Home Buyer Tips Archives - Page 3 of 12 - Real Estate News and Commentary

January 29, 2010July 6, 2019

Are you selling a home or a contract?

In a recent home showing, the listing agent remarked that the seller is the “contract seller.” As it turned out, the seller of the home was not on title, but rather had a contract on the home and wanted to sell the contract. The listing agent, trying to explain the situation as best as he could, stated that the seller’s contract gave hime equity in title which allows him to sell the home.

I had to wonder where this agent received his real estate license because, as a title attorney confirmed, equity in title does not permit one to sell a home they do not yet own. Never mind the fact that our local MLS (Metropolitan Regional Information Systems, Inc.; MRIS.com) requires listed properties to be listed by the legal owner of the property. So what are these guys trying to do?

The number of home flipping transactions are increasing as the market recovers. Home flipping received a lot of bad press in the 1990’s when fraud was prevalent in such transactions. Flipping a home per se is not illegal, it is fraud and other irregularities that raise eye brows and get the attention of local (and sometimes national) authorities.

Not all property flips involve fraud and deception. During the heyday of the sellers’ market earlier this decade, real estate investors capitalized on the frenzy of home buyers eager to own a home in the seemingly never ending appreciating market by quickly flipping properties. Of course, many real estate speculators lost a lot of money as the market receded.

A flipping technique that has been thought to be dubious by some and now making a comeback is the simultaneous closing (or double closing); a similar term/technique is selling the contract. Rather than take ownership of a property and obtain the title to a home, investors most likely resort to the double close or contract sale to save on transfer, property, and other taxes.

A local attorney (requesting not to be named) trying to close such a deal was contacted by the buyer’s lender Fraud Investigation Department. Although he felt there was nothing wrong with the deal and he was not withholding any information, the deal was denied by the buyer’s lender. Although the buyer qualified for the loan, the lender’s Fraud Investigation Department nixed the deal. Growing concerns of stolen homes where homes are sold without the knowledge of the legal owner are raising additional red flags.

To avoid such deals, FHA (among many conventional lenders) require that the title to be “seasoned” (the owner must be on title for a required period of time) before they will lend on the property. Finding a lender to finance a simultaneous closing or contract sale is often difficult.

Although the “contract seller” of the home I showed was most likely legitimate, it reminded me that even seasoned agents need to be on their toes. Buying a home is an investment of time and money, so don’t be afraid to exercise due diligence; asking who the seller is and why they are selling the home is often a good place to start.

By Dan Krell
Copyright © 2010

This article is not intended to provide nor should it be relied upon for legal and financial advice. Using this article without permission is a violation of copyright laws.

December 9, 2009October 5, 2019

Be your best advocate; get to know RESPA

One of the most important pieces of legislation that home buyers need to be aware of is The Real Estate Settlement Procedures Act (a.k.a. RESPA). Although RESPA has been around since 1974, it’s a wonder that the professionals whom consumers depend on have had trouble understanding the law. And in some cases it’s more of a problem of following the law.

To protect the consumer, RESPA clearly spells out some of the many do’s and don’ts for those in the real industry. According to HUD (HUD.gov), RESPA is a “ …consumer protection statute designed to help homebuyers be better shoppers in the home buying process, and is enforced by HUD…”

Of all the sections of RESPA, Section 9 appears to be the area that gets the least attention. Section 9 prohibits home sellers from requiring home buyers to use a specific title insurance company as a condition of sale. Seems simple enough, right? In an owner occupied resale transaction, a buyer may not encounter such pressure from the seller. However the number of Section 9 complaints from buyers may have increased in the last two years corresponding to the explosion of foreclosures and short sale transactions. Many MLS entries of such sales have remarks such as: “must use ABC title” or “settle with XYZ title,” which are direct or indirect statements that fly in the face of Section 9.

The first thought of a seller who directs the buyer to use a particular title agent may be one of kickbacks and affiliated businesses (which is regulated by RESPA Section 8). However, even if the seller may have a reasonable case to require the use of their title agent as a condition of the sale, the fact is that it is prohibited by Section 9 (caveat notwithstanding).

