LivingMalibu.com » Buying My Home http://www.livingmalibu.com Malibu Real Estate-Malibu Homes For Sale Tue, 18 Jul 2017 20:51:46 +0000 en hourly 1 http://wordpress.org/?v=3.3.2 Uncovering Potential Toxic Conditions http://www.livingmalibu.com/uncovering-potential-toxic-conditions/ http://www.livingmalibu.com/uncovering-potential-toxic-conditions/#comments Thu, 03 Jan 2013 16:35:03 +0000 ritasimpson http://www.livingmalibu.com/?p=2587

Uncovering potential toxic conditions that may affect a home you’re buying. The Solution: Search Envirofacts (http://www.epa.gov/enviro/), a free database from the Environmental Protection Agency, searchable by ZIP Code, that contains information about environmental conditions, such as chemicals, radiation, and hazardous waste, that could affect a community. Also visit Scorecard, (www.scorecard.org), a free service that integrates environmental ...]]>

Uncovering potential toxic conditions that may affect a home you’re buying.
The Solution: Search Envirofacts (http://www.epa.gov/enviro/), a free database from the Environmental Protection Agency, searchable by ZIP Code, that contains information about environmental conditions, such as chemicals, radiation, and hazardous waste, that could affect a community. Also visit Scorecard, (www.scorecard.org), a free service that integrates environmental information from hundreds of databases and compares the safety of communities with others in the U.S. Ask if your home inspector can order a Neighborhood Environmental Report from Environmental Data Resources Inc. in Milford, Conn., ($100 to $150, www.edrnet.com) which includes environmental details from federal, state and local public records.
The Caveat: Many environmental databases are at least one year behind and not all incidents are reported to authorities. Search local newspapers and ask residents about current events.

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Why You Might Not Get Best Rates, When Shopping To Finance Your Malibu Home http://www.livingmalibu.com/why-you-might-not-get-best-rates-when-shopping-to-finance-your-malibu-home/ http://www.livingmalibu.com/why-you-might-not-get-best-rates-when-shopping-to-finance-your-malibu-home/#comments Wed, 26 Sep 2012 18:22:36 +0000 ritasimpson http://www.livingmalibu.com/?p=2368

When shopping for a mortgage to finance your new home in Malibu keep in mind that one in five consumers are likely to receive a different credit score from what a creditor will use to price a loan, according to the Consumer Financial Protection Bureau.

Many consumers incorrectly believe that the scores they purchase are the ...]]>

When shopping for a mortgage to finance your new home in Malibu keep in mind that one in five consumers are likely to receive a different credit score from what a creditor will use to price a loan, according to the Consumer Financial Protection Bureau.

Many consumers incorrectly believe that the scores they purchase are the same ones used by lenders. The Consumer Financial Protection Bureau sites FICO scores, which are widely used by lenders, as having different credit scoring models for lenders and consumers that can vary. VantageScore also has different types of credit scores, and that may lead consumers to believe they are eligible to rates they really won’t qualify for.

Source: “Regulator Sees Flaws in Credit-Score Information,” The Wall Street Journal (Sept. 25, 2012)

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Loans Come With Conditions Attached http://www.livingmalibu.com/loans-come-with-conditions-attached/ http://www.livingmalibu.com/loans-come-with-conditions-attached/#comments Mon, 06 Aug 2012 13:27:21 +0000 ritasimpson http://www.livingmalibu.com/?p=2151

At the beginning of the year, a rumor was circulating that mortgage lenders were going to ease up on their stringent qualifying requirements, making it easier for buyers to buy and helping the housing market improve.

So far, that rumor has not been confirmed. If anything, the approval process has become more laborious. The home-sale market ...]]>

At the beginning of the year, a rumor was circulating that mortgage lenders were going to ease up on their stringent qualifying requirements, making it easier for buyers to buy and helping the housing market improve.

So far, that rumor has not been confirmed. If anything, the approval process has become more laborious. The home-sale market improved recently, resulting in significant lender backlog in underwriting and funding loans.

Many buyers haven’t been able to remove their financing contingencies on time. A request for an extension of time from the sellers is common. Disgruntled sellers often don’t understand why qualified buyers can’t remove their financing contingency on time.

A delay can occur because the buyers and sellers negotiate on inspection-related defects. It can take a few days to a week for the parties to agree. The negotiations can result in a lower purchase price or a cash credit to be applied to the buyers’ closing costs in consideration for the buyers taking care of the defects after closing.

