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Open House

Hiring Illegal Workers; Florida Condo Market Is Hot; Importance Of Home Appraisals; Adjustable Rate Mortgages

Aired April 01, 2006 - 09:30   ET

THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.

TONY HARRIS, CNN ANCHOR: Good morning. Now in the news Jill Carroll arrived at an air base in western Germany earlier this morning just two days after her captors released her in Baghdad. She is expected to board a plane in Frankfurt for the U.S. sometime this weekend.
Later today, the Reverend Jesse Jackson and others will march on the streets of New Orleans even though a large portion of the city's residents are scattered across parts of the country. A federal judge said no to postponing the April 22 election. Activists say Louisiana isn't doing enough to make sure these folks get a folks to vote. Hear what Reverend Jackson has to say at 10:00 Eastern.

Simply put, much of Hawaii is soaking wet from torrential rain. The National Weather Service placed the islands under a flash flood watch until this afternoon. It's been raining in parts of Hawaii since February 19.

Saudi Arabian officials are giving their security forces high marks. A top official says Saudi security forces have foiled 90 percent of attacks militants had planned to carry out. This comment is an excerpt from a pan-Arab newspaper interview with Saudi Arabia's interior ministry.

Kurdish protesters riot again in Turkey, clashing with security forces. At least seven people have died in five days of street battles. It started Tuesday after funerals for Kurdish separatists killed while fighting the military.

I'm Tony Harris, live from CNN world headquarters in Atlanta. We'll see you back here at the top of the hour.

"OPEN HOUSE" with Gerri Willis starts right now.

GERRI WILLIS, CNN ANCHOR: Face it, many of us homeowners have at one point or another probably hired an undocumented worker. So as the immigration debate rages on, you need to know what you're liable for if you hire an illegal worker.

Good morning. I'm Gerri Willis. Welcome to OPEN HOUSE.

Later in the show, we'll tackle issues from getting a fair appraisal to finding the best mortgage rates.

But first, homeowners and immigration reform. It's been front page news all week long. The president, lawmakers, and opinion leaders are all talking about how to deal with illegal immigration.

But the talk is just that, talk. Here's what's at stake. Undocumented workers have for a long time been an integral part of the economy. And homeowners are often the employers.

Look, if you have a gardener, a housekeeper, or a handyman, you need to know their status and your legal liability.

Here to help is Alan Kopit, an immigration expert and legal editor for Lawyers.com.

Alan, welcome.

ALAN KOPIT, ATTORNEY: Good morning.

WILLIS: So OK, let's get down to this. If I hire an illegal worker, am I liable in any way?

KOPIT: Well, we have to do a two-step analysis, Gerri, in order to really understand that.

First of all, the question is, are you the employer? You know, many of us go out, we have a landscaping company that we might hire, we might hire a snow removal company, a service that provides us with household help.

(CROSSTALK)

WILLIS: But Alan, sometimes people come knocking at your door.

KOPIT: Well, I understand that...

WILLIS: And you get, you can't necessarily find out whether they're legal or illegal.

KOPIT: Well, first of all, you have to first find out if you're the employer. If you're not the employer, you don't have anything to worry about. You can go to the next -- you don't have to worry about step two.

If they come knocking at your door, you need to ask a question, because suddenly you are the employer, and you need to know whether they are a documented alien in the country, that do they have permission to be here, whether it's under the old law or under the president's new law, which talks about temporary workers. In that situation...

WILLIS: Before we go to that new law, Alan...

KOPIT: ... they could be temporary here.

WILLIS: ... before we go to the new law, Alan, let's talk a little bit about, I'm asking if you have legal liability even if you hire somebody yourself. But as a practical matter, is anything really going to happen to me?

KOPIT: Well, here, here, the question is, yes, you -- the answer to that question is, yes, you do have legal liability. It can result in civil penalties or criminal penalties. Is anything ...

(CROSSTALK)

WILLIS: Really?

KOPIT: Is anything...

WILLIS: Like, what are the penalties like?

KOPIT: Well...

