Real Estate News and Commentary

May 14, 2009October 5, 2019

Prepare for repairs when purchasing distressed properties

by Dan Krell (c) 2009.
www.dankrell.com

So you decided to buy a foreclosure! You’re excited and made arrangements for renovations to begin the day after settlement. But wait; there is an unexpected glitch- your lender is requiring the mold in the basement to be remediated before closing. Home buyers’ lenders requiring repairs to be made prior to settlement is a common scenario of buying a foreclosure or short sale.

Besides imposing qualifications for borrowers, lenders also impose minimal property standards for the homes being financed! Among the many types of items that lenders may require you to repair prior to closing include (but not limited to): mold, termite damage, faulty plumbing, or roofing issues. For FHA mortgages, the minimal property guidelines were notoriously strict in the past; the seller could almost expect a laundry list of seemingly nitpicky repairs from the FHA appraiser. However, recent changes to FHA allow more discernment from the appraiser.

It seems to be somewhat of a paradoxical situation: you’re buying the home as-is, but your lender is requiring you to make repairs to the home prior to settlement. If the home is a short sale you could ask the seller to make the repairs, but then again many home owners selling their home by a short sale don’t have the funds to make their mortgage payment let alone the resources to make any repairs. If the home is a foreclosure, the rule of thumb is that banks do not make repairs to their foreclosed homes. Even though the seller won’t make repairs, you still have a couple of options to save your transaction.

Since you decided that the home you are purchasing is such a bargain, you figure that you might do the repairs yourself. However, not all home sellers will allow you to make repairs prior to settlement because of their liability (such as in a foreclosure transaction where repairs are typically not allowed prior to settlement).

If the repairs are beyond your capabilities, funds are limited, or the seller will not allow you to make repairs, you might think that your deal is dead. However, one of the little known secrets to purchasing distressed properties is the FHA 203k mortgage (HUD.gov). The FHA 203k is similar to a typical FHA mortgage, but the difference is that the loan will finance the repairs and renovations to the home.

The FHA 203k mortgage is not provided by all FHA lenders. Since the FHA 203k has requirements that are above and beyond a typical mortgage, it is highly recommended that you seek assistance from a qualified FHA 203k lender. You can find local FHA 203k lenders at HUD.gov.

Another option that was common in the past is to escrow repair funds. If the buyer’s lender allows, the buyer can place the repair funds in escrow at settlement with the intention to make repairs after closing. However, as underwriting guidelines and practices have become more stringent most lenders will no longer allow for escrowed repair funds.

Buying a distressed property is a great way to get a bargain, but the transaction does not always follow the “typical” home buying process. If you are buying a distressed home, it is a good idea to plan for all contingencies including unexpected repairs by consulting with qualified professionals.

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 April 20, 2009. Copyright © 2009 Dan Krell

May 12, 2009October 5, 2019

Pet Friendly Real Estate

by Dan Krell (c) 2009.
www.DanKrell.com

A press release from the American Society for the Prevention of Cruelty to Animals (ASPCA.org; February 20, 2009) estimates that 63 percent of the homes at risk of foreclosure have a pet. Losing your home can be devastating enough, but losing your pet because of financial challenges can add to your family’s emotional trauma.

Attention has recently been given to the plight of the families and their pets that are experiencing foreclosure. The ASPCA offers this information on preparing for foreclosure with your pets: check with family and friends for a temporary foster care for your pet (agree to a specific time frame and check in with your pet regularly); when moving to a rental, make sure that your management company allows pets; and/or plan in advance with a shelter as animal shelters usually have limited space.

Locally, families and their pets are being helped by “The Pet Friendly Realtor,” Jill Barsky (who is a Realtor with Long and Foster Real Estate, Inc.). Ms. Barsky runs the nonprofit organization, Tailed Treasures of Maryland, Inc, which seeks to assist families and their pets in times of need- including a foreclosure transition. Ms. Barsky started the non-profit about five years ago, when she realized that she could combine her real estate skills with her love for animals. Although she has been rescuing animals for over fifteen years, she stated that her company is not to be confused with the traditional animal rescue (which permanently removes pets to find suitable homes). Instead, Ms. Barsky acts like a “pet social worker” assisting families to take care of their pets as best as possible by offering housing assistance as well as food and other pet necessities to those who are in need.

The goal of her services is to have the pet stay with its family. Ms. Barsky uses her real estate expertise to help families find rental housing that will allow pets; she stated, “Sometimes it’s a matter of negotiating with the landlord”. If a pet-friendly rental is not possible, she tries to find a temporary foster care placement.