In this case, an addendum to the purchase contract reflecting the credit or price reduction goes to the buyers’ lender for underwriting approval. Often, the buyers’ loan is already in underwriting at this point.

Any change to the contract that needs underwriting approval can move the buyers’ loan package back to the end of the underwriting queue. This can delay final loan approval.

Setbacks at the approval stage can result in a delay in closing if there isn’t enough time built into the contract between the deadline for the financing contingency and the closing date.

Most lenders issue loan approval with conditions attached. These will need to be satisfied and approved by underwriting before the lender will issue the loan documents that the buyers need to close the sale.

HOUSE HUNTING TIP: Make sure that you have no doubt about your ability to satisfy the lender’s conditions before removing the financing contingency.

Recently, buyers that were in contract to purchase a home were told by their lender that they could remove their loan contingency, which they did. A week or so later, the lender told the buyers that they didn’t have a loan.
Fortunately, the sellers in this situation were accommodating. They agreed to an extension of closing date. The loan was reworked, approved and the deal closed. If it hadn’t, the buyers’ deposit would have been at risk because they had, based on the lender’s say-so, removed all contingencies from the contract.

Frustration on the part of everyone involved typifies the home-buying experience in today’s picked-up market if the purchase requires a new mortgage. Will lending conditions improve soon? Although a few lenders are lightening up a little, most lenders aren’t confident enough that the current home-buying activity is sustainable. So, they’re unlikely to ease up on underwriting requirements or hire additional employees to make the approval process move more smoothly.

The loans that are the easiest to process are the conforming loans from Fannie Mae, Freddie Mac, or FHA. The conforming loan market has guidelines so there is more consistency in underwriting and loans are approved more routinely. These loans are available only in amounts up to $417,000, or $625,500 in high-priced areas.

Jumbo loans are available for home buyers who need to borrow more. These loans require buyers to jump through qualification hoops. Two appraisals are sometimes required. There are more layers of underwriting, investor approval is often required and there is less consistency in terms on underwriting guidelines.

THE CLOSING: It’s always best to work with an experienced loan professional. It can make a world of difference with jumbo loans if you work with someone who knows how to package your financial documentation in order to receive approval.

Dian Hymer is a real estate broker with more than 30 years’ experience and is a nationally syndicated real estate columnist and author.

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Price Reduction For Surprise Defects? http://www.livingmalibu.com/price-reduction-for-surprise-defects/ http://www.livingmalibu.com/price-reduction-for-surprise-defects/#comments Mon, 06 Aug 2012 13:22:40 +0000 ritasimpson http://www.livingmalibu.com/?p=2148

Q: Can I subtract from the offer I’ve made on a home if the home inspection shows there are some big problems, or do I automatically have to cancel the deal altogether?

A: When it comes to inspection revelations, “big” is relative, but, like beauty; it’s in the eye of the beholder. If you think that ...]]>

Q: Can I subtract from the offer I’ve made on a home if the home inspection shows there are some big problems, or do I automatically have to cancel the deal altogether?

A: When it comes to inspection revelations, “big” is relative, but, like beauty; it’s in the eye of the beholder. If you think that a condition problem is too big for you to buy the home on the agreed-upon terms, then it is.

But it sounds like you’re at least willing to consider taking the home anyway, assuming you can get a price reduction. In your situation, deciding that you don’t want to take on the condition problems surfaced in inspections without a discount doesn’t necessarily have to be a deal-killer.

Here are the factors that ultimately determine whether an inspection-based price reduction request will kill your deal:

1. The contract. Did you agree to an as-is sale? If so, be aware that “as is” doesn’t bind you to buying the place, but it is an expression that you and the sellers have agreed that you’ll not ask for a price reduction or for them to complete repairs indicated by the inspection(s). That said, it doesn’t sound like your intention was to dupe the sellers into taking your offer with the plan to hammer them later for a price reduction or repairs (which, yes, some buyers do).

If the issues surfaced by the inspection were not obvious or visible to the naked eye, but are also more major than you can afford to take on at the purchase price, it might be the case that the sellers would actually prefer you to work with them on renegotiating the terms of the deal over canceling it outright.

2. Your priorities and information. You need to sit down with your agent and gather the answers to a number of questions before you proceed:

–How badly do you want the place?