WILLIS: Am I looking -- is it, like going to jail for years and years and years?

KOPIT: It's probably not going to jail for years and years and years. It depends on the frequency, how much -- abusive has been -- has the conduct been.

But here's the situation you have to look at. You have to ask yourself, why would they come to a homeowner and say, OK, you violated the law? What they're really looking at are broader violations of this law, what people have done on a habitual basis, and they may be running, for example, a sweatshop, or a place where they want real cheap labor.

And it's those kind of people that they're really going after. So from a practical perspective, I don't think you have a lot to worry about.

WILLIS: All right. So OK, in Washington, big debate right now on a guest worker program. If those changes take place, will that change my liability as a homeowner?

KOPIT: It won't change -- the penalties become a little more severe under the new law, as proposed, but they're really not going to change the analysis you have to go through. You -- because now you're going to ask yourself, is this temporary worker in this country legally? And if the answer to that question is yes, you're OK. That's the point of the temporary worker law.

WILLIS: OK, but you know what happens so many times is, you use a contractor, you use someone who is clearly using illegal labor. Should you go ahead and use that contractor, even knowing that? Should you call the cops? I mean, what's the right thing to do?

KOPIT: Well, I mean, the moral thing to do is to say to the contractor, Look, are you hiring legal people? Are they here, are they here legally? Are these workers in my house on a legal bass? That's the sort of a moral question. I don't think you have any legal obligation to ask your contractor whether they're using legal workers.

WILLIS: All right. Well, Alan, thank you so much for your time today.

KOPIT: Great to be here.

WILLIS: Shifting gears now, as we continue our real estate tour around the nation, today's stop, south Florida. And nowhere has the market been hotter than along the condo line oceanfront from Palm Beach to Miami.

But I got to tell you, the days of quick profits are probably long gone there. I went to Miami Beach to check it out.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): Gary mills bought this condo in Miami's South Beach as his first residential real estate investment.

(on camera): So Gary, this is what you're paying for right here is this fabulous view, right?

GARY MILLS, HOMEBUYER: It's the view. It's definitely not the square footage in these buildings down here on South Beach. It's the view.

WILLIS (voice-over): Gary had planned to quickly flip the condo and put the money back into other real estate investments. But three real estate agents and two and two and a half years later, no one is buying the $3.5 million space, and that, Gary says, surprises him.

MILLS: I bought it almost two and a half years ago. I had expected to hold it about nine months to about a year. I really couldn't tell you exactly why it's taken a lot longer.

WILLIS: Could this be a sign of things to come?

Jack McCabe believes that south Florida's condo market is in for a big change.

(on camera) So Jack, condo prices, where are they going?

JACK MCCABE, CEO, MCCABE RESEARCH: In Miami, they're going to drop 20 to 30 percent for the majority of projects over the next 18 to 24 months.

WILLIS: That is a big drop.

MCCABE: It's a big hit. It's not just going to be south Florida, it's going to be several markets around the country. But we're going to see it here most in Miami because of many different factors, one of which is this overabundance, this oversupply that we've been building and are currently building right now.

WILLIS (voice-over): Not everyone agrees.

MIKE DOOLEY, PRESIDENT, Florida ASSOCIATION OF REALTORS: There seems to be a perception that the sky is falling. And the sky isn't falling. We do have an a bit of abundance of property, but it will be absorbed, and it'll be absorbed probably in a shorter period of time than what's being anticipated.

WILLIS: McCabe's research, however, points in a different direction. He says there will be more than 50,000 condominiums on the market in the next five years, putting a real squeeze on investors like Gary Mills.

MILLS: At this point I -- both my partner and I have gotten our fill of this. We've made a lot of additional connections by being down here on the beach. We've gotten a lot of additional business out of it. But at this point, we're both ready to move on to other things.

MCCABE: We've seen some real fortunes made down here in the last three years. Unfortunately, now we're past the point where the boom has reached the pinnacle. We're into a transition stage right now. We've kind of come to that point where it's the greater fool theory. And the ones that are holding units right now are going to have a difficult time selling these for any profit at all.

