DEAR BENNY: My daughter and her boyfriend are thinking about buying a house and she is putting more of a down payment than he. Is this a good idea? –Doug
DEAR DOUG: I don’t see any real problem with this arrangement, so long as your daughter and her friend enter into a written agreement spelling out their rights and responsibilities.
Specifically, the agreement should contain at least the following: (1) how the mortgage payments and other house expenses will be made; (2) what will happen if one party cannot make those payments; and (3) what if one party wants out of the house — will they sell?
Finally, your daughter should consult an attorney without her boyfriend so that she can be advised as to the correct way that title will be held. I would recommend a tenant-in-common arrangement, with your daughter owning a greater percentage of the house based on the amount of the down payment that each party will pay.
DEAR BENNY: Once a contract has been signed by both the seller and buyer of a house, does either party have an option to cancel the deal prior to the closing date? I am the buyer and my loan has been approved. An inspection has been conducted and there are several corrections and/or repairs we have submitted to the seller. I am, however, having second thoughts about the house and would like to know if I can legally back out at this time. –Alan
DEAR ALAN: There is no "cooling-off" period in real estate as there is in other areas, such as buying a car.
You signed a contract, which is a legal, binding document on both buyer and seller. Unless you have contingencies written into that contract — such as financing, selling your own home, or getting a favorable inspection from a home inspector — you will not be able to back out of the deal.
You state that you submitted a number of repairs items to the seller. Do you have an inspection contingency? Does it give you the right to cancel the contract if the seller refuses to make those repairs?
If you try to back out of the contract, the seller generally has three remedies. He can (1) keep your earnest money deposit; (2) sue you for any damages incurred as a result of your breach — such as the house later sells at a lower price than your contract price; or (3) sue for specific performance. This means that the seller can take you to court and a judge can force you to buy the house.
If you have second thoughts, you should have considered this before you signed the contract.
DEAR BENNY: It seems that $2,500 to refinance a mortgage is too much. Do you agree? We have a 7-year adjustable-rate mortgage (ARM) with three years remaining; we have good credit and a very good payment history. The loan is with Chase and they want $2,500 to refinance to a fixed loan. Bank of America wants $3,000 to close on a new fixed loan plus $2,000 for escrow.
The original loan was for $195,000 principal with $85,000 down, and our current principal is $188,000. Your opinion and any advice you can provide would be appreciated. We always read and enjoy your helpful articles on real estate. –John
DEAR JOHN: Thanks for your kind comments about my column.
Regardless of cost, you should seriously consider getting a fixed-rate mortgage as soon as possible. No one knows what rates will be three years from now when your ARM will require a change from your present rate.
I can’t comment on the closing costs, because there are differences in these fees in different parts of the country. You should shop around; discuss your situation with a number of lenders before you make your decision.
I would also talk directly to Chase — your current lender — and try to go to the highest person in that company as possible. Explain that you want to refinance, and would prefer to stay with Chase, but that they should give you a discount on the closing costs. Some banks will do that just to keep a good customer.
DEAR BENNY: Our mortgage payment is due on the first of the month with a 15-day grace period. All payments have always been made within the grace period. My wife feels that by not paying the mortgage on the first of the month we are paying more in interest when I make the payment later in the grace period. It is my point that as long as we make payments within the grace period it makes no difference as to the amount of interest we pay on our mortgage. Who is right? Please respond. –Eugene
DEAR EUGENE: I did not know the answer so I submitted your question to Jack Guttentag, the "Mortgage Professor." Here’s his response: "Only so-called ‘simple-interest mortgages’ accrue interest daily; most mortgages accrue monthly; and it does not matter when during the grace period you pay. But if they have a simple-interest loan, the wife is right."
If you do not know what kind of mortgage you have (it should be spelled out in your promissory note), I suggest that you contact your mortgage lender and demand a response.
DEAR BENNY: I am thinking about buying a couple of condos in a high-rise as rental properties. I have a solid background in rentals over the past 20 years, but my experience is all with duplexes and houses. The condos are extremely affordable, and in an area that rents well. So, I’m not concerned about cash-flow issues. The building has mainly been rental over the years. I am going in knowing that most of the occupants won’t be owners, which usually is not a good thing, but in this case seems to work.
I am concerned, however, about the security of my overall investment. Since the building is not selling very well at the moment, I have questions such as: (1) what happens if the building’s developers go bankrupt? and (2) what recourse do I have if they fail to maintain the property before a condo board (not dominated by the developer) takes control of the building? Are there other pitfalls that I am neglecting to mention? –Allen
DEAR ALLEN: You obviously are in decent financial shape, and are raising good questions in advance of committing yourself to the purchase. The first thing I would suggest is for you to consider whether it makes sense to own two condominium units in the same building. What’s the old expression about putting all your eggs in one basket?
In some states, the seller of a condominium unit is required to provide what is known as a "resale package," which contains the legal documents (declaration and bylaws) as well as current financial information, including the amount of any reserves that association has. If you are buying from a developer, you have the right to review the public offering statement, which contains this same information.
If the developer goes bankrupt, its lender will take over the project. Again, state laws differ on whether the lender will become the successor developer and be bound by the same obligations as the original developer. You should discuss this with your personal attorney.
You should also ask about what happens if the developer fails to maintain the property before an elected board of directors takes over control. Unfortunately, in today’s economy, even those boards are struggling in many parts of the country. If a number of owners are unable or unwilling to pay their monthly assessments, the association will be in trouble. With all of the foreclosures happening around the country, many owners take the position, "I will lose my unit so why pay my association fees?"
You have a lot of homework to do before you decide to buy. Make sure you read everything about the project, especially the financials, before you plunge into more investments.
DEAR BENNY: My mom passed away two months ago and my father passed away eight years ago. She lived in her house for 30 years until the day she died. The house is still under my parent’s name. She did not have a living trust or a will, and my parents have four children. The house is worth about $1 million. Is the city in which the property is located going to put my mom’s house in probate? If so, do I have to hire a probate lawyer? Can the children just put the house on the market and sell it? –Mae
DEAR MAE: I will give you a very short answer. The city does not take any action, but you need to retain a lawyer immediately. You and your siblings have a very valuable asset, and you don’t want to lose it. Your family will have to start probate proceedings, and inheritance and estate taxes may be owed. Please consult with a lawyer who understands the probate laws in your state.
Benny L. Kass is a practicing attorney in Washington, D.C., and Maryland. No legal relationship is created by this column. Questions for this column can be submitted to benny@sandbox.inman.com.
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