–Do you have repair bids — how much will repairing the issues cost? (Inspection reports can be confusing this way; some things they mention in passing can be costly to fix, while some things they label health and safety hazards are quick and cheap to fix.)

–Are you willing and able to do the work? (A price reduction doesn’t necessarily put the cash in hand for you to pay for home improvements after closing, nor does it mean you’ll have the time and patience to manage the work.)

This information — and your agent’s input and conversations with the listing agent — should help you formulate a plan of action on what specific price discount you should request from the sellers.

3. The sellers’ position. Ultimately, whether or not your price reduction request will kill your deal depends on what the sellers will agree to. And it’s not always as simple as their greed or hope for the cash — they might have a mortgage to pay off and limited resources such that the price reduction you request would render the deal a short sale. Further, if the listing is a foreclosure or short sale, the sellers’ bank will also have to green-light a change in the purchase price.

In any event, one of your first items of action should be to get the relevant contractors and repair vendors into the property, show them the inspection report, and obtain actual repair bids. (It’s not overkill to obtain two or three bids.) Then, and only then, will you have the information you need to decide whether you truly want and can afford to take on the property and the repairs it needs.

Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

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Buying A Fixer Upper? Here is What You Need To Know. http://www.livingmalibu.com/buying-a-fixer-upper-here-is-what-you-need-to-know/ http://www.livingmalibu.com/buying-a-fixer-upper-here-is-what-you-need-to-know/#comments Mon, 06 Aug 2012 13:17:11 +0000 ritasimpson http://www.livingmalibu.com/?p=2145

You are attracted to a house that is perfectly located but it just came out of foreclosure and needs a lot of work to make it habitable. To swing the deal, you need to finance both the purchase and the required repairs. How do you do that?

Getting the mortgage required to purchase a house is ...]]>

You are attracted to a house that is perfectly located but it just came out of foreclosure and needs a lot of work to make it habitable. To swing the deal, you need to finance both the purchase and the required repairs. How do you do that?

Getting the mortgage required to purchase a house is only one of the challenges facing the buyer when the house needs work. The second challenge is finding a way to finance the needed repairs. The standard purchase mortgage doesn’t do that because it is based on the lower of sale price or the appraised value of the home in its current condition.

An obvious solution is a second mortgage, but they are not available in the current market except where the first mortgage is too small to do the buyer any good. Second mortgage lenders are still smarting from the steep losses they suffered on second mortgages written during the go-go years leading up to the financial crisis. An unsecured personal loan would be extremely costly if it were available at all.

The solution to this problem is a mortgage on which the loan amount is based on the value of the property after needed repairs have been made. Then one mortgage would cover both a purchase and the repairs needed to make the house habitable. This is future value financing, and it is available through a special FHA program termed “203(k).” This program is available to both home purchasers and existing homeowners who want to rehabilitate their properties in conjunction with a refinance.

The Section 203(k) program is complicated because FHA as the risk bearer has to make sure that the future value of the property upon which the mortgage amount is based actually materializes. To protect itself, FHA requires an appraisal of the property’s value after completion of the planned rehabilitation, in addition to an appraisal of the property “as is.”

Further, before the mortgage is insured, the lender must create a rehabilitation escrow account that contains the money allocated for expenses. FHA has procedures in place to assure that draws against this account are properly disbursed and accounted for, and that the rehabilitation work is completed.

Lenders are encouraged to participate in 203(k)s by the insurance against loss provided by FHA. However, 203(k)s are more complicated and involve more paperwork than the mainstream FHA program, and participating lenders use specially trained staff. As a result, many lenders don’t offer 203(k)s. Lenders that do offer them charge a rate above that on standard FHAs — figure on paying about 0.25 percent more.

The borrower looking for future value financing must deal with multiple players. In a typical case, the real estate agent who shows a potential buyer a house in need of work will recommend a lender who will preapprove the borrower for a 203(k). The preapproval is based on estimates of sale price and repair costs. The sale price estimate is provided by an appraiser selected by the lender who values the property on both an as-is and after-repairs basis. The repair cost is provided by a licensed general contractor who is usually recommended by the lender.

In addition, if the repair costs are more than $35,000, FHA requires the borrower to retain a HUD-approved consultant to help manage the process. Among other things, the consultant prepares the required architectural exhibits, and monitors the improvements at each stage. HUD provides a list of consultants and sets their fee schedule, but does not warrant their performance. Lenders will usually recommend consultants that they have worked with, and this is one case where a lender referral is likely to serve the borrower well. The consultant’s fee can be included in the mortgage.

