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| Harold's NEWSLETTER |
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Articles and Advice |
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| Divorce leads to default By Benny Kass DEAR BENNY: I bought a home with my husband in 2002. We are both on the mortgage. When we got divorced in 2006, he bought me out and I signed over the quitclaim deed of the house to him. He was to pay me $50,000, of which I've collected only $25,000. We continue to remain in contact for the sake of our son. I decided to leave my name on the mortgage loan because his income alone would not qualify him to refinance on his own. He has been good in keeping up with the mortgage payment until six months ago, when he defaulted on the home loan due to an unforeseen financial hardship. The house is upside down and three years of unpaid property taxes are due. I've made a big mistake in helping him and now my credit is ruined. The bank refused to remove me from the mortgage loan. I know I wasn't very smart in handling this situation and now I'm paying the price. What can I do at this point to protect myself? I've gone on to purchase a home with my boyfriend. I don't want to drag him down with me, but I know he will be affected one way or another when it comes time for us to refinance our home. My credit score has always been 700-plus. Is there a way for me to get out of this with my credit intact? --Amie DEAR AMIE: It will not be a consolation to you, but many former spouses are in the same boat. But we should never look back. There are many options available to you if your ex will cooperate. Both of you should first talk with the lender. I know this often is difficult, but most lenders have "remediation" departments that are created to try to resolve situations such as yours. Next, look at all of the various state and federal government programs designed to assist homeowners like you. These programs can be located on the Internet, or by contacting your elected officials. Explore such avenues as short sales, and deed-in-lieu of foreclosure. While either of these two programs will, unfortunately, impact your credit rating, it should not be as disastrous as filing for bankruptcy relief -- or letting the house go to foreclosure. Ultimately, you may not have any alternative but to let the lender foreclose. Keep in mind, however, that legitimate lenders have so many foreclosed houses in their portfolio that they don't want any more foreclosures. There are housing counseling services that can also try to assist you. Contact your local U.S. Housing and Urban Development Dept. office or your U.S. senator or congressman for more details. DEAR BENNY: I live in Phoenix, Ariz., and found a great short-sale condo. The bank accepted my offer and I had a home inspection. Everything was going fine until the lender got a copy of the association accounts. These condos were sold at the height of the housing bubble, which means that a good number of them are "underwater." Nearly everything offered for sale in the complex is either a short sale or property foreclosed by the lender. My lender backed out of the purchase and said nobody is going to lend money on these units under these circumstances. The association is about $350,000 underreserved. It's too bad because I already spent the money for an inspection. My REALTOR® also says that nearly all the condo complexes in Phoenix are either in or are going to be in that position. She tells me that when the association runs out of money, the pools will be empty, the grounds won't be maintained, etc. My next foray into condo sales will begin with a reading of the association balance sheet and reserves balances. I also own a condo in Florida where there are strict laws regarding funding reserves. I don't know what Arizona laws are, but you can't squeeze money where there is none to be had (special assessments, increased dues, etc.). Do you have any advice in terms of what I should look for when shopping for a condo? Should I give up on buying a condo in Phoenix? --Patty DEAR PATTY: I normally do not tell readers where the question came from. However, since you presented a comparison between Arizona and Florida laws, I thought it would be good material for my column. I can't comment on the financial situation in Arizona, but can tell you that many communities throughout the country are facing similar situations. There are lots of delinquencies, which means that associations do not have enough money to properly operate the association. As a result, many areas find themselves in a downward spiral, with property values plummeting. I also cannot confirm the laws in either state. However, quite recently several of the major secondary mortgage lenders -- Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA) -- have imposed very strict reserve requirements in order for homebuyers to get a mortgage. For example, on Nov. 6, 2009, FHA issued a guidance letter requiring associations to have reserve accounts equal to at least 10 percent of the association's annual budget. Accordingly, if you plan to buy a condominium unit -- either directly from the owner, by a short sale or at a foreclosure sale -- you must read and carefully analyze the association's budget. If it's not up to date, I would look for another association. DEAR BENNY: Our home borders a 3/4-acre lot owned by the corporation that also owns the private neighborhood swimming pool. The land around the pool is not being mowed. When I called the president of the pool, he said we were more than welcome to maintain the property, as most of the other neighbors whose property borders the "commons" do just that. I attended a couple of meetings and suggested several ideas. Could they give us a pool membership? Could our 13-year-old son get paid $20 per week to mow? Could we find additional volunteers and we would gladly be in a rotation say once a month? All of our ideas were shot down and they would just like us to mow it and be done with it. While we don't want to cause a disturbance in the neighborhood, we also do not want to spend two hours a week maintaining the property. What are our options? --Kathy DEAR KATHY: I understand your concerns. The private corporation does not take care of its property, and leaves an eyesore that you have to look at on a daily basis. One suggestion: Have you contacted your local city or county government? Perhaps they can put some pressure on the company to take care of its own property. Additionally, while I know it is distasteful for you to have to mow someone else's lawn, what is stopping you from pursuing your suggestion that you recruit volunteers from surrounding properties to rotate mowing the property? Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