Every situation differs, but Ms. Barsky has found that most families want to keep their pets during financial challenges. The best case scenario is when the family can keep their pet during a transition from a foreclosure; or be reunited with their pet when the family becomes financially stable.

Although most families will attempt to get help, some do not because they are embarrassed. The worst case scenario is when the pets are neglected and left to fend for themselves. Ms. Barsky has received many calls from other Realtors who spot abandoned pets or other trapped animals that are in vacant bank-owned homes.

Ms. Barsky has helped many families keep their pets, including many who serve in the armed forces. Pets are sometimes placed in temporary foster care during deployments where pets are not allowed, such as overseas operations.

If you would like to become part of Ms. Barsky’s pet foster care network, make a donation, or just get more information, you can visit the Tailed Treasures of Maryland, Inc.’s website at TailedTreasuresofMD.com. Ms. Barsky stated that donations don’t have to be cash; donations can also be in the form of pet food, supplies, or pet store gift certificates.

May 8, 2009August 5, 2019

Alternatives to a Traditional Home Sale

Home Selling Alternatives

Frustrated home sellers are searching for creative solutions to selling their homes in the face of one of the most difficult housing markets in recent memory. While some home sellers reluctantly take their homes off the market, others look to the creative methods that real estate investors have used for many years.

Two creative options that some sellers are considering are “seller financing” and the “lease with the option to purchase.” Seller financing is when the buyer signs a mortgage note that is held by the seller (rather than a bank). The buyer receives deed and title like a typical home purchase, but makes their payments directly to the seller. Seller financing is not for all home sellers as all mortgages and liens on the home must be paid off prior to closing.

Lease with the option to purchase (also known as a lease-purchase) is when the buyer rents the home and agrees to close on the sale at a future predetermined time (usually one or two years when they can qualify for a mortgage from a traditional lender). Besides forking over a large deposit (usually non-refundable), the buyer pays a monthly rent that includes an additional amount that is applied to the purchase.

Some benefits when offering seller financing and a lease-purchase include attracting a greater number of home buyers, selling in a shorter time and the potential to make more money on your sale. Qualifying for a mortgage these days is much more difficult (even for some buyers who have good income and credit); however by offering an alternative to bank qualifying, you’ll attract a larger number of home buyers! Logic follows that the greater number of serious home buyers interested in your home, the quicker your sale.

You can potentially make more money on your sale by selling for a higher amount. If there is seller financing, you don’t have to worry if the lender’s underwriter will limit the sale to the appraised value- because you are the lender. However with a lease purchase, your buyer will most likely be limited to a lender’s appraisal when they are ready to settle on the home.

Seller financing and lease-options are very risky. Besides the downside of being a landlord, your buyer could default on their payments to you. It is important that your mortgage note or lease-purchase should specify your rights in eviction and foreclosure. Eviction and foreclosure can sometimes be drawn-out and expensive. Additionally, you may have to spend money to fix up the home again after your home is vacated; you can potentially lose money while your home is vacant while you look for new buyers.

It is highly recommended to hire an attorney to assist you in these transactions because of the many legal and financial ramifications. The concepts of these transactions may be easy to understand, however writing contract clauses to ensure you’re covered in all circumstances is another thing entirely; there are many variables to consider. Many home sellers have been burned from improperly prepared contracts.

Some have used creative techniques in selling their homes with great results; but before you decide to sell using seller financing or a lease-purchase, consult an attorney. The seller financing and lease-option transactions are very risky and should not be undertaken without legal counsel.

By Dan Krell
© 2009

This article is not intended to provide nor should it be relied upon for legal and financial advice.

April 29, 2009October 5, 2019

Foundation problems don’t have to be a nightmare

Conducting a home inspection by a competent and experienced home inspector can spot signs of foundation problems. However, many foundation problems develop over time and may not have been noticeable when you purchased your home. Regular maintenance can identify foundation problems; early intervention can prevent more serious and costly issues. Don’t let your home’s foundation become your source of sleepless nights

Warning signs of foundation problems include hairline cracks in walls, windows and doors that stick or do not open and close smoothly, uneven floors, bowing walls, and stair-step cracks in brick mortar. Additional signs of a failing foundation that may be attributed to other problems include damp floors, puddles of water, and flooding basements. Foundation repair experts recommend that you have a repair specialist and structural engineer inspect your home as soon as you suspect there is a foundation problem; the longer you wait the worse the problem becomes, and the more expensive the repair.