Increased use of 203(k) in the next few years is expected. Millions of homes emerging from the foreclosure process will enter the market, and many of them have been neglected and need work.

Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.

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Now Is Best time in Ten Years, To Buy Malibu Real Estate! http://www.livingmalibu.com/now-is-best-time-in-ten-years-to-buy-malibu-real-estate/ http://www.livingmalibu.com/now-is-best-time-in-ten-years-to-buy-malibu-real-estate/#comments Wed, 18 Jul 2012 04:10:23 +0000 ritasimpson http://www.livingmalibu.com/?p=1963

Buyers are confident  and Malibu Real Estate has been moving at a 34% faster rate. With Interest rates are near all-time lows, home prices are starting to creep up. We have seen an average 10% increase in our median in the last six months and  a 148% increase in our sales volume. If you ever ...]]>

Buyers are confident  and Malibu Real Estate has been moving at a 34% faster rate. With Interest rates are near all-time lows, home prices are starting to creep up. We have seen an average 10% increase in our median in the last six months and  a 148% increase in our sales volume. If you ever had designs on buying property in Malibu, this might be the best time in the past 10 year!

In most places in the country, home prices are still declining. It has only been recently that the market picked up and it’s too soon to know if this will result in a sustainable increase in prices. Job growth in some areas combined with low inventory of good homes for sale has resulted in multiple offers with buyers bidding the price up sometimes hundreds of thousands of dollars over the asking price. In other high-demand, low-inventory areas such as Malibu, buyers may find themselves in a bidding war. This doesn’t necessarily mean that the price will be bid up significantly over the asking price. This will vary from one listing to the next depending on property location, condition, and price.

HOUSE HUNTING TIP: Whether you’re anticipating competition or not, you should be preapproved for the mortgage you’ll need to complete the purchase before you write an offer. In competition, this will make a big difference, particularly if everyone else who is offering is preapproved. It also lets you know what you can afford. And, it puts you in a good bargaining position with the seller.

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Purchase Strategy For Distressed Homes http://www.livingmalibu.com/purchase-strategy-for-distressed-homes/ http://www.livingmalibu.com/purchase-strategy-for-distressed-homes/#comments Thu, 31 May 2012 22:04:19 +0000 ritasimpson http://www.livingmalibu.com/?p=1704

Foreclosure sales, which usually sell “as is” and are often in poor condition may create a buying opportunity for some buyers, but it may be a hazard for others. Before you buy your foreclosed property in Malibu review some of the things to look out for:

Purchase opportunity

A purchase opportunity arises because many potential buyers don’t ...]]>

Foreclosure sales, which usually sell “as is” and are often in poor condition may create a buying opportunity for some buyers, but it may be a hazard for others. Before you buy your foreclosed property in Malibu review some of the things to look out for:

Purchase opportunity

A purchase opportunity arises because many potential buyers don’t want the hassle of fixing up a house in poor condition, which means that there are fewer competing buyers. In addition, those who sell houses “as is” are frequently in a hurry to get it done, which means that they are disinclined to wait for a higher offer.

The buyers in the best position to take advantage of such opportunities are those with the skills and knowledge required to assess what needs to be done and how much it will cost.

Risk of value uncertainty

But purchasing a house in poor condition has serious risks. One risk is the greater uncertainty connected to its value. The worse the condition, the more costly the improvements required to make the house livable, and the larger the potential error in judging in advance what these costs will be.

The appraisal may reduce but not eliminate the uncertainty connected to the property’s value. Appraisers mainly rely on the sale prices of comparable properties, after adjusting for the differences between the subject property and the comparables. In Malibu it is best to use an appraiser that has worked in the area for a long time because properties here are so diverse and demand a thorough understanding of the Malibu Market in order to properly evaluate.

But because information on the condition of comparables is often difficult for appraisers to obtain, the error in making price adjustments is relatively large when the property is in poor condition.

Risk of not finding a mortgage

But today the greater risk in buying a property in poor condition is that the buyer will be turned down for a mortgage or forced to find a lender who will make the loan but at a premium price.

This problem seldom arose before the financial crisis because there were very few foreclosure sales, and lenders generally operated on the assumption that valuation errors would be erased by property appreciation. Today, those looking to buy a house in poor condition need to consider this risk very carefully.

