's the question I have [00:26:00] about the differences between disclosures. We have the natural hazard disclosure report and there's the TDS which is supplied by the seller basically, basically is basically saying, this is what we know is wrong with the house basically. Once you kind of explain the difference between the two in terms of how is a natural hazard disclosure any different from what the seller has to disclose on their own.
Jon Wax: Well, the TDS is based on sellers knowledge. So, we're professionals [00:26:30] in looking up the information, we get it from governmental sites, federal state county city information and then we are able to put it and generate a report so that it's understandable for lay people to be able to read the report and find out whether or not there's anything affecting that property where they should be concerned about and if they have any questions they should talk to us the experts to explain any of those.
Tom Clary: We kind of briefly touched on it before about how important it is [00:27:00] as a seller and I'm talking to sellers out there because I know you're out there, the sellers to get the NHD done as soon as possible once they decide to list their home. Why don't you go into kind of some reasons why that is so important. Now, the seller is the person who purchases it, correct? They get to choose which companies, I want to talk to you guys out there in terms of you have the sales person agent out there, the SA, the salesperson [00:27:30] agent, the SA, who basically, you know, look, they've got all sorts of great relationships with people and their whole thing is about throwing business back and forth to each other.
So don't be surprised if you find yourself guided, I'm sorry, not guided, sorry, led, I used the wrong word, led towards certain NHD. As a seller, you have every right to choose whatever NHD company you want to, correct?
Jon Wax: Correct. It is up to the seller to provide this information to the buyer. It's [00:28:00] written in 1103 of the California Civil Code. However, with there is a section in there that says that the seller can choose a company in good faith and we check a box on the form that says that they haven't reviewed it, read it or understand it or read it. And so, we take the onus and the responsibility from them [00:28:30] regarding anything that's written in the report so that they're relieved and then they're held harmless regarding the information in the report. But it is up to them to select in good faith the company and you have to use a reputable company that's going to also have other insurances to protect you if there ever is a problem with [inaudible 00:28:50].
Tom Clary: I want to go into that a little bit later on but we'll talk about how you can protect yourself when you do go out there and choose your NHD company. So, [00:29:00] I wanted to go kind of right now into why it's so important for the seller to get that NHD report done as soon as possible. So basically as you're going through the transaction, you as a seller want to do whatever you can to shut the door as many times as you can. Whenever the inspection contingency is done you want to make sure that door is shut. You want to make sure that nothing can actually go backwards through the transaction and somehow undo the transaction.
If there's an appraisal contingency, [00:29:30] okay, we got the appraisal, it's in. There are good value wise, they're going to be able to get their loan close the door, thank you very much, we're moving forward.
Now, whenever these mandatory disclosures are not given to the buyer, that opens the door again. For whatever reason that you don't get the NHD to them until the 23rd and they've already given their inspection contingency up, they've already given their whatever contingency [00:30:00] up, they can still say, oh no, wait a second, I've got three days here that I can review this and still back out. So that's why it's so imperative to make sure that you get this done as soon as humanly possible, correct?
Jon Wax: That is correct and that's why more and more agents are not leaving it up to escrow because it's not escrow's responsibility to order it, it is the agent and the seller to get the information and provide it to the buyer as soon as possible exactly because they have the three-day right to cancel the transaction [00:30:30] because of something they find in the report. In most cases, once they have the report they give it to the other side, they briefly look at it, they sign off on it, you've relieved yourself of any liability and you've met your requirement to provide the disclosures.
Tom Clary: Once again, this is one of those key things for the sellers. Make sure that you choose, and we'll go the ways that you can choose a really good NHD company and then we're also going, basically, I want to make sure I emphasize [00:31:00] this, get it to the buyer as soon as you possibly can. As soon as the earnest money is in, that should be one of the first thing that goes back over to the buyer.
Also, let me step a little bit back here and talk about another thing that's on the report. You guys, you do disclose Mello-Roos, right?
Jon Wax: Correct.