The reasons for a buyer to choose their own title agent include price and service. If a buyer has the ability to select their own title agent, they can compare prices for title insurance and affiliated services. Additionally, the buyer may also be able to compare title agents on their professional and service reputations. Having the title agent be responsive, file the correct documents, and distribute escrow funds in a timely manner should be taken seriously; title problems may plague you in the future if releases and mortgages are not filed correctly with the County.
Become your best advocate and get acquainted with RESPA. You can visit HUD’s consumer website to get further explanation on Section 9 and other sections of RESPA as well as the complaint process.

If you feel that the seller violated Section 9 and you were forced to use a seller’s title agent as a condition of the sale, consult with an attorney- you may be able to seek damages up to three times the amount you paid for the title insurance.

To enforce RESPA, HUD wants to know about your RESPA complaints by sending an outline of the violation and the violators name, address and phone number (along with your contact information) to the Director, Office of RESPA and Interstate Land Sales, US Department of Housing and Urban Development, Room 9154, 451 7th Street, SW, Washington, DC 20410.

This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 7, 2009. Copyright © 2009 Dan Krell

October 1, 2009October 5, 2019

What happens to your earnest money deposit?

by Dan Krell &copy 2009
www.DanKrell.com

Nothing confuses home buyers and sellers more, than earnest money. Simply put, earnest money is given as consideration money for the home seller to accept the home buyer’s offer, to take the home off the market and deter the home buyer from defaulting. For a home seller, the larger the earnest money the better; the home seller will surely be happy with a nice chunk of change deposited as earnest money. The home seller views the earnest money deposit as a possible source of compensation for damages in case of buyer default (but is not guaranteed).

Although the amount of earnest money is negotiated between the home buyer and seller, a home seller may sometimes require a minimum amount of earnest money to be held as consideration for the purchase. However, the amount offered as earnest money varies. Factors often taken into consideration when deciding on an amount to offer as an earnest money deposit includes: the price of the home being purchased and the amount of money the home buyer has available.

Many home buyers have the notion that the higher the amount of the earnest money, the more apt the seller would accept the offer. But this is not always the case. During the huge seller’s market earlier this decade, it was not unusual for home buyers to write very large earnest money checks, sometimes up to ten percent of the sales price! Home sellers required these large amounts as consideration and to differentiate the best offer from the many they received. However, as the market cooled, home sellers were happy to receive any offer – even with a modest earnest money amount.

Earnest money is not used much now to differentiate home buyers. The bottom line for many home sellers (especially for foreclosures and short sales) these days includes the net at closing and ensuring the home buyer completes the purchase. Because buying distressed properties can take longer than a usual sale, many home buyers are deciding to offer low amounts for earnest money so as to not tie their money up for several months.

Most often earnest money is given in the form of a personal check that is often held in an escrow account by the buyer’s broker. Sometimes, the seller requests that their broker or title agent hold the deposit. Additionally, the seller sometimes requests the earnest money be in the form of certified funds (such as a cashier’s check or money order); this is to ensure the funds are available.

If the home sale goes as planned, then the earnest money is credited to the home buyer at settlement. However, the fate of the earnest money is often in question when the sale is not consummated. If the home seller feels that the home buyer is in default, the seller will often try to claim the earnest money; but it is not always easy.

There is nothing more contentious than earnest money in a real estate deal that did not close. If you have questions about the disposition of an earnest money deposit, you should always consult an attorney. If the deposit is held by a Maryland real estate broker, the broker can only distribute the earnest money deposit in accordance with Title 17 Maryland Business Occupations and Professions of the Annotated Code of Maryland 17-505.

This column is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of September 7, 2009. Copyright © 2009 Dan Krell

August 12, 2009October 5, 2019

Making the right decisions starts with choosing your agent

By Dan Krell &copy 2009
www.DanKrell.com

For a smooth transaction, choose the right providers

If you are a first time home buyer, you may feel a bit confused and certainly overwhelmed by the huge amount of information that suddenly seems to cascade over you. Let’s face it, the real estate industry has changed significantly such that if even if you’re an experienced home buyer you may feel a bit confused and overwhelmed too. Choosing your service providers before you begin searching for a home can assist you through the different phases of the process as well as build a foundation for a smooth transaction.

Taking the time to interview and choose a Realtor, lender, home inspector and title agent before you begin searching for a home will create a team of professionals to guide you through the major aspects of home buying. It may sound a bit much, but when you are embarking on (probably) the most expensive purchase of your life, it’s important to know you are well represented.