Fannie Mae, Freddie Mac, the Federal Housing Administration (FHA) and the Department of Veterans Affairs (VA) recently developed a classification system for housing condition ranging from C1 (the best) to C6 (the worst), but only C6 is unacceptable to the agencies in “as is” condition. Nonetheless, many lenders require a C4 or better.

Rationale for condition requirement

It is understandable why the agencies that bear the risk of default would either require that the condition of mortgaged houses meet some minimum standard, or base their purchase prices or insurance premiums on house condition.

As noted above, the potential error in appraisals is larger for houses in poor condition, which would result in greater losses on loans that default. When defaults occur early, furthermore, the house that was in poor condition when the loan was made is very likely to be in poor condition at default, which increases marketing costs.

Why some lenders are stricter than the agencies, however, is not clear. Presumably the servicing of loans on properties in poor condition is less profitable, perhaps because these loans have relatively short lives. It is also possible that the cost to servicers of managing foreclosures of properties in poor condition is relatively high.

Whatever the reasons for lender caution, homebuyers looking for bargains in the sale of distressed properties need to take it into account in planning their purchase strategy.

A purchase strategy for distressed properties

An inspection report from a licensed expert will help in the decision as to whether to buy the house but will not eliminate uncertainty regarding how an appraiser will classify the condition of the house. If the house is classified C5 or C6, a loan may not be available.

If the sales contract has a mortgage contingency clause, which is a standard provision in some states, the buyer who can’t get a mortgage because the property is classified C6 or C5 will get his earnest deposit back and the deal is canceled. However, the thwarted buyer will not be reimbursed for the cost of the inspection or the appraisal, which might total about $700.

If a property is being sold “as is” and the standard sales contract does not have a mortgage contingency clause, I would pass unless the seller agreed to return my earnest deposit if the property is classified C6 by the appraiser. You could be more conservative and require the return of the deposit with a C5, which would avoid a mortgage problem because most lenders will accept a C4 or better, but it may substantially reduce the number of sellers who will deal with you.

While accepting a C5 will give you access to more houses, you must find one or more lenders who will accept a C5. You would be well advised to do this in advance of purchase.

Jack Guttentag is professor of finance emeritus at the Wharton School of the University of Pennsylvania.

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Advice For Buyers http://www.livingmalibu.com/advice-for-buyers/ http://www.livingmalibu.com/advice-for-buyers/#comments Fri, 30 Mar 2012 19:06:59 +0000 ritasimpson http://www.livingmalibu.com/?p=1460

Time and time again, home-buyer wannabes state that the reason they are still fence-sitting is that they don’t want to end up in the same trouble the last generation of homeowners did.

Well, there’s a very slim chance of that happening, given the changes in the market climate: Homes are at rock-bottom prices (not sky-high), and ...]]>

Time and time again, home-buyer wannabes state that the reason they are still fence-sitting is that they don’t want to end up in the same trouble the last generation of homeowners did.

Well, there’s a very slim chance of that happening, given the changes in the market climate: Homes are at rock-bottom prices (not sky-high), and mortgage guidelines are so conservative it is nearly impossible to even find one of the zero-down, quick-to-adjust, stated-income mortgages of yesteryear.

With that said, though, there is a handful of rules today’s home buyers and homeowners can follow to dramatically minimize the chances they will ever face losing their homes:

1.  Decide not to borrow against your home equity for anything but well-planned home improvements.

2. Whatever you do, don’t borrow against your home to lend money to someone else. I’ve seen dozens of homeowners over the years borrow to make an “investment” in a friend’s business or to lend money to a child or a parent. Borrowing against your home’s equity to make an investment in a business you know nothing about is a complete gamble with your home. Don’t do it.

3. Stop financial codependency. It also comes up where one spouse supports another spouse’s habit of overspending, debting, underearning, gambling, or even substance abuse, and ends up going into a financial hole as a result. Here’s a hint: If you regularly use money to protect a loved one from the natural consequences of their behavior, you are engaging in codependent behavior.

4. Stay conscious. Going on money autopilot, without occasional check-ins, is the root of many financial woes. Many money experts recommend automating your monthly payments so that your recurring bills are paid on time, every time. And almost any homeowner will vouch that there are few bills that seem to come up as frequently as your mortgage! The problem is that once you automate your payments, it’s very easy to fall into the habit of simply ignoring your actual statements — and they may contain information that flags issues before they snowball into serious problems.