Tom Clary: To go into very briefly what Mello-Roos is basically if let's say a community wants [00:31:30] to forgo getting approval for like a new park or something like that or new infrastructure or thing, they'll basically go, well, what we're going to do is we're going to do an assessment on this community that basically pays for it and then they pay it off over the course of 40 whatever years. Correct, right?
Jon Wax: Correct.
Tom Clary: Then it's up to the NHD to basically let you know not only that there is a Mello-Roos but also how much it is, correct?
Jon Wax: Well, it's a little more detailed than that.
Tom Clary: Go into that.
Jon Wax: Basically [00:32:00] what Mello-Roos is that they want to create a self-sufficient community and district that they do want to have a self-sufficient infrastructure. It had to be voted in on a two thirds vote right and once that passes they create the different and then they do it usually in phases. An example or another name for Mello-Roos is a community facility district right. You have to report [00:32:30] in a certain way. You can't just say yes there is or no there isn't. You have to give them more detail like the facility, the purpose, the beginning and ending date and some of these are 60 years so they're expanding that as well. What the amount of the current tax is and what is the amount of that maximum tax could be based on a 2% escalator. It doesn't usually go up 2% but it can go up 2% a year.
Tom Clary: Kind of surprised me was [00:33:00] when I first got into NHD's and all that was that I didn't of this as hazard. You know what I mean, it's like, I didn't know that this was part of what's included in all this and I want to make sure that if you are living in a district that has that Mello-Roos when you do choose an NHD company that that is something that they're on top of.
Jon Wax: Correct. I mean if you don't, you're getting a disservice. Because we're not regulated on how we report this information, you've got to [00:33:30] choose a company that will provide all that information as well as have your back. There's one little thing that we wanted to add on there is there's 1915 bond districts that have the same requirement of being disclosed. They have the same for infrastructures and it's usually because they were like four farms and they needed to have work done out there so they voted it in and now there homes in there, now they're not farms.
[00:34:00] And so, back in the year 1915 if work needs to be done and it could be $15, they can go into accelerated foreclosure within 90 days. Just like Mello-Roos, this is not five years like property taxes, they have to know how much it is and get it paid usually by the end of escrow so they're not going to have that kind of problem.
Ron Bruno: Just to jump in really quick. So we're talking about Mello-Roos, the properties I've seen with Mello-Roos were Valencia, Santa Clarita [00:34:30] up in the north valley. What's interesting and I think we have to talk about is the fact that Mello-Roos is essentially, it's almost double your property taxes. Why is that important? Well, a, you want to know if you're going to be paying double your property taxes but also it can affect your qualification. So if you're right there on the border and you're expecting your property taxes to be one and a quarter percent of the purchase price but now it's two and a half percent then [00:35:00] that's something you've got to pay attention to.
If you're looking at homes specifically that have Mello-Roos, then you need to make sure that the lender is involved in that conversation so that you don't get priced out.
Tom Clary: That's so important in terms of when you're a buyer. Not only looking at okay, what dangers is this home potentially in but on top of it that information is incredibly important to Ron and making sure that he's in that loop or whoever your lender is. So, let's hop back over [00:35:30] the seller again.
So, I'm about to list my home, what I want what should I be looking for in terms of a competence well organized NHD company?
Jon Wax: You're looking for a company that definitely has E&O insurance. Obviously, we couldn't do the business without it. Not that we're looking ...
Tom Clary: That stands for errors and omissions.
Jon Wax: Errors and Omissions. So that you know you're protected if there ever is a problem [00:36:00] with it. You want to have somebody in the office to answer any questions that would come up in the process of something that's in the report. You want to be with the company that has a track record that has done this and has the experience. My company has over 100 years of experience. We're the same company has started a title company NHD business about 13 years ago and just decided to move our own so we can provide other services [00:36:30] and not be stuck with what title will allows us to do.
These are some of the reasons why we moved on our own. But you want somebody there as part of your team and have your back whenever there's an issue or you need to provide the report information.