Although the Realtor is generally known to assist in home searching and negotiating sales contracts, the agent you choose should be by your side throughout the transaction to help when the road gets bumpy. Besides asking how long the agent has been licensed, you should also ask if the agent is full-time so they may be accessible throughout the day. Additionally, calling an agent’s list of references of recent clients can shed light on the agent’s strengths and weaknesses.

Consulting with a lender prior to making an offer on a home is important; narrowing your choices by interviewing loan officers can help you learn more about their attention to detail as well as focus on customer service. The loan officer will help you through the mortgage process and should be available to assist you from application to closing. Comparing mortgage costs is more than comparing interest rates, asking for and comparing lender fees and points can help you differentiate total lender costs.

After you enter into a contract, you will most likely want to conduct a home inspection to determine the condition of the home. Many home buyers don’t consider choosing a home inspector and rely on the real estate agent to arrange the inspection; however, experience and scope of inspections can vary significantly! Choosing the right home inspector can help you not only accurately determine a home’s condition, but also put you understand age related problems of a home (such as settling) and prepare you for future maintenance. Make sure that the inspector you choose is available by phone and willing to return to the home if you have questions about the inspection.

Like the home inspection, choice of a title agent is often left to the real estate agent. However, choosing a title attorney early in the process may provide you a strong and useful advisor- a title attorney. The title attorney will not only help you understand the closing process, some title attorneys will make themselves available to answer legal questions that may arise from your home purchase.

Taking the time to interview and choose the providers whom you feel comfortable with is important to help guide you through the ups and downs of the home buying process. For more information on the home buying process, please visit the Department of Housing and Urban Development (www.hud.gov/buying).

July 21, 2009October 5, 2019

Is it a scam, fraud, or legitimate transaction?

Simultaneous Closings

Some say it’s illegal, some say it’s fraud, some say it’s a scam, and yet others say it’s legal if disclosed. This is the mixed response that a real estate investor gets when trying to conduct a simultaneous closing. The fact is that that a simultaneous real estate closing is a legally complex transaction and has many pitfalls as well as consumer protection issues.

This does not stop the real estate investor who is looking to make a quick buck with little or no money down. A simultaneous closing (also known as a double closing) occurs when a single home is sold twice in the same day. The real estate investor (sometimes referred to as the “middleman”) settles his purchase from the owner, and almost immediately settles on the sale of the home to the home buyer.

Because of the obvious questions raised by such a transaction, investors sometimes use a technique called an “assignment” to get around some of the problems they encounter with a simultaneous closing. Rather than closing both the purchase and sale the same day, the investor assigns their sales contract to the home buyer for a fee.

Home buyers and Realtors may come across such sales as real estate investors advertise to attract home buyers to complete these transactions. Real estate investors may list the home in the MLS or place and ad as a FSBO- appearing to be the owner of the home (although they do not actually own the home). When entering into a contract with a home buyer, they may or may not disclose the nature of the sale.

Many times, home buyers take for granted that the home is being sold by the actual owner. As mortgage fraud and real estate scams increase, home buyers are encountering more irregularities. However, it may become evident to you and your Realtor that an investor is attempting a simultaneous closing or an assignment when: 1) the name on the public record does not match with the name of the person who is selling the home; and 2) the home is difficult to show- there are confrontations with the occupant (often the actual owner).

Buying a home through such a transaction poses some problems for the home buyer, including securing financing. A mortgage lender will not lend money to purchase a home from someone who does not actually own the home, an obvious stumbling block for the real estate investor. Although most title agents stay away from simultaneous closings, savvy investors will pressure the home buyer to use their title agent; the investor’s title agent may issue a title binder for the transaction making it appear that the investor owns the home to meet the buyer’s lender’s requirements.

Putting aside the obvious questions of meeting your lenders underwriting guidelines and possible fraud, it’s prudent to exercise your right as a home buyer to choose your own title agent for your purchase; a title agent uses due diligence to ensure there are no irregularities with the deed and title to the home to issue a title binder and title insurance.

The simultaneous closing or assignment transaction is legally complex for the home owner, real estate investor and the home buyer. If you find yourself in a simultaneous closing or assignment transaction, consult an attorney for legal advice.

Original published at https://dankrell.com

By Dan Krell