(END VIDEOTAPE)

WILLIS: Coming up, if you have an adjustable rate mortgage, I'm telling you, you could be in for a big shock this year. For some, the question becomes, can you even afford your house?

We're going to have some great advice on that.

And the next chapter of our buying and selling series, finding out the true value of your home. There's a number. It really exists. Everything you need to know about appraisers.

That's next on OPEN HOUSE.

But first, your tip of the day.

(BEGIN VIDEO CLIP)

WILLIS: Finding the right home inspector can save you lots of money.

But be wary of referrals given to you by your real estate agent. Instead, check out the American Society of Home Inspectors Web site to find a reliable professional.

Members of this group are required to have conducted at least 250 paid inspections.

Simply go to www.ashi.org. So to find an inspector, enter your location, and you'll get an extensive list of qualified home inspectors in your area.

And that's your tip of the day.

(END VIDEO CLIP)

(COMMERCIAL BREAK) WILLIS: You may think that the appraisal is just one thing to check off your list when buying a house. Not so. This New York woman learned the hard way.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): For Jocelyn King, it was love at first sight.

JOCELYN KING, HOME BUYER: I knew right away that this was it. And, you know, I fell in love with it. I thought it was beautiful.

WILLIS: Her dream apartment, a one-bedroom in Queens, New York, was on the market for $219,000. She put in a bid of $207,000, and the sellers accepted.

After researching neighborhood prices, Jocelyn thought she got a pretty good deal. Too bad her lender didn't agree.

KING: The number that I -- that the appraisal came back as was 185.

WILLIS: A $22,000 difference from what Jocelyn agreed to pay.

KING: I was stunned, and so, you know, I had seen apartments listed for 185. And I didn't think that they compared at all to this place. So in my mind, I was sort of confused.

WILLIS: Confusion and frustration aside, she had a bigger problem, coming up with the extra financing.

KING: The bank said, we will lend you money, you know, we'll give you a loan package for 185, and that's it. And the rest, you're responsible for.

WILLIS: Her solution, go for 90 percent financing, instead of the 80 percent she initial planned for. King's original lender wouldn't approve a mortgage for 90 percent, so she switched banks.

KING: I had to look for another bank, and, you know, I lost my interest rate. You know, that was tough to swallow.

WILLIS: Through creative financing, King got her apartment, and the view she always wanted. But as for appraisals, she's got a whole different view.

KING: I'm interested in the fact that this is on the fourth floor, and there's a nice little view of the New York City skyline. The bank doesn't care, I don't think. And the appraiser doesn't care.

(END VIDEOTAPE)

WILLIS: OK, so it's more complicated than you probably think.

To help us, Richard Powers, president of the Appraisal Institute, is joining us. Dick, welcome.

RICHARD POWERS, APPRAISAL INSTITUTE: Good morning.

WILLIS: Good to see you.

So I think this is mysterious for a lot of buyers out there. They know they've got to have an appraiser do an appraisal of their house. But they don't really know what it means. What is it that an appraiser does?

POWERS: An appraiser basically starts by doing an inspection of the property that's being considered. And more importantly, an inspection of the neighborhood, to find out what the attributes are that a typical homeowner is looking for in the purchase of a home.

WILLIS: OK.

POWERS: Once they do that, they look up comparable sales and analyze that data to determine how much the value of that home should be.

WILLIS: So you guys are sort of like a referee in this process. You don't have a vested interest. You're just trying to figure out what the right number is.

POWERS: That's correct.

WILLIS: OK. So, you know, it's not that mysterious, clearly, but I don't have that much power in picking my appraiser. It's typically done by the bank, right?

POWERS: Usually, when you're doing it for lending purposes, they need to be the one to choose the appraiser. I would think, however, that you would want to make sure that that appraiser is fully qualified.

WILLIS: Well, how do I do that?

POWERS: Well, one of the ways to see if an appraiser is qualified, there are three steps you can take. The first step is to make sure that they are actually members or have joined a professional association, to make sure that they are the highest-qualified appraisers out there.

