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Question (CO): Hello George and Chuck, I have a real estate investing/law question for you. I am inquiring about the explosion of "subject to" real estate deals that are going on around the country. In this situation, a buyer takes title to a property "subject to" the existing financing, in which the mortgage remains in the seller's name, yet title is recorded in the buyer's name. I thought that Texas had passed a law stating that this practice is illegal and constitutes mortgage fraud. I have read through the Business and Commerce Code, the Finance Code and the Property Code of the Texas legislature, and cannot find this law. Can you help? Does this law exist in Texas or not? Much thanks for your expedited reply.

Answer: Taking the property "subject to" the existing financing is not, by itself, illegal, nor does it violate any statutes. If, however, the existing mortgage on the property has a due on transfer clause (which allows the lender to foreclose if the loan is not paid off when the property is sold), a “subject to the existing financing” sale creates a default in the mortgage and subjects both the buyer and seller to potential damages. If you don't inform the lender, it may be construed as a form of fraud if you violate the agreement (your mortgage) by intentionally violating the contract and failing to disclose it to your lender.

Question (NM): We signed a contract to purchase a home from a New Home Builder on .5 acres on May 1, 2005. It was supposed to be completed in about 6 months. However, due to various items needing approvals from the city, the house still has not been started.

Last week we received a phone call from the sales representative and he said that they received approval from the city, but the house had to be set back 165 ft. instead of the 45 ft. as stated in the contract.

We called the General Manager of the company and she informed us that there were no options for us. It was a take it or leave it situation.

Are they required to give us another lot at no additional cost since the contract states 45 ft. and we were never informed before last week that there was a possibility of it being changed? The cost of homes in the area has increased 30 percent or more since we signed our contract. We cannot buy another home for the same price. What should we do?

Answer: Provided it is an otherwise valid contract per state requirements in New Mexico, your answer depends upon the specific provisions of the contract you have with your builder. Additionally, this could easily be an "impossibility of performance" defense used by the builder, if the City just won't let it happen. We suggest you hire a New Mexico-licensed lawyer to review your contract.

Question (NY): I am currently looking to buy a home in Merrick, NY (zip 11566). The homeowner states Mother/Daughter (W/Permits). Does Mother/Daughter mean I can rent to someone other than family? How would I go about getting a permit and is there any assurance that I can get a permit for the home before I purchase it (for monetary reasons)? Are there any requirements for obtaining a permit for a mother/daughter and is there a fee? Any information you are able to provide me would be so helpful.

Answer: If you would not be interested in purchasing that home unless you could obtain Mother/Daughter permits, then such a permit becomes critical to your purchase. We are assuming that you are not currently represented by either a Realtor (a real estate licensee who is a member of the National Association of Realtor®) or an attorney. Therefore, we suggest the following:

  1. Contact the owner and ask him or her about the "Mother/Daughter with permits," and whether they would be willing to sign a purchase agreement that was contingent upon your being able to obtain such permits; and,
  2. Merrick, NY is located in Nassau County. Contact the Economic Development Office (516-571-0390) or the Planning Commission (516-571-5844) as they regulate and administer zoning and planning in Nassau County. You should be able to obtain answers to your specific questions from them.

Question (VA): Is 7 percent a decent interest rate? When I look online I see interest rates a lot lower but that is what our bank would give us. We are going to close soon on a fixed rate from an arm. We are refinancing and the bank is paying off all our debt. Our intention was home repairs. We will save a boatload of money but I don't want to be getting a higher rate. Our credit scores are almost 700.

Answer: Locate a reputable mortgage broker in your state to get the best available rates and terms for you in your situation. 700 is a very good credit score, and we are sure your bank is well aware of its benefits. Also, check the fees being quoted by your bank in its Good Faith Estimate ("GFE"). It may be that some fees are being waived by the bank.

However, your bank can only offer the rates and terms that its underwriters provide. The bank "down-the-street" may have more favorable rates and terms. More favorable rates and terms also may be available from other primary lenders. That is one of the significant differences between a mortgage banker and a mortgage broker. The mortgage broker can shop from among many different primary lenders to get you the best rates and terms, while the mortgage banker can only offer you what the underwriters associated with that bank will approve.

In the final analysis, you want to be able to compare GFEs, one from your bank and at least one other from another primary lender found by your reputable, (i.e. dependable and reliable with references from other borrowers) mortgage broker.

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