5. Do your own math before you buy. Only you can know the full extent of your non-housing-related financial obligations and values.
Before you ever speak with a mortgage broker, it’s up to you as a responsible buyer and adult to get a very clear understanding of your own personal income and expenses, assets and priorities, and to use that knowledge to decide how much you can afford to put down and to spend monthly for a home.

6. Don’t buy a house to fix a family or psychological problem. Beware of “pulling a geographic” — moving to a new neighborhood or town to try to run from your problems and bad habits. If your children are fighting because they lack personal space, that’s one thing. But if there are deeper issues going on with your children, your family or your relationship (even your relationship with yourself), do not fantasize that owning a home or moving up is going to automatically solve them.

In fact, the opposite is often true: The larger the financial and maintenance obligations that come with a home, the more a mortgage and property taxes can add strain to already troubled relationships.

Excerpt from an article by  Tara-Nicholle Nelson is an author and the Consumer Ambassador and Educator for real estate listings search site Trulia.com.

 

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Who Is Responsible For Defects After Closing? http://www.livingmalibu.com/who-is-responsible-for-defects-after-closing/ http://www.livingmalibu.com/who-is-responsible-for-defects-after-closing/#comments Tue, 27 Mar 2012 22:57:20 +0000 ritasimpson http://www.livingmalibu.com/?p=1433

Home buyers who buy during the dry season can be in for an unpleasant surprise when the roof leaks or the basement floods after the first rain. Who is responsible for damage caused by water intrusion and for making the necessary repairs to prevent it from happening again?

It’s possible that you are responsible if information ...]]>

Home buyers who buy during the dry season can be in for an unpleasant surprise when the roof leaks or the basement floods after the first rain. Who is responsible for damage caused by water intrusion and for making the necessary repairs to prevent it from happening again?

It’s possible that you are responsible if information about potential water intrusion was disclosed to you before you closed the sale and you accepted the property in its “as is” condition regarding this.

For example, if there are trees overhanging the roof gutters, and the sellers and your home inspector told you the gutters need to be kept free of debris, you probably won’t get very far asking the sellers to repair roof leaks if it turns out they were caused by your lack of maintenance. When gutters get clogged, water can back up and run into the house.

The first thing you should do if you discover a defect after closing that you think is either a new condition or something you’re sure has happened in the past is to look through the inspection reports and disclosures, if there were any, to see if you were made aware of this before you bought.

Plenty of paperwork is generated during today’s home-sale transactions, but many buyers and sellers are prone to recycle most of it as soon as the sale closes. It’s a good idea to reduce the amount of paper, but not the critical information you’ll need for tax purposes, such as your settlement statement and documentation of the property’s condition.

Ideally, the purchase contract and addenda, any disclosures and all inspection reports should be burned to a CD for your records before recycling the paper copies.

What should you do if you clean the gutters but the roof still leaks during the next rain? Did you have the roof inspected before you bought? Was maintenance recommended? Did you have the work done? If so, call the roofer. If the seller hired a roofer to maintain the roof, make sure you have documentation that identifies the work that was done, and contact that roofer.

Dealing with defects discovered after closing is not always black and white.

For example, let’s say the sellers told you that they occasionally found a small amount of water in the basement after a heavy rain.

In fact, the basement floods when it rains so that it can’t be used for storage, and the flooding is rusting the bottom of the furnace and the hot water heater. A fix for a problem like this could be expensive if it requires a new drainage system.

HOUSE HUNTING TIP: Your purchase contract should detail how disputes will be dealt with if they can’t be solved by the parties involved or with the help of their real estate agents.

Some contracts call for disputes to be mediated before they are either resolved through arbitration or in court. In any event, you should contact a knowledgeable real estate attorney for answers to any questions regarding who’s responsible for defects disclosed after closing.

Be sure to hire the best inspectors you can find in your area. Disclosure requirements vary from state to state. Also, many buyers buy bank-owned or estate-sale properties where there typically aren’t thorough disclosures because the owners didn’t occupy the property and may be exempt from providing disclosures.

A good home inspector would see signs of flooding in the basement, such as bubbling paint on the foundation walls, rust on the bottom of the furnace, and water stains, unless they have been intentionally covered up by the seller. If the home inspector recommends hiring a drainage specialist to look at the property, be sure to follow through with this.

THE CLOSING: It’s best to resolve property defect issues before closing, if possible.