The second thing you want to make sure of is that they're fully qualified and used to appraising properties in your market area, or in your neighborhood.

WILLIS: All right.

POWERS: And you want to -- and the third thing would be to make sure that they're familiar with the property type that you're trying to appraise.

WILLIS: Right. And we're talking pretty much about single- family homes here, obviously.

One thing that I keep hearing about, though, is that there's a lot of pressure on appraisers to say, Hey, you know, that really highly inflated price, it's worth it, that these prices are really meaningful. And you know how this is. You know, the real estate agents, they get you bidding up on houses, and pretty soon you've offered lots more money than you anticipated. What's the appraiser's role in that?

POWERS: Well, the appraiser has to be qualified enough and have enough experience to be able to absolutely resist pressure from clients or other individuals in the contract. As you know, the Realtor, the banker, the buyer, the seller, and the lender all want the deal to go through.

WILLIS: Right.

POWERS: The appraiser is paid -- the appraiser is paid basically a flat fee regardless of whether the deal goes through or not. So he's the only one that's independent in the process, which is important.

WILLIS: How big a problem has this been?

POWERS: I think there's been a lot of client pressure across the country. You'll see that House bill HR 1275 is presently addressing client pressure as part of that bill. And it is rampant across the country. Almost every appraiser we speak with has been pressured by clients in one way or the other.

WILLIS: There's also fraud out there. Talk to us a little bit about that, and how we can protect ourselves.

POWERS: Fraud is an even bigger issue for the consumer, because fraud basically happens when someone who has a financial interest in the deal closing puts pressure on or bribes someone to do something inappropriate.

And sometimes there's collusion between brokers and other individuals to try to get a deal closed so that everybody gets their commissions. And the appraiser has to stay independent of that and stay away from those kinds of issues.

WILLIS: How can I put my bank on notice that I want a really good appraiser, to really spend the money to get somebody who has the experience to do what needs to be done?

POWERS: Well, I think it would be easy for you to say to the bank that you would like somebody from an Appraisal Institute, an Appraisal Institute member, or from a professional organization that has gone to the higher level of getting qualified and getting experience. You could ask for someone like an SRA appraiser for residential assignments, and an MAI appraiser if you're doing something commercial.

WILLIS: That's a lot of help. Now, when I get that report, I should probably ask for your appraisal so I can see it myself. What am I looking for?

POWERS: I think you need to look especially at a residential appraisal report, to look for typographical errors, to see if it's clearly explained, to see if it makes sense to you. One of the things you should really do is to look at the comparable sales that they've used to estimate your value. Drive by those homes, and see if they're similar to yours. And also make sure that the description of the property you own or are purchasing is accurate in that appraisal report.

WILLIS: All right. Well, Dick, it's more complicated than it looks at first. Thanks for helping us out.

POWERS: Thank you.

WILLIS: So, let's see, you got the house, the mortgage, and now the Fed's out raising rates again. If the rate lock on your loan is about to expire, stick around for some serious advice on what could be a big increase in your monthly payment.

Before we go, though, take a look at this week's mortgage numbers.

(COMMERCIAL BREAK)

WILLIS: As I'm sure you know by now, the Fed's been raising rates again, and that means more expensive mortgages. So if you have an adjustable rate, take notice. We'll help you learn what you need to know.

(BEGIN VIDEOTAPE)

WILLIS (voice-over): For years, Bruce Herman could feel the cost of his mortgage hanging over him. In 2002, he bought this brownstone in Brooklyn, New York, and looked around for a mortgage.

BRUCE HERMAN, HOMEOWNER: The best rate we were able to get at that time was an adjustable rate, a five-year ARM.

WILLIS: That mortgage offered a lower initial rate, 6 3/8 percent, for the first five years, followed by a reset when the mortgage would adjust higher in 2007.

HERMAN: And anticipating that we would probably be hit, you know, in a year and a half, when there would have -- we would have got to our five-year point, with an increase, and then that we might be in a situation where we would get annual increases of about 1 percent, that was a scenario that was, you know, quite troubling for us.