Common causes of a faltering foundation are due to soil conditions around and under your home. Some foundation problems are due to soil settlement, however some problems are due to improper soil compaction during construction; the soil may shift and compact over time due to the weight of your home and other conditions. Some foundation problems can also be due to changes to the soil’s moisture content that is caused by poor drainage, undetected plumbing leaks, an extreme weather changes. Soil properties can change due to over saturation and/or drought, which can make the soil supporting your home’s foundation settle and shift.

Regular home maintenance can prevent most foundation problems caused by excessive moisture and extreme weather conditions. Much of the maintenance is to ensure proper drainage in and around your home. Besides checking and repairing any plumbing leaks, experts recommend the inspection and maintenance of gutters, downspouts and grading to ensure that excess water is taken away from your home. If the soil around your home is determined to be excessively dry, a foundation expert can instruct you on proper hydration techniques.

If your home has a failing foundation, don’t despair! Many foundation problems can be repaired; some say that an expertly repaired foundation can be more structurally stabile than the original foundation. The cost of repairing your home’s foundation will depend on the type of repair that’s required.

Besides leveling your home to its original position, foundation repair may include a piering and/or an anchoring system. Piering systems drive long steel shafts into the ground to stabilize the home’s foundation. Anchoring systems stabilize walls (usually basement) by attaching steel rods to walls by anchors.

A common misconception is that a new home is covered by a builder’s warranty or builder’s insurance policy for ten years. Many home builders offer warranties, however Montgomery County requires a new home builder to offer a minimum structural warranty of five years (and there may be limitations and exclusions). If you have structural and foundation problems on a new home, you should consult an attorney as warranties and coverage vary.

As many foundation problems worsen with time, early detection and repair is recommended. More information on warning signs and repairs can be obtained from a local licensed contractor or the National Association of Waterproofing and Structural Repair Contractors (NAWSRC.org).

April 29, 2009October 5, 2019

Take care of your trees and they’ll take care of you

Maintain and inspect your trees regularly

Trees are an essential part of our ecosystem. Among the many benefits trees offer us include filtering our air and water, providing shade from the sun, and positively affecting our moods. Properly maintained and placed trees can even possibly add value to your home. However, if trees are not maintained properly and inspected regularly, they can become neglected and a potential hazard to you and your neighbor.

When you moved into your home you probably didn’t think much about the trees on your lot, other than their beauty and shade. Trees require maintenance and regular inspection to ensure their health and to remove any potentially hazardous limbs. For proper tree maintenance you should hire a professional tree care expert. Professional tree care experts (arborists) are licensed in Maryland by the Maryland Department of Natural Resources. If you need a Maryland Licensed Tree Expert, you can find one on their website (www.dnr.state.md.us/forests).

The Montgomery County Department of Environmental Protection recommends regular tree maintenance to include mulching and watering. Mulch layers protect tree roots from nutrient robbing weeds, provide insulation from extreme weather, and maintain the moisture provided from rain and watering. Mulching during the spring and fall will ensure your trees have the proper mulch coverage (recommended to be two to three inches deep).

Proper watering is essential for tree health. As you can imagine, summer months are hard on trees (especially for newly planted trees) so regular watering is beneficial. Newly planted trees require watering in the absence of rain. Because the water needs to reach the tree roots, deep watering methods are recommended by experts (use of soaker hoses, gator bags or, drip buckets).

If your lot is 40,000sf or greater or have a champion tree on your land, you may have to comply with the Maryland Forest Conservation Program. The Montgomery County Forest Conservation Program ensures Forest Conservation Law is enforced to save, maintain, and plant forests in the county. The Montgomery County Planning Department (MontgomeryCountyPlanning.org) can assist you in determining if your property falls in this category.

So, what happens if your tree falls and damages property? If your property is damaged, then you should consult with your insurance agent to determine if your insurance policy covers the damage.

However, if your neighbor’s property is damaged, they may have formed their own opinion about who is responsible; the outcome can be resolved in several ways. Sometimes neighbors can work out a solution on their own. Many such neighbor and tree cases are determined through mediation. Mediation is a form of alternative dispute resolution that is private and can be less expensive than going to trial. More information can be obtained from Community Mediation Maryland (www.mdmediation.org).

However, it is a good idea to consult an attorney if your fallen tree damages your neighbor’s property; these cases are not always clearly defined. If you do end up in court you may find that the court often decides such cases from case law and considers a variety of contributing factors to the resulting damage before making any decision.

I am no Lorax, but it’s clear that if you take care of your trees they will provide you with many years of shade and enjoyment; not to mention possibly avoiding “situations” with your neighbors.