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| Backup offers give sellers a Plan B By Dian Hymer Every seller's dream is to receive offers from more than one buyer. Although multiple offers were scarce last year, in some markets and price ranges listings that are priced right are receiving multiple offers, particularly in the low-end foreclosure markets. Most sellers are inclined to accept the highest-priced offer, but this isn't always the best offer. For example, a seller of a hot property in the hills above Oakland, Calif., received six offers. The two highest offers were close in price, but the seller decided to accept the higher of the two. Fortunately, the seller's agent suggested countering the next best offer for backup position. The buyer in primary position had 10 percent cash for a downpayment. Some issues came up during inspections that were going to be costly to repair. The buyer didn't have more cash to pay for the repairs, so he asked the seller to lower the price. The seller said no and the backup offer became the primary offer. The backup buyer made a large cash downpayment; he wasn't cash-strapped like the first buyer. He had enough cash to pay for the repairs. In this case, the backup offer, which wasn't originally the highest offer, turned out to be the best offer both in terms of price and financing. Before making a decision about which offer to accept, it's important to review all of the terms and conditions of the contracts, not just the price. In another case, a seller received two offers. One was quite a bit higher than the other. After reviewing the highest-priced offer, it turned out that the price wasn't as high as it seemed. The agent representing the buyers was from out of the area and didn't know how fees associated with a home sale were customarily shared between the buyer and seller. In terms of net proceeds to the seller, the offer price was $10,000 less than it would have been if the offer included an allocation of fees that was according to local custom. HOUSE HUNTINTG TIP: Sellers who receive multiple offers often are tempted to counter for a higher price, even when the offer prices are for more than the list price. This is risky. In one case, a seller received two offers. The highest-priced offer was for more than the list price. The seller countered this offer at an even higher price. The buyer thought the seller was unreasonable and withdrew his offer. The seller ended up selling for much less. Don't let greed rule your decision-making. The financing proposed in the offers should be scrutinized carefully. In general, the more cash a buyer puts down, the better. Recently a seller reviewed two offers on her house. One of the buyers offered to make a 40 percent cash downpayment. The other was putting five percent down. It's far easier for a buyer to get loan approval in the current market place if the downpayment is 20 percent or more of the purchase price. Close of escrow can be an important factor for some sellers. It can be beneficial for a seller to accept a lower price if the buyer can close quickly. This is particularly so, if the sellers have already purchased and closed on another home. An offer made contingent on the buyers' home selling is riskier than an offer from a buyer who doesn't need to sell in order to buy. Depending on the seller's situation, it might be wise to consider a lower-priced offer that is not contingent on a sale. THE CLOSING: It's a good idea to counter the next-best offer for backup position in case the first deal falls apart. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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| Doing double take on condo privacy By Benny Kass DEAR BENNY: I own a condo that has a property management company with an active board and bylaws. Each individual unit has a cement patio with a privacy fence (approximately six feet high) around it. The bylaws regulate what you can have on your private patio. There are a few things that I do not understand in this situation. First of all, how can this private area off each unit be considered "common area"? Next question, is what right does the property management have to look over the fence to see what you have on your patio? While I can understand receiving a letter of violation if something is sticking out above the fence, I regularly get violation letters regarding items they have seen on my private patio that can be seen only by opening my gate or looking over the fence. I am very frustrated and feel my rights are violated. --Maureen DEAR MAUREEN: I appreciate your frustration, and agree that property managers should not be spies. Years ago, I wrote an article entitled "I spy." It started off as follows: "There are three people outside my unit wearing trench coats and holding binoculars. No, it's not the KGB, but your local architectural committee checking that you are in full compliance with the association's rules and regulations." First, however, you should learn what your patio really is. In a condominium, there are three parts: (1) your unit, (2) common elements, and (3) limited common elements (LCE). Your patio is an LCE. That means that it is outside your unit, but is not accessible to every owner. Typically, LCEs are under the control of the board of directors. Why? It's because your patio is not in your unit, and there could be potential liability for the association should someone get injured on your patio. I could go on with my description of LCEs, but it really is not necessary. I am sure that your legal documents (declaration, bylaws, and plats and plans) clearly depict your patio as an LCE. So there is nothing you can do about it; you should have understood this before you took title to your unit. I do, however, agree that management should not be spying on you. Even on a limited common element, you should have a degree of privacy. Of course, if someone complains about something (or some activity) that takes place on that LCE, then in my opinion management should get involved. What