WILLIS: Millions of U.S. homeowners face exactly this predicament. The Mortgage Bankers Association estimates that more than $1 trillion in adjustable rate mortgages will reset by the end of 2007. That means many of those homeowners who locked in rock-bottom adjustable rates when mortgages fell to historical lows a few years ago are about to see their monthly costs shoot higher. ALAN TRACHTMAN, MORTGAGE BROKER, TRACHTMAN AND BACH: The step up in many of the adjustables is going to be a lot higher than the new payment undertaking a -- taking a new loan.

WILLIS: Trachtman says the first thing to do is assess your individual needs.

The first question, how long will you be in your home? If it will only a few years, then it makes sense to take out another adjustable rate. Then again, it depends on how much risk you can stomach. For some people, there's nothing like the security of a 15- or 30-year fixed rate.

Refinancing certainly worked out for Bruce Herman and his wife, Jennifer. A couple of weeks ago, they rolled over their adjustable, as well as a home equity loan, into a 30-year fixed rate mortgage. The result, a lower interest rate that will cut their monthly costs by about 20 percent.

HERMAN: It was certainly worth the time that we put in and, you know, chasing the best rate, and all that stuff. In the end, I think it's going to be, you know, a situation that we're in a much better place.

(END VIDEOTAPE)

WILLIS: OK, so if you want to be in that better place, start out by finding out when your interest rate lock expires. Just check your mortgage documents. By law, that information has to be in the first few pages of your mortgage agreement.

Also, look for caps. That's the maximum amount your rate can reset. With another rate hike anticipated, consider refinancing if your new mortgage amount eats too far into that monthly budget.

Keep in mind that people with adjustable rate mortgages could see a 50 percent jump in their monthly payments after their lock expires. And that's a lot of money.

Refinancing isn't cheap. Find out if it makes sense to refinance by weighing your increased monthly costs against how much you'll pay for that new loan. Include appraisal fees, loan origination fees, and closing costs into your calculation. This can easily add up to thousands of dollars.

Now, if you've decided refi is for you, check out your current lender first. You may be able to negotiate a discount.

Remember, mortgage lenders want your business. Let them work for it.

And finally, if watching interest rates climb higher is causing your blood pressure to skyrocket, take heart. Economists say the Fed may be done raising rates after their next meeting in May. So there is some good news out there. Tomorrow morning this time won't be the same time. It's an hour later. Hey, it's time to spring forward. Tips on time are next on OPEN HOUSE.

(COMMERCIAL BREAK)

WILLIS: Get ready to spring forward. Daylight Saving Time begins 2:00 a.m. Sunday morning, jumping forward to 3:00 a.m.

And, hey, if you're bummed about losing that extra hour this weekend, just be glad you don't live in Indiana. Hoosier residents are going to be changing their clocks for the first time. The whole state is adopting Daylight Saving Time.

Adding to the confusion, some Indiana counties are switching time zones, moving from the Eastern to the Central time zone. How confusing is that?

Now, some Americans don't bother to change their clocks at all. Believe it or not, 2 percent of us said in a survey, we don't even bother to make the change.

What's more, almost 60 percent say they have to find their owner's manual to change their car clock. Who wants to do that?

Thankfully, for some of us, it's not our responsibility. Men are more likely than women to change the clocks on home electronics.

We want to hear from you. Send us your comments, your questions to openhouse@CNN.com. And you'll find more on today's guests and topics on our Web site, CNNMONEY.com/openhouse.

And finally, what does a million dollars buy you in New York City? How about this supposed former crack house in the now red-hot hospital section of Williamsburg in Brooklyn? Who would pay that much for that, I have no idea.

Its owner picked it up for around a quarter of a million last year, but is trying to flip it to someone who wants to design their own home. It's attracting a lot of interest, even though it needs a complete gut renovation. Look at that.

Thanks for watching OPEN HOUSE. We'll see you here next week.

The day's top stories are next on "CNN SATURDAY."

Have a great weekend.

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