Tom Clary: So important. Yeah, absolutely. Some other things that I'd also recommend looking for is, you can find this information online and all, have there been lawsuits against this company. Sometimes you'll see that online. People looking to see if there's lawsuits. Another [00:37:00] weird one I saw was watch out for names that change. Like what happens is they get a really bad reputation and then all of a sudden overnight their name changes. Had they changed their name in the last five to 10 years is another thing to kind of be kind of on the guard for.
Jon Wax: That's true, that's true. And then be on the lookout for are these people updating their information on a regular basis. We have to have update it. As soon as it comes available, we're tied into that.
Tom Clary: I was about to ask you about that in terms of, [00:37:30] so how do you guys get updated on all this information? How does the information flow to you guys so that you can kind of compile it and give it to ...
Jon Wax: We're in contact with all the top people that have the access to the information. Anyone can get the information. It depends on how they disclose it. There was a huge lawsuit not too long ago against the title company NHD company that was using state level information even though there was local information and they did not provide it.
Tom Clary: So they were found negligent [00:38:00] because they weren't providing that.
Jon Wax: Exactly. And then when they went to a different and they had another report run it found out it was another and it happened to be in flood zone. They said there was no flood zone, it wasn't a flood zone, they checked out another provider and they found out it was in a flood zone and so that was a big issue. Like I said, if there's anything in the report, you want a company that's going to immediately look into it and have your back as far as any of the information.
Tom Clary: Another little brief step back in terms of what [00:38:30] are the difference between advisories and site specific disclosures?
Jon Wax: The determinations are specific to a property. An advisory this is a general area, so it's specific to a general area and advisory can be for the whole state or that general region verses it's in or out of flood zone, in or out a fire zone.
Tom Clary: [00:39:00] I'm sure that's one of those things that you really want to specifically look to make sure that your NHD covers those. It does get that granular, it does get to the sites with specific stuff, correct. Because if it's a difference between a state and a local, certainly if they can go even deeper into the site specific, that's even better, correct?
Jon Wax: Absolutely. Like I told you before, you have to look to the local a lot of times just like the judges to find out whether or not this is going to affect the property and if it's in it then it's going to actually affect this buyer and they're going [00:39:30] to rule in favor of the local information.
Tom Clary: So, this is kind of a curve ball here but put yourself in the shoes of a new buyer and you get these kind of hazard now advisories or whatever, what is your kind of impression on how to approach it? What things should they really look at and go, oh no, maybe we shouldn't do this? Are there things that are red flags that you'd compare to other things or?
Jon Wax: [00:40:00] I don't think you should be afraid of it at all. I think this is just an informational thing and you should look to find out how is it going to affect, is it going to cost the buyer additional monies because it happens to be in a flood zone, a very high fire zone. But it's not anything to be afraid of. If you really like the property, then you will be able to go for it and get the deal closed.
There are there are ways around like flood zones and things like that [00:40:30] because there are land surveyors that can actually go to the property, because we don't actually go to the property, and they do flood elevation certificates. And if they're in a flood zone, lenders are requiring them to get the flood certificates. And basically can alleviate maybe half or all of the flood insurance, additional flood insurance they would have to get just by having come [00:41:00] out. Granada Hills is an example. It's up in the hills but you're working off a flat maps. The same maps that we have are the same maps the lenders have and he looks at it and he goes, oh no, this is very low risk. It's six feet above a flood zone and so this should not be as high of a premium as it is stated on there.
So these are some of the things that we can help you out with and you need to be educated on in order to see [00:41:30] how you can transact that in the business.
Tom Clary: One of the things that I kind of want to bring up here as well in terms of what I also recommend for my buyers as well, whether it's natural hazards or whether or not you're 20 miles away from your nearest grocery store or whatever, whenever you hear these things, you have to not only think about okay, can I live with this, even though I love this house and all that. But in 10 years, 15 years, 20 years, you're going to be selling that house.