Dian Hymer is a nationally syndicated real estate columnist and author.

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How Does Priority Lien Work? http://www.livingmalibu.com/how-does-priority-lien-work/ http://www.livingmalibu.com/how-does-priority-lien-work/#comments Sat, 24 Mar 2012 00:04:11 +0000 ritasimpson http://www.livingmalibu.com/?p=1416

To explain this as simple as possible, when you buy a home and get a loan for the home, the lender puts a lien on the property. By doing so, the property becomes collateral for the loan. So, in the event the homeowner is unable to make payments, the lender can force the sale of ...]]>

To explain this as simple as possible, when you buy a home and get a loan for the home, the lender puts a lien on the property. By doing so, the property becomes collateral for the loan. So, in the event the homeowner is unable to make payments, the lender can force the sale of the home to get paid. There can be several liens at one time on a single property?

Lien priority is based on when things get recorded. So let me give you an extreme example to illustrate lien priority.

Here is an example situation with about everything that you could possibly come by. We have a 1st mortgage for $250,000 with $15,000 in arrears. This would include all back payments, late fees, attorney fees and all the other fees they tack on. This was recorded 6-20-1999. We have a 2nd for $60,000 with $5000 in arrears. Again this includes the back payments and fees. This was recorded 7-21-1999. We have two judgments. One for $2000 recorded 3-2-03, and one for $4000 recorded 4-2-03. We have $3000 in state income tax recorded 5-5-04. We have a $6000 IRS tax lien recorded 10-20-04. And finally we have $5000 in property taxes recorded 2-11-05. Believe it or not all of these are different which we will talk about.

If we take a look at this example, we have a 1st mortgage and we can clearly see it was recorded first in 1999. We also have a 2nd who is clearly in 2nd position. Then we have a couple of judgments. The judgment for $2000 is in 3rd position because it was recorded before the $4000 judgment. So the $4000 judgment is in 4th position. Then we have state income tax for $3000 which is in 5th position.

Here is a simple version.

    1st Mortgage -$250,000 recorded 6-20-1999
    -arrears $15,000
    2nd Mortgage – $60,000 recorded 7-21-1999
    -arrears $5000
    Judgment 1 – $2000 recorded 3-2-2003
    Judgment 2 – $4000 recorded 4-2-2003
    State Income Tax $3000 recorded 5-5-2004
    IRS Tax Lien - $6000 recorded 10-20-2004
    Property Taxes – $5000 recorded 2-11-2005

Are you starting to see the pattern? It’s all based upon when you record. Whoever records before another would be in “Senior” position and the other would be “Junior”. Hence the terms senior or junior lien holders.

Now we get down to the last 2. These last two have rules which we need to discuss. If we look at when these were recorded, the good ole IRS tax lien would be in 6th position. Now even though the IRS is in 6th position, they have what’s called redemption rights. So here is the rule for IRS. It doesn’t matter what position they are in, they could be in last position. If there is still equity in the property, they have 120 days to redeem the property. Why would they want to redeem the property? If there is a great deal of equity in the property and they know it, they can use that money to satisfy any tax liens. It is very rare the IRS does this, but it can happen.

Then we finally get down to the state property taxes. All of you need to remember this. This is very important. Here is the rule for property taxes. State property taxes have priority over EVERYTHING. It does not matter when it was recorded. If you look at this example, there is $5000 of unpaid property taxes that was recorded after everything else. It was recorded 6 years after the first mortgage. Guess what? It does not matter. Property taxes always get paid first.

So if we take a look at this example from what we just discussed, and the first is foreclosing – what is the opening bid at the auction? $250,000 + $15,000 + $5000(property taxes) = $270,000. All the other junior lien holders are wiped out if they don’t protect their position except for… the IRS tax lien. Remember, they have their redemption period. Now here is something else you need to understand. Even though everyone was wiped out, the junior lien holders can still go after the borrower. This is called a deficiency judgment. Again this does not happen very often but it does happen. A deficiency judgment is an unsecured debt and does not attach to any property. Then depending on your states laws they can collect this debt.

If the 2nd is foreclosing – what is the opening bid? $60,000 + $5,000(arrears) = $65,000 and you are responsible for anyone senior, in this case the 1st of $270,000 for a grand total of $335,000. And everyone junior to the 2nd lien holder is wiped out except for IRS. See why it’s so important to know who is foreclosing?

This article is  from Foreclosure University.

 

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