can you do about it? Unfortunately, you have only three choices: (1) try to get on the board and correct the problem; (2) put up with the situation; or (3) sell and move out. DEAR BENNY: I live in a condominium. Two years ago, while investigating the source of a leak from my upstairs neighbor, our management company and general contractor discovered that, through neglect and abuse, my upstairs neighbor's bathroom floor had become seriously dry-rotted. He was told that he would need to replace the floor lest it, as well as his tub, toilet and sink, come crashing down on our heads. Not only has our neighbor been utterly uncooperative, but he lied to us, saying that the management company and contractor later reversed themselves, stating that he wouldn't need to repair the floor as long as he kept it dry. Recently, during the caulking of his bathroom, yet another contractor confirmed the sorry condition of his bathroom floor, emphasizing that now the situation had grown dire and was in need of immediate attention. Needless to say, this has been an ongoing concern. I am also concerned about such issues as moisture and mold and their deleterious effect on the integrity of the building as a whole. What legal recourse do I, as an individual homeowner, the homeowners association and/or board have to compel our neighbor to behave like a neighbor? --Peggy DEAR PEGGY: You have several options, but first, why isn't your association taking action? Every association's board of directors does have the authority to insist -- indeed force -- a unit owner to correct matters that impact on the structural integrity of the association. The board -- preferably their attorney -- should send a strong letter demanding that the upstairs owner immediately take corrective action. Alternatively, if the owner refuses to do so, the board should advise him that the association will pay for the repairs, and will bill that owner for this work. I am curious why the board is not acting. You should threaten the board by telling them that they have a fiduciary duty to insist that the unit be repaired -- especially since that owner apparently lied to you. What rights do you have? Have you talked with that owner? That would be your first approach. If he refuses to take any action, you can (1) contact your association's master insurance company and tell them about the problem; perhaps they will want to cut their losses and pay for the damage; (2) you can sue the board for failing to act; and/or (3) you can try to get the local county (or city) housing inspectors to inspect his unit. Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. |
| Buyers master contingent-sale offers By Dian Hymer Most repeat homebuyers don't like selling their current home until they know where they're going. However, most repeat homebuyers can't qualify to buy before selling. So, how do you structure a contingent-sale offer so you get what you want without being homeless? Sellers prefer offers that aren't contingent on the sale of another property. If the buyers' home doesn't sell, they can't buy the sellers' home -- and the sellers are stuck looking for another buyer. As buyers, you should structure your offer so that it is both attractive to the sellers and accomplishes your goals. In some cases, this may mean paying a higher price than you would if your offer wasn't contingent on your home selling. Recently, buyers from San Francisco wanted to buy a house across the bay in Piedmont that had been on the market for several months. They made an offer contingent on the sale of their San Francisco home. The seller accepted but insisted that the buyers pay the list price. The buyers agreed, their home sold, and both transactions closed. Most sellers want a release clause included in a contingent-sale contract. This enables the sellers to continue offering their listing for sale. If they accept a backup offer, they can notify the contingent-sale buyers that they must remove their contingent-sale contingency and provide verification that they can close the transaction without having to sell their home. If the contingent-sale buyers are unwilling or unable to do so, the contract is canceled and the backup buyers move into primary position. You could do a lot of work getting your home on the market and be bumped out of contract on the house you want to buy because you don't have the funds from the sale of your house to close the transaction. There are a couple of ways to avoid this situation. HOUSE HUNTING TIP: Put your home on the market and find a buyer for it before you make an offer on your replacement home. Sellers are more receptive to offers made contingent on the closing of the sale of the buyers' home than they are on offers contingent on the buyers receiving an acceptable offer on their home. If you find a seller that's receptive to an offer contingent on the close, negotiate to keep a release clause out of the contract. If all contingencies have been removed from the contract to sell your home, the seller will be more inclined to agree. When you list your home for sale, it's a good idea to retain the right to rent back at your current home for a while after closing. This could keep you from having to make an interim move to a rental until you find a replacement home. Another option to keep from having to move twice is to negotiate an arrangement where the seller won't invoke a release clause for a certain number of days after acceptance of your offer. Recently, buyers in Oakland, Calif., used this approach. The buyers asked for 30 days from acceptance before the seller could invoke a release clause to give them time to find a buyer for their home. The sellers wanted 14 days. They settled on 21 days. The buyers' home was in contract in nine days. Ideally, once you've found a buyer for your home, the seller should not be able to invoke the release clause. You should be willing to inform the seller immediately if that transaction fails and the sellers should the right to cancel your contract, if they want to. THE CLOSING: Don't be surprised if the sellers want their listing agent to approve your home and list price. The sellers need to know that it's worth the risk to accept your contingent sale offer. Dian Hymer, a real estate broker with more than 30 years' experience, is a nationally syndicated real estate columnist and author. |
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