So you also have to [00:42:00] consider what the person you're going to sell that house to is going to think about that. If you hear that you're in a crazy fault area or something like that, you might be perfectly fine with it but remember somebody else is going to buying the house eventually probably. You know what I mean? So that's why I want to make sure that all buyers also kind of consider that as well.
You shouldn't be afraid like Jon says, absolutely, 110% you should not be afraid of this but also it should be that thing that's in the back your mind that it could be something that you need to overcome a [00:42:30] little bit later on.
Jon Wax: That's possible too. But again, it depends on the buyer's motivation and some buy a house and they want to live in it forever. If they're in there and they want to live in it for a few years, yeah, that's probably more important that they know exactly hey, where am I-
Tom Clary: If this is your forever house you're going to deal with it a lot differently than if, look, if you're newlyweds and you know you're going to have three plus kids and you're going to need to grow, then you know you're going to sell your house in five to 10 [00:43:00] years. For those people that's probably the more, who's going to be making those considerations.
Jon Wax: Right. The right house for the right person.
Tom Clary: Right, exactly. Great. Now I wanted also before we go, I'm not sure how how far reaching this podcast is going to be even though I am a California licensed real estate agent and my office is based here in Los Angeles and the San Fernando Valley. What if anything do you know of out [00:43:30] there that is like an NHD in other states?
Jon Wax: California is the only right that requires natural hazard disclosure as part of the transaction and it cannot be waived. You have to have an NHD and the tax report. In certain states, some of them require environmental reports. We can add environmental report. And the more information you provide to the parties the less chance they're going to come back and say you didn't tell me that [00:44:00] now we're going to have a problem. And you want to avoid problems. So like I said, there's no such thing as under disclosing and is getting as much information out there.
Some states require flood certificates on everything. It just depends on where you are but California is the most strict and stringent regarding this and they must have a natural hazard and tax report on every transaction, even commercial. Some form of a natural hazard [00:44:30] disclosure report.
Tom Clary: Great. Well, Jon, thank you so much for coming.
Jon Wax: You're very welcome.
Tom Clary: Really appreciate it. Giving us a little glimpse behind the curtain of the NHD world. So, why don't you go ahead and give the folks your information in terms of like where they can contact you if they have questions for you.
Jon Wax: Jon Wax, J-O-N W-A-X. I'm at 818-915-3344. [00:45:00] Or you can email me at J-W-A-X@A-W-E-S-T-R-E-S.com email@example.com. And it was a pleasure.
Tom Clary: Great. Well, Jon, thank you so much for coming, I really do appreciate it.
Jon Wax: And I thank you.
Tom Clary: And also, if you folks have any other questions we can definitely get in touch with Jon and ask for you. Don't hesitate to leave a comment or question for us on our Facebook page, [00:45:30] Facebook.com/clarifiedrealtypodcast, all one word. You can even email me directly at Tom@clarifiedrealty.com. For more exclusive bonus content and advice between episodes please check out our website www.clarifiedrealty.com. I'm on Snapchat, Twitter and Instagram as well. My handle for all three of those are @clarifiedrealty.
I always say, I beg of you, come on guys, please, please, please, leave feedback and reviews on iTunes or in the comment [00:46:00] section on our page. My amazing theme song Hey Now is from the band Wolff, that's Wolff with two F's. And please go check them out and like them on SoundCloud. We'll also leave a link to the song in the credits if we can. They rock so hard even Beethoven could hear how freaking awesome they are. And remember, he was stone cold deaf for Christ sake. Just a little disclaimer, Ron and I are licensed by the California Bureau of Real Estate. My license number is 01715353. Ron's is ...
Ron Bruno: Guaranteed rate NMLS ID 2611 NMLS ID [00:46:30] 558706 California.
Tom Clary: The advice we give is only for properties located in the state of California. For all other states, please contact your local real estate agent or real estate professional. And that's about it. Ron, you good?
Ron Bruno: I'm fantastic.
Tom Clary: Great. Well, thanks for coming everybody and remember the greatest thing you can ever do is make someone feel at home. Take care, we'll see you next week.