Ask Realty Times - November 5, 2004 - 11/5/2004 - Real Estate Home House Condo

Ask Realty Times - November 5, 2004
by Peter G. Miller

Answer: Read the sale agreement. Does it permit closing to be delayed until the buyer's current residence is sold and title is transferred?

Real estate agreements are in writing precisely because verbal understandings are worthless. The buyers have no right to unilaterally change the terms of a sale agreement, thus the purchasers may lose their deposit and face other damages if they do not meet all contract requirements.

That said, your goal is to sell the home. A brief delay rather than the loss of the sale might be in your interest. Of course, it might be even more in your interest to allow a delay if the buyers paid more of the closing costs or made other concessions.

Question: We're buying a home. We have applied for a loan which allocates 28 percent of our income for housing costs -- the mortgage, insurance and property taxes. What happens if interest rates rise and we qualify for a loan that requires us to pay 30 or 32 percent of our income for housing expenses? This is more than we can afford.

Answer: Sale agreements typically include a contingency which says the deal is off if buyers cannot obtain financing that meets certain criteria, usually a particular interest rate, a specified principal amount and interest at or below a certain level.

In addition, some form agreements have a place where "special terms" can be written into the financial contingency -- such as your need not to pay more than 28 percent of your monthly income for basic mortgage costs. However, even when such a provision is not part of a form agreement, it can be added as a "contingency" or "addendum."

The lesson is this: Purchase offers need to be written with care to include all the provisions that are important to you. If affordability is an issue, then it must be in the written agreement otherwise in a practical sense it does not exist.

Question: How do you get around the new rules that limit cold calls. I use to contact sellers after their listings with other brokers had expired but now I can't because of the federal do-not-call rule. What can I do?

Answer: People who sign up for the federal do-not-call list really and truly do not want to get phone calls. Alas, there are some exceptions. As the Federal Trade Commission explains "even if your number is registered, companies with which you do business may continue to call you. So may charities, political organizations, and telephone surveyors."

For details, please press here.

Given the potential penalties for violating the do-not-call rules, it makes sense to market with other media -- newspaper ads, direct mail, etc.

Question: I know a person who recently refinanced his house. On the application there was a question which asked if there were any liens against the individual or property. The man answered "no." He had forgotten about a hospital lien filed against him several years earlier which he had not paid off. Can he get into trouble for this?

Answer: A lien missed by a prospective borrower is something that should show up in property records and credit reports. Thus even if a lien was not noted on an application, the lender should still know about it. Presumably the lender has had the borrower sign off on a perfected loan application that includes the lien and other information revealed in the underwriting process.

Borrowers should obtain credit reports several months before applying for a loan to see what shows up in the records and to correct any errors before applying.

Can the borrower get into trouble? If the loan is audited or foreclosed the paperwork will be reviewed. At that point an unmentioned lien might be a substantial problem, at least something that will have to be explained. Everyone will look at the facts and circumstances involved, but such questions would not arise if the lien had been listed in the first place.

Question: What are the different rules for one-to-four-unit investment dwellings and five-or-more-unit properties? What difference does it make if the owner lives on the premises? I have been researching this and I can't get a straight answer anywhere.

Answer: Conventional, VA and FHA financing are readily available for owner-occupied properties with one to four units. A property with five units, even if the owner lives in one, is more difficult and costly to finance because the property is seen as inherently commercial and thus more risky to lenders.

If an owner does not live in an income-producing property then it's "investment" real estate.

Mortgage insurance and property taxes are generally tax-deductible by owner occupants and investors. Investment property can also be depreciated and costs can be written off. If a property is partially investment real estate and partially owner-occupied, the tax rules will be apportioned. As examples, think of a duplex where the owner occupies one unit or a house with a home office. For details see a tax professional.

Question: What do you do if the noisy neighbor is the landlord who lives directly above you your basement apartment? The landlord's three children -- two-year-old twins and a five-year-old are up at dawn throwing toys, running and screaming in the uncarpeted playroom, directly above one of the tenants' bedrooms. The tenant who occupies the other bedroom has to wear ear plugs to keep from hearing the noise. Anywhere in their apartment the tenants can also hear every word spoken above them from the first floor of the three-story house. One additional twist, the landlords, husband and wife, are both attorneys.

Answer: Move. Really. Children are children and by their nature the rules of civility that apply to the rest of us cannot apply to them. As to the property, it would have to be re-constructed to eliminate noise transmissions, although carpets would certainly help.

The owners, however, may want to heed the concerns of their tenants. Two attorneys might discuss private client information at home and if "every word spoken" can be heard by the tenants, that may not be so good for client confidentiality -- or a legal practice.

This column is designed to provide accurate and authoritative information in regard to the subject matter covered. It is made available with the understanding that neither the author nor the publisher is engaged in rendering legal, accounting, or other professional services. If legal services or other expert assistance is required, the services of a competent